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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13a-16 OR 15d-16 UNDER THE SECURITIES
EXCHANGE ACT OF 1934
For the Month of April 2004
Harmony Gold Mining Company
Limited
Suite No. 1
Private Bag X1
Melrose Arch, 2076
South Africa
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual reports under cover of 
Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
(Indicate by check mark whether the registrant by
furnishing the information contained in this form
is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.)
Yes No X
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THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
1.
If you are in any doubt as to the action that you should take, please consult your broker, banker, accountant, legal adviser or other professional adviser immediately. If you have sold or otherwise disposed of all your shares in Harmony Gold Mining Company Limited ("Harmony") this document should be handed to the purchaser of such shares, or to the broker, banker or agent through whom the disposal was effected.
2.
Certificated shareholders and shareholders who hold dematerialised shares and have elected "own name" registration in the sub-register through a Central Securities Depository Participant ("CSDP") and who are unable to attend the general meeting of shareholders of Harmony, to be held at 10:00 on Friday, 7 May 2004, at Harmony's Corporate Office, Randfontein Office Park, Corner Main Reef Road and Ward Avenue, Randfontein, but wish to be represented thereat, should complete and return the attached form of proxy (blue) in accordance with the instructions contained therein to the transfer secretaries of Harmony, Ultra Registrars (Pty) Limited, 11 Diagonal Street, Johannesburg, 2001 (PO Box 4844, Johannesburg, 2000) or Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU England, so as to be received by not later than 10:00 on Wednesday, 5 May 2004.
3.
Shareholders who hold dematerialised shares through a CSDP or broker, other than those who have elected "own name" registration, and who wish to attend the general meeting must request their CSDP or broker to provide them with a Letter of Representation or should advise their CSDP or broker as to what action they wish to take. This must be done in terms of the agreement entered into between them and their CSDP or broker. Shareholders who have dematerialised their shares, other than those who have elected "own name" registration, must not complete and return the attached form of proxy.
Harmony Gold Mining Company Limited
(Incorporated in the Republic of South Africa) 
(Registration number 1950/038232/06) 
Share code: HAR
ISIN: ZAE 000015228
("Harmony")
CIRCULAR TO SHAREHOLDERS
relating to
-
agreement reached between Harmony, Anglovaal Mining Limited ("Avmin") and African Rainbow Minerals & Exploration Investments (Proprietary) Limited regarding a range of indivisible transactions which, if implemented, will result in the creation of the largest black controlled mineral resources company in South Africa;
-
the acquisition by Harmony of 42,1% of the issued share capital of Avgold Limited ("Avgold") from Avmin;
-
the offer by Harmony for the balance of Avgold's issued share capital, to be implemented by way of a scheme of arrangement in terms of section 311 of the Companies Act, 1973 (Act 61 of 1973), as amended, proposed by Harmony between Avgold and its shareholders, other than Harmony;
-
the proposed issue of convertible bonds to the value of up to R1,700 million, convertible into approximately 14 million new ordinary shares in Harmony, representing 5% of Harmony's issued ordinary share capital, by way of a specific issue for cash in terms of Rule 5.51 of the Listings Requirements of the JSE Securities Exchange South Africa;
and incorporating
-
a notice of general meeting of shareholders; and
-
a form of proxy for certificated and own name dematerialised shareholders.
Financial adviser and sponsor to Harmony
Attorneys to Harmony
Reporting accountants
Independent technical adviser
JPMorgan
PricewaterhouseCoopers Inc
Chartered Accountants (SA) 
Registered Accountants and Auditors 
(Registration no 1998/012055/21)
SRK Consulting
Engineers and Scientists
Date of issue: 15 April 2004
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Corporate information
Company secretary
Marian van der Walt 
B.Com (Law) LL.B; H Dip Tax; Dip (Ins Law) 
Randfontein Office Park 
Corner Main Reef Road and Ward Avenue 
Randfontein, 1759 
(PO Box 2, Randfontein 1760)
Registered office
Remaining extent of portion 3 of the farm 
Harmony Farm 222 
Private Road, Glen Harmony 
Virginia, 9430 
South Africa
Financial adviser
JP Morgan Chase Bank, Johannesburg Branch 
1 Fricker Road, corner Hurlingham Road 
Illovo, 2196 
(PO Box 934, Johannesburg, 2000)
Sponsor
J.P. Morgan Equities Limited 
(Registration number 1995/011815/06) 
1 Fricker Road, corner Hurlingham Road 
Illovo, 2196 
(PO Box 934, Johannesburg, 2000)
Attorneys
Cliffe Dekker Inc. 
(Registration number 1998/018173/21) 
1 Protea Place 
Sandown, 2196 
(Private Bag X7, Benmore, 2010)
Commercial bankers
ABSA Bank Limited 
(Registration number 1986/004794/06) 
2nd Floor, ABSA Towers North 
180 Commissioner Street 
Johannesburg, 2001 
(PO Box 7735, Johannesburg, 2000)
Reporting accountants
PricewaterhouseCoopers Inc. 
(Registration number 1998/012055/21) 
2 Eglin Road 
Sunninghill, 2157 
(Private Bag X36, Sunninghill, 2157)
Transfer secretaries
In South Africa
Ultra Registrars (Pty) Limited 
(Registration number 2000/007239/07) 
11 Diagonal Street 
Johannesburg, 2001 
(PO Box 4844, Johannesburg, 2000)
In England
Capital IRG plc 
t/a Capita Registrars 
The Registry 
34 Beckenham Road 
Beckenham 
Kent BR3 4TU
Independent technical adviser
Steffen, Robertson and Kirsten 
(South Africa) (Proprietary) Limited 
(Registration number 1995/012890/07) 
SRK House 
265 Oxford Road 
Illovo, 2196 
(PO Box 55291, Northlands, 2116)
United Kingdom secretaries
St James's Corporate Services Limited 
6 St James's Place 
London SW1A 1NP
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Table of contents
Page
Corporate information
Inside front cover
Definitions
3
Circular to shareholders
5
1.
Introduction and background
5
2.
The Transaction
6
2.1
Description of the Transaction
6
2.2
Transaction conditions precedent
7
2.3
The ARM voting agreement
7
3.
Rationale for the Avgold share exchange and Avgold offer
7
4.
The Avgold share exchange
7
4.1
Terms and consideration
7
4.2
Warranties
8
4.3
Conditions precedent
8
5.
The Avgold offer
8
5.1
Terms of the Avgold offer
8
5.2
Consideration paid pursuant to the Avgold offer
8
5.3
Avgold conditions precedent
8
6.
Financial effects of the acquisition on Harmony
9
6.1
Pro forma financial effects
9
6.2
Pro forma balance sheet and income statement of Harmony
9
6.3
Independent reporting accountants' report
9
7.
Information in respect of Avgold
9
7.1
Background
9
7.2
Nature of business
10
7.3
Historical financial information
10
7.4
Material loans
10
7.5
Material contracts
10
7.6
Material changes
10
7.7
Litigation statement
10
8.
The Kalplats disposal
10
9.
The specific issue
10
9.1
Terms of the convertible bonds
10
9.2
Pro forma effects of the specific issue
11
9.3
Shareholder approval
11
9.4
Use of proceeds
11
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Page
10.
Information on Harmony
12
10.1
Background
12
10.2
Nature of business
12
10.3
Prospects
12
10.4
Material loans
12
10.5
Material contracts
12
10.6
Material changes
12
10.7
Litigation statement
13
10.8
Share capital
13
10.9
Price history of Harmony shares
13
10.10 Major shareholders
13
10.11 Directors
14
10.11.1
Directors and management
14
10.11.2
Directors' remuneration to 30 June 2003
17
10.11.3
Directors' service contracts
17
10.11.4
Directors' interests in Harmony shares
18
10.12 Directors' interests in the acquisition
18
11.
Corporate Governance
19
12.
Significant contracts
22
13.
Working capital
22
14.
Expenses
22
15.
Consents
22
16.
Opinion of the directors of Harmony
22
17.
Directors' responsibility statement
22
18.
Documents available for inspection
23
Annexure 1
Summary of the terms and conditions of convertible bonds
24
Annexure 2
Pro forma balance sheet and income statement of Harmony
25
Annexure 3
Independent reporting accountants' report on the pro forma financial information of Harmony
29
Annexure 4
Interim financial results of Harmony
31
Annexure 5
Historical financial information of Avgold
34
Annexure 6
Interim financial information of Avgold
46
Annexure 7
A competent person's report containing information on the mining assets of Harmony including Avgold
50
Annexure 8
Independent reporting accountants' report on the pro forma financial effects of the issue
235
Annexure 9
Details of material loans to the Harmony group
236
Annexure 10
Agreements relating to the acquisitions and disposals of companies, businesses and properties
238
Annexure 11
Material changes in the financial or trading position of Harmony
239
Annexure 12
Price history of Harmony shares on the JSE
240
Notice of general meeting
241
Form of proxy (blue)
Attached
2
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Definitions
Throughout this circular and the annexures hereto unless otherwise indicated:
the words in the first column have the meanings stated opposite them in the second column; words in the singular include the plural andvice versa; words importing one gender include the other genders; and references to a person include references to a body corporate and vice versa;
- all monetary values are in South African Rands and cents; and
- all times indicated are South African local times.
"the Act"
the Companies Act, 1973 (Act 61 of 1973), as amended;
"acquisition"
collectively, the acquisition by Harmony of the entire issued share capital of Avgold pursuant to the implementation of the Avgold share exchange and the Avgold offer;
"Afrikander Lease"
The Afrikander Lease Limited, a public company incorporated in South Africa, the ordinary shares of which are listed on the JSE;
"Anglo South Africa"
Anglo South Africa Capital (Proprietary) Limited (registration number 1999/002391/07), a private company incorporated in South Africa;
"ARM Platinum"
African Rainbow Minerals Platinum (Proprietary) Limited (registration number 1999/018332/07), a private company incorporated in South Africa;
"the ARM voting agreement"
the agreement entered into between ARMI, Harmony and Clidet No. 454 (Proprietary) Limited, in terms of which ARMI will vote Harmony's shares in Avmin following implementation of the Transaction;
"ARMgold"
African Rainbow Minerals Gold Limited (registration number 1997/015869/06), a public company incorporated in South Africa and a wholly-owned subsidiary of Harmony;
"ARMI"
African Rainbow Minerals & Exploration Investments (Proprietary) Limited (registration number 1997/020155/07), a private company incorporated in South Africa;
"Assmang"
Assmang Limited (registration number 1935/007343/06), a public company incorporated in South Africa and a subsidiary of Avmin;
"Assore"
Assore Limited (registration number 1950/037394/06), a public company incorporated in South Africa and listed on the JSE;
"Avgold"
Avgold Limited (registration number 1990/007025/06), a public company incorporated in South Africa, the shares of which are listed on the JSE, Euronext Brussels in the form of International Depository Receipts and on the New York Stock Exchange Inc. in the form of American Depositary Receipts;
"Avgold consideration"
the consideration to be paid by Harmony to Avmin and to Avgold shareholders comprising 1 new Harmony share for every 10 Avgold shares held;
"Avgold offer"
the offer made by Harmony to Avgold shareholders, excluding Avmin, to acquire the entire issued share capital of Avgold which it does not already own by way of the scheme;
"Avgold offer conditions precedent"
the conditions precedent to which implementation of the Avgold offer is subject, as reflected in paragraph 5.3;
"Avgold shareholders"
holders of Avgold shares, other than Harmony;
"Avgold share exchange"
the transaction in terms of which Harmony will acquire 286 305 263 Avgold shares, comprising 42,1% of the issued share capital of Avgold, from Avmin, in exchange for the issue to Avmin of the Avgold consideration;
"Avgold share exchange agreement"
the agreement entered into between Harmony and Avmin in respect of the Avgold share exchange;
"Avgold share exchange
the conditions precedent to which implementation of the Avgold share exchange is subject conditions precedent"
as reflected in paragraph 4.3;
"Avgold shares"
ordinary shares with a par value of 1 cent each in the issued share capital of Avgold;
"Avmin"
Anglovaal Mining Limited (registration number 1933/004580/06), a public company incorporated in South Africa, the shares of which are listed on the JSE and the LSE, which is to be renamed African Rainbow Minerals Limited;
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"Avmin shareholders"
holders of Avmin shares;
"Avmin shares"
ordinary shares with a par value of 5 cents each in the share capital of Avmin;
"business day"
any day other than a Saturday, Sunday or official public holiday in South Africa;
"circular"
this bound document, dated 15 April 2004, including the annexures attached hereto;
"Competition Authorities"
the authorities established in terms of the Competitions Act, 1998 (Act 89 of 1998), as amended;
"directors"
the directors of the company;
"Harmony" or "the company"
Harmony Gold Mining Company Limited (registration number 1950/038232/06), a public company incorporated in South Africa, the shares of which are listed on the JSE, the LSE and Euronext Paris and are quoted on Euronext Brussels in the form of International Depository Receipts and on the New York Stock Exchange, Inc. in the form of American Depositary Receipts;
"Harmony group"
Harmony and its subsidiaries;
"Harmony shares"
ordinary shares with a par value of 50 cents each in the share capital of Harmony;
"the JSE"
the JSE Securities Exchange South Africa;
"Kalgold"
Kalahari Goldridge Mining Company Limited (registration number 1982/002818/06), a public company incorporated in South Africa;
"Kalplats"
a platinum exploration project of Kalgold which comprises certain platinum discovery and associated mineral rights;
"last practicable date"
5 April 2004, being the last practicable date prior to finalisation of this circular;
"Nkomati"
a division of Avmin which, through the Nkomati mine, produces nickel, copper, cobalt and PGMs by-products;
"LSE"
London Stock Exchange plc;
"shareholders"
holders of Harmony shares;
"scheme" or "scheme of arrangement"
the scheme of arrangement proposed by Harmony between Avgold and the Avgold shareholders, in terms of section 311 of the Act;
"the scheme meeting"
the meeting of scheme members, convened in terms of an Order of Court, which is expected to be held at 10:00 at 56 Main Street, Johannesburg on Monday, 3 May 2004, at which meeting scheme members will consider and vote on the scheme;
"scheme members"
Avgold shareholders who are entitled to vote at the scheme meeting, being all Avgold shareholders registered as such on the voting record date, excluding Avmin, if the Avgold share exchange agreement has not been ratified;
"South Africa"
the Republic of South Africa;
"specific issue"
the specific issue for cash of convertible bonds to international investors to the value of up to R1,700 million, convertible into approximately 14 million Harmony shares, a summary of the terms and conditions of which are reflected in Annexure 1;
"SRP"
the Securities Regulation Panel;
"SRP Code"
the Securities Regulation Code on Takeovers and Mergers and the Rules of the SRP;
"Transaction"
collectively, the indivisible transactions reflected in paragraph 2, excluding the specific issue;
"Transaction conditions precedent"
the conditions precedent to which implementation of the Transaction is subject, as reflected in paragraph 2.2;
"transfer secretaries"
in South Africa, Ultra Registrars (Proprietary) Limited (registration number 2000/007239/07) and in England, Capita IRG plc (registration number 2605568) trading as Capita Registrars;
"Two Rivers"
Two Rivers Platinum (Proprietary) Limited (registration number 2001/007354/07), a private company incorporated in South Africa and a subsidiary of Avmin;
"United Kingdom Secretaries"
St James's Corporate Services Limited; and
"voting record date"
the latest time and date for Avgold shareholders to be recorded in the register as shareholders of Avgold in order to vote at the scheme meeting, which is expected to be at 17:00 on Friday 30 April 2004.
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Harmony Gold Mining Company Limited
(Incorporated in the Republic of South Africa) 
(Registration number 1950/038232/06) 
Share code: HAR
ISIN: ZAE 000015228
Directors
P T Motsepe
Z B Swanepoel
F Abbott
Dr M M M M Bakane-Tuoane
F Dippenaar
V Fakude
T Grobicki
W M Gule
M W King
D S Lushaba
M F Pleming
Lord Renwick of Clifton KCMG*
C M L Savage
Dr S P Sibisi
D V Simelane
Dr R V Simelane
M V Sisulu
* British
Circular to shareholders
1.
INTRODUCTION AND BACKGROUND
In a detailed joint cautionary announcement published on 13 November 2003, shareholders were advised that Harmony, Avmin and ARMI had reached agreement in principle regarding a range of indivisible transactions which, if implemented, would result in the creation of the largest black controlled mineral resources company in South Africa, under the leadership of mining entrepreneur, Patrice Motsepe. In terms of the Transaction:
- Avmin will exchange its entire 42,1% interest in Avgold for the issue to it of new Harmony shares;
- Avmin will acquire from ARMI:
·
ARMI's entire indirect 13,6% interest in Harmony, for a cash consideration which will be applied by ARMI in subscription for new Avmin shares;
·
ARMI's 41,5% effective interest in the Modikwa Joint Venture, in exchange for the issue to ARMI of new ordinary shares in ARM Platinum;
Avmin will acquire Kalplats from Kalgold for a cash consideration. Kalgold will then apply the cash in the subscription for new Avmin shares in renounceable form and will renounce these shares to Harmony;
- ARMI will vote Harmony's remaining shares in Avmin, post the above transactions, through the ARM voting agreement.
The acquisition, by Harmony, of Avmin's stake in Avgold constitutes an affected transaction in terms of the SRP Code and, as a result, Harmony would be required to extend a mandatory offer to the Avgold shareholders on the same terms and conditions, mutatis mutandis, as those offered to Avmin. Harmony wishes to acquire 100% of Avgold and has therefore extended an offer to Avgold
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shareholders by way of the scheme, subject to the Avgold offer conditions precedent, prior to triggering a mandatory offer in terms of the SRP Code.
If the scheme does not become operative due to the non-fulfilment of the conditions to which it is subject and the Avgold share exchange agreement becomes unconditional, Harmony will be obliged to make a mandatory offer to the Avgold shareholders in terms of Rule 8.1 of the SRP Code on the same terms and conditions offered to Avmin. The Harmony shares comprising the consideration under such offer will first have to be registered under the U.S. Securities Act of 1933, as amended. Harmony has undertaken to the SRP to use its best endeavours to procure registration of the Harmony shares comprising the offer consideration with the SEC as a matter of urgency to enable it to make such mandatory offer without undue delay.
It was announced on 31 March 2004 that Harmony intends to issue convertible bonds to international investors to the value of up to R1,700 million. The proceeds of the specific issue will be used primarily to refinance Harmony's existing South African Rand debt, benefiting from the attractive financing opportunities currently available in the convertible bond market. Details of the specific issue are reflected in paragraph 9.
The convertible bonds will be issued pursuant to a specific issue for cash in terms of Rule 5.51 of the Listings Requirements of the JSE. Attached to this circular is a notice convening a general meeting of shareholders at which the ordinary resolutions necessary to implement the specific issue will be proposed.
The purpose of this circular is to provide shareholders with information regarding the Transaction, the Avgold offer and the specific issue. Shareholders should note that details regarding the Transaction are included for information purposes only and that the only action they are required to take is in respect of the specific issue.
2.
THE TRANSACTION
2.1
Description of the Transaction
Following the implementation of the Transaction, ARMI will become the effective controlling shareholder of a larger diversified and empowered Avmin, which will have significant holdings in gold, PGMs, nickel and ferrous metal assets. Avmin's gold interests will be held through its resultant 22% interest in Harmony. Pursuant to the Transaction, Avmin will change its name to African Rainbow Minerals Limited and will be well-positioned to secure adequate funding for its existing projects and to participate in further growth opportunities that the South African mining sector offers, taking advantage of its black economic empowerment controlled status.
The current structure of Harmony and Avmin is as follows:
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Avgold
(listed)
Assmang
(listed)
Avmin
(listed)
Harmony
(listed)
Two Rivers
Nkomati
Other assets
- Iron ore 
- Manganese 
- Chrome
- Assore (8,5%) 
- AvAlloys (100,0%) 
- Other (including exploration activities)
33,9%
42,1%
11,4%
50,3%
55,0%
100,0%
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Following the implementation of the Transaction, the structure of Harmony, Avmin and ARMI will be as follows:
*Prior to implementation of Avgold offer.
The Transaction is subject to the fulfilment of the Transaction conditions precedent and is expected to be implemented by no later than 30 April 2004.
2.2
Transaction conditions precedent
The Transaction is subject to the fulfilment of the following conditions precedent:
- the requisite legal agreements necessary to implement the Transaction becoming unconditional;
the passing of the ordinary and special resolutions necessary to implement the Transaction by the Avmin shareholders in general meeting; and
- the approval of contractual third parties to the proposed change of control of Avgold.
2.3
The ARM voting agreement
In terms of the ARM voting agreement, ARMI will exercise the votes attaching to Harmony's entire holding of 40 789 761 Avmin shares (approximately 20% of Avmin) following implementation of the Transaction.
3.
RATIONALE FOR THE AVGOLD SHARE EXCHANGE AND AVGOLD OFFER
Avgold operates the Target Mine in the Free State which, at full production, is expected to produce 350 000 gold ounces per annum, at a cash cost below US$180 per ounce. In addition, an extensive exploration programme in an area known as Target North, which has a resource base of approximately 80 million ounces, is currently underway.
In July 2003, Harmony acquired 11,4% of the issued share capital of Avgold from Anglo South Africa in exchange for the issue to Anglo South Africa of renounceable letters of allocation representing the right to the issue of 6 960 964 new Harmony shares. The Avgold share exchange and the Avgold offer represent the final steps in the transaction in terms of which Harmony will acquire full control of the Target Mine. The acquisition of the Target Mine is expected to further enhance the overall quality of Harmony's production base.
4.
THE AVGOLD SHARE EXCHANGE
4.1
Terms and consideration
In terms of the Avgold share exchange agreement, subject to the fulfilment of the Avgold share exchange conditions precedent, Avmin will exchange its entire holding of 286 305 263 Avgold shares, comprising 42,1% of Avgold's issued share capital, for 28 630 526 new Harmony shares with effect from the date upon which all the Avgold share exchange conditions precedent are fulfilled, which date is expected to be on or before 30 April 2004.
This represents a ratio of 1 Harmony share for every 10 Avgold shares. The value attributable to the new Harmony shares is R2 893 687 263.
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Harmony
(listed)
Avgold
(listed)
Assmang
(listed)
Avmin
(listed)
Public and
institutional
shareholders
ARM Platinum
(unlisted)
Other assets
- Assore (8,5%) 
- AvAlloys (100,0%) 
- Other (including exploration activities)
- Nkomati (100,0%) 
- Two Rivers (55,0%) 
- Modikwa JV (41,5%) 
- Kalplats (100,0%)
- Iron ore 
- Manganese 
- Chrome
37,0%
63,0%
22,0%
53,6%*
50,3%
20,0% of Avmin
ARM Control
Structure
ARMI
43,0% of
Avmin
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4.2
Warranties
In terms of the Avgold share exchange agreement, Avmin has given Harmony limited warranties as to ownership and title to the Avgold shares sold by it and Harmony has given Avmin limited warranties as to its ability to allot and issue Harmony shares, which are normal in transactions of this nature.
4.3
Conditions precedent
The Avgold share exchange is subject to:
- the requisite legal agreements necessary to implement the Transaction becoming unconditional;
the passing of the requisite ordinary and special resolutions necessary to give effect to the Transaction by the shareholders of Avmin in general meeting (excluding the increase in authorised share capital and change of name of Avmin);
- the approval of the JSE to the listing of the Harmony shares comprising the Avgold offer consideration on the JSE; 
  and
- the approval of contractual third parties to the proposed change of control of Avgold.
5.
THE AVGOLD OFFER
5.1
Terms of the Avgold offer
The acquisition by Harmony of Avmin's stake in Avgold constitutes an affected transaction in terms of the SRP Code and, as a result, Harmony would be required to extend a mandatory offer to the Avgold shareholders on the same terms and conditions, mutatis mutandis, as those offered to Avmin. Harmony wishes to acquire 100% of Avgold and has therefore extended an offer to Avgold shareholders by way of the scheme, subject to the Avgold conditions precedent, prior to triggering a mandatory offer in terms of the SRP Code.
If the scheme does not become operative due to the non-fulfilment of the conditions to which it is subject and the Avgold share exchange agreement becomes unconditional, Harmony will be obliged to make a mandatory offer to the Avgold shareholders in terms of Rule 8.1 of the SRP Code on the same terms and conditions offered to Avmin. The Harmony shares comprising the consideration under such offer will first have to be registered under the U.S. Securities Act of 1933 as amended. Harmony has undertaken to the SRP to use its best endeavours to procure registration of the Harmony shares comprising the offer consideration with the SEC as a matter of urgency to enable it to make such mandatory offer without undue delay.
5.2
Consideration paid pursuant to the Avgold offer
Pursuant to the Avgold offer, Avgold shareholders will receive a consideration equivalent to 1 Harmony share for every 10 Avgold shares held.
If successfully implemented, an aggregate amount of R3 239 286 577 will be paid in the form of Harmony shares, to the Avgold shareholders.
The aggregate number of new Harmony shares to be issued in terms of the Avgold offer is 32 049 932, representing approximately 11% of the Harmony issued share capital post the Avgold share exchange and prior to the implementation of the Avgold offer. The new Harmony shares issued will rank pari passu in all respects with the existing ordinary shares in Harmony.
It is expected that the listing of Avgold shares on the JSE will terminate on Tuesday 18 May 2004.
5.3
Avgold offer conditions precedent
The Avgold offer is subject to the fulfilment of the following conditions precedent:
5.3.1
the Avgold share exchange agreement becoming unconditional;
5.3.2
the approval of the scheme by a majority representing not less than 75% of the votes exercisable by the scheme members present and voting, either in person or by proxy, at the scheme meeting;
5.3.3
the High Court of South Africa (Transvaal Provincial Division) sanctioning the scheme;
5.3.4
a certified copy of the Order of Court sanctioning the scheme being registered by the Registrar of Companies in terms of the Act.
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6.
FINANCIAL EFFECTS OF THE ACQUISITION ON HARMONY
6.1
Pro forma financial effects for the Transaction and the Avgold offer
The table below sets out the illustrative pro forma financial effects of the Avgold share exchange and the Avgold offer based on the published consolidated financial results of Harmony for the six months ended 31 December 2003, and assumes that the Avgold share exchange and the Avgold offer were implemented for income statement purposes on 1 July 2003 and for balance sheet purposes on 31 December 2003:
Pro forma
Pro forma
after the
after the
Transaction
Transaction
(excluding
(including
Cents per Harmony share
Before
(1)
Avgold offer)
Change
Avgold offer)
Change
Basic earnings
(2)
50
34
(32%)
(1)
(102%)
Headline earnings
(2)
(129)
(129)
0%
(131)
2%
Net asset value
(3)
6 350
7 352
16%
7 326
15%
Net tangible asset value
(3)
5 265
5 850
11%
5 566
6%
Weighted average number of 
Harmony shares
231 707 291
262 023 354
293 715 856
Number of Harmony shares issued
258 350 934
288 666 997
320 359 499
Notes to table:
(1)
Extracted from the quarterly published unaudited financial results of Harmony for the six months ended 31 December 
2003.
(2)
The pro forma effects on earnings and headline earnings per share after the Transaction excluding and including the Avgold offer have been prepared on the following assumptions:
-
the Transaction was effective 1 July 2003;
-
the Harmony share price for determining the purchase consideration was the share price at close of business on 19 March 2004, being R101,60 per share; and
-
for purposes of illustrating the pro forma effects after the Transaction including the Avgold offer, it has been assumed that all minorities accept the Avgold offer.
(3)
The pro forma effects on net asset and intangible asset value per Harmony share after the Transaction excluding and including the Avgold offer have been prepared on the following assumptions:
-
the Transaction was effective 31 December 2003;
-
the Harmony share price for determining the purchase consideration was the share price at close of business on 19 March 2004, being R101,60 per share; and
-
for purposes of illustrating the pro forma effects after the Transaction including the Avgold offer, it has been assumed that all minorities accept the Avgold offer.
6.2
Pro forma balance sheet and income statement of Harmony
The pro forma balance sheet and income statement of Harmony, before and after the acquisition, are set out in Annexure 2.
6.3
Independent reporting accountants' report
The independent reporting accountants' report on the pro forma financial information relating to the acquisition and on the pro forma balance sheet and income statement of Harmony, before and after the acquisition, is set out in Annexure 3. The interim financial results of Harmony are attached as Annexure 4.
The pro forma financial information reflected herein is the responsibility of the directors.
7.
INFORMATION IN RESPECT OF AVGOLD
7.1
Background
Avgold was incorporated in South Africa on 23 November 1990. Avgold has its primary listing on the JSE, with listings on Euronext Brussels in the form of International Depository Receipts and on the New York Stock Exchange, Inc. in the form of American Depositary Receipts.
Avgold's registered address is: 
56 Main Street 
Johannesburg 
2001
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7.2
Nature of business
The business of Avgold is to explore for, develop and operate gold mines. Following the sale of the ETC division, situated in the Mpumalanga province, on 15 June 2003, Avgold's assets comprise the Target Gold Mine situated in the Free State province and a significant unexploited resource north of the Target Mine.
7.3
Historical financial information
Historical financial information of Avgold and the interim financial information of Avgold is set out in Annexure 5 and Annexure 6, respectively.
A competent person's report containing information on the mining assets of Harmony including Avgold is set out in Annexure 7.
7.4
Material loans
The loans raised from a syndicate of banks to fund the completion of the Target Gold Mine were repaid in full on 30 June 2003. This was achieved by utilising existing cash resources, which included the proceeds from the sale of the ETC division. The balance of the funds were sourced by drawing down on a R200 million unsecured general term banking facility concluded with Standard Corporate and Merchant Bank.
7.5
Material contracts
Save for the Avgold share exchange agreement and the agreement in respect of the sale of the ETC division to Barberton Mines Limited on 15 June 2003, Avgold has not entered into any material contracts, other than in the ordinary course of business, during the two-year period immediately preceding the date of this circular.
The loans that were repaid on 30 June 2003 were secured in part by Rand gold hedges. On repayment of this loan, the Rand gold hedge book was restructured into Dollar gold commodity hedges by the purchase of Rand/Dollar forward exchange contracts.
7.6
Material changes
There have been no material changes in the financial or trading position of Avgold, other than as disclosed in this circular, between the date of the last audited financial statements of Avgold, being 30 June 2003, and the date of this circular.
7.7
Litigation statement
There are no legal or arbitration proceedings that are pending or threatened of which Avgold is aware which may have, or have had during the 12-month period preceding the date of this circular, a material effect on the financial position of Avgold.
8.
THE KALPLATS DISPOSAL
On 7 November 2003, prior to the announcement of the terms of the Transaction on 13 November 2003, Harmony announced that it had agreed to sell the entire issued share capital of Kalgold to Afrikander Lease for a purchase consideration of R275 million. However, on 17 March 2004, Harmony announced the cancellation of the sale agreement in respect of Kalgold. Consequently Kalgold remains a wholly-owned subsidiary of Harmony. As previously announced, Kalgold will sell Kalplats to ARM Platinum, which will become an Avmin subsidiary following implementation of the Transaction, for a consideration based on the weighted average traded price of an Avmin share for the seven trading days prior to the closing date of the sale, subject to a maximum of R100 000 000. The purchase consideration will be credited to a loan account in the books of Kalgold which loan account will be sold to Avmin for cash. Kalgold will use the cash to subscribe for renounceable letters of allocation in respect of 2 million new Avmin shares. Kalgold intends to renounce such letters of allocation in favour of Harmony so that the 2 million new Avmin shares will be held in Harmony.
9.
THE SPECIFIC ISSUE
9.1
Terms of the convertible bonds
Harmony intends to raise up to R1,700 million by way of a specific issue of convertible bonds for cash to international investors. The convertible bonds will be denominated in Rand and will be issued at 100% of their principal amount. Interest will be payable on the convertible bonds semi-annually in arrears at the rate of 4,875% per annum.
The convertible bonds may be converted into ordinary shares at the election of the holders at any time from the 41st day after their issue, expected to be on or about 21 May 2004, until the 7th day prior to the maturity date which is expected to be on or about 21 May 2009.
The convertible bonds may be converted into new Harmony shares issued as fully paid at a price, including premium, of R121,00 representing a premium of 22,7% to the closing price of Harmony shares on the JSE on 31 March 2004, the date of the launch of the offer for the convertible bonds.
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As the discount to current market price of Harmony shares will not be known at the time of their issue following conversion, the issue of the convertible bonds will be subject to the issue of a favourable fair and reasonable opinion regarding their terms from an independent professional expert acceptable to the JSE. Investec Bank Limited has been appointed and their opinion in this regard is expected by no later than 5 May 2004 so that it is available at the general meeting of shareholders on 7 May 2004.
To the extent that the convertible bonds are not converted, or redeemed early at the option of the company, they will be redeemed at the end of the five-year period following their issue, at their issue price.
Application will be made to list the convertible bonds on the LSE.
A summary of the terms and conditions of the convertible bonds is reflected in Annexure 1.
9.2
Pro forma financial effects for the specific issue
The table below sets out the illustrative pro forma financial effects of the specific issue on the published consolidated financial results of Harmony for the six months ended 31 December 2003, and assumes that the Avgold share exchange, the Avgold offer and the specific issue were implemented for income statement purposes on 1 July 2003 and for balance sheet purposes on 31 December 2003:
Pro forma
after the
specific
Cents per Harmony share
Before
(1)
issue
Change
Basic earnings
(2)
(1)
2
300%
Headline earnings
(2)
(131)
(126)
2%
Net asset value
(3)
7 326
7 400
1%
Net tangible asset value
(3)
5 566
5 639
1%
Weighted average number of Harmony shares
293 715 856
293 715 856
Number of Harmony shares issued
320 359 499
320 359 499
Notes to table:
1. 
Extracted from the unaudited pro forma financial effects of Harmony for the six months ended 31 December 2003, assuming implementationof the Transaction and the Avgold offer, as set out in the "Pro forma after the Transaction (including the Avgold offer)" column presented in paragraph 6.1 above.
2. 
The unaudited pro forma effects on earnings and headline earnings per Harmony share after the specific issue have been prepared on the assumption that the specific issue was effective on 1 July 2003.
3. 
The unaudited pro forma effects on net asset and intangible asset value per Harmony share after the specific issue have been prepared on the following assumptions:
- the specific issue was effective 31 December 2003; and
the specific issue amount was allocated between long-term liabilities and equity, based on a market-related interest rate of 10%.
-
The pro forma financial information reflected herein is the responsibility of the directors. The independent reporting accountants' report on the pro forma financial information relating to the specific issue is set out in Annexure 8.
9.3
Shareholder approval
Attached hereto is a notice of general meeting convening a general meeting of Harmony shareholders to be held at Harmony's Corporate Office, Randfontein Office Park, Corner Main Reef Road and Ward Avenue, Randfontein, at 10:00 on Friday, 7 May 2004. At the general meeting, ordinary resolutions will be proposed regarding the specific issue.
The issue of the convertible bonds and new Harmony shares following their conversion does not constitute an affected transaction as defined in the SRP Code.
The convertible bonds will not be issued to non-public shareholders.
9.4
Use of proceeds
The proceeds of the specific issue will be used primarily to refinance Harmony's existing South African Rand debt, hence benefiting from the attractive financing opportunities currently available in the convertible bond market.
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10. INFORMATION ON HARMONY
10.1
Background
Harmony was incorporated in South Africa on 25 August 1950. The primary listing of Harmony's shares is on the JSE. The Harmony shares are also listed on the LSE and Euronext Paris and are quoted on Euronext Brussels in the form of International Depository Receipts and on the New York Stock Exchange, Inc. in the form of American Depositary Receipts.
Harmony's registered address is: 
Remaining extent of portion 3 of the farm Harmony Farm 222 
Private Road 
Glen Harmony 
Virginia 
Free State Province.
10.2
Nature of business
Harmony is a gold miner and producer with an international diversified portfolio of gold mining projects in South Africa, Australia and Papua New Guinea. Harmony adopts focused operational and management philosophies throughout the organisation. Its growth strategy is focused on building a leading international gold mining company through acquisitions, organic growth and focused exploration. The bulk of its assets are located in the Witwatersrand Basin of South Africa. The deep level gold mines located in this basin include those in the Free State province, the Evander gold mine in Mpumalanga province, the Randfontein and Elandskraal mines on the West Rand, goldfields in Gauteng province and the Orkney operations in North West province. In May 2003, Harmony and ARMgold, through a Harmony/ARMgold joint venture company, acquired 38 789 761 Avmin shares, in July 2003, Harmony acquired 77 540 830 Avgold shares, representing 11,4% of Avgold's issued share capital, from Anglo South Africa and in September 2003 Harmony acquired the entire issued share capital of ARMgold.
Harmony's international operations are held under Harmony Gold (Australia) (Proprietary) Limited and comprise the wholly-owned New Hampton Goldfields Limited and Hill 50 Limited, a 31,8% interest in the Bendigo Mining NL operation and an 83,2% shareholding in Abelle Limited.
On 15 March 2003, Harmony announced its intention to propose an off market cash offer to acquire all the ordinary shares and listed and unlisted options in Abelle Limited that it does not already own. The offer is subject to the fulfilment of certain conditions precedent and is valued at R620 million or A$125 million.
10.3
Prospects
Harmony is a growth oriented company in the gold production business and is distinguished by the focused operational and management philosophies which it employs throughout the organisation. Its growth strategy is focused on building a leading international gold mining company through acquisitions, organic growth and focused exploration.
Since undergoing a change in management in 1995, Harmony has employed a successful strategy of growth through a series of acquisitions and through the evolution and implementation of a simple set of management systems and philosophies, which Harmony refers to as the "Harmony Way" and which it believes is unique in the South African gold mining industry. A significant component of the success of Harmony's strategy to date has been its ability to acquire underperforming mining assets, mainly in South Africa, and within a relatively short time frame, to transform these mines into cost-effective production units.
Harmony is managed according to the philosophy that Harmony shareholders have invested in Harmony in order to hold a growth stock that will also participate in movements in the gold price. Accordingly, Harmony has consistently maintained a policy of not hedging its future gold production.
10.4
Material loans
The details of material loans to the Harmony group are reflected in Annexure 9.
10.5
Material contracts
Save for the merger agreement, dated 22 July 2003, entered into between Harmony, ARMgold and ARMI, whereby the parties undertook to merge their gold producing assets, the agreements relating to the acquisitions and disposals of companies, businesses and properties set out in Annexure 10 and the agreements referred to in this circular, Harmony has not entered into any material contracts, other than in the ordinary course of business, during the two-year period immediately preceding the date of this circular.
10.6
Material changes
The details of material changes in the financial or trading position of Harmony are reflected in Annexure 11.
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10.7
Litigation statement
There are no legal or arbitration proceedings that are pending or threatened of which Harmony is aware that may have, or have had during the 12-month period preceding the date of this circular, a material effect on the financial position of Harmony.
A claim has been instituted against Harmony by Wadethru Security Company (Proprietary) Limited (in liquidation) in respect of alleged damages arising out of the termination of a sale of business agreement in relation to Brand No. 2 Shaft. Even if successful, this is not expected to have a material effect on the financial position of Harmony.
10.8
Share capital
Harmony's authorised and issued share capital, at the last practicable date, was as follows:
BEFORE THE TRANSACTION AND THE AVGOLD OFFER
ZAR'm
Authorised
350 000 000 ordinary shares of 50 cents each
175
Issued
258 469 684 ordinary shares of 50 cents each
129
Following implementation of the Transaction and the Avgold offer, Harmony's authorised and issued share capital is expected to be as follows:
AFTER THE TRANSACTION, THE AVGOLD OFFER AND THE SPECIFIC ISSUE
ZAR'm
Authorised
350 000 000 ordinary shares of 50 cents each
175
Issued
320 805 079 ordinary shares of 50 cents each
160
Assuming full conversion of the convertible bonds into Harmony shares, Harmony's authorised and issued share capital is expected to be as follows:
AFTER THE TRANSACTION, THE AVGOLD OFFER AND THE SPECIFIC ISSUE
ZAR'm
Authorised
350 000 000 ordinary shares of 50 cents each
175
Issued
334 805 079 ordinary shares of 50 cents each
167
10.9
Price history of Harmony shares
The price history of Harmony shares is reflected in Annexure 12.
10.10 Major shareholders
At the last practicable date, the following shareholders beneficially held more than 5% of the issued ordinary share capital of Harmony:
Name of shareholder
Number of shares
Percentage
(million)
shareholding
The Bank of New York
113,5
43,9
ARMI
35,0
13,5
JPMorgan Chase Bank
15,3
5,9
Harmony has no controlling shareholder, as the shares held by The Bank of New York are held on behalf of shareholders who participate in Harmony's American Depositary Receipt program.
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10.11 Directors
10.11.1 Directors and management
The full names, business address and function of the directors are as follows:
Name
Function
Address
P T Motsepe
Non-executive Chairman
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
Z B Swanepoel
Chief Executive
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
F Abbott
Financial Director
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
Dr M M M M Bakane-Tuoane
Non-executive Director
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
F Dippenaar
Marketing Director
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
V N Fakude
Non-executive Director
1st Floor Block C, Sandhurst Office Park, corner Katherine
(South African)
Street and Rivonia Road, Sandton, PO Box 781220, Sandton, 2146
T S A Grobicki
Executive Director
Harmony Corporate Office, Level 1, 10 Ord Street, West
(South African)
Perth, WA, 6005
W M Gule
Executive Director
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
M W King
Non-executive Director
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
D S Lushaba
Non-executive Director
522 Impala Road, Glenvista, 2058, PO Box 1127, 
(South African)
Johannesburg, 2000
M F Pleming
Non-executive Director
30 Hydewoods, Townshend Road, Hyde Park, 2196
(South African)
Lord Renwick of Clifton KCMG
Non-executive Director
JPMorgan plc., 125 London Wall, London EC2Y 6AJ,
(British)
United Kingdom
C M L Savage
Non-executive Director
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
Dr S P Sibisi
Non-executive Director
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
D V Simelane
Executive Director
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
Dr R V Simelane
Non-executive Director
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
M V Sisulu
Non-executive Director
Harmony Corporate Office, Randfontein Office Park,
(South African)
Corner Main Reef Road and Ward Avenue, Randfontein, PO Box 2, Randfontein, 1760, South Africa
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Further details on the executive directors of Harmony are as follows:
Bernard Swanepoel (42) BSc (Mining Engineering), B Com (Hons), Chief Executive Officer and an Executive Director. Bernard has over 20 years' experience in the gold mining industry. He started his career in gold mining at Grootvlei in 1983. As part of his training he spent time on various Gengold operations including Kinross (Evander) and Barberton. He then moved into senior management with the Gengold group, culminating in his appointment as general manager and a director of Beatrix Mines in 1993. He joined Randgold in 1995 as Managing Director of Harmony and has been the driving force in making the company the fifth largest independent gold producer in the world and the largest in South Africa.
Frank Abbott (48), BCom, CA(SA), MBL, Chief Financial Officer and an Executive Director. Frank joined the Rand Mines/Barlow Rand Group in 1981, where he obtained broad financial management experience at operational level. He was appointed as financial controller to the newly formed Randgold in 1992 and was promoted to financial director of that group in October 1994. Until 1997, he was also a director of the gold mining companies Blyvooruitzicht, Buffelsfontein, Durban Roodepoort Deep and East Rand Proprietary Mines and a non-executive director of Harmony, which culminated in his appointment as financial director of Harmony in the same year.
Ferdinand Dippenaar (42), BCom, BProc, MBA, Marketing Director and an Executive Director. Ferdi started his career at the Buffelsfontein gold mine in 1983 and completed his degrees through part-time studies while employed in various financial and administrative capacities at the Gengold mines. In 1996, he became managing director of Grootvlei and of East Rand Proprietary Mines. Following Harmony's acquisition of Grootvlei and Cons Modder, he was appointed Marketing Director of Harmony in 1997. He oversees Harmony's refinery and direct marketing activities, as well as the company's investor relations programme.
Ted Grobicki (54), BSc (Hons) (Geology) MSc (Minerals Exploration) PrSciNat, FIMM, Executive Officer for Harmony's Australian operations and an Executive Director. After fulfilling various roles within mining and exploration companies in South Africa, Namibia and Zimbabwe, Ted was appointed chief executive of Texas Gulf Inc South Africa in 1979. He has since served at a senior executive level in a wide range of public and private companies in the mining sector and was appointed as non- executive director of Harmony in 1994. With Harmony's merger with Kalgold and West Rand Cons in 1999, he was appointed as executive director focusing on new business. Ted has 30 years' experience in all aspects of the mining industry, including exploration, evaluation, development, mine management and financial and corporate management.
Mangisi Gule (51), BA (Hons) and an Executive Director. Mangisi has 23 years' experience in training and human resources and is a member of the Association of Mine Human Resource Practitioners. Mangisi joined the company on 23 September 2003, following the ARMgold merger. He oversees the company's human resources and communication activities.
Dan Simelane (41) BA, LLB, LLM and an Executive Director. Dan Simelane has seven years' legal experience and acted as legal advisor to Avmin Limited and the Swaziland Electricity Board. He has extensive tax experience and was a senior tax consultant with Arthur Andersen. Dan joined Harmony on 23 September 2003 following the ARMgold merger.
Further details on the non-executive directors of Harmony are set out below:
Patrice Motsepe (41) BA (Legal), LLB, Non-executive Director. Founder and former Executive Chairman of ARMgold which merged with Harmony in 2003. Patrice is now Harmony's non-executive Chairman. In 2002 he was voted South Africa's Entrepreneur of the year. In the same year, he was voted by the CEO's of the top 100 companies in South Africa as South Africa's Business Leader of the Year. Patrice has significant entrepreneurial expertise and knowledge of the new business environment in South Africa and will be central in helping to steer Harmony to grow and be competitive. Patrice was a partner specialising in mining and business law at Bowman Gilfillan Inc, a leading South African law firm. He was employed for approximately four years by McGuire Woods LLP, a law firm in Richmond, Virginia, USA. He was initially based in Richmond and thereafter moved to South Africa where he was their legal consultant for their southern African legal practice. In 1994, he founded Future Mining (Proprietary) Limited which grew rapidly to become a competitive contract mining company. In 1998 he founded African Rainbow Minerals (Proprietary) Limited which in 2000 became ARMgold which was successfully listed on the JSE in 2002. In 2001, he founded African Rainbow Minerals Platinum (Proprietary) Limited and ARM Mining Consortium Limited which entered into a 50/50 joint venture with Anglo American Platinum Corporation Limited for the establishment of a new platinum mine. He was Senior Vice President of the Chamber of Mines and is a "Global Leader of Tomorrow" of the World Economic Forum (WEF). He is a member of National Economic Development and Labour Council (NEDLAC), which is South Africa's primary institution for social dialogue between organised business, Government, labour and community on issues of social and economic policy. He is currently the President of the first non-racial, united and recognised business organisation in South Africa, namely Business Unity South Africa (BUSA), which is the "voice of business" in South Africa as well as President of the first non-racial, united and recognised organisation representing the various chambers of commerce and industry in South Africa, namely Chamber of Commerce and Industry South Africa (CHAMSA).
Dr Manana Bakane-Tuoane (55) PhD, BA, MA and independent non-executive Director. Dr Bakane-Tuoane has extensive experience in the economic disciplines as lecturer and professor at the University of Fort Hare, Eastern Cape. She has held various senior management positions in the public service and currently holds the post of Director General in the North West Provincial Government. Dr Bakane-Tuoane was appointed to the advisory Board of the African Economic Research Consortium, Nairobi, Kenya in 2000. Dr Bakane-Tuoane was appointed a non-executive director of the company on 23 September 2003 following the ARMgold merger.
Nolitha Fakude (39) BA (Hons) (Psychology, Education and English) and an independent non-executive director. Nolitha has been a director of Harmony since September 2002. Nolitha Fakude is the Managing Director of the Black Management Forum
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(BMF). Her role involves stakeholder management, policy formulation and advocacy work on issues of Black Economic Empowerment and organisational transformation. Nolitha was a Group Human Resources Manager for Retail at Woolworths, as well as head of Corporate Affairs, which included, amongst others, Communication and Community Affairs. She serves on various boards, including BMF Investment Company, The People's Bank, Business Partners as well as Wheat Trust. Nolitha was recently appointed by the Gauteng MEC for Economic Affairs as one for the Rainmakers for the Blue IQ project.
Simo Lushaba (37) BSc (Advanced Biochemistry), MBA, non-executive Director and an independent non-executive Director. Simo has been a director of Harmony since October 2002. Simo started his career at the University of Zululand in 1988 as a research technician. In 1990, he joined South African Breweries and two years later National Sorghum Breweries where he served as Divisional Executive of the Khangela Division nine coastal depots. In 1995, Simo was appointed by SpoorNet, where he worked for seven years in various managerial positions and ultimately as the General Manager for Rail and Terminal Services. In April 2002, Simo was brought into Rand Water to drive both business and social transformation in the organisation which included internal restructuring, focusing on creating a customer-driven organisation, as well as new business opportunities, both in South Africa and internationally. Simo also serves as non-executive Chairman of PIKITUP Johannesburg (Pty) Limited and as a non-executive director of Trans-Caledon Tunnel Agency (TCTA). He is currently the Chief Executive of Rand Water.
Lord Renwick of Clifton KCMG (66), an independent non-executive director. Lord Renwick has been a director of Harmony since December 1999. Having formerly served as British Ambassador to South Africa and the United States, Lord Renwick is Vice Chairman, Investment Banking, of JPMorgan plc. He is also Chairman of Flour Limited and serves on the boards of a number of other public companies including British Airways, SABMiller plc and Richemont.
Mike Pleming (68), Pr Eng, FIMM and an independent non-executive director. Mr Pleming has been a director of Harmony since September 1998. Mike started his career in mining engineering on the Zambian Copperbelt. He joined TransNatal (now Ingwe) in 1975 as general manager, Optimum Collieries and was later appointed project manager and consulting engineer. He joined Liberty Asset Management in 1982 where he was responsible for mining investment research. He retired in 1995 and has since undertaken a series of mining investment-related assignments. Following Harmony's acquisition of Evander in 1998, he joined the company as a non-executive director. He is also a director of Impala Platinum Holdings Limited. Mike also serves as a non-executive director of Highlands Gold Limited. Mike has approximately 31 years' mining and approximately 15 years' mining investment experience.
Michael King (66) CA(SA), FCA, Non-executive director. Michael King served articles with Deloitte, Plender, Griffiths, Annan & Co. (now Deloitte & Touche) and qualified as a Chartered Accountant (SA). He later became a Fellow of the Institute of Chartered Accountants in England and Wales (FCA). He joined Anglo American Corporation of South Africa as a manager in the finance division. In 1979, he became director of Anglo American Corporation and in 1980 an executive director and head of its finance division. In 1997, he was appointed executive deputy chairman of Anglo American Corporation. He was the executive vice-chairman of Anglo American plc, in May 1999, until his retirement in May 2001. Michael was appointed a non-executive director of Harmony on 23 September 2003 following the ARMgold merger.
Cedric Savage (64) BSc Eng, MBA, ISMP, an independent non-executive director. Cedric commenced his career in the United Kingdom in 1960 as a graduate engineer with Fairey Aviation and in 1963 returned to South Africa where he worked in the oil (Mobil), textile (Felt & Textiles) and the chicken (Rainbow Chickens Limited) industries. In 1993/1994, he was appointed President of the South African Chamber of Business. He has also served as Chairman of the Board of Governors on the Natal University Development Foundation and as a member of Council of the University of Natal. He joined the Tongaat- Hulett Group in 1977 as Managing Director of Tongaat Foods and thereafter progressed to Executive Chairman of the Building Materials Division, Chief Executive Officer of The Tongaat-Hulett Group Limited in 1991 and in May 2000, he assumed the dual roles of Chief Executive Officer and Executive Chairman. Cedric was appointed a non-executive director of Harmony on 23 September 2003 following the ARMgold merger.
Dr Sibusiso Sibisi (48) BSc (Hons), PhD, Non-executive Director. Dr Sibusiso Sibisi's working career commenced in 1983 in the software development industry with MEDC Limited, Cambridge, UK. His career developed to that of Systems Engineer at IBM (SA), lecturer and senior lecturer (Wits) and deputy vice-chancellor for research (University of Cape Town). He spent 1988 as a Fulbright Fellow at the California Institute of Technology where he collaborated with eminent researchers in computational chemistry and the development of associated medical diagnosis tools. In 1989, he took up a research position at Cambridge where he consolidated his academic research in mathematical modelling and computational simulations to environmental, geophysical and biomedical problems to develop solutions. This evolved to the formation of a start-up company dedicated to providing consulting services to Glaxo, Welcome, Fisons, Shell and Mobil. He entered the corporate world in 1997 as executive director of Plessey (SA), with the responsibility of managing and directing research and development in telecommunication technologies. As chairperson of the National Advisory Council on Innovations, he is involved in making recommendations on research and innovation policy to the Government. Dr Sibisi was appointed a non-executive directory of the company on 23 September 2003 following the ARMgold merger.
Dr Rejoice Simelane (51) BCom, MCom, PhD and an independent non-executive director. Dr Rejoice Simelane's career commenced as a lecturer at the University of Swaziland where she lectured from 1978 to 1997 on Development Economics, Micro-economics and Macro-economics Theory, Research Methods, Mathematical Economics, Econometrics, Economic Planning and Economic Integration. She then joined the Department of Trade and Industry as a macro-economist and later joined the National Treasury as a micro-economist (public utility regulation and pricing) before joining the Premiers Office in the Mpumalanga Province as an Economic Adviser. Dr Simelane was appointed a non-executive director of the company on 23 September 2003 following the ARMgold merger.
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Max Sisulu (58) MPA, MSc and an independent non-executive director. Max was appointed as director of Harmony in August 2003. Max is currently the General Manager at Sasol and prior to that held the position of deputy chief executive officer at Denel, a post he held since November 1998. From 2001 to 2003 he was the chairperson of the South African Aerospace, Maritime and Defence Industries. He is also a council member of the Human Sciences Research Council and a member of the Premier of the Free State's Economic Advisory Council. From 1977 to 1981 Max served as the ANC representative in Hungary and was South Africa's representative in the "World Federation of Democratic Youth". In January 1995 he was elected to the National Executive Committee and National Working Committee of the ANC. From 1986, he helped establish the ANC economics department and was instrumental in developing the ANC's economic policy. In 1990 he spearheaded the drafting of the ANC's first policy statement on the environment. From 1992 to 1993 Max completed a Masters degree in Public Administration at the Kennedy School of Government at Harvard University in the United States. He returned to South Africa in September 1993 and took up the post of Director of the National Institute of Economic Policy until he became a Member of Parliament in 1994.
10.11.2 Directors' remuneration to 30 June 2003
Directors'
Salaries and
Retirement
Bonuses paid
fees
benefits
contributions
during year
Total
R'000
R'000
R'000
R'000
R'000
Executive
F Abbott
-
1 001
110
2 000
3 111
F Dippenaar
-
927
119
2 000
3 046
T S A Grobicki
-
1 770
121
2 000
3 891
Z B Swanepoel
-
1 640
196
3 000
4 836
M Gule
-
-
-
-
-
D V Simelane
-
-
-
-
-
Total executive
5 338
546
9 000
14 884
Non-executive
P T Motsepe
-
-
-
-
-
Dr M M M M Bakane-Tuoane
-
-
-
-
-
V N Fakude
75
-
-
-
75
M W King
-
-
-
-
-
D S Lushaba
75
-
-
-
75
Dr R V Simelane
-
-
-
-
-
C M L Savage
-
-
-
-
-
M F Pleming
100
-
-
-
100
Lord Renwick of Clifton KCMG
100
-
-
-
100
Dr S P Sibisi
-
-
-
-
-
M V Sisulu
-
-
-
-
-
Total non-executive
350
-
-
-
350
Total directors' remuneration
350
5 338
546
9 000
15 234
The directors' remuneration will not change after the Transaction.
10.11.3 Directors' service contracts
Harmony's executive directors have standard service contracts, details of which are reflected in paragraph 11. None of the non-executive directors have service contracts.
17
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10.11.4 Directors' interests in Harmony shares
On the last practicable date, Harmony held 77 540 880 Avgold shares representing 11,4% of Avgold's issued share capital.
On the last practicable date, the directors held the following interests in Harmony shares:
Percentage of
Director
Direct
Indirect
Harmony shares
Non-executive
P T Motsepe
-
35 002 396
13,5
Dr M M M M Bakane-Tuoane
-
-
-
V N Fakude
-
-
-
M King
33 333
-
*
D S Lushaba
-
-
-
M F Pleming
-
-
-
Lord Renwick of Clifton KCMG
-
5 105
*
C M L Savage
-
-
-
Dr S P Sibisi
-
-
-
Dr R V Simelane
-
-
-
M V Sisulu
-
-
-
Executive
Z B Swanepoel
-
-
-
F Abbott
-
-
-
F Dippenaar
-
-
-
T Grobicki
10 000
30 000
*
W M Gule
-
-
-
D V Simelane
-
-
-
* Indicates beneficial ownership of less than 1%.
On the last practicable date, the directors held the following interests in Harmony options:
Percentage
of total
Number of
options
Expiry
Director
options
in issue
Issue date
Issue price
date
(Rand)
F Abbott
73 400
0,35
20/11/2001
49,60
20/11/2011
F Dippenaar
36 700
0,18
20/11/2001
49,60
20/11/2011
T S A Grobicki
20 000
0,50
21/09/1999
22,90
21/09/2010
87 400
20/01/2001
49,60
20/11/2011
Z B Swanepoel
128 800
0,60
20/11/2001
49,60
20/11/2011
P T Motsepe
-
-
-
-
-
Dr M M M M Bakane-Tuoane
-
-
-
-
-
M F Pleming
-
-
-
-
-
Lord Renwick of Clifton KCMG
-
-
-
-
-
V N Fakude
-
-
-
-
-
D S Lushaba
-
-
-
-
-
M W King
-
-
-
-
-
C M L Savage
-
-
-
-
-
W M Gule
-
-
-
-
-
Dr S P Sibisi
-
-
-
-
-
D V Simelane
-
-
-
-
-
Dr R V Simelane
-
-
-
-
-
M V Sisulu
-
-
-
-
-
10.12 Directors' interests in the acquisition
On the last practicable date none of the directors of Harmony held any shares in Avgold.
Save as disclosed above, none of the directors have any material beneficial interests, whether direct or indirect, in the acquisition or in any other transactions entered into by Harmony during the current or immediately preceding financial year or during any previous financial year which remain outstanding or unperformed.
18
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11. CORPORATE GOVERNANCE
Introduction
The King II Report ("King II") became operative in March 2002 and goes beyond financial and regulatory aspects of Corporate Governance in that it advocates an integrated approach by including principles of sound social, ethical and environmental practice. This includes a shift in focus from the "single bottom line", i.e. financial, towards the "triple bottom line" approach, namely economic, social and environmental reporting. Furthermore, King II places major emphasis on enterprise risk management as the cornerstone of internal controls and, in directing its focus thereon, states that risk goes to the very essence of an organisation's ability to meet its objectives and sustain its existence.
The Harmony board of directors ("the board") are aware of all the onerous duties, responsibilities and personal liabilities which are imposed on them as directors under both common and statutory law, not only in South Africa, but also in the US, Australia and the UK, due to its operations in these countries and its listings in South Africa, London, Paris, Brussels, Berlin and New York. In addition to King II, the Sarbanes Oxley Act of 2002 ("SOx"), applicable to non-US companies which trade securities in the US, imposse additional prohibitions and responsibilities on all directors within Harmony.
To ensure compliance with the numerous legal requirements and to show Harmony's commitment to Corporate Governance, the company has adopted formal charters for the board and each of its committees to give clear guidance to all board members and employees on how governance should be put into practice. These charters were compiled in a way which enables Harmony to achieve a balance between performance and conformance of Corporate Governance principles. Harmony aims to adhere to the provisions and recommendations of King II and therefore these charters will be reviewed, updated and maintained on an on-going basis.
In addition to acting in good faith and with due diligence and care, the board supervises and monitors management to ensure that good Corporate Governance is part of doing business the Harmony Way.
Board structure
Harmony has a unitary board structure, comprising 17 directors, with a balance between executive and non-executive directors. Harmony has 11 non-executive directors, of whom 10 are independent. Harmony has six executive directors and no shadow directors. The non-executive and independent directors are of sufficient calibre and number for their views to carry significant weight in the board's decisions. In considering new appointments to the board, Harmony has cognisance of the gender and racial mix and believes that the company has achieved an acceptable balance of members on the board.
Chairman and Chief Executive
The roles of chairman and chief executive are not vested in the same person and their performances are subject to review by the Remuneration Committee at least once a year.
Board Charter
The board's fiduciary duties are incorporated in Harmony's Board Charter, which sets out the purpose and role of the board, its responsibilities, its authority, composition, meetings and self-assessment. The Board Charter stipulates that Harmony directors have to exercise leadership, enterprise, integrity and judgement based on fairness, accountability, responsibility and transparency.
The responsibility to ensure that Harmony complies with all the relevant laws, regulations and codes of best business practice vests in the board. For this purpose the board has direct access to the advice and services of the company secretary and they are also entitled to seek independent professional legal advice about Harmony's affairs at the company's expense.
The board is also responsible for identifying the principal risks and key performance indicators of Harmony's businesses and ensuring the implementation and regular evaluation of systems to manage those risks through the Audit Committee. Strategies are developed in such a way that the purpose is achieved, the company's values implemented and shareholders and other stakeholders are satisfied. The board also accepts responsibility for monitoring and supervising executive management and the induction of new or inexperienced directors. Harmony's non-executive directors also have access to management should they wish to discuss any matter separate from the executive directors. Harmony is dedicated to ensuring that the directors are familiar with Harmony's operations, its business environment and their fiduciary duties and responsibilities.
Internal control
The board is ultimately responsible for ensuring that Harmony remains a going concern and that it thrives. The board retains full and effective control over Harmony by monitoring and supervising its executive management, being involved in all material decisions affecting Harmony and ensuring that adequate systems of financial and operational internal controls are monitored. The procedures and systems which act as checks and balances on the information are reviewed by the board from time to time. An adequate budgeting and planning process exists and performance is monitored against these budgets and plans.
19
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Self-assessment
The board conducts a self-assessment or self-evaluation annually. The chairman assesses the performance of the individual board members and the members evaluate the chairman, based on several factors, which include expertise, inquiring attitude, objectivity and independence, judgement, understanding of Harmony's business, understanding and commitment to the board's duties and responsibilities, willingness to devote the time needed to prepare for and participate in committee deliberations, timely responses and attendance at meetings.
In keeping with good Corporate Governance, the board has agreed that a Nomination Committee should assist in the evaluation of the board members.
Meetings
The board meets at least four times a year. The number of meetings held during a period is sufficient to ensure that the board meets its objectives and all members are required to attend all meetings. Dates of meeting are planned annually in advance.
Directors' terms of employment
Executive directors
Harmony's executive directors have standard employee service agreements and none may give notice of less than one month. Their employment letters also do not make provision for pre-determining compensation on termination of an amount which equals or exceeds one year's salary and benefits in kind. The executive directors have waived their rights to directors' fees. Executive directors participate in the company's share scheme and a discretionary Executive Profit Share Scheme, provided that in respect of the latter, certain profit targets (set by the Remuneration Committee) are achieved. The executive directors also benefit from pension contributions, life insurance and medical aid.
Non-executive directors
None of the non-executive directors have service contracts with Harmony. The non-executive directors are entitled to fees as agreed at Harmony's annual general meeting, reimbursement of out-of-pocket expenses incurred on the company's behalf, and remuneration for other services, such as serving on committees. Currently, each non-executive director is entitled to R20 000 per quarter, plus R5 000 per quarter for each committee on which he or she serves.
Rotation
The articles of association of Harmony provide that the longest serving one-third of directors retire from office at each annual general meeting. Retiring directors making themselves available for re-election are re-elected at the annual general meeting at which they retire.
Board committees
To enable the board to properly discharge its onerous responsibilities and duties, certain responsibilities have been delegated to board committees. The creation of committees does not, however, reduce the board's overall responsibility and therefore all committees must report and make recommendations to the board. All the board committees are chaired by an independent non-executive director.
The various board committees are as follows:
Audit Committee
Harmony's Audit Committee provides additional assurance to the board regarding the quality and reliability of financial information used by the board and the financial statement issued by the company. The committee assists the board in the discharge of its responsibilities with regard to safeguarding our assets, maintenance of accounting records and maintenance of an effective system of control. An Audit Committee Charter has been established which sets out the role, responsibilities, duties, authority, membership and meetings of the Audit Committee. All non-audit services provided by our external auditors must be, and are, pre-approved by the Audit Committee.
The Audit Committee meets periodically with Harmony's external and independent internal auditors and executive management to review accounting, auditing and financial reporting matters so as to ensure that an effective control environment is maintained. The committee also monitors proposed changes in accounting policy, reviews the internal audit function and discusses the accounting implications of major transactions. In terms of SOx the Audit Committee is directly responsible for the appointment, compensation and oversight of any auditor employed by the company.
All members of the committee are knowledgeable about company affairs and have a working familiarity with finance and accounting practices. Certain members of management also attend the Audit Committee meetings to answer any questions posed by members. The Audit Committee always has at least one financial expert present during meetings.
20
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The members of the committee are:
M W King (Chairman) 
D S Lushaba 
C M L Savage 
M F Pleming 
Dr R V Simelane
Nomination Committee
In terms of the requirements of King II, a Nomination Committee was formed to ensure that the procedures for appointments to the board are formal and transparent, by making recommendations to the board on all new appointments. The Nomination Committee Charter which sets out the role and responsibilities of the Nomination Committee, has been adopted and implemented.
The members of the Nomination Committee are:
P T Motsepe (Chairman) 
Dr R V Simelane 
Lord Renwick of Clifton KCMG 
M V Sisulu 
V N Fakude.
Remuneration Committee
The Remuneration Committee meets at least once a year and comprises three independent non-executive directors. The primary purposes of the Remuneration Committee are to ensure that the group's directors and senior executives are fairly rewarded for their individual contributions to Harmony's overall performance, to demonstrate to all stakeholders that the remuneration of senior executive members are set by a committee of board members who have no personal interest in the outcomes of their decisions, and who will give due regard to the interests of the shareholders as well as the financial and commercial health of Harmony. The Remuneration Committee's primary objectives are to serve as a party to monitor and strengthen the objectivity and credibility of Harmony directors' and senior executives' remuneration system and to make recommendations to the board on remuneration packages and policies applicable to directors.
The committee meets whenever it is necessary to make recommendations relating to the remuneration of senior executives and executive directors. A Remuneration Committee Charter has been adopted which sets out the objectives, role, responsibilities, authority, membership and meeting requirements of the committee.
The members of the committee are:
P T Motsepe (Chairman) 
M F Pleming 
C M L Savage 
Dr R V Simelane 
Dr M M M M Bakane-Tuoane
Health, Safety and the Environmental Audit Committee
The Health, Safety and Environmental Audit Committee ("HSE") monitors health, safety and environmental performance and makes recommendations to the board where it deems particular attention is required. The committee operates in accordance with specific terms of reference confirmed by the board. The committee meets periodically.
The members of the committee are:
M F Pleming (Chairman) 
V N Fakude 
Dr S P Sibisi 
Dr M M M M Bakane-Tuoane
Investment Committee
The Investment Committee was formed in January 2004 and will focus on major capital projects and acquisitions or mergers. The board is in the process of approving an Investment Committee Charter.
The members of the committee are:
Dr S P Sibisi (Chairman) 
M F Pleming 
C M L Savage 
Dr M M M M Bakane-Tuoane 
D S Lushaba 
M W King
21
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Empowerment Committee
The Empowerment Committee was formed in January 2004 and will focus on ensuring that the company meets its empowerment targets. The board is in the process of approving an Empowerment Committee Charter.
The members of the committee are:
V N Fakue (Chairwoman)
M V Sisulu
M F Pleming
P T Motsepe (Ex Officio)
Company secretary
Harmony's company secretary, M P van der Walt, plays a pivotal role in the achievement of good Corporate Governance and the board has empowered her accordingly. The company secretary supports the chairman in ensuring the effective functioning of the board, provides guidance to the chairman and the board and the directors of Harmony's subsidiaries on their responsibilities and duties within the prevailing regulatory and statutory environment, provides the board with guidance as to how they can, in the best interest of the company, discharge these responsibilities and duties, and is expected to and does raise matters that may warrant the attention of the board.
12. SIGNIFICANT CONTRACTS
Save as set out in paragraph 10.5, the company has not entered into any contract, other than in the ordinary course of business, within the period of two years immediately preceding the date of this circular which is or may be material to the company nor has it entered into any other contract, other than in the ordinary course of business, and the company has not entered into any contract which contains provisions, in terms of which there are any obligations or entitlements, which are material to the company.
13. WORKING CAPITAL
The directors are of the opinion that the working capital available to the Harmony group, including Avgold, is sufficient for its present requirements, that is for the next 12 months from date of issue of this circular.
14. EXPENSES
The costs of the scheme, including fees payable to professional advisers, the JSE, the SRP and printing and advertising costs will be borne and paid by Avgold. The cost of this circular, printing and posting will be borne and paid by Harmony and is estimated to be in the region of R1 450 000. Other costs to be paid by Harmony in connection with the Transaction include: R350 000 to the Reporting Accountants (PricewaterhouseCoopers Inc.); R1 970 000 to the Attorneys (Cliffe Dekker Inc.) and a success-based completion fee, still to be agreed, to the Financial Advisers (JP Morgan Chase Bank, Johannesburg Branch).
15. CONSENTS
PricewaterhouseCoopers Inc. and SRK have given, and have not withdrawn, their consents to the inclusion of their names and reports in this circular in the form and context in which they appear.
16. OPINION OF THE DIRECTORS OF HARMONY
The directors are of the opinion that the terms and conditions of the acquisition are fair and reasonable to shareholders.
17. DIRECTORS' RESPONSIBILITY STATEMENT
The directors, whose names appear on page 5 of this circular, collectively and individually, accept full responsibility for the accuracy of the information given in this circular and certify that, to the best of their knowledge and belief there are no facts that have been omitted which would make any statement in this circular false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this circular contains all information required by the JSE Listings Requirements.
22
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23
18. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) from 15 April 2004 (the date of issue of this circular) up to and including 7 May 2004, at the registered office of Harmony and the company's United Kingdom Secretaries:
- a signed copy of this circular;
- the memorandum and the articles of association of Avgold;
the written consents of advisers to Harmony to the publication of their names in this circular in the form and context in which they appear;
- a copy of the Avgold share exchange agreement;
- a copy of the ARM voting agreement;
- a summary of the terms and conditions of the convertible bonds;
- the audited annual reports of Harmony for the three financial years ended 31 December 2003; and
- the report of PricewaterhouseCoopers Inc. on the pro forma financial information of Harmony.
By order of the board
Marian van der Walt
Secretary
Virginia 
15 April 2004
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24
Annexure 1
Summary of the terms and conditions of convertible bonds
ZAR1,700 million Harmony Gold Mining Company Limited
Convertible Bonds due 2009
Issuer:
Harmony Gold Mining Company Limited.
Underlying shares:
New ordinary shares of Harmony.
Issue size:
Up to ZAR1,700,000,000.
Over allotment option:
None.
Status:
Direct, unconditional, unsubordinated and unsecured obligations of the Issuer.
Maturity date:
21 May 2009.
Issue price:
100%.
Coupon:
4.875% payable semi-annually in arrear on 21 November and 21 May of each year, commencing 21 November 2004.
Yield to maturity:
4.875% at the closing date, which is expected to be 21 May 2004 (the "Closing Date").
Redemption price:
100%.
Conversion price:
ZAR121.00.
Conversion ratio:
8,264.4628.
Conversion period:
From the 41st day after the Closing Date until the 7th day prior to the Maturity Date.
Early redemption:
Callable on or after 5 June 2007 at par plus accrued interest, subject to the daily VWAP of Harmony shares exceeding 130% of the Conversion Price for a period of 20 out of 30 consecutive trading days.
Callable at any time if less than 15% of the Bonds remain outstanding.
Tax call:
Gross-up and tax call at higher of (a) par plus accrued or (b) parity plus make-whole, unless investors opt for Bonds to remain outstanding and receive coupons net of withholding tax. Make-whole will be based on a formula aiming to approximate lost premium to parity.
Anti-dilution protection:
Standard Euromarket anti-dilution provisions dealing with, inter alia, share consolidations, share splits, capital distributions, rights issues and bonus issues.
Extraordinary dividend protection:
Dividend in any given year exceeds higher of (a) 110% of previous year's dividend and (b) 4% of the average share price over the 180-day period preceding the payment. Adjustment to the Conversion Price by the amount of the excess.
Change of control protection:
Investors will be entitled to convert the Bonds for a period of 60 days at a price that may be adjusted downward in accordance with a ratcheting mechanism.
Negative Pledge:
Yes, in line with Euromarket standard (covering Issuer and Material Subsidiaries).
Events of default:
Yes, in line with outstanding ZAR1,200,000,000 13% Bonds 2001 - 2006 (covering Issuer and Material Subsidiaries and including higher cross-default threshold of ZAR[100,000,000]).
Lock-up:
For 90 days following the Closing Date subject to carve-outs including the announced transaction with Avgold Limited.
Form:
Registered.
The Convertible Bonds are not for distribution into or in the United States, Canada, Australia, Italy or Japan or to U.S., Canadian, Australian, Italian or Japanese persons.
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25
Annexure 2
Pro forma balance sheet and income statement of Harmony
Pro forma financial information
The unaudited pro forma balance sheet of Harmony at 31 December 2003 and income statement for the six months then ended, are set out below and have been prepared to illustrate the effect of the Transaction. The unaudited pro forma balance sheet and income statement have been prepared for illustrative purposes only and, because of their nature, may not give a fair view of Harmony's financial position or the effect on earnings going forward.
Excluding offer to minorities
Harmony
Pro forma
Before the
After the
Income statements
Transaction
Avgold
Avmin
Transaction
R' million
Note 1
Note 2
Note 3
Note 4
Revenue
4 454
447
-
-
4 901
Cash operating costs
(3 966)
(268)
-
-
(4 234)
Cash operating profit
488
179
-
-
667
Other income - net
54
-
-
60
114
Employment termination and 
restructuring costs
(32)
-
-
-
(32)
Corporate, marketing and 
new business expenditure
(74)
-
-
-
(74)
Exploration expenditure
(49)
-
-
-
(49)
Profit on sale of listed investments
522
5
(2)
-
525
Interest paid
(162)
(4)
-
-
(166)
Cash profit
747
180
(2)
60
985
Depreciation and amortisation
(388)
(127)
(69)
-
(584)
Provision for rehabilitation costs
(28)
-
-
-
(28)
Mark-to-market of financial instruments
(161)
(183)
46
-
(298)
Income from associates
(41)
-
-
15
(26)
Income before tax
129
(130)
(25)
75
49
Taxation expense
(6)
(4)
(7)
-
(17)
Net income before minority interests
123
(134)
(32)
75
32
Minority interests
(6)
62
-
-
56
Net income
117
(72)
(32)
75
88
Weighted average issued shares
231 707 291
-
-
-
262 023 354
Basic earnings per share (cents)
50
-
-
-
34
Basic headline earnings per share (cents)
(129)
-
-
-
(129)
Notes:
(1) Extracted from the quarterly published unaudited financial results of Harmony for the six months ended 31 December 2003.
(2) Extracted from the quarterly published unaudited financial results of Avgold for the six months ended 31 December 2003.
(3) 
Amortisation on fair value adjustments and consolidation adjustments relating to the acquisition of Avgold. For purposes of determining the purchaseconsideration the Harmony share price at close of business on 19 March 2003 was used, being R101,60.
(4) 
Adjustments relating to the acquisition by Avmin of ARMI's 41,5% effective interest in the Modikwa Joint Venture, the disposal of Kalplats to Avmin andthe resulting dilution in the equity accounted loss from Avmin.
(5) The pro forma income statement has been prepared on the assumption that the Transaction was effective on 1 July 2003.
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26
Harmony
Pro forma
Before the
After the
Balance sheets
Transaction
Avgold
Avmin
Transaction
R' million
Note 1
Note 2
Note 3
Note 4
ASSETS
Non-current assets
21 376
2 480
2 843
60
26 759
Tangible assets
14 911
2 455
1 310
(40)
18 636
Intangible assets
2 803
-
1 532
-
4 335
Investments
3 662
25
-
100
3 787
Current assets
1 964
(1)
-
-
1 963
Net current liabilities - excluding cash
(924)
(2)
-
-
(926)
Cash and cash equivalents
2 888
1
-
-
2 889
Total assets
23 340
2 479
2 843
60
28 722
EQUITY AND LIABILITIES
Ordinary shareholders' interest
16 251
2 154
1 604
60
20 069
Outside shareholders' interest
155
-
999
-
1 154
Total shareholders' interest
16 406
2 154
2 603
60
21 223
Long-term borrowings
2 863
-
-
-
2 863
Deferred taxation
2 779
-
232
-
3 011
Deferred financial liabilities
432
286
8
-
726
Long-term provisions
860
39
-
-
899
Total equity and liabilities
23 340
2 479
2 843
60
28 722
Shares in issue
258 350 934
-
-
-
288 666 997
Net asset value per share (cents)
6 350
-
-
-
7 352
Net tangible asset value per share (cents)
5 265
-
-
-
5 850
Notes:
(1) Extracted from the quarterly published unaudited financial results of Harmony for the six months ended 31 December 2003.
(2) Extracted from the quarterly published unaudited financial results of Avgold for the six months ended 31 December 2003.
(3) 
Fair value and consolidation adjustments relating to the acquisition of Avgold. For purposes of determining the purchase consideration the Harmony share price at close of business on 19 March 2003 was used, being R101,60 per share.
(4) Adjustments relating to the acquisition by Avmin of ARMI's 41,5% effective interest in the Modikwa Joint Venture and the 
      disposal of Kalplats to Avmin.
(5) The pro forma balance sheet has been prepared on the assumption that the Transaction was effective on 31 December 2003.
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27
Including offer to minorities
Harmony
Pro forma
Before the
After the
Income statements
Transaction
Avgold
Avmin
Transaction
R' million
Note 1
Note 2
Note 3
Note 4
Revenue
4 454
447
-
-
4 901
Cash operating costs
(3 966)
(268)
-
-
(4 234)
Cash operating profit
488
179
-
-
667
Other income - net
54
-
-
60
114
Employment termination and 
restructuring costs
(32)
-
-
-
(32)
Corporate, marketing and 
new business expenditure
(74)
-
-
-
(74)
Exploration expenditure
(49)
-
-
-
(49)
Profit on sale of listed investments
522
5
(5)
-
522
Interest paid
(162)
(4)
-
-
(166)
Cash profit
747
180
(5)
60
982
Depreciation and amortisation
(388)
(127)
(129)
-
(644)
Provision for rehabilitation costs
(28)
-
-
-
(28)
Mark-to-market of financial instruments
(161)
(183)
86
-
(258)
Income from associates
(41)
-
-
15
(26)
Income before tax
129
(130)
(48)
75
26
Taxation expense
(6)
(4)
(12)
-
(22)
Net income before minority interests
123
(134)
(60)
75
4
Minority interests
(6)
-
-
-
(6)
Net income
117
(134)
(60)
75
(2)
Weighted average issued shares
231 707 291
-
-
-
293 715 856
Basic earnings per share (cents)
50
-
-
-
(1)
Basic headline earnings per share (cents)
(129)
-
-
-
(131)
Notes:
(1) Extracted from the quarterly published unaudited financial results of Harmony for the six months ended 31 December 2003.
(2) Extracted from the quarterly published unaudited financial results of Avgold for the six months ended 31 December 2003.
(3) 
Amortisation on fair value adjustments and consolidation adjustments relating to the acquisition of Avgold. For purposes of determining the purchaseconsideration the Harmony share price at close of business on 19 March 2003 was used, being R101,60.
(4) 
Adjustments relating to the acquisition by Avmin of ARMI's 41,5% effective interest in the Modikwa Joint Venture, the disposal of Kalplats to Avmin and the resulting dilution in the equity accounted loss from Avmin.
(5) The pro forma income statement has been prepared on the assumption that the Transaction was effective on 1 July 2003.
(6) 
For purposes of illustrating the pro forma effects, After the Transaction, including the offer to minorities, it has been assumed that all minorities accept the offer.
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28
Harmony
Pro forma
Before the
After the
Balance sheets
Transaction
Avgold
Avmin
Transaction
R' million
Note 1
Note 2
Note 3
Note 4
ASSETS
Non-current assets
21 376
2 480
5 289
60
29 205
Tangible assets
14 911
2 455
2 451
(40)
19 777
Intangible assets
2 803
-
2 838
-
5 641
Investments
3 662
25
-
100
3 787
Current assets
1 964
(1)
-
-
1 963
Net current liabilities - excluding cash
(924)
(2)
-
-
(926)
Cash and cash equivalents
2 888
1
-
-
2 889
Total assets
23 340
2 479
5 289
60
31 168
EQUITY AND LIABILITIES
Ordinary shareholders' interest
16 251
2 154
4 851
60
23 316
Outside shareholders' interest
155
-
-
-
155
Total shareholders' interest
16 406
2 154
4 851
60
23 471
Long-term borrowings
2 863
-
-
-
2 863
Deferred taxation
2 779
-
419
-
3 198
Deferred financial liabilities
432
286
19
-
737
Long-term provisions
860
39
-
-
899
Total equity and liabilities
23 340
2 479
5 289
60
31 168
Shares in issue
258 350 934
-
-
-
320 359 499
Net asset value per share (cents)
6 350
-
-
-
7 326
Net tangible asset value per share (cents)
5 265
-
-
-
5 566
Notes:
(1) Extracted from the quarterly published unaudited financial results of Harmony for the six months ended 31 December 2003.
(2) Extracted from the quarterly published unaudited financial results of Avgold for the six months ended 31 December 2003.
(3) 
Fair value and consolidation adjustments relating to the acquisition of Avgold. For purposes of determining the purchase consideration the Harmony share price at close of business on 19 March 2003 was used, being R101,60 per share.
(4) Adjustments relating to the acquisition by Avmin of ARMI's 41,5% effective interest in the Modikwa Joint Venture and the 
     disposal of Kalplats to Avmin.
(5) The pro forma balance sheet has been prepared on the assumption that the Transaction was effective on 31 December 2003.
(6) 
For purposes of illustrating the pro forma effects, After the Transaction, including the offer to minorities, it has been assumed that all minorities accept the offer.
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29
Annexure 3
Independent reporting accountants' report on the pro forma financial information of Harmony
"The Directors 
Harmony Gold Mining Company Limited 
PO Box 2 
Randfontein 
1760
7 April 2004
Dear Sirs
INDEPENDENT REPORTING ACCOUNTANTS' REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF HARMONY GOLD MINING COMPANY LIMITED ("Harmony")
Introduction
Harmony has reached agreement for the following transactions:
- the acquisition of 42,1% of the issued share capital of Avgold Limited ("Avgold") from Anglovaal Mining Limited ("Avmin"); and
- the disposal of its Kalplats platinum discovery project and associated mineral rights (collectively, "the Transactions").
In addition, Harmony is making an offer for the balance of Avgold's issued share capital, to be implemented by way of a scheme of arrangement in terms of section 311 of the Companies Act, 1973 (Act 61 of 1973), as amended, proposed by Harmony between Avgold and its shareholders, other than Harmony ("the Avgold Offer").
We report on the unaudited pro forma balance sheets, income statements and financial effects of Harmony after the Transactions and Avgold Offer ("the pro forma financial information"), included in paragraph 6.1 and as Annexure 2 to the circular to shareholders to be dated on or about 15 April 2004 (the "Circular").
The unaudited pro forma financial information has been prepared for illustrative purposes only and to provide information as to how the Transactions and the Avgold Offer will impact on the financial position and results of Harmony. Because of its nature, the unaudited pro forma financial information may not give a fair reflection of Harmony's financial position nor the effect on future earnings.
At your request, and for purposes of the Transactions and the Avgold Offer, we present our report on the pro forma financial information of Harmony in compliance with the Listings Requirements of the JSE Securities Exchange South Africa ("JSE").
Responsibilities
The directors of Harmony are solely responsible for the preparation of the pro forma financial information to which this independent reporting accountants' report relates, and for the financial statements and financial information from which it has been prepared.
It is our responsibility to form an opinion on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the pro forma financial information, beyond that owed to those to whom those reports were addressed at their dates of issue.
Basis of opinion
Our work, which did not involve any independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information to the unaudited published quarterly financial results of Harmony for the six months ended 31 December 2003, considering the evidence supporting the adjustments to the unaudited pro forma financial information, recalculating the amounts based on the information obtained and discussing the pro forma financial information with the directors of Harmony.
Because the above procedures do not constitute an audit or a review in accordance with Statements of South African Auditing Standards, we do not express any assurance on the fair presentation of the unaudited pro forma financial information.
Had we performed additional procedures or had we performed an audit or review of the financial statements in accordance with Statements of South African Auditing Standards, other matters might have come to our attention that would have been reported to you.
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30
Opinion
In our opinion:
- the unaudited pro forma financial information has been properly compiled on the basis stated;
- such basis is consistent with the accounting policies of Harmony; and
- the adjustments are appropriate for the purposes of the unaudited pro forma financial information in terms of Section 8.29 of the JSE
Listings Requirements.
Yours faithfully
PricewaterhouseCoopers Inc.
Chartered Accountants (SA) 
Registered Accountants and Auditors
Sunninghill"
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31
Annexure 4
Interim financial results of Harmony
1.
TOTAL OPERATIONS FINANCIAL RESULTS
(Rand/Metric) - unaudited
Quarter ended
Quarter ended
Six
Six
31 December
30 September
months
months
2003
2003
ended
ended
(including
(excluding
31 December
31 December
ARMgold)
ARMgold)
2002
2003
Ore milled
t'000
8 183
6 854
13 941
15 037
Gold produced
kg
29 294
22 725
48 852
52 019
Gold price received
R/kg
85 139
86 258
103 362
85 623
Cash operating costs
R/kg
75 888
76 693
68 302
76 241
R'm
R'm
R'm
R'm
Gold sales
2 494
1 960
5 049
4 484
Cash operating costs
2 223
1 743
3 337
3 966
Cash operating profit
271
217
1 713
488
Income from associates
(34)
(7)
-
(41)
Amortisation
(246)
(142)
(271)
(388)
Profit on sale of Highland & High River
522
-
-
522
Profit on sale of Aurion Gold shares
-
-
469
-
Mark-to-market of financial instruments
11
(172)
77
(161)
Rehabilitation cost provision
(18)
(10)
(21)
(28)
Employment termination costs
(20)
(12)
(27)
(32)
Other income net
65
70
101
135
Minority interest
(6)
-
-
(6)
Interest paid
(107)
(55)
(119)
(162)
Corporate, marketing and new business expenditure
(43)
(31)
(58)
(74)
Exploration expenditure
(35)
(14)
(57)
(48)
Foreign exchange losses
(50)
(31)
-
(81)
Mark-to-market of listed investments
-
-
(506)
-
Profit before taxation
310
(187)
1 301
123
South African normal taxation - Current tax
(84)
(18)
(245)
(102)
- Deferred tax
10
86
(173)
96
Net earnings
236
(119)
883
117
Earnings per share (cents)* 
- Basic earnings
92
(62)
509
50
- Headline earnings
(66)
(67)
500
(129)
- Fully diluted earnings**
92
(62)
500
51
Dividends per share (cents) 
- Proposed interim
40
-
125
40
Reconciliation of headline earnings 
Net earnings
236
(119)
883
117
Adjustments:
Profit on sale of assets
(3)
(9)
(16)
(12)
Profit on sale of Highland & High River, net of tax
(444)
-
-
(444)
Amortisation on goodwill
41
-
-
42
Headline earnings
(170)
(128)
867
(298)
Prepared in accordance with International Financial Reporting Standards.
*
Calculated on weighted number of shares in issue at quarter-end December 2003: 257,9 million (September 2003: 192,3 million) (December 2002: 173,6 million).
** 
Calculated on weighted average number of diluted shares in issue at quarter-end December 2003: 256,5 million (September 2003: 190,9 million) (December 2002: 176,5 million).
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32
2.
ABRIDGED BALANCE SHEETS
(Rand) - unaudited
At
At
At
31 December
30 September
31 December
2003
2003
2002
R'm
R'm
R'm
EMPLOYMENT OF CAPITAL
Mining assets after amortisation
14 911
14 729
8 945
Intangible assets
2 803
2 843
-
Investments
1 098
1 260
1 409
Investments in associates
2 564
2 896
-
Short-term investments - Placer Dome
-
-
723
Net current liabilities, excluding cash
(924)
(1 300)
(431)
Cash
2 888
2 561
1 439
Total assets
23 340
22 989
12 085
CAPITAL EMPLOYED
Shareholders' equity
16 251
15 937
7 863
Loans
2 863
2 881
2 009
Long-term provisions
860
840
698
Minority interest
155
139
-
Unrealised hedging loss
432
450
736
Deferred tax
2 779
2 742
779
Total equity and liabilities
23 340
22 989
12 085
Basis of accounting
The unaudited results for the quarter have been prepared on the International Financial Reporting Standards ("IFRS") basis. These consolidated quarterly statements are prepared in accordance with IFRS 34, Interim Financial Reporting. The accounting policies are consistent with those applied in the previous financial year.
Issued share capital: 258,4 million ordinary shares of 50 cents each (September 2003: 257,9 million shares) (December 2002: 174,6 million).
3.
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - unaudited
At
At
31 December
31 December
2003
2002
R'm
R'm
Balance at beginning of financial year
8 628
7 963
Currency translation adjustment and other
-
(455)
Issue of share capital
7 798
213
Net earnings
117
883
Dividends paid
(292)
(741)
Balance at end of December
16 251
7 863
Prepared in accordance with IFRS.
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33
4.
ABRIDGED CASH FLOW STATEMENTS - unaudited
Six months
Six months
ended
ended
31 December 2003
31 December 2002
R'000
R'000
Cash flow from operating activities
133
1 251
Cash utilised in investing activities
1 350
(618)
Cash utilised in financing activities
(282)
(635)
Increase/(Decrease) in cash and equivalents
1 201
(2)
Opening cash and equivalents
1 687
1 441
Closing cash and equivalents
2 888
1 439
Prepared in accordance with IFRS.
Hedging
Maturity schedule of the Harmony group's commodity contracts by type at 31 December 2003:
30 June 2005
30 June 2006
30 June 2007
30 June 2008
30 June 2009
Total
Forward sales agreements 
Ounces
175 000
108 000
147 000
100 000
100 000
630 000
A$/ounce
513
510
515
518
518
514,27
Calls contracts sold Ounces
127 100
40 000
-
-
-
167 100
A$/ounce
513
552
-
-
-
522
302 100
148 000
147 000
100 000
100 000
797 100
These contracts are classified as speculative and the marked-to-market movement is reflected in the income statement.
During the quarter 62 900 ounces of the hedge books were closed out at a cost of R5 million (US$1 million). The market-to-market of the remaining contracts was a negative R380 million (US$57 million) at 31 December 2003. These values were based on a gold price of US$414 (A$552) per ounce, exchange rates of US$/R6.70 and A$/US$0.75 and prevailing market interest rates at the time. These valuations were provided by independent risk and treasury management experts.
Gold lease rates
Harmony holds certain gold lease rate swaps which were acquired through its acquisitions of New Hampton and Hill 50. These instruments are all treated as speculative. The mark-to-market of the above contracts was a negative R10 million (US$1.5 million) at 31 December 2003, based on valuations provided by independent treasury and risk management experts.
Interest rate swaps
The group has interest rate swap agreements to convert R600 million of its R1, 2 billion fixed rate bond to variable rate debt. The interest rate swap runs over the term of the bond, interest is received at a fixed rate of 13% and the company pays floating rate based on JIBAR plus a spread raging from 1,8% to 2,2%.
These transactions which mature in June 2006 are designated as fair value hedges. The marked-to-market value of the transactions was a negative R42 million (US$6 million) at 31 December 2003, based on the prevailing interest rates and volatilities at the time.
Dividend
A dividend No. 78 of 40 cents per ordinary share being the interim dividend for the six-month period ended 31 December 2003, has been declared payable on 8 March 2004 to those shareholders registered as such in the books of the company at the close of business on 5 March 2004.
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34
Annexure 5
Historical financial information of Avgold
The salient financial information set out below has been extracted without adjustment from the audited annual financial statements of Avgold for the three financial years ended 30 June 2003:
FINANCIAL INFORMATION FOR THE YEARS ENDED 30 JUNE 2003, 2002 AND 2001
1.
INCOME STATEMENTS
Notes
2003
2002
2001
R'000
R'000
R'000
Revenue
1 and 2
999 480
363 802
217 864
Costs and expenses
889 560
346 468
189 614
- operating
673 344
265 137
163 394
- amortisation and depreciation
186 900
57 389
19 737
- retrenchments
-
4 747
165
- general and administration
29 316
19 195
5 981
- exploration
-
-
337
Operating profit
3
109 920
17 334
28 250
Investment income
4
12 987
2 147
10 654
Finance cost
5
57 946
8 419
-
Foreign exchange gain
6
66 745
30 335
-
Unrealised non-hedge derivatives
7
(102 715)
-
-
Income before exceptional item
28 991
41 397
38 904
Exceptional items
8
7 085
-
-
Income before taxation
36 076
41 397
38 904
Taxation
9
9 207
5 000
-
Net earnings for year
26 869
36 397
38 904
Additional information:
Net earnings for year excluding unrealised non-hedge derivatives
129 584
36 397
38 904
Headline earnings
25 385
36 397
38 904
Headline earnings before unrealised non-hedge derivatives
128 100
36 397
38 904
Earnings per share (cents)
10
4,0
5,4
6,5
Headline earnings per share (cents)
3,8
5,4
6,5
Headline earnings per share before unrealised 
non-hedged derivatives (cents)
19,0
5,4
6,5
Weighted number of shares in issue (million)
674,0
670,2
595,4
Reconciliation of earnings and headline earnings:
Earnings per income statement
26 869
36 397
38 904
Exceptional items:
- Profit on sale of ETC
(7 085)
-
-
- Recoupments tax on sale of ETC
5 601
-
-
Headline earnings
25 385
36 397
38 904
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35
2.
BALANCE SHEETS
Notes
2003
2002
2001
R'000
R'000
R'000
ASSETS
Non-current assets
2 569 795
2 931 207
2 551 085
Property, plant and equipment
11
2 543 841
2 883 336
2 506 592
Investments
12
25 954
47 871
44 493
Current assets
84 382
208 742
137 021
Inventories
13
46 407
44 761
33 247
Trade and other receivables
37 214
55 171
47 867
Deposits and cash
761
108 810
55 907
Total assets
2 654 177
3 139 949
2 688 106
EQUITY AND LIABILITIES
Capital and reserves
Share capital
6 765
6 729
6 658
Share premium
2 219 900
2 206 385
2 183 589
Retained income/(accumulated loss)
43 827
16 958
(19 439)
Total shareholders' equity
2 270 492
2 230 072
2 170 808
Non-current liabilities
144 639
630 105
378 594
Long-term loans
14
-
548 072
302 453
Non-hedge derivatives
7
102 715
-
-
Long-term provisions
15
41 924
82 033
76 141
Current liabilities
239 046
279 772
138 704
Trade and other payables
16
104 126
153 343
134 044
Overdrafts and short-term borrowings
17
134 920
126 429
4 660
Total equity and liabilities
2 654 177
3 139 949
2 688 106
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36
3.
CASH FLOW STATEMENTS
Notes
2003
2002
2001
R'000
R'000
R'000
Cash generated from/(utilised by) operations
Operating profit
109 920
17 334
28 250
Non-cash items and adjustments:
Provisions
(5 546)
7 788
8 078
Profit on sale of property, plant and equipment
(1 519)
(3 709)
-
Amortisation and depreciation
186 900
57 389
19 737
289 755
78 802
56 065
Net withdrawals from/(payments to) environmental trust fund
3 925
(4 151)
(3 161)
Retrenchment payments
-
(5 873)
(6 587)
Investment income
12 987
2 147
10 654
Finance charges
(57 946)
(8 419)
-
Taxation
-
-
(2 910)
248 722
62 506
54 061
Cash provided by/(reinvested in) working capital
Inventories
(18 351)
(11 514)
(4 179)
Trade and other receivables
13 578
(7 303)
6 476
Trade and other payables
(30 390)
10 155
(1 355)
Net cash generated from operating activities
213 558
53 844
55 003
Cash utilised in investment activities
Property, plant and equipment acquired
18
(124 364)
(345 645)
(599 051)
Investments acquired
(483)
(1 124)
853
Proceeds on disposal of property, plant and equipment
3 558
9 240
1 199
Proceeds on sale of ETC mine
8
251 817
-
-
130 528
(337 529)
(596 999)
Cash provided by financing activities
Net increase in shareholders' funding
13 551
22 868
498 200
(Decrease)/Increase in long-term loans
19
(376 189)
191 952
300 000
(Decrease)/Increase in overdrafts and short-term borrowings
20
(77 658)
121 768
(201 829)
(440 296)
336 588
596 371
(Decrease)/Increase in cash and cash equivalents
(96 210)
52 903
54 375
Cash and cash equivalents at beginning of year
108 810
55 907
1 532
Translation adjustment
(11 839)
-
-
Cash and cash equivalents at end of year
761
108 810
55 907
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37
4.
STATEMENTS OF CHANGES IN EQUITY
Ordinary
share capital
Retained
Total
Total
Total
and premium
income
2003
2002
2001
R'000
R'000
R'000
R'000
R'000
Changes in shareholders' equity
Balance at beginning of year
2 213 114
16 958
2 230 072
2 170 808
1 633 704
Shares allotted - rights issue
-
-
-
-
500 355
Share options exercised
13 584
-
13 584
22 867
6 507
Expenses written-off against share premium
(33)
-
(33)
-
(8 662)
Net earnings for year
-
26 869
26 869
36 397
38 904
Balance at end of year
2 226 665
43 827
2 270 492
2 230 072
2 170 808
Details of shares
2003
2002
2001
Share capital and premium
Authorised
1 000 000 000 ordinary shares of one cent each
10 000
10 000
10 000
(2002: 1 000 000 000 ordinary shares of one cent each)
(2001: 1 000 000 000 ordinary shares of one cent each)
Issued
676 453 556 ordinary shares of one cent each
6 765
6 729
6 658
(2002: 672 943 402 ordinary shares of one cent each)
(2001: 665 784 171 ordinary shares of one cent each)
Share premium
2 219 900
2 206 385
2 183 589
2 226 665
2 213 114
2 190 247
The unissued shares of 323 546 444 (2002: 327 056 598, 2001: 334 215 829), of which 33 822 678 (2002: 33 647 170, 2001: 33 289 209) shares are specifically reserved for purposes of the share incentive scheme, are under the control of the directors.
ACCOUNTING POLICIES
The annual financial statements are prepared in accordance with the historical cost convention except for financial instruments, which are accounted for at fair value, and in accordance with South African Statements of Generally Accepted Accounting Practice and the requirements of the Companies Act. The principal accounting policies, set out below, have been consistently applied, except those relating to financial instruments following the implementation of AC 133 - "Financial Instruments: Recognition and Measurement" from 1 July 2002.
Revenue recognition
Revenue comprises the Rand amount received and receivable in respect of the supply of metals mined. Revenue is recognised when the risks and rewards of ownership transfer.
Other revenues earned are recognised on the following bases:
- Interest income: as it accrues.
- Dividend income from industry-related investments: when received.
Borrowing costs
Borrowing costs that are directly attributable to the acquisition or construction of mining assets that require a substantial period of time to prepare for their intended use, are capitalised.
Borrowing costs are expensed from the time that mining production becomes commercially viable.
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38
Deferred taxation
Deferred taxation is provided using the balance sheet liability method on all temporary differences between the carrying amounts for financial reporting purposes and the amounts used for taxation purposes, except for differences relating to the initial recognition of assets which affect neither accounting nor taxable profit.
The tax value of losses and unredeemed capital expenditure expected to be available for utilisation against future taxable income are set-off against the deferred tax liability. Deferred tax assets are recognised only when it is probable that the related tax benefit will be realised.
Deferred tax is calculated at the mining cost formula rate. The effect on deferred tax of any changes in tax rates is charged to the income statement.
Exploration and development
Exploration costs are expensed as incurred. When it has been established that a mineral property has development potential and following a positive detailed economic evaluation, further development, exploration and other expenditure prior to the commencement of commercial production is capitalised.
Ongoing development expenditure on existing mines is expensed as incurred. Major development and exploration expenditure incurred to expose the ore, increase production or extend the life of an existing mine is capitalised.
Financial instruments
Financial instruments recognised on the balance sheet include cash and cash equivalents, non-hedge forward exchange contracts, investments, trade receivables, trade creditors and borrowings. Initial recognition is at cost. Subsequent recognition is at fair value. The recognition methods adopted are disclosed in the individual policy statements associated with each item.
Non-hedge derivatives
Non-hedge forward exchange contracts are mark-to-market at financial reporting dates and changes in their fair values are included in the income statement. Gains or losses on contracts maturing between reporting dates are recognised in revenue.
Hedging
The company enters into hedging transactions on a portion of its planned gold production to ensure a degree of certainty on future gold sales prices and to provide a guaranteed minimum cash flow for known major capital expenditures and debt servicing.
Gains and losses on derivative instruments that effectively establish the prices for future production are recognised in revenue when the related production is delivered. In the event of early settlement of hedging contracts, gains and losses are taken to revenue at the date of settlement. Any potential loss on hedge positions below the current cost of production is recognised in the period in which it arises.
Property, plant and equipment
Mining assets are recorded at cost of acquisition less sales, recoupments and amounts written-off. Interest on borrowings, specifically to finance the establishment of mining assets, are capitalised until commercial levels of production are achieved.
Depreciation and amortisation is provided over the useful life of mine assets from the time that mining production becomes commercially viable, as follows:
Where orebodies are well-defined, assets are amortised using the units of production method based on the estimated proved and probable ore reserves.
- Where orebodies are not well-defined, the straight-line method is used based on the estimated life of each mine, limited to 
   25 years.
- Other assets are depreciated to estimated net realisable values using the straight-line method over their expected useful lives.
Land and mineral rights prior to production are not depreciated.
Impairment
The recoverability of the long-term assets is reviewed by management on a continuous basis, based on estimates of future net cash flows. These estimates are subject to risks and uncertainties including future metal prices and exchange rates. It is therefore possible that changes could occur which may affect the recoverability of the long-term assets. Where the estimated recoverability is less than net book value, the impairment is charged against income to reduce the carrying value of the asset.
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Investments
- Unlisted investments are stated at cost less amounts written-off where there has been a permanent diminution in value.
Environmental trust fund investments are stated at cost. Annual payments are made to the environmental trust fund in accordance with statutory requirements.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand and deposits held with banks.
Foreign currencies
Foreign currency transactions are recorded at the exchange rate ruling at the transaction date. Assets and liabilities designated in foreign currencies are translated at exchange rates ruling at the balance sheet date. Both realised and unrealised gains and losses arising from exchange differences are recognised in operating results.
Inventories
Gold inventory is carried at the lower of weighted average cost and net realisable value and includes work-in-progress at the earliest stage of production when reliable estimates of quantities and costs are capable of being made, including the breaking of ore in the stopes.
By-products are carried at the lower of the estimated variable cost associated with their production and net realisable value.
Consumables and stores are carried at weighted average cost with due allowance for obsolete and slow-moving items.
Trade receivables
Trade receivables are carried at anticipated realisable value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at year-end. Bad debts are written-off during the year in which they are identified.
Provisions
Provisions are recognised when the company has a present legal or constructive obligation as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.
Employee post-retirement obligations
The company participates in defined contribution retirement plans for employees. The pension plans are funded by payments from the employees and by the company and charged to income as incurred. The assets of the different plans are held by independently managed trust funds. These funds are governed by the Pension Funds Act, 1956, as amended. Certain employees and retired employees are entitled to post- retirement medical benefits. The estimated cost of these benefits is charged to income based on actuarial valuations made every three years.
Environmental rehabilitation
The estimated cost of final rehabilitation, comprising liabilities for decommissioning and restoration, is based on current legal requirements, existing technology and costs and is re-assessed annually.
Decommissioning costs
The estimated cost of future decommissioning obligations at the end of the operating life of the mines is included in long-term provisions. These estimated costs are reviewed regularly and adjusted for legal, technological and environmental circumstances that affect the estimates of the decommissioning obligations.
Restoration costs
The estimated cost of restoration at the end of the operating life of the mines is included in long-term provisions. Cost estimates are not reduced by the potential proceeds from the sale of assets.
Expenditure on ongoing rehabilitation is charged to the income statement as incurred.
Comparative figures
Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.
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40
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
2003
2002
2001
R'000
R'000
R'000
1.
REVENUE
Gold sales
998 217
362 709
217 647
By-products
1 263
1 093
217
999 480
363 802
217 864
2.
GOLD HEDGING
The company entered into US dollar gold and Rand gold forward sales contracts as a result of the financing of the Target Mine. These contracts are not recognised on the balance sheet as financial assets and liabilities. The revenue is recognised when the related production is delivered. The company purchased Rand/US Dollar forward exchange contracts ("FEC's") to convert the Rand gold forward sales contracts into Dollar gold commodity hedges. The negative mark-to-market value of these non-hedge FEC's of R103 million are included in the income statement (refer note 7). At 30 June 2003 the total hedge book had a negative mark-to-market value of R192 million. This was calculated at a gold price of US$346,15/oz and an exchange rate of US$1.00: R7,51.
The hedge book at 30 June 2003, after the restructuring, was as follows:
2004
2005
2006
2007
Net dollar forward sales contracts:
Quantity sold
kg
9 162
9 137
4 403
-
oz
294 579
293 762
141 545
-
US$/oz
313
316
323
-
The company does not use derivative instruments for speculative purposes. All forward sales contacts are unmargined.
2003
2002
2001
R'000
R'000
R'000
3.
OPERATING PROFIT IS STATED AFTER
Auditors' remuneration 
- audit fees
820
899
809
Directors' emoluments 
- executive directors
6 184
5 128
3 307
- non-executive directors
327
334
126
Operating lease expenditure 
- buildings/equipment
1 856
160
187
Amortisation and depreciation
186 900
57 389
19 737
Profit on sale of property, plant and equipment
1 519
3 709
-
4.
INVESTMENT INCOME
Interest received
11 996
1 973
1 104
Dividends received
966
-
207
Surplus on realisation in Rand Refinery Limited
-
-
5 029
Other
25
174
4 314
12 987
2 147
10 654
5.
FINANCE COST
Interest paid
57 946
47 801
7 741
Capitalised to pre-mining assets
-
(39 382)
(7 741)
57 946
8 419
-
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41
2003
2002
2001
R'000
R'000
R'000
6.
FOREIGN EXCHANGE GAIN
Realised foreign exchange gain
66 745
-
-
Unrealised foreign exchange gain
-
30 335
-
66 745
30 335
-
Foreign exchange gains are recorded on the translation and repayment of the 
US Dollar denominated loans raised to fund the completion of Target Mine.
7.
UNREALISED NON-HEDGE DERIVATIVES
Forward exchange contracts 
- Cost
-
-
-
- Fair value adjustment at year-end - unrealised
102 715
-
-
Forward exchange contracts entered into to convert Rand gold hedges are 
fair valued in terms of AC 133, based upon the year-end Rand/US Dollar 
exchange rate of US$1.00: R7,51.
8.
EXCEPTIONAL ITEMS
The profit realised on the sale of ETC Mine is calculated as follows:
Assets
314 479
-
-
- property, plant and equipment
274 920
-
-
- investments
18 475
-
-
- inventories
16 705
-
-
- receivables
4 379
-
-
Liabilities
69 747
-
-
- long-term provisions
34 563
-
-
- trade and other payables
28 034
-
-
- overdrafts and short-term borrowings
7 150
-
-
Net assets at date of sale
244 732
-
-
Net cash received on sale
251 817
-
-
Net profit on sale
7 085
-
-
Gross cash received on sale
255 000
-
-
Less: Attributable expenses
3 183
-
-
Attributable expenses include legal and professional fees, bonuses to 
employees and other administrative costs.
9.
TAXATION
9.1
Non-mining tax
3 603
-
-
The South African normal tax rate of 30 per cent (2002: 30 per cent) 
is applied on the non-mining taxable income which consists 
primarily of interest received.
9.2
Mining tax
Income from gold mining is taxable at a rate determined by the following formula:
y = 37 - 185/x where y is the calculated percentage tax rate and x is the 
ratio of taxable income from mining to total revenue from mining 
expressed as a percentage. Taxable income is determined after the 
deduction of mining capital expenditure.
Estimated mining recoupments tax attributable to the sale of 
Hartebeestfontein Mine
-
5 000
-
Estimated mining recoupments tax attributable to the sale of ETC Mine
5 601
-
-
Estimated unredeemed capital expenditure carried forward for 
deduction from future mining taxable income amounts to
3 578 100
3 280 200
2 449 000
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42
To date of commencement of commercial production the only temporary difference arising on Target relates to the Section 36(11)(c) allowance on the unredeemed capital expenditure. This deductible temporary difference amounts to R1,3 billion. A deferred tax asset was not recognised due to the fact that the above temporary difference does not affect either accounting profit or taxable profit on initial recognition of the assets.
9.3
Secondary Taxation on Companies ("STC")
The company did not elect to be exempt from the payment of STC. Currently, the applicable rate for STC is 12,5 per cent of dividends paid.
9.4
Tax assessments
The company has not been assessed since 1996. All returns of income, including June 2001, have been submitted. The 2002 return has been finalised and will be submitted shortly.
The tax authorities have allocated specific resources to ensure that the outstanding assessments are brought up to date.
2003
2002
2001
R'000
R'000
R'000
10. EARNINGS PER SHARE
Earnings per share are calculated by dividing the net income attributable to 
shareholders by the weighted number of ordinary shares in issue during year.
Net income attributable to shareholders
26 869
36 397
38 904
Weighted average number of ordinary shares in issue (millions)
674,0
670,2
595,4
Earnings per share (cents)
4,0
5,4
6,5
11. PROPERTY, PLANT AND EQUIPMENT
Pre-
Mine
Plant
mining
Furniture
develop-
and
Mineral
Mine
costs
and
ment machinery
rights properties capitalised equipment
2003
2002
2001
R'000
R'000
R'000
R'000
R'000
R'000
R'000
R'000
R'000
Cost
Opening balance
1 772 049
732 065
142 824
31 367
307 602
82 966
3 068 873
2 635 880
2 042 708
Additions
50 730
48 344
-
1 277
12 246
11 767
124 364
439 664
604 216
Disposals
481
403
-
1 828
-
-
2 712
6 671
11 044
Sold with ETC Mine
300 016
104 101
131
4 186
-
8 018
416 452
-
-
Reclassification
187 506
(30 040)
(706)
(421)
(150 980)
(5 359)
-
-
-
1 709 788
645 865
141 987
26 209
168 868
81 356
2 774 073
3 068 873
2 635 880
Amortisation and depreciation
Opening balance
126 891
43 388
53
5 316
1 904
7 985
185 537
129 288
119 395
Charge for year
109 342
57 510
49
1 549
9 719
8 731
186 900
57 389
19 737
Disposals
178
53
-
442
-
-
673
1 140
9 844
Sold with ETC Mine
99 557
35 503
50
200
-
6 222
141 532
-
-
Reclassification
10 070
2 668
(52)
(14)
(11 623)
(1 049)
-
-
-
146 568
68 010
-
6 209
-
9 445
230 232
185 537
129 288
Net book value at 30 June 2003
1 563 220
577 855
141 987
20 000
168 868
71 911
2 543 841
2 883 336
2 506 592
*
A register of land and buildings is available for inspection at the registered office.
-
R311 million (2002: R283 million, 2001: R2 159 million), capitalised in respect of properties which have not yet commenced production, are included in mineral rights and pre-mining costs capitalised.
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43
2003
2002
2001
R'000
R'000
R'000
12. INVESTMENTS
Unlisted mining industry investments - cost
2 374
1 891
767
Environmental trust fund 
The balance in the environmental trust fund is as follows:
Balance at beginning of year
45 980
43 726
38 668
Contributions
2 889
2 923
954
Interest earned
5 458
4 822
4 104
Payments made for work completed
(12 272)
(5 491)
-
Sold with ETC Mine
(18 475)
-
-
Balance at end of year
23 580
45 980
43 726
Total investments
25 954
47 871
44 493
12.1
Directors' valuation of unlisted mining industry investments
4 471
3 926
2 690
12.2
The environmental trust fund is recognised separately from 
the related liability on the balance sheet.
13. INVENTORIES
At cost: 
Gold in process
25 435
29 362
21 523
Consumable stores
20 972
15 399
11 724
46 407
44 761
33 247
14. LONG-TERM LOANS
Secured syndicated loan to fund Target completion 
- Rand loans
-
250 242
150 000
Long-term loan
-
300 290
150 000
Short-term portion
-
(50 048)
-
- US dollar loan expressed in Rand
-
297 830
152 453
Long-term loan
-
357 396
152 453
Short-term portion
-
(59 566)
-
-
548 072
302 453
15. LONG-TERM PROVISIONS
Long-term provisions consist of the following:
15.1
Environmental rehabilitation obligation
Provision for decommissioning: 
Gross liability at beginning of year
30 253
34 299
32 055
Revision in estimate
-
(4 312)
-
Sold with ETC Mine
(8 014)
-
-
Net provision for year
(5 499)
266
2 244
Gross liability at end of year
16 740
30 253
34 299
Provision for restoration: 
Gross liability at beginning of year
46 162
36 224
27 897
Sold with ETC Mine
(24 304)
-
-
Additional obligation recognised
-
4 312
-
Payments made
(4 975)
(1 702)
-
Net provision for year
4 917
7 328
8 327
Gross liability at end of year
21 800
46 162
36 224
Total environmental rehabilitation obligation
38 540
76 415
70 523
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44
2003
2002
2001
R'000
R'000
R'000
The provisions are based on management's best estimates of the cost of all known obligations. It is, however, reasonable to expect that changes will occur in rehabilitation costs as a result of changes in regulations or cost estimates. Cost estimates are not reduced by potential proceeds from the sale of assets or from future revenue from the clean up of gold plants in view of the uncertainty in estimating those proceeds. Environmental liabilities not directly relating to rehabilitation are expensed as incurred.
15.2
Post-retirement medical benefits
Balance at beginning of year
5 618
5 618
5 618
Sold with ETC Mine
(2 234)
-
-
Balance at end of year
3 384
5 618
5 618
The company has obligations to provide specific post-retirement medical benefits to certain of its employees and pensioners.
The liability is assessed periodically by an independent actuarial survey which uses assumptions consistent with those adopted in determining pension costs and, in addition, includes long-term estimates of the increases in medical costs at appropriate discount rates.
15.3
Retrenchment
Balance at beginning of year
-
-
7 183
Payments made during year
-
-
(6 422)
Re-allocation to short-term provisions
-
-
(761)
Balance at end of year
-
-
-
16. TRADE AND OTHER PAYABLES
Trade payables
53 934
87 990
95 797
Accruals
6 517
15 915
17 126
Taxation payable
14 207
5 000
-
Other payables
29 468
44 438
21 121
104 126
153 343
134 044
17. OVERDRAFTS AND SHORT-TERM BORROWINGS
Overdrafts
604
1 404
-
Short-term borrowings
134 316
15 411
4 660
Current portion of long-term borrowings:
Foreign
-
59 566
-
Local
-
50 048
-
134 920
126 429
4 660
18. PROPERTY, PLANT AND EQUIPMENT ACQUIRED
Opening balance
2 883 336
2 506 592
1 923 313
Non-cash flow movements:
Depreciation
(186 900)
(57 389)
(19 737)
Interest accrued
-
10 017
2 453
Foreign exchange losses capitalised
-
84 002
2 711
Property, plant and equipment sold
(2 039)
(5 531)
(1 199)
Assets sold with ETC Mine
(274 920)
-
-
Closing balance
(2 543 841)
(2 883 336)
(2 506 592)
Property, plant and equipment acquired
(124 364)
(345 645)
(599 051)
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45
2003
2002
2001
R'000
R'000
R'000
19. (DECREASE)/INCREASE IN LONG-TERM LOANS
Opening balance
(548 072)
(302 453)
-
Non-cash flow movements:
Foreign exchange loss capitalised
-
(84 002)
-
Foreign exchange gain
59 891
30 335
-
Transferred to short-term loans
111 992
-
-
Closing balance
-
548 072
300 000
Increase in long-term loans
(376 189)
191 952
300 000
20. (DECREASE)/INCREASE IN OVERDRAFTS AND
SHORT-TERM BORROWINGS
Opening balance
(126 428)
(4 660)
(206 489)
Liabilities sold with ETC business
7 150
-
-
Transferred from long-term borrowings
(111 992)
-
-
Translation adjustments and foreign exchange gains
18 693
-
-
Closing balance
134 919
126 428
4 660
(Decrease)/Increase in overdrafts and short-term borrowings during year
(77 658)
121 768
(201 829)
21. COMMITMENTS AND CONTINGENT LIABILITIES
21.1
Capital expenditure authorised by the directors
Contracted for          - Target
12 666
22 242
139 527
- Other
-
3 249
891
Not contracted for
- Target
30 940
-
171 791
- Other
-
16 520
20 065
43 606
42 011
332 274
Capital commitments will be funded from cash generated by operations.
21.2
Contingent liabilities
Arising from an agreement with LTA Process Engineering where under the company is liable for the erection costs of a tailings dam, should a dump reclamation project at ETC be cancelled
-
518
1 543
22. RETIREMENT FUNDS
The company participates in two retirement funds for its employees. These funds are defined contribution funds and are governed by the Pension Funds Act, 1956, as amended. Contributions paid for retirement benefits are charged to the income statement as they are incurred
13 985
4 793
3 167
23. RELATED PARTY TRANSACTIONS
Related party transactions occurred at arm's length.
The only significant related transaction is: 
Anglovaal Mining Limited - provision of services
2 273
2 862
1 056
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Annexure 6
Interim financial information of Avgold
UNAUDITED FINANCIAL RESULTS FOR THE QUARTER AND HALF-YEAR ENDED 31 DECEMBER 2003
1.
INCOME STATEMENTS
Audited
Unaudited
Unaudited
Year
Quarter ended
Half-year ended
ended
December
December September
December
December
June
2003
2002*
2003
2003
2002*
2003*
Revenue
202 717
241 635
244 190
446 907
502 363
999 480
- gold revenue
202 389
241 170
243 933
446 322
501 708
998 217
- by-products
328
465
257
585
655
1 263
Costs and expenses
193 839
225 230
201 300
395 139
452 784
889 560
- gold operating
132 486
176 053
127 360
259 846
348 663
673 344
- amortisation
58 768
42 918
68 343
127 111
92 030
186 900
- administration and general
2 585
6 259
5 597
8 182
12 091
29 316
Operating profit
8 878
16 405
42 890
51 768
49 579
109 920
Investment income
284
3 469
572
856
6 582
12 987
Finance cost
972
14 991
2 902
3 874
29 128
57 946
Foreign exchange gain
-
62 573
-
-
52 075
66 745
Unrealised non-hedge derivatives
(59 785)
-
(123 730)
(183 515)
-
(102 715)
Income/(Loss) before exceptional item
(51 595)
67 456
(83 170)
(134 765)
79 108
28 991
Exceptional items
-
-
4 661
4 661
-
7 085
Income/(Loss) before taxation
(51 595)
67 456
(78 509)
(130 104)
79 108
36 076
Taxation
-
-
3 750
3 750
-
9 207
Net earnings/(loss) for period
(51 595)
67 456
(82 259)
(133 854)
79 108
26 869
Additional information:
Net earnings for period excluding unrealised 
non-hedge derivatives
8 190
67 456
41 471
49 661
79 108
129 584
Headline earnings/(loss)
(51 395)
67 456
(83 170)
(134 765)
79 108
25 385
Headline earnings before unrealised 
non-hedge derivatives
8 190
67 456
40 560
48 750
79 108
128 100
Headline earnings/(loss) per share (cents)
(8)
10
(12)
(20)
12
4
Headline earnings per share before unrealised 
non-hedge derivatives (cents)
1
10
6
7
12
19
Earnings/(Loss) per share (cents)
(8)
10
(12)
(20)
12
4
Weighted number of shares in issue (million)
679
674
677
678
674
674
Reconciliation of earnings and headline earnings:
Net earnings/(loss) per income statement
(51 595)
67 456
(82 259)
(133 854)
79 108
26 869
Exceptional item:
Profit on sale of ETC Mine
-
-
(4 661)
(4 661)
-
(7 085)
Recoupments tax:
On sale of ETC Mine
-
-
3 750
3 750
-
5 601
(51 595)
67 456
(83 170)
(134 765)
79 108
25 385
46
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2.
BALANCE SHEETS
Unaudited
Audited
31 December
30 June
2003
2003*
R'000
R'000
ASSETS
Non-current assets
2 480 241
2 569 795
Property, plant and equipment
2 454 841
2 543 841
Investments
25 400
25 954
Current assets
94 205
84 382
Inventories
46 280
46 407
Trade and other receivables
47 003
37 214
Deposits and cash
922
761
Total assets
2 574 446
2 654 177
EQUITY AND LIABILITIES
Capital and reserves
Share capital
6 801
6 765
Share premium
2 236 766
2 219 900
Retained income/(Accumulated loss)
(90 027)
43 827
Total shareholders' equity
2 153 540
2 270 492
Non-current liabilities
324 770
144 639
Non-hedge derivatives
286 230
102 715
Long-term provisions
38 540
41 924
Current liabilities
96 136
239 046
Trade and other payables
92 549
104 126
Short-term borrowings
3 587
134 920
Total equity and liabilities
2 574 446
2 654 177
* Comparative figures for December 2002 include ETC. The year ended 30 June 2003 figures include ETC to 15 June 2003.
47
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3.
CASH FLOW STATEMENTS
Audited
Unaudited
Year
Half-year ended
ended
December
December
June
2003
2002*
2003*
R'000
R'000
R'000
Cash generated from/(utilised by) operations 
Operating profit
51 768
49 579
109 920
Non-cash items and adjustments 
Amortisation and depreciation
127 111
92 030
186 900
Provisions
(2 908)
(808)
(5 546)
Profit on sale of property, plant and equipment
-
-
(1 519)
175 971
140 801
289 755
Net withdrawal from environmental trust fund
-
-
3 925
Investment income
938
6 582
12 987
Finance charges
(3 874)
(29 128)
(57 946)
173 035
118 255
248 721
Cash provided by/(reinvested in) working capital 
Inventories
127
(10 740)
(18 351)
Trade and other payables
(15 327)
(34 457)
(30 390)
Trade and other receivables
(9 789)
1 043
13 578
Net cash generated from operating activities
148 046
74 101
213 558
Cash utilised in investment activities 
Property, plant and equipment acquired
(50 050)
58 584
(124 364)
Investments acquired
(2)
-
(483)
Property, plant and equipment sold
16 598
1 777
3 558
Proceeds on sale of ETC Mine
-
-
251 817
(33 454)
(56 807)
130 528
Cash provided by financing activities 
Net increase in shareholders' funding
16 902
7 910
13 551
Leased assets
-
(691)
(1 434)
Decrease in long-term loans
-
-
(376 189)
(Decrease)/Increase in overdrafts and short-term borrowings
(131 333)
3 776
(76 224)
(114 431)
10 995
(440 296)
Increase/(Decrease) in cash balances
161
28 289
(96 210)
Cash and cash equivalents at beginning of period
761
108 810
108 810
Translation adjustment
-
(3 712)
(11 839)
Cash and cash equivalents at end of period
922
133 387
761
4.
STATEMENTS OF SHAREHOLDERS' EQUITY
Retained
Unaudited
Audited
Ordinary
income/
Half-year ended
Year ended
share capital (Accumulated
December
December
June
and premium
loss)
2003
2002
2003
R'000
R'000
R'000
R'000
R'000
Changes in shareholders' equity 
Balance at beginning of period
2 226 665
43 827
2 270 492
2 230 072
2 230 072
Share options exercised
16 932
-
16 932
7 936
13 584
Derivative instruments
(30)
-
(30)
-
-
Expenses written-off against share premium
-
-
-
(26)
(33)
Transfer to equity reserves
-
-
-
(3 301)
-
Net earnings/(loss) for period
-
(133 854)
(133 854)
79 108
26 869
Balance at end of period
2 243 567
(90 027)
2 153 540
2 313 789
2 270 492
* Comparative figures for December 2002 include ETC. The year ended 30 June 2003 figures include ETC to 15 June 2003.
48
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Hedging
At 31 December 2003, Avgold's hedge book represented 72 per cent of forecast gold production to June 2006 and had a mark-to market value of a negative R394 million. This was calculated at a gold price of US$414.82/oz and an exchange rate of US$1.00:ZAR6, 65. This mark-to-market valuation is inclusive of a negative R286 million pertaining to the Rand/US$ forward exchange contracts utilised to convert the Rand gold hedges into Dollar gold hedges. The fair value adjustment on these FEC's has been included in the income statement. The hedges are unmargined and Avgold is maintaining its policy of not using derivatives instruments for speculative purposes.
Earnings are significantly distorted as a result and do not present an accurate economic picture of the company's results during the reporting period.
Subsequent changes to exchange rates will result in adjustments to the income statement thereby creating further variability in earnings.
Borrowings
Net borrowings reduced significantly during the quarter to R3 million (R46 million) following continuing positive cash flows from Target.
Prospects
We remain confident about achieving our production objective of 350 000 oz for the year to 30 June 2004 and are committed to maintain the critical path and optimise the orebody extraction. We are fully focused on achieving cost efficiencies and will minimise our cash costs. Earnings will, however, continue to be affected by future fluctuations in the Rand/US$ exchange rate.
Dividend policy
The dividend policy will be reviewed pending the outcome of the Harmony offer referred to below.
Accounting policies
The accounting policies used are in accordance with South African Statements of Generally Accepted Accounting Practice and are consistent with those applied in the previous financial year.
49
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50
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Annexure 7
A COMPETENT PERSON'S REPORT CONTAINING INFORMATION ON THE MINING ASSETS OF HARMONY INCLUDING AVGOLD
AN INDEPENDENT COMPETENT PERSON'S REPORT ON CERTAIN MINING ASSETS OF
HARMONY GOLD MINING COMPANY LIMITED AND AVGOLD LIMITED
Prepared for:
HARMONY GOLD MINING COMPANY LIMITED
AND
AVGOLD LIMITED
Prepared by:
Steffen, Robertson and Kirsten
(South Africa) (Proprietary) Limited
SRK House, 265 Oxford Road
Illovo, Johannesburg
Gauteng Province
Republic of South Africa
Tel: +27-(0)11-441 1111
Fax: +27-(0)11-441 1101
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51
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Annexure 7
CONTENTS
Section
Description
Page
1.
INTRODUCTION
59
1.1
Background
59
1.2
Requirement for the CPR
60
1.3
Structure of the CPR
60
1.4
Valuation Date and Base Technical Information
61
1.5
Verification, Validation and Reliance
61
1.5.1
Technical Reliance
62
1.5.2
Financial Reliance - the Companies
62
1.5.3
Financial Reliance - Deutsche Bank (South Africa)
62
1.5.4
Legal Reliance
63
1.6
Valuation Techniques
63
1.7
JSE Compliance
64
1.8
Warranties and Limitations
64
1.9
Disclaimers and Cautionary Statements for US Investors
65
1.10
Qualifications of Consultants
65
1.11
Valuation Summary
66
2.
MINING ASSETS
67
2.1
Introduction
67
2.2
The Companies and Operating Structures
67
2.2.1
Avgold
67
2.2.2
Harmony
68
2.3
Overview of the Mining Assets
70
2.3.1
Target Operations
70
2.3.2
Free Gold Operations
71
2.3.3
Harmony Free State Operations
73
2.3.4
Welkom Operations
74
2.3.5
West Wits Operations
75
2.3.6
Evander Operations
77
2.3.7
Orkney Operations
78
2.3.8
Kalgold Operation
79
2.3.9
Harmony Australian Operations
80
2.3.10
Harmony Canadian Operations
81
2.4
Significant Exploration Properties
81
2.4.1
Avgold
81
2.4.2
Harmony
82
2.5
Mining Authorisations and Mining Leases
82
2.5.1
South African Law: Current Status
83
2.5.2
South African Law: The Minerals and Petroleum Resources Development Act
83
2.5.3
South African Law: Prospecting Permits
83
2.5.4
South African Law: Mining Authorisations
84
2.5.5
South African Law: The Royalty Bill
84
2.5.6
Australian Law
84
2.5.7
Avgold: Current Status
85
2.5.8
Harmony: Current Status
85
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Annexure 7
Section
Description
Page
3.
GEOLOGY
94
3.1
Introduction
94
3.2
South African Goldfields
94
3.2.1
Free State Goldfield
94
3.2.2
West Rand Goldfield
95
3.2.3
Far West Rand Goldfield
95
3.2.4
Evander Goldfield
96
3.2.5
Klerksdorp Goldfield
96
3.3
Deposit Geology
96
3.3.1
Target Operations
97
3.3.2
Free Gold Operations
98
3.3.3
Harmony Free State Operations
100
3.3.4
Welkom Operations
101
3.3.5
West Wits Operations
101
3.3.6
Evander Operations
103
3.3.7
Orkney Operations
103
3.3.8
Kalgold Operations
104
3.3.9
Harmony Australian Operations
104
3.3.10
Harmony Canadian Operations
105
3.4
Exploration Potential
105
4.
MINERAL RESOURCES AND MINERAL RESERVES
106
4.1
Introduction
106
4.2
Review Procedures
106
4.3
South African Deposits: Mineral Resource and Mineral Reserve Estimation Methodologies
107
4.3.1
Quality and Quantity of Data
107
4.3.2
Orebody and Block Definition
109
4.3.3
Grade and Tonnage Estimation
109
4.3.4
Classification
111
4.3.5
Selective Mining Units
112
4.3.6
Grade Control and Reconciliation
113
4.3.7
Reserve Estimation
113
4.4
International Deposits: Mineral Resource and Mineral Reserve Estimation Methodologies
115
4.4.1
Quality and Quantity of Data
115
4.4.2
Orebody Definition
116
4.4.3
Grade and Tonnage Estimation
116
4.4.4
Grade Control and Reconciliation
116
4.4.5
Reserve Estimation
116
4.5
Mineral Resource and Mineral Reserve Statements
116
4.5.1
Target Operations
118
4.5.2
Free Gold Operations
119
4.5.3
Harmony Free State Operations
120
4.5.4
Welkom Operations
121
4.5.5
West Wits Operations
122
4.5.6
Evander Operations
123
4.5.7
Orkney Operations
124
4.5.8
Kalgold Operation
125
4.5.9
Harmony Australian Operations
125
4.5.10
Harmony Canadian Operations
126
4.5.11
Avgold
127
4.5.12
Harmony
127
4.6
Mineral Resource and Mineral Reserve Potential
128
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Annexure 7
Section
Description
Page
5.
MINING
128
5.1
Introduction
128
5.2
Mine Planning
128
5.3
Overview of Mining Operations
129
5.3.1
Target Operations - Target Mine
129
5.3.2
Free Gold Operations
132
5.3.3
Harmony Free State Operations
134
5.3.4
Welkom Operations
135
5.3.5
West Wits Operations
136
5.3.6
Evander Operations
137
5.3.7
Orkney Operations
138
5.3.8
Kalgold Operation
139
5.3.9
Harmony Australian Operations
140
5.4
Contribution to LoM Production
141
6.
METALLURGY
142
6.1
Introduction
142
6.2
Processing Facilities
142
6.2.1
Target Operations - Target Mine
142
6.2.2
Free Gold Operations
143
6.2.3
Harmony Free State Operations
144
6.2.4
Welkom Operations
145
6.2.5
West Wits Operations
145
6.2.6
Evander Operations
146
6.2.7
Orkney Operations
146
6.2.8
Kalgold Operations
146
6.2.9
Harmony Australian Operations
147
6.2.10
Harmony Canadian Operations
147
6.3
Sampling, Analysis, Gold Accounting and Security
148
6.3.1
Avgold
148
6.3.2
Harmony
148
6.4
Plant Clean-Up
149
7.
TAILINGS
153
7.1
Introduction
153
7.2
Target Operations - Target Mine
153
7.3
Free Gold Operations
153
7.4
Harmony Free State Operations
154
7.5
Welkom Operations
154
7.6
West Wits Operations
154
7.7
Evander Operations
154
7.8
Orkney Operations
154
7.9
Kalgold Operation
155
7.10
Harmony Australian Operations
155
7.11
Harmony Canadian Operations
155
7.12
LoM Tailings Deposition Assessment
155
8.
ENGINEERING INFRASTRUCTURE AND CAPITAL PROJECTS
146
8.1
Introduction
156
8.2
Engineering Infrastructure of the Mining Assets
156
8.3
LoM Capital Expenditures Programmes
157
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Annexure 7
Section
Description
Page
9.
HUMAN RESOURCES
158
9.1
Introduction
158
9.2
Legislation
158
9.3
Organisational Structures and Operational Management
159
9.4
Recruitment, Training, Productivity Initiatives and Remuneration Policies
159
9.5
Industrial Relations
160
9.6
Productivity Assumptions
160
9.7
Separation Liability
161
10.
HEALTH AND SAFETY
161
10.1
Introduction
161
10.2
Legislation
161
10.3
Statistics
162
10.4
Health and Safety Management
163
10.5
Future Considerations
163
11.
ENVIRONMENTAL
164
11.1
Introduction
164
11.2
South African Legislation and Compliance
164
11.2.1
Legislation and Environment
164
11.2.2
Compliance
165
11.3
International Legislation and Compliance
166
11.3.1
Harmony Australian Operations
166
11.3.2
Harmony Canadian Operations
166
11.4
Environmental Policy and Management
166
11.4.1
Avgold
166
11.4.2
Harmony
167
11.5
Environmental Issues
167
11.5.1
Target Operations
167
11.5.2
Free Gold Operations
168
11.5.3
Harmony Free State Operations
169
11.5.4
Welkom Operations
169
11.5.5
West Wits Operations
169
11.5.6
Evander Operations
170
11.5.7
Orkney Operations
170
11.5.8
Kalgold Operation
170
11.5.9
Harmony Australian Operations
170
11.5.10
Harmony Canadian Operations
171
11.6
Liabilities and Risks
171
11.7
Environmental Liabilities
171
12.
TECHNICAL-ECONOMIC INPUT PARAMETERS
172
12.1
Introduction
172
12.2
Basis of Valuation and Technical-Economic Parameters
172
12.3
Technical-Economic Parameters
173
12.4
Avgold
178
12.5
Harmony
179
12.6
Special Factors
181
12.6.1
General Risks and Opportunities
181
12.6.2
Operational Specific Risks and Opportunities
181
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Annexure 7
Section
Description
Page
13.
MINING ASSETS VALUATION
183
13.1
Introduction
183
13.2
Basis of Valuation of the Mining Assets
183
13.3
Limitations and Reliance on Information
184
13.4
Valuation Methodology
184
13.5
Post-Tax Pre-Finance Cash Flows
186
13.6
Net Present Values and Sensitivities
200
13.6.1
Target Tax Entity
200
13.6.2
Free Gold Tax Entity
201
13.6.3
Joel Tax Entity
202
13.6.4
Harmony Free State Tax Entity
203
13.6.5
Welkom Tax Entity
204
13.6.6
Randfontein Tax Entity
205
13.6.7
Orkney Tax Entity
206
13.6.8
Evander Tax Entity
207
13.6.9
Kalgold Tax Entity
208
13.6.10 Mt. Magnet & Cue Tax Entity
209
13.6.11 South Kalgoorlie Tax Entity
210
13.7
Avgold's Tax Entities
211
13.8
Harmony's Tax Entities
212
14.
SUMMARY EQUITY VALUATION AND CONCLUDING REMARKS
213
14.1
Summary Equity Valuation
213
14.2
Hedge Books
214
14.2.1
Avgold
214
14.2.2
Harmony
215
14.3
Precedent Transactions
216
14.4
Concluding Remarks
218
GLOSSARY, ABBREVIATIONS AND UNITS
219
Appendage 1 OTHER INVESTMENTS
233
Table No.
Description
TABLES
Table
1.1
Base Case Macro-Economic Parameters
63
Table
1.2
JSE Compliance Cross-reference
64
Table
2.1
Avgold: Company Development
67
Table
2.2
Avgold: Salient Historical Operating Statistics
68
Table
2.3
Harmony: Company Development
69
Table
2.4
Harmony: Salient Historical Operating Statistics
70
Table
2.5
Target Operations - Target Mine: Salient Operating Statistics
71
Table
2.6
Target Operations - Target Mine: Salient Historical Operating Statistics
71
Table
2.7
Free Gold Operations: Salient Operating Statistics
72
Table
2.8
Free Gold Operations: Salient Historical Operating Statistics
72
Table
2.9
Harmony Free State Operations: Salient Operating Statistics
73
Table
2.10
Harmony Free State Operations: Salient Historical Operating Statistics
74
Table
2.11
Welkom Operations: Salient Operating Statistics
74
Table
2.12
Welkom Operations: Salient Historical Operating Statistics
75
Table
2.13
West Wits Operations: Salient Operating Statistics
76
Table
2.14
West Wits Operations: Salient Historical Operating Statistics
76
Table
2.15
Evander Operations: Salient Operating Statistics
77
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56
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Annexure 7
Table No.
Description
Page
Table
2.16
Evander Operations: Salient Historical Operating Statistics
77
Table
2.17
Orkney Operations: Salient Operating Statistics
78
Table
2.18
Orkney Operations: Salient Historical Operating Statistics
78
Table
2.19
Kalgold Operation: Salient Operating Statistics
79
Table
2.20
Kalgold Operation: Salient Historical Operating Statistics
79
Table
2.21
Harmony Australian Operations: Salient Operating Statistics
80
Table
2.22
Harmony Australian Operations: Salient Historical Operating Statistics
80
Table
2.23
Harmony Canadian Operations: Salient Historical Operating Statistics
81
Table
2.24
Avgold: Land Holdings
85
Table
2.25
Harmony: South African Operations Land Holdings
85
Table
2.26
Harmony: Australian Operations Land Holdings
86
Table
4.1
Target Operations - Target Mine: Assumed Modifying Factors
114
Table
4.2
Free Gold Operations: Assumed Modifying Factors
114
Table
4.3
Harmony Free State Operations: Assumed Modifying Factors
114
Table
4.4
Welkom Operations: Assumed Modifying Factors
115
Table
4.5
West Wits Operations: Assumed Modifying Factors
115
Table
4.6
Evander Operations: Assumed Modifying Factors
115
Table
4.7
Orkney Operations: Assumed Modifying Factors
115
Table
4.8
Target Operations: Target Mine - Mineral Resource and Mineral Reserve Statement
118
Table
4.9
Target Operations: NFSEC - Mineral Resource and Mineral Reserve Statement
118
Table
4.10
Free Gold Operations: Mineral Resource and Mineral Reserve Statement
119
Table
4.11
Free Gold Operations: Mineral Resource, Mineral Reserve and LoM plan Sensitivity
119
Table
4.12
Harmony Free State Operations: Mineral Resource and Mineral Reserve Statement
120
Table
4.13
Harmony Free State Operations: Mineral Resource, Mineral Reserve and LoM plan Sensitivity     120
Table
4.14
Welkom Operations: Mineral Resource and Mineral Reserve Statement
121
Table
4.15
Welkom Operations: Mineral Resource, Mineral Reserve and LoM plan Sensitivity
121
Table
4.16
West Wits Operations: Mineral Resource and Mineral Reserve Statement
122
Table
4.17
West Wits Operations: Mineral Resource, Mineral Reserve and LoM plan Sensitivity
122
Table
4.18
Evander Operations: Mineral Resource and Mineral Reserve Statement
123
Table
4.19
Evander Operations: Mineral Resource, Mineral Reserve and LoM plan Sensitivity
123
Table
4.20
Orkney Operations: Mineral Resource and Mineral Reserve Statement
124
Table
4.21
Orkney Operations: Mineral Resource, Mineral Reserve and LoM plan Sensitivity
124
Table
4.22
Kalgold Operations: Mineral Resource and Mineral Reserve Statement
125
Table
4.23
Harmony Australia Operations - Mt. Magnet & Cue: Mineral Resource and Mineral Reserve Statement
125
Table
4.24
Harmony Australian Operations - South Kalgoorlie: Mineral Resource and Mineral Reserve Statement
126
Table
4.25
Harmony Canadian Operations: Mineral Resource and Mineral Reserve Statement
126
Table
4.26
Avgold: Mineral Resource and Mineral Reserve Statement
127
Table
4.27
Harmony: Mineral Resource and Mineral Reserve Statement
127
Table
5.1
Mining Assets: Production Contribution to LoM Plans
141
Table
6.1
Mining Assets: Clean-up Gold Estimates
149
Table
7.1
Mining Assets: Assessments of Tailings Storage Capacity for LoM Plans
156
Table
8.1
Mining Assets: Estimated Capital Expenditures
158
Table
9.1
Mining Assets: Historical TECs
159
Table
9.2
Mining Assets: Historical Productivity Initiatives
160
Table
9.3
Tax Entities: Separation Costs
161
Table
10.1
Mining Assets: Historical Safety Statistics
162
Table
11.1
Tax Entities: Environmental Liabilities
172
Table
12.1
Target Tax Entity: Total Assumed TEPs
174
Table
12.2
Free Gold Tax Entity: Total Assumed TEPs
174
Table
12.3
Joel Tax Entity: Total Assumed TEPs
175
Table
12.4
Harmony Free State Tax Entity: Total Assumed TEPs
175
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57
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Annexure 7
Table No.
Description
Page
Table
12.5
Welkom Tax Entity: Total Assumed TEPs
175
Table
12.6
Randfontein Tax Entity: Total Assumed TEPs
176
Table
12.7
Evander Tax Entity: Total Assumed TEPs
176
Table
12.8
Orkney Tax Entity: Total Assumed TEPs
177
Table
12.9
Kalgold Tax Entity: Total Assumed TEPs
177
Table
12.10 Mt. Magnet & Cue Tax Entity: Total Assumed TEPs
177
Table
12.11
South Kalgoorlie Tax Entity: Total Assumed TEPs
177
Table
12.12 Avgold: Total Assumed TEPs
178
Table
12.13 Harmony: Total Assumed TEPs
179
Table
13.1
Assessed Losses and Unredeemed Capital at 31 December 2003
184
Table
13.2
Working Capital Opening Balances at 31 December 2003
185
Table
13.3
Target Tax Entity: TEM in ZAR (nominal terms)
187
Table
13.4
Free Gold Tax Entity: TEM in ZAR (nominal terms)
188
Table
13.5
Joel Tax Entity: TEM in ZAR (nominal terms)
189
Table
13.6
Harmony Free State Tax Entity: TEM in ZAR (nominal terms)
190
Table
13.7
Welkom Tax Entity: TEM in ZAR (nominal terms)
191
Table
13.8
Randfontein Tax Entity: TEM in ZAR (nominal terms)
192
Table
13.9
Evander Tax Entity: TEM in ZAR (nominal terms)
193
Table
13.10 Orkney Tax Entity: TEM in ZAR (nominal terms)
194
Table
13.11
Kalgold Tax Entity: TEM in ZAR (nominal terms)
195
Table
13.12 Mt. Magnet & Cue Tax Entity: TEM in ZAR (nominal terms)
196
Table
13.13 South Kalgoorlie: TEM in ZAR (nominal terms)
197
Table
13.14 Avgold: TEM in ZAR (nominal terms)
198
Table
13.15 Harmony: TEM in ZAR (nominal terms)
199
Table
13.16 Target Tax Entity: NPV at a Range of Discount Factors
200
Table
13.17 Target Tax Entity: NPV Sensitivity - Varying Single Parameter
200
Table
13.18 Target Tax Entity: NPV Sensitivity - Varying Twin Parameter at 12.0% Discount
200
Table
13.19 Free Gold Tax Entity: NPV at a Range of Discount Factors
201
Table
13.20 Free Gold Tax Entity: NPV Sensitivity - Varying Single Parameter
201
Table
13.21 Free Gold Tax Entity: NPV Sensitivity - Varying Twin Parameter at 12.0% Discount
210
Table
13.22 Joel Tax Entity: NPV at a Range of Discount Factors
202
Table
13.23 Joel Tax Entity: NPV Sensitivity - Varying Single Parameter
202
Table
13.24 Joel Tax Entity: NPV Sensitivity - Varying Twin Parameter at 12.0% Discount
202
Table
13.25 Harmony Free State Tax Entity: NPV at a Range of Discount Factors
203
Table
13.26 Harmony Free State Tax Entity: NPV Sensitivity - Varying Single Parameter
203
Table
13.27 Harmony Free State Tax Entity: NPV Sensitivity - Varying Twin Parameter at 12.0% Discount
203
Table
13.28 Welkom Tax Entity: NPV at a Range of Discount Factors
204
Table
13.29 Welkom Tax Entity: NPV Sensitivity - Varying Single Parameter
204
Table
13.30 Welkom Tax Entity: NPV Sensitivity - Varying Twin Parameter at 12.0% Discount
204
Table
13.31 Randfontein Tax Entity: NPV at a Range of Discount Factors
205
Table
13.32 Randfontein Tax Entity: NPV Sensitivity - Varying Single Parameter
205
Table
13.33 Randfontein Tax Entity: NPV Sensitivity - Varying Twin Parameter at 12.0% Discount
205
Table
13.34 Orkney Tax Entity: NPV at a Range of Discount Factors
206
Table
13.35 Orkney Tax Entity: NPV Sensitivity - Varying Single Parameter
206
Table
13.36 Orkney Tax Entity: NPV Sensitivity - Varying Twin Parameter at 12.0% Discount
206
Table
13.37 Evander Tax Entity: NPV at a Range of Discount Factors
207
Table
13.38 Evander Tax Entity: NPV Sensitivity - Varying Single Parameter
207
Table
13.39 Evander Tax Entity: NPV Sensitivity - Varying Twin Parameter at 12.0% Discount
207
Table
13.40 Kalgold Tax Entity: NPV at a Range of Discount Factors
208
Table
13.41 Kalgold Tax Entity: NPV Sensitivity - Varying Single Parameter
208
Table
13.42 Kalgold Tax Entity: NPV Sensitivity - Varying Twin Parameter at 12.0% Discount
208
Table
13.43 Mt. Magnet & Cue Tax Entity: NPV at a Range of Discount Factors
209
Table
13.44 Mt. Magnet & Cue Tax Entity: NPV Sensitivity - Varying Single Parameter
209
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58
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Annexure 7
Table No.
Description
Page
Table
13.45 Mt. Magnet & Cue Tax Entity: NPV Sensitivity - Varying Twin Parameter at 12.0% Discount
209
Table
13.46 South Kalgoorlie Tax Entity: NPV at a Range of Discount Factors
210
Table
13.47 South Kalgoorlie Tax Entity: NPV Sensitivity - Varying Single Parameter
210
Table
13.48 South Kalgoorlie Tax Entity: NPV Sensitivity - Varying Twin Parameter at 12.0% Discount
210
Table
13.49 Summations of Avgold Tax Entities: NPV at a Range of Discount Factors
211
Table
13.50 Summations of Avgold Tax Entities: NPV Sensitivity - Varying Single Parameter
211
Table
13.51 Summations of Avgold Tax Entities: NPV Sensitivity - Varying Twin Parameter
at 12.0% Discount
211
Table
13.52 Summations of Harmony Tax Entities: NPV at a Range of Discount Factors
212
Table
13.53 Summations of Harmony Tax Entities: NPV Sensitivity - Varying Single Parameter
212
Table
13.54 Summations of Harmony Tax Entities: NPV Sensitivity - Varying Twin Parameter
at 12.0% Discount
212
Table
14.1
Avgold: Summary Equity Valuation
213
Table
14.2
Harmony: Summary Equity Valuation
214
Table
14.3
Avgold: Net Hedge Book
215
Table
14.4
Harmony: Net Hedge Book
215
Table
14.5
Recent Gold Transactions in Africa
216
Figure No.
Description
FIGURES
Figure
2.1
Mining Assets: General Location Map
87
Figure
2.2
Avgold: Location Map and Lease Area for Target Operations
88
Figure
2.3
Harmony: Location Map and Lease Area Harmony Free Gold Operations, Free State Operations and Welkom Operations
89
Figure
2.4
Harmony: Location Map and Lease Area for Evander Operations
90
Figure
2.5
Harmony: Location Map and Lease Area for Orkney Operations
91
Figure
2.6
Harmony: Location Map and Lease Area for West Wits Operations, Elandsrand and Deelkraal
92
Figure
2.7
Harmony: Location Map and Lease Area for West Wits Operations, Randfontein Estates
93
Figure
6.1
Avgold/Harmony: Schematic Flow Diagram of a Typical Carbon in Pulp Plant
150
Figure
6.2
Avgold/Harmony: Schematic Flow Diagram of a Typical Carbon in Leach Plant
151
Figure
6.3
Avgold/Harmony: Schematic Flow Diagram of a Typical Filtration and Zinc Precipitation Plant
152
Figure
12.1
Avgold: Projected LoM Recovered Gold
178
Figure
12.2
Avgold: Projected LoM Tonnes Milled
179
Figure
12.3
Harmony: Projected LoM Recovered Gold
180
Figure
12.4
Harmony: Projected LoM Tonnes Milled
180
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AN INDEPENDENT COMPETENT PERSON'S REPORT ON CERTAIN MINING ASSETS OF
AVGOLD LIMITED AND HARMONY GOLD MINING COMPANY LIMITED
1.
INTRODUCTION
1.1
Background
Steffen, Robertson and Kirsten (South Africa) (Pty) Limited ("SRK") is a subsidiary of the international Group holding company, SRK Global Limited (the "SRK Group"). SRK has been commissioned by the Directors of Avgold Limited ("Avgold") and Harmony Gold Mining Company Limited ("Harmony") to prepare an independent competent person's report ("CPR") on certain mining assets (the "Mining Assets") of Avgold and Harmony (the "Companies").
The Mining Assets of Avgold include:
·
a 100% interest in the Target Gold Mine ("Target Mine") located in the Free State Province, South Africa; and
·
a 100% interest in Target North, Oribi and Sun South deposits to the north of the existing Target Mine.
The Mining Assets of Harmony include:
·
a 100% interest in Free Gold Joint Venture Company (Proprietary) Limited ("Free Gold");
·
a 100% interest in Joel Mine situated in the Free State Goldfield, South Africa, hereinafter defined as ("Joel"). Ownership of this assets is held at the Harmony level;
·
a 100% interest in Randfontein Estates Limited ("Randfontein");
·
a 100% interest in Evander Gold Mining Company Limited ("Evander");
·
a 100% interest in Kalahari Goldridge Mining Company Limited ("Kalgold"). Harmony is in the process of disposing of its entire interest in Kalgold to Afrikander Lease Limited ("Aflease"). The sale will be effective after all the legal conditions of the transaction have been met, which is anticipated by the end of February 2004. Conditional to the sale is that Harmony retains its interests in the company's Kalplats platinum discovery and associated mineral rights;
·
a 100% interest in Harmony Gold (Australia) Proprietary Limited ("Harmony Australia");
·
a 100% interest in Harmony Gold (Canada) Inc ("Harmony Canada");
·
a 100% interest in various mining operations situated in the Free State Goldfield, South Africa, hereinafter defined as ("Harmony Free State"). Ownership of these assets is held at the Harmony level;
·
a 100% interest in various significant exploration properties, notably the Rolspruit gold project ("Rolspruit"), the Poplar gold project ("Poplar") and the Kalplats PGM project ("Kalplats");
·
a 100% interest in the mining operations situated in Orkney, South Africa, previously owned and operated by African Rainbow Minerals Gold Limited ("ARMgold") herein defined as ("Harmony Orkney"). Ownership of these assets is currently held at Harmony level; and
·
a 100% interest in the mining operations situated in Welkom, South Africa, previously owned and operated by ARMgold herein defined as ("Harmony Welkom"). Ownership of these assets is currently held at Harmony level.
In addition, Harmony holds interests in wholly-owned, joint venture and associate companies via direct and indirect subsidiaries. These interests comprise dormant companies, exploration companies, investment holding companies, management service companies, marketing companies, beneficiation companies, mineral rights holding companies and property holding companies.
All assets incorporating operating mines and exploration properties, for which Harmony holds less than 100% and/or does not have legal rights to disclose information, other than that already reported in the public domain, have therefore been excluded from the collective term Mining Assets and do not form part of this CPR. Specifically, Harmony's material interests that are not reported upon in this CPR, include:
·
a 33.9% interest in Anglovaal Mining Limited ("Avmin") which was recently acquired through an ARMgold/Harmony joint venture. The principal assets in Avmin include:
50.3% of Assmang Limited which operates various manganese ore, iron ore and chrome ore operations located in the Republic of South Africa ("South Africa");
55.0% of Two Rivers Platinum (Proprietary) Limited ("Two Rivers") which is currently developing a platinum mining operation located in Mpumalanga Province, South Africa;
- 100% of the Nkomati nickel mine ("Nkomati") located in Mpumalanga Province, South Africa;
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·
Harmony's 87% interest in Abelle Limited ("Abelle") a company listed on the Australian Stock Exchange Limited ("ASX"), which operates a gold mining operation in Australia and has various interests in exploration properties in Australia and Papua New Guinea; and
·
Harmony's 31.8% interest in Bendigo Mining NL ("Bendigo") a company listed on the ASX which owns a single gold development project in Australia.
Appendage 1 to this report includes brief technical summaries of these assets, which have been reproduced from information lawfully contained in the public domain. SRK has not had access to either the underlying information or supporting data, therefore no opinion has been provided herein.
1.2
Requirement for the CPR
SRK has been informed that Avgold and Harmony have reached an agreement, in terms of a merger agreement (the "Merger"). It is intended that the Merger will be implemented by means of a Scheme of Arrangement (the "Scheme") to be proposed by Avgold, between Harmony and its shareholders.
This CPR principally comprises a technical-economic appraisal of the Mining Assets and has been prepared in compliance with the Listings Requirements of the JSE Securities Exchange, South Africa (the "JSE"), specifically Sections 12.3, 12.8, 12.9 and 12.14.
A copy of this CPR will be included in the Scheme document and circular to be dispatched to the Companies' shareholders. In this CPR, SRK provides assurances to the directors of the Companies that the technical- economic projections ("TEPs"), including production profiles, operating expenditures and capital expenditures, of the Mining Assets as provided to SRK by the Companies and reviewed by SRK are reasonable, given the information currently available.
1.3
Structure of the CPR
For reporting purposes SRK note that the valuations of the Mining Assets have been grouped in accordance with the following Tax Entities, herein referred to as ("the Tax Entities") and that all entries (including text, tables and other data) are quoted assuming 100% ownership and not on an attributable basis according to the respective shareholdings:
·
the tax entity within which Target Mine is assessed ("Target Tax Entity");
·
the tax entity within which Free Gold is assessed ("Free Gold Tax Entity");
·
the tax entity within which Joel is assessed ("Joel Tax Entity");
·
the tax entity within which Harmony Free State is assessed ("Harmony Free State Tax Entity");
·
the tax entity within which Harmony Welkom is assessed ("Harmony Welkom Tax Entity");
·
the tax entity within which Randfontein Estates Limited is assessed ("Randfontein Tax Entity");
·
the tax entity within which Evander Gold Mines Limited is assessed ("Evander Tax Entity");
·
the tax entity within which Harmony Orkney is assessed ("Harmony Orkney Tax Entity");
·
the tax entity within which Kalahari Goldridge Mining Company Limited is assessed ("Kalgold Tax Entity"); and
·
Harmony Australia comprising:
- the tax entity within which Mt. Magnet & Cue is assessed ("Mt. Magnet & Cue Tax Entity"); and
- the tax entity within which South Kalgoorlie is assessed ("South Kalgoorlie Tax Entity").
Technical descriptions of the Mining Assets have been grouped into operations that broadly reflect the management structures and/or common geographical location. The Mining Assets are grouped into the following operations:
·
Target Operations: Includes Target Mine, Target North and Extensions and Oribi;
·
Free Gold Operations;
·
Harmony Free State Operations;
·
Welkom Operations;
·
West Wits Operations includes Randfontein, Elandsrand and Deelkraal;
·
Evander Operations;
·
Orkney Operations;
·
Kalgold Operation; and
·
International Operations, sub-divided into Harmony Australian Operations and Harmony Canadian Operations.
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In accordance with the Listings Requirements of the JSE and the SAMREC Code, this CPR has been prepared under the direction of the Competent Person (the "CP") which assumes overall professional responsibility for the document (Section 1.4). The CPR, however is published by SRK, the commissioned entity, and accordingly SRK assumes responsibility for the views expressed herein. On this basis, all references to SRK mean the CP and vice versa.
1.4
Valuation Date and Base Technical Information
The Mining Assets have been valued based on cash flow projections commencing 1 January 2004 which is dependent upon the following:
·
technical information as generated by the Companies in accordance with their annual planning process defined as the Base Information Date ("BID"): 1 July 2003; and
·
adjustments to all technical information to reflect depletion and historical performance from the respective BIDs to 31 December 2003.
The LoM plans and associated Mineral Reserve statements for the Mining Assets have been derived as follows:
Avgold: The LoM plans and associated Mineral Reserve statements for Target Mine have been derived using a gold price of ZAR107,000/kg. No sensitivity is currently available to assess the impact on the Mineral Reserves at current (approximately ZAR80,000/kg in December 2003) gold price; which represents a 25% reduction. This aspect is discussed further in Section 4 of this CPR; and
Harmony: The LoM plans and associated Mineral Reserve statements for the Mining Assets have been derived using a gold price of ZAR93,000/kg for the Mining Assets located in South Africa and AUS$522/oz for the Mining Assets located in Australia.
The post-tax pre-finance cash flows from each Tax Entity have been developed on the basis of a US$ gold price increasing in constant money terms from US$366/oz in 2004 to US$382/oz in 2005 and macro-economic factors as defined in Table 1.1.
1.5
Verification, Validation and Reliance
The valuation as reported herein is dependent upon technical, financial and legal aspects. The technical information as provided to and taken in good faith by SRK has not been independently verified by means of recalculation. SRK has however conducted:
·
inspection visits to surface and underground operations, processing facilities, surface structures and associated infrastructure at each of the Mining Assets during November 2003 for the Avgold Assets and between May and June 2003 for the Harmony Assets;
·
discussion and enquiry following access to key personnel based at the individual Business Units ("BUs") and head office;
·
a review and, where considered appropriate by SRK, modification of the Companies' estimates and their classification of Mineral Resources and Mineral Reserves;
·
a review of the Companies' plans and supporting documentation and, where considered appropriate by SRK, modification of the Companies' LoM plans and the associated TEPs, including assumptions regarding future operating costs, capital expenditures and gold production of the Mining Assets;
·
an examination of historical information and results made available by the Companies in respect of the Mining Assets the forecasts contained in the LoM plans and one-year budgets; and
·
an update undertaken in January 2004 to reflect the latest opinion of the Financial Advisors on the macro- economic parameters including commodity prices, exchange rates and inflation factors as presented in Table 1.1. In addition SRK has considered any material departures from the projections provided to and reviewed by SRK during the inspection visits to the Harmony Assets completed during May and June 2003. In addition SRK has accounted for depletion that has taken place during the six-month period that has elapsed between June 2003 and December 2003.
SRK's approach in undertaking a review of the Mineral Resource and Mineral Reserve estimations and classifications is detailed in Section 4 of this CPR. In summary, SRK has reported Mineral Resource and Mineral Reserve statements based on a review of the LoM plans and the methodologies applied for estimation and classification of both Mineral Resources and Mineral Reserves.
SRK consider that with respect to all material technical-economic matters it has undertaken all necessary investigations to ensure SAMREC compliance, both in terms of level of investigation and level of disclosure. In doing so SRK has not reproduced the information provided to it by the Companies without due consideration or appropriate modification. Notwithstanding this comment, SRK has not recalculated the base
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information supporting the Mineral Resource estimates as derived from bore-hole and assay data, this given the generally extensive history of the Mining Assets and geological investigations undertaken by the Companies, however has undertaken sufficient checks through the course of its investigations to enable an appropriate level of reliance to be placed on such data, as provided.
Where fundamental base data has been provided (LoM plans, capital expenditures, operating budgets etc) for the purposes of review, SRK recognise the requirements of 12.3(e) and accordingly state that SRK has performed all necessary validation and verification procedures deemed appropriate in order to to place an appropriate level of reliance on such information.
1.5.1
Technical Reliance
SRK places reliance on the Companies CPs that all technical information provided to SRK at the time of writing is both valid and accurate for the purpose of compiling this CPR.
The information with respect to Mineral Resources and Mineral Reserves as defined by the Companies has been prepared under the direction of the following individuals:
·
Avgold: Dr F Camisani-Calzolari, PrSciNat (SACNASP), FSAIMM, MAuIMM, FGSSA, CRIRSCO (Combined Reserve International Report Standards Committee of CMMI). Dr Camisani-Calzolari has over 30 years' experience in the mining industry and was responsible for Mineral Resource and Mineral Reserve reporting at Avmin for a number of years until recently, and is currently retained as a consultant to Avmin on a part-time basis; and
·
Harmony: Mr Graham Briggs, Pr. Sci. Nat, BSc (Hons) Geology. Mr Briggs is responsible for ore reserve management, organic growth and capital projects on the executive committee of Harmony. He has 29 years' experience in the gold mining industry and is a registered geological scientist.
1.5.2
Financial Reliance - the Companies
In consideration of all financial aspects relating to the valuation of the Mining Assets and the Summary equity valuation of the Companies, SRK has placed reliance of the Financial Officers of the Companies that the following information for the Tax Entities and the Companies is accurate at 1 January 2004:
·
unredeemed capital balances;
·
assessed losses;
·
opening balances for debtors, creditors and stores;
·
working capital and taxation logic;
·
values ascribed to interests in unlisted and listed entities; and
·
balance sheet items, specifically cash on hand, debt and mark-to-market value of derivative instruments (currency and commodity hedges).
The information with respect to the above financial data as defined by the Companies has been prepared under the direction of the following individuals:
·
Avgold: Mr Michael Arnold, BSc Eng (Mining Geology), CA(SA). Mr Arnold is the Chief Financial Officer for Avgold; and
·
Harmony: Mr Frank Abbot, BCom, CA(SA). MBL is the chief financial officer for Harmony and has 22 years' experience in financial management, 22 years of which has been within the mining industry.
1.5.3
Financial Reliance - Deutsche Bank (South Africa)
In generating the valuation of the Mining Assets, SRK has relied upon the commodity price and macro- economic forecasts as included in Table 1.1 below, which have been generated by Deutsche Bank South Africa. In respect of compliance with 12.3(e) of the Listings Requirements of the JSE, SRK has secured the JSE's dispensation from providing details of the individuals responsible for the generation of the information as presented in Table 1.1.
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Table 1.1 Base Case Macro-Economic Parameters
Parameter
Units
2004
2005
2006
2007
2008
Gold Price - Nominal
(US$/oz)
366
386
390
394
398
(ZAR/kg)
91,659
111,797
125,823
134,929
143,309
(AUS$/oz)
487
499
499
492
485
RSA CPI
(%)
2.55%
4.10%
4.77%
4.50%
4.50%
AUS CPI
(%)
2.40%
2.40%
2.40%
2.40%
2.40%
US CPI
(%)
1.38%
1.03%
1.00%
1.00%
1.00%
Nominal Exchange Rate
(US$:ZAR)
7.80
9.01
10.04
10.66
11.21
(US$:AUS$)
1.33
1.32
1.34
1.34
1.34
(AUS$:ZAR)
5.85
5.95
6.08
6.21
6.34
Table 1.1 summaries the base-case macro-economic projections as generated by Deutsche Bank (South Africa), Financial Advisors to Avgold. Taking cognisance of the volatile nature of both the gold price (US$/ozt) and the exchange rate between the US$ and both the ZAR and AU$, SRK has run sensitivities on revenue ranging between -30% and +30% to these macro-economic projections as discussed in the risks and opportunities in Section 12 of this CPR.
1.5.4
Legal Reliance
In consideration of all legal aspects relating to the valuation of the Mining Assets SRK has placed reliance on the following representatives of the Companies that the following legal aspects are correct at 1 January 2004:
·
in respect of 12.8(e) and 12.10(g) that "a statement by the Directors of any legal proceedings that may have an influence on the rights to explore for minerals, or an appropriate negative statement" has been included in the body of the various circulars relating to the Transactions;
·
in respect of 12.10(e) that the legal ownership and of all mineral and surface rights has been verified;
·
in respect of 12.14(a)(xii) that no significant legal issue exists which would effect the "likely viability of a project and/or on the estimation and classification of the Mineral Reserves and Mineral Resources" as reported herein; and
·
The information with respect to the above legal data as defined by the Companies has been prepared under the direction of the following individuals:
·
Avgold: Mr Pieter Coetzee, BProc. Mr Coetzee is the general manager legal services for Avmin and has 20 years' experience in the mining industry,
·
Harmony: Mr Mike Wasserfall B.Com (Hons) LLM is legal advisor to Harmony and has 20 years experience, all of which is in the mining industry. Mr Wasserfall is assisted by Mr George Edward Warren de Wit who is the Group Surveyor for Harmony.
1.6
Valuation Techniques
The summary equity valuation for the Companies is based on a sum-of-the-parts approach comprising net asset values ("NAV") for the Mining Assets and supplemental information as provided by the Companies (Balance sheet items and interests in listed and unlisted companies).
The NAVs for the Mining Assets have been derived using discounted cash flow ("DCF") techniques applied on a post-tax pre-finance basis for the individual Tax Entities. These are based on the various LoM plans and where appropriate are sub-divided into valuations based on Mineral Reserves alone and Mineral Reserves and Mineral Resources where such LoM plans have been generated accordingly.
In respect of non-LoM Mineral Resources, these have not been valued separately and commentary is limited to technical disclosure requirements in accordance with the Listings Requirements of the JSE.
The post-tax pre-finance cash flows from each Tax Entity have been developed on the basis of the commodity price and macro-economic projections as presented in Table 1.1. For each Tax Entity SRK has developed Financial Models ("FM"), the results of which are presented in Section 13 and Section 14 of this CPR. The FMs are based on annual cash flow projections ending 30 June and technical-economic input parameters ("TEP") stated in 1 January 2004 money terms. As the valuation date is 1 January 2004, the cash flow projections for the first period present a six-month forecast to 30 June 2004.
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1.7
JSE Compliance
This CPR principally comprises a technical-economic appraisal of the Mining Assets and has been prepared in compliance with the Listings Requirements of the JSE, specifically Sections 12.3, 12.8, 12.9 and 12.14. In addition to the Mining Assets, technical information on a number of exploration properties has also been included.
In compliance with 12.6, Table 1.2 presents a cross-reference between the Listings Requirements of the JSE and the primary sections as included in this CPR.
Table 1.2 JSE Compliance cross-reference
CPR Section
Listings Requirements
1
12.3(a), 12.3(b), 12.3(c), 12.3(e); 12.6, 12.8(a), 12.9(a), 12.9(b), 12.9(c), 12.9(d), 12.9(e), 12.9(f); 12.11(a), 12.11(b) 12.14(a) - (viii), (xi), (xii), (xvi), (xvii), (xviii); 12.14(b) - (iv), (xvii)
2
12.10(d), 12.10(g), 12.10 (h) - (i), (ii), (iii); 12.10(i), 12.10(j) 12.11(a), 12.11(b) 12.14(a) - (ix), (x), (xii), (xvii)
3
12.10(a) - (xi); 12.10(b) - (i); 12.10(d)
4
12.10(a) - (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xii), (xiii), (xv), (xvi), 12.10(b) - (ii), (iii), (iv); 12.10(b) - (vi) - (1), (2), (3), (4), (5), (6), (7), (8), (9); 12.10(d); 12.10(f) - (i), (ii); 12.14(a) - (ii), (iii), (iv), (xii), (xiv), (xv); 12.14(b) - (ii)
5
12.10(b) - (v); 12.10(d); 12.14(a) - (iv), (x), (xii)
6
12.10(b) - (v); 12.14(a) - (v), (vi), (vii), (x), (xii); 12.14(b) - (iii)
7
12.14(a) - (xii)
8
12.14(a) - (viii); 12.14(b)(vi)
9
12.14(a) - (xii)
10
12.14(a) - (xii)
11
12.10(c), 12.14(a) - (i), (viii), (xii)
12
12.14(a) - (viii); 12.14(b) - (v), (vi)
13
12.10(b) - (v); 12(b) - (i), (iii), (iv), (vi), (viii), (ix), (xi), (xiv), (xv), (xvi), (xvii)
14
12.14(a) - (ii), (xiii), (xviii), (xix); 12.14(b) - (vi), (x), (xii), (xiii), (xvi), (xviii)
Glossary
12.10(k)
In respect of specific compliance items SRK note the following:
·
12.10(e) - (i), (ii): A detailed list of the Companies mineral and surface rights will be made available at the corporate offices of each of the respective companies. Dispensation has been granted in this regard from inclusion in the CPR for practical purposes of volume;
·
12.8(e); 12.10(g): A detailed statement of all legal proceedings which may have an influence on the rights to explore for minerals or an appropriate negative statement has been included in the body of the circulars;
·
12.14(a)(xvi): The Companies are in effect mature operating companies with a track record of operating history and accordingly, other than brief summaries of Directors (as included in the body of the Circular), details relating to qualifications of key technical and managerial staff have been excluded from this CPR. Dispensation has been granted in this regard from inclusion into this CPR for practical purposes relating to volume of information; and
·
12.10(x)(i), 12.10(d): SRK has, during the course of its investigations, reviewed technical plans in order to support its opinions on the geology, Mineral Resource and Mineral Reserves, mining plans and processing facilities, these together with land holdings, lease areas and surface infrastructure. Due to pure volume and scale of these plans it is not appropriate to include copies into this CPR for the 75 business units operated by Avgold and Harmony. Dispensation has been granted in this regard from inclusion into this CPR; however these plans are available for inspection at various company operating offices where they remain due to the fact that many are working plans required for the continual management of the respective business units.
1.8
Warranties and Limitations
SRK's opinion is effective 1 January 2004 and is based on information provided by the Companies throughout the course of SRK's investigations, which in turn reflect various technical-economic conditions prevailing at the time of writing. These conditions can change significantly over relatively short periods of time and as such the information and opinions contained in this report may be subject to change.
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In this CPR, SRK provides assurances to the Directors of the Companies that the technical-economic projections ("TEPs"), including production profiles, operating expenditures and capital expenditures, of the Mining Assets as provided to SRK by the Companies and reviewed by SRK are reasonable, given the information currently available.
The achievability of LoM plans, budgets and forecasts are neither warranted nor guaranteed by SRK. The forecasts as presented and discussed herein have been proposed by the Companies' management and cannot be assured; they are necessarily based on economic assumptions, many of which are beyond the control of the Companies. Future cash flows and profits derived from such forecasts are inherently uncertain and actual results may be significantly more or less favourable.
This report includes technical information, which requires subsequent calculations to derive subtotals, totals and weighted averages. Such calculations may involve a degree of rounding and consequently introduce an error. Where such errors occur, SRK does not consider them to be material.
1.9
Disclaimers and Cautionary Statements for US Investors
In considering the following statements SRK notes that the term "Mineral Reserve" for all practical purposes is synonymous with the term "ore reserve".
The United States Securities and Exchange Commission (the "SEC") permits mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce from. Certain terms are used in this report, such as "resources", that the SEC guidelines strictly prohibit companies from including in filings.
Mineral Reserve estimates are based on many factors, including, in this case, data with respect to drilling and sampling. Mineral Reserves are determined from estimates of future technical factors, future production costs, future capital expenditure, future product prices and the exchange rate between the South African Rand ("ZAR") and the United States Dollar ("US$"). The Mineral Reserve estimates contained in this report should not be interpreted as assurances of the economic life of the Mining Assets or the future profitability of operations. Because Mineral Reserves are only estimates based on the factors and assumptions described herein, future Mineral Reserve estimates may need to be revised. For example, if production costs increase or product prices decrease, a portion of the Mineral Resources, from which the Mineral Reserves are derived, may become uneconomical to recover and would therefore result in lower estimated Mineral Reserves.
The LoM plans and the TEPs include forward-looking statements that are required in compliance with the JSE Listings Requirements. These forward-looking statements are necessarily estimates and involve a number of risks and uncertainties that could cause actual results to differ materially.
1.10 Qualifications of Consultants
The SRK Group comprises 500 staff, offering expertise in a wide range of resource engineering disciplines. The SRK Group's independence is ensured by the fact that it holds no equity in any project. This permits the SRK Group to provide its clients with conflict-free and objective recommendations on crucial judgment issues. The SRK Group has a demonstrated track record in undertaking independent assessments of resources and reserves, project evaluations and audits, CPRs and independent feasibility evaluations to bankable standards on behalf of exploration and mining companies and financial institutions worldwide. The SRK Group has also worked with a large number of major international mining companies and their projects, providing mining industry consultancy service inputs. SRK also has specific experience in commissions of this nature.
This CPR has been prepared based on a technical and economic review by a team of 30 consultants sourced from the SRK Group's offices in South Africa, the United Kingdom and Australia over a two-month period. These consultants are specialists in the fields of geology, resource and reserve estimation and classification, underground and open pit mining, rock engineering, metallurgical processing, hydrogeology and hydrology, tailings management, infrastructure, environmental management and mineral economics.
Neither SRK nor any of its employees and associates employed in the preparation of this report has any significant beneficial interest in the Companies or in the assets of the Companies. SRK will be paid a fee for this work in accordance with normal professional consulting practice.
The individuals who have provided input to this CPR, who are listed below, have extensive experience in the mining industry and are members in good standing of appropriate professional institutions:
·
Andrew Pooley, Pr. Eng, MSAIMM, AMIMM, B.Eng (Mining);
·
Andrew Smithen, Pr. Eng., MBL, MSAICE, MSAIAE, MSAIMM, MSc;
·
Andrew Vigar, FAusIMM, BSc (Applied Geology);
·
Awie Swart, MSAIMM, MSANIRE, COM Adv. Rock Eng. Cert. B.Eng.;
·
Boet van der Vyfer, FMVS, Adv. Cert. Mine Env. Control;
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·
Dawood Wepener, BSc Eng., MSAIME, Govt. Cert of Comp.;
·
Ian Home, MIAIA, MSc;
·
Iestyn Humphreys, AM.I.Min.E, AIME, PhD;
·
Jim Williams, ACSM, C.Eng., FAusIMM;
·
Jonathan Suthers, B.Eng.;
·
John Miles, C. Eng., MIMMM, MSc;
·
Kenneth Owen, FSAIMM, MAMMSA, MSc Eng;
·
Kirsty Sells, CPEnv, FAuSIMM, BSc, MBS;
·
Lee Barnes, C.Eng, MIMMM, MSc;
·
Louis Voortman, CPGeo, FAusIMM, MAIG, MGAA, MGASA, SIA(aff), AIM(Aff), Sc MSc;
·
Louie Human, COM Adv. Rock Eng. Cert., NHD (Geology);
·
Mark Campadonic, FGS, AIQ, Msc;
·
Michael Armitage, C. Eng., C. Geol., MIMM, PhD;
·
Michael Boylett, C.Eng, MA (Met.), MSAIMM, MIMMM;
·
Michael Harley, Pr. Sci Nat., MSAIMM, MAusIMM, PhD;
·
Michael McWha, Pr.Sci Nat., FGSSA, MSAIMM, BSc Hons;
·
Oskar Steffen, Pr. Eng. (ECSA)., MSAIMM, PhD;
·
Peter Munro, MAuSIMM, B. Appl. Sc., B. Comm, B. Econ;
·
Richard Clayton, C.Geol, FGS, Msc;
·
Robert Wilson, Pr. Eng, FSAIMM, B.Sc.Eng.(Mech.);
·
Roger Dixon, Pr. Eng, FSAIMM, BSc (Mining);
·
Victor Hills, Pr.Eng., MSAIMM, B.Eng.;
·
Wally Waldeck, Pr. Eng (reg. ECSA), MSAIMM, BSc (Mining), MBA; and
·
William Schoeman, Pr. Eng, MSAIME, BSc.Eng (Mech).
In compliance with Section 12.3 of the JSE Listings Requirements, the following CPs are presented:
·
the Competent Person with overall responsibility for the compilation of this CPR is Mr H G Waldeck, Pr. Eng registered with the Engineering Council of South Africa ("ECSA") who is an employee of SRK. Mr Waldeck is a mining engineer with 28 years' experience in the mining industry and has supervised numerous due-diligence reviews and various technical studies on the Witwatersrand Basin during the past five years. In compliance with the SAMREC requirements, Mr. Waldeck also assumes responsibility for the reporting of Mineral Reserves as included in this CPR; and
·
in compliance with the SAMREC requirements and definitions, the Competent Person with overall responsibility for Mineral Resources is Dr Michael Harley, Pr. Sci Nat., MSAIMM, MAusIMM, PhD who is an employee of SRK. Dr Michael Harley is a mining geologist with 14 years' experience in the mining industry and has been responsible for the reporting of Mineral Resources on various properties in South Africa and internationally during the past five years.
1.11 Valuation Summary
The summary equity valuation for the Companies is presented in Section 14 of this CPR, specifically Table 14.1 for Avgold, Table 14.2 for Harmony. In respect of the Kalgold Tax Entity, a DCF valuation is included; however reference is made to the circular which details the terms and associated proceeds relating to the disposal of Kalgold by Harmony.
In addition SRK has been informed by Harmony that it has recently disposed of its interests in the following companies:
·
Harmony's 31.7% interest in Highland Gold Mining Limited ("Highland Gold"). In October 2003, Harmony disposed of its 31.7% shareholding in Highland Gold in a placing arranged by City Capital Corporation Limited in London; and
·
Harmony's 17.0% interest in High River Gold Mines Limited ("High River"). In October 2003 Harmony disposed of its 17% shareholding in High River in a placing arranged by BMO Nesbitt Burns in Canada.
No summary equity valuation has been included and any proceeds have been incorporated into the net cash position of Harmony at 31 December 2003.
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Annexure 7
2.
MINING ASSETS
2.1
Introduction
This section gives a brief overview of the Companies and their respective Mining Assets including, location and historical company development, property description, mining methods and operating results. Specifically where reference is made to legal compliance within the regulatory environment in which the Companies operate, SRK has placed reliance on the Companies and their respective legal advisers.
2.2
The Companies and Operating Structures
2.2.1
Avgold
Avgold is a South African-based mining, development and exploration company, publicly listed on the JSE (primary listing), with International Depositary Receipts ("IDR") traded on the Brussels Bourse. Table 2.1 gives the recent historical company development of Avgold to date. By measure of annual gold production attributable to the company, Avgold is ranked 22nd in terms of the world's gold mining companies. Avgold states its core business as that directly associated with a gold mining and gold exploration whose activities include operating the recently commissioned Target Mine (May 2002) and the continued exploration in an area known as Target North.
Avgold's executive office is located at 56 Main Street, Johannesburg 2001, Gauteng Province South Africa. In addition Avgold has an operations office located at Target Mine situated between the towns of Bothaville and Welkom.
Table 2.1 Avgold: Company Development
Date
Activity
Late 1980s
Surface exploration intersected payable reef horizons in the Target area.
November, 1990
Target Exploration Company Limited ("Target Exploration") incorporated.
February, 1991
Target Exploration listed on the JSE.
January, 1993
23 surface boreholes completed at the Target area.
April, 1995
Commenced an underground exploration decline at Target from the Lorraine u/g workings.
July, 1996
106,000m of u/g exploration drilling completed and scope of Target Project increased to a 105ktpm mine.
November, 1996
Target Exploration changed its name to Avgold Limited and acquired the gold assets of Avmin, namely ETC Operations, Hartebeestfontein Mine and Lorraine Mine.
January, 1998
Acquired the Fairview Mine from Goldfields.
August, 1998
Mining operations at Lorraine ceased and No.1 Shaft became the principal access for the Target Project.
April, 1999
Mining Licence obtained for Target.
August, 1999
Disposed of the Hartebeestfontein Mine.
May, 2002
Target Mine commissioned.
February, 2003
Entered into an agreement to sell the assets of ETC.
June, 2003
Announcement of completion of surface drilling of Target North.
June, 2003
Disposal of ETC division to Metorex.
September, 2003
Announcement of completion of pre-feasibility study on Northern Free State.
November, 2003
Announcement that: Anglovaal Mining Limited ("Avmin") will dispose of its entire 42.2% interest in Avgold to Harmony.
Table 2.2 gives the historical operating statistics attributable to Avgold from 2001 through to 31 December 2003, inclusive.
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Annexure 7
Table 2.2 Avgold: Salient Historical Operating Statistics
Statistic
(2)
Units
2001
2002
2003
2004
(1)
Production 
Tonnes Milled
(kt)
492
782
1,389
540
Yield
(g/t)
3.0
6.6
8.6
11.1
Gold Production
(koz)
47
165
383
192
Development
(m)
5,144
6,022
14,677
4,226
Productivity TEC
(No.)
1,177
1,355
2,907
1,088
Milling
(t/TEC/month)
35
48
40
83
Gold Production
(g/TEC/month)
105
316
341
917
Health and Safety 
Fatalities
(No.)
2
0
0
0
Fatality Rate
(per mmhrs)
0.35
0
0
0
LTIFR
(per mmhrs)
9
9
11
6
Expenditures 
Cash Operating Costs
(ZARm)
290
523
673
260
Capital Expenditure
(ZARm)
521
102
123
50
Cost Performance 
Cash Operating Costs
(ZAR/t)
589
669
485
481
(ZAR/kg)
189,949
98,496
56,588
43,409
Capital Expenditure
(ZAR/t)
1,059
130
88
93
(ZAR/kg)
341,252
19,181
10,329
8,361
(1)
2004 reports six-month actual results to December 2003.
(2)
Production from ETC mines is included, however those assets were sold during 2003.
2.2.2
Harmony
Harmony is a public listed company. Its primary listing is on the JSE and secondary listings are on the LSE, the Paris Bourse, with IDRs traded on the Brussels Bourse and an American Depositary Shares ("ADS") programme on the New York Stock Exchange, Inc. ("NYSE").
Harmony, through wholly-owned subsidiaries or joint venture agreements, manages and operates BUs, comprising operating and developing underground, open pit and surface reclamation operations in three countries. In addition, Harmony's exploration programme, targeting gold and PGEs, extends its country presence (through direct and indirect subsidiaries) into a total of five countries.
Harmony's company ownership comprises holdings in direct subsidiaries, indirect subsidiaries, direct and indirect joint venture companies and indirect associate companies. These comprise dormant companies, exploration companies, gold mining companies, investment holding companies, management service companies, marketing companies, beneficiation companies, mineral rights holding companies and property holding companies.
Harmony's operating structure principally comprises two reporting entities represented by South African Operations and International Operations. South African Operations are sub-divided into nine reporting entities: Free Gold Operations, Harmony Free State Operations, Welkom Operations, West Wits Operations (including Randfontein, Elandsrand and Deelkraal), Evander Operations, Orkney Operations, Kalgold Operations and International Operations (sub-divided into two operations, namely the Australian Operations and Canadian Operations).
Harmony's principal executive offices are located at 4 High Street, First Floor, Melrose Arch, Melrose North 2196, Johannesburg, Gauteng Province, South Africa.
Table 2.3 gives the historical company development of Harmony to date. By measure of attributable annual gold production Harmony is ranked 6th and by attributable total cash costs ranked 6th in terms of the world's gold mining companies. Harmony's core business is gold mining whose activities include the exploration, development and operation of gold mines, including direct interests in the marketing of gold and indirect interests in the manufacturing and retailing of gold jewellery.
Table 2.4 gives historical operating statistics attributable to Harmony from 2001 through to 31 December 2003, inclusive, with figures reported on a financial year basis.
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Annexure 7
Table 2.3 Harmony: Company Development
Date
Activity
August, 1950
Harmony Gold Mining Company Limited incorporated and registered as a public company in South Africa.
1994
Management agreement between Randgold & Exploration Company Limited ("Randgold") and Harmony cancelled and replaced with service agreement.
1997
Service agreement between Randgold and Harmony cancelled resulting in Harmony operating as a completely independent gold mining company.
1997
Acquisition of Lydenburg Exploration Limited ("Lydex") for a consideration of ZAR204m.
June, 1998
Acquisition of Bissett gold mine from the liquidators of Rea Gold corporation for a consideration of ZAR26m.
July, 1998
The acquisition of Evander Gold Mines Limited for a consideration of ZAR545m.
October, 1999
Acquisition of Kalahari Goldridge Mining Company Limited and West Rand Consolidated Mines Limited for a consideration of ZAR321m.
March, 2000
Acquisition of Randfontein Estates Limited for a consideration of ZAR931m.
April, 2001
Acquisition of the Elandskraal mining operations from AngloGold Limited for a consideration of ZAR1,053m.
April, 2001
Acquisition of New Hampton Goldfields Limited for a consideration of ZAR229m.
September, 2001
Acquisition of 31.8% of the issued share capital of Bendigo Mining NL for a consideration of ZAR292m.
December, 2001
Acquisition of 50% of the issued share capital of Free Gold which purchased
(effective date 3 January 2002)
the Free Gold operations and certain other assets for approximately ZAR1,4bn.
April, 2002
Acquisition of Hill 50 Limited for a consideration of ZAR1,419m.
May, 2002
Acquisition of 32.5% of the ordinary share capital of Highland Gold Limited for a consideration of ZAR188m.
October, 2002
Joint acquisition by Free Gold of St. Helena BUs from Gold Fields Limited for a gross sale consideration of ZAR127m.
November, 2002
Harmony lists on the New York Stock Exchange ("NYSE").
November, 2002
Acquisition of 21% of the ordinary share capital of High River Gold Limited for a consideration of ZAR141m.
January, 2003
Randfontein Estates Limited ("Randfontein"), entered into agreement with Africa Vanguard Resources (Pty) Ltd ("AV"), in terms of which Randfontein sold 26% of its mineral rights in respect of Doornkop Mining Area to AV for a purchase consideration of R250m. Randfontein and AV entered into a JV agreement to jointly conduct mining operations at Doornkop.
February, 2003
Harmony announces offer for Abelle Limited ("Abelle") which values Abelle at ZAR689m.
May, 2003
Announcement of merger with ARMgold.
May, 2003
Announcement of an acquisition by Free Gold of 34.5% of the shares of Avmin for a consideration of ZAR844m in which Harmony and ARMgold each have 50%.
August 2003
Shareholder approval of the merger between Harmony and ARMgold for which 64,000,000 Harmony shares were issued to ARMgold, in the ratio of 2 Harmony shares for every 3 ARMgold shares.
August 2003
The arrangements between Randfontein and AV were implemented, and purchase price paid as per the agreement drawn up in January 2003. Gold at UK£2.05 per share valuing the shareholding at ZAR830.0m.
October 2003
Harmony disposed of its 17.0% shareholding in High River Gold at C$1.75 per share valuing the shareholding at ZAR156.7m.
November 2003
Announcement that: Anglovaal Mining Limited ("Avmin") will dispose of its entire 42.2% interest in Avgold to Harmony, Harmony will dispose of its Kalplats platinum discovery and associated mineral rights to Avmin.
November 2003
Harmony announced the sale of its Kalgold Operations to The Afrikander Lease Limited ("Aflease") for a consideration of ZAR275m. In terms of the agreement, Aflease will pay Harmony ZAR137.5m in cash, with the remaining ZAR137.5m being funded with the issue of ordinary shares. The sale will be effective after all legal conditions of the deal have been met, by approximately the end of February 2004. Harmony excluded its Kalplats deposit interests from this transaction.
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Annexure 7
Table 2.4 Harmony: Salient Historical Operating Statistics
(1), (2)
Statistic
Units
2001
2002
2003
2004
(3)
Production
Area Mined
(m
2
)
2,027,043
2,286,395
3,301,125
1,690,296
Tonnes Milled
(kt)
17,074
22,934
35,259
16,777
Yield
(g/t)
3.9
3.6
3.6
3.5
Gold Production
(koz)
2,140
2,668
4,040
1,911
Development
(m)
128,625
152,006
207,272
109,746
Productivity
TEC
(No.)
43,448
46,873
58,886
59,451
Centares
(m
2
/TEC/month)
3.9
4.8
4.7
4.7
Milling
(t/TEC/month)
32
41
50
47
Gold Production
(g/TEC/month)
125
147
178
167
Health and Safety
Fatalities
(No.)
26
37
38
21
Fatality Rate
(per mmhrs)
0.28
0.35
0.30
0.28
LTIFR
(per mmhrs)
28
23
25
19
Expenditures
Cash Operating Costs
(ZARm)
3,822
5,215
8,673
4,486
Capital Expenditure
(ZARm)
424
735
773
445
Cost Performance
Cash Operating Costs
(ZAR/t)
224
227
246
267
(ZAR/kg)
57,419
62,853
69,030
75,479
Capital Expenditure
(ZAR/t)
25
32
22
27
(ZAR/kg)
6,370
8,859
6,154
7,486
(1)
TEC and productivity statistics exclude the Canadian operations as TEC figures unavailable.
(2)
Health and Safety statistics for Canadian and Australian Operations for 2001 are unavailable.
(3)
2004 reports actual results to December 2003.
2.3
Overview of the Mining Assets
2.3.1
Target Operations
Target Operations comprise Target Mine, Target North and Extensions and Oribi Exploration Property situated near the town of Allanridge in the Free State Province, South Africa, some 270km southwest of Johannesburg. Located at approximately latitude 28°00'S and longitude 26°30'E on the northern limit of the Welkom Goldfields, the site is accessed via the R30 situated between the towns of Bothaville and Welkom.
The Target Operations area was initially explored through surface drilling in the late 1980s with further exploration being undertaken from a 5.6km long decline, commenced in 1995, driven from 203L at Lorraine No.1 shaft. A positive feasibility study into the development of a 105ktpm operation was produced in May 1998 resulting in the decision to develop Target Mine. A detailed mine design was produced in 2000 and the mine officially opened in May 2002. Upon the closure of Loraine Mine in August 1998 the Lorraine No.1 and No.2 shafts were transferred to Target Mine becoming Target No.1 Shaft and Target No.2 Shaft, respectively.
Mining operations comprise one primary underground mine commissioned in May 2002 making use of information systems and mechanisation, combined with process-driven organisational design that relies on a multi-skilled workforce. The majority of the production is derived from mechanised mining; however conventional stoping is still employed primarily to de-stress areas ahead of the mechanised mining. The mining operations feed one central process facility, namely the Target Gold Plant.
Table 2.5 gives the salient operating statistics and Table 2.6 gives the historical operating statistics for Target Mine from 1 July 2001 through to 31 December 2003, inclusive.
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Annexure 7
Table 2.5 Target Operations - Target Mine: Salient Operating Statistics
Maximum
Design
Operating
Production Unit
Capacity
Capacity
(1)
Life
Classification
(ktpa)
(ktpa)
(years)
Business Units 
Target Mine
1,500
1,404
17
Long-life
Total Hoisting Capacity
1,500
1,404
17
Long-life
Surface Sources
Processing Plants 
Target Gold Plant
1,260
1,285
17
Long-life
Total Processing Capacity
1,260
1,285
17
Long-life
(1)
Maximum Operating Capacity represents the maximum planned annual throughput for the LoM period.
Table 2.6 Target Operations - Target Mine: Salient Historical Operating Statistics
Statistic
Units
2001
2002
2003
2004
(1)
Production 
Tonnes Milled
(kt)
492
782
1,068
540
Yield
(g/t)
3.0
6.6
8.6
11.1
Gold Production
(koz)
47
165
294
192
Development
(m)
5,144
6,022
7,431
4,226
Productivity 
TEC
(No.)
1,177
1,355
1,119
1,088
Milling
(t/TEC/month)
35
48
31
83
Gold Production
(g/TEC/month)
105
316
262
917
Health and Safety 
Fatalities
(No.)
2
0
0
0
Fatality Rate
(per mmhrs)
0.35
0
0
0
LTIFR
(per mmhrs)
9
9
11
6
Expenditures 
Cash Operating Costs
(ZARm)
290
523
470
260
Capital Expenditure
(ZARm)
521
102
101
48
Cost Performance 
Cash Operating Costs
(ZAR/t)
589
669
440
482
(ZAR/kg)
189,949
98,496
51,327
43,461
Capital Expenditure
(ZAR/t)
1,059
130
94
89
(ZAR/kg)
341,252
19,181
10,982
8,002
(1)
2004 reports six-month actual results to December 2003.
2.3.2
Free Gold Operations
The Free Gold Operations are situated in the Free State Province, South Africa, some 270km southwest of Johannesburg. Located at approximately latitude 28°00'S and longitude 26°30'E, the site is accessed via the national highway N1 between Johannesburg and Bloemfontein.
Exploration, development and production history in the area dates from the early 1940s, leading to commercial production by 1947. Subsequent consolidation and restructuring led to the formation of Free State Consolidated, which in addition to HJ Joel, became a wholly-owned subsidiary of AngloGold Limited ("AngloGold") in June 1998. Free Gold acquired the assets from Anglogold in December 2001 and St. Helena BUs from Goldfields during May 2002.
Mining operations comprise nine underground mining BUs: Tshepong, Phakisa, Bambanani, West, Eland, Sable & Kudu, Nyala, Joel and St. Helena (comprising BUs No.2, No.4, No.8 and No.10). Phakisa is currently a project for which capital is committed and is anticipated to commence in 2004. The mining operations feed four process facilities: FS1 Plant; FS2 Plant; Joel Plant and St. Helena Plant.
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Annexure 7
Table 2.7 gives the salient operating statistics and Table 2.8 gives the historical operating statistics for Free Gold Operations from 1 January 2001 through to 31 December 2003, inclusive. Note that 2001 is reported on a calendar year, 2002 comprises six-months to 30 June 2002 and 2003 comprises 12-month actual results to June 2003 and 2004 is reports actual results to 31 December 2003.
Table 2.7 Free Gold Operations: Salient Operating Statistics
Maximum
Design
Operating
Business Unit
Capacity
Capacity
(1)
Life
Classification
(ktpa)
(ktpa)
Production Shafts 
Tshepong BU
2,400
3,026
16
Long-Life
Bambanani BU
2,340
1,835
8
Medium-life
West BU
960
306
4
Short-life
Eland BU
840
385
3
Short-life
Kudu & Sable BU
1,440
247
4
Short-life
Nyala BU
3,360
606
7
Medium-life
Joel North & South BU
4,200
544
11
Long-Life
Phasika BU
1,800
1,400
19
Long-Life
St. Helena BU
4,020
618
5
Medium-life
Total Hoisting Capacity
21,360
7,079
20
Long-Life
Surface Sources
3,547
4
Short-life
Processing Plants 
FS1 Plant - Milling
5,280
5,006
20
Long-Life
FS1 Plant - Leaching
5,280
5,006
20
Long-Life
FS2 Plant - Milling
3,240
3,240
4
Short-life
FS2 Plant - Leaching
3,600
3,600
4
Short-life
Joel Plant - Milling
1,620
1,458
11
Long-Life
Joel Plant - Leaching
1,800
1,458
11
Long-Life
St. Helena Plant - Milling
1,080
34
1
Short-life
St. Helena Plant - Leaching
1,200
1,120
3
Short-life
Total Processing Milling Capacity
11,220
9,561
20
Long-Life
Total Processing Leaching Capacity
11,880
11,007
20
Long-Life
(1)
Maximum Operating Capacity represents the maximum planned annual throughput for the LoM period.
Table 2.8 Free Gold Operations: Salient Historical Operating Statistics
Statistic
Units
2001
2002
2003
2004
(1)
Production 
Area Mined
(m
2
)
1,045,758
395,496
964,142
508,968
Tonnes Milled
(kt)
8,479
4,371
9,362
6,997
Yield
(g/t)
4.4
4.0
3.8
4.8
Gold Production
(koz)
1,199
558
1,155
1,085
Development
(m)
41,455
19,324
53,551
29,231
Productivity 
TEC
(No.)
20,368
14,722
16,106
17,119
Centares
(m
2
/TEC/month)
4.3
4.5
5.0
5.0
Milling
(t/TEC/month)
35
49
48
68
Gold Production
(g/TEC/month)
153
197
186
329
Health and Safety 
Fatalities
(No.)
11
10
6
5
Fatality Rate
(per mmhrs)
0.35
0.24
0.15
0.25
LTIFR
(per mmhrs)
17
15
15
20
Expenditures 
Cash Operating Costs
(ZARm)
2,409
883
2,125
2,290
Capital Expenditure
(ZARm)
58
32
63
135
Cost Performance 
Cash Operating Costs
(ZAR/t)
284
202
227
327
(ZAR/kg)
64,619
50,879
59,141
67,847
Capital Expenditure
(ZAR/t)
7
7
7
19
(ZAR/kg)
1,555
1,827
1,746
4,010
(1)
2004 reports six-month actual results to December 2003.
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Annexure 7
2.3.3
Harmony Free State Operations
The Harmony Free State Operations are situated in the Free State Province, South Africa, some 270km southwest of Johannesburg. Located at approximately latitude 28°10'S and longitude 26°30'E, the site is accessed via the national highway N1 between Johannesburg and Bloemfontein.
Exploration, development and production history in the area dates from the early 1940s. Harmony's Free State Operations commenced with amalgamation of Harmony, Virginia and Merriespruit mining operations. Subsequent acquisitions included: Unisel BU in 1996; Saaiplaas BU in 1997; Brand BUs in 1998 and Masimong in 1998.
Table 2.9 gives the salient operating statistics and Table 2.10 gives the historical operating statistics for Harmony Operations from 1 January 2001 through to 31 December 2003, inclusive. Note that 2003 comprises twelve-month actual results to June 2003 and 2004 reports the actual results to 31 December 2003.
Table 2.9 Harmony Free State Operations: Salient Operating Statistics
Maximum
Design
Operating
Business Unit
Capacity
Capacity
(1)
Life
Classification
(ktpa)
(ktpa)
Production Shafts Harmony No.2 BU
2,724
550
5
Medium-life
Harmony No.3 BU
1,080
0
0
Not in use
Harmony No.4 BU
1,752
0
0
Not in use
Merriespruit No.1 BU
1,548
597
9
Medium-life
Merriespruit No.3 BU
2,364
826
9
Medium-life
Virginia No.2 BU
1,236
0
0
Not in use
Unisel BU
1,644
751
11
Long-Life
Saaiplaas No.3 BU
2,112
327
10
Long-Life
Brand No.2 BU
1,440
0
0
Not in use
Brand No.3 BU
1,440
461
5
Medium-life
Brand No.5 BU
1,812
0
0
Not in use
Masimong No.4 BU
840
341
10
Long-Life
Masimong No.5 BU
960
946
15
Long-Life
Total Hoisting Capacity
20,952
4,504
15
Long-Life
Surface Sources
2,822
13
Long-Life
Processing Plants Central Plant - Milling
2,160
2,160
11
Long-Life
Central Plant - Leaching
2,880
2,880
11
Long-Life
Virginia Plant - Milling
1,980
1,944
9
Medium-life
Virginia Plant - Leaching
2,160
1,944
9
Medium-life
Saaiplaas Plant - Milling
1,800
1,823
15
Long-Life
Saaiplaas Plant - Leaching
2,640
2,663
15
Long-Life
Total Processing Milling Capacity
5,940
5,927
15
Long-Life
Total Processing Leaching Capacity
7,680
7,487
15
Long-Life
(1)
Maximum Operating Capacity represents the maximum planned annual throughput for the LoM period.
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Annexure 7
Table 2.10 Harmony Free State Operations: Salient Historical Operating Statistics
Statistic
Units
2001
2002
2003
2004
(1)
Production 
Area Mined
(m
2
)
721,709
738,793
767,555
427,929
Tonnes Milled
(kt)
5,289
4,536
5,338
2,950
Yield
(g/t)
4.0
4.2
3.6
3.5
Gold Production
(koz)
686
612
611
330
Development
(m)
50,027
51,188
53,691
28,047
Productivity 
TEC
(No.)
15,668
12,776
11,178
12,673
Centares
(m
2
/TEC/month)
3.8
4.8
5.7
5.6
Milling
(t/TEC/month)
28
30
40
39
Gold Production
(g/TEC/month)
114
124
142
135
Health and Safety 
Fatalities
(No.)
9
8
2
6
Fatality Rate
(per mmhrs)
0.26
0.27
0.07
0.51
LTIFR
(per mmhrs)
35
26
24
21
Expenditures 
Cash Operating Costs
(ZARm)
1,385
1,351
1,518
852
Capital Expenditure
(ZARm)
120
95
126
26
Cost Performance 
Cash Operating Costs
(ZAR/t)
262
298
284
289
(ZAR/kg)
64,883
70,978
79,875
82,995
Capital Expenditure
(ZAR/t)
23
21
24
9
(ZAR/kg)
5,622
4,991
6,631
2,515
(1)
2004 reports six-month actual results to December 2003.
2.3.4
Welkom Operations
The Welkom Operations are situated in the Free State Province, South Africa, some 270km southwest of Johannesburg. Located at approximately latitude 28°00'S and longitude 26°30'E, the site is accessed via the national highway N1 between Johannesburg and Bloemfontein.
Exploration, development and production history in the area dates from the 1940s leading to commercial production by 1947. Mining operations comprise six underground mining BUs: BU No.1; BU No.2; BU No.3, BU No.4; BU No.6 and BU No.7 which have a combined rock hoisting capacity of 313ktpm. The mining operations process their ore via a toll agreement with Free Gold.
Table 2.11 gives the salient operating statistics and Table 2.12 gives the historical operating statistics for Welkom Operations from 1 January 2001 through to 31 December 2003, inclusive. Note that 2001 is reported on a calendar year, 2002 comprises six months to 30 June 2002 and 2003 comprises 12-month actual results to June 2003 and 2004 reports the actual results to 31 December 2003.
Table 2.11 Welkom Operations: Salient Operating Statistics
Maximum
Design
Operating
Business Unit
Capacity
Capacity
(1)
Life
Classification
(ktpa)
(ktpa)
Production Shafts 
No.1 BU
816
305
3
Short-life
No.2 BU
648
66
2
Short-life
No.3 BU
660
76
3
Short-life
No.4 BU
660
49
2
Short-life
No.6 BU
816
105
3
Short-life
No.7 BU
816
288
8
Medium-life
Total Hoisting Capacity
4,416
864
8
Medium-life
No Surface Sources
Processing Plants 
No operational plant
(1)
Maximum Operating Capacity represents the maximum planned annual throughput for the LoM period.
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Annexure 7
Table 2.12 Welkom Operations: Salient Historical Operating Statistics
Statistic
Units
2001
2002
2003
2004
(1)
Production 
Area mined
(m
2
)
73,178
38,065
104,571
58,764
Tonnes Milled
(kt)
340
224
577
315
Yield
(g/t)
5.1
4.9
3.4
3.6
Gold Production
(koz)
56
35
63
36
Development
(2)
(m)
1,296
1,483
5,843
459
Productivity 
TEC
(No.)
1,492
1,786
2,348
2,179
Centares
(m
2
/TEC/month)
4.1
3.6
3.7
4.5
Milling
(t/TEC/month)
19
21
20
24
Gold Production
(g/TEC/month)
97
102
69
86
Health and Safety 
Fatalities
(No.)
4
1
2
0
Fatality Rate
(per mmhrs)
0.92
0.38
0.35
0
LTIFR
(per mmhrs)
17
10
12
15
Expenditures 
Cash Operating Costs
(ZARm)
144
101
203
115
Capital Expenditure
(ZARm)
10
7
30
0
Cost Performance 
Cash Operating Costs
(ZAR/t)
425
449
352
366
(ZAR/kg)
82,737
92,093
104,211
102,703
Capital Expenditure
(ZAR/t)
28
33
51
0
(ZAR/kg)
5,444
6,778
15,236
0
(1)
2004 reports actual results to December 2003.
(2)
During 2003 high-speed development team was contracted for a specific development project required to improve ventilation aspects at BU No.1.
2.3.5
West Wits Operations
The West Wits Operations principally comprise Elandsrand BU, Deelkraal BU, Cooke 1 BU, Cooke 2 BU, Cooke 3 BU and Doornkop BU and the non-operational Randfontein No.4 BU. Elandsrand BU and Deelkraal BU are situated in the Gauteng and North West Province, South Africa, some 85km southwest of Johannesburg. Located at approximately latitude 26°00'S and longitude 27°00'E, the site is accessed via the national highway N12 between Johannesburg and Kimberley. Cooke BUs and Doornkop BU are situated in the Gauteng Province, South Africa, some 50km west of Johannesburg. Located at latitude 26°22'S and longitude 27°42'E, the site is accessed via the local R28 highway between Randfontein and Westonaria.
Exploration, development and production history in the West Wits area dates from 1930, leading to large-scale production by the 1940s whilst exploration, development and production history in the Cooke BUs and Doornkop BU areas dates back to 1889.
Table 2.13 gives the salient operating statistics and Table 2.14 gives the historical operating statistics for West Wits Operations from 1 January 2001 through to 31 December 2003, inclusive. Note that 2003 comprises 12-month actual results to June 2003 and 2004 reports the actual results to 31 December 2003.
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Annexure 7
Table 2.13 West Wits Operations: Salient Operating Statistics
Maximum
Design
Operating
Business Unit
Capacity
Capacity
(1)
Life
Classification
(ktpa)
(ktpa)
Production Shafts
Elandsrand BU
3,972
2,168
20
Long-Life
Deelkraal BU
2,244
837
6
Medium-life
Cooke 1 BU
2,112
672
6
Medium-life
Cooke 2 BU
2,244
853
16
Long-Life
Cooke 3 BU
3,180
1,186
16
Long-Life
Cooke 4 BU
1,788
0
0
Not in use
Doornkop BU
2,400
2,383
19
Long-Life
Total Hoisting Capacity
17,940
6,605
20
Long-Life
Surface Sources
2,250
6
Medium-life
Processing Plants
Elandsrand Plant - Milling
2,280
1,775
20
Long-Life
Elandsrand Plant - Leaching
2,280
1,775
20
Long-Life
Deelkraal Plant - Milling
1,260
720
6
Medium-life
Deelkraal Plant - Leaching
1,260
720
6
Medium-life
Cooke Plant - Milling
3,360
3,173
19
Long-Life
Cooke Plant - Leaching
3,360
3,173
19
Long-Life
Doornkop Plant - Milling
2,400
2,220
2
Short-life
Doornkop Plant - Leaching
2,700
2,220
2
Short-life
Total Processing Milling Capacity
9,300
7,444
20
Long-Life
Total Processing Leaching Capacity
9,600
7,444
20
Long-Life
(1)
Maximum Operating Capacity represents the maximum planned annual throughput for the LoM period.
Table 2.14 West Wits Operations: Salient Historical Operating Statistics
Statistic
Units
2001
2002
2003
2004
(1)
Production
Area Mined
(m
2
)
870,966
946,311
806,649
373,309
Tonnes Milled
(kt)
6,991
8,078
7,862
3,893
Yield
(g/t)
3.8
4.0
3.4
3.1
Gold Production
(koz)
846
1,038
859
394
Development
(m)
47,738
59,155
57,355
35,884
Productivity
TEC
(No.)
17,640
16,907
15,110
14,131
Centares
(m
2
/TEC/month)
4.1
4.7
4.4
4.4
Milling
(t/TEC/month)
33
40
43
46
Gold Production
(g/TEC/month)
124
159
147
144
Health and Safety
Fatalities
(No.)
12
20
20
5
Fatality Rate
(per mmhrs)
0.32
0.47
0.54
0.23
LTIFR
(per mmhrs)
24
23
23
22
Expenditures
Cash Operating Costs
(ZARm)
1,400
1,963
1,869
1,017
Capital Expenditure
(ZARm)
115
262
169
134
Cost Performance
Cash Operating Costs
(ZAR/t)
200
243
238
261
(ZAR/kg)
53,187
60,819
69,973
83,048
Capital Expenditure
(ZAR/t)
16
32
22
34
(ZAR/kg)
4,369
8,117
6,335
10,915
(1)
2004 reports six-month actual results to December 2003.
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Annexure 7
2.3.6
Evander Operations
Evander Operations are situated in the Mpumalanga Province, South Africa, some 120km east- southeast of Johannesburg. Located at latitude 28°28'S and longitude 29°06'E, the site is accessed via the local R29 road between Leandra and Bethel in the vicinity of Kinross.
Exploration, development and production history in the area dates from 1903, leading to full-scale production by 1955. Evander Operations originally comprised Kinross, Bracken, Leslie and Winkelhaak that were merged in 1996 due to declining Mineral Reserves. In August 1998, Harmony acquired Evander as a wholly-owned subsidiary.
Table 2.15 gives the salient operating statistics and Table 2.16 gives the historical operating statistics for Evander Operations from 1 January 2001 through to 31 December 2003 inclusive. Note that 2003 comprises 12-month actual results to June 2003 and 2004 reports the actual results to 31 December 2003.
Table 2.15 Evander Operations: Salient Operating Statistics
Maximum
Design
Operating
Business Unit
Capacity
Capacity
(1)
Life
Classification
(ktpa)
(ktpa)
Production Shafts 
Evander No.2 BU
828
615
10
Long-Life
Evander No.3 BU
240
0
0
Not in use
Evander No.5 BU
1,128
332
10
Long-Life
Evander No.7 BU
1,272
602
11
Long-Life
Evander No.8 BU
1,764
824
15
Long-Life
Evander No.9 BU
996
235
4
Short-life
Total Hoisting Capacity
6,228
2,545
15
Long-Life
Surface Sources
237
9
Medium-life
Processing Plants 
Kinross Plant - Milling
1,920
1,576
15
Long-Life
Kinross Plant - Leaching
2,400
2,428
15
Long-Life
Winkelhaak Plant - Milling
816
852
10
Long-Life
Winkelhaak Plant - Leaching
0
0
0
Not in use
Total Processing Milling Capacity
2,736
2,428
15
Long-Life
Total Processing Leaching Capacity
2,400
2,428
15
Long-Life
(1)
Maximum Operating Capacity represents the maximum planned annual throughput for the LoM period.
Table 2.16 Evander Operations: Salient Historical Operating Statistics
Statistic
Units
2001
2002
2003
2004
(1)
Production Area Mined
(m
2
)
434,368
403,543
350,391
183,029
Tonnes Milled
(kt)
2,481
2,352
2,127
1,113
Yield
(g/t)
5.7
5.5
5.3
5.3
Gold Production
(koz)
458
415
360
188
Development
(m)
30,861
32,002
28,435
14,074
Productivity 
TEC
(No.)
8,805
8,639
6,906
7,203
Centares
(m
2
/TEC/month)
4.1
3.9
4.2
4.2
Milling
(t/TEC/month)
23
23
26
26
Gold Production
(g/TEC/month)
135
125
135
135
Health and Safety 
Fatalities
(No.)
5
6
4
3
Fatality Rate
(per mmhrs)
0.27
0.33
0.23
0.41
LTIFR
(per mmhrs)
22
24
34
30
Expenditures 
Cash Operating Costs
(ZARm)
693
723
796
441
Capital Expenditure
(ZARm)
69
98
98
49
Cost Performance 
Cash Operating Costs
(ZAR/t)
279
307
374
396
(ZAR/kg)
48,628
55,960
71,006
75,433
Capital Expenditure
(ZAR/t)
28
42
46
44
(ZAR/kg)
4,842
7,585
8,776
8,405
(1)
2004 reports six-month actual results to December 2003.
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Annexure 7
2.3.7
Orkney Operations
The Orkney Operations are situated in North West Province, South Africa, some 175km south-west of Johannesburg. Located at approximately latitude 26°30'S and longitude 26°45'E, the site is accessed via the national highway N12 between Johannesburg and Kimberley.
Exploration, development and production history in the area dates from 1886 and following dormant periods, large-scale production commenced during the 1940s with the formation of Vaal Reefs Gold Mining and Exploration Company Limited ("Vaal Reefs") in 1944.
Mining operations comprise six underground mining BUs: BU No.1, BU No.2, BU No.3, BU No.4, BU No.6 and BU No.7. BU No.1 will shortly become non-operational and BU No.5 has been closed. The mining operations process their ore via a toll agreement with Vaal River Operations ("VRO") belonging to AngloGold.
Table 2.17 gives the salient operating statistics and Table 2.18 gives the historical operating statistics for Orkney Operations from 1 January 2001 through to 31 December 2003, inclusive. Note that 2001 is reported on a calendar year basis, 2002 comprises six-months to 30 June 2002 and 2003 comprises 12-month actual results to June 2003 and 2004 is reported as the actual results to 31 December 2003.
Table 2.17 Orkney Operations: Salient Operating Statistics
Maximum
Design
Operating
Business Unit
Capacity
Capacity
(1)
Life
Classification
(ktpa)
(ktpa)
Production Shafts No.1 BU
1,644
0
0
Not in use
No.2 BU
1,704
468
3
Short-life
No.3 BU
1,560
279
4
Short-life
No.4 BU
1,920
443
5
Medium-life
No.5 BU
1,320
0
0
Not in use
No.6 BU
1,620
218
8
Medium-life
No.7 BU
1,620
108
8
Medium-life
Total Hoisting Capacity
11,388
1,484
8
Medium-life
No Surface Sources
Processing Plants No operational plant
(1)
Maximum Operating Capacity represents the maximum planned annual throughput for the LoM period.
Table 2.18 Orkney Operations: Salient Historical Operating Statistics
Statistic
Units
2001
2002
2003
2004
(1)
Production 
Area Mined
(m
2
)
348,345
164,939
307,817
138,297
Tonnes Milled
(kt)
2,060
942
1,761
783
Yield
(g/t)
7.1
7.6
7.2
6.4
Gold Production
(koz)
468
232
408
161
Development
(m)
6,944
2,628
4,398
2,053
Productivity 
TEC
(No.)
6,579
6,174
5,854
4,696
Centares
(m
2
/TEC/month)
4.4
2.2
4.4
4.9
Milling
(t/TEC/month)
26
13
25
28
Gold Production
(g/TEC/month)
184
97
180
178
Health and Safety 
Fatalities
(No.)
10
7
4
2
Fatality Rate
(per mmhrs)
0.56
0.48
0.48
0.45
LTIFR
(per mmhrs)
28
24
24
15
Expenditures 
Cash Operating Costs
(ZARm)
730
407
788
345
Capital Expenditure
(ZARm)
30
23
6
4
Cost Performance 
Cash Operating Costs
(ZAR/t)
355
432
447
440
(ZAR/kg)
50,195
56,450
62,125
68,827
Capital Expenditure
(ZAR/t)
15
24
4
5
(ZAR/kg)
2,076
3,152
490
856
(1)
2004 reports six-month actual results to December 2003.
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Annexure 7
2.3.8
Kalgold Operation
Kalgold Operation is currently subject to sale as described in more detail within the circular. Until such time as the sale agreement has become unconditionally effective, the asset still forms part of Harmony. As at the base valuation date of 31 December 2003, Kalgold was still contributing to the equity value of Harmony as reported in Section 14. Notwithstanding this statement, the valuation as reported in Section 14 considers the combined Mining Asset valuation with and without Kalgold.
The Kalgold Operation is situated some 50km southwest of Mafikeng in the North West Province, South Africa, some 300km west of Johannesburg. Located at latitude 26°10'S and longitude 26°14'E, the site is accessed via the local R49 road between Mafikeng and Vryburg.
The gold deposits at Kalgold were discovered by Shell South Africa (Pty) Limited ("Shell") in 1991 following an exploration programme focused on the poorly exposed Archaean Greenstone belts of the Kraaipan Group, which occur in the area. In 1995 a feasibility study was conducted by West Rand Consolidated Mines Limited ("WRCM") who acquired the mineral and surface rights leading to the development of an open pit operation in July 1996. Harmony acquired Kalgold in July 1999.
Table 2.19 gives the salient operating statistics and Table 2.20 gives the historical operating statistics for Kalgold Operations from 1 January 2001 through to 31 December 2003, inclusive. Note that 2003 comprises 12-month actual results to June 2003 and 2004 reports the actual results to 31 December 2003.
Table 2.19 Kalgold Operation: Salient Operating Statistics
Maximum
Design
Operating
Business Unit
Capacity
Capacity
(1)
Life
Classification
(ktpa)
(ktpa)
Business Units Processing Operations
1,620
1,572
4
Short-life
(1)
Maximum Operating Capacity represents the maximum planned annual throughput for the LoM period.
Table 2.20 Kalgold Operation
(1)
: Salient Historical Operating Statistics
Statistic
Units
2001
2002
2003
2004
(2)
Production 
Waste Tonnes Mined
(kt)
8,542
7,323
7,711
4,763
Tonnes Milled
(kt)
959
961
1,084
694
Yield
(g/t)
1.6
2.0
2.1
2.0
Gold Production
(koz)
49
62
75
46
Stripping Ratio
(t
waste:
t
ore
)
8.9
7.6
7.1
6.9
Productivity 
TEC
(No.)
453
444
501
533
Milling
(t/TEC/month)
176
180
180
217
Gold Production
(g/TEC/month)
282
363
386
445
Health and Safety 
Fatalities
(No.)
0
0
0
0
Fatality Rate
(per mmhrs)
0.00
0.00
0.00
0.00
LTIFR
(per mmhrs)
7
13
4
9
Expenditures 
Cash Operating Costs
(ZARm)
98
130
150
99
Capital Expenditure
(ZARm)
33
25
39
1.8
Cost Performance 
Cash Operating Costs
(ZAR/t)
102
135
138
143
(ZAR/kg)
63,844
67,218
64,583
69,845
Capital Expenditure
(ZAR/t)
34
26
36
3
(ZAR/kg)
21,498
12,927
16,785
1,232
(1)
The contribution from Kalgold is subject to a current sale agreement which may see a 100% disposal of the asset
in the near future.
(2)
2004 reports six-month actual results to December 2003.
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80
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Annexure 7
2.3.9
Harmony Australian Operations
The two main operating groups of Harmony Australia are the Mt. Magnet & Cue Operations and the South Kalgoorlie Operations. Mt. Magnet & Cue Operations are situated in the Murchison region, Western Australia whilst the South Kalgoorlie operations are located as part of the Eastern Goldfields near the town of Kalgoorlie. Mt. Magnet Operation comprises a number of open pits and decline operations at Morning Star and Hill 50 and the processing of surface stockpiles. The Cue Operation comprises a number of open pits at Big Bell, Cuddingwarra, Golden Crown and Tuckabianna. The Big Bell underground operation was recently closed. The South Kalgoorlie operations comprise the Jubilee and New Celebration facilities, the Mt. Marion mine comprises an underground and open pit operations.
Exploration, development and production history at Mt. Magnet & Cue and South Kalgoorlie areas dates from 1896 and 1937, respectively. Mining at Mt. Magnet began with the discovery of gold in 1896 and up to 30 June 2002 some 5Moz has been produced. Gold mining at Big Bell in the Cue area commenced in 1937 but closed between 1955 and 1989 and up until 30 June 2002 gold sales exceeded 2Moz. Mining at South Kalgoorlie substantively commenced in 1987 and up until 30 June 2002 gold production of some 2Moz has been realised.
Table 2.21 gives the salient operating statistics and Table 2.22 gives the historical operating statistics for Harmony Australia Operations from 1 January 2001 through to 31 December 2003 inclusive. Note 2003 comprises 12-month actual results to June 2003 and 2004 reports the actual results to 31 December 2003.
Table 2.21 Harmony Australian Operations: Salient Operating Statistics
Maximum
Design
Operating
Business Unit
Capacity
Capacity
(1)
Life
Classification
(ktpa)
(ktpa)
Business Units 
Mount Magnet & Cue Plant
5,940
2,496
7.3
Medium-life
Jubilee Plant
1,320
1,176
3.0
Short-life
New Celebration Plant
1,656
504
0.3
Short-life
Total
8,916
4,176
7.3
Medium-life
(1)
Maximum Operating Capacity represents the maximum planned annual throughput for the LoM period.
Table 2.22 Harmony Australian Operations: Salient Historical Operating Statistics
Statistic
Units
2001
2002
2003
2004
(1)
Production 
Tonnes Milled
(kt)
1,088
4,782
7,148
2,545
Yield
(g/t)
1.6
1.6
2.2
2.4
Gold Production
(koz)
56
253
510
193
Productivity 
TEC
(No.)
882
882
882
917
Milling
(t/TEC/month)
103
452
675
463
Gold Production
(g/TEC/month)
164
743
1,498
1,092
Health and Safety 
Fatalities
(No.)
0
0
0
0
Fatality Rate
(per mmhrs)
0.00
0.00
0.00
0.00
LTIFR
(per mmhrs)
na
15
2
15
Expenditures Cash Operating Costs
(ZARm)
135
608
1,226
431
Capital Expenditure
(ZARm)
18
233
242
95
Cost Performance 
Cash Operating Costs
(ZAR/t)
124
127
171
169
(ZAR/kg)
77,990
77,265
77,311
71,643
Capital Expenditure
(ZAR/t)
17
49
34
37
(ZAR/kg)
10,399
29,610
15,274
15,798
(1)
2004 reports six-month actual results to December 2003.
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81
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Annexure 7
2.3.10 Harmony Canadian Operations
Harmony's Canadian Operations comprise the Bisset gold mine located near Bisset in the Manitoba Province, Canada. Mining activities were suspended in the second quarter of 2002 for economic reasons. The first mining at Bisset commenced in 1932 and continued until operations were ceased in June 1998 following the liquidation of the Bisset Gold Mine Company. Bisset had sold some 1.3Moz up until June 1995.
Table 2.23 gives the historical operating statistics for Harmony Canadian Operations from 1 July 2001 through to 31 December 2003, inclusive. For 2003, there was no production due to suspension of mining operations in the previous year.
Table 2.23 Harmony Canadian Operations: Salient Historical Operating Statistics
Statistic
Units
2001
2002
2003
2004
Production 
Tonnes Milled
(kt)
266
39
na
na
Yield
(g/t)
5.2
6.6
na
Gold Production
(koz)
44
8
na
Productivity 
TEC
(No.)
na
na
na
na
Milling
(t/TEC/month)
na
na
na
na
Gold Production
(g/TEC/month)
na
na
na
na
Health and Safety 
Fatalities
(No.)
0
0
na
na
Fatality Rate
(per mmhrs)
0.00
0.00
na
na
LTIFR
(per mmhrs)
37
32
na
na
Expenditures 
Cash Operating Costs
(ZARm)
111
9
na
na
Capital Expenditure
(ZARm)
49
-10
na
na
Cost Performance 
Cash Operating Costs
(ZAR/t)
417
231
na
na
(ZAR/kg)
80,552
35,019
na
na
Capital Expenditure
(ZAR/t)
184
-256
na
na
(ZAR/kg)
35,559
-38,911
na
na
2.4
Significant Exploration Properties
2.4.1
Avgold
The Target North Project considers options to exploit the Sun South area comprising the Paradise, Siberia and Mariasdal blocks of ground located immediately north of the Eldorado block of the existing Target Mine. From the south, the Blast Fault separates the Eldorado and Paradise blocks whilst the Siberia Fault separates the Paradise and Siberia blocks. The Mariasdal block adjoins the Siberia block and is bounded to the north by the Mariasdal Fault. The Sun South area comprises an extension of the Elsburg and Dreyerskuil reefs mined at Target Mine. Mineral Resources (Table 4.9 in Section 4) have been identified, of which 60% are classed as Inferred. High-level pre-feasibility/scoping studies have been completed by Avgold that consider three options for possible future development:
·
a "greenfields" development comprising a newly developed two shaft system to exploit all the blocks;
·
the "brownfields" development comprising an initial twin shaft system sunk to 2,500m below surface adjacent to the Target Mine ground handling infrastructure at 282L, a third "North Shaft" to be sunk to 2,500m below surface located towards the north of the Siberia block. The twin shaft system would exploit the Paradise block and certain material of the Siberia block whilst the North Shaft would be used to exploit the remainder of the Siberia block and the Mariasdal block. Ground between 2,500m and 3,000m would be accessed by vehicle ramps; and
·
the "brownfields" development comprising an initial single shaft sunk to 2,500m below surface, adjacent to the Target Mine ground handling infrastructure at 282L (South Shaft) and a subsequent North Shaft located towards the north of the Siberia block. The South Shaft would cater for men, material, ventilation and limited rock handling facilities. These shafts, together with access ramps for ground between 2,500m and 3,000m, would be used to exploit the blocks of the Sun South area.
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High-level indicative cash flows derived negative NPVs for the first two options; however the third option did realise a positive NPV. For Option 3, the first phase of the two-shaft system would utilise the existing ground handling facilities of Target Mine to recover 120ktpm of high-grade ore whilst 40 ktpm of low-grade material would be hoisted directly by the South Shaft, resulting in overall production of some 160ktpm. Mining would be concentrated on material above 2,500m from the Target workings and the Paradise block. Phase 2 would focus on development into the Paradise and Siberia blocks and expand production to some 220ktpm. The final third phase would introduce the North Shaft for the provision of men, material and ventilation to the northern blocks maintaining production at some 220ktpm.
Installing the initial single shaft for Phase 1 is estimated, by Avgold, to cost ZAR0.9billion, a further ZAR1.5 billion is estimated for the expanded infrastructure to cater for a 220ktpm operation of Phase 2 and an additional ZAR4billion for Phase 3. A feasibility study will commence during 2004 to further define the technical and economic parameters of the project to ascertain the NPV prior to making any capital commitments.
Until such time as the appropriate level of technical detail has been completed no Mineral Reserves and associated DCF valuation can be applied and as such only reports Mineral Resources.
2.4.2
Harmony
Harmony has three significant exploration properties: namely Poplar, Rolspruit and Kalplats.
The Poplar Project considers the green-fields development through installation of a twin shaft system to some 1,200m below surface to access ore some 20km from the existing Evander Operations. Mineral Resources have been estimated and the project is currently the focus of a pre-feasibility study.
The Rolspruit Project considers the exploitation of deeper resources of the Kimberley Reef adjacent to the No.8 BU at Evander Operations. Harmony has recently (March 2003) completed a feasibility study, which assesses two distinct options:
·
green-fields option:
the installation of a twin shaft system from surface; and
·
brown-fields option:
the installation of a twin sub-vertical shaft system at No.8 BU.
Given the high capital expenditure requirements and long lead-time to full production, current focus is on improving project economic performance.
The Kalplats Project is situated some 90km southwest of Mafikeng in the North West Province, South Africa, some 340km west of Johannesburg. The project is located some 40km to the west of the Kalgold Operation and accessed via the local R49 road between Mafikeng and Vryburg.
Kalplats is a platinum group metal ("PGM") prospect that was discovered during the course of gold prospecting in the Kraaipan greenstone belt in 2000. Mineralisation is contained in some seven separate ore zones with strike lengths between 500m to 1,000m and widths between 15m and 45m. Exploration has been completed and comprised a combination of Rotary Air Blast, Reverse Circulation and Diamond Drilling and a Pre-feasibility Study was completed in July 2002.
The Pre-feasibility Study concluded that the future viability of commissioning a mining operation at Kalplats depended on selectively mining the higher-grade reef zones. A Feasibility Study was commissioned in 2003 and work included the excavation of a 500t bulk sample for metallurgical testing of anticipated flotation recoveries and concentrate grades. Harmony is currently commissioning a Feasibility Study in order to assess the potential development of an open pit mining operation.
2.5
Mining Authorisations and Mining Leases
SRK has not reviewed the various agreements relating to mineral rights, authorisations and leases from a legal perspective and has consequently relied on advice by the Companies to the effect that the Companies are entitled to mine all material falling within their respective mineral rights and/or mining rights and that all the necessary statutory mining authorisations are lawfully in place.
Notwithstanding this statement, SRK has been provided with sufficient documentation and a supporting letter confirming that following the completion of a recent and comprehensive internal audit all mineral rights, mynpatchen, claims and mining leases being in respect of said mining leases have been duly validated and verified by the individuals as identified in Section 1 and employed by Harmony's legal services.
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2.5.1
South African Law: Current Status
Ownership of mineral rights and statutory mining rights in South Africa may be affected through the common law or by statute. Under the common law, mineral rights vest with the owner of the land. The common law recognises the principal that mineral rights may be severed from title to land, rendering it possible for the surface rights, the rights to precious metals and the rights to base minerals to be owned by different persons.
Earlier mining legislation, which has since been repealed, granted, by way of mining leases, statutory rights to mine for precious metals. Despite the repeal of this earlier legislation, mining leases continue to be valid under the terms of the Minerals Act (Act 50 of 1991) (the "Act"). Registration of title to mineral rights ensures that real rights are constituted in and to the minerals concerned. Upon registration, those rights (either common law mineral rights or statutory mining rights) become effective against third parties. Registered title may be obtained in a number of ways. For example, where mineral right ownership has been separated from land ownership, registered title to the common law mineral rights is obtained by the registration of such ownership in the Deeds Registry Office. Alternatively, where a person has acquired statutory mining rights pursuant to a mining lease, registered title to the statutory mining rights is effected after receipt of the necessary consent from the Minister of Minerals and Energy and by registration of those rights in the Mining Titles Office.
The Act currently governs prospecting and mining activities in South Africa. The Act provides that statutory mining rights supersede common law mineral rights. Thus, pursuant to the Act, the holders of statutory mining rights are deemed to be the common law holders of the mineral rights.
2.5.2
South African Law: The Minerals and Petroleum Resources Development Act
The Minerals and Petroleum Resources Development Act (Act 28 of 2002) was promulgated by the South African Parliament during July 2002 as the Minerals Act (the "Minerals Act"). The Minerals Act sets out to "make provision for the equitable access and sustainable development of the nation's mineral and petroleum resources" by bringing the country's mining law up to internationally accepted standards. It is also expected to provide many opportunities for recognised empowerment exploration and mining companies.
The legislation will enforce the "use it or lose it" principle of mineral exploration and development. In platinum, in particular, it unlocks stagnant areas currently owned by private owners of mineral rights unwilling or unable to bring them to account and by mining companies wishing to hold reserves and resources for the next 30 years and longer. Government's view is that in order to redress the wrongs of the past, it needs to promote industry to provide employment and to generate revenue for the country-wide Reconstruction and Development Initiative.
The Minerals Act seeks to address the issue of Historically Disadvantaged South Africans ("HDSA") ownership. The South African Government's Mining Charter embodies the policy of facilitating the transfer of ownership within the South African mining industry to HDSA within the next 10 years. All stakeholders have agreed a target of 26% empowerment status to be achieved in a transparent manner and at fair market value.
The Mining Charter also aspires to achieve employment equity and targets of at least 40% HDSA participation in management within five years, with 10% being participation by women.
2.5.3
South African Law: Prospecting Permits
Prospecting is governed by the Act and is defined as "intentionally searching for any mineral by means which disturb the surface of the earth, including the portion under the sea or under other water or of any tailings, by means of excavation or drilling necessary for that purpose".
Section 5(2) states that no person may prospect or mine without the necessary authorisations. This requirement departs from the common law principles governing ownership of minerals and restricts the right of owners to prospect and exploit mineral resources that fall within their ownership. It is a requirement that the applicant for a prospecting permit be the holder of the mineral right or has acquired the written consent of the mineral right holder to prospect for his own account. The prospector may not remove or dispose of any mineral found during prospecting operations unless the Director of Mineral Development has given permission for such removal. Under the Act the Director of Mineral Development has the power to issue prospecting permits. A prospecting application must be submitted and be accompanied by proof of right to the minerals, details about the manner in which the applicant intends to prospect and rehabilitate disturbances of the surface which may be caused by the intended prospecting operations and particulars concerning the applicant's ability to make the necessary provision to rehabilitate disturbances of the surface which may be caused by the intended prospecting operations.
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The details of the manner in which the applicant intends to rehabilitate disturbances of the surface are to be submitted in the form of an environmental management programme ("EMP") for approval by the Director of Minerals Development. Such approval is in addition to the approval of the prospecting permit and no prospecting operation may commence without approval of the EMP.
A prospecting permit is issued for a period of 12 months but may be granted for longer should it be so determined by the Director of Minerals Development and can be renewed. The Act restricts and prohibits prospecting on certain lands including National Parks, townships or urban areas, land comprising public roads, a railway or cemetery and land that has been reserved for public purposes.
2.5.4
South African Law: Mining Authorisations
Under the Act, no person or mining entity may mine for minerals without being granted a mining authorisation, either temporary or permanent. Prior to granting a mining authorisation, two requirements must be fulfilled. Firstly, the mining entity must either be the registered holder of the mineral rights or have obtained the written consent of the registered holder of the mineral rights to mine the minerals concerned, for its own account. Secondly, the Department of Minerals and Energy must be satisfied with the scale, manner and duration of the intended mining operations and must approve an Environmental Management Programme Report ("EMPR").
The Act provides for two forms of permanent mining authorisations, namely mining permits and mining licences. A mining permit is issued where the minerals occur in limited quantities or will be mined on a limited scale and on a temporary basis. A mining licence is issued where the minerals occur in more than limited quantities or will be mined on a larger than limited scale and for a period longer than two years.
The Act allows a temporary mining authorisation to be issued either to ensure the continuation of existing operations or to accommodate circumstances where approval of an EMPR is outstanding. Temporary mining authorisations are generally issued for limited periods but are renewable until the EMPR has been approved.
2.5.5
South African Law: The Royalty Bill
On 10 March 2003, the Royalty Bill was released for public comment. The Royalty Bill is currently being revised and the date of release of the revised version is unknown.
The Royalty Bill proposes to impose a 3%, 4% and 8% revenue-based royalty on the South African gold mining sector, platinum sector and diamond sector respectively, payable to the South African Government. Under the terms of the Royalty Bill released for comment, the royalty is to take effect when companies convert to New Order Mining Rights in accordance with the New Minerals Act, although the Minister has indicated that the royalty is not expected to take effect until the transitional period for the conversion of mining rights under the New Minerals Act expires. If adopted, the Royalty Bill may have an impact on the operating results (technical) and will have a negative impact on the financial performance, hence valuation of the Mining Assets.
2.5.6
Australian Law
In Australia, with few exceptions, all onshore mineral rights are reserved to the government of the relevant state or territory. Exploration for and mining of minerals is regulated by the mining legislation of that state or territory and controlled by the relevant state or territory department. Where native title has not been extinguished, native title legislation may apply to the grant of tenure and some subsequent administrative processes. Heritage legislation may operate to preclude or regulate the disturbance of a particular area. In most Australian states, if the holder of an exploration license establishes indications of an economic mineral deposit and expends a minimum level of investment, it may apply for a mining lease which gives the holder exclusive mining rights with respect to all minerals on the property. It is possible for one person to own the surface of the property and for another to own the mineral rights. The maximum initial term of a mining lease is 21 years and the holder has the right to renew the lease for a further period of 21 years. Subsequent renewals are subject to the minister's discretion and the lease can only be assigned with the consent of the relevant minister. Royalties are payable as specified in the relevant legislation in each state or territory. A general-purpose lease may also be granted for one or more of a number of permitted purposes. These purposes include erecting, placing and operating machinery in connection with mining operations, depositing or treating minerals or tailings and using the land for any other specified purpose directly connected with mining operations.
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2.5.7
Avgold: Current Status
Avgold classifies their land holding position into three main categories: existing mining authorisation; contiguous mineral rights for which extensions may be applied; and all non-contiguous mineral rights. On approval of areas currently under consideration for extension Avgold will have mining authorisations totalling 4,151Ha.
Details relating to the EMPR status as required by section 39(1) of the Minerals Act are also included in Section 11 of this CPR.
Table 2.24 Avgold: Land Holdings
Existing Mining
Extension
Contiguous
Non-Contiguous
Mining Area
Authorisation
Application
Mineral Rights
Mineral Rights
(Ha)
(Ha)
(Ha)
(Ha)
Target
4,151
Sun - Target North
23,200
Oribi
3,251
Total
4,151
23,200
3,251
2.5.8
Harmony: Current Status
Harmony currently classifies their land holding position into four main categories: existing mining authorisation; area for which extensions have been applied; all contiguous mineral rights; and all non- contiguous mineral rights. On approval of areas currently under consideration for extension Harmony will have mining authorisations totalling 122,615Ha.
Being effectively lease bound, Harmony's South African mining operations do not include any significant mineral rights external to the current lease areas.
Details relating to the EMPR status as required by section 39(1) of the Minerals Act are also included in Section 11 of this CPR.
Table 2.25 Harmony: South African Operations Land Holdings
Existing Mining
Extension
Contiguous
Non-Contiguous
Tax Entity
Authorisation
Application
Mineral Rights
Mineral Rights
(Ha)
(Ha)
(Ha)
(Ha)
Free Gold including Joel
21,204
9,162
4,877
24,484
Harmony Free State
22,583
1,815
3,256
4,094
Welkom
5,511
0
0
0
Randfontein
24,266
0
3,006
572
Evander
(1)
36,898
2,262
2,837
1,462
Orkney Operations
9,317
0
0
0
Harmony Free State
22,583
1,815
3,256
4,094
Kalgold
(2)
615
3,810
0
0
Total
142,977
18,864
17,232
34,706
(1)
Evander excludes prospecting rights granted of 162,237Ha.
(2)
Kalgold is currently the subject of a sale agreement.
Harmony Australian Operations control exploration and mineral rights over a total area of 298,355Ha, of which the active mining areas currently total 75,516Ha.
In Australia, most mineral rights belong to the government and mining companies must pay royalties to the government based on production. There are, however, limited areas where the government granted freehold estates without reserving mineral rights. Harmony has freehold ownership of its Jubilee mining areas, but the other mineral rights in Harmony Australian Operations belong to the Australian Government and are subject to royalty payments. In addition, current Australian law generally requires native title approval to be obtained before a mining license can be granted and mining operations can commence. Harmony Australian Operations have approved mining leases for most of their Mineral Reserves, including all Mineral Reserves that are currently being mined and Mt. Magnet & Cue Operations, which have an approved mining license for the current development area. If Harmony Australia Operations expand into additional areas under exploration, these operations would need to convert the relevant exploration licenses prior to commencing mining and that process could require native title approval. There can be no assurance that any approval would be received.
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Table 2.26 Harmony: Australian Operations Land Holdings
(1)
Mt.Magnet &
Sth.
Regulatory Area
Units
Totals
Cue
Kalgoorlie
Other
Western Australia
Mining Lease
Active Permits
(1)
Areas/Blocks
(No.)
65,577
38,199
27,379
0
Total Area
(Ha)
655
382
274
0
Pending Permits
Areas/Blocks
(No.)
54,951
17,114
37,837
0
Total Area
(Ha)
550
171
378
0
Prospecting Licence
Active Permits 
Areas/Blocks
(No.))
16,664
8,096
8,568
0
Total Area
(Ha)
167
81
86
0
Pending Permits
Areas/Blocks
(No.)
9,285
2,578
5,138
1,569
Total Area
(Ha)
93
26
51
16
Exploration Licence
Active Permits 
Areas/Blocks
(No.)
311
127
185
0
Total Area
(Ha)
870
372
498
0
Pending Permits
Areas/Blocks
(No.)
454
198
218
38
Total Area
(Ha)
1,264
566
589
109
Miscellaneous Licence
Active Permits 
Areas/Blocks
(No.)
6,848
532
6,316
0
Total Area
(Ha)
68
5
63
0
Pending Permits
Areas/Blocks
(No.)
177
97
80
0
Total Area
(Ha)
56
1
55
0
General Purpose Lease
Active Permits 
Areas/Blocks
(No.)
936
936
0
0
Total Area
(Ha)
9
9
0
0
Pending Permits
Areas/Blocks
(No.)
0
0
0
0
Total Area
(Ha)
0
0
0
0
Special Lease
Active Permits 
Areas/Blocks
(No.)
2,226
0
2,226
0
Total Area
(Ha)
22
0
22
0
Pending Permits
Areas/Blocks
(No.)
0
0
0
0
Total Area
(Ha)
0
0
0
0
(1)
The Mineral Reserves supporting the valuation reported in Section 14 are contained within the Active Permits and are valid for the LoM period.
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Figure 2.1 Mining Assets: General Location Map
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Figure 2.2 Avgold: Location Map and Lease Area for Target Operations
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Figure 2.3 Harmony: Location Map and Lease Area Harmony Free Gold Operations, Free State Operations and
Welkom Operations
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Figure 2.4 Harmony: Location Map and Lease Area for Evander Operations
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Figure 2.5 Harmony: Location Map and Lease Area for Orkney Operations
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Figure 2.6 Harmony: Location Map and Lease Area for West Wits Operations, Elandsrand and Deelkraal
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Figure 2.7 Harmony: Location Map and Lease Area for West Wits Operations, Randfontein Estates
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3.
GEOLOGY
3.1
Introduction
This section describes the geology of the Mining Assets. The nature and geometry of the orebodies being or planned to be mined, their structural complexity and the variability of grades is also discussed. In addition to this, a brief description of the geological potential is presented.
3.2
South African Goldfields
Witwatersrand Basin Geology: Witwatersrand Basin operations are mostly deep-level underground mines exploiting gold bearing, shallow dipping tabular bodies, which have collectively produced over 50kt (1,608Moz) of gold over a period of more than 100 years.
The Witwatersrand Basin comprises a 6km vertical thickness of argillaceous and arenaceous sedimentary rocks situated within the Kaapvaal Craton, extending laterally for some 300km east-northeast and 150km south-southeast. The sedimentary rocks generally dip at shallow angles towards the centre of the basin though locally this may vary. The basin sediments outcrop to the south of Johannesburg but further to the west, south and east these are overlain by up to 4km of Archaean, Proterozoic and Mesozoic volcanic and sedimentary rocks. The Witwatersrand Basin sediments themselves are considered to be between 2,700 and 3,100 million years old.
Gold mineralisation in the Witwatersrand Basin occurs within laterally extensive quartz pebble conglomerate horizons, termed reefs. These occur within seven separate goldfields located along the eastern, northern and western margins of the basin. These goldfields are known as the Evander Goldfield, the East Rand Goldfield, the Central Rand Goldfield, the West Rand Goldfield, the Far West Rand Goldfield, the Klerksdorp Goldfield and the Free State Goldfield. As a result of faulting and other primary controls on mineralisation, the goldfields are not continuous and are characterised by the presence or dominance of different reef units. The reefs are generally less than 2m in thickness and are widely considered to represent laterally extensive braided fluvial deposits or unconfined flow deposits, which formed along the flanks of alluvial fan systems that developed around the edge of what was effectively an inland sea.
All major reef units are developed above unconformity surfaces. The extent of unconformity is typically greatest near the basin margin and decreases toward more distal areas. Complex patterns of syn-depositional faulting have caused complex variations in sediment thickness within the basin. Sub-vertical to over-folded reef structures is a characteristic of basin margin features within certain areas.
Most early theories believed the gold to be deposited syngenetically with the conglomerates, but recent research has confirmed that the Witwatersrand Basin has been subject to metamorphism and that some post- depositional redistribution of gold has occurred. Other experts regard the gold to be totally epigenetic and to have been deposited solely by hydrothermal fluids some time after deposition of the reef sediments.
Despite these varied viewpoints, the most fundamental control to the gold distribution remains the association with quartz-pebble conglomerates on intra-basinal unconformities. The reefs are extremely continuous, as a consequence of the regional nature of the erosional surfaces. Bedrock (footwall) controls have been established governing the distribution of many of the reefs. Preferential reef development within channel systems and sedimentary features such as facies variations and channel frequency assist in mapping out local gold distributions. In all cases the grade of the orebodies varies above and below the pay limit. Consequently, the identification and modeling of erosional/sedimentary features is the key to in-situ resource estimation.
3.2.1
Free State Goldfield
The Free State Goldfield lies some 270km southwest of Johannesburg on the southwest rim of the Witwatersrand Basin. Exploration within the Free State Goldfield dates from the mid-1940s when values within the Basal Reef, the predominant economic reef in the district, were intersected.
Structurally, the Free State Goldfield lies within a north-south trending syncline forming an apex in the southwestern corner of the Witwatersrand Basin. The northerly plunging syncline is roughly divided by two major faults into three major blocks: the Odendaalsrus section to the west of the De Bron fault, the Central Horst, between the De Bron and Homestead faults and the Virginia Section east of the Homestead Fault. The Central Horst was uplifted and the Central Rand Group rocks eroded away prior to Ventersdorp time.
The Central Rand Group in the Free State comprises some 2,000m of sedimentary sequences deposited over successive unconformity surfaces in an expanding depositional area. The lack of major faulting and folding of Central Rand Group age has led to the conclusion that subtle tectonic warping of the basin with granite doming on the margins controlled deposition.
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The auriferous horizons are most typically conglomeratic units deposited at the base of each depositional sequence, although they may also occur as scours within a given formation. The principal reefs mined in the Free State are the Basal Reef, the Saaiplaas Reef, the Leader Reef, the `B' Reef, the `A' Reef, Elsburg Reefs and the Dreyerkuil Reefs.
The Basal Reef is the most extensive, continuous and economically significant reef in the Free State Province, accounting for over one-half of all of the gold produced there to date.
3.2.2
West Rand Goldfield
The Cooke BUs and Doornkop BU of the West Wits Operations are situated in the West Rand Goldfield, the structure of which is dominated by the Witpoortjie and Panvlakte Horst blocks which are superimposed over broad folding associated with the southeast plunging West Rand Syncline. The northern limb of the syncline dips in a south-south-westerly direction and the southern limb in an east-south-easterly direction. The fold axis of the West Rand Syncline is located along a line that runs from the West Rand Consolidated Mines Limited lease area near Krugersdorp and trends south- eastwards through the northern part of the Doornkop section.
The structural geology in the north section of the Cooke shafts is dominated by a series of northeast trending dextral wrench faults. The most significant of these are the Roodepoort/Panvlakte Fault and the Saxon Fault, which have downthrows of 550m to the southeast and the Doornkop Fault which has a 250m down throw to the southeast. Several other smaller scale faults have downthrows ranging from 20m to 150m. Pilanesburg, Bushveld and Ventersdorp age doleritic dykes are also present. These strike in a northerly direction, with the exception of some of the latter dykes, some of which strike in an easterly direction.
At Cooke Section two major fault trends are present. The first set parallel the Panvlakte Fault striking NNE. These faults are steeply dipping, generally have small throws and do have any noticeable lateral movement to displace payshoots. A second major fault system, however trends north-westerly to east- west, which significantly displace these payshoots. They have small throws and tend to be water bearing showing a connection to the dolomites and indicating a Transvaal age. Many of them are mylonite or dyke filled.
Six main reef groupings have been identified at West Wits Operations on the West Rand Goldfield, the Elsburg Formations, the Kimberleys, the Black Reef, the Livingstone Reefs, the Ventersdorp Contact Reef (the "VCR") and the South Reef. Within these, a total of nine economic reef horizons have been mined at depths below surface between 600m and 1,260m.
3.2.3
Far West Rand Goldfield
Three primary reefs are exploited in the Far West Rand Goldfield, the VCR located at the top of the Central Rand Group, the Carbon Leader Reef near the base and the Middelvlei Reef, which occurs some 50m to 75m above the Carbon Leader Reef. Secondary reefs also occur in the area but the only examples of any significance are individual bands within the Mondeor Conglomerate Reef Zone that sub-crop beneath the VCR at Deelkraal BU and on the western side of Elandsrand BU.
The separation between the VCR and Carbon Leader Reef increases east to west from 900m to over 1,300m as a result of the relative angle of the VCR unconformity surface to the regional stratigraphic strike and dip. The Carbon Leader Reef strikes west-southwest and dips to the south at 25°. The VCR strikes east-northeast and has a regional dip of 21° to the south-southeast. Local variations in dip are largely due to the terrace-and-slope palaeotopographic surface developed during VCR deposition. In the location of the Mining Assets the Carbon Leader Reef occurs too deep to allow mining from current infrastructure and is lower in grade than elsewhere on the Far West Rand Goldfield. Consequently the VCR is the only reef currently exploited.
There are a series of east trending, north dipping normal faults with throws of up to 40m and a series of north-northeast striking normal faults with generally smaller displacements in the northwest. The original displacements on these faults are occasionally increased as a function of subsequent post-Bushveld displacement but overall faulting is much less prevalent than it is in other Witwatersrand goldfields. There are, for example, no major faults with throws of the order of several hundred meters or more. Moving to the eastern sections of the Far West Rand Goldfield the structure becomes simpler with few major faults. Most faults are high-angle normal faults trending north- northwest and eastwards and having throws of less than 70m.
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3.2.4
Evander Goldfield
The Evander Basin is a tectonically preserved sub-basin outside of the main Witwatersrand basin, the Devon Dome, a large granitoid cupola, separates it from the main Witwatersrand Basin. It is the most easterly mined Witwatersrand gold occurrence. The basin forms an asymmetric syncline, with the fold axis between No.5 BU and No.6 BU, plunging to the northwest and contains only one economic reef system, the Kimberley Reef.
The Evander Basin was a part of the main Witwatersrand Basin until post-Booysens shale times. It was separated from the East Rand and South Rand Basins by uplift in the areas now marked by the basement Devon and Cedarmont Domes. Deeper within the basin, the Central Rand Group is overlain by Ventersdorp Lavas and Transvaal Sequence sedimentary rocks. West Rand Group rocks are present beneath the Central Rand Group. A poorly mineralised reef, stratigraphically above the Kimberley Reef, termed the Intermediate Reef, is also developed but is not economic, except where it has eroded the sub-cropping Kimberley Reef in the south and west of the basin.
The Evander Basin is one of the more structurally complicated parts of the Witwatersrand. Mining and drilling have defined the larger elements of the structure of the shallow southern and western basin margins. The northern and north-eastern extent of the basin is poorly drilled because of the depth to the Kimberley Reef and because of poor grades encountered to the north. The geological structure there has been inferred from two-dimensional seismic survey lines.
3.2.5
Klerksdorp Goldfield
The Klerksdorp Goldfield is located on the northwest margin of the Witwatersrand Basin and lays some 150km south-southwest of Johannesburg. Exploration, development and production history in the area dates from 1886 and following dormant periods, large-scale production commenced during the 1940s.
The Witwatersrand Basin sedimentary rocks are overlain by up to 2,000m of cover rocks and the reefs themselves occur at depths of between 80m and 4,000m and, with the exception of the VCR, which dips moderately steeply west-northwest, generally dip gently to the southeast.
The most significant structural features of the Klerksdorp Goldfield are northeast striking normal faults, which dip to the northwest and southeast and have throws of several hundred metres. These features break up the stratigraphy containing the stratiform orebodies into a series of horsts and grabens, which vary in width from several hundred metres to over a thousand metres. These horsts and grabens are internally disturbed by small-scale faults sympathetic to the major faults, which typically have throws of tens of metres and break up the reef into continuous blocks of up to 100m in width. These brittle faults can be identified by drilling from access development and as the dip of the stratigraphy is reasonably consistent, can usually be negotiated without significant difficulty. There are, however, smaller-scale faults in the immediate vicinity of these larger faults, which disrupt the reefs and can result in increased losses and dilution.
All mining to date in the Klerksdorp Goldfield has taken place to the northwest of one of the major northeast-southwest striking normal faults, the Jersey Fault, which has a down throw to the southeast of up to 1,000m, displacing the Vaal Reef down to a depth below surface exceeding 3,000m. Two further sub-parallel faults occur to the southeast of the Jersey Fault displacing the reefs down to more than 5,000m below surface.
Two primary conglomerate reefs are exploited within the Klerksdorp Goldfield, namely the Vaal Reef and the VCR. The Vaal Reef and VCR reef horizons occur at depths between 80m and 4,000m. The VCR dips moderately steeply west-northwest, the Vaal Reef generally dips gently to the southeast. Other, secondary reefs, including the Black Reef, Zandpan Marker and Denny's Reef exist; however they are not currently considered to be economically viable.
3.3
Deposit Geology
Most of the operations can be described as mature mining operations with good underlying geological models backed up with grade models based on vast amounts of historical mining and sampling data. The electronic capture of sampling data over the past ten-years has allowed a far greater understanding of the grade and payshoot characteristics of the orebodies than was possible previously. The Companies Indicated and Inferred Mineral Resources are more reliant on the projection of geological or facies models than the Measured Mineral Resources due to the much lower density of sampling data in these areas.
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3.3.1
Target Operations
The gold mineralisation currently exploited by Target Mine is contained within a succession of Elsburg and Dreyerskuil quartz pebble conglomerate reefs hosted by the Van den Heeversrust and Dreyerskuil Members of the Eldorado Formation, respectively. Additional Mineral Resources have been delineated in the Big Pebble Reefs of the Kimberley Formation but these are not planned to be exploited in the current LoM plan.
The individual Elburg Reefs are separated by quartzite beds and form a a wedge shaped stacked sequence which strikes north north-west and comprises some 35 separate reef horizons interpreted to have been deposited in an alluvial fan system similar in nature to present day river deltas. This sequence of Elsburg Reefs and quartzites is truncated by an unconformity with the overlying younger Dreyerskuil Member. Immediately below the sub-crop with the Dreyerskuil the Elsburg Reefs and quartzites dip steeply to the east becoming progressively shallower dipping resulting in a structure analogous with a recumbent syncline, verging to the west, with the upper limb removed. This synclinal structure plunges shallowly at 10° to the north. In the more proximal areas to the sub- crop the thickness of the intervening quartzites reduces and many of the individual Elsburg Reefs coalesce to form reef packages that are exploited by the massive mining methods employed at Target Mine. Gold grades in the Elsburg Reefs are also higher in the proximal areas decreasing down dip until reaching an economic limit some 200m to 450m from the sub-crop.
The majority of the Mineral Reserves at Target Mine are contained within the Eldorado fan, a structure with dimensions of some 135m vertically, 450m down-dip and 500m along strike. The Eldorado fan is similar in nature to the fans historically mined at Loraine gold mine to the south. The Eldorado fan is connected to the subsidiary Zuurbron fan, located between Target Mine and Loraine, by a thinner and lower grade sequence of Elsburg reefs termed the Interfan area. The economic mineralisation in the Interfan is less persistent distally than within the fans and does not contribute significantly to the reserves. To the north of the Eldorado fan a number of other fans have been intersected by surface drilling of which the Siberia and Mariasdal fans are the most significant. These fans are subject to ongoing technical studies and do not form part of the current Target Mine LoM Mineral Reserve.
The Dreyerskuil Member consists of a series of stacked reefs, dipping shallowly to the east, that are less numerous but laterally more continuous than the underlying Elsburg Reefs. At Loraine this unit correlates stratigraphically with the Uitkyk Member that consists of an immature conglomerate informally termed the `Boulder Beds'. These beds did not contain significant gold mineralisation and were therefore not mined at Loraine. Towards the north the Uitkyk Member grades into a series of reworked conglomerates and quartzites, similar in nature to the Elsburgs, which becomes the Dreyerskuil Member in the vicinity of Target Mine. The conglomerate reefs contain economic mineralisation, some of which may have been derived through the erosion and reworking of Elsburg Reefs at the sub-crop.
The Big Pebble Reefs are found in the Kimberley Formation, which is overlain by the Eldorado Formation. The BP6a Reef, which has been historically mined at Loraine No.2 Shaft, lies on the unconformity at the base of the upper member of the Kimberley Formation (the Earl's Court Member). This overlies the Big Pebble Reef Member, the base of which comprises a series of argillaceous quartzites and several well-developed conglomerates. These are collectively referred to as the Big Pebble Zone ("BPZ"), which varies in thickness between 1m and 15m. The BPZ conglomerates are well developed at Target Mine and Loraine and coalesce into thick multiple conglomerate reef units close to their western subcrop position. Although resources have been delineated in the BPZ in the Loraine and Target Mine areas, these are not exploited in the current LoM plan.
A number of faults that displace the reefs at Target Mine have been identified of which the most prominent are the north-south trending Eldorado fault and the east-west trending Dam and Blast faults. The Eldorado uplifts the more distal portions of the Elsburg and Dreyerskuil Reefs while the Blast fault forms the northern boundary of Target Mine. The structure is known to a reasonable degree of confidence through a combination of underground drilling and mapping augmented by surface seismic surveys.
The plunging synclinal feature at Target Mine continues northwards, where the geological setting is similar and additional non-LoM resources have been delineated on the Elsburgs, Dreyerskuil and Big Pebble Reefs. In the Target North area low-grade mineralisation has also been intersected on the Maraisdal Reef and the Sun Reef, which are thought to be the equivalent of the `B' Reef and Basal Reef, respectively, elsewhere in the Free State Goldfield.
An erratically developed reef has been intersected in some surface boreholes in an area to the far north of the Target Mine at the base of the Ventersdorp Conglomerate Formation, which overlies the Eldorado Formation. This is interpreted to be the VCR, which is present in the Klerksdorp, West Rand and Far West Rand Goldfields but not elsewhere in the Free State Goldfield. The VCR is a coarse to very coarse quartz pebble conglomerate, which appears to be highly channelised and varies in thickness from almost zero to 4m.
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Target North is sub-divided into the Paradise, Siberia and Maraisdal areas by the east-west trending Siberia and Maraisdal faults. To the north of the Siberia Fault, the Eldorado Fault continues trending more to the northwest and an additional north-south trending fault, the Twin fault has uplifted the distal portions of the reefs. North of the Maraisdal fault the reef horizons are at a depth greater than 2,500m below surface and a farm boundary sub-divides this area into Maraisdal and Kruidfontein. The large-scale structure in the Target North area is known to a reasonable degree of confidence through the surface boreholes and extensive three-dimensional seismic surveys. Resources have been delineated on strike up to 15km north of Target Mine.
Approximately 40 km north of Target Mine, surface boreholes have intersected gold bearing reefs in the Oribi area close to the town of Bothaville. Resources have been delineated at Oribi on the VCR and Elsburgs at depths of approximately 2.75km below surface.
3.3.2
Free Gold Operations
The primary reef mined at Tshepong BU is the Basal Reef with minor contribution from the `B' Reef, which lays some 140m stratigraphically above the Basal Reef. The `B' Reef is highly channelised in nature with a much more erratic grade distribution than the Basal Reef. The relatively incompetent Khaki Shale overlies the Basal Quartzite, which occurs in the upper portion of the Basal Reef. The Basal Quartzite provides natural support to the Khaki Shale and where the thickness of this is less than 60cm, mining dilution can and does increase dramatically.
The Basal Reef dips at shallow angles to the east and is intersected by two significant north-south striking faults, the Dagbreek and the Ophir Faults. These faults dip at moderate angles to the west and have significant strike-slip and up-dip throws of the order of 1,000m to 2,000m and 200m to 300m, respectively.
Economic grades at Tshepong BU are constrained within a broad payshoot, which trends east- southeast. Currently a geological model of the Basal Reef facies variations is used for grade estimation. The method of assigning facies type is a scoring system developed in conjunction with Leeds University, UK. Scoring is based on geological type (Lorraine Facies or Black Chert Facies), presence of Waxy Brown Quartzite ("WBQ"), which is thought to trap fluids in the underlying reef, presence of micro-thrusting, which is thought to encourage fluid flow into the reef and presence of reducing minerals such as sulphides and carbon, which are thought to encourage the precipitation of gold mineralisation.
Phakisa BU is situated immediately to the east of Tshepong BU where shaft-sinking operations ceased prior to completion. The resources at Phakisa comprise the Basal Reef and represent the down-dip extension from Tshepong BU.
The primary reefs mined at Bambanani include the Basal Reef and in particular the Steyn Facies which covers approximately 90% of the mine area. The Khaki Shale in the north and the Waxy Brown Quartzite in the south overlie the Basal Reef. Secondary reefs such as the Leader Reef have been mined on a small scale historically but have always been found to be low grade.
The whole package dips at angles of between 25° and 45° to the east and is generally between 1m and 3m thick.
The lease area is bound to the west by the Stuurmanspan Fault and to the east by the De Bron Fault. The Harrison Fault, parallel and to the west of the De Bron Fault demarcates the eastern mining limit. Both of these are significant north-south striking normal faults, which dip at moderate angles to the west and have throws of over 100m. Faults sympathetic to these occur with displacements of up to 50m, as do east-west faults with lateral shifts of up to 400m on the northern edge of the mining area.
Joel BU exploits two distinct forms of a single reef, developed on a single unconformity surface. These are known as the Beatrix Reef and the Beatrix-VS5 Composite Reef. The reefs dip to the northeast at 15° and the composite reef sub-crops against the overlying Karoo Supergroup just to the north of Joel South BU, defining the southern limit of the orebody.
The Beatrix Reef conglomerates are found throughout the mine area and generally have multiple basal degradation and internal scour surfaces, often thinning to a single pebble lag on paleotopographic highs. The Beatrix-VS5 Composite Reef represents a re-working of the Beatrix Reef accompanied by a mixing with lower grade VS5 material. This occupies a 500m to 1,000m wide channel running almost north south through the centre of the lease area, which is interpreted to widen to the northeast of Joel North BU.
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A deep erosional channel of Waterpan sedimentary rock, known as the Klippan Channel, truncates the reef some 1.8km to the northeast of Joel South BU. This washout is wedge-shaped with its apex to the west and widens to the southeast. The estimated dimension from the apex to the eastern property boundary is approximately 1.8km. The reefs have been shown to be continuous to the north of this transgressive feature.
Where untouched by the Klippan Channel, the reefs are bound to the east by the De Bron Fault, which strikes north-northeast. The CD Fault, which strikes northeast and is roughly halfway between the two shafts, has a 320m sinistral lateral displacement, which has moved ground south of the fault towards the northeast.
The complex nature of the reef, due to the multiple pulses of detrital influx and scouring, paleo- topographic highs and mixing between the Beatrix and Beatrix-VS5 Composite Reef, has resulted in a highly irregular distribution of gold throughout the mining area. There are broad low and high- grade zones on the scale of 100's of metres, which are likely to repeat beyond current development, however, the detailed grade distribution within these zones remains very unpredictable.
For the purposes of resource estimation, a detailed facies model is used and is based on detailed sedimentological observations and absence of well-mineralised reef at paleo-topographic highs.
Eland BU, Kudu & Sable BU and Nyala BU are contiguous to the south and west of Tshepong BU and Basal Reef is mined almost exclusively. The geological setting is similar to that described for Tshepong BU, however, faulting in the mining lease is the most intense to be found at the Free Gold Operations (excluding Joel BU). The Dagbreek fault intersects Eland BU lease area and the Rheedersdam thrust fault forms the western boundary of the remaining three BUs. These and other generally north striking normal faults including the Eureka, Rietpan and Wesselia faults represent the dominant the structures in the area. The reef in the Rheedersdam fault zone has been multiply repeated by thrusting which has resulted in stacks of up to eight reef repeats.
Further variability in reef occurrence has been caused by changes in palaeotopographic slope, which controlled the nature of sedimentation and subsequent mineralisation potential.
The Basal Reef is particularly carbonaceous at Eland BU, Kudu & Sable BU and Nyala BU and the gold tends to concentrate strongly on the kerogen-rich footwall contact and visible gold has been observed in several areas. The best grades were historically mined at Kudu & Sable BUs. The Nyala BU area is characterised by marginal grades.
Eland BU and Kudu & Sable BU are predominantly remnant operations with short lives and the extensive historical mining and the nature of the remaining Basal Reef Mineral Resources minimise uncertainties regarding grade, structural complexity and loss of ground. Nyala BU has only recently re-opened and the LoM plan is focused on exploiting the Basal Reef shaft pillar.
The St. Helena BU has a complex geological structure with faults generally trending north south with downthrows of up to 2,000m and dips of between 30° and 50°. Reverse and thrust faulting is present, sometimes resulting in local duplication of reef. Two economic reefs are present within the mine property with the Basal Reef being the most economically important unit and the Leader Reef, which lies some 15m above the Basal Reef.
St. Helena is predominantly a remnant operation with extensive historical mining and the nature of the remaining Basal Reef Mineral Resources minimise uncertainties regarding grade, structural complexity and loss of ground.
Surface sources at the Free Gold Operations comprise numerous Waste Rock Dumps ("WRDs") and Slimes Dams, which in addition to various plant clean-up tonnages, are processed at FS1 Plant, FS2 Plant and to some degree at Joel Plant. WRDs comprise both waste material and reef material, the latter of which is sourced from cross-tramming of mined ore. Typical grades range between 0.5g/t and 1.0g/t, which are either processed directly or pre-screened to ensure Run of Mine ("RoM") grades in excess of 1g/t.
Slimes Dams may also contain significant gold grades owing to occasional sub-optimal metallurgical performance, which resulted in gold being sent to tails. Grade distribution within WRDs and Slimes Dams can vary significantly owing to fundamental changes in mining, hoisting and processing methods, which have been implemented over prolonged years of mining.
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3.3.3
Harmony Free State Operations
At these operations mining was originally established to exploit the rich Basal Reef, but, as reserves in this orebody became depleted, production is being increasingly sourced from the more erratically mineralised and lower grade Leader Reef, Middle Reef, `A' Reef and the `B' Reef. The Basal Reef is a high grade, generally thin (<100cm) reef, which has been payable across most of its exposed extent. In the south, at both Harmony No.2 BU and Unisel BU, the reef pinches out against elevated footwall and grades deteriorate. The Leader Reef, `A' Reef, `B' Reef and Middle Reef are only payable in distinctive and often extensive payshoots and discrete pods where these reefs overlie the Basal Reef. Where the Leader Reef truncates the Basal Reef east of the so-called "line of coalescence" at Harmony, it is more uniformly payable.
The mineralised meta-conglomerates mined at Masimong are the Basal Reef, `B' Reef and `A' Reef. The Basal is mined at all three of the Masimong BUs while the `A' Reef is mined at Masimong No.4 BU and the `B' Reef at Masimong No.5 BU . At Masimong No.4 BU and Saaiplaas No.3 BU the Basal Reef is present as the Steyn facies, comprising three to four upward fining sedimentary cycles. The lower cycle, being the primary gold carrier comprises a basal conglomerate with an overlying protoquartzite. Carbon seams, which carry most of the gold, occur locally on the bottom contacts. Channel widths are generally below 70cm but in places only the carbon contact between the hanging BU wall and footwall exists. A north-south trending payshoot extending through the Saaiplaas No.3 BU towards the north along the western side of Masimong No.4 BU forms the main target area for the Basal Reef.
The black chert facies Basal Reef at Masimong No.5 BU comprises two upward fining cycles, of which the lower carbonaceous unit is the primary gold carrier. Channel widths average 60cm. The target area for this facies is a northwest-southeast trending payshoot that cuts through the shaft and is truncated to the east by younger leader quartzites.
The `A' Reef at Masimong No.4 BU lies 140m to 160m above the Basal Reef and is characterised by a highly channelised series of conglomerate bands that are generally only payable in locations where one or more bands exist within the channel itself. These oligomictic conglomerates are dark in colour with abundant, mostly fine pyrite and occasional carbon. Channel thickness is highly variable but can be up to 1.8m, with gold values highly dependent on the reef thickness and the presence of carbon.
The `B' Reef, lying 110m above the Basal Reef, comprises complex sedimentologically controlled gold mineralisation within a wide east-west trending channel that cuts through the Masimong No.5 BU area. Within this channel very high grade lenticular gravel bars contain abundant visible gold and form the targets for mining. Gold grades are erratic and extremely nuggety, while the channel widths also vary from zero to approximately 1.8m.
The two conglomerate horizons at Harmony No.2 BU, the Basal Reef and `A' Reef, are separated by 140m of mostly quartzites and conglomerate. The reefs dip 5° to 15° towards the west, becoming steeper to the west approaching the De Bron Fault. Numerous east-west trending dykes cut the reef, resulting in up throw and lateral shift. The Basal Reef occurs as thin bands of upward fining conglomerates, with full channel widths of up to 120cm. The payable reefs are often associated with carbon. Weak shales overlie the Basal Reef and must either be undercut or removed with the reef. The footwall to the `A' Reef at Harmony No.2 BU is the 1m to 15m thick Big Pebble Marker, which, where thinnest, is associated with better developed `A' Reef. Better gold grades are associated with thicker channels greater than 1m thick.
Brand No.1 BU and Brand No.3 BU are characterised by large north-south trending faults with lateral movement. The `A' Reef is the predominantly targeted reef and is found in wide fault displaced east west pay trends. The Basal Reef belongs to the former `Basal Placer' facies and is predominantly found in the form of a thin reef, rich in carbon. Pebbles are not always present. The reef thickness seldom exceeds 20cm and is generally less than 10cm.
Brand No.5 BU is sub-divided into fault blocks, with complex north-south structural trends intersected by normal north-northeast-south-southwest trending faults. Vertical fault displacements are minor, whereas right-lateral displacements are significant. The reefs on average, dip 40° to the east. The main reefs mined at Brand No.5 BU are the Basal Reef and Leader Reef. The Steyn Facies Basal Reef comprises four sedimentological conglomerate sub-facies, with gold best developed at the base of the conglomerates and associated with pyrite. The Leader Reef, lying between 7m and 16m above the Basal Reef is highly channelised with thickness increasing from east to west. This upwardly fining sequence comprises three sub-facies that can be up to 400cm thick. Gold is generally distributed evenly throughout the reef package.
The reefs at Unisel BU dip 30° to the East and are structurally complex due to fault intersections and the presence of sills in the vicinity of the Basal Reef. The principal reefs mined are the Basal Reef and the Leader Reef. The Basal Reef has been divided into three distinct sedimentological facies, with gold mainly associated with moderate-to-well developed buckshot pyrite. The Leader Reef is highly channelised with limited sedimentological information and shows an erratic grade distribution.
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The Merriespruit area is structurally complex with extensive north-south and east-west trending faults, with vertical displacements of up to 650m. Igneous intrusive are associated with the structurally complex areas. In general the reefs structures strike northeast southwest and dip 20° to the north. The Basal Reef is typically thin (<1m) and channelised, with payable grades located in northeast- southwest trending payshoots. This upwardly fining conglomerate is poorly to well mineralised with the local occurrence of buckshot pyrite. Locally mineralised Middle Reef, found above the Basal Reef in the hanging wall quartzites, is only payable when adjacent to Basal Reef or overlying Leader Reef. The Leader Reef comprises a series of conglomerate bands separated by pebbly quartzite bands that are variably mineralised, with typically poor to moderate grades. Payable grades are often located in NE-SW trends. In general the gold is dispersed throughout the package, with gold associated with the pyrite.
Surface sources at the Harmony Operations comprise numerous WRDs, Slimes Dams and Other Sources, which in addition to various plant clean-up tonnages, are processed at the Central, Virginia and Saaiplaas Plants. WRDs comprise both waste material and reef material, the latter of which is sourced from cross-tramming of mined ore. Typical grades range between 0.4g/t and 1.0g/t.
Slimes Dams may also contain significant gold grades owing to occasional and historical sub-optimal metallurgical performance, which resulted in gold being sent to tails. Grade distribution within WRDs and Slimes Dams can vary significantly owing to fundamental changes in mining, hoisting and processing methods, which have been implemented over prolonged years of mining.
3.3.4
Welkom Operations
The Welkom Operation lease area is centrally located within the Free State Goldfield in an area containing several other mature operations. The property is bounded to the south by the Free Gold Operation's St. Helena, Harmony Free State Operation's President Brand and President Steyn Gold Mines Limited's President Steyn Mine and the property is bounded to the north by Free Gold Operation's Eland BU, Kudu & Sable BU, Nyala BU and Tshepong BU.
The Basal Reef is the main reef exploited at Welkom Operation. In addition to the Basal Reef, No.6 BU also exploits the Leader Reef, lying some 15m above the Basal Reef. No.7 BU plans to exploit the Saaiplaas Reef or `pyrite stringers' as it is commonly referred to at this mine. This consists of thick (up to 6m), low-grade channels superimposed on the Basal Reef.
The Basal Reef strikes north to north-northwest and generally dips to the east between 20° and 40°. The reef is bounded on the west by the north trending Rheedersdam Fault system and sub-crops against the Karoo Supergroup along a northward trending line representing the basin margin. To the east the north trending De Bron Fault bound the reef. Two major faults, the Dagbreek and Ararat further dissect the reef into three contiguous blocks.
No.1 BU and No.2 BU are situated within the easternmost of these three blocks, between the De Bron and the Ararat Faults. No.3 BU and No.4 BU are situated within the central block between the Dagbreek and Ararat Faults and No.6 BU and No.7 BU are situated within the western most block.
The Leader Reef also varies in thickness between 0.3m and 1.7m and comprises a well-packed, small- to-medium pebble conglomerate with white quartz and black chert clasts and a moderate percentage of buckshot and crystalline pyrite.
One other reef, the Middle Reef, has been exploited in a very small, opportunistic way. The Middle Reef is an impersistent, lensoid, cherty and/or quartz-pebble conglomerate unit within the Middling Quartzite of the Harmony formation. While sometimes of very high grade, individual lenses are typically less than 30m in planar dimensions and as such too small to systematically drill for, generally resulting in accidental discovery.
3.3.5
West Wits Operations
The economic horizons change from north to south along the length of the Doornkop-Cooke-Western Areas part of the Witwatersrand Basin, from a few lower Central Rand unconformities in the north to the development of multiple upper Central Rand unconformities in the south. The structural and depositional history of the goldfield is still not fully understood due to the complicated pattern of stacked sub-cropping reefs, the syndepositional tectonics; however the individual orebodies have detailed grade models that assist evaluation.
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A key feature of reef development at Cooke Section is the thickening of the Westonaria Formation to the east of the anticline and importantly to the south. This wedging of formations indicates that syndepositional uplift along the Panvlakte trend (before the anticline developed) had an effect on reef formation. The area to the west of the crest of the current anticline is characterised by narrow single band UE1A reef overlying a pronounced unconformity, whereas to the east the Elsburg A1 to A5 stacked package of conglomerate horizons forms a wedge interleaved with barren quartzites. This wedge opens out to the east and to the south with greater thicknesses of barren quartzites separating the individual reef horizons. To the east the conglomerates become increasingly distal in nature, to the south more individual horizons are developed.
The Main orebodies on the Cooke 1, 2 and 3 Section shafts of the West Wits Operations are the UE1A and the Elsburg A5 Reefs. Cooke 4 in the south mined 10 individual horizons including Elsburg Reefs and the VCR. On Doornkop the Kimberley Reefs and the South Reef are being mined. Moving further, the primary orebodies on the adjoining Central Rand goldfield were the Lower Central Rand Group orebodies the Main Reef Leader and the Main Reef.
A pronounced feature of the grade distribution at the Cooke shafts is the location of what were previously described as fan entry points into the basin. These pronounced fan shaped grade distributions on the grade plans are due in part to the presentation of the two different aged orebodies, the UE1A and A1, on the same plans; and the lack of palinspastic reconstruction of payshoots that terminate along these younger lateral movements.
The area covered by the original exploration pattern on the Cooke Shafts has now largely been mined out. Mining is now concentrating on pillars and areas on the periphery of the initial exploration area that are poorly explored from surface drilling.
Doornkop has been mining the Kimberley Reefs but attention is now focusing on the South Reef, which has been previously exploited on nearby operations. The South Reef comprises broad south-easterly trending shoots (palaeodepressions) separated by lower grade zones (palaeo-highs). One of these ore shoots, indicated by surface drilling and confirmed by recent stoping, runs through the Doornkop area.
Elandsrand BU and Deelkraal BU exploit the VCR, which unconformably overlies the Mondeor and Elsburg Formations of the Central Rand Group. These footwall sediments primarily comprise siliceous quartzites there are four major polymictic conglomerate zones within the Mondeor, which have supported minor stoping on Deelkraal. The VCR is overlain by the lava of the Alberton Formation, which forms the basal unit of the Klipriviersberg Group of the Ventersdorp Supergroup. The dip of the VCR at Deelkraal BU is relatively consistent at 24° although there is some postulation of a slight flattening of dip at depth at Elandsrand.
The VCR sits on a highly-incised unconformity surface exhibiting a marked palaeotopography. The unconformity (erosion) surface was covered with a residue of mature quartz pebble conglomerates (reef) preserved on fluvial terraces and slopes. These now reflect as local variations in the dip and strike of the reef. Terrace reef (being originally close to horizontal) has the attitude of the regional dip and it tends to be thicker and accompanied by higher gold accumulations. Terraces are preferentially mined. Slope reef is indicated where the attitude of the reef now departs significantly from the regional dip. Slope reef represents the inter-terrace slope areas, the reef is thin, has less conglomerate and less total gold. Slope reef gold values are generally below the paylimit.
The VCR is present throughout the Elandsrand BU lease area, but at Deelkraal BU there is a limit of deposition running roughly north-south through the centre of the lease area. The VCR is poorly developed to the west of this line.
The facies and morphological models encompassing the Mining Assets have been developed through reef mapping in stopes and on-reef development mapping. They are used in the estimation of Mineral Resources to constrain the interpolation of grade into geologically homogenous areas.
Mondeor Conglomerate bands sub-crop beneath the VCR on the western side of Elandsrand BU and on Deelkraal BU. They have been mined in places underneath or close to their sub-crop on Deelkraal BU.
Structures present at Deelkraal BU and Elandsrand BU include faults, dykes and sills. The sills occur in the footwall in many areas adjacent to dykes; however, these only affect the reef horizon in old, mined out areas near Elandsrand BU. The faults and dykes are classified according to the relative geological ages and comprise Pre-VCR, Early Ventersdorp, Late Ventersdorp, Bushveld and Pilanesberg Structures.
The structural model at Elandsrand BU has been developed from information compiled over many years, from continual mapping of footwall haulages, cross-cuts, on-reef raises, winzes, development drives and stopes. In contrast at Deelkraal, where the low angle faulting is more common, a relatively poor structural database exists, as it was previously not consistently recorded. Ongoing mapping and re-interpretation is rectifying this situation and enabling the development of a more detailed model.
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3.3.6
Evander Operations
Within the Evander Operations lease area the Kimberley Reef dips predominantly northwards. There are several distinct fault styles developed within the mine lease. Earliest faults tend to have thrust movements, resulting in duplication of the reef. These faults strike northwards to westwards and are generally consistent with thrust movement into the basin. Throws of up to 150m have been encountered within the mine workings. The predominant faulting within the mine is a series of extensional faults. The resulting shallow-dipping faults trend west-northwest and have up throws to the north. This is an extremely fortuitous situation as the successive up throws maintain the Kimberley Reef at a consistently shallow depth below surface throughout the main part of the Evander lease. Significant fault losses are, however, associated with these faults. There has been only minor lateral movement along these faults. Channels can normally be traced across them with only minor displacements.
Vertical and overturned Kimberley Reef is present in the BU No.6 area in the southeast corner of the mine. This structurally complex area represents a basin margin structure, in many ways analogous to the structural regimes observed on the Western Margin of Free State Goldfield. The vertically dipping reef sub-crops against the overlying Karoo Sequence rocks. Complex wrench faulting is also developed within the No.6 BU area.
Ventersdorp, Bushveld and Karoo age dykes and sills are present within the mining lease. Bushveld age intrusives occur as dykes and sills, Ventersdorp and Karoo intrusives occur as predominantly north trending dykes. By far the most problematic is a doleritic footwall sill that varies from 30m to 70m in thickness. In several areas this sill steps upwards and occupies the same stratigraphic position as the Kimberley Reef, in places splitting the reef into two separate components. Fortunately interference from the sill is generally localised in areas such as the southern portion of the previous Winkelhaak mine and specific areas in the western part of Kinross.
Gold in the Kimberley Reef is associated with heavy minerals on re-activation surfaces specifically associated with the more robust, clast supported oligomictic quartz pebble conglomerates, or in association with flyspeck carbon. The gold generally occurs in native form often associated with pyrite and carbon. Pyrite, chromite, rutile, zircon and leucoxene have been identified within the Kimberley Reef. Pyrite dominates the heavy mineral suite and displays several distinct forms. Pyrite grains displaying detrital characteristics are common. Rounded balls of porous pyrite are also recognised, as are secondary remobilised pyrites. These latter minerals may occupy fractures across pre-existing pebbles, as well as overgrowing existing detrital pyrites within the sand matrix. Uraninite is present within the Kimberley Reef, but in concentrations so low that routine sampling for uranium is not practiced.
Carbon is generally rare within the more robust Kimberley Reef, becoming common in the distal areas as flyspeck carbon on the footwall contact. This has an effect on gold grades. As the channel width of the reef decreases the gold accumulation (cmg/t) does not change significantly. This is attributed to high gold grades associated with the carbon.
3.3.7
Orkney Operations
The Orkney Operation mining area is bounded to the east and north by the North West Operations owned by Durban Roodepoort Deep, Limited ("DRD"), to the west by AngloGold's Tau Lekoa and to the south by AngloGold's Vaal River Operations ("VRO") and the course of the Vaal River.
The major faults within the lease area are: the Nooitgedacht and Buffelsdoorn faults occurring in No.6 BU and No.7 BU areas; the Witkop Fault between No.6 BU and No.7 BU; the WK22 and No.3 BU Faults between No.7 BU and No.3 BU; the No.5 BU Fault; and the No.2 BU South Fault. The horsts and grabens are further disturbed by faults sympathetic to the major faults which typically have throws of tens of metres and further divide the reef into blocks of up to 100m in width. Drilling from access development can identify these brittle faults, as the dip of the stratigraphy is reasonably constant (15° to 20°).
The Vaal Reef is by far the most significant reef mined at the Orkney operations and is the major contributor to gold production. The reef strikes northeast, dipping to the southeast and is heavily faulted to form a series of graben structures. The dip is generally less than 30° but can vary locally in direction and magnitude to exceed 45°. Gold is present throughout the reef horizon; however it tends to be concentrated close to the basal contact where carbon commonly occurs as thin seams. Well-mineralised carbon seams occur most commonly in three stacked sequences.
The VCR is exploited solely at BU No.3, BU No.6 and BU No.7 and, like the Vaal Reef, can occur as a composite reef consisting of several distinct sedimentary packages. In an attempt to improve grade estimation in such packages, a terrace and slope-based geological model was developed by AngloGold and has been retained by the geologists now employed by Harmony. The model divides
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the orebody into a main channel; lower; middle and upper terraces and also involves delineation of certain higher-grade reworked channels. The reef is clearly identifiable and its location at the contact between the overlying Klipriviersberg Lavas and the underlying Witwatersrand Supergroup Rocks renders the footwall and hangingwall rocks distinct from the reef, except in areas where Elsburg conglomerates sub-outcrop against the VCR. The contrasting lithologies aids fault negotiation and have facilitated the use of three-dimensional seismic survey techniques to image the gross reef topography in the past.
The Elsburg Reefs are exploited at BU No.6 and No.7, usually in conjunction with the overlying VCR, against which it sub-outcrops along a northeast trending band, south of and sub-parallel to the Buffelsdoorn Fault. The sedimentological characteristics of the Elsburg Reefs in the region of the sub-outcrop are similar to those exhibited by the VCR.
3.3.8
Kalgold Operations
The Kalgold Operation is situated on the Kraaipan granite-greenstone belt, which is a typical gold-bearing greenstone formation. It has undergone intense structural deformation that has led to its dislocation into separate units. Within the mining lease area six steeply dipping zones of mineralisation have been identified. The discrete mineralised ore zones are the result of the percolation of mineralised fluids into the Banded Ironstone Formation ("BIF") host rocks.
The zones comprise the A, A-West, D, Mealie Field, Watertank and Windmill zones and the mineral resources of the A, D, Windmill and Watertank Zone have been comprehensively evaluated. The D-Zone is the first area to be exploited by open pit mining over a strike length of 1,400m and an ore zone width of between 15m and 40m.
Gold mineralisation is associated with pyrite and pyrrohotite, which was developed as a replacement mineral within a BIF and also within extensional, cross-cutting quartz veins within the ironstone.
3.3.9
Harmony Australian Operations
Gold mineralisation at the Mt. Magnet operation occurs in the southern tip of the Mt. Magnet Greenstone Belt in the Murchison Province of the Achaean Yilgarn cratonic block. The belt consists of a series of tholeiitic and komatiitic volcanics and associated ultramafic volcanics and mafic tuffs. Several folding events led to the formation of the Boogardie Synform and, after a major period of ductile deformation, selective fracturing of brittle rocks introduced gold mineralisation synchronous with certain deformation events. Shearing of the country rock usually provided a conduit for mineralising fluids.
The majority of the gold mineralisation is hosted by BIF that are cross-cut by faults, at or near the contact of ultramafic and mafic rocks with felsic intrusions. Fault zones and shears are generally north-south to north-northeast trending and selective fracturing appears to form a major trap-site for gold mineralisation. Crossing of several shear directions appear to enhance mineralisation, which is often characterised by an epigenetic pyrrhotite-pyrite alteration.
At Hill 50, the bulk of the mineralisation is hosted in a thick sequence of intercalated sedimentary BIF with both komatiitic and tholeiitic volcanics and associated ultra-mafic volcanics and mafic tuffs. The mineralisation is characterised by pyrrhotite-pyrite wall rock alteration. The BIF's are locally offset by faults with offsets ranging from one to two metres to up to tens of metres.
At Morning Star, mineralisation is hosted within quartz-carbonate veins containing molybdenite, scheelite and stibnite in a series of pyritic, sericite-altered mafic and felsic schists. The gold mineralisation is strongly associated with large vein packages and detailed geological mapping has indicated that the mineralisation can be correlated from level to level with a high degree of confidence.
Mineralised zones are primarily defined on the basis of geological mapping while stope designs are also based on detailed sampling and mapping. Wire framing based on geological mapping and interpretation is routinely carried out and grade shells are then defined within the geological domains.
In the Cue area, approximately 85km north of Hill 50 and Morning Star, the Big Bell deposit is hosted in a steeply dipping and locally overturned northeast trending extension of the Achaean Meekatharra- Wydgee Greenstone belt. This belt forms the west limb of a north-plunging regional anticlinal structure. At Cue, towards the east of Big Bell, the anticlinal structure changes to a north-plunging regional synclinal structure. In the Big Bell area, three main zones are recognised in the regional volcano-sedimentary sequence, a lower sequence of ultramafics, graphitic sediments and BIF, gradationally overlain by a felsic volcanic sequence of andesitic, dacitic and rhyolitic rocks and then by a sequence of mainly submarine basaltic flows.
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The free-milling gold mineralisation at Big Bell is mainly hosted by a sub-vertical series of potassium- altered metamorphic schists with some mineralisation occurring in hanging wall biotite schists. In the Cuddingwarra area, gold mineralisation is related to a major phase of porphyritic intrusive activity.
At South Kalgoorlie Operations gold mineralisation was discovered in the Archaean Norseman-Wiluna granite-greenstone terrain in the late 1890s consisting of extensive volcanic sedimentary rocks deposited in an extensional environment. The stratigraphy is characterised by mafic/ultramafic rocks and komatitic basalt flows with intercalated sediments of the Kalgoorlie Group, conformably overlain by a thick series of felsic volcanics and intercalated sedimentary rocks of the Black Flag Group. The discovery of gold led to the exploitation of major historic gold mines in the Kalgoorlie "Golden Mile" and to the south at Jubilee.
Jubilee forms part of a major 4km strike length mineralised system that includes the Celebration, Mutooroo, Hampton Boulder, Mt. Martin, Dawns Hope, White Hope and Golden Hope open pit and underground mines. There are many sub-parallel northsouth trending tectonic zones in the granite- greenstone terrain with a multitude of deposits occurring further towards the west near Coolgardie.
Mineralisation is hosted along brittle-ductile shear contacts between biotite schist and ultramafics (Mt. Marion), in brittle shear in granite (Trojan open pit), along the Boorara shear in felsic porphyry (Goldenridge open pit), in biotite-tremolite schist (Freddo open pit), in shears in quartz dolerite and gabbro (Scrubby Tank) or quartz diorite (Rose Hill) or in Archaean basalts or paleo-channels (Lake Cowan open pits).
At Mt. Marion, mineralisation is hosted in "lode gneiss" along the Kunanulling Shear, within a sub- vertical package of gneiss and ultramafics that is footwall as well as hangingwall lode and has a lower grade core. Mineralised zones are defined on the basis of geological mapping and drilling. Mineralisation occasionally extends from the hangingwall gneiss into the ultramafic hanging wall and appears to be moving further into the hangingwall with increasing depth. The footwall contact of mineralisation generally coincides with the footwall contact of the gneiss and is most consistent.
3.3.10 Harmony Canadian Operations
The orebodies at Bisset are located within the Red lake Archaen greenstone belt and comprise two major sets of shear related quartz veins occurring within a steeply dipping intrusive host. One set of veins consists of stockwork breccias and the other narrower, fault-controlled veins cross-cutting the stockwork. Gold mineralisation occurs in both sets of veins but is enriched at the intersection of the two vein types.
3.4
Exploration Potential
The majority of the operations are mature and well explored and as such SRK consider there to be limited opportunity for discovering any new mineralised horizons or areas within the existing property boundaries within South Africa. Some potential does however exist for the Target, Free Gold, Evander and Harmony Australia Operations:
·
the eastern extension in the Dreyerskuil Reefs at Target Mine;
·
the southern extension in Basal Reef at Bambanani BU, the northern extension of certain facies at Tshepong BU and ongoing surface drilling at Joel BU, which is designed to delineate extensions to the Joel North BU area;
·
the development of the Poplar and Rolspruit projects at the Evander Operations, where exploration has defined significant additional resources and are currently being investigated in the form of pre-feasibility and feasibility studies;
·
at Harmony Australian Operations there is significant potential for new discoveries in the vicinity of the existing areas and an extensive conceptual exploration programme based on detailed regional geological mapping is underway. This potential is enhanced by the consolidation of all available information in the hands of one organisation. The ore in the South Kalgoorlie area can, however be less free-milling than the Mt. Magnet & Cue ores, signalling a potentially higher risk with regard to the maintenance of the current metallurgical recoveries; and
·
the tenements in the South Kalgoorlie area are located just north of the well-known Kambalda nickel sulphide deposits where over a million tonnes of contained Ni metal has been produced to date. Portions of the tenements cover strike extensions of the Kambalda Dome stratigraphy and komatites along the Wildcatter's Shear Zone and are considered highly prospective for nickel sulphide deposits. A number of nickel sulphide deposits have been recognised on the Harmony South Kalgoorlie tenements.
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4.
MINERAL RESOURCES AND MINERAL RESERVES
4.1
Introduction
This section summarises the methods used by Avgold and Harmony to derive and classify the latest Mineral Resource and Mineral Reserve estimates for the Mining Assets. It also presents SRK's comments and opinions on the reasonableness of these estimates. In addition this section sets out SRK's view regarding any potential for proving up of further Mineral Resources and Mineral Reserves at the Mining Assets.
4.2
Review Procedures
SRK has not re-estimated the Mineral Resources and Mineral Reserves as estimated by the Companies for each of the Mining Assets. SRK has, however, undertaken sufficient check calculations and where appropriate, made necessary adjustments to the estimates to derive the statements presented herein and supporting the respective LoM plans.
The tables in this section summarise the audit process in support of the presented Statements of Mineral Resources and Mineral Reserves. The terms and definitions are those given in the March 2000 South African Code for Reporting of Mineral Resources and Mineral Reserves. This is known as the SAMREC Code ("SAMREC") and is published by the South African Mineral Resource Committee under the auspices of The South African Institute of Mining and Metallurgy.
Avgold and Harmony both report Mineral Resources and Mineral Reserves in accordance with the SAMREC Code. Harmony uses stricter criteria to limit its Measured and Indicated Mineral Resources than other South African gold mining companies. The limit of the Indicated Mineral Resource is 60m from current stoping, whereas certain other South African gold mining companies classify Indicated Mineral Resource utilising confirmed drill intersections which may be at a distance considerably further than 60m.
Within the scale of current mining operations this approach does not affect short-term term planning, nor does it impact on the long-term potential for the operations with large Inferred Resources based on sound geological models. It does, however introduce a problem with respect to reporting SAMREC compliant financial valuations where only projections derived from Proved and Probable Mineral Reserve areas can be presented.
For this reason it is necessary to stress the confidence in the underlying resource models and to include Inferred Mineral Resources into certain of the base case LoM projection and associated cash flow models.
Further, in presenting the Mineral Resource and Mineral Reserve statements the following points apply:
the Measured and Indicated Mineral Resources are inclusive of those Mineral Resources modified to produce Mineral Reserves. Accordingly Mineral Resource statements are sub-divided into those Mineral Resources which have been modified to produce Mineral Reserves (designated by the suffix 1) and those which have not (designated by suffix 2);
Mineral Resources are quoted at an appropriate in-situ economic cut-off-grade with tonnages and grades based on the planned minimum mining width;
Mineral Reserves for Target Mine are based on a gold price of US$375/oz and ZAR:US$ exchange rate of 8.87 (ZAR107,000/kg);
all Mineral Reserves for the Harmony's South African Mining Assets are based on a gold price of US$350/oz and ZAR:US$ exchange rate of 8.26 (ZAR93,000/kg). Harmony's Australian Assets use a US$350/oz and AUD:US$ exchange rate of 1.49 (AUD523/ozt);
all Mineral Resources and Mineral Reserves were estimated as part of the Companies annual planning cycle dated 1 July 2003, the statements as reported herein have been adjusted for depletion that has occurred during the six months that have elapsed and are now dated 1 January 2004;
unless otherwise stated all Mineral Reserves and Mineral Resources are quoted as 100% and not attributable with respect to ownership;
all Mineral Reserves quoted in terms of RoM grades and tonnage as delivered to the metallurgical processing facility and are therefore fully diluted;
Mineral Reserve statements include only Measured and Indicated Mineral Resources modified to produce Mineral Reserves and planned for extraction in the LoM plans;
Mineral Reserve sensitivities have been derived from application of the relevant cut-off-grades to the underlying block listings. Accordingly, these have not been based on detailed depletion schedules and should be considered as incremental changes to the Base Case; and
all references to Mineral Resources and Mineral Reserves relate to the SRK estimates stated in accordance with the SAMREC Code.
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Surface sources at the Mining Assets comprise WRDs, Slimes Dams and other surface sources such as spillage and small stockpiles. WRDs are notoriously difficult to sample, given the range of particle sizes commonly present and the heterogeneity of grade. In the majority of instances, SRK has classified those WRDs with sufficient information as Indicated Mineral Resources. In instances where the grade and/or the density are known with insufficient confidence, SRK has classified these as Inferred Mineral Resources. In contrast to WRDs, slimes dams, in general tend to have more homogeneously distributed grades and the smaller particle size facilitates sampling. With adequate sampling and in-situ determinations, SRK consider that slimes dams as such may be classified as Measured Mineral Resources. In instances where the grade and/or the density are known with insufficient confidence, SRK has classified these as Indicated Mineral Resources.
4.3
South African Deposits: Mineral Resource and Mineral Reserve Estimation Methodologies
Mineral Resource and Mineral Reserve estimation and classification is dependent upon the quality and quantity of data, block definition, grade and tonnage estimation, grade control and reconciliation. Such parameters are considered by SRK to be typical of Witwatersrand Basin gold mines at most operations.
Unlike most other Witwatersrand deposits, the stacked nature of the reefs at Target Mine in combination with the bulk mining methods utilised, are condusive to three dimensional computerised geological modelling. As a result of this and the fact that a significant amount of drilling has been completed at Target Mine relative to other mines, the approach used to estimate the Mineral Resources and Reserves at Target Mine differs in some regards from that used at most other Witwatersrand mines.
The majority of resources in the Target North and Oribi areas have been estimated using standard two-dimensional classical statistical methods employed at other Witwatersrand mines where the reefs have been intersected by surface drilling only. At Loraine and to the immediate north of Target additional underground information has enabled a three-dimension computerised approach to be used similar to that employed at Target Mine.
Given the similar nature of the majority of the South African Mining Assets, the following sub-section summarises the general techniques commonly used by Avgold and Harmony for estimation.
4.3.1
Quality and Quantity of Data
Avgold: The Mineral Resource at Target Mine is primarily based on underground exploration drilling. Limited surface drilled intersections also exist as well as chip sampling in areas of the mine with underground development. The underground exploration holes were drilled from a footwall decline on sections lines 50m apart. The holes were drilled on a fan pattern at 15° intervals resulting in drill coverage of between 15m and 80m. Due to the fan nature of the drilling the broader coverage occurs in stratigraphically higher reefs as well as more proximal and distal areas to the sub-crop. Over 35 individual reef horizons have been intersected within the Eldorado Fan between 20 and 200 drillhole intersections per reef. The use of underground drilling has resulted in a significantly larger amount of sampling data being available in areas not yet accessed by underground development compared to most other Witwatersrand deep-level operations.
The Mineral Resource at Target North and Oribi is primarily based on surface exploration drilling. At Loraine 33 underground exploration drillholes and small quantities of chip samples form the basis of the Mineral Resource. The surface drillholes in the Target North area have been drilled on an irregular pattern, forming a drillhole grid spacing of between approximately 500m in the south up to 2,000m in the north. In the Oribi area 7 surface boreholes have been drilled over a strike length of 10km. Due to the geometry and geological characteristics of the individual reefs and reef packages these surface drillhole grids do not necessarily apply to all reefs or reef packages.
Arithmetic means of the short deflections in each surface borehole have been used for the true thickness and gold accumulation value of that borehole. Long deflections were treated as separate intersections, however, data were declustered by taking the arithmetic mean of borehole values for the same reef falling within 100m of each other on plan.
In the case of surface drillholes, the core is halved using a diamond saw, one-half is retained as a geological record and one-half is assayed. For underground drillholes, the core diameter is considered to be too small to allow the core to be split and to yield a sufficiently large sample to allow assaying and, in this instance, the entire core is assayed.
Assaying on the exploration samples was undertaken using fire assay techniques by ISO accredited laboratories with the use of blanks, standards and check assays for quality control. Inter-laboratory checks were also performed with the full process having been independently audited by external consultants.
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Given the density of drillhole data, the assaying and quality control procedures applied, together with the operating history to date at Target Mine, in SRK's opinion the quality and quantity of the data available is sufficient to support the Mineral Resource and Reserve estimates as derived.
Harmony: The resource estimation process at all of the underground operations is based on surface drilling, underground drilling and underground channel sampling. Unless cropping out the reefs are initially explored by drilling from surface on regular 500m to 2,000m grids. Once underground access is available, infill development drilling may be undertaken from access haulages and cross-cuts to provide a 30m by 60m grid of intersections. Evaluation is then by extrapolation from or interpolation between stoping and development sampling.
In the case of surface drillholes, the core is halved using a diamond saw, one-half is retained as a geological record and one-half is assayed. For underground drillholes, the core diameter is considered to be too small to allow the core to be split and to yield a sufficiently large sample to allow assaying and, in this instance, the entire core is assayed.
Within the underground workings, exposures of the reef are channel sampled. Individual channels are cut from the wall rocks using a hammer and chisel or diamond saw and the cuttings are caught using steel pans. A detailed sampling record is kept showing the reef geometry at each section.
Current channel sampling standards comprise development sampling at 2m intervals and stope face sampling at 5m intervals. Channels are defined perpendicular to the reef plane and individual sample lengths of 10cm to 30cm are taken to reflect the internal geometry of the reef. The sample size collected is in the order of 0.3kg. Two adjacent samples spanning the footwall contact may be taken in order to double the sample volume of this part of the reef that frequently contains the highest grades. This is important where the reef is `bottom-loaded', providing more confidence in the high-grade values at the footwall contact.
The Evander and West Wits operations use private assay laboratories. All other operations rely on mine owned and managed laboratories.
Two different assaying techniques are utilised at the Mining Assets. The Aztec Analysis is an automated technique for analysing underground chip samples using non-destructive energy dispersive X-Ray analysis ("EDAX") that gives rapid quantitative analyses for gold and uranium. Check assaying is carried out on a proportion of the samples, which are analysed by fire assay with gravimetric finish. The fire assay method is used for the analysis of reef and waste dump samples as well as for checking Aztec analysis results. The samples are dried, sorted, crushed and pulverised then approximately 180g flux is used for a 50g-sample aliquot. A gravimetric finish is used for reef samples and atomic absorption finish is used for waste samples.
As part of Quality Control and Quality Assurance procedures checks are conducted on the assay laboratories and sample preparation plants. Blank samples and repeat assays are part of the external check process undertaken regularly which ensures that the laboratory adheres to assaying standards and procedures.
In SRK's opinion, the long mining history and the quantity and quality of data upon which the Mineral Resource estimates at the Mining Assets are based, is sufficient to support the Mineral Resource and Mineral Reserve estimates as derived. All of the current operations comprise mature operating BUs and consequently Mineral Resource and Mineral Reserve estimates are based largely on underground stope development and pillar sampling.
The Companies are in the process of rationalising and updating their mining software systems. Currently a mixture of computer systems are being used for survey pegs, sampling data, measuring, geological structure, facies, geozones, ore reserve management and mine planning. These systems comprise different versions of commercial packages and proprietary systems. The proprietary systems are being phased out (for support reasons) in favour of the commercial products.
The majority of the Mining Assets have their sampling data in digital format. MS Excel spreadsheets are used for Mineral Reserve and Mineral Resource data management. Specifically "Optimiser" which is used to calculate optimum grade cut-off and "CLS" which is used to generate Mineral Resource and Reserve statements.
At Free Gold Operations, Joel uses a newly established computerised system, utilising a mining software package allowing the completion of all blocking, statistics, geostatistics and grade and tonnage estimation in a fully integrated evaluation system. This system is currently being developed and managed centrally with specialised support staff. Bambanani BU, West BU, Tshepong BU and Phakisa BU use more established 2D CAD computer systems, which have been developed to suit the tabular nature of the Witwatersrand gold deposits. At all these operations all survey data and sampling information is captured digitally and stored in electronic database.
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4.3.2
Orebody and Block Definition
Avgold: At Target Mine a computerised three-dimensional geological model of the reefs and interbedded quartzites has been developed using stratigraphic correlation between the boreholes. Underground geological mapping and high-resolution seismic surveys are also used to supplement the stratigraphic and structural data from the drilling. This enables the reef and quartzite models to be truncated against faults and dyke contacts maintaining the three-dimension volume integrity of the model.
The geological model is subsequently used to constrain a block model into which grades are interpolated. This model utilises a block size of 20m along strike, 10m normal to strike and 5m vertically. Volume integrity is maintained through the use of 2m by 1m by 1m sub-cells, which are assigned the grade of the parent block.
At Target North and Oribi the geometry of the orebodies is difficult to interpret with a high-level of confidence given the relative sparsity of the reef intersections from the surface boreholes. The Mineral Resources are as such appropriately classified as either Indicated or Inferred. Fans similar in geometry to the Eldorado Fan at Target Mine have therefore been postulated to exist at reasonable north- south intervals. The characteristics and geometry of this fan together with the borehole intersections have been used to define the limits of the Elsburgs and Dreyerskuil Reef orebodies.
For the Big Pebble Reefs the syncline has been sub-divided into four zones from west to east to account for the separation of the distal reefs. This enables the resource estimation process to account for the probability that in the west the reefs would be mined in a single cut, while in the east the reefs would be mined individually in separate cuts.
In the case of the VCR the geological models have been based solely on the coverage of the surface borehole intersections on that reef.
The geological models developed as described above have been used as the basis of two-dimensional resource polygons constrained by surface borehole coverage and the regional structural model for each reef or reef package.
Where more information is available at Loraine and immediately to the north of Target Mine, computerised three-dimensional geological models of the reefs and interbedded quartzites or total reef packages have been developed using stratigraphic correlation between the boreholes and underground mapping if available. In these cases the three-dimensional models have been used to constrain a block model into which grades are interpolated as at Target Mine.
Harmony: Once the geological structure of an area and reef have been defined, the resource is blocked out on 2-D plan projections using major geological features such as faults, facies boundaries, channel structures and payshoots to define zones of homogeneity. These initial macro- scale blocks are referred to as `geozones'.
Mining blocks are determined once the geozones have been defined. Stoping is blocked out per panel in 30m mining blocks; development will be blocked out for 10m. Major geological features such as faults, facies boundaries and payshoots are used to define zones of homogeneity and to terminate blocks. In some circumstances, the intersection line between the reef and a certain access elevation (e.g. a mine level) may also be used.
The geozones are used to define and separate data populations within the sampling database for further statistical and geostatistical studies. Once geozones and mining blocks have been defined they are digitised for use in computer-aided grade and tonnage evaluation.
4.3.3
Grade and Tonnage Estimation
Avgold: At Target Mine the assay data for each reef have been analysed statistically following the production of reef composites using the geological model. The reef grade populations exhibit positively skewed distributions therefore the cutting of high-grades has been applied to the dataset prior to grade estimation in order to limit the influence of these high grades. The individual reefs within the reef packages demonstrate variable statistical characteristics supporting their evaluation as separate entities.
The cut composites have been subject to geostatistical spatial analyses using semi-variograms calculated in a best-fit plane for the reefs. These analyses indicate the presence of two structures with minor ranges in the order of 40m to 100m and major ranges from 100m to 200m. A nugget effect of 20% has been modelled. As with the statistical characteristics the individual reefs display marked geostatistical differences in range and anisotropy.
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Grade has been directly interpolated into the blocks by means of ordinary kriging using parameters derived from the semi-variogram analyses. Each individual reef horizon has been separately estimated. The search parameters in the plane of the reef correspond closely to the semi-variogram ranges. The search normal to the reef plane varies between 50m and 80m in order to accommodate the throw of the faults and the synclinal structure of the fan. A second longer range kriging run has been used to interpolate grades into peripheral blocks not assigned a grade by the initial run. Grade has also been interpolated into the intervening quartzite horizons in order to assess the diluting grade of this material when it is incorporated as internal dilution into the massive stopes.
In the case of the two-dimensional resource estimates the declustered gold accumulation data which falls within each resource polygon are plotted on a log-normal probability plot. If deemed necessary a third constant beta parameter is estimated and a three parameter log-normal distribution assumed. If necessary using the log-probability plots any high outliers are then cut to fit the distribution. The gold accumulation estimate (cmg/t) is then derived for each resource polygon using the lower value of the arithmetic mean and sichel `t' estimate.
In the case of the three-dimensional models at Loraine and Target North a similar methodology is used as at Target Mine. However, due to the sparser nature of the data, grade is interpolated into the blocks by means of a sichel `t' estimate using search radii derived from the variography of each reef horizon. In the case of Target North the semi-variograms used at Target Mine form the basis of the search radii, while at Loraine semi-variograms have been modelled using the limited underground chip sampling available (although this is not used in the estimation itself). A minimum of three samples is required for the block to be estimated. As at Target Mine, a second longer range run is used to interpolate grades into peripheral blocks not assigned a grade by the initial run.
For the two-dimensional polygons an average dip for the steeper west limb and shallower east limb of the syncline has been estimated, together with a proportional split between the two, from cross- sections to derive a true reef area for each polygon. The arithmetic mean of the declustered data is used to derive an average thickness and therefore a volume. If the thickness is below 100cm a minimum mining width of 100cm is used in this process.
Tonnage estimates are derived through the application of tonnage factors for each reef package as follows:

- Elsburg: 2.70t/m
3
;
- Dreyerskuil: 2.76t/m
3
;
- Big Pebble/Kimberley: 2.73t/m
3
; and
- VCR: 2.70t/m
3
.
As the small-scale structure in the Target North, Loraine and Oribi is not as well-known as at Target Mine and the estimates are based on two-dimensional models, a 10% tonnage discount factor has been applied to all resources in these areas to account for reef losses.
Harmony: Resource estimation techniques at the Mining Assets follow the same basic principles; however different computer software packages are employed.
At Kudu & Sable BU, Nyala BU, Eland BU and St. Helena BU data capture and estimation is paper based.
Where data is captured digitally each mine uses its defined geozones to sub-divide the reef data into discrete populations that have distinct grade distribution characteristics. Statistical analyses of the metal accumulation values are undertaken so as to substantiate the different grade populations in each domain. The data will often be log transformed to allow a lognormal or compound lognormal model to be applied. In some cases other parameters such as channel width and stope width will be analysed, to look for trends that could be investigated further with geostatistics.
Data are checked and validated and any extreme values investigated to ensure there are no transcription errors. Despiking and grade cutting techniques are used on some of the secondary reef data to assist with further statistical and geostatistical studies.
Point variograms are calculated and modelled from underground channel sample metal accumulation values (and borehole data) for each domain. The data generally provide well-structured, two component spherical variograms with high nugget effects (50% to 80%) and ranges of 10m to 20m and 60m to 90m, these variograms are usually isotropic. This indicates a high random variability in sample grades and an underlying spatial control on sample grades whose zone of influence extends for up to 90m in all directions.
Further variography is carried out on data to be used in the macro-kriging process. These data are used to construct variograms comprising regularised channel sample data, diamond drillhole intersections and underground drillhole intersections.
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The variograms from these datasets provide a larger scale control on block grade estimation. The large-block regularised data tends to give excellent structure with little or no nugget effect and produces larger ranges, which can exceed 1,500m.
At Tshepong BU, Phakisa BU, Bambanani BU and West BU kriging is undertaken separately for each geostatistical domain. Channel sample data is used to estimate grade into 10m by 10m blocks using ordinary kriging based on the point variograms and a search radius equivalent to the short range in the variograms. Only those blocks with a high statistical confidence (regression slope greater than 0.6) are evaluated by this method.
Next, 30m by 30m blocks are used to house values generated by a simple kriging process which incorporates the local area mean (based on the ordinary kriged values) into the estimate and therefore smoothes data more than the ordinary kriging, but gives more confidence to the kriged values in those blocks which were not estimated by the ordinary kriging process. The search radius used is approximately 30m and therefore restricts the 30m by 30m block estimates to the vicinity of well- sampled areas. Again, only those blocks with a high statistical confidence within a 3-by-3 neighbourhood search range are evaluated by this method.
A third method is used to extrapolate grades much further using the large-block regularised channel sample data and incorporating the diamond drillhole intersection data which is more dispersed. This kriging is based on 250m by 250m blocks and a large search radius. The data is then co-kriged. The blocks from each of the three block models are combined so as to result in high confidence estimates in the vicinity of the channel sampling using 10m by 10m and 30m by 30m blocks which contribute to the Measured Resource and well founded long range estimates which contribute to the Indicated and Inferred Resource.
The kriging technique utilised by Harmony and Joel BU differs to that stated above. Three prototype block models are created prior to grade estimation, a 15m by 15m Measured model, a 30m by 30m Indicated model and a 60m by 60m Inferred model. The kriged estimates of the Measured model are restricted by the range of the semi-variogram and including a minimum of 15 sample points within the search radius. The kriged estimates of the Indicated model are restricted by two times the range with a minimum of two sample points. In general the sichel `t' estimate technique and application of calculated additive constants is used for estimation of the Inferred model. The three grade models are then combined to form one overall grade model. Channel widths are also estimated using the same technique.
Resource blocks are assigned grades from the block models using the respective software packages. Resource blocks are kept as an inventory listing with several attributes recorded for each. Availability and status record whether or not the ground has been abandoned, whether the area is currently accessible and the time required accessing a currently inaccessible area.
Each block is assigned a stoping width, which is based on the expected mining width in virgin ground, or otherwise the stoping widths encountered historically in the vicinity of that block which accounts for the hangingwall dilution often incurred at these mines. In addition, the square metres of the block are corrected for dip and discounted for fault losses on the basis of previously encountered factors and incorporating the results of a fractal analysis of fault frequency and displacement. The volume described by the resultant square metres and the stoping width is multiplied by the respective tonnes per cubic metre in order to estimate the block tonnage.
Harmony's Welkom and Orkney Operations, Eland BU, Kudu & Sable BU, Nyala BU and St. Helena BU do not use a computerised system for resource and reserve estimation. The Eland BU shaft pillar has been kriged using 30m by 30m blocks, using separate runs for each of the two facies identified in that area, namely the Geduld and the BCF. All other areas are estimated using either a weighting method or simple stretch averages. These methods are considered to be adequate given the high pillar content of the resource and therefore the high density of samples available. The virgin areas at Nyala BU have been estimated using a value contour technique.
Block listing data is generally managed using MS Excel, using company template spreadsheets that perform simple calculations and present data in common formats.
4.3.4
Classification
Avgold: The individual resource blocks have been classified on a block by block basis as Measured, Indicated or Inferred as defined by the SAMREC Code. At Target Mine blocks are classified as Measured Resources where the drillhole spacing is less than that which equates to the point on the semi-variograms where the variance is two-thirds of the total sample variance. Indicated Resources extend beyond the Measured Resource to include all those remaining blocks estimated by the first interpolation run. Inferred Resources comprise blocks estimated by the second longer range interpolation run and also resource areas with very limited sample data.
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At Target North and Loraine where the resources have been modelled in three-dimensions Indicated Resources are defined as those blocks into which grade is interpolated in the first estimation run and Inferred Resources are defined as those blocks estimated by the second longer range interpolation run.
In the case of the resources modelled in two-dimensions the resource polygons, and therefore the basis of the classification, have generally been delineated based on borehole coverage. Indicated Resources are broadly defined as those blocks containing a reasonable coverage of surface borehole intersections (usually a minimum of 10 intersections on a minimum approximate borehole grid spacing of 1km). Inferred Resources are those containing fewer intersections and where the continuity of blocks has been inferred using geological interpretation to major structural features. The Inferred Resources are therefore generally situated in the far north of Target North and at Oribi or closer to Target Mine on reefs that have not been intersected by many surface boreholes.
SRK considers that given the quantity and quality of the sample data available, together with the grade and tonnage estimation methodology applied, the classification applied by Avgold is appropriate and in accordance with the SAMREC Code.
Harmony: The individual resource blocks have been classified as Measured, Indicated or Inferred as defined by the SAMREC Code.
Where paper estimation methods are employed resource blocks that are adjacent to sampled developments, including current production and ongoing sampling, are classified as Measured. Blocks that are generally close to sampled developments, but are themselves usually sampled by only a few underground drillholes, are classified as Indicated. The remaining blocks, remote from underground developments where the estimation of tonnage and grade is based upon extrapolation of known geological features such as payshoots/channels as well as faults, are thus classified as Inferred.
Classification of Indicated and Inferred Mineral Resources at Tshepong BU and Phakisa BU is based on the kriging variance applied to the resource block. This is used to derive percentage values, which represent the maximum theoretical difference between the estimated grade and the actual grade of a block at 95% confidence. The limit of the Measured blocks is determined by the extent of the simple kriged 30m by 30m blocks.
Harmony Freestate Operations, Joel BU, Bambanani BU, West BU, West Wits Operations and Evander Operations classify resource blocks based on the following criteria. Measured Mineral Resources are blocked out to 30m or against structures and payshoots and are adjacent to sampled stoping. Indicated Mineral Resources are blocked out to 60m from sampled stoping and within geozones. Inferred Mineral Resources are within large blocks defined by facies, structure and the mining lease boundaries.
SRK considers the Harmony interpretation of the Indicated and Inferred classification boundary to be conservative relative to the approach used at other Witwatersrand deep level gold operations. This has particular impact where an operation has large areas of Inferred Mineral Resources, which are structurally simple and have high payability, such as Joel BU, Bambanani BU, Elandsrand BU and Evander Operations. As the SAMREC Code states that Inferred Mineral Resources cannot be converted into Mineral Reserves this approach may in turn lead to conservative estimates of the Mineral Reserve at these operations.
4.3.5
Selective Mining Units
Avgold: Theoretically the minimum selective mining unit ("SMU") applied at Target Mine is the individual 20m by 10m by 5m blocks used for the grade estimation. However, in practice the reserve is defined through the superimposition of practical stope designs on the block model. While the individual blocks are used to determine the margins of these stopes they are not planned to be mined in isolation but rather as aggregations of blocks within the stope design.
Harmony: The choice of SMU is dependent upon the mining method to be applied. In the case of narrow reef mining used at the Mining Assets, the SMU is an agglomeration of contiguous panels, each of dimension 30m by 30m. For practical reasons at this block size, mining of both pay and unpay material is unavoidable and the halting of stope faces is only triggered by unacceptably high levels of unpay ore being mined.
For remnant extraction, the pillar dimensions define the SMU. Due to the relatively small volumetric size of such remnant and/or pillar area, the sampling density available from previous mining activities facilitates a high degree of confidence for grade estimation.
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4.3.6
Grade Control and Reconciliation
Avgold: Grade control practices at Target Mine are based on the results of development chip sampling and underground infill drilling and are used primarily to aid stope definition especially in areas where the fan drilling has resulted in larger spaced sample coverage. In the areas where conventional narrow reef mining methods are applied such as in the Dreyerskuil reefs, stope face sampling and surveying is undertaken as is standard practice on other Witwatersrand mines. In the massive Elsburg stopes a cavity monitoring system is employed which assess the degree of stope overbreak and resulting dilution. Hoisted grade is reconciled back to the mined grade to derive a Shaft Call Factor ("SCF"). The grade reported by the mill is compared to the hoisted grade to derive a Plant Call Factor ("PCF"). These two factors are then combined to derive a Mine Call Factor ("MCF"). Over the last 11 months the MCF has been in excess of 100%.
SRK considers the grade control and reconciliation practices employed at Target Mine to be appropriate for the nature of the orebody and mining methods employed. The high mine call factor may well be a function of underestimation of the grade in the higher-grade proximal areas of the Eldorado fan as a result of the smoothing inherent in the grade interpolation procedure. In SRK's opinion this is likely to reduce over time as mining progresses to lower grade, more distal areas.
Harmony: Grade control and reconciliation practices follow similar procedures to those applied elsewhere in Witwatersrand Basin gold mining operations. The reefs and the hangingwall and footwall lithologies are visually identifiable and channel sampling ensures that the face grade is monitored accordingly. As part of the reconciliation exercises, physical factors, including stope widths, dilution, MCFs and Block Factors ("BF"s) are monitored and recorded on a monthly basis. The results are used to reconcile Mineral Reserve estimates with actual mined tonnages and grades.
As stopes are mined, surveyors monitor the stope width and face advance to provide an accurate stope tonnage estimate. The channel samples taken within the stope are reconciled against the pre- mining grade estimate based on the kriging described above. The difference in gold metal is recorded as a BF, which is a combination of bias in the resource estimate and mining losses. BFs tend to approximate 100% and accordingly no further adjustment has been made.
Belt samplers at the shaft head also record grade and tonnage. These figures are compared back to the surveyed estimates on a monthly basis to give a SCF, which multiplied with the PCF gives the MCF. Generally SRK consider that the underlying grade control and reconciliation processes are appropriate and do not materially affect the underlying Mineral Resource estimates as presented herein.
4.3.7
Reserve Estimation
Avgold: The Mineral Resources at Target Mine together with the survey outlines of the existing stopes, excavations and development tunnels form the basis of the engineering design of the Mineral Reserves. The Mineral Reserves are based on the Measured and Indicated Resources that exceed a cut-off grade ("CoG"), that is determined for each mining method, have been the subject of engineering design and have consequently been classified into Proved and Probable Reserves.
Datamine is used for all GIS and 3-D modelling of the orebody outlines and stope design at Target Mine and the survey outlines are imported from StopeCAD. In terms of the mechanised section a mining method is assigned to a particular area of ground within a block and the design parameters applicable to the method are used as a basis for developing the stope outline. The stope design considers aspects such as maximum drill hole length, the angle of repose, location of drill drive and loading drive as well as backfill, ventilation and equipment resource constraints. The stope outline may in places not be coincident with the orebody outline and result in planned dilution and/or ore losses. Internal waste between reef packages is also incorporated into the stope design where necessary. Once the design is complete the material contained within the stope outline becomes an Engineered Resource and subsequent to the application of further factors associated with un-planned dilution and ore loss with for the Mineral Reserve. The Narrow Reef Mining ("NRM") reserves are determined in a similar but simpler manner in that an appropriate stoping width is selected and the planned dilution represents the difference between this width and the channel width of the Mineral Resource.
A portion of the Inferred Resources has been modified to form the not in reserve ("NIR") category of material contained in the latter years of the LoM plan.
Harmony: The procedure for estimating Mineral Reserves involves the definition of appropriate SMU's, the application of appropriate survey factors based on tonnage, volume and grade reconciliation exercises, the use of cut-off-grade policies and technical-economic investigations leading through to the development of an appropriately detailed and engineered LoM plan.
Tables 4.1 through to 4.6 give the various mine planning parameters utilised in the derivation of cut-off-grades and the modification of Mineral Resources to Mineral Reserves for each mine separately.
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All factors relate solely to underground resources and primarily utilise BF, MCF, Stoping Width ("SW") and Milling Width ("MW"). The BF is a correction factor used to account for historical variance between the in-situ estimate of the mining block and the average block grade post-sampling during block depletion. The MCF is the estimated historical discrepancy between the gold estimated to have been broken from the stoping faces to that back allocated post-metallurgical metal accounting as received at the plant as a head grade. The SW is the average in-stope mining width achieved during extraction. Finally the MW is estimated as the total tonnage delivered to the plant from underground divided into the total stope area depleted over the same period. The difference between MW and SW expressed as a ratio to MW is the measure of dilution. Surface sources are processed directly and are generally not screened. As such no modifying factors are applicable for conversion to RoM grades. BUs that supply RoM material to the same metallurgical plant are assigned the same Metallurgical Recovery Factor ("MRF").
The modifying factors as given below are based on historical reconciliation exercises and as such are considered valid for the purpose of reporting Mineral Reserves for the Mining Assets. The seemingly large range in certain modifying factors is as a result of mining several different reef types and under different operating conditions combining virgin ground, remnant pillars and delivering ore to one or a selection of processing plants. The factors are determined by historical records over significant period of time. For new projects, factors have been selected on the basis of comparable operations working the same reefs.
Table 4.1 Target Operations - Target Mine: Assumed Modifying Factors
Business Units
BF
MCF
(1)
Un-planned
Un-planned
Dilutant
Stope
Development
Grade
Dilution
Dilution
(%)
(%)
(%)
(%)
(g/t)
Target
100
93.6
7
10
0
(1)
A certain quantity of dilution and ore loss is contained within the stope outlines and is not quantified. The dilution and MCF reflected above represent an allowance for additional dilution and ore loss respectively.
Table 4.2 Free Gold Operations: Assumed Modifying Factors
Business Units
BF
MCF
SW
MW
(%)
(%)
(cm)
(cm)
Tshepong BU
100
88
102
143
Phakisa BU
100
88
102
143
Bambanani BU
100
72
151
233
West BU
100
72
160
188
Eland BU
100
73
141
209
Kudu & Sable BU
100
73
167
214
Nyala BU
100
80
134
155
St. Helena BU
100
68
137
177
Joel BU
100
84
139
167
Table 4.3 Harmony Free State Operations: Assumed Modifying Factors
Business Units
BF
MCF
SW
MW
(%)
(%)
(cm)
(cm)
Harmony No.2 BU
100
77
178
188
Harmony No.3 BU
100
na
na
na
Harmony No.4 BU
100
na
na
na
Merriespruit No.1 BU
100
72
164
188
Merriespruit No.3 BU
100
71
202
217
Virginia No.2 BU
100
na
na
na
Unisel BU
100
77
179
236
Saaiplaas No.3 BU
100
78
158
175
Brand No.2 BU
100
na
na
na
Brand No.3 BU
100
78
193
223
Brand No.5 BU
100
78
201
265
Masimong No.4 BU
100
78
139
179
Masimong No.5 BU
100
78
131
168
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Table 4.4 Welkom Operations: Assumed Modifying Factors
Business Units
BF
MCF
SW
MW
(%)
(%)
(cm)
(cm)
No.1 BU
100
64
119
140
No.2 BU
100
64
140
154
No.3 BU
100
70
151
253
No.4 BU
100
60
150
158
No.6 BU
100
65
130
217
No.7 BU
100
75
150
189
Table 4.5 West Wits Operations: Assumed Modifying Factors
Business Units
BF
MCF
SW
MW
(%)
(%)
(cm)
(cm)
Elandsrand BU
100
87
126
152
Deelkraal BU
100
93
170
227
Cooke 1 BU
100
83
172
205
Cooke 2 BU
100
72
144
177
Cooke 3 BU
100
73
159
195
Randfontein No.4 BU
100
na
na
na
Doornkop BU
100
93
244
366
Table 4.6 Evander Operations: Assumed Modifying Factors
Business Units
BF
MCF
SW
MW
(%)
(%)
(cm)
(cm)
No.2 BU
100
75
162
209
No.5 BU
100
75
111
177
No.7 BU
100
75
135
217
No.8 BU
100
70
120
160
No.9 BU
100
65
116
163
Table 4.7 Orkney Operations: Assumed Modifying Factors
Business Units
BF
MCF
SW
MW
(%)
(%)
(cm)
(cm)
No.2 BU
100
85
164
210
No.3 BU
100
84
200
210
No.4 BU
100
78
120
181
No.6 BU
100
84
154
193
No.7 BU
100
91
112
152
4.4
International Deposits: Mineral Resource and Mineral Reserve Estimation Methodologies
The International Operations in Australia and Canada principally focus on small and shallow orebodies and orezones where the gold is hosted by banded iron formations and quartz veins are steeply dipping. The Mineral Resource and Mineral Reserve estimation methodology is similar at these operations and it is therefore not described separately. It should be noted that the procedures and methodologies discussed below are current only for the Harmony Australian Operations as Bisset, the only asset of Harmony's Canadian Operations, is currently on care and maintenance.
4.4.1
Quality and Quantity of Data
A large quantity of data exists at the various operations that comprise a combination of historic and current drilling and sampling data. Drilling and sampling methods include open-hole, reverse circulation, diamond drilling, face and stockpile sampling. Limited information is available on historic quality assurance and quality control procedures and Harmony employs ongoing data validation procedures when completing the geological modelling and resource estimation. A check analysis is performed for every 20 sludge holes drilled. All current sampling takes place under geological control and, where applicable, older geological codes are converted to newer codes.
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4.4.2
Orebody Definition
At the underground operations detailed underground geological and structural mapping is undertaken that forms the basis for geological modelling, the understanding of the ore genesis and the mapping of gaps within the sub-vertical oreshoots. In the open pits, results from reverse circulation, diamond and earlier open-hole (if available) drilling are used to define geological wire-frames and grade shells that conform to the geological boundaries. As a standard, the reverse circulation and diamond drilling is composited to standard 1m or 2m lengths. Top-cutting of grades is used as a standard.
4.4.3
Grade and Tonnage Estimation
Mineral Resource estimation procedures are based on ordinary kriging or inverse distance methods. When using inverse distance methods for open pits inverse distance squared or inverse distance cubed weightings are used. The block models are based on information from different sampling and drilling support without extensive QA/QC control and monitoring. Where applicable, the search neighbourhoods for the inverse distance methods are based on the results of geological modelling.
In the open pit mines, optimised pit outlines are designed around the resource block models. In many of the orebodies there is a significant nugget effect and dense sampling grids are required to estimate resources with a high degree of confidence and the search neighbourhoods employed during estimation are therefore of critical importance.
Tonnage modelling is based on average dry bulk density values that are, in places, based on a limited number of samples but have shown to be realistic when compared to density values obtained from mining reconciliation between underground and open pits.
Mineral Resource models for many of the underground orebodies are not based on block models but on the projection of historical averages. At a number of the underground mines there is history of a large variation in the thickness of the undulating sub-vertical oreshoots in the vertical plane that is difficult to predict from the available drillhole spacing. It has been found that, in these cases, the downward projection of the average mine tonnages and grades obtained from extensive current mine development is more appropriate than generating a block model. In terms of the projection of tonnages, gaps in the mineralisation identified by geological mapping of current mine development, are taken into account in the model. SRK concurs that, at this stage, the method of downward plunge projection of tonnage and grade from well developed mine production levels provides the best method for resource modelling for the deeper portions of the mines.
4.4.4
Grade Control and Reconciliation
Grade control drilling in the open pits consists of angled reverse circulation drilling and takes place at different drillhole spacing, locally down to a spacing of 5m by 5m. Reconciliation in the open pits is carried out on each pit level and compared with grade control drilling or sampling. Channel samples are taken and used as the basis of grade control and reconciliation at the underground operations whilst grab samples are taken at the surface stockpiles. Reconciliation between production data and block models shows that tonnages and grade reconcile reasonably well over longer periods. However, on a local scale over short time periods there are significant deviations in the reconciliations, which is usual for inverse distance weighting estimation. The production results from open pits is also compared with the grade from the upper underground levels (where possible) and confirms the average gold grades indicated by the available sampling data.
4.4.5
Reserve Estimation
In the underground mines, resources are converted to reserves by designing stopes on a panel-by- panel basis using different cut-off-grades, determining a practical extraction and adding a percentage for mining dilution. Stopes and development outlines are designed using computerised mine design software. Cross-sections, long-sections and plans are generated as required that reflect a combination of drilling results, assays and geology and interpretations and are used to reflect the stopes, development ends and Mineral Reserves.
In the open pit mines, an optimised pit outline is developed to represent the economically extractable reserves. The Mineral Resources are derived from engineered pit designs, based on the optimal pit outlines.
4.5
Mineral Resource and Mineral Reserve Statements
The Mineral Reserves quoted are sensitive to changing operating costs and gold price. Tables within each sub- section show the Mineral Reserves at eight different gold prices including the Base Case. These sensitivities are presented to give an indication of the changes relative to gold price. SRK has shown a range that relates the extremes in gold price (hence in-situ cut-off grades appropriate to satisfy the context of "potentially
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economically viable") over the past few years and into the future and to give an indication of the gold price required to report resources equivalent to 250cmg.t as per Harmony's Annual Report. In this way SRK does not consider the range to reflect the dynamics of international currency exchange and fluctuations in dollar based gold price.
Note that these sensitivities are approximations only and accordingly at different gold prices alternative mining strategies may be pursued to exploit payable material in a more optimal manner. In turn, these may also affect the operating cost structure and cut-off-grades owing to changes in scale of operation, reflecting the dynamic nature of the mining process.
At Target Mine the impact on the Mineral Reserve of different gold prices is not presented due to the complex, interactive mine planning methodology.
The Mineral Resource and Mineral Reserve statements as presented herein differ from those generated by the Companies due to the following:
the Companies present Mineral Resources for the South African assets at an in-situ cut-off-grade of 250cmg/t or between 0g/t and 3g/t. SRK has reported Mineral Resources at in-situ cut-off-grades which are reflective of current macro-economic and specific technical-economic parameters at each of the individual BUs;
SRK has adjusted the Companies Mineral Resource and Mineral Reserve Statements for depletion that has occurred during the six-months that have elapsed since their respective generation. The statements presented herein are dated 1 January 2004; and
Mineral Reserve statements include only Measured and Indicated Mineral Resources modified to produce Mineral Reserves and planned for extraction as projected in the respective LoM plans.
In considering the Mineral Resource and Mineral Reserve statements SRK note the following:
with respect to the classification of Mineral Reserves by Harmony SRK considers that at the majority of the South African operations the boundary between Indicated Mineral Resources and Inferred Mineral Resources is conservatively defined and that for primary reef units reclassification could increase Indicated Mineral Resources and potentially the Probable Mineral Reserves;
-   the LoM plans in certain instances rely on significant contribution from the Inferred Mineral Resource
category and reported at RoM tonnage and grades. Given the generally conservative classification potential exists to significantly increase the Indicated Mineral Resource and consequently the Probable Mineral Reserve. SRK has on a high-level basis determined the relative impact on value should mining operations extract only that material currently defined as Mineral Reserves. This assessment crudely assumes that all Inferred Mineral Resources are depleted in the later part of the respective LoM plans. The resulting NPVs should be viewed on a comparative basis only and by definition reflect a lower level of technical planning than the LoM plans as the base case projections presented by the Companies;
-   Mineral Resources classified by the suffix (1) represent those groupings of Mineral Resources which have
been used as a base for modification to produce Mineral Reserves or those Inferred Resources which have been modified to produce material included for depletion in the respective LoM plans. Conversion in this instance is dependent upon all modifying factors inclusive of MCF, dilution, extraction and other planning considerations. In certain instances, specifically where groupings of Mineral Resources contain a high portion of remnant pillars, only a relatively small portion of the reported Mineral Resource is currently planned for extraction. Where this is the case such as Free Gold Operations there is an apparent overall low conversion to Mineral Reserves;
-   the Mineral Resources not modified to produce Mineral Reserves as defined by the suffix (2), generally include:
·
reef horizons not currently planned to be extracted in the current LoM plans;
·
groupings of pillars and other resource blocks for which insufficient technical work has been completed to allow conversion to Mineral Reserves.
In such instances, opportunity also exists for future modification to Mineral Reserve status. In contrast, risks also exist that further technical assessments may render portions of these Mineral Resources to be excluded from the Mineral Resource base on technical grounds; and
-   vamping tonnages and grades are not currently included in the following statements, SRK consider there
to be insufficient investigations to base continued contribution at current levels of production and hence warrant inclusion in the Mineral Resource and Mineral Reserve statements as presented herein. This represents further potential for increasing both the Mineral Resource and Mineral Reserve statements; and
    -   
the Mineral Resource statements as presented for Harmony Canada Operations have only been reviewed by SRK on a desk top basis alone. SRK note however, that the operation is currently under care and maintenance with no near term intent to recommence operations.
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4.5.1
Target Operations
Table 4.8 Target Operations: Target Mine - Mineral Resource and Mineral Reserve Statement
Mineral Reserve Category
Mineral Resource Category
Tonnage
Grade
Gold
Tonnage
Grade
Gold
(kt)
(g/t)
(koz)
(kt)
(g/t)
(koz)
Proved
Measured
- u/g (1)
5,190
7.4
1,227
- u/g (1)
5,545
9.4
1,674
Subtotal
5,190
7.4
1,227
Subtotal
5,545
9.4
1,674
Probable
Indicated
- u/g (1)
11,656
6.3
2,374
- u/g (1)
12,910
9.3
3,840
Subtotal
11,656
6.3
2,374
Subtotal
12,910
9.3
3,840
Total Reserves
16,846
6.6
3,601
Total
18,455
9.3
5,514
M+I+Inf in LoM
Inferred
- u/g (1)
3,098
6.4
641
- u/g (1)
6,720
7.5
1,630
- s/f (1)
11,980
0.6
227
Subtotal
3,098
6.4
641
Subtotal
18,700
3.1
1,857
Total in LoM Plan
19,944
6.6
4,242
TOTAL
37,155
6.2
7,371
The impact of different gold prices on the Mineral Reserve is not presented for the Target Mine. Given the number of mining methods employed and the sensitivity of these to changes in mining costs and potential revenues, a significant amount of re-design work would be required to produce the optimum mining layout and hence a Mineral Reserve estimate for each price. Further, given that a very high percentage of the Target Mine Mineral Resource is converted to Mineral Reserve in the current statement, there is limited potential for the Mineral Reserve to increase with a higher gold price, such as that used as the basis of the Mineral Reserve at Harmony. In addition, while any decrease in price would more likely change the ratio between the mining methods employed, and reduce the operating margins, there would again be less of an impact on the Mineral Reserve itself.
Table 4.9 Target Operations: NFSEC - Mineral Resource and Mineral Reserve Statement
Mineral Reserve Category
Mineral Resource Category
Tonnage
Grade
Gold
Tonnage
Grade
Gold
(kt)
(g/t)
(koz)
(kt)
(g/t)
(koz)
Probable
Indicated
u/g - Loraine
u/g - Loraine
11,190
6.5
2,338
u/g - Target North
u/g - Target North      69,950
7.0
15,676
Subtotal
0
0.0
0
Subtotal
81,140
6.9
18,015
Total Reserves
0
0.0
0
Total
81,140
6.9
18,015
M + I + INF in LoM
Inferred
u/g - Target North
u/g - Target North      52,200
8.4
14,073
u/g - Oribi
u/g - Oribi
46,890
6.5
9,792
Subtotal
0
0.0
0
Subtotal
99,090
7.5
23,865
Total in LoM Plan
0
0.0
0
TOTAL
180,230
7.2
41,880
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4.5.2
Free Gold Operations
Table 4.10 Free Gold Operations: Mineral Resource and Mineral Reserve Statement
Mineral Reserve Category
Mineral Resource Category
Tonnage
Grade
Gold
Tonnage
Grade
Gold
(kt)
(g/t)
(koz)
(kt)
(g/t)
(koz)
Proved
Measured
- u/g (1)
15,688
8.1
4,082
- u/g (1)
26,252
12.9
10,930
- u/g (2)
507
11.0
179
- s/f (1)
2,687
0.5
43
- s/f (1)
2,694
0.5
44
Subtotal
18,375
7.0
4,125
Subtotal
29,453
11.8
11,153
Probable
Indicated
- u/g (1)
45,101
6.9
10,000
- u/g (1)
63,355
10.5
21,391
- u/g (2)
1,237
7.2
287
- s/f (1)
7,674
0.8
196
- s/f (1)
10,095
0.7
233
Subtotal
52,775
6.0
10,196
Subtotal
74,688
9.1
21,911
Total Reserves
71,150
6.3
14,321
Total
104,141
9.9
33,064
M+I+Inf in LoM
- u/g (1)
7,456
6.5
1,566
- u/g (1)
122,126
9.1
35,551
- u/g (2)
83,508
4.8
12,987
Subtotal
7,456
6.5
1,566
Subtotal
205,634
7.3
48,538
Total in LoM Plan
78,605
6.3
15,887
TOTAL
309,774
8.2
81,602
In addition to the stated Mineral Resources and Mineral Reserves, over the LoM period Free Gold Operations plan to deliver to the plant some 892kt of material recovered from vamping operations at an average grade of 4.5g/t. This material is included in the LoM plan projections, however has not been classified as either Mineral Resources or Mineral Reserves.
Table 4.11 summarises the sensitivity of the Mineral Resources and Mineral Reserves at a range of gold prices. The results exclude the material projected from vamping operations.
Table 4.11 Free Gold Operations: Mineral Resource, Mineral Reserve and LoM plan Sensitivity
Gold Price
(ZAR/kg)
46,500
69,750
93,000 116,250 139,500 186,000
232,500
279,000
Mineral Resources - Total
Tonnage
(kt)
94,528
211,691
309,774 363,861
547,743 969,333 1,180,394 1,221,461
Grade
(g/t)
9.1
9.0
8.2
7.6
5.4
3.5
3.1
3.1
Metal
(koz)
27,768
61,478
81,602
88,718
95,662
109,093
118,732
120,957
Mineral Reserves - Total
Tonnage
(kt)
31,880
52,532
71,150
77,356
177,606 343,457
347,242
348,756
Grade
(g/t)
8.7
7.6
6.3
6.0
2.8
1.6
1.6
1.6
Metal
(koz)
8,912
12,752
14,321
14,857
16,178
17,980
18,174
18,237
LoM Plan - Total
Tonnage
(kt)
32,857
57,380
78,605
85,943
187,279 354,446
367,312
369,227
Grade
(g/t)
8.7
7.6
6.3
6.0
3.0
1.7
1.7
1.7
Metal
(koz)
9,196
13,928
15,887
16,551
17,927
19,767
20,193
20,275
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120
120
Annexure 7
4.5.3
Harmony Free State Operations
Table 4.12 Harmony Free State Operations: Mineral Resource and Mineral Reserve Statement
Mineral Reserve Category
Mineral Resource Category
Tonnage
Grade
Gold
Tonnage
Grade
Gold
(kt)
(g/t)
(koz)
(kt)
(g/t)
(koz)
Proved
Measured
- u/g (1)
11,449
4.6
1,700
- u/g (1)
21,415
7.5
5,180
- u/g (2)
981
7.6
239
- s/f (1)
13,241
0.4
151
- s/f (1)
13,412
0.4
151
Subtotal
24,690
2.3
1,851
Subtotal
35,808
4.8
5,570
Probable
Indicated
- u/g (1)
11,946
4.7
1,792
- u/g (1)
15,413
7.3
3,636
- u/g (2)
174
7.3
41
- s/f (1)
6,003
0.6
114
- s/f (1)
6,080
0.6
114