e20vf
As filed with the Securities and Exchange Commission on October 25, 2010
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2010
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission file number: 001 31545
HARMONY GOLD MINING COMPANY LIMITED
(Exact name of registrant as specified in its charter)
REPUBLIC OF SOUTH AFRICA
(Jurisdiction of incorporation or organization)
RANDFONTEIN OFFICE PARK, CNR WARD AVENUE AND MAIN REEF ROAD,
RANDFONTEIN, SOUTH AFRICA, 1760
(Address of principal executive offices)
Khanya Maluleke, Company Secretary
tel: +27 11 411 2019, khanya.maluleke@harmony.co.za, fax: +27 11 411 2070,
Randfontein Office Park, CNR Ward Avenue and Main Reef Road, Randfontein, South Africa, 1760
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Ordinary shares, with nominal value Rand 50 cents per share*
(Title of Class)
American Depositary Shares (as evidenced by American Depositary Receipts),
each representing one ordinary share
(Title of Class)
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Ordinary shares, with nominal value Rand 50 cents per share*
(Title of Class)
American Depositary Shares (as evidenced by American Depositary Receipts),
each representing one ordinary share
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The number of outstanding shares of each of the issuers classes of capital or common stock as of
the close of the last full fiscal year covered by this Annual Report was:
428,654,779 ordinary shares, with nominal value of Rand 50 cents per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
YES þ NO o
If this report is an annual or transition report, indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
YES o NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days:
YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
YES o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial
statements included in this filing:
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U.S. GAAP o
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International Financial Reporting Standards as issued
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Other o |
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by the International Accounting Standards Board þ |
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If Other has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow:
Item 17 o Item 18 þ
If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
YES o NO þ
Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES þ NO o
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Not for trading, but only in connection with the registration of American Depositary Shares,
pursuant to the requirements of the Securities and Exchange Commission. |
USE OF TERMS AND CONVENTIONS IN THIS ANNUAL REPORT
Harmony Gold Mining Company Limited is a corporation organized under the laws of the Republic
of South Africa. As used in this Annual Report on Form 20-F, or this annual report, unless the
context otherwise requires, the term Harmony refers to Harmony Gold Mining Company Limited; the
term South Africa refers to the Republic of South Africa; the terms we, us and our refer to
Harmony and, as applicable, its direct and indirect subsidiaries as a Group.
In this annual report, references to R, Rand and c, cents are to the South African
Rand, the lawful currency of South Africa, A$ refers to Australian dollars, K or Kina refers
to Papua New Guinean Kina and references to $, US$ and U.S. dollars are to United States
dollars.
This annual report contains information concerning our gold reserves. While this annual report
has been prepared in accordance with the regulations contained in Securities and Exchange
Commission Guide 7, it is based on assumptions which may prove to be incorrect. See Item 3. Key
Information Risk Factors Harmonys gold reserve figures are estimated based on a number of
assumptions, including assumptions as to mining and recovery factors, future cash costs or
production and the price of gold and may yield less gold under actual production conditions than
currently estimated.
This annual report contains descriptions of gold mining and the gold mining industry,
including descriptions of geological formations and mining processes. We have explained some of
these terms in the Glossary of Mining Terms included at the end of this annual report. This
glossary may assist you in understanding these terms.
PRESENTATION OF FINANCIAL INFORMATION
We are a South African company and the majority of our operations are located in our home
country. Accordingly, our books of account are maintained in South African Rand and our annual and
interim financial statements are prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board (IFRS). Prior to fiscal year
ended June 30, 2008, our annual financial statements (translated into U.S. dollars) were prepared
and filed with the U.S. Securities and Exchange Commission (SEC) in accordance with generally
accepted accounting principles in the United States (U.S. GAAP). On December 21, 2007, the SEC
adopted rules allowing foreign private issuers that file Annual Reports on Form 20-F to file
financial statements with the SEC in accordance with IFRS without reconciliation to U.S. GAAP. As
per these rules, we include in this annual report our consolidated financial statements prepared in
accordance with IFRS, translated into U.S. dollars. All financial information, except as otherwise
noted, is stated in accordance with IFRS.
In this annual report, we also present total cash costs and total cash costs per ounce,
which have been determined using industry standards previously promulgated by the Gold Institute
and are non-GAAP measures. The Gold Institute was a non-profit international industry association
of miners, refiners, bullion suppliers and manufacturers of gold products that ceased operation in
2002, which developed a uniform format for reporting production costs on a per ounce basis. The
Gold Institute has now been incorporated into the National Mining Association. An investor should
not consider these items in isolation or as alternatives to production costs, cost of sales or any
other measure of financial performance presented in accordance with IFRS. While the Gold Institute
has provided definitions for the calculation of total cash costs, the calculation of total cash
costs and total cash costs per ounce may vary significantly among gold mining companies and, by
themselves, do not necessarily provide a basis for comparison with other gold mining companies. For
further information, see Item 5. Operating and Financial Review and Prospects Costs
Reconciliation of Non-GAAP Measures.
We have included the U.S. dollar equivalent amounts of certain information and transactions in
Rand, Kina and A$. Unless otherwise stated, we have translated (i) balance sheet items at the
closing rate as reported by Reuters on the last business day of the period (R7.63 per US$1.00 as at
June 30, 2010 and R7.72 per US$1.00 as at June 30, 2009), (ii) acquisitions, disposals and specific
items included within equity at the rate prevailing at the date the transaction was entered into
and (iii) income statement items at the average rate for the year (R7.58 per US$1.00 as at June 30,
2010, R9.00 per US$1.00 as at June 30, 2009 and R7.26 per US$1.00 for fiscal 2008). Capital
expenditures for fiscal 2011 have been translated at the rates used for balance sheet items at June
30, 2010. By including these U.S. dollar equivalents in this annual report, we are not representing
that the Rand, Kina and A$ amounts actually represent the U.S. dollar amounts, as the case may be,
or that these amounts could be converted at the rates indicated.
2
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements within the meaning of the United States
Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results
of operations, business strategies, operating efficiencies, competitive positions, growth
opportunities for existing services, plans and objectives of management, markets for stock and
other matters. In particular, among other statements, certain statements in Item 4. Information on
the Company, Item 5. Operating and Financial Review and Prospects and Item 11. Quantitative and
Qualitative Disclosures About Market Risk are forward-looking in nature. Statements in this annual
report that are not historical facts are forward-looking statements for the purpose of the safe
harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange
Act), and Section 27A of the Securities Act of 1933, as amended.
These forward-looking statements, including, among others, those relating to our future
business prospects, revenues and income, wherever they may occur in this annual report and the
exhibits to this annual report, are necessarily estimates reflecting the best judgment of our
senior management and involve a number of risks and uncertainties that could cause actual results
to differ materially from those suggested by the forward-looking statements. As a consequence,
these forward-looking statements should be considered in light of various important factors,
including those set forth in this annual report. Important factors that could cause actual results
to differ materially from estimates or projections contained in the forward-looking statements
include, without limitation:
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overall economic and business conditions in South Africa and elsewhere; |
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the ability to achieve anticipated efficiencies and other cost savings in connection with
past and future acquisitions; |
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fluctuations in the market price of gold; |
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the occurrence of hazards associated with underground and surface gold mining; |
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the occurrence of labor disruptions; |
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availability, terms and deployment of capital; |
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changes in government regulation, particularly mining rights and environmental
regulation; |
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fluctuations in exchange rates; |
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currency devaluations/appreciations and other macroeconomic monetary policies; and |
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socio-economic instability in South Africa and other countries in which we operate. |
We undertake no obligation to update publicly or release any revisions to these
forward-looking statements to reflect events or circumstances after the date of this annual report
or to reflect the occurrence of unanticipated events.
3
PART I
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
Item 3. KEY INFORMATION
SELECTED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction with, and are
qualified in their entirety by reference to, our consolidated financial statements and the notes
thereto and with Item 5. Operating and Financial Review and Prospects, both included elsewhere in
this annual report. Historical results are not necessarily indicative of results to be expected for
any future period.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We are a South African company and the majority of our operations are located in our home
country. Accordingly, our books of account are maintained in South African Rand and our annual and
interim financial statements are prepared in accordance with IFRS. Prior to fiscal year ended June
30, 2008, our annual financial statements (translated into U.S. dollars) were prepared and filed
with the SEC in accordance with U.S. GAAP. On December 21, 2007, the SEC adopted rules allowing
foreign private issuers that file Annual Reports on Form 20-F to file financial statements with the
SEC in accordance with IFRS without reconciliation to U.S. GAAP. As per these new rules, we changed
our basis of presentation and have included in this annual report our consolidated financial
statements prepared in accordance with IFRS, translated into U.S. dollars.
The selected historical consolidated income statement and balance sheet data for the last five
fiscal years are, unless otherwise noted, stated in accordance with IFRS, and has been extracted
from the more detailed information and financial statements prepared in accordance with IFRS,
including our audited consolidated financial statements as of June 30, 2010 and 2009 and for each
of the years in the three years ended June 30, 2010 and the related notes, which appear elsewhere
in this annual report. The historical consolidated financial data at June 30, 2008, 2007 and 2006,
and for each of the years in the two years ended June 30, 2007, has been extracted from our audited
consolidated financial statements not included in this annual report as adjusted for discontinued
operations and the accounting changes described below.
During fiscal 2008, we early adopted IAS 23 (Revised) Borrowing Costs. In accordance with
the Revised Standards transitional provisions, we designated July 1, 2000 as the effective date
and applied the requirements of the Revised Standard to all qualifying projects for which the
commencement date of capitalization was on or after that date. The effect of this change on the
2007 and 2006 years has been included in the selected consolidated information below.
Discontinued operations for the periods below include our Cooke and Orkney operations in South
Africa, as well as our South Kalgoorlie and Mount Magnet operations in Australia, up to the date of
their disposal. The assets and liabilities of the Cooke operation were first classified as held for
sale in fiscal 2008 and the results of this operation presented as discontinued operations until
the time of its disposal to Rand Uranium (Proprietary) Limited (Rand Uranium) in November 2008.
The assets and liabilities of the Orkney and Australias South Kalgoorlie operations were first
classified as held for sale in fiscal 2007, and the results of these operations reflected as
discontinued operations in anticipation of their disposal in fiscal 2008. In fiscal 2010,
Australias Mount Magnet operations were classified as held for sale and the results of the Mount
Magnet operation presented as discontinued operations when an agreement for its disposal to
Ramelius Resources Limited (Ramelius) was concluded. The reclassifications in respect of
discontinued operations were done in terms of IFRS 5 Non-Current Assets Held for Sale and
Discontinued Operations. See note 14 of the consolidated financial statements and Item 4.
Information of the Company Business International Operations, Information of the Company
Business Orkney Operations, Item 4. Information of the Company Business Cooke
Operations.
4
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Fiscal year ended June 30, |
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2010 |
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2009 |
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2008 |
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2007 |
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2006 |
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($ in millions, except per share amounts) |
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Income Statement Data |
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Revenue |
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1,489 |
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1,277 |
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1,269 |
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1,116 |
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937 |
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Operating profit/(loss) |
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22 |
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236 |
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73 |
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154 |
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(104 |
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Profit/(loss) from associates |
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7 |
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1 |
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(11 |
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(3 |
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(17 |
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Profit/(loss) from continuing operations before taxation |
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24 |
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238 |
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(39 |
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156 |
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(91 |
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Taxation |
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(44 |
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(22 |
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(65 |
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(39 |
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(22 |
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(Loss)/profit from continuing operations |
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(20 |
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216 |
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(104 |
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117 |
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(113 |
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(Loss)/profit from discontinued operations |
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(4 |
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95 |
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74 |
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(66 |
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22 |
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Net (loss)/profit |
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(24 |
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311 |
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(30 |
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51 |
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(91 |
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Basic (loss)/earnings per share from continuing operations ($) |
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(0.05 |
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0.52 |
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(0.26 |
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0.29 |
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(0.29 |
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Diluted (loss)/earnings per share from continuing operations ($) |
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(0.05 |
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0.51 |
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(0.26 |
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0.29 |
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(0.29 |
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Basic (loss)/earnings per share ($) |
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(0.06 |
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0.75 |
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(0.08 |
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0.12 |
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(0.23 |
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Diluted (loss)/earnings per share ($) |
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(0.06 |
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0.74 |
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(0.08 |
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0.12 |
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(0.23 |
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Weighted average number of shares used in the computation of basic
(loss)/earnings per share |
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426,381,581 |
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414,120,732 |
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400,750,167 |
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397,910,797 |
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393,727,012 |
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Weighted average number of shares used in the computation of diluted
(loss)/earnings per share |
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427,846,547 |
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415,962,899 |
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402,894,248 |
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402,382,011 |
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393,727,012 |
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Dividends per share |
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0.06 |
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Other Financial Data |
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Cash cost per ounce of gold from continuing operations ($/oz) (1) |
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801 |
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583 |
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600 |
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484 |
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448 |
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Total cash cost per ounce of gold ($/oz) (1) |
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801 |
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586 |
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602 |
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489 |
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443 |
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Balance Sheet Data |
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Assets |
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Property, plant and equipment |
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3,874 |
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3,614 |
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3,531 |
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3,484 |
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3,263 |
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Assets of disposal groups classified as held for sale |
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32 |
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197 |
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182 |
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Other assets |
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1,235 |
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1,311 |
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982 |
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1,494 |
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1,432 |
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Total assets |
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5,141 |
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4,925 |
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4,710 |
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5,160 |
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4,695 |
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Equity and liabilities |
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Total equity |
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3,828 |
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3,824 |
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3,172 |
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3,366 |
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3,249 |
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Borrowings (current and non-current) |
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156 |
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47 |
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525 |
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653 |
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500 |
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Liabilities of disposal groups held for sale |
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18 |
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64 |
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77 |
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Other liabilities |
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1,139 |
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1,054 |
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949 |
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1,064 |
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946 |
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Total equity and liabilities |
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5,141 |
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4,925 |
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4,710 |
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5,160 |
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4,695 |
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(1) |
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Total cash costs and total cash costs per ounce are non-GAAP measures.
Previously, we calculated cash costs per ounce by dividing total cash costs, as determined using
the guidance previously provided by the Gold Institute, by gold ounces sold. During fiscal 2009, we
changed the calculation, using gold produced as the denominator and therefore excluded the effect
of the movement in the gold inventory from the cash cost amount. We believe that this change
provides a better indication of the cash generating capabilities of our operations and also allows
for a better comparison with other companies. The cash costs and cash cost per ounce have been
re-presented for all periods prior to fiscal 2009. The Gold Institute was a non-profit industry
association comprised of leading gold producers, refiners, bullion suppliers and manufacturers.
This institute has now been incorporated into the National Mining Association. The guidance was
first issued in 1996 and was revised in November 1999. Total cash costs, as defined in the guidance
previously provided by the Gold Institute, include mine production costs, transport and refinery
costs, applicable general and administrative costs, ongoing environmental rehabilitation costs as
well as transfers to and from deferred stripping and costs associated with royalties. Ongoing
employee termination costs are included, however, employee termination costs associated with major
restructuring and shaft closures are excluded. Total cash costs have been calculated on a
consistent basis for all periods presented. Changes in cash costs per ounce are affected by
operational performance, as well as changes in the currency exchange rate between the Rand and the
U.S. dollar. Because total cash costs and total cash costs per ounce are non-GAAP measures, they
should therefore not be considered by investors in isolation or as an alternative to production
costs, cost of sales, or any other measure of financial performance calculated in accordance with
IFRS. While the Gold Institute has provided a definition for the calculation of total cash costs
and total cash costs per ounce, the calculation of cash costs per ounce may vary from company to
company and may not be comparable to other similarly titled measures of other companies. However,
we believe that cash costs per ounce is a useful indicator to investors and management of a mining
companys performance as it provides (1) an indication of the cash generating capacities of the
mining operations, (2) the trends in cash costs as the companys operations mature, (3) a measure
of a companys performance, by comparison of cash costs per ounce to the spot price of gold and (4)
an internal benchmark of performance to allow for comparison against other companies. For further
information, see Item 5. Operating and Financial Review and Prospects Costs Reconciliation
of non-GAAP measures. |
5
EXCHANGE RATES
Unless otherwise stated, balance sheet item amounts are translated from Rand to U.S. dollars
at the exchange rate prevailing on the last business day of the period (R7.63 per US$1.00 as at
June 30, 2010), except for acquisitions, disposals and specific items included within equity that
are converted at the exchange rate prevailing on the date the transaction was entered into, and
income statement item amounts that are translated from Rand to U.S. dollars at the average exchange
rate for the period (R7.58 per US$1.00 for fiscal 2010).
As of October 18, 2010, the exchange rate per US$1.00 was R6.90. (1)
The following table sets forth, for the past five fiscal years, the average and period
end rates for Rand expressed in Rand per US$1.00. For periods prior to December 31, 2008, the
following tables express the exchange rates in terms of the noon buying rate in New York City for
cable transfers in Rand as certified for customs purposes by the Federal Reserve Bank of New York.
As of December 31, 2008, the Federal Reserve Bank ceased publication of the noon buying rate and,
as such, the exchange rates for fiscal 2009 and 2010 are sourced from Reuters, being the closing
rate at period end.
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Fiscal Year Ended |
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June 30, |
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Average |
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Period End |
2006 |
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6.36 |
(2) |
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7.17 |
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2007 |
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7.20 |
(2) |
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7.04 |
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2008 |
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7.26 |
(2) |
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7.80 |
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2009 |
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9.00 |
(3) |
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7.72 |
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2010 |
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7.58 |
(3) |
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7.63 |
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Month of |
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High |
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Low |
May 2010 |
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7.95 |
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7.41 |
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June 2010 |
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7.82 |
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7.50 |
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July 2010 |
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7.75 |
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|
7.29 |
|
August 2010 |
|
|
7.38 |
|
|
|
7.19 |
|
September 2010 |
|
|
7.26 |
|
|
|
6.94 |
|
October 2009 (through October 18, 2010) |
|
|
7.00 |
|
|
|
6.78 |
|
|
|
|
(1) |
|
Based on the interbank rate as reported by Reuters. |
|
(2) |
|
The average of the noon buying rates on the last day of each full month during the
relevant period as certified for customs purposes by the Federal Reserve Bank of New York. |
|
(3) |
|
The daily average of the closing rate during the relevant period as reported by
Reuters. |
Fluctuations in the exchange rate between Rand and the U.S. dollar will affect the dollar
equivalent of the price of ordinary shares on the Johannesburg Stock Exchange, which may affect the
market price of the American Depositary Shares (ADSs) on the New York Stock Exchange. These
fluctuations will also affect the dollar amounts received by owners of ADSs on the conversion of
any dividends on ordinary shares paid in Rand.
6
CAPITALIZATION AND INDEBTEDNESS
Not applicable.
REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
RISK FACTORS
In addition to the other information included in this annual report and the exhibits, you
should also carefully consider the following factors related to our ordinary shares and ADSs. There
may be additional risks that we do not currently know of or that we currently deem immaterial based
on information currently available to us. Although Harmony has a formal risk policy framework in
place, the maintenance and development of which is undertaken on an ongoing basis so as to help
management address systematic categories of risk associated with its business operations, any of
these risks could have a material adverse effect on our business, financial condition or results of
operations, leading to a decline in the trading price of our ordinary shares or our ADSs. The risks
described below may, in retrospect, turn out to be incomplete and therefore may not be the only
risks to which we are exposed. Additional risks and uncertainties not presently known to us or that
we now believe are immaterial (and have therefore not been included), could also adversely affect
our businesses, results of operations or financial condition. The order of presentation of the risk
factors below does not indicate the likelihood of their occurrence or the magnitude or the
significance of the individual risks. The risks described below could occur individually or
cumulatively and intensify in case of a cumulative occurrence.
Risks Relating to Our Business and the Gold Mining Industry
The profitability of our operations, and the cash flows generated by those operations, are affected
by changes in the Rand price of gold, such that a fall in the price of gold below our cash cost of
production for any sustained period may lead us to experience losses and to curtail or suspend
certain operations.
Substantially all of our revenues come from the sale of gold. Historically, the market price
for gold has fluctuated widely and has been affected by numerous factors over which we have no
control, including:
|
|
|
the demand for gold for industrial uses and for use in jewelry; |
|
|
|
|
international or regional political and economic trends; |
|
|
|
|
the strength or weakness of the U.S. dollar (the currency in which gold prices generally
are quoted) and of other currencies; |
|
|
|
|
financial market expectations regarding the rate of inflation; |
|
|
|
|
interest rates; |
|
|
|
|
speculative activities; |
|
|
|
|
actual or expected purchases and sales of gold bullion held by central banks or other
large gold bullion holders or dealers; |
|
|
|
|
forward sales by other gold producers; and |
|
|
|
|
the production and cost levels for gold in major gold-producing nations, such as South
Africa, China, the United States and Australia. |
In addition, the current demand for and supply of gold affects the price of gold, but not
necessarily in the same manner as current demand and supply affect the prices of other commodities.
Historically, gold has retained its value in relative terms against basic goods in times of
inflation and monetary crisis. As a result, central banks, financial institutions and individuals
hold large amounts of gold as a store of value and production in any given year constitutes a very
small portion of the total potential supply of gold. Since the potential supply of gold is large
relative to mine production in any given year, normal variations in current production will not
necessarily have a significant effect on the supply of gold or its price.
7
The volatility of gold prices is illustrated in the following table, which shows the annual
high, low and average of the afternoon London Bullion Market fixing price of gold in U.S. dollars
for the past ten calendar years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per ounce |
Calendar Year |
|
High |
|
Low |
|
Average |
|
|
($) |
|
($) |
|
($) |
2000 |
|
|
313 |
|
|
|
264 |
|
|
|
282 |
|
2001 |
|
|
293 |
|
|
|
256 |
|
|
|
271 |
|
2002 |
|
|
332 |
|
|
|
278 |
|
|
|
309 |
|
2003 |
|
|
412 |
|
|
|
322 |
|
|
|
361 |
|
2004 |
|
|
427 |
|
|
|
343 |
|
|
|
389 |
|
2005 |
|
|
476 |
|
|
|
411 |
|
|
|
434 |
|
2006 |
|
|
725 |
|
|
|
525 |
|
|
|
604 |
|
2007 |
|
|
841 |
|
|
|
608 |
|
|
|
695 |
|
2008 |
|
|
1,011 |
|
|
|
713 |
|
|
|
872 |
|
2009 |
|
|
1,212 |
|
|
|
810 |
|
|
|
972 |
|
2010 (through October 18, 2010) |
|
|
1,373 |
|
|
|
1,058 |
|
|
|
1,188 |
|
On October 18, 2010, the afternoon fixing price of gold on the London Bullion Market was
US$1,367.25 per ounce.
While the aggregate effect of these factors is impossible for us to predict, if gold prices
should fall below our cash cost of production and remain at such levels for any sustained period,
we may experience losses and may be forced to curtail or suspend some or all of our operations. In
addition, we would also have to assess the economic impact of low gold prices on our ability to
recover any losses we may incur during that period and on our ability to maintain adequate
reserves. Our cash cost per ounce of gold produced from continuing operations was US$801 in fiscal
2010, US$583 in fiscal 2009 and US$600 in fiscal 2008.
As the majority of our production costs are incurred in Rand and other non-U.S. currencies, and
gold is sold in U.S. dollars, our financial condition could be materially harmed by an appreciation
in the value of the Rand and other non-U.S. currencies against the U.S. dollar.
Gold is sold throughout the world in U.S. dollars, but most of our operating costs are
incurred in Rand and other non-U.S. currencies. As a result, any significant and sustained
appreciation of the South African Rand or other non-U.S. currencies against the dollar will serve
materially to reduce our revenues and overall net income.
As we currently do not enter into forward sales, commodity derivatives or hedging arrangements with
respect to our future gold production, we are exposed to the impact of any significant decrease in
the gold price.
As a general rule, we sell our gold at the prevailing market price. Currently, we generally do
not enter into forward sales, commodity derivative or hedging arrangements to establish a price in
advance for the sale of future gold production, although we may do so in the future. As a result,
we may realize the benefit of any short-term increase in the gold price, but are not protected
against decreases in the gold price, and if the gold price decreases significantly, our revenues
may be materially adversely affected.
Estimations of our gold reserves are based on a number of assumptions, including assumptions as to
mining and recovery factors, future cash costs of production and the price of gold and may yield
less gold under actual production conditions than currently estimated.
The mineral reserve estimates contained in this annual report are estimates of the mill
delivered quantity and grade of gold in our deposits and stockpiles. They represent the amount of
gold which we believe can be mined, processed and sold at prices sufficient to recover our
estimated future cash costs of production, remaining investment and anticipated additional capital
expenditures. Our mineral reserves are estimated based upon a number of assumptions, and are stated
in accordance with SEC Industry Guide 7. Our mineral reserve estimates are calculated based on
estimates of:
|
|
|
future cash costs (which in some cases are assumed to decrease significantly); |
|
|
|
|
future gold prices; and |
|
|
|
|
future currency exchange rates. |
8
These factors, which are beyond our control, significantly impact these mineral reserve
estimates. As a result, the reserve estimates contained in this annual report should not be
interpreted as assurances of the economic life of our gold and other precious metal deposits or the
future profitability of operations.
Since these mineral reserves are estimates based on assumptions related to the factors
detailed above, should there be changes to these, we may in the future need to revise these
estimates. In particular, if our cash operating and production costs increase or do not decrease as
assumed (whether in dollar, Rand, or other non-U.S. currencies terms, or in relative terms due to
appreciation of the Rand and other non-U.S. currencies against the U.S. dollar) or the gold price
decreases, the recovery of a portion of our mineral reserves may become uneconomical. This in turn
will lead us to reduce our estimated reserves.
In order to maintain gold production beyond the expected lives of our existing mines or to increase
production materially above projected levels, we will need to access additional reserves through
exploration or discovery.
Our operations have limited proven and probable reserves and exploration and discovery is
necessary to maintain current gold production levels at these operations. Exploration for gold and
other precious metals is speculative in nature and may be unsuccessful, and involves many risks,
including those related to:
|
|
|
locating orebodies; |
|
|
|
|
identifying the metallurgical properties of orebodies; |
|
|
|
|
estimating the economic feasibility of mining orebodies; |
|
|
|
|
developing appropriate metallurgical processes; |
|
|
|
|
obtaining necessary governmental permits; and |
|
|
|
|
constructing mining and processing facilities at any site chosen for mining. |
Our exploration efforts might not result in the discovery of mineralization, and any
mineralization discovered might not result in an increase in our proven and probable reserves. To
access additional reserves, we will need to successfully complete development projects, including
extensions to existing mines and, possibly, that of new mines. Development projects would also be
necessary to access any new mineralization discovered through our exploration activities around the
world. We typically use feasibility studies to determine whether or not to undertake significant
development projects. Feasibility studies include estimates of expected or anticipated economic
returns, which are based on assumptions about:
|
|
|
future gold and other metal prices; |
|
|
|
|
anticipated tonnage, grades and metallurgical characteristics of ore to be mined and
processed; |
|
|
|
|
anticipated recovery rates of gold and other metals from the ore; and |
|
|
|
|
anticipated total costs of the project, including capital expenditure and cash costs. |
Actual cash costs of exploration, production and economic returns may differ significantly from
those anticipated by our feasibility studies for new development projects.
It can take a number of years from the initial feasibility study until development is
completed and, during that time, the economic feasibility of production may change. In addition,
there are a number of uncertainties inherent in the development and construction of an extension to
an existing mine or any new mine, including:
|
|
|
the availability and timing of necessary environmental and governmental permits; |
|
|
|
|
the timing and cost of constructing mining and processing facilities, which can be
considerable; |
|
|
|
|
the availability and cost of skilled labor, power, water and other materials; |
|
|
|
|
the accessibility of transportation and other infrastructure, particularly in remote
locations; |
|
|
|
|
the availability and cost of smelting and refining arrangements; and |
|
|
|
|
the availability of funds to finance construction and development activities. |
We currently maintain a range of focused exploration programs, concentrating on areas not too
distant from our operational mines, as well as a number of prospective known gold mineralized
regions around the world. During fiscal 2010 and 2009, the bulk of exploration expenditure was
allocated to activities in South Africa and Papua New Guinea (PNG). However, there is no
assurance that any future development
9
projects will extend the life of our existing mining
operations or result in any new commercial mining operations.
The costs associated with the pumping of water inflows from closed mines adjacent to our operations
could adversely affect our results of operations.
Certain of our mining operations are located adjacent to the mining operations of other mining
companies. A mine closure may have an adverse impact on the continued operations at an adjacent
mine if appropriate preventative steps are not taken. In particular, this impact can include the
ingress of underground water where pumping operations at the closed mine are suspended. Such
ingress could result in damage to property, operational disruptions and additional pumping costs,
which would adversely affect any one of our adjacent mining operations.
The supply of electricity and increases in the cost of power may adversely affect our results of
operations and our financial condition.
Each of our mining operations is dependent on electrical power generated by the state utility
Eskom, which holds a monopoly on the South African market. As a result of an increase in demand
exceeding available generating capacity, South Africa has been subject to disruptions in electrical
power supply. During fiscal 2008, the electricity supply was interrupted by Eskom thereby halting
production at certain of our mines. This led to management restructuring operating processes to
control and reduce our consumption of electricity at all our operations. There have been no further
disruptions and we have been able to continue production at 90% electricity allocation as required
by the Energy Conservation Scheme (ECS) and interim rules imposed by Eskom. All operations were
allocated an ECS allocation in line with the Eskom allocation and equipment and management
structures were put in place to monitor and manage real-time consumption. Applications submitted to
Eskom for additional energy allocation to the four future growth projects were approved, enabling
us to proceed with the projects and to ramp-up to full capacity utilising Eskom power. We also
submitted applications for additional power allocation for four metallurgical projects in the Free
State, which were also approved by Eskom. Nevertheless, an insufficient supply of electricity may
adversely affect our results of operations and financial condition.
As a result of Eskoms planned capital expansion program to deal with the current power
constraints, an average 25% per annum tariff increase for the three year multi-year price
determination period has been approved by the National Energy Regulator South Africa (NERSA). The
first increase became effective on April 1, 2010. These increases will have a negative impact on
our results of operations going forward.
Also, see Item 5. Electricity in South Africa.
We may experience problems in identifying, financing and managing new acquisitions and integrating
them with our existing operations.
Acquiring new gold mining operations involves a number of risks including:
|
|
|
our ability to identify appropriate assets for acquisition and/or to negotiate
acquisitions on favorable terms; |
|
|
|
|
obtaining the financing necessary to complete future acquisitions; |
|
|
|
|
difficulties in assimilating the operations of the acquired business; |
|
|
|
|
difficulties in maintaining our financial and strategic focus while integrating the
acquired business; |
|
|
|
|
problems in implementing uniform standards, controls, procedures and policies; |
|
|
|
|
increasing pressures on existing management to oversee a rapidly expanding company; and |
|
|
|
|
to the extent we acquire mining operations outside South Africa or Australasia,
encountering difficulties relating to operating in countries in which we have not previously
operated. |
Our ability to make successful acquisitions and any difficulties or time delays in achieving
successful integration of any of such acquisitions could have a material adverse effect on our
business, operating results, financial condition and share price.
Certain factors may affect our ability to support the carrying value of our property, plant and
equipment, goodwill and other assets on our balance sheet.
We review and test the carrying value of our assets on an annual basis when events or changes
in circumstances suggest that the carrying amount may not be recoverable.
10
If there are indications that impairment may have occurred, we prepare estimates of expected
future cash flows for each group of assets. These estimates of future cash flows are prepared at
the lowest level for which identifiable cash flows are identified as being independent of the cash
flows of other mining assets and liabilities. Expected future cash flows are inherently uncertain,
and could materially change over time. Such cash flows are significantly affected by reserve and
production estimates, together with
economic factors such as spot and forward gold prices, discount rates, currency exchange
rates, estimates of costs to produce reserves and future capital expenditures.
As of June 30, 2010, we have substantial amounts of property, plant and equipment, goodwill
and other assets on our consolidated balance sheets. We have recorded impairment charges relating
to these assets and, if any one or a combination of the uncertainties described above occurs,
management may be required to recognize further impairment charges, which could adversely affect
our financial results and condition.
Given the nature of mining and the type of gold mines we operate, we face a material risk of
liability, delays and increased cash costs of production from environmental and industrial
accidents and pollution.
The business of gold mining by its nature involves significant risks and hazards, including
environmental hazards and industrial accidents. In particular, hazards associated with underground
mining include:
|
|
|
rock bursts; |
|
|
|
|
seismic events; |
|
|
|
|
underground fires; |
|
|
|
|
cave-ins or falls of ground; |
|
|
|
|
discharges of gases and toxic chemicals; |
|
|
|
|
release of radioactive hazards; |
|
|
|
|
flooding; |
|
|
|
|
pillar mining; |
|
|
|
|
accidents; and |
|
|
|
|
other conditions resulting from drilling, blasting and the removal and processing of
material from a deep-level mine. |
Hazards associated with open cast mining (also known as open-pit mining) include:
|
|
|
flooding of the open-pit; |
|
|
|
|
collapse of the open-pit walls; |
|
|
|
|
accidents associated with the operation of large open-pits and rock transportation
equipment; and |
|
|
|
|
accidents associated with the preparation and ignition of large-scale open-pit blasting
operations. |
|
|
|
|
Hazards associated with waste-rock mining include: |
|
|
|
|
accidents associated with operating a waste dump and rock transportation; and |
|
|
|
|
production disruptions caused by weather. |
We are at risk of experiencing any or all of these environmental or other industrial hazards.
The occurrence of any of these hazards could delay production, increase cash costs and result in
our financial liability.
The nature of our mining operations presents safety and security risks.
The industrial risks identified above also present safety risks for our operations and our
employees and can lead to the suspension and potential closure of operations for indeterminate
periods. These and other safety risks, even in situations where no injuries occur, can have a
material adverse effect on our operations and production. In addition, security issues need to be
continually addressed, including the problem of criminal mining. See Item 4. Regulation Health
and Safety Matters.
Our insurance coverage may prove inadequate to satisfy future claims against us.
We have third-party liability coverage for most potential liabilities, including environmental
liabilities. While we believe that our current insurance coverage for the hazards described above
is adequate and consistent with industry practice, we may be subject to liability for pollution
(excluding sudden and accidental pollution) or other hazards against which we have not insured or
cannot insure, including
11
those in respect of past mining activities. Further, we maintain and
intend to continue to maintain, property and liability insurance consistent with industry practice,
but such insurance contains exclusions and limitations on coverage. In addition, there can be no
assurance that insurance will continue to be available at economically acceptable premiums.
As a result, in the future, our insurance coverage may not cover the extent of claims against
us for environmental or industrial accidents or pollution.
Our operations may be negatively impacted by inflation.
Our operations have been materially affected by inflation. Inflation in South Africa has
fluctuated widely in recent years, reaching 11.6% at the end of fiscal 2008 before it decreased
significantly to 6.9% at the end of fiscal 2009 and to 4.2% by the end of 2010 fiscal year.
However, working costs and wages especially, have increased considerably over the past three years
resulting in significant cost pressures for the mining industry. In addition, electricity prices
have increased by 25% in the current year and are expected to increase by 25% per year for the next
two years as the national electricity provider, Eskom, incurs significant capital to expand
capacity. Therefore the electricity trend in inflation has not yet filtered through to the mining
industry. See Item 5. Electricity in South Africa.
The inflation rate in PNG eased to 7.0% in the 2009 fiscal year (from 10.6% in 2008) and
remained relatively stable at 7% for the 2010 fiscal year. Although the recent trend in the
inflation figures point to a moderation in inflationary pressures, annual inflation remains
significantly above those levels recorded in the years prior to 2008. While the strong
international cost pressures experienced in 2008 were picked up in the official statistics,
primarily through higher food and fuel prices, there is a concern that current domestic
inflationary pressures are being understated in the official statistics produced by the National
Statistical Office. For example, there are a number of domestic expenditure items such as the price
of dwelling rentals which are reported to have been unchanged for the past two decades. This is
despite the enormous increase in dwelling rents that have been observed over the past few years,
which highlights inadequacies in the official statistics. Based on business liaison visits,
anecdotal evidence suggests that inflation has been running at closer to 8.0% to 10.0% in the past
year, with a number of businesses factoring these figures into their negotiations rather than using
the official figures. Looking ahead to 2011, inflation is projected to be 8.0% compared to the
budget estimate of 7.5%. The reason for the increase in forecast is mainly due to the Liquid
Natural Gas project and the recovery in the global economy leading to high international food and
energy prices. Labor costs have also increased due to availability of skilled labor as a direct
consequence of major projects in PNG. The PNG currency has also remained relatively strong against
the Australian and US dollar.
Our profits and financial condition could be affected adversely if the cost inflation
discussed above is not offset by a concurrent devaluation of the Rand and other non-U.S. currencies
and/or an increase in the price of gold.
The socio-economic framework in the regions in which we operate may have an adverse effect on our
operations and profits.
We have operations in South Africa and PNG. As a result, changes or instability to the
economic or political environment in any of these countries or in neighboring countries could
affect our operations and profits. It is difficult to predict the future political, social and
economic direction in these countries, or any other country in which we operate, and the impact
government decisions may have on our business.
Actual and potential shortages of production inputs may have an adverse effect on our operations
and profits.
Our results of operations may be affected by the availability and pricing of raw materials and
other essential production inputs. The price of raw materials may be substantially affected by
changes in global supply and demand, along with weather conditions, governmental controls and other
factors. A sustained interruption to the supply of any of these materials would require us to find
acceptable substitute suppliers and could require us to pay higher prices for such materials. Any
significant increase in the prices of these materials would increase our operating costs and affect
production considerations.
Our financial flexibility could be materially constrained by exchange control regulations as
imposed by SARB.
In terms of South Africas exchange control regulations, the export of capital from South
Africa is restricted. As a result, our ability to raise and deploy capital outside South Africa is
limited. In particular, we are:
|
|
|
generally not permitted to export capital from South Africa, to hold foreign currency or
incur indebtedness denominated in foreign currencies without the approval of the South
African exchange control authorities; |
|
|
|
|
generally not permitted to acquire an interest in a foreign venture without the approval
of the South African exchange control authorities and first having complied with the
investment criteria of the South African exchange control authorities; |
|
|
|
|
generally required to repatriate to South Africa profits of foreign operations; and |
12
|
|
|
limited in our ability to utilize profits of one foreign business to finance operations
of a different foreign business. |
These restrictions could hinder our normal corporate functioning, including our ability to
make foreign investments and procure foreign currency denominated financings in the future.
Since 1995, certain exchange controls in South Africa have been relaxed. The extent to which
the South African government may further relax such exchange controls cannot be predicted with
certainty, although the government has committed itself to a gradual approach to the relaxation of
exchange control.
We compete with mining and other companies for key human resources.
We compete with mining and other companies on a global basis to attract and retain key human
resources at all levels with the appropriate technical skills and operating and managerial
experience necessary to continue to operate our business. The need to recruit, develop and retain
skilled employees is particularly critical with respect to Historically Disadvantaged South
Africans (HDSAs), women mining in South Africa and the recruitment and training of local
landowners in PNG. The global shortage of key mining industry human resource skills, including
geologists, mining engineers, metallurgists and skilled artisans has been exacerbated in the
current environment of increased mining activity across the globe. Despite various initiatives in
place, there can be no assurance that we will attract and retain skilled and experienced employees
and, should we lose any of our key personnel, our business may be harmed and our results of
operations and financial condition could be adversely affected. See Item 6. Employees.
Since our South African labor force has substantial trade union participation, we face the risk of
disruption from labor disputes and new South African labor laws.
Despite a history of positive and constructive engagement with labor unions, there are periods
during which the various stakeholders are unable to agree on dispute resolution processes.
Disruptive activities on the part of labor, which normally differ in intensity, then become
unavoidable. Due to the high level of union membership among our employees, we are at risk of
having production stoppages for indefinite periods due to strikes and other disputes. Significant
labor disruptions have affected our operations and financial condition before and we are not able
to predict whether or not we will experience significant labor disputes in the future.
South African employment law sets out minimum terms and conditions of employment for
employees. Though these minimum terms and conditions may be improved by agreements between us and
the trade unions, the prescribed minimum terms and conditions form the benchmark for all employment
contracts. See Item 6. Employees.
We are required to submit a report in terms of South African employment law detailing the
progress made towards achieving employment equity in the workplace. In the event this report is not
submitted, we could incur substantial penalties.
Developments in South African employment law may increase our cash costs of production or
alter our relationship with our employees and trade unions, which may have an adverse effect on our
business, operating results and financial condition.
HIV & AIDS poses risks to us in terms of productivity and costs.
The incidence of HIV & AIDS in South Africa and PNG, which is forecast to increase over the
next decade, poses risks to us in terms of potentially reduced productivity, and increased medical
and other costs. If a significant increase in the incidence of HIV & AIDS infection and HIV &
AIDS-related diseases among the workforce over the next several years occurs, this may have an
adverse impact on our operations, projects and financial condition. See Item 4. Regulation
Health & Safety Matters.
The cost of occupational healthcare services may increase in the future.
Operations in PNG are subject to the following PNG Acts and Regulations: PNG Mining Act 1992,
PNG Mining Safety Act 1997, PNG Mining Safety Regulation 1935 (updated 2006), and the PNG
Environment Act 2000. As in other countries, enforcement of these acts and regulations has the
potential to cause interruption to mining activities. The PNG Minerals Resources Authority (MRA)
administers the safety and environmental legislation on behalf of the PNG Government and has the
power to stop work or in extreme cases close a mine until the mine owner complies with the
requirements of the MRA. The MRA also mediates in disputes between mine owners and landowners or
between landowner groups.
PNG has minimal health services in country and rural communities. We are putting in place
health programs that will assist communities within our area of operations to have better access to
health services in a sustainable manner through assistance with health facility upgrades, mentoring
and education assistance to community health staff, malaria prevention programs, potable water
solutions, as well as assistance with the development of small agriculture business.
13
Our operations in South Africa are subject to health and safety regulations which could
impose significant costs and burdens. The present Mine Health and Safety Act 29 of 1996 (Mine
Health and Safety Act) imposes various duties on us at our mines, and grants the authorities broad
powers to, among other things, close unsafe mines and order corrective action relating to health
and safety matters.
The Occupational Diseases in Mines and Works Act 78 of 1973, governs the payment of
compensation and medical costs related to certain illnesses contracted by persons employed in mines
or at sites where activities ancillary to mining are conducted. Occupational healthcare services
are available to our employees from our existing healthcare facilities in South Africa.
There is a risk that the cost of providing such services and implementing the various programs
could increase in future depending on changes in the nature of underlying legislation and the
profile of our employees. This increased cost, should it transpire, is currently indeterminate. We
have embarked on a number of initiatives focused on improving the quality of life of our workforce,
although there can be no guarantee that such initiatives will not be adversely affected by
increased costs.
Laws governing mineral rights affect our business.
Our operations in South Africa and PNG are subject to legislation regulating mineral rights
and the mining of those rights. In South Africa, we are governed by the South African Mineral and
Petroleum Resources Development Act 2002 (MPRDA). See Item 4. Regulation South Africa for a
description of the principal objectives set out in the MPRDA.
Under the MPRDA, tenure over established mining operations is secured for up to 30 years (and
renewable for periods not exceeding 30 years each thereafter), provided that mining companies
applied for new order mining rights over existing operations within five years of May 1, 2004 or
before the existing right expires, whichever was the earlier date and fulfill requirements
specified in the MPRDA and the Broad-Based Socio-Economic Empowerment Charter for the South African
mining industry (Mining Charter). The licenses for all of our South African operations have been
granted. We will be eligible to apply for new licenses over existing operations, provided we comply
with the Mining Charter. Failure to comply with the conditions of the mining licenses could have a
material adverse effect on our operations and financial condition.
The Mining Charter was signed by government and stakeholders in October 2002, and contains
principles relating to the transfer, over a 10-year period, of 26% of South Africas mining assets
(as equity or attributable units of production) to HDSAs as defined in the Mining Charter. An
interim target of 15% HDSA participation over five years was also set and to this end, the South
African mining industry committed to securing financing to fund participation by HDSAs in an amount
of R100 billion within the first five years of the Mining Charters tenure. The Mining Charter
provides for the review of the participation process after five years to determine what further
steps, if any, are needed to achieve target participation of 26%. In order to measure progress in
meeting the requirements of the Mining Charter, companies are required to complete a scorecard, in
which the levels of compliance with the objectives of the Mining Charter can be ticked off after
five and ten years, respectively. The Mining Charter and Scorecard require programs for black
economic empowerment and the promotion of value-added production, such as jewelry-making and other
gold fabrication, in South Africa. In particular, targets are set out for broad-based black
economic empowerment in the areas of human resources and skills development; employment equity;
procurement and beneficiation. In addition, the Mining Charter addresses socio-economic issues,
such as migrant labor, mine community and rural development and housing and living conditions.
Following a review of the progress made by the mining industry after five years of
implementing the provisions of the Mining Charter , the Department of Mineral Resources (DMR)
recently amended the Mining Charter and the Revised Mining Charter was released on September 13,
2010. The requirement under the Mining Charter for mining entities to achieve a 26% HDSA ownership
of mining assets by the year 2014 has been retained. Amendments to the Mining Charter in the
Revised Mining Charter include, inter alia, the requirement by mining companies to
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facilitate local beneficiation of mineral commodities; |
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procure a minimum of 40% of capital goods, 70% of services and 50% of consumer goods from
HDSA suppliers (i.e. suppliers of which a minimum of 25% + 1 vote of their share capital must
be owned by HDSAs) by 2014. These targets will however be exclusive of non-discretionary
procurement expenditure; |
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achieve a minimum of 40% HDSA demographic representation by 2014 at executive management
(board) level, senior management (EXCO) level, core and critical skills, middle management
level and junior management level; |
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invest up to 5% per cent of annual payroll in essential skills development activities; and |
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implement measures to improve the standards of housing and living conditions for mineworkers
by converting or upgrading mineworkers hostels into family units, attaining an occupancy rate
of one person per room and facilitating home ownership options for all mineworkers in
consultation with organised labour, all of which must be achieved by 2014. |
14
In addition, mining companies are required to monitor and evaluate their compliance to the
Revised Mining Charter, and must submit annual compliance reports to the DMR. The Scorecard for the
Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry attached to
the Revised Mining Charter (the Scorecard) makes provision for a phased-in approach for
compliance with the above targets over the five year period ending in 2014. For measurement
purposes, the Scorecard allocates various weightings to the different elements of the Revised
Mining Charter. Failure to comply with the provisions of the Revised Mining Charter will amount to
a breach of the MPRDA and may result in the cancellation or suspension of a mining companys
existing mining rights. Harmony obtained all of its licenses two years ago and has no reason to
believe that our mining licenses will be cancelled or suspended.
The MPRDA also makes reference to royalties payable to the South African state in terms of the
Mineral and Petroleum Resources Royalty Act (Act 28 of 2008). The Act provides for the payment of a
royalty according to a formula based on earnings before interest, tax and depreciation, after the
deduction of capital expenditure. This rate is then applied to revenue to calculate the royalty
amount due, with a minimum of 0.5% and a maximum of 5% for gold mining companies. For the period
since the royalty became effective on March 1, 2010 until June 30, 2010, the average royalty rate
for our South African operations was 1.5% of gross sales.
The Mining Act of 1992 (PNG) stipulates that mineral rights in PNG belong to the government of
PNG and they have a statutory right to obtain up to a 30% participating interest in mining
development projects. The government then issues and administers mining tenements under the
relevant mining legislation, and mining companies must pay royalties to the government based on
production.
Production has commenced at our PNG mining operations and they are now subject to a 2% royalty
payment to the government of PNG and local community groups. Should we desire to expand any of our
initiatives in PNG operations into additional areas under exploration, these operations would need
to convert the existing exploration licenses prior to the start of mining, and that process could
require landowner title approval. There can be no assurance that any approval would be received.
Please also see Item 4. Regulation for further information.
We are subject to extensive environmental regulations.
As a gold mining company, we are subject to extensive environmental regulation. We have
experienced and expect to continue to experience increased cash costs of production arising from
compliance with South African and PNG environmental laws and regulations.
The MPRDA, certain other environmental legislation and the administrative policies of the
South African government regulate the impact of our prospecting and mining operations on the
environment. Pursuant to these regulations, upon the suspension, cancellation, termination or
lapsing of a prospecting permit or mining authorization, we will remain liable for compliance with
the provisions of the various relevant regulations, including any rehabilitation obligations. This
liability will continue until such time as the appropriate authorities certify that we have
complied with such provisions.
In the future, we may incur significant costs associated with complying with the increasingly
stringent requirements being imposed under new legislation and regulations. This may include the
need to increase and accelerate expenditure on environmental rehabilitation and to alter provisions
for this expenditure, which could have a material adverse effect on our results and financial
condition. We may also face increased environmental costs should other mines in the vicinity of our
mines fail to meet their obligations with regard to the pumping or treatment of water.
The South African government has reviewed requirements imposed upon mining companies to ensure
environmental restitution. For example, following the introduction of an environmental rights
clause in South Africas constitution, a number of environmental legislative reform processes have
been initiated. Legislation passed as a result of these initiatives has tended to be materially
more onerous than laws previously applied in South Africa. Examples of such legislation include the
MPRDA, the South African National Nuclear Regulator Act 1999, the South African National Water Act
of 1998 and the South African National Environmental Management Act 1998, which include stringent
polluter-pays provisions. The adoption of these or additional or more comprehensive and stringent
requirements, in particular with regard to the management of hazardous waste, the pollution of
ground and ground-water systems and the duty to rehabilitate closed mines, may result in additional
costs and liabilities.
Our PNG operations are also subject to various laws and regulations relating to the protection
of the environment, which are similar in scope to those of South Africa. See Item 4. Regulation
Environmental Matters for further discussion on the applicable legislation and our policies on
environmental matters.
15
Our operations in South Africa are subject to water use licenses, which could impose significant
costs and burdens.
Under South African law, our South African operations are subject to water use licenses that
govern each operations water usage and that require, among other things, that mining operations
achieve and maintain certain water quality limits regarding all water discharges, where these are
applicable. The majority of the South African operations are lawful users having existing water
permits in terms of the Water Act of 1954. Nevertheless, the South African operations have made
applications to the relevant regional directors for water use licences in terms of the National
Water Act, 1998. Submissions were made as early as 2003 and the organisation has been working
closely with the Regional Directors in the review process and in fact a number of our operations
have been issued with licences and / or draft licences.
It is anticipated that the conditions of the licences may require Harmony to consider and
implement alternate water management measures that may have a significant cost implication on our
business. Any failure on our part to achieve or maintain compliance with the requirements of these
licenses with respect to any of its operations may result in Harmony being subject to penalties,
fees and expenses or business interruption due to revoked water licences. Any of the above could
have a material adverse effect on our business, operating results and financial condition.
Compliance with emerging climate change regulations could result in significant costs to the Group,
and climate change may present physical risks to our operations.
Greenhouse gases (GHGs) are emitted directly by our operations and indirectly as a result of
the consumption of electricity from external utilities. Emissions from electricity consumption are
indirectly attributable to our operations. There are currently a number of international and
national measures to address or limit GHG emissions, including the Kyoto Protocol and the
Copenhagen Accord, in various phases of discussion or implementation. Both South Africa and PNG are
non-Annex I countries and therefore do not have emission reduction targets under the Kyoto Protocol
in the First Commitment Period, ending 2012. After the Climate Summit in Copenhagen in
December 2009, South Africa committed to 30% clean energy by 2025 with the vision that South
Africas GHG emissions should peak by 2020-2025 at the latest, plateau for a decade and then
decline by 40% by 2050. South Africa is currently also developing a National Climate Change
Response Policy which is expected to be completed by 2012. This policy will be translated into a
legislative, regulatory and fiscal package from now until 2012.
Our largest portion of GHG emissions are predominantly electricity related, with our
electricity expenditure amounting to 10% of its operational costs in South Africa. While cost
management is clearly a strategic issue for Harmony, of even greater importance is that energy
supply be constant and reliable, given the implications that the loss of energy has on both
production and for health and safety reasons. GHG emissions regulation which would increase the
price of energy, within reason, will not affect Harmony as significantly as regulation which
stipulates emission thresholds, or sets technology standards which may result in an insecurity of
energy supply. Already certain compliance costs from our power suppliers are being passed through
to the group in the form of price increases. For instance, in South Africa since 2009, we pay a
levy of R0.02 per kilowatt hour for electricity generated by fossil fuels. These levies may
increase over time and additional levies may be introduced in the future in South Africa or PNG,
which could result in a significant increase in our costs.
As our current mines have a life expectancy of up to 24 years, we are undertaking capital
projects to sustain and increase production at the Phakisa, Doornkop, Kusasalethu, Tshepong and
Hidden Valley operations. These expansions would extend the companys mining operations by another
10 years or more, by which time GHG regulations are expected to be a permanent feature of the
global economy. Future climate change regulation will therefore need to be considered for all
Harmonys extensions and acquisitions. All new greenfields and brownfield projects are required by
company policy to consider the impact of climate change in their design and planning.
Harmony is also likely to be exposed to GHG emission regulation thresholds specifically
regarding leakage from refrigerant gas usage. Harmony will therefore be required to manage CFC-free
refrigerant gas, and will consider using absorption chillers. This could have cost implications for
the company.
In addition, our operations could be exposed to a number of physical risks from climate
change, such as increased rainfall, reduced water availability, higher temperatures and extreme
weather events. Events or conditions such as flooding or inadequate water supplies could disrupt
our operations and rehabilitation efforts, and could increase the health and safety risks at the
operations. In addition, such events or conditions could have adverse effects on our workforce and
in communities in close proximity to our operations.
See Item 4.
Environmental Matters for disclosure regarding our GHG emissions.
16
We may have potential exposure to rehabilitate ground water and radiation that may exist where we
have operated and/or continue to operate.
Due to the interconnected nature of mining operations, any proposed solution for potential flooding
and potential decant risk posed by deep ground water, needs to be a combined one supported by all
the mines located in the goldfields. As a result, the DMR and affected mining companies are
involved in the development of a Regional Mine Closure Strategy. In view of the limitation of
current information for the accurate estimation of a liability, no reliable estimate can be made
for the obligation.
We have initiated analytical assessments to identify, quantify and mitigate impacts if and
when (or as and where) these impacts may arise. Numerous scientific, technical and legal studies
are under way to assist in determining the magnitude of possible contamination of ground water and
to find sustainable remediation solutions. We have instituted processes to reduce possible future
potential seepage and it has been demonstrated that Monitored Natural Attenuation (MNA) by the
existing environment will contribute to improvement in some instance. The ultimate outcome of the
matter cannot presently be determined and no provision for any liability that may result has been
made in the financial statements.
Investors in the United States may have difficulty bringing actions, and enforcing judgments,
against us, our directors and our executive officers based on the civil liabilities provisions of
the federal securities laws or other laws of the United States or any state thereof.
We are incorporated in South Africa. Each of our directors and executive officers (and our
independent registered public accounting firm) resides outside of the United States. Substantially
all of the assets of these persons and substantially all of our assets are located outside the
United States. As a result, it may not be possible for investors to enforce a judgment against
these persons or ourselves obtained in a court of the United States predicated upon the civil
liability provisions of the federal securities or other laws of the United States or any state
thereof. A foreign judgment is not directly enforceable in South Africa, but constitutes a cause of
action which will be enforced by South African courts provided that:
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the court that pronounced the judgment had jurisdiction to entertain the case according
to the principles recognized by South African law with reference to the jurisdiction of
foreign courts; |
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the judgment is final and conclusive; |
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the judgment has not lapsed; |
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the recognition and enforcement of the judgment by South African courts would not be
contrary to public policy, including observance of the rules of natural justice which
require that the documents initiating the United States proceeding were properly served on
the defendant and that the defendant was given the right to be heard and represented by
counsel in a free and fair trial before an impartial tribunal; |
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the judgment does not involve the enforcement of a penal or revenue law; and |
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the enforcement of the judgment is not otherwise precluded by the provisions of the
Protection of Business Act 99 of 1978, as amended, of the Republic of South Africa. |
Compliance with new and changing corporate governance and public disclosure requirements adds
uncertainty to our compliance policies and increases our costs of compliance.
Laws, regulations and standards relating to accounting, corporate governance and public
disclosure, new SEC regulations and other listing regulations applicable to us are subject to
change and can create uncertainty for companies like us. New or changed laws, regulations and
standards could lack specificity or be subject to varying interpretations. Their application in
practice may evolve over time as new guidance is provided by regulatory and governing bodies. This
could result in continuing uncertainty regarding compliance matters and higher costs of compliance
as a result of ongoing revisions to such governance standards.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report
by our management on our internal control over financial reporting. The report in this annual
report contains, among other matters, an assessment of the effectiveness of our internal control
over financial reporting as of the end of the fiscal year, including a statement as to whether or
not our internal controls over financial reporting are effective. If we fail to maintain the
adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing
basis that we have effective internal control over financial reporting in accordance with the
Sarbanes-Oxley Act. The requirement to evaluate and report on our internal controls also applies to
companies that we may acquire and therefore, this assessment may be complicated by any future
acquisitions we may complete. While we continue to dedicate resources and management time to
ensuring that we have effective controls over financial reporting, failure to achieve and maintain
an effective internal control environment could have a material adverse effect on the markets
perception of our business and our stock price. See Item 15. Disclosure Controls and Procedures
for management
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assessment as of June 30, 2010. In addition to managements assessment of internal controls
over financial reporting, we are required to have our independent registered public accounting firm
publicly disclose their conclusions regarding the effectiveness of Harmonys internal controls over
financial reporting.
We are committed to maintaining high standards of corporate governance and public disclosure,
and our efforts to comply with evolving laws, regulations and standards in this regard have
resulted in, and are likely to continue to result in, increased general and administrative
expenses.
Sales of large quantities of our ordinary shares and ADSs, or the perception that these sales may
occur, could adversely affect the prevailing market price of such securities
The market price of our ordinary shares or ADSs could fall if large quantities of ordinary
shares of ADSs are sold in the public market, or there is a perception in the marketplace that such
sales could occur. Subject to applicable securities laws, holders of our ordinary shares or ADSs
may decide to sell them at any time. The market price of our ordinary shares or ADSs could also
fall as a result of any future offerings it makes of ordinary shares, ADRs or securities
exchangeable or exercisable for its ordinary shares or ADSs, or the perception in the marketplace
that these sales might occur. We may make such offerings of additional ADS rights, letters of
allocation or similar securities at any time or from time to time in the future.
Because we have a significant number of outstanding share options, our ordinary shares are subject
to dilution.
We have employee share option schemes as well as other share schemes. The employee share
option schemes came into effect in 2001, 2003 and 2006. Our board has authorized up to 60,011,669
shares of the issued share capital to be used for these plans. As a result, shareholders equity
interests in us are subject to dilution to the extent of the future exercises of the options,
through share schemes.
We may not pay dividends or make similar payments to our shareholders in the future.
We pay cash dividends only if funds are available for that purpose. Whether funds are
available depends on a variety of factors, including the amount of cash available and our capital
expenditures and other cash requirements existing at the time. Under South African law, we are only
entitled to pay a dividend or similar payment to shareholders if we meet the solvency and liquidity
tests set out in the Companies Act of South Africa and our Articles of Association. Cash dividends
or other similar payments may not be paid in the future.
In February 2007, the South African Government announced a proposal to replace Secondary Tax
on Companies with a 10% withholding tax on dividends and other distributions payable to
shareholders. The amendments will be implemented in phases and are expected to become effective in
the near future. Although this may reduce the tax payable on our South African operations, thereby
increasing distributable earnings, the withholding tax will generally reduce the amount of
dividends or other distributions received by shareholders.
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Item 4. INFORMATION ON THE COMPANY
BUSINESS
History and Development
We conduct underground and surface gold mining and related activities, including exploration,
processing and smelting. We are currently the third largest producer of gold in South Africa,
producing approximately 22% of the countrys annual gold output, and we ranked among the top 10
gold producers in the world, with operations and projects in South Africa and PNG. Our gold sales
were approximately 1.4 million ounces of gold in fiscal 2010. As at June 30, 2010, our mining
operations reported total proven and probable reserves of 48.1 million ounces, primarily from South
African sources. In fiscal 2010, we processed approximately 19.8 million tons of ore.
In fiscal 2010, 96% of our total gold production took place in South Africa. In fiscal 2010,
approximately 91% of our South African gold came from underground mines, and approximately 9% came
from our surface operations (which include the Kalgold opencast operation and the Phoenix
operation). For more detailed information about our activities, see Item 4. Information on the
Company Business Harmonys Mining Operations Overview and the notes to the consolidated
financial statements included in this annual report. Mining is a highly regulated industry, and we
operate under a variety of statutes and regulations. For more detailed information about these
statutes and regulations, see Item 4. Information on the Company Regulation and Item 10.
Additional Information Memorandum and Articles of Association.
The majority of our exploration and evaluation done during fiscal 2010 has been focused on
PNG. Our PNG exploration and evaluation opportunities are handled through the international office
in Brisbane, Australia. Exploration in South Africa focused on the Evander South project, Joel
North, Poplar and Tshepong.
We were incorporated and registered as a public company in South Africa on August 25, 1950
(under registration number 1950/038232/06). We poured our first gold on September 11, 1954. In the
early 1970s, we merged with the Anglovaal mines, Merriespruit and Virginia, forming Harmony Gold
Mining Company Limited. We then expanded from a single lease-bound mining operation into an
independent, world-class gold producer. We acquired additional mineral rights in the Free State,
Mpumalanga, Gauteng and North West provinces in South Africa when we acquired Lydex in 1997,
Evander in 1998, Kalgold in 1999, Randfontein in 2000, ARMgold in 2003 and Avgold in 2004. We
acquired the President Steyn 1 and 2 shafts, Loraine 3 shaft, Freddies 7 and 9 shafts as well as
the President Steyn gold plant, collectively known as the Pamodzi Free State assets, from Pamodzi
Gold Free State (Proprietary) Limited (In Liquidation) (Pamodzi FS) during fiscal 2010. These
shafts have been included in the Bambanani and Target operations. In building our Australian
portfolio, we acquired Hill 50 and New Hampton in Western Australia in 2001 and 2002, respectively,
and started our exploration portfolio in PNG with projects in the Morobe province originally
through our acquisition of Abelle in 2003. During fiscal 2009 and 2008, we disposed of several
operations in South Africa and Australia, as well as 50% of our interests in gold and copper assets
in PNG. See Item 4. Disposals.
Our principal executive offices are located at Randfontein Office Park, Corner of Main Reef
Road and Ward Avenue, Randfontein, 1760, South Africa and the telephone number at this location is
+27-11-411-2000.
South African Operations
In South Africa, we operate a total of 10 underground operations, several surface operations
including an open cast mine, and nine processing plants which are located in all of the currently
known goldfields in the Witwatersrand basin of South Africa as well as the Kraaipan Greenstone
Belt. These operations produced approximately 1.4 million ounces in fiscal 2010, and South Africa
represented approximately 95% (or 45.6 million ounces) of our total proven and probable reserves.
The deep level gold mines are located in four provinces in this basin, being the Free State
province, Mpumalanga, the West Rand Goldfields in Gauteng province and the North West province.
Surface operations are located in all these provinces.
Ore from the shafts and surface material are treated at nine metallurgical plants in South
Africa, located near the operations (five in the Free State province, two in the North West
province, one in Mpumalanga and one in Gauteng). There is one plant on care and maintenance which
can be restarted if additional processing capacity is required (St. Helena plant in the Free State
province). We are currently demolishing two plants in the Free State the Virginia plants
demolishment is almost completed, while the process for Steyn plant will continue until fiscal
2012. Winkelhaak plant at the Evander operations was placed on care and maintenance during fiscal
2010, and the demolishment of the plant is expected to commence during the first half of fiscal
2011 and be completed by the end of the first half of 2012.
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As part of our Back-to-Basics strategy, which we embarked on in August 2007, management
reassessed and restructured the manner in which operations are managed and evaluated. Each
operation, consisting anywhere from a single shaft to a group of shafts, is managed by a team
headed up by a general manager. See Item 4. Harmonys Management Structure.
Operations are classified as Underground or Surface with the reportable segments in South
Africa being as follows:
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Bambanani (includes Steyn 1 and 2 shafts), Doornkop, Evander, Joel, Kusasalethu
(previously known as Elandsrand), Masimong, Phakisa, Target (includes Loraine 3, now known
as Target 3), Tshepong and the Virginia operations (the Cooke operations were considered to
be a reportable segment in fiscal 2008 and have been disclosed under discontinued operations
until the time of its disposal in November 2008); and |
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All other shafts and surface operations, including those that treat historic
sand dumps, rock dumps and tailings dams, are grouped together under Other Underground
and Other Surface. |
International Operations
Our interests internationally are currently mainly located in PNG and represent 5% (or 2.5
million ounces) of our total proven and probable reserves.
PNG operations
In PNG, through our wholly-owned PNG-based subsidiaries, Morobe Consolidated Goldfields
Limited (Morobe Consolidated Goldfields), Wafi Mining Limited (Wafi), Morobe Exploration
Limited (MEL) and Harmony Gold (PNG) Exploration Limited (HGEL) we own development and
exploration prospects.
In August 2008, Newcrest Mining Limited (Newcrest) acquired a 30.01% interest in our assets and
tenements in the Morobe Province through the Morobe Mining Joint Venture. By the end of fiscal
2009, Newcrest had earned an additional 19.99% in terms of the farm-in agreement, resulting in
Newcrest and us each owning a 50% interest in the joint venture. Through the joint venture, we
continued with the process of building the Hidden Valley mine, with partial commissioning of the
plant completed by the end of fiscal 2009. The plant was fully commissioned during the June 2010
quarter. The project at Wafi Golpu is at a Concept Study level, examining underground and open pit
mining options. The project is expected to enter into pre-feasibility study in the new fiscal
year.
Australian operations
At June 30, 2010, our interests in Australia consist solely of one site located at Mount
Magnet in Western Australia. This site has been closed down and the plant has been put on care and
maintenance since December 2007. Subsequent to the end of fiscal 2010, the Mount Magnet operations
were sold to Ramelius, a mining company in Australia listed on the Australian Securities Exchange
(ASX). The South Kalgoorlie operational assets and tenements, which we previously owned and which
was also located in Western Australia, were sold to Dioro Exploration NL (Dioro) on November 30,
2007. Ore from the underground and surface material were treated at the two metallurgical plants in
Australia (at Mount Magnet and at South Kalgoorlie prior to their sale).
In July 2007, we entered into an agreement with Dioro pursuant to which Dioro acquired our
South Kalgoorlie assets. The total purchase price was A$45 million (US$39.8 million), consisting of
both a cash and share component. The share component entailed the issuance of 11.4 million Dioro
shares valued at A$20 million (US$17.7 million), and a cash component of A$25 million (US$22.1
million). The transaction was subject to various conditions precedent, including a minimum capital
raising by Dioro of A$35 million (US$30.9 million) by the completion date. On November 30, 2007,
all conditions precedent were satisfied, and the transaction was completed and accounted for on
that date.
During fiscal 2009, we started an intensive drilling program at Mount Magnet and carried out
feasibility studies in order to support our decision to either resume mining operations or sell it.
A decision was taken by management during May 2010 to sell Mount Magnet, and at June 30, 2010,
Mount Magnet is disclosed as held for sale and discontinued operation. We entered into a Share
Sales Agreement with Ramelius for a total consideration of A$35.3 million (US$31.6 million) in cash
plus replacement environmental bonds of A$4.7 million (US$4.2 million) totaling A$40.0 million
(US$35.8 million) consideration. Final settlement of the transaction took place in July 2010.
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Strategy
Our focused strategy is based on two main pillars: safety and the competitive production of
profitable ounces of gold. This strategy has its overall goal the production of 2 million safe and
profitable ounces of gold by 2013. In striving for this, the intention is to transform Harmony into
a sustainable company that has free cash flow that is able to generate earnings to fund both growth
and dividends.
Growing the company and generating free cash flow will entail:
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growth in production ounces, by delivering into production the South African
growth projects and by fully exploiting growth opportunities in PNG. An important
element of this growth objective is the pursuit of geographic diversity; |
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exploring and expanding into new geographic regions, developing mines, acquiring
low-cost assets and entering into joint ventures; |
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increasing levels of operational efficiency and productivity, to which end
capital projects are being commissioned and achievable operational plans have been
compiled; and |
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optimizing our asset portfolio, so as to yield lower-cost, more profitable,
high-margin ounces. To this end our portfolio was reviewed and restructured. |
Together, these actions will help us to achieve the targeted growth in ounces and generate free
cash flow.
Achievement of these objectives will be driven by the following:
Safety
Safety is our first priority. We are committed to zero fatalities, with various initiatives
throughout the Group, from top management, filtering to every level through conscious and pragmatic
effort. We also perform comprehensive safety auditing, and currently have 180 health and safety
personnel trained as lead auditors on the OHSAS 18001 Standard in South Africa. We also conduct
extensive back analysis to determine the root causes of accidents, to identify what could have been
done to prevent them and what can be done in the future to prevent similar incidents.
To ensure that the only acceptable production is safe production, we have linked remuneration
to safety performance at all levels of the organization. We have focused a great deal of effort on
addressing behavior, creating an awareness of safety-related issues and acknowledging and rewarding
safety achievements.
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Increasing production
In the past few years, we have invested a great deal in the expansion of the production base
in South Africa and PNG, with a focus on developing new mines at competitive cash costs and
upgrading the overall quality of our portfolio. Production has started at our five projects, being
Kusasalethu new mine, Doornkop South Reef, Tshepong sub 66 and sub 71 declines and Phakisa in South
Africa, and Hidden Valley in PNG. These projects could deliver up to 1.1 million low-cost
production ounces by 2013 and a reduction on overall cash costs per ounce. As these assets reach
full production in the next few years, they will provide the cash flow necessary to allow us to
fund growth in our exploration projects and other opportunities that may arise.
We also have a number of additional development projects in South Africa, including surface
sand dumps, rock dumps and tailings dams, where various feasibility and pre-feasibility studies are
being conducted. We are investigating the treatment of the current arisings from the Tshepong,
Phakisa and Masimong mines primarily for uranium, after which the gold will be extracted. In PNG,
we have several greenfields and brownfields exploration projects, several within the Morobe Mining
Joint Venture as well as prospects of which are wholly owned by us. Drilling results at the various
sites are very encouraging, with Wafi-Golpu being rated as a world class discovery.
Adding to our asset portfolio
We are always looking out for quality assets offering lower costs to add to our asset
portfolio. We have identified and evaluated a number of assets in South Africa, elsewhere in Africa
and in South East Asia, which may potentially fit our portfolio. Although we have not been able to
identify any projects of sufficient value at a reasonable price, we continue to assess acquisition
opportunities, provided they meet our acquisition criteria.
We have, however, been very successful in acquiring valuable exploration tenements. Our aim is
to enhance our competitive edge at an earlier stage in the pipeline, to expand our geographic
diversity and to leverage off our existing base in one of the worlds premier new gold regions,
PNG. As a result we have increased our exploration budget in the region by 72% for fiscal 2011.
While returns may only be generated in the long term, we are confident that those returns will
indeed be generated.
Restructuring for efficiency
In the past year, we reviewed our asset base and in line with our strategy to deliver safe,
profitable and sustainable ounces, and we restructured our asset portfolio. We closed several
shafts that were no longer economically viable to operate, and entered into agreements to dispose
of assets that no longer fit into our asset profile. These changes will allow us to focus on
growing, developing and operating our portfolio of quality assets in South Africa and PNG.
Competitive Strengths
We believe that the following strengths provide us with a competitive advantage:
Leading market position in the attractive gold industry
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We believe that our size and leading market position enables us to undertake exploration
and simultaneously develop multiple projects around the world, as well as secure capital on
competitive terms. |
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The global gold industry offers a number of attractive industry fundamentals from which
we benefit. This includes the absence of available substitutes, relatively high barriers to
entry, and increasing gold producer concentration. |
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We are developing new mines at a planned lower cost per ounce than our current
operations, which we believe will help make them robust enough to survive any margin squeeze
and to withstand any reversal in the gold price. We expect the gold price to continue its
upward trend in the medium term. |
Significant reserves with long mine lives
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Our mineral reserves as of June 30, 2010 amounted to 48.1 million ounces of gold spread
across our assets in South Africa and PNG. This mineral reserve base is sufficient to
support our existing production profile in excess of 10 years at current production levels.
There has been a 0.1 million ounces year-on-year negative variance in mineral reserves due
to normal depletion of 1.7 million ounces. Mine closures, the exclusion of projects
previously included in reserves (Evander South), geology and scope changes resulted in a
decrease of 2.6 million ounces. On the positive side, there is a net addition of 4.3 million
ounces of mineral reserves from new acquisitions, Rand Uranium (attributable interest of
40%), surface projects and other positive adjustments from the operations. |
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Of our 48.1 million ounces of reserves, 38.2 million ounces are classified as above
infrastructure and 9.9 million ounces re classified as below infrastructure (reserves for
which capital expenditure has still to be approved). |
Highly attractive project pipeline
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We have a diverse portfolio of gold development projects spread across South Africa and
PNG. These projects include Kusasalethu, Doornkop, Tshepong and Phakisa in South Africa, and
Hidden Valley in PNG, which, when developed, could deliver up to 1.1 million ounces of
production by 2013. |
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We believe the relatively higher grade of these South African deposits and/or lower cost
base will result in these ounces being produced at highly competitive cash costs. This in
turn may result in a reduction in our overall cash cost position as these new projects are
commissioned. |
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In addition to these projects, we have a number of additional development prospects that
are being considered and progressed, including the processing of sand dumps and tailings
dams in our tailings projects, the processing of rock dumps, and developing the Wafi-Golpu
copper/gold deposit in PNG, which, when all developed, could increase production. |
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We have also expanded our exploration skill base, evidenced by our progress in PNG. |
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We formed Rand Uranium, to which we have transferred our Cooke assets to optimize the
value of our uranium deposits. |
Positive gold market outlook
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In the midst of volatile tumultuous global investment markets, the gold market has
demonstrated great resilience and a positive upside. The price performance throughout fiscal
2010 supports our positive outlook for gold and, given our operational imperatives, we will
seek to contain costs, increase output and optimize our margins. |
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The gold price hit a high of US$1,261 per ounce on June 28, 2010 and, subsequent to
year-end, an all-time high of US$1,373.25 on October 14, 2010. On October 18, 2010, it was
US$1,367.25 per ounce, which is 30% higher than it was for the same time the previous year. |
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We believe the fundamental drivers behind increased demand and decreased new supply of
gold will remain in the future, which will in turn support a higher gold price over this
period. As an unhedged gold producer, we will benefit from a rising gold price environment. |
Increased focus on earnings margins and cost
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Our aim remains to improve profitability. At an operational level we have put in place an
intensive process of business planning, with benchmarks and targets we believe to be
realistic. |
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We are committed to lower our cost base and extensively benchmark our costing parameters
both internally among our operations, and externally against other gold producers. Stringent
cost cutting and cost control programs have been implemented. |
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We are confident that the benefits of our restructuring process and ongoing cost focus
will be sustained in the long term, and as a result, our ability to withstand any future
adverse market conditions has been significantly enhanced. |
Conservative balance sheet and low gearing
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We maintain a conservative gearing policy and seek to fund ongoing capital expenditure
(excluding growth projects) through cash generated from existing operations. |
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Our low level of gearing should provide us with the ability to utilize debt to fund
capital and development expenditure requirements for our new projects. |
23
Experienced management team with significant industry expertise
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Our senior management team consists of experienced mining executives with extensive
industry backgrounds combined with geological and metallurgical expertise. |
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Our senior management team has a proven track record in developing and managing the
operations under its control, and has demonstrated an ability to optimize underperforming
assets as well as developing new projects around the world. |
Leading Black Economic Empowerment strategy
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We are proud to be a South African company that fully embraces the countrys
transformation initiatives. We are approximately 14.6% owned by African Rainbow Minerals
Limited (ARM Limited), a black empowerment company in which our chairman, Patrice Motsepe,
owns an interest. Of our total production profile, 36% of our South African ounces are
attributed empowerment ounces. |
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We believe that we have gone beyond the requirements of the Mining Charter by ensuring
that our HDSA partners are truly empowered, that we are largely managed by a HDSA Board, and
that we continue to engage with black shareholders and/or partners to find more
opportunities to invest in BEE transactions and involve HDSA partners. |
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We will continue to embrace empowerment as part of our growth strategy and we acknowledge
that empowerment forms a fundamental part of our business into the future. |
Principal Investments
We have concluded several other strategic transactions within and outside South Africa in the
last three fiscal years, which are summarized below.
During fiscal 2010, we acquired the President Steyn 1 and 2 shafts, Loraine 3 and the Freddies
7 and 9 shafts, along with the President Steyn gold plant, collectively known as the Pamodzi Free
State assets, for R405 million (US$53 million). The assets were acquired from Pamodzi FS, a
subsidiary of Pamodzi Gold Limited (Pamodzi), which is an associate of Harmony.
During fiscal 2009, we reached an agreement with African Vanguard Resources (Doornkop)
(Proprietary) Limited (AVRD) to re-acquire AVRDs 26% interest in the Doornkop mining right. In
March 2010, the condition precedent to the agreement became effective. As a result the 26% interest
in the Doornkop mining right was transferred from AVRD to Harmony in exchange for our repayment of
the Nedbank loan of R244 million (US$33.4 million) and the issue of 2,162,359 Harmony ordinary
shares. In terms of the agreement, 975,419 of these shares are to remain in escrow until May 2014.
In August 2009, we acquired 100% interest in two new exploration tenements, the Mount Hagen
and Amanab Projects, in PNG.
On April 17, 2009, we exchanged our interest in Dioro for shares in Avoca Resources Limited
(Avoca). See Item 4.Disposals. In terms of the offer by Avoca, we received one Avoca share for
every three Dioro shares held. The market value of the Avoca shares on the date was US$4.2 million
(A$1.50 per share).
On December 1, 2008, we issued 3,364,675 shares to Rio Tinto plc (Rio Tinto) for the
purchase of Rio Tintos rights to the royalty agreement entered into prior to our acquisition of
the Wafi deposits in PNG. The shares were valued at US$23 million on the transaction date. An
additional US$10 million in cash will be payable when the decision to mine is made. Of this amount,
Harmony is responsible for paying the first US$6 million, with the balance of US$4 million being
borne equally by the joint venture partners. The effect of the transaction will be to reduce the
cost of any gold produced at Wafi.
On November 21, 2008, we transferred our Cooke operations to Rand Uranium in exchange for cash
of US$209 million and a 40% interest in Rand Uranium. See Item 4. Disposals.
On February 27, 2008, the Group acquired a 32.4% interest in Pamodzi after disposing of its
Orkney assets. See Item 4. Disposals.
24
Disposals
See Item 8. Recent Developments for disposal made after the reporting date.
In June 2010, the group sold the Jeanette prospecting rights to Taung Gold Limited for a total
consideration and profit of R75 million (US$10 million).
On January 18, 2010, we disposed of our investment in our Australian subsidiary, Big Bell
Operations (Proprietary) Limited (BBGO), to Fulcrum Resources (Proprietary) Limited (Fulcrum)
for A$3.5 million (US$3.2 million) in cash and replacement environmental bonds of A$3.2 million
(US$3.0 million), resulting in total consideration of A$6.7 million (US$6.2 million).
During September and October 2009, we sold our interest in Avoca into the market for a total
consideration of R42 million (US$5.8 million).
On April 17, 2009, we disposed of our Dioro shares in exchange for shares in Avoca. On that
date, the market value of the Dioro shares was A$0.50 per share, or US$4.2 million.
On November 21, 2008, we transferred our Cooke assets to our wholly-owned, newly formed
subsidiary, Rand Uranium, for the consideration of US$328 million, settled with Rand Uranium
shares. In a related transaction on the same date, 60% of these shares were sold to Pamodzi
Resources Fund 1 LLP (PRF) for US$197 million. US$40 million was paid on the effective date and
the balance of US$157 million, together with interest at 5% per annum, was paid on April 20, 2009.
The conditions precedent for the second part of the Rand Uranium transaction, relating to the sale
of the Old Randfontein assets, were fulfilled on April 22, 2009. Additional shares were issued in
settlement and 60% of these shares were sold to PRF. PRF paid its portion of the purchase price,
amounting to US$12 million, in cash on April 20, 2009. We recognized a gain of US$171 million on
these transactions.
During fiscal 2009, we disposed of 50% of our interest in our PNG assets in three tranches to
Newcrest. The first tranche of 30.01% was disposed of on July 31, 2008 in exchange for US$229
million in cash, which was received on August 7, 2008. On February 28, 2009, the second tranche of
10% was disposed of in terms of the farm-in agreement. Newcrest earned in a further 9.99% interest
by contributing to the capital expenditure at Hidden Valley as well as with a cash payment of US$6
million on June 30, 2009. A net profit of US$112 million was realized for the total disposal.
On February 27, 2008, we disposed of our Orkney operations to Pamodzi in exchange for 30
million listed ordinary shares, the market value of which was R345 million (US$46.5 million).
On November 30, 2007 the South Kalgoorlie operations were sold to Dioro in exchange for 11.4
million listed ordinary shares, the market value of which was, when issued on December 5, 2007,
US$17.7 million (A$20 million), as well as cash of US$22.1 million (A$25 million). A loss of US$8.8
million (A$9.8 million), net of tax, was realized.
On August 24, 2007, the Group disposed of 13,095,079 ordinary Gold Fields shares. The proceeds
amounted to R1,310 million (US$182.9 million), resulting in a loss of R459 million (US$63.2
million).
Hedging Policy
We have consistently maintained a policy of not entering into forward sales, commodity
derivatives or hedging arrangements to establish a price in advance for the sale of our future gold
production, although we may do so in the future. As a result of this policy, board approval is
required when hedging arrangements are proposed.
Where any such gold hedging position is acquired, our policy is to eliminate any such
positions existing within acquired companies as soon as this can be achieved through sound,
commercially advantageous transactions. There may, however, be instances where certain hedge
positions in acquired companies need to be kept in place for contractual or other reasons. In line
with this policy, we have historically closed out hedging arrangements inherited through our
acquisitions. Our revenues are sensitive to the exchange rate of the Rand and other non-U.S.
currencies to the U.S. dollar, as all the revenues are generated by gold sales denominated in U.S.
dollars. We do not enter into forward sales, commodity derivatives or other hedging arrangements to
establish a Rand and/or other non-U.S. currency to U.S. dollar exchange rate in advance for the
sales of our future gold production, although we may do so in the future.
25
Description of Mining Business
Exploration
Exploration activities are focused on the extension of existing orebodies and identification
of new orebodies, both at existing sites and at undeveloped sites.
Our gold-focused exploration program has two components:
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on-mine exploration, which looks for resources within the economic radius of existing
mines, and |
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new mine exploration, which is the global search for early to advanced stage projects. |
Once a potential orebody has been discovered, exploration is extended and intensified in order
to enable clearer definition of the orebody and the potential portions to be mined. Geological
techniques are constantly refined to improve the economic viability of prospecting and mining
activities.
We conduct exploration activities on our own or with joint venture partners. As at June 30,
2010, our prospecting interest in South Africa measured 67,922 hectares (167,833 acres), 344,522
hectares (851,329 acres) in PNG and 39,885 hectares (98,560 acres) in Australia (including Mount
Magnet). We spent US$29 million on exploration in fiscal 2010 and the bulk of exploration
expenditure was allocated to activities in PNG and South Africa. In fiscal 2011, we intend to carry
out exploration in PNG and at Poplar, Masimong and Joel North in South Africa.
Mining
The mining process can be divided into two main phases: (i) accessing the orebody and (ii)
mining the orebody. This basic process applies to both underground and surface operations.
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Accessing the orebody. |
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In our South African underground mines, access to the orebody is by means of shafts sunk from
the surface to the lowest economically and practically mineable level. Horizontal development
at various intervals of a shaft (known as levels) extends access to the horizon of the reef to
be mined. On-reef development then provides specific mining access. Horizontal development at
various intervals of the decline extends access to the horizon of the mineral to be mined. The
declines are advanced on a continuous basis to keep ahead of the mining taking place on the
levels above. In our open-pit mines, access to the orebody is provided by overburden
stripping, which removes the covering layers of topsoil or rock, through a combination of
drilling, blasting, loading and hauling, as required. |
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Mining the orebody. |
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The process of ore removal starts with drilling and blasting the accessible ore. The blasted
faces are then cleaned, and the ore is transferred to the transport system. In open-pit mines,
gold-bearing material may require drilling and blasting, and is usually collected by
bulldozers or shovels to transfer it onto trucks, which transport it to the mill. |
In our South African underground mines, once ore has been broken, train systems collect ore
from the faces and transfer it to a series of ore passes that gravity feed the ore to hoisting
levels at the bottom of the shaft. The ore is then hoisted to the surface in dedicated conveyances
and transported either by conveyor belts directly or via surface railway systems or roads to the
treatment plants. In addition to ore, waste rock broken to access reef horizons must similarly be
hoisted and then placed on waste rock dumps.
Processing
We currently have nine operational metallurgical plants in South Africa. We also have a
metallurgical plant at the Hidden Valley project in PNG. The principal gold extraction processes we
use are carbon in leach, or CIL, and carbon in pulp, or CIP.
The gold plant circuit consists of the following:
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Comminution. |
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Comminution is the process of breaking up the ore to expose and liberate the gold and make it
available for treatment. Conventionally, this process occurs in multi-stage crushing and
milling circuits, which include the use of jaw and gyratory crushers and rod and tube and ball
mills. Our more modern milling circuits include semi- or fully-autogenous milling where the ore itself is used as the |
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grinding medium. Typically, ore must be ground to a
minimum size before proceeding to the next stage of treatment. |
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Treatment. |
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In most of our metallurgical plants, gold is extracted into a leach solution from the host ore
by leaching in agitated tanks. Gold is then extracted onto activated carbon from the solution
using the CIL or CIP processes. Gold in solution at one of our plants is recovered using zinc
precipitation. Recovery of the gold from the loaded carbon takes place by elution and
electro-winning. Cathode sludge or dore bars produced from electro- winning is now currently
sent directly to the Rand Refinery. Most of the South African plants no longer use smelting to
produce rough gold bars (dore). Our South African zinc precipitation plants continue to smelt
precipitate to produce rough gold bars. These bars are then transported to the Rand Refinery,
which is responsible for refining the bars to a minimum of good delivery status. |
All the production from our South African operations is sent to the Rand Refinery, which is
owned by a consortium of the major gold producers in South Africa. The Australian and PNG gold
production for fiscal years 2008 to 2010 was refined in Australia at an independent refiner, The
Perth Mint Australia (previously known as AGR Matthey).
The South African government has emphasized that the production of value-added fabricated gold
products, such as jewelry, is an important means for creating employment opportunities in South
Africa and has made the promotion of these beneficiation activities a requirement of the Mining
Charter described in Item 4. Information on the Company Regulation Mineral Rights. We
support jewelry ventures in South Africa.
Harmonys Management Structure
We have a de-centralized management structure that is based on small, empowered management
teams led by General Managers at each of our operations. In South Africa, the General Managers
report to Alwyn Pretorius and Tom Smith, the Chief Operations Officers, and are responsible for
business optimization, mineral reserve optimization, and for developing a business culture at the
operations. They also focus on long-term viability and growth of the operations. The General
Managers are supported by a Mineral Reserve Manager, a Financial Manager, a Human Resources Manager
and a Technical Manager in ensuring the growth and long-term sustainability of the operations
Morobe Mining Joint Venture consists of three unincorporated joint ventures (Hidden Valley
Mine Joint Venture (HVJVM), Wafi-Golpu Mine Joint Venture (WGMJV) and Morobe Exploration Joint
Venture (MEJV) which are owned 50/50 by respective Harmony and Newcrest 100% owned subsidiaries
(owners).
The Joint Ventures are managed by a Joint Venture Committee (JVC) appointed by the
respective owners. The JVC is responsible for the supervision of each of the three Joint Ventures,
and implementation of the owners policy and strategy. The members act as owner representatives
within the unincorporated joint ventures.
Three legal operator entities (operator co.), Hidden Valley Services Proprietary Limited,
Wafi Golpu Services Limited and Morobe Exploration Services Limited have been established and
appointed as operator of / agent for the respective unincorporated joint ventures (HVMJV, WGMJV and
MEJV). Shareholding is held equally by the owners who appoint a board of directors (board) for
each operator co.
The respective operator co. boards appoint Operational Steering Committees and General
Managers who are responsible for implementation of the operating plan as approved by the JVC as
well as making recommendation to the JVC for growth and sustainability. The General Managers report
to the Operational Steering Committees. The General Managers are supported by functional managers.
Capital Expenditures
Capital expenditures for continuing operations incurred for fiscal 2010 totaled US$442 million
compared with US$487 million for fiscal 2009 and US$500 million for fiscal 2008. In Rand terms, the
capital expenditure decreased by 23% from fiscal 2009. For fiscal 2010, the capital development at
PNG accounted for 16% of the total, with development at Phakisa and Kusasalethu accounting for 14%
and 13%, respectively. Capital development also took place at the Doornkop South Reef Project and
Tshepong Sub 71 Declines, as well as at the newly acquired President Steyn and Loraine shafts. The
capital expenditure, including the non-cash portion, in fiscal 2009 was primarily related to the
development of the PNG assets, which accounted for 41% of the project capital expended. The
majority of this development was funded by Newcrest in terms of the farm-in agreement. Capital was
also expended on the Doornkop South Reef Project, Tshepong Sub 71 Decline, as well as Phakisa and
the Kusasalethu New Mine. During fiscal 2008, the increased development in PNG accounted for 39% of
the project capital expended in the year, with the balance being expended at the Doornkop South
Reef Project, Phakisa, Tshepong Sub 66 and 71 Declines and the Kusasalethu New Mine.
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The focus of our capital expenditures in recent years has been underground development and
plant improvement and upgrades. Construction at these projects has been completed in certain areas,
and production, if not yet at full capacity, has started from these areas at all our current growth
projects. Capital will still be expended at these projects in the next two to three years to
complete construction. During fiscal 2010, the projects were funded from the Companys cash
reserves, as well as by the loan facility from Nedbank.
Capital expenditure for discontinued operations, incurred for fiscal 2010 totaled US$nil,
compared with US$10 million for fiscal 2009 and US$42 million for fiscal 2008.
We have budgeted approximately US$452 million for capital expenditures in fiscal 2011. Details
regarding the capital expenditures for each operation are found in the individual mine sections
under Business Harmonys Mining Operations. We currently expect that our planned operating
capital expenditures will be financed from operations and new borrowings as needed.
Reserves
As at June 30, 2010, we have declared proven and probable reserves of 48.1 million ounces,
broken down as follows: 45.6 million ounces in South Africa and 2.5 million ounces in PNG. Of our
48.1 million ounces of mineral reserves, 9.9 million ounces are classified as below infrastructure
(that is, reserves for which capital expenditure has yet to be approved). There has been a 0.1
million ounces year-on-year negative variance in mineral reserves due to the following reasons:
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normal depletion of 1.7 million ounces; |
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mine closures, the exclusion of projects previously included in reserves (Evander South),
geology and scope changes resulted in a decrease of 2.6 million ounces; and |
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a net addition of 4.3 million ounces of mineral reserves from new acquisitions, Rand
Uranium (attributable interest of 40%), surface projects and other positive adjustments from
the operations. |
We use the South African Code for the Reporting of Exploration Results, Mineral Resources and
Mineral Reserves (SAMREC Code), which sets out the internationally recognized procedures and
standards for reporting of mineral resources and mineral reserves. We use the term mineral
reserves herein, which has the same meaning as ore reserves, as defined in the SAMREC code. Our
reporting of the PNG Mineral Reserves complies with the Australian Code for the Reporting of
Mineral Resources and Mineral Reserves (JORC) of the Australian Institute of Mining and
Metallurgy. This code is materially the same as the SAMREC Code. In reporting of reserves, we have
complied with Industry Guide 7 of the U.S. Securities and Exchange Commission.
For the reporting of Mineral Reserves at our South African and PNG operations, we use a gold
price of US$950 per ounce. An exchange rate of R8.19 per U.S. dollar is used for South Africa and
for PNG an exchange rate of US$0.83 per Australian dollar is used giving a gold price of R250,000
per kilogram and A$1,145 per ounce, respectively. These gold prices have also been used in mine
planning.
In order to define that portion of a measured and indicated mineral resource that can be
converted to a proven and probable mineral reserve at our underground operations, we apply the
concept of a cut-off grade. This is done by defining the optimal cut-off grade as the lowest grade
at which an orebody can be mined such that the total profits, under a specified set of mining
parameters, are maximized. The cut-off grade is determined using our Optimizer computer program
which requires the following as input:
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the database of measured and indicated resource blocks (per operation); |
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an assumed gold price which, for this mineral reserve statement, was taken as R250,000
per kilogram; |
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planned production rates; |
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the mine recovery factor which is equivalent to the mine call factor (MCF) multiplied
by the plant recovery factor; and |
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planned cash costs (cost per tonne). |
Rand per tonne cash costs of the mines are historically based, but take into account distinct
changes in the cost environment, such as the future production profile, restructuring,
right-sizing, and other cost reduction initiatives which we expect in the aggregate to lead to
lower unit costs, and for below-infrastructure ounces, an estimate of capital expenditure.
The block cave reserve at Golpu (PNG) used the PCBC computer program to define the optimal
mine plan and sequencing.
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The open pit reserve at Hidden Valley (PNG) is defined by a pit design based on the Whittle
open pit optimization program guiding the most efficient mine design given this constraint.
The mineral reserves represent that portion of the measured and indicated resources above
cut-off in the life-of-mine plan and have been estimated after consideration of the factors
affecting extraction, including mining, metallurgical, economic, marketing, legal, environmental,
social and governmental factors. A range of disciplines which includes geology, survey, planning,
mining engineering, rock engineering, metallurgy, financial management, human resources management
and environmental management have been involved at each mine in the life-of-mine planning process
and the conversion of resources into reserves. The mineral flow-related modifying factors used to
convert the mineral resources to mineral reserves through the life-of-mine planning process are
stated for each individual operation. For these factors, historical information is used, except if
there is a valid reason to do otherwise. Because of depth and rock engineering requirements, some
shafts design stope support pillars into their mining layouts which accounts for approximately 7%
to 10% discounting. Further discounting relates to the life-of-mine extraction to provide for unpay
and geological losses.
Our standard for narrow reef sampling with respect to both proven and probable reserve
calculations for underground mining operations in South Africa is applied on a 6 meter by 6 meter
grid. Average sample spacing on development ends is at 2 meter intervals in development areas. For
the massive mining at the Target operations, our standard for sampling with respect to both proven
and probable reserves are fan drilling with B sized diamond drill holes (43mm core) sited at 50
meter spaced sections along twin access drives. The Kalgold open cast operations are sampled on
diamond drill and reverse circulation drill spacing of no more than 25 meters on average. Surface
mining at South African operations other than Kalgold involves recovering gold from areas
previously involved in mining and processing, such as metallurgical plants, waste rock dumps and
tailing dams (slimes and sand) for which random sampling is used.
The PNG resources are hosted in large porphyry or related mesothermal geological systems. Data
is gained through diamond drilling using PQ down to NQ sized core. The core is cut in half, one
half sampled at a maximum of 2 meter intervals and the other half stored in designated core storage
facilities. Drill spacing is typically on less than 20 meter centers for Measured category, 20 to
40 meter centers for the Indicated category and greater than 40 meters for Inferred category
material. Assaying for gold is by fire assay and various methods are used for copper and other
elements. All assays informing the resource calculation are analyzed at a National Association of
Testing Authorities accredited commercial laboratory. Some sample preparation is done at the mine
site laboratory. Extensive Quality Assurance/Quality Control work is undertaken and data is stored
in an electronic database.
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Our mining operations reported total proven and probable reserves as of June 30, 2010 are set
out below:
Mineral Reserves statement (Imperial) as at June 30, 2010
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PROVEN RESERVES |
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TOTAL RESERVES |
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GOLD |
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Tons |
|
|
Grade |
|
|
Gold oz(1) |
|
|
|
(million) |
|
|
(oz/ton) |
|
|
(000) |
|
|
(million) |
|
|
(oz/ton) |
|
|
(000) |
|
|
(million) |
|
|
(oz/ton) |
|
|
(000) |
|
South Africa Underground |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bambanani |
|
|
4.8 |
|
|
|
0.294 |
|
|
|
1,406 |
|
|
|
0.1 |
|
|
|
0.202 |
|
|
|
25 |
|
|
|
4.9 |
|
|
|
0.292 |
|
|
|
1,431 |
|
Joel |
|
|
1.3 |
|
|
|
0.182 |
|
|
|
240 |
|
|
|
1.6 |
|
|
|
0.163 |
|
|
|
264 |
|
|
|
2.9 |
|
|
|
0.172 |
|
|
|
504 |
|
Masimong |
|
|
6.0 |
|
|
|
0.149 |
|
|
|
894 |
|
|
|
2.1 |
|
|
|
0.148 |
|
|
|
306 |
|
|
|
8.1 |
|
|
|
0.149 |
|
|
|
1,200 |
|
Phakisa |
|
|
0.7 |
|
|
|
0.136 |
|
|
|
94 |
|
|
|
21.3 |
|
|
|
0.237 |
|
|
|
5,065 |
|
|
|
22.0 |
|
|
|
0.234 |
|
|
|
5,159 |
|
Target |
|
|
5.5 |
|
|
|
0.173 |
|
|
|
954 |
|
|
|
12.5 |
|
|
|
0.148 |
|
|
|
1,847 |
|
|
|
18.0 |
|
|
|
0.156 |
|
|
|
2,801 |
|
Tshepong |
|
|
14.5 |
|
|
|
0.155 |
|
|
|
2,247 |
|
|
|
10.4 |
|
|
|
0.156 |
|
|
|
1,626 |
|
|
|
24.9 |
|
|
|
0.156 |
|
|
|
3,873 |
|
Virginia |
|
|
3.0 |
|
|
|
0.134 |
|
|
|
407 |
|
|
|
1.7 |
|
|
|
0.135 |
|
|
|
223 |
|
|
|
4.7 |
|
|
|
0.134 |
|
|
|
630 |
|
Doornkop |
|
|
1.7 |
|
|
|
0.092 |
|
|
|
160 |
|
|
|
2.7 |
|
|
|
0.103 |
|
|
|
277 |
|
|
|
4.4 |
|
|
|
0.098 |
|
|
|
437 |
|
Kusasalethu |
|
|
13.8 |
|
|
|
0.195 |
|
|
|
2,680 |
|
|
|
25.8 |
|
|
|
0.187 |
|
|
|
4,834 |
|
|
|
39.6 |
|
|
|
0.190 |
|
|
|
7,514 |
|
Evander |
|
|
2.5 |
|
|
|
0.210 |
|
|
|
520 |
|
|
|
1.8 |
|
|
|
0.266 |
|
|
|
470 |
|
|
|
4.3 |
|
|
|
0.234 |
|
|
|
990 |
|
Evander(below infrastructure) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.6 |
|
|
|
0.212 |
|
|
|
9,895 |
|
|
|
46.6 |
|
|
|
0.212 |
|
|
|
9,895 |
|
Rand Uranium (2) |
|
|
2.4 |
|
|
|
0.122 |
|
|
|
299 |
|
|
|
4.8 |
|
|
|
0.100 |
|
|
|
484 |
|
|
|
7.2 |
|
|
|
0.108 |
|
|
|
783 |
|
Total South Africa Underground |
|
|
56.2 |
|
|
|
0.176 |
|
|
|
9,901 |
|
|
|
131.4 |
|
|
|
0.193 |
|
|
|
25,316 |
|
|
|
187.6 |
|
|
|
0.188 |
|
|
|
35,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Africa Surface |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kalgold |
|
|
24.1 |
|
|
|
0.024 |
|
|
|
575 |
|
|
|
8.3 |
|
|
|
0.031 |
|
|
|
258 |
|
|
|
32.4 |
|
|
|
0.026 |
|
|
|
833 |
|
Free State Surface |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,021.3 |
|
|
|
0.007 |
|
|
|
7,212 |
|
|
|
1,021.3 |
|
|
|
0.007 |
|
|
|
7,212 |
|
Evander Surface |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223.7 |
|
|
|
0.008 |
|
|
|
1,897 |
|
|
|
223.7 |
|
|
|
0.008 |
|
|
|
1,897 |
|
Rand Uranium Surface (2) |
|
|
33.8 |
|
|
|
0.008 |
|
|
|
286 |
|
|
|
9.7 |
|
|
|
0.013 |
|
|
|
127 |
|
|
|
43.5 |
|
|
|
0.010 |
|
|
|
413 |
|
Total South Africa Surface |
|
|
57.9 |
|
|
|
0.015 |
|
|
|
861 |
|
|
|
1,263.0 |
|
|
|
0.008 |
|
|
|
9,494 |
|
|
|
1,320.9 |
|
|
|
0.008 |
|
|
|
10,355 |
|
Total South Africa |
|
|
114.1 |
|
|
|
|
|
|
|
10,762 |
|
|
|
1,394.4 |
|
|
|
|
|
|
|
34,810 |
|
|
|
1,508.5 |
|
|
|
|
|
|
|
45,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Papua New Guinea (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hidden Valley |
|
|
4.2 |
|
|
|
0.062 |
|
|
|
260 |
|
|
|
26.8 |
|
|
|
0.052 |
|
|
|
1,382 |
|
|
|
31.0 |
|
|
|
0.053 |
|
|
|
1,642 |
|
Hamata |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
|
0.061 |
|
|
|
196 |
|
|
|
3.2 |
|
|
|
0.061 |
|
|
|
196 |
|
Golpu |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.0 |
|
|
|
0.018 |
|
|
|
694 |
|
|
|
39.0 |
|
|
|
0.018 |
|
|
|
694 |
|
Total Papua New Guinea |
|
|
4.2 |
|
|
|
0.062 |
|
|
|
260 |
|
|
|
69.0 |
|
|
|
0.033 |
|
|
|
2,272 |
|
|
|
73.2 |
|
|
|
0.035 |
|
|
|
2,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GRAND TOTAL |
|
|
118.3 |
|
|
|
|
|
|
|
11,022 |
|
|
|
1,463.4 |
|
|
|
|
|
|
|
37,082 |
|
|
|
1,581.7 |
|
|
|
|
|
|
|
48,104 |
|
30
In addition to the gold reserves, we also report our attributable reserves for silver, copper
and molybdenum from our PNG operations. Metal prices are assumed at US$14/oz for silver, US$2/lb
for copper and US$13/lb for molybdenum.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SILVER |
|
Tons |
|
|
Grade |
|
|
Silver oz (1) |
|
|
Tons |
|
|
Grade |
|
|
Silver oz (1) |
|
|
Tons |
|
|
Grade |
|
|
Silver oz (1) |
|
|
|
(million) |
|
|
(oz/ton) |
|
|
(000) |
|
|
(million) |
|
|
(oz/ton) |
|
|
(000) |
|
|
(million) |
|
|
(oz/ton) |
|
|
(000) |
|
Papua New Guinea (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hidden Valley |
|
|
4.2 |
|
|
|
1.038 |
|
|
|
4,320 |
|
|
|
26.8 |
|
|
|
1.036 |
|
|
|
27,726 |
|
|
|
31.0 |
|
|
|
1.036 |
|
|
|
32,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COPPER |
|
Tons |
|
|
Grade |
|
|
Cu lb (1) |
|
|
Tons |
|
|
Grade |
|
|
Cu lb (1) |
|
|
Tons |
|
|
Grade |
|
|
Cu lb (1) |
|
|
|
(million) |
|
|
(%) |
|
|
(million) |
|
|
(million) |
|
|
(%) |
|
|
(million) |
|
|
(million) |
|
|
(%) |
|
|
(million) |
|
Papua New Guinea (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Golpu |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.0 |
|
|
|
1.025 |
|
|
|
882 |
|
|
|
39.0 |
|
|
|
1.025 |
|
|
|
882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOLYBDENUM |
|
Tons |
|
|
Grade |
|
|
Mo lb (1) |
|
|
Tons |
|
|
Grade |
|
|
Mo lb (1) |
|
|
Tons |
|
|
Grade |
|
|
Mo lb (1) |
|
|
|
(million) |
|
|
(lb/ton) |
|
|
(million) |
|
|
(million) |
|
|
(lb/ton) |
|
|
(million) |
|
|
(million) |
|
|
(lb/ton) |
|
|
(million) |
|
Papua New Guinea (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Golpu |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.0 |
|
|
|
0.231 |
|
|
|
9 |
|
|
|
39.0 |
|
|
|
0.231 |
|
|
|
9 |
|
|
|
|
(1) |
|
Metal figures are fully inclusive of all mining dilutions and gold losses, and are
reported as mill delivered tons and head grades. Metallurgical recovery factors have not been
applied to the reserve figures. |
|
(2) |
|
Represents Harmonys attributable interest of 40% |
|
(3) |
|
Represents Harmonys attributable interest of 50% |
Note: 1 ton = 907 kg = 2,000 lbs
Our methodology for determining our reserves is subject to change and is based upon
estimates and assumptions made by management regarding a number of factors as noted above in this
section.
31
Worldwide Operations
Description of Property
The following is a map of our worldwide operations:
32
Our operational mining areas in South Africa are set forth below:
|
|
|
|
|
|
|
|
|
|
|
Hectares |
|
|
Acres |
|
Doornkop |
|
|
2,941 |
|
|
|
7,267 |
|
Kusasalethu |
|
|
5,113 |
|
|
|
12,634 |
|
Free State (includes Masimong and Virginia operations) |
|
|
22,583 |
|
|
|
55,802 |
|
Tshepong and Phakisa |
|
|
10,799 |
|
|
|
26,683 |
|
Bambanani |
|
|
2,356 |
|
|
|
5,821 |
|
Joel |
|
|
2,162 |
|
|
|
5,342 |
|
St Helena |
|
|
5,856 |
|
|
|
14,471 |
|
Kalgold |
|
|
615 |
|
|
|
1,520 |
|
Evander |
|
|
36,898 |
|
|
|
91,174 |
|
Target (includes Loraine) |
|
|
7,952 |
|
|
|
19,649 |
|
Total |
|
|
97,275 |
|
|
|
240,363 |
|
In Australia and PNG, we hold granted tenements as set forth below:
|
|
|
|
|
|
|
|
|
|
|
Hectares |
|
|
Acres |
|
Mount Magnet (sold in July 2010) |
|
|
39,885 |
|
|
|
98,560 |
|
PNG |
|
|
344,522 |
|
|
|
851,329 |
|
Total International Operations |
|
|
384,407 |
|
|
|
949,889 |
|
TOTAL |
|
|
481,682 |
|
|
|
1,190,252 |
|
We acquired new tenements in PNG for exploration in fiscal 2010.
In line with the rest of the South African mining industry, and in an effort to reduce costs,
we have been rationalizing our mineral rights holdings in recent years. Accordingly, over the past
three years, we have disposed of our shares and participation rights in areas within and outside of
South Africa in which we have not actively pursued mining. However, in some cases we have retained
certain participation rights and option clauses in properties and mining rights we have disposed
of. We may continue to investigate further disposals.
Geology
The major portion of our South African gold production is derived from mines located in the
Witwatersrand Basin in South Africa. The Witwatersrand Basin is an elongated structure that extends
approximately 300 kilometers in a northeast-southwest direction and approximately 100 kilometers in
a northwest-southeast direction. It is an Archean sedimentary basin containing a six kilometer
thick stratigraphic sequence consisting mainly of quartzites and shales with minor volcanic units.
The majority of production is derived from auriferous placer reefs situated at different
stratigraphic positions and at varying depths below the surface in three of the seven defined
goldfields of the Witwatersrand Basin.
Our Hidden Valley project comprises low sulphidation carbonate-base metal-gold epithermal
deposits within the Morobe Goldfield, in the Morobe Province of PNG. In the Hidden Valley project
area, a batholith of Morobe Granodiorite (locally a coarse grained monzogranite) is flanked by fine
metasediments of the Owen Stanley Metamorphics. Both are cut by dykes of Pliocene porphyry ranging
from hornblende-biotite to feldspar-quartz porphyries. A number of commonly argillic altered and
gold anomalous breccias are known, including both hydrothermal and over printing structural
breccias. The Hidden Valley deposit area is dominated by a series of post Miocene faults
controlling the gold mineralization, including an early north trending set and the main northwest
faulting.
Our Wafi project comprises the sedimentary/volcaniclastic rocks of the Owen Stanley Formation
that surround the Wafi Diatreme and host the gold mineralization. Gold mineralization occurs as
extensive high-sulphidation epithermal alteration overprinting porphyry mineralization and
epithermal style vein-hosted and replacement gold mineralization with associated wall-rock
alteration. The Golpu Copper-Gold project is located about one kilometer northeast of the Wafi gold
orebody. It is a porphyry (diorite) copper-gold deposit. The host lithology is a diorite that
exhibits a typical zoned porphyry copper alteration halo together with mineralization in the
surrounding metasediment. The mineralized body can be described as a porphyry copper-gold pipe.
33
Harmonys Mining Operations Overview
In South Africa, we conduct underground mining at 10 operations:
|
|
|
Bambanani (includes Steyn 1 & 2 Shafts from February 2010); |
|
|
|
|
Doornkop; |
|
|
|
|
Evander (consists of Evander 2 & 5, 7 and 8); |
|
|
|
|
Joel; |
|
|
|
|
Kusasalethu (formerly Elandsrand); |
|
|
|
|
Masimong; |
|
|
|
|
Phakisa; |
|
|
|
|
Target (consists of Target 1, and as of February 2010 Loraine 3 (now Target 3) and Freddies 7 & 9 shafts); |
|
|
|
Tshepong; and |
|
|
|
|
Virginia operations (consists of Harmony 2, Merriespruit 1 & 3, Unisel and Brand 3 & 5). |
During fiscal 2008, the Cooke operations (consists of Cooke 1, 2 and 3 Shafts) were considered
to be a reportable segment. An effective 60% interest in these operations was sold on November 21,
2008 and the results for the five months up to that date have been included in discontinued
operations for fiscal 2009.
We conduct surface mining at five sites (all included in Other Surface):
|
|
|
Evander; |
|
|
|
|
Free State (also known as Phoenix); |
|
|
|
|
Freegold; |
|
|
|
|
Kalgold; |
|
|
|
|
Target. |
Surface mining was conducted at Randfonteins Cooke operations up to the date of sale in
fiscal 2009 and the Cooke plant has been classified as discontinued operations along with the Cooke
operations.
Surface mining conducted at the South African operations other than Kalgold involves
recovering gold from areas previously involved in mining and processing, such as metallurgical
plants, waste rock dumps and tailings dams (slimes and sand). We are conducting studies to
determine the feasibility of further retreatment projects in the Free State, including uranium
extraction from material.
Internationally, we conduct mining activities in PNG at the Hidden Valley mine, which is a
joint venture, known as Morobe Mining Joint Venture, between Harmony and Newcrest in which we each
have a 50% interest.
We previously conducted mining at the following two sites in Australia:
|
|
|
Mount Magnet The site was put on care and maintenance at the end of December 2007. A
decision was taken by management during May 2010 to sell the operation and in July 2010 the
disposal was finalized See Item 8 Recent Developments. |
|
|
|
|
South Kalgoorlie we finalized the sale of this operation with Dioro on November 30,
2007 See Disposals above. |
Underground and surface mining was conducted at each of these operations, with underground
access through two declines at Mount Magnet and one decline at South Kalgoorlie and surface access
principally through open-pits. Surface mining at South Kalgoorlie ceased in fiscal 2006 with
treatment consisting of Mount Marion ore and low grade stockpiles. Open-pit mining recommenced at
South Kalgoorlie mines during fiscal 2007. The Mount Marion underground operation at South
Kalgoorlie ceased in June 2007, with only open-pit operations continuing on that site until the
date of sale to Dioro.
34
The following discussion is a two-part presentation of our operations:
|
|
|
an overview of our South African mining operations with a discussion and production
analysis of each of our operating segments; and |
|
|
|
|
an overview of our International (Australian and PNG) operations. |
Previously, we disclosed cash costs and cash cost per ounce which including the movement in
inventory and calculated using gold ounces sold as a denominator. These amounts have been
re-presented for all comparative periods in the discussions and production analyses below following
the changes to the calculation of these measures. See Item 3. Selected Financial Data Selected
Historical Consolidated Financial Data.
Where we have translated the Rand amount budgeted for capital expenditures in 2011 into U.S.
dollars, we have used the closing rate at the balance sheet date.
South African Mining Operations
Unless indicated otherwise, the discussions below are for continuing operations.
35
Underground
Bambanani
Introduction: We acquired Bambanani when we, in January 2002, acquired the Freegold operations from
AngloGold Ashanti Limited (Anglogold) through a 50% joint venture with African Rainbow Minerals
Gold Limited (ARMgold). In September 2003, we acquired 100% of these operations when ARMgold
became a wholly owned subsidiary. During February 2010, we acquired President Steyn 1 & 2 Shafts in
the transaction with Pamodzi FS. These shafts have been incorporated into Bambanani. These
operations are located in the Free State province. Production from the operations is processed
through Harmony 1 Plant.
History: Exploration, development and production history in the area of the Freegold assets dates
from the early 1900s, leading to commercial production by 1932. Subsequent consolidation and
restructuring led to the formation of Free State Consolidated Gold Mine (Operations) Limited, which
became a wholly-owned subsidiary of Anglogold in June 1998.
In 1998, President Steyn Gold Mine (Free State) (Proprietary) Limited (PSGM) was formed
after purchasing shafts from various individuals. During 2002, the mine was sold to Thistle Mining
Inc, an international company with interests in the Philippines and South Africa. The mine
struggled to make operational profits, and Thistle undertook a restructuring program in 2006, which
together with an increase in the Rand gold price resulted in positive operational cash flows. In
February 2008, PSGM was purchased by Pamodzi FS. The mine was operated from that time until March
2009, when Pamodzi FS was placed into liquidation.
Geology: The operations are located in the Free State Goldfield, which is on the southwestern edge
of the Witwatersrand basin. The Free State Goldfield is divided into two sections, cut by the
north-south striking De Bron Fault. This major structure has a vertical displacement of about 1 500
metres in the region of Bambanani, as well as a lateral shift of 4 kilometres. Bambanani is to the
west of the De Bron Fault. The reefs generally dip towards the east. Mining is conducted in the
Basal reef.
Mining Operations: These operations are subject to the underground mining risks detailed in the
Risk Factors section. The management teams regularly revisit their mining strategy and management
procedures in order to minimize risks.
The Bambanani mine consists of a surface shaft and a sub-shaft. Mining is conducted at depths
ranging from 1,911 and 3,680 meters. Activities at the mine include mining the Basal Reef and
remnant pillar extraction. The primary mining challenges at these operations are seismic risks,
ventilation and fire avoidance. Bambanani is classified as a seismically active operation with
seismic activity monitoring systems installed to do active seismic risk evaluation. The seismic
activity monitoring systems were upgraded during fiscal 2010.
The conversion of Bambanani into a high-grade, low-volume operation continued during fiscal
2010. There was greater emphasis on disciplined mining through the year and in particular on the
achievement of daily tramming and hoisting targets, as well as efficient vamping and clean mining.
Following a fatal fall of ground in the second quarter of fiscal 2010, extensive changes were made
to the mining method in the steeply dipping, high-stope-width panels in the lower levels of the
sub-shaft. Although these changes, from breast to down-dip mining, temporarily led to reduced
volumes mined while alterations to mining plans and methods were implemented, these revisions
proved successful regarding both safety and production performance.
Greater attention is also being given to the improvement of the blast cycle by increasing the
number of blasts per panel in the sub-shaft (historically difficult, high channel steep stopes) and
the delivery of higher volumes to maintain plant throughput at targeted levels.
Two raise lines were completed in the sub-shaft area and on-reef development has come to an
end here. Development is under way in preparation for the extraction of the shaft pillar. Mining in
the sub-shaft area will come to an end in the next three years, following which the remaining
mining will take place around the high-grade shaft pillar. Mining of the shaft pillar will take
eight years. Backfill will be used to minimize ground control-related risks when mining begins in
the shaft pillar in June 2012.
Steyn 1 consists of a main shaft and two sub-decline shafts. No mining activities have taken
place at the shaft since acquisition due to an underground fire. The shaft has been placed on care
and maintenance.
36
Steyn 2 consists of a main shaft and two sub-decline shafts. Equipping of the Steyn 2 shaft
is underway. Face length flexibility, infrastructural shortcomings and heat are the main obstacles
to production here. Progress was made with the decline shaft infrastructure and the haulage from 73
level to Bambanani is being rehabilitated to assist Steyn 2 in maintaining its shaft bottom and
keeping it clean of spillage. Areas affected by heat problems at Steyn 2 are now being supplied
with chilled water from Bambanani and temperatures have substantially improved. A feasibility study
is being conducted on the extraction of the shaft pillar, which is expected to cost US$2.4 million.
During fiscal 2010, Bambanani accounted for 9% (8% in 2009 and 8% in 2008) of our total gold
production.
Safety: Regrettably a fatality occurred at Bambanani during fiscal 2010 (2009: one) and the lost
time injury frequency rate (LTIFR) was reported as 9.29 per million hours worked (2009: 7.48).
After year-end, during September 2010, a fall of ground resulted in eight employees being trapped.
Tragically, two employees died, with the other six being rescued, several having sustained
injuries.
Safety at these operations receives constant and high-level attention.
Plants: The ore from Bambanani, along with ore from Tshepong and Phakisa, is sent to Harmony 1
Plant for processing. This plant, which processes underground ore, waste rock and various surface
accumulations, was commissioned in 1986 and is a conventional CIP plant processing ore that has
been milled by fully-autogenous grinding. Gold is recovered from the eluate solution using zinc
precipitation and a precoat vacuum filter. The precipitate recovered from the filter is calcined
and smelted to bullion.
The following table sets forth processing capacity and average tons milled during the fiscal
2010 for the Harmony 1 Plant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Milled for |
|
|
Processing |
|
the Fiscal Year |
Plant |
|
Capacity |
|
Ended June 30, 2010 |
|
|
(tons/month) |
|
(tons/month) |
FS 1 |
|
|
463,000 |
|
|
|
429,000 |
|
In fiscal 2010, Harmony 1 Plant recovered approximately 95.9% of the gold contained in the ore
delivered for processing. The plant achieved one year lost time injury free during fiscal 2010.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Bambanani |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
582 |
|
|
|
570 |
|
|
|
912 |
|
Recovered grade (ounces/ton)(1) |
|
|
0.227 |
|
|
|
0.213 |
|
|
|
0.170 |
|
Gold produced (ounces)(1) |
|
|
133,007 |
|
|
|
121,530 |
|
|
|
154,879 |
|
Gold sold (ounces)(1) |
|
|
134,165 |
|
|
|
119,665 |
|
|
|
158,985 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
146,971 |
|
|
|
102,645 |
|
|
|
128,346 |
|
Cash cost (000) |
|
|
98,289 |
|
|
|
72,343 |
|
|
|
101,962 |
|
Cash profit (000) |
|
|
48,682 |
|
|
|
30,302 |
|
|
|
26,384 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($)(1) |
|
|
723 |
|
|
|
611 |
|
|
|
639 |
|
Capex (000) ($) |
|
|
27,300 |
|
|
|
5,779 |
|
|
|
14,737 |
|
|
|
|
(1) |
|
1,061 ounces were produced by Steyn 2 and sold. The revenue has been credited
against capital expenditure as the shaft is not in production yet. The cost of these ounces has not
been included in the cash cost per ounce amount. The calculation of grade also excludes these
ounces. |
Tons milled from Bambanani decreased to 570,000 in fiscal 2009 compared with 912,000 in
fiscal 2008. Ounces produced were 121,530 in fiscal 2009, compared with 154,879 in fiscal 2008.
This decrease was due to the restructuring of the shaft due to power constraints but was offset by
a better recovered grade, which increased from 0.170 in fiscal 2008 to 0.213 in fiscal 2009.
Cash costs per ounce for Bambanani were US$611 in fiscal 2009, compared with US$639 in fiscal
2008. The costs per ounce decreased by 4% in fiscal 2009, due to an increase in grade mined offset
by an increase in the cost of labor and supplies and the effect of inflation on supply contracts.
37
Tons milled from Bambanani increased to 582,000 in fiscal 2010 compared with 570,000 in fiscal
2009. Ounces produced were 133,007 in fiscal 2010 compared with 121,530 in fiscal 2009. This
increase was due to better recovered grade, which increased by 0.014 ounces per ton compared to
fiscal 2009.
Cash costs per ounce for Bambanani were US$723 in fiscal 2010, compared with US$611 in fiscal
2009. The costs per ounce increased by 18% in fiscal 2010 compared with fiscal 2009, due to
increases in the costs of labor and supplies, combined with the increase in power and water costs
year on year of 37% (utility costs comprise approximately 22% of cash costs).
The rock hoisting capacity at Bambanani is 116,000 tons per month. The average tons milled in
fiscal 2010 were 48,500 tons per month where we planned 54,500 tons per month for fiscal 2010.
Assuming no additional reserves are identified, at expected production levels, it is foreseen
that the reported proven and probable mineral reserves of 4.9 million tons (1.4 million ounces)
will be sufficient for Bambanani to maintain underground production until approximately 2021. Any
future changes to the assumptions upon which the mineral reserves are based, as well as any
unforeseen events affecting production levels, could have a material effect on the expected period
of future operations.
Capital Expenditure: Bambanani incurred approximately R207 million (US$27.3 million) in capital
expenditure in fiscal 2010, primarily to extract the shaft pillar (R72 million (US$9.4 million))
and to equip the two Steyn shafts (R94 million (US$12.4 million).We budgeted R250 million (US$32.8
million) for capital expenditure in fiscal 2011, primarily for the access development for the shaft
pillar extraction (R163 million (US$21.4 million)) and the Steyn shafts (R66 million (US$8.7
million).
Doornkop
Introduction: Doornkop is located in the Gauteng Province of South Africa, approximately thirty
kilometers west of Johannesburg. The operation is owned by Randfontein Estates Limited
(Randfontein). Doornkop currently operates under its own mining authorization of 2,941 hectares.
Production is treated at the Doornkop plant.
History: Harmony acquired this operation when it took over Randfontein.
Geology: These operations are situated in the West Rand Goldfield of the Witwatersrand Basin, 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 Doornkop operation lease area is bounded by and lies to the south-east of the major
north-easterly striking Roodepoort Fault, which dips to the south and constitutes the southern edge
of the Witpoortjie Horst Block or Gap. This Horst Block is comprised of the stratigraphically older
sediments of the West Rand Group, the overlying Central Rand Group sediments having been removed by
erosion. A number of other faults, forming part of and lying
southeast of the Roodepoort Fault, including the Saxon Fault, also constitute conspicuous
structural breaks. A second major fault, the Doornkop Fault, which trends in an east west direction
occurs towards the southern portion of the lease area. This fault dips to the south and has an
up-throw to the north. Nearly the entire upper Witwatersrand section is present in the lease area
and therefore all the major zones are present, though due to the distance of the area from the fan
head, the number of economic bands and their payability is limited. Eight of the well-known reefs
are present in the area, but only the Kimberley Reef and South Reef are considered viable at this
stage. The resource is concentrated in the Kimberley and South Reefs. The Kimberley Reef is
contained in the Vlakfontein Member of the Westonaria Formation. This reef, also known as the K9
Reef horizon, rests on an unconformity and is a complex multi-pulse conglomerate, which can be
separated into four facies or cycles. All four cycles consist on average of an upper conglomerate
and a lower quartzite. The characteristics of every cycle are area-dependent and the grades are
variable within each cycle. The South Reef is approximately 900 meters below the current Kimberley
Reef mining, and between 7.5 and 60 meters above the Main Reef horizon. The hanging wall to the
South Reef consists of siliceous quartzites with non-persistent bands of blue-shot grit and thin
argillite partings. The footwall to the South Reef is a light colored and fairly siliceous
quartzite. Secondary conglomerate bands and stringers in the hanging wall and footwall of the South
Reef may contain sporadic gold values. The general strike of the reef is east-west, with a dip from
10 to 20 degrees. The orebody at Doornkop has a strike length of 4km and a width of 4km from west
to east.
During fiscal 2010, the gathering of additional geological information from on-reef
development and exploration drilling on the South Reef resulted in an increase in confidence to
successfully build up maximum production. The geological, depositional, facies & evaluation models
receive regular attention and are being expanded as the new data becomes available. A 3-D
geological model was developed for the mine. This model incorporates the Kimberley, South & Main
Reefs.
Mining Operations: These operations are subject to the underground mining risks detailed in the
Risk Factors section. Due to the shallow to moderate depths of the operations, seismicity and high
rock stress related problems are infrequent. There is a risk of subterranean water
38
and/or gas
intersections in some areas of the mines. However, this risk is mitigated by active and continuous
management and monitoring, which includes the drilling of boreholes in advance of faces. Where
water and/or gas are indicated in the drilling, appropriate preventative action is taken.
The Doornkop South Reef Project was announced on January 22, 2003. The project involved the
deepening of the Doornkop main shaft to 1,973 meters to access the South Reef between 1,650 and
2,000 meters below surface, and includes development towards these mining areas. The estimated
final capital cost is R1,772 million (US$233.7 million) with R1,470 million (US$193.9 million)
spent as of June 30, 2010.
Production from the Kimberley reef section of the mine continued in the trackless sections and
will continue for a further four years while the build-up of production from the South Reef
sections continues. The development of the geological model of the Kimberley reef to identify
target areas for exploration may result in an extension of the four year plan currently in
place. The Kimberley section constantly underperformed during the 2010 year, mainly due to the low
availability of trackless equipment. The purchase of a new trackless fleet will improve production
in fiscal 2011.
The South Reef exceeded planned gold production for the year as a result of the logistical
constraints being alleviated and the grade being higher than expected. The main pump station on 207
level was completed in August 2009 and is now able to provide sufficient pumping capacity to
support the build-up to maximum production in 2015. During fiscal 2010, the winder compartments
were subsequently equipped and the conveyor belt on 212 level (shaft bottom) was completed. There
were however delays encountered with the equipping of the shafts as a result of shaft time
constraints. These constaints resulted in a change in the scope of the project following the
delays.
The most significant achievement for fiscal 2010 was the build-up achieved in gold production
that increased by 49% from fiscal 2009. This increase was driven by an increase in production from
the South Reef.
During fiscal 2010, Doornkop accounted for 5% (3% in 2009 and 2% in 2008) of our total gold
production.
Safety: The safety record at Doornkop during fiscal 2010 was as follows: in terms of LTFR of 5.50
(2009: 6.25) per million hours worked achieved at Doornkop compared favorably with the group
average of 7.72 (2009: 9.35). Regrettablly there were two fatalities at Doornkop during fiscal
2010.
A greater focus on safety-related matters led to streamlined procedures and improved training,
maintenance and behavior.
Plants: The processing facilities presently comprises of one operating plant, the Doornkop
metallurgical plant. The Doornkop metallurgical plant, commissioned in 1985, is a conventional CIP
plant, which was used to treat waste rock and other surface accumulations. It is now treating all
ore from underground mining at the Doornkop and some of the ore from Rand Uraniums Cooke
operations. The plant is serviced by a surface rail network from the Cooke shafts and by a conveyor
belt configuration system from Doornkop shaft.
The following table sets forth processing capacity and average tons milled during fiscal 2010 for
the Doornkop plant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Milled for the |
|
|
Processing |
|
Fiscal Year Ended |
Plant |
|
Capacity |
|
June 30, 2010 |
|
|
(tons/month) |
|
(tons/month) |
Doornkop |
|
|
242,500 |
|
|
|
146,429 |
|
In fiscal 2010, the Doornkop plant recovered approximately 94.6% of the gold contained in the
ore delivered for processing. During fiscal 2010 a split-stream configuration that isolates the
Doornkop ore from the Rand Uranium ore was adopted to improve the accuracy of gold accounting to
the respective companies.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Doornkop |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
595 |
|
|
|
605 |
|
|
|
494 |
|
Recovered grade (ounces/ton) |
|
|
0.105 |
|
|
|
0.070 |
|
|
|
0.089 |
|
Gold produced (ounces) |
|
|
62,694 |
|
|
|
42,150 |
|
|
|
44,038 |
|
Gold sold (ounces) |
|
|
62,275 |
|
|
|
43,211 |
|
|
|
44,143 |
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Doornkop |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
68,169 |
|
|
|
38,128 |
|
|
|
35,489 |
|
Cash cost (000) |
|
|
54,042 |
|
|
|
31,253 |
|
|
|
31,014 |
|
Cash profit (000) |
|
|
14,127 |
|
|
|
6,875 |
|
|
|
4,475 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($) |
|
|
822 |
|
|
|
804 |
|
|
|
749 |
|
Capex (000) ($) |
|
|
45,097 |
|
|
|
43,918 |
|
|
|
48,039 |
|
Tons milled from Doornkop were 605,000 in fiscal 2009, compared with 494,000 in fiscal 2008.
Volumes increased, largely as a function of the increase in tons mined at the South Reef workings
(296,000), as well as an increase in the stoping width at the Kimberley reef mining. Ounces
produced were 42,150 in fiscal 2009, compared 44,038 in fiscal 2008. The decrease in ounces sold
was primarily due to the lower recovery grade. The recovered grade deteriorated to 0.070 in fiscal
2009, compared with 0.089 in fiscal 2008, mainly due to the decline in the grade mined from the
Kimberley reef trackless mining sections. Production from trackless areas will continue during the
build-up phase of mining from the South Reef project areas. Grade from the South Reef project was
negatively affected by the large unavoidable volumes of development waste rock that were included
in the reef stream which resulted in diluted head-grade. South Reef ore is now hoisted separately
from waste which resulted in much improved recovered grades during the final two months of fiscal
2009.
Cash costs per ounce of gold were US$804 in fiscal 2009, compared with US$749 in fiscal
2008. The increase was mainly from labor, consumables and services cost. Labor cost increased due to
an increase in labor to cater for the new South reef production levels and from annual wage
increases. Consumable costs increased as a result of the
South reef production build-up where additional square meters were mined. In addition
significant increases in power cost (38%) and company overhead cost (78%) were incurred, measured
against fiscal 2008.
Tons milled from Doornkop were 595,000 in fiscal 2010, compared with 605,000 in fiscal 2009.
Although throughput remained flat, the higher grade South Reef made up a much larger portion of
total ore milled than in fiscal 2009. This change in the mix of milled tons resulted in an increase
in recovered grade to 0.105 in fiscal 2010, compared with 0.070 in fiscal 2009. Ounces produced
were 62,694 in fiscal 2010, compared with 42,150 in fiscal 2009.
Production from trackless areas in the Kimberley Reef section will continue through the
build-up phase of mining from the South Reef project areas.
Cash costs per ounce of gold were US$822 in fiscal 2010, compared with US$804 in fiscal 2009.
This increase was mainly from labor, services and consumables costs. Labor costs increased due to
an increase in labor to cater for the new South Reef production levels and from annual wage
increases. Consumable costs increased as a result of the South Reef production build-up where
additional square meters were mined. In addition, significant increases in power cost (35%) were
incurred, measured against fiscal 2009.
The hoisting capacity of the Doornkop shaft is 185,000 tons per month. The average tons milled
in fiscal 2010 were 49,583 tons per month.
On a simplistic basis, assuming no additional resources are identified, at expected production
levels, it is foreseen that: the reported proven and probable mineral reserve of 4.4 million tons
(0.4 million ounces) will be sufficient for the Doornkop shaft to maintain production until
approximately fiscal 2024.
Capital Expenditure: Harmony incurred R342 million (US$45.1 million) in capital expenditure in
fiscal 2010 at Doornkop, primarily for shaft equipping, supporting infrastructure, development and
rolling stock for material and rock transport. The planned capital expenditure for fiscal 2011 is
R320 million (US$41.9 million) at the Doornkop South Reef project. Total project expenditure
incurred amounts to R1,470 million (US$193.9 million) as of June 30, 2010.
Evander Operations
Introduction: The Evander operations are located in the province of Mpumalanga in South Africa and
comprise of an amalgamation of the former Kinross, Bracken, Leslie and Winkelhaak mines into a
mining right of 36,898 hectares and additional adjacent Prospecting Rights comprising 19,933
hectares. Ore is treated at the Kinross plant, after the closure of the Winkelhaak plant following
the closure of Evander 7 and 2 and 5 shafts.
History: Gold mining in the Evander Basin began in 1955. Eventually, four mining operations were
established at Evander. In 1996, as a result of the depletion of mineral reserves, all four mining
areas were merged to form Evander Gold Mines Limited. In August 1998, Harmony acquired Evander as a
wholly-owned subsidiary.
40
Geology: The area covered by Evanders mining authorization and mineral rights is situated within
the Evander basin, a geologically discrete easterly extension of the main Witwatersrand Basin. Only
one economic reef type, the Kimberley Reef, is mined at Evander. In addition to the faulting of the
reef horizon, there are numerous dykes and sills that complicate the mining layouts, the most
significant of which is an extensively developed dolerite footwall sill that occasionally
intersects the Kimberley Reef, causing displacements within it.
Mining Operations: The Evander operations are primarily engaged in underground mining but a limited
amount of surface material, containing gold, from the surface cleanup operations are also
processed. These operations are subject to the underground mining risks detailed in the Risk
Factors section. Due to the shallow to moderate depths of the Evander underground operations,
seismicity and high rock stress related problems are relatively infrequent. There is a risk of
subterranean water and/or gas intersections in some areas of the mine. However, this risk is
mitigated by active and continuous management and monitoring, which includes the drilling of
boreholes in advance of faces. Where water and/or gas is indicated in the drilling, appropriate
preventative action is taken. In fiscal 2004, an agreement was reached with the unions for the
implementation of Conops at Evander. Downsizing and
restructuring of the 7 Shaft area resulted in labor surpluses and it was also decided to stop
Conops in fiscal 2008 at Evander 5 Shaft. Subsequently, Conops has also been stopped at Evander 8
Shaft in June 2010.
A due diligence of the operations during fiscal 2010 led to the conclusion that the only
economically viable shaft was Evander 8. Mining operations at Evander 2 and 5 and 7 shafts ceased
during the year and Evander 8 was restructured. The shaft infrastructure at Evander 7 will be
utilised by Evander 8 for the pumping of water and the hoisting of rock as well as being available
for use as a second escape. High temperatures underground, caused by ventilation return capacity
restrictions at Evander 8 remained problematic and hampered production.
Once the restructuring of Evander had been completed, a feasibility study was undertaken which
proved the viability of Evander 8. Greater attention was given to this shaft and a re-engineering
project was implemented which involves not just the deepening of the decline but its repositioning
within the high grade payshoot. This will give immediate access to the high-grade areas between 24
and 25 level, and will contribute to improved productivity with consequent financial benefits. The
projects parameters include the optimisation of logistics, cooling and ventilation as well as an
upgrade of the refrigeration plant.
Following the closure of the Evander 2 and 5 shafts as well as the Winkelhaak plant, a
one-year clean up program commenced at and in the vicinity of the plant. The aim of this program,
which will continue into fiscal 2011, is to clean up any metal contained in the plant footprints,
to process rock from the rock dumps in the vicinity, to rehabilitate the Winkelhaak plant, and to
clean the surface rail network.
Evander 9 Shaft was re-opened to establish the feasibility of mining high grade areas in
limited quantities in an effort to improve the mine call factor. It was subsequently decided to put
the exercise on hold in fiscal 2010 due to discouraging results.
Because of the closure of Evander 2 and 5 and 7 Shafts, the services departments at Evander
were downsized and incorporated under the management of Evander 8 Shaft during fiscal 2010.
Potential exists at several areas in Evander:
Evander South
|
|
|
The exploration drilling program was completed and the pre-feasibility study re-done. |
|
|
|
|
The pre-feasibility study gave a negative net present value and it was decided not to
proceed to the feasibility study at this stage. |
Shaft 7 portion of the 2010 Payshoot
|
|
|
Project at exploration stage following the geological study. |
|
|
|
|
Underground development, to be used as an underground drilling platform, advanced 233
meters (or 19%). This is intended for investigation of the 7 Shaft flank of the postulated
2010 payshoot. |
|
|
|
|
Feasibility study to follow, pending confirmation of the mineral resource in this area. |
|
|
|
|
This project is on hold following the closure of the shaft. |
Twistdraai and Shaft 6
|
|
|
Joint Venture with the African Precious Minerals (APM) was formed to explore these
two target areas. |
|
|
|
|
APM may earn in a 52% equity stake upon completion of the full bankable feasibility
study for each area. |
|
|
|
|
A conceptual study was completed and approval given during fiscal 2010 for the project
to proceed to pre-feasibility. |
|
|
|
|
Surface drilling will commence in fiscal 2011. |
|
|
|
|
Subsequent to year-end, we entered into an agreement with Taung Gold Mining Limited for
the sale of these assets. Refer to Item 8. Recent Developments. |
41
Rolspruit
|
|
|
This is a future mining area on the down-dip extension of the 8 shaft payshoot. |
|
|
|
|
Synergies with the current 8 Shaft deepening are being considered. |
Poplar
|
|
|
Surface exploration drilling is required to bring this project into the full bankable
feasibility study. |
|
|
|
|
Surface drilling was started in fiscal 2010 and is continuing throughout 2011. |
|
|
|
|
Results from the drilling will be used to update the pre-feasibility study. |
In fiscal 2010, the Evander operations accounted for approximately 8% (12% in fiscal 2009 and 12%
in fiscal 2008) of Harmonys total gold production.
Safety: The safety record at the Evander operations in terms of LTIFR of 7.41 (2009: 10.39) per
million hours worked during fiscal 2010 is favorable when compared to the group average of 7.72
(2009: 9.35). There were regrettably two fatalities at Evander during fiscal 2010 (2009: two
fatalities).
Plants: Evander has one active processing plant, the Kinross plant. Ore from Evander 8 is hoisted
directly to and treated at the Kinross plant, which is a hybrid CIP/CIL plant.
The following table sets forth processing capacity and average tons milled during fiscal 2010
for the operating plant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Milled for the |
|
|
Processing |
|
Fiscal Year Ended |
Plant |
|
Capacity |
|
June 30, 2010 |
|
|
(tons/month) |
|
(tons/month) |
Kinross |
|
|
220,460 |
|
|
|
97,788 |
|
In fiscal 2010, the plant at Evander operations recovered approximately 94.2% of the gold
contained in the ore delivered for processing.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Evander operations |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
869 |
|
|
|
1,241 |
|
|
|
1,447 |
|
Recovered grade (ounces/ton) |
|
|
0.129 |
|
|
|
0.153 |
|
|
|
0.160 |
|
Gold produced (ounces) |
|
|
111,724 |
|
|
|
190,075 |
|
|
|
231,799 |
|
Gold sold (ounces) |
|
|
111,499 |
|
|
|
195,668 |
|
|
|
240,037 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
120,092 |
|
|
|
168,180 |
|
|
|
192,978 |
|
Cash cost (000) |
|
|
113,327 |
|
|
|
110,869 |
|
|
|
125,995 |
|
Cash profit (000) |
|
|
6,765 |
|
|
|
57,311 |
|
|
|
66,983 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($) |
|
|
1,018 |
|
|
|
572 |
|
|
|
526 |
|
Capex (000) ($) |
|
|
23,100 |
|
|
|
23,352 |
|
|
|
33,388 |
|
Tons milled at the Evander operations were 1,241,000 in fiscal 2009, compared with 1,447,000
in fiscal 2008, and ounces produced were 190,075 in fiscal 2009, compared with 231,799 in fiscal
2008. The decrease in tons milled is partially attributable to the reduction of the development at
Evander 7 in November 2007 and the closure of the pillar section in February 2008. At Evander 8,
tons milled decreased by 56,000 tons due to unfavorable environmental conditions in the decline
area that affected mining from this area. The shaft completed a raise-borehole from 17 Level to 24
Level during fiscal 2009 that enables chilled ventilation to reach 24 level on the decline directly
which alleviated the medium term ventilation constraints. Recovered grade was 0.153 ounces per ton
in fiscal 2009, compared with 0.160 ounces per ton in fiscal 2008.
The increase in cash costs from US$526 per ounce in fiscal 2008 to US$572 per ounce in fiscal
2009 was attributable primarily to the decrease in gold ounces produced in fiscal 2009 compared to
fiscal 2008 due to the successful restructuring and downscaling at Evander 7 that was implemented
in January 2008. Cash costs decreased from US$125.9 million to US$110.9 million, primarily as a result of
the closure of Evander 7.
42
Tons milled at the Evander operations were 869,000 in fiscal 2010, compared with
1,241,000 in fiscal 2009, and ounces produced 111,724 in fiscal 2010 compared with 190,075 in
fiscal 2009. The decrease in tons milled is predominantly attributable to the closure of Evander 2
and 5 and 7 Shafts. Recovered grade was 0.129 ounces per ton in fiscal 2010, compared with 0.153 in
fiscal 2009.
The increase in cash costs from US$572 per ounce in fiscal 2009 to US$1,018 per ounce in
fiscal 2010 was attributable primarily to the decrease in gold ounces produced in fiscal 2010
compared to fiscal 2009 due to the closure of Evander 2 & 5 and 7.
Assuming no additional reserves are identified, at expected production levels, it is foreseen
that the reported proven and probable mineral reserves of 4.3 million tons (0.99 million ounces)
(excluding the below infrastructure reserves) will be sufficient for the Evander operations to
maintain production until approximately fiscal 2021 at Evander 8. Any future changes to the
assumptions upon which the reserves are based, as well as any unforeseen events affecting
production levels, could have a material effect on the expected period of future operations.
Capital Expenditure: Harmony incurred approximately R175 million (US$23.1 million) in capital
expenditures at the Evander operations in fiscal 2010. The expenditure was primarily for ongoing
development, abnormal expenditure for the upgrading of the infrastructures as well as phase 6 of
the No 2 Decline at Evander 8 and 2 ventilation bore holes. Harmony budgeted R196 million (US$25.7
million) for capital expenditures in fiscal 2011 primarily for ongoing development and the
upgrading of major equipment.
Joel
Introduction: Joel is located in the Free State province, on the south-western edge of the
Witwatersrand basin. The mine comprises of two shafts, North and South shafts. Previously ore mined
at Joel was transported to Central Plant, 38 kilometers away, for processing, but since the
recommissioning of the Joel plant in November 2009, the ore is now processed on site.
History: Joel was purchased from a subsidiary of AngloGold at the same time as the rest of the
Freegold assets in January 2002.
Geology: Joel is mining the shallow flat-dipping Beatrix/VS5 Reef. This varies from a single-pebble
lag to a multiple conglomerate, often showing mixing of the reef with some of the overlying lower
grade VS5 (mixed pebble conglomerate) material. None of the other reefs are present this far south,
having sub-cropped against the Beatrix Reef.
Mining operations: These operations are subject to the underground mining risks detailed in the
Risk Factors section.
Scattered mining takes place on the Beatrix Reef, down to a depth of some 1,400 meters.
Upgrading of the infrastructure at North Shaft is currently in progress.
Volumes mined during fiscal 2010 were negatively affected by a mud slide at the bottom of
North shaft, a guided rope shaft. A temporary mud press was subsequently installed and mud is
removed daily from the bottom of the shaft. Despite this, raise boring of the North shaft expansion
to 129 level was completed although hoisting constraints resulted in the equipping of the shaft
deepening project to 129 level being delayed. An extensive program to rectify the problems
experienced with North shaft had begun by the end of June 2010. While production at Joel has
progressively moved to the deeper portions of the mine, the North Shaft, which accesses these
areas, was never fully equipped for this and adjustments to the shaft spillage arrangements are now
being made retrospectively. The modifications being made include:
|
|
|
changing the winder from sinking to production mode; |
|
|
|
|
installing larger skips; ensuring that emergency egress is available; raise boring the
lift shaft from 121 to 129 level; and |
|
|
|
|
improving cleaning arrangements at the shaft bottom. |
Operations were halted while these changes were under way. The shaft resumed operations in August
2010, once repairs to the shaft bottom had been completed. In the interim, the Joel plant has been
processing waste to maximise gold production. The opportunity will be taken to install the
permanent spillage arrangement during December 2010.
Once mining from 129 level has begun, production is expected to peak at around 78,000 ounces
annually. To ensure that the production targets are met, plans have been put in place to ensure the
operability of the North shaft and conduct a planned maintenance program to minimise breakdowns, to
maintain blast advances and to assess the feasibility of mining below 129 level to 137 level. A
successful drilling program has been completed and a pre-feasibility study is in progress.
During fiscal 2010, Joel accounted for 5% of our total gold production (4% in fiscal 2009 and
3% in fiscal 2008).
43
Safety: Safety at Joel deteriorated during fiscal 2010. After having no fatalities for two years,
there was tragically one fatality, the result of a rockfall, during fiscal 2010. However, the LTIFR
at Joel of 4.26 (2009: 2.59) per million hours worked compared favorably with the group average of
7.72 (2009: 9.35).
Plants: The Joel plant is a hybrid CIP/CIL plant and was commissioned in 1987. During fiscal 2005,
it was decided to close the Joel Plant and place the plant under care and maintenance. Joel Plant
was re-commissioned in November 2009 and the plant is currently running with two mills at 80,000
tons per month. The current monthly capacity is 88,185 tons of rock, which is made up of 55% reef
and 45% waste rock dumps.
The following table sets forth processing capacity and average tons milled during fiscal 2010
for the operating plant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Milled for the |
|
|
Processing |
|
Fiscal Year Ended |
Plant |
|
Capacity |
|
June 30, 2010 |
|
|
(tons/month) |
|
(tons/month) |
Joel Plant |
|
|
88,185 |
|
|
|
71,378 |
|
In fiscal 2010, the Joel Plant operations recovered approximately 93% of the gold ore
delivered for processing.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Joel |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
484 |
|
|
|
566 |
|
|
|
449 |
|
Recovered grade (ounces/ton) |
|
|
0.133 |
|
|
|
0.116 |
|
|
|
0.133 |
|
Gold produced (ounces) |
|
|
64,495 |
|
|
|
65,684 |
|
|
|
59,557 |
|
Gold sold (ounces) |
|
|
63,788 |
|
|
|
64,784 |
|
|
|
61,215 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
69,150 |
|
|
|
55,862 |
|
|
|
51,557 |
|
Cash cost (000) |
|
|
50,017 |
|
|
|
40,649 |
|
|
|
39,131 |
|
Cash profit (000) |
|
|
19,133 |
|
|
|
15,213 |
|
|
|
12,426 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($) |
|
|
792 |
|
|
|
636 |
|
|
|
638 |
|
Capex (000) ($) |
|
|
11,587 |
|
|
|
6,183 |
|
|
|
5,375 |
|
Tons milled from Joel increased to 556,000 in fiscal 2009, compared with 449,000 in fiscal
2008. This was due to the rehabilitation work done on North Shaft. Further work was done to improve
the smooth operation, which included the reconditioning of the liquid controller, installing an
additional cooling tower, increasing lubrication intervals of the guide ropes on the south side.
There was also a significant increase in square meters from 60,752 in fiscal 2008 to 83,413 in
fiscal 2009.
Grade was affected by the loss of two high-grade raise lines which necessitated a move to
lower grade raise lines. Higher than expected stoping widths were encountered which affected the
face grade. Joel has a centralized high grade area with the outskirts being of lower grade. Due to
flexibility and availability constraints Joel was forced to move to the outskirts therefore causing
a lower recovery grade.
Ounces produced were 65,684 in fiscal 2009, compared with 59,557 in fiscal 2008. The increase
in tons positively influenced ounces produced. Recovery grade decreased to 0.116 in fiscal 2009,
compared with 0.133 in fiscal 2008.
The cash costs for Joel increased to US$40.6 million in fiscal 2009, compared with US$39.1
million in fiscal 2008. This increase was due to wage and salary increases granted to labor, as
well as an increase in labor complement to increase stoping panels from 16 to 18. Development labor
also increased as development meters increased from 2,141 meters in 2008 to 3,554 meters in 2009.
An afternoon shift was also introduced to reduce the underground lockup tons. This was done with
contract labor, which increased the contractor costs. There was a substantial increase in
electricity charges, which came about due to the electricity shortage experienced.
Cash costs per ounce were US$636 in fiscal 2009, compared with US$638 in fiscal 2008. This
decrease was primarily attributable to the increased tonnage due to the increase in square meters
in 2009 compared to 2008 as well as a decrease in lockup tons year on year.
44
The decrease in tons milled from 566,000 in fiscal 2009 to 484,000 in fiscal 2010 is mainly
due to the lift shaft between 110 level and 121 level being stopped as a project was initiated to
deepen this shaft from 121 level down to 129 level to enable the mining of 129 level. This entailed
raising a borehole from 129 level to 121 level. This extension was then equipped, resulting in all
men and material having to travel down raise lines, which slowed the delivery of material to the
working places and also impacted on stoping and development crews face time. This also resulted in
a decrease in square meters from 83,413 in fiscal 2009 to 78,229 in fiscal 2010.
The increase in cash costs for Joel from US$40.6 million in fiscal 2009 to US$50.0 million in
fiscal 2010 is due to wage and salary increases granted. Development labor also increased as
development meters increased from 3,554 meters in 2009 to 4,537 meters in 2010. Development costs
were also severely impacted by costs to contain excessive fissure water encountered during
development of level 129. Also impacting on costs was a substantial increase of 32% in electricity
rates.
Cash costs per ounce were US$792 in fiscal 2010, compared with US$636 in fiscal 2009. This
decrease was primarily attributable to the increase in costs as discussed above, and the reduction
in ounces recovered due to the drop in tonnage due to closure of the lift shaft.
The rock hoisting capacity at Joel is 50,000 tons per month. The average tons milled in fiscal
2010 was 40,333 tons per month.
Assuming no additional reserves are identified, at expected production levels, it is foreseen
that the reported proven and probable mineral reserves of 2.9 million tons (0.5 million ounces)
will be sufficient for Joel to maintain underground production until approximately 2017. Any future
changes to the assumptions upon which the mineral reserves are based, as well as any unforeseen
events affecting production levels, could have a material effect on the expected period of future
operations.
Capital Expenditure: We incurred R88 million (US$11.4 million) in capital expenditures at Joel in
fiscal 2010 on the shaft bottom cleaning at North Shaft, the lift deepening project, and general
replacement and maintenance. Capital budgeted for fiscal 2011 is R66 million (US$8.7 million) ,
primarily for deepening the lift shaft from 121 level to 129, to enable mining on 129 level and to
equip it, spillage skip at North Shaft and LED projects.
Kusasalethu (formerly Elandsrand)
Introduction: Kusasalethu is located near Carletonville in the North West province of South Africa.
The assets and associated liabilities were purchased during fiscal 2001 for approximately R1
billion (US$128.4 million) from Anglogold. Ore from the operation is treated at the Kusasalethu
plant. The name of Elandsrand was changed to Kusasalethu on January 23, 2010. The rebranding and
name change was based on entrenching a culture, endorsed by both management and the unions, to
ensure safe, productive mining.
History: Gold mining began at Kusasalethu in 1978 following approval of the project in 1974 by
Elandsrand Gold Mining Company. Two surface shafts and two adjoining sub-vertical shafts were sunk
at Elandsrand. The sub-vertical shafts at Elandsrand, which accessed the deeper part of the VCR
reef in the lease area, were completed in 1984. The deepening of the sub-vertical shafts to
approximately 3,600 meters below surface has been completed after the deepening project was
commissioned in 1991. Activities are currently focused on accessing and opening up areas of the new
mine and on the development and construction of support infrastructure.
Geology: At Kusasalethu we primarily exploit the Ventersdorp Contact Reef, or VCR, the Carbon
Leader Reef, or CLR and the Elsburg Reef. Only the VCR is economic to mine and has been mined at
depths below surface between 1,600 and 3,400 meters with future production to take place up to
3,600 meters below surface at the Kusasalethu operations. The VCR consists of a narrow (20
centimeters to 2 meters) tabular orebody of quartz pebble conglomerates hosting gold, with extreme
lateral continuity. The VCR strikes east-northeast and has a regional dip of 21 degrees to the
south-southeast. Local variations in dip are largely due to the terrace-and-slope palaeotopography
surface developed during VCR deposition.
Mining Operations: The Kusasalethu mine is subject to the underground mining risks detailed in the
Risk Factors section.
The Kusasalethu mine has the challenge of developing a new mine underneath the original mine
after the shaft was deepened to access the deeper part of the VCR orebody. The operation is still
hampered by the lack of flexibility, an issue that will be addressed by the full commissioning of
the new mine. Due to the operating depths of the Kusasalethu underground operations, seismicity and
high rock stress are significant risks at the mine. Steps were taken during fiscal 2010 to improve
the quality of the pre-conditioning at the stope face and seismic management systems so as to
reduce the possibility of face ejection during small, volatile seismic events.
45
Under-performance on square metres broken was the mines biggest challenge in fiscal 2010.
Scaling in the main reef and waste ore pass systems resulted in blockages in both systems, which
contributed to waste dilution and resulted in the lower recovered grade during the year. By
year-end it was decided to separate reef and waste and to continue with the removal of the blockage
in the waste pass system between the old mine (above 100 level) and the new mine (below 100 level).
Once the blockage has been removed, waste rock and reef ore will again be tipped into one ore pass
system to accommodate the rehabilitation of both ore pass systems. While this will dilute the
recovered grade, it will not affect gold production.
The mine deepening project infrastructure is 95% complete. The shaft infrastructure is in
place and work over the next two years will focus mainly on the provision of sufficient cooling and
ventilation into the new mine areas. The project is expected to be completed by fiscal 2012 and is
expected to have a life of mine of 26 years. From the inception of the project through to the end
of fiscal 2010, R1,035 million (US$136.5 million) has been expended. A further R77 million (US$10.2
million) has been budgeted to complete the project.
In fiscal 2010, our Kusasalethu operations accounted for approximately 12% (11% in 2009 and 9%
in fiscal 2008) of our total gold production.
Safety: Over the past year, an improvement was noted in the safety record at Kusasalethu. During
fiscal 2010, LTIFR was 6.68 (2009: 12.67) per million hours worked. Regrettably there were two
fatalities during fiscal 2010 (2009: five fatalities).
Plants: Commissioned in 1978, the Kusasalethu Plant consist of milling in closed circuit with
primary and secondary hydrocyclones, thickening and cyanide leaching in a CIP pump cell carousel
circuit. The CIP was commissioned after an upgrade of the facility in 1999. Ore from Kusasalethu
underground operations is delivered to the plant for treatment via conveyor belt after being
hoisted from underground. Loaded carbon from the Kusasalethu Plant is transported by road to the
Evander Plant for elution, electro-winning and smelting to produce gold. Residues from the CIP are
pumped either to a backfill plant or directly to the tailings facility.
The following table sets forth processing capacity and average tons milled during fiscal 2010
for the plant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Milled for the |
|
|
Processing |
|
Fiscal Year |
Plant |
|
Capacity |
|
June 30, 2010 |
|
|
(tons/month) |
|
(tons/month) |
Kusasalethu Plant |
|
|
203,925 |
(1) |
|
|
102,753 |
|
|
|
|
(1) |
|
Processing capacity will reach its optimal capacity upon completion of the
Kusasalethu New Mine Project. |
In fiscal 2010, the Kusasalethu Plant recovered approximately 95.0% of the gold contained
in the ore delivered for processing.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Kusasalethu |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
1,141 |
|
|
|
1,061 |
|
|
|
981 |
|
Recovered grade (ounces/ton) |
|
|
0.153 |
|
|
|
0.164 |
|
|
|
0.167 |
|
Gold produced (ounces) |
|
|
175,029 |
|
|
|
174,321 |
|
|
|
164,215 |
|
Gold sold (ounces) |
|
|
168,244 |
|
|
|
183,676 |
|
|
|
158,631 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
183,603 |
|
|
|
157,956 |
|
|
|
132,699 |
|
Cash cost (000) |
|
|
143,985 |
|
|
|
117,321 |
|
|
|
103,351 |
|
Cash profit (000) |
|
|
39,618 |
|
|
|
40,635 |
|
|
|
29,348 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($) |
|
|
857 |
|
|
|
660 |
|
|
|
652 |
|
Capex (000) ($) |
|
|
56,687 |
|
|
|
46,915 |
|
|
|
43,830 |
|
Tons milled from Kusasalethu were 1,061,000 in fiscal 2009, compared with 981,000 in fiscal
2008. Ounces produced increased to 174,321 in fiscal 2009, compared with 164,215 in fiscal 2008 as
a result of the increased volumes in production. Mining continues in the old, upper areas of the
mine, while the new mine project is completed. Recovered grades decreased marginally during fiscal
2009, resulting in an average of 0.164 ounces per ton in fiscal 2009, compared to the average of
0.167 ounces per ton in fiscal 2008.
46
The increase in electricity costs, labor rates and inflation were the main contributors to the
increase in cash cost from US$652 per ounce in fiscal 2008 to US$660 per ounce in fiscal 2009. Cash
cost per ounce only increased by 1% due to increased ounces produced which neutralized the higher
than normal increases in labor rates and electricity increases approved by the NERSA. Electricity rates are expected to continue rising above the norm until
Eskom has developed additional power generating plants.
Tons milled from Kusasalethu were 1,141,000 in fiscal 2010, compared with 1,061,000 in fiscal
2009. Ounces produced increased to 175,029 in fiscal 2010, compared with 174,321 in fiscal 2009 as
a result of the increased volumes in production. Mining continues in the old, upper areas of the
mine, while the new mine project is completed. Recovered grades decreased during fiscal 2010,
resulting in an average of 0.153 ounces per ton in fiscal 2010, compared to the average of 0.164
ounces per ton in fiscal 2009.
The increase in labor rates and the higher than normal electricity increases approved by NERSA
were the main contributors to the increased cash cost. Electricity rates are expected to continue
rising by an estimated 25% annually for the next two years. Potable water previously received from
Rand Water Board was increased by 32% for fiscal 2010 by the Merafong Local Council due to a change
in legislation allowing local councils to take over this service from Rand Water Board. The
increase in electricity costs, labor rates and inflation were the main contributors to the increase
in cash cost from US$660 per ounce in fiscal 2009 to US$857 per ounce in fiscal 2010.
Kusasalethu has a hoisting capacity of 209,440 tons per month. The average tons milled in
fiscal 2010 was 95,083 tons per month.
Assuming no additional reserves are identified, at expected production levels, it is foreseen
that the reported proven and probable mineral reserves of 39.5 million tons, or 7.5 million ounces
will be sufficient for the Kusasalethu shaft to maintain underground production until approximately
calendar year 2035. Any future changes to the assumptions upon which the mineral reserves are
based, as well as any unforeseen events affecting production levels, could have a material effect
on the expected period of future operations.
Capital Expenditure: Harmony incurred R429.7 million (US$56.7 million) in capital expenditure at
the Kusasalethu operations in fiscal 2010 mainly for the sub shaft deepening project and ongoing
development. An additional project, the Emergency Escape project was started during fiscal 2009, to
improve the effectiveness of evacuation of people from underground during a shaft emergency, and is
expected to be completed in fiscal 2011.
Harmony budgeted R414 million (US$54.2 million), for capital expenditure at the Kusasalethu
operations in fiscal 2011, primarily for the sub-shaft deepening project and ongoing development
expenditure.
Masimong
Introduction: Masimong is located in the Free State province, near Riebeeckstad. The Masimong
complex comprises an operating shaft, 5 shaft and 4 shaft which, although closed, is used for
ventilation, pumping, and as a second outlet. Mining is conducted at depths ranging from 1,518
meters to 2,300 meters. Ore is treated at the Harmony 1 Plant, approximately 23 kilometers away.
History: Masimong is located in the Free State Goldfield on the south-western edge of the
Witwatersrand Basin. The company purchased the Masimong complex (formerly know as Saaiplaas Shafts
4 and 5) during September 1998.
Geology: The operation exploits the Basal Reef, which varies from a single pebble lag to channels
on more than 2m thick. It is commonly overlain by shale, which thickens northwards. Masimong is
also mining secondary reefs, most notably the Leader Reef (15-20m above Basal) and the B Reef (140m
above Basal). The Leader Reef consists of multiple conglomerate units, separated by thin quartzitic
zones, often totaling up to 4 meters thick. A selected mining cut on the most economic horizon is
often undertaken. The B Reef is a highly channelized orebody. Within the channels, grades are
excellent, but this falls away to nothing outside of the channels. Consequently, the operation has
undertaken extensive exploration to locate these pay channels.
Mining Operations: The operations are subject to the underground mining risks detailed in the Risk
Factors section. Due to the shallow to moderate depths of the underground operations, seismicity
related problems are relatively infrequent. We regularly revisit our mining strategy and management
procedures in connection with our efforts to mitigate risks of these problems. There is a risk of
subterranean water and/or gas intersections in some areas of the mine. However, this risk is
mitigated by active and continuous management and monitoring, which includes the drilling of
boreholes in advance of faces. Where water and/or gas are indicated in the drilling, appropriate
preventative action is taken.
47
Maintaining grades on the B Reef proved challenging as mining moved out of the high-grade
channels while those mined on the Basal Reef generally remained constant. Nevertheless grades were
maintained overall for the year at 0.157 oz/t. The infrastructural upgrade, begun in fiscal 2009
and which included improved resource management and the installation of new tracks, locomotives,
and compressors, was completed in fiscal 2010. Masimong will reap the benefits of this upgrade by
way of improved productivity, efficiencies and output in coming years.
Ventilation is a challenge at Masimong as the booster fans currently installed themselves
generate heat and consume electricity. Steps are being taken to counter this. Pressure doors have
been installed as an interim measure and a new ventilation system is being installed. A new
refrigeration plant is to be installed by September 2011 at a cost of R61 million (US$8.0 million).
Following the upgrade program, full production is scheduled for 2012. To achieve this, every effort
has been made to ensure that panels are well equipped and crews motivated, and steps have been
taken to overcome the erratic grade of the B reef.
In fiscal 2010, Masimong accounted for approximately 11% (10% in fiscal 2009 and 6% in fiscal
2008) of our total gold production.
Safety: The safety record at Masimong during fiscal 2010 in terms of LTIFR of 7.37 (2009: 8.67) per
million hours worked compared favorably with the group average of 7.72 (2009: 9.35). Tragically,
there was one fatality during fiscal 2010 (2009: two fatalities). Various initiatives are in place
to correct and reduce the human element in accidents.
Plants: The ore from theses operations are sent to Harmony 1 Plant for processing. See Item
4.Information of the Company Business Bambanani for a discussion on the plant.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
Masimong Shaft Complex |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000)
|
|
|
991 |
|
|
|
981 |
|
|
|
892 |
|
Recovered grade (ounces/ton)
|
|
|
0.157 |
|
|
|
0.157 |
|
|
|
0.131 |
|
Gold produced (ounces)
|
|
|
155,609 |
|
|
|
154,034 |
|
|
|
116,424 |
|
Gold sold (ounces)
|
|
|
153,937 |
|
|
|
154,581 |
|
|
|
117,575 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000)
|
|
|
168,439 |
|
|
|
135,025 |
|
|
|
96,147 |
|
Cash cost (000)
|
|
|
92,571 |
|
|
|
73,494 |
|
|
|
87,630 |
|
Cash profit (000)
|
|
|
75,868 |
|
|
|
61,531 |
|
|
|
8,517 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($)
|
|
|
602 |
|
|
|
476 |
|
|
|
756 |
|
Capex (000) ($)
|
|
|
23,407 |
|
|
|
14,479 |
|
|
|
15,686 |
|
Tons milled from Masimong were 981,000 in fiscal 2009, compared with 892,000 in fiscal 2008,
and ounces produced were 154,034 in fiscal 2009, compared with 116,424 in fiscal 2008. Year on year
gold production increased due to an increase in tons as well as the recovered grade.
Cash costs were US$73.5 million in fiscal 2009 compared with US$87.6 million in fiscal 2008
with cash costs per ounce at US$476 in fiscal 2009 compared with US$756 in fiscal 2008. This
decrease in cash cost is mainly attributable to a 9.7% decrease in labor. Labor efficiencies
contributed significantly to the improved performance. This was the first year that Masimong was
fully off the Conops cycle.
The increase in recovered grade by 0.026 ounces per ton from fiscal 2008 to fiscal 2009 can be
attributed to an increase in quality mining discipline. Most notable was the 6.9% increase in MCF
and a 20% increase in face grade mined. This was achieved on the back of the Masimong
transformation process initiated in April 2008.
Furthermore the amount of B reef mining was decreased from 25% of total mining to 16% of total
mining. This step reduced the high risk with regards to grade associated with the traditionally
variable B Reef ore body.
Tons milled from Masimong were 991,000 in fiscal 2010, compared with 981,000 in fiscal 2009,
and ounces produced were 155,609 in fiscal 2010, compared with 154,034 in fiscal 2009. Year-on-year
gold production increased due to an increase in tons.
Cash costs were US$92.6 million in fiscal 2010 compared with US$73.5 million in fiscal 2009
with cash costs per ounce at US$602 in fiscal 2010 compared with US$476 in fiscal 2009. This
increase in cash cost is mainly attributable to a 16% lower R/US$ exchange rate and annual
48
cost increases. The biggest cost increase contributors were
annual labor cost and electricity cost increases.
Recovered grade remained unchanged in fiscal 2010 compared to fiscal 2009.
Assuming no additional reserves are identified, at expected production levels, it is foreseen
that the reported proven and probable mineral reserves of 8.1 million tons (1.2 million ounces)
will be sufficient for the Masimong shaft complex to maintain underground production until
approximately fiscal 2023. Any future changes to the assumptions upon which the reserves are based,
as well as any unforeseen events affecting production levels, could have a material effect on the
expected period of future operations.
Capital Expenditure: Masimong incurred approximately R177 million (US$23.4 million) in capital
expenditures in fiscal 2010. We have budgeted a total of R208 million (US$27.2 million) for
capital expenditures at Masimong in fiscal 2011. Of this, R19 million (US$2.5 million) is for
upgrading of the rail bound equipment and R28 million (US$3.7 million) for the fridge plant on
Masimong 5.
Phakisa
Introduction: We acquired Phakisa when we, in January 2002, acquired the Freegold operations from
Anglogold through a 50% joint venture with ARMgold. In September 2003, we acquired 100% of these
operations when ARMgold became a wholly owned subsidiary. The operation is located in the Free
State province. Production from the operations is processed through Harmony 1 Plant.
History: Exploration, development and production history in the area of the Freegold assets dates
from the early 1900s, leading to commercial production by 1932. Subsequent consolidation and
restructuring led to the formation of Free State Consolidated Gold Mine (Operations) Limited, which
became a wholly-owned subsidiary of Anglogold in June 1998.
Geology: The operation is located in the Free State Goldfield, which is on the southwestern edge of
the Witwatersrand basin. The Goldfield is divided into two sections, cut by the north-south
striking De Bron Fault. The Phakisa mine is located to the west of the De Bron Fault. Mining is
conducted in the Basal reef. The reefs generally dip towards the east.
Mining Operations: These operations are subject to the underground mining risks detailed in the
Risk Factors section. The management teams regularly revisit their mining strategy and management
procedures in order to minimize risks.
The development at Phakisa, a surface shaft, sunk to 75 level elevations and a planned decline
shaft to 85 level will access the mineral reserves to a depth of 2,662 meters below surface. It is
estimated that the area will yield 22.1 million tons, recovering 4.96 million ounces of gold over a
project life of 19 years. Project completion requires sinking, equipping and commissioning of a
decline shaft up to 85 level. The major project includes access development and stoping to maximum
production build-up at a capital cost of R2,074 million (US$273.6 million). To date, R1,508 million
(US$199 million) has already been spent.
Good progress was achieved during fiscal 2010, with completion of all infrastructures except
the underground cooling plants. Installation of the permanent water handling systems (i.e.,
Settlers, Main Pump Station on 77 Level, Mud press and underground dams) have been completed and
are operative. The third train on the Rail-veyor was successfully commissioned in December 2009.
Eight of the ten ice plant modules have been commissioned, although five were found to be
underperforming and the orginal equipment manufacturers have been engaged to assist with remedial
action and to advise on ways of improving performance. The first phase of surface offices and
change houses have been successfully completed with the second phase scheduled to start in
September 2010. Two critical issues to be completed are the installation of underground cooling
plants and upgrading the return air system with the installation of 4m raise bore hole from 75
level to 66 level and a booster fan on 59 level. All this work is planned for fiscal 2011.
Phakisa started the first production during September 2007 and will be opening up mineral
reserves going forward. The project is expected to be in full production in July 2013 at 93,476
tons per month. The average production rate per annum over the peak period of life of mine is
245,234 ounces. During fiscal 2010, the build-up in production has been hampered by geological
issues, illegal mining activities and down-time on the new infrastructure. Since it is a new mine,
development at Phakisa is currently centred close to the shaft in the lower grade southern areas.
The major drive is on development of the area to the north to access higher grade areas and to move
closer to the average reserve grade. Grades will improve as development progresses towards the
north and more reef is exposed within the major north-west to south-east tranding Basal Reef
payshoot. Mining was also undertaken at Nyala shaft during fiscal 2010 were payable pillars are
available for mining.
During fiscal 2010, Phakisa accounted for 3% (1.4% in 2009 and 0.2% in 2008) of our total gold
production.
49
Safety: During fiscal 2010, the safety statistics for Phakisa was 8.4 (2009: 9.19) per million
hours worked. Three fatal accidents occurred during fiscal 2010, two resulting from a fall of
ground in the development section and one caused by a training accident. Post year-end, an
explosion underground tragically resulted in five fatalities.
Plants: The ore from these operations are sent to Harmony 1 Plant for processing. See Item
4.Information of the Company Business Bambanani for a discussion on the plant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
Phakisa |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000)
|
|
|
374 |
|
|
|
204 |
|
|
|
34 |
|
Recovered grade (ounces/ton)
|
|
|
0.118 |
|
|
|
0.109 |
|
|
|
0.118 |
|
Gold produced (ounces)
|
|
|
44,079 |
|
|
|
22,216 |
|
|
|
4.024 |
|
Gold sold (ounces)
|
|
|
44,496 |
|
|
|
21,477 |
|
|
|
4,212 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000)
|
|
|
49,458 |
|
|
|
19,009 |
|
|
|
3,891 |
|
Cash cost (000)
|
|
|
43,040 |
|
|
|
11,903 |
|
|
|
2,348 |
|
Cash profit (000)
|
|
|
6,418 |
|
|
|
7,106 |
|
|
|
1,543 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($)
|
|
|
953 |
|
|
|
555 |
|
|
|
497 |
|
Capex (000) ($)
|
|
|
64,106 |
|
|
|
51,210 |
|
|
|
40,335 |
|
Tons milled increased from 34,000 tons in fiscal 2008 to 204,000 tons in fiscal 2009, with
gold production increasing from 4,024 ounces to 22,216 ounces. This was as a result of the planned
ramp up in production during the year. Grade was lower in fiscal 2009 at 0.109 ounces per ton,
compared to 0.118 in fiscal 2008. This was due to the fact that mining was confined to a single
raise line in a lower grade area.
Cash costs per ounce for Phakisa was US$555 per ounce in fiscal 2009, compared with US$497 per
ounce in fiscal 2008. This increase is primarily attributable to the increase in tons mined.
Tons milled increased from 204,000 tons in fiscal 2009 to 374,000 tons in fiscal 2010, with
gold production increasing from 22,216 ounces to 44,079 ounces. This was as a result of the planned
ramp up in production during the year. Grade was higher in fiscal 2010 at 0.118 ounces per ton,
compared to 0.109 in fiscal 2009.
Cash costs per ounce for Phakisa was US$953 per ounce in fiscal 2010, compared with $555 per
ounce in fiscal 2009. This increase is primarily attributable to the increase in tons mined, as
well as the cost of employees transferred to Phakisa from shafts that were closed during fiscal
2010.
The expected capacity of Phakisa will be 131,175 tons per month. Phakisa has no rock hoisting
facilities and all rock will be transported via a rail system on 55 level to the Nyala shaft for
hoisting to surface. First production took place during September 2007, with a build up to full
production expected by fiscal 2013.
On a simplistic basis reported proven and probable underground mineral reserves of 22.1
million tons (5.16 million ounces) will be sufficient for the Phakisa shaft to, once production
commence, maintain production until approximately fiscal 2029. Any future changes to the
assumptions upon which the reserves are based, as well as any unforeseen events affecting
production levels, could have a material effect on the expected period of future operations.
Capital Expenditure: We incurred approximately R486 million (US$64.1 million) in capital
expenditures at the Phakisa operations in the fiscal year ended June 30, 2010. We have budgeted
R391 million (US$51.2 million) for capital expenditures in fiscal 2011, primarily for the
establishing and development of the shaft.
Target operation
Introduction: The Target operation consists of Target 1, Target 3 and Freddies 7 & 9 shafts. We
acquired Target 1 when Avgold became a wholly owned subsidiary in fiscal 2004. Target 3, previously
Loraine 3, and Freddies 7 & 9 shafts were acquired from Pamodzi FS in Feburary 2010. They have been
incorporated into our Target operation. Target is situated near the town of Allanridge in the Free State Province,
50
some 270 kilometers southwest of Johannesburg. Located on
the northern limit of the Welkom Goldfields, the site is accessed via the R30 motorway situated
between the towns of Bothaville and Welkom.
History: Target 1 was initially explored through surface drilling in the late 1980s with further
exploration being undertaken from a 5.6 kilometers long decline, commenced in 1995, driven from
203L at Loraine No. 1 Shaft. A positive feasibility study into the development of a 105 ktpm
operation was produced in May 1998 resulting in the decision to develop Target 1. A detailed mine
design was produced in 2000 and the mine officially opened in May 2002. Upon closure of the Loraine
mine in August 1998, the Loraine No. 1 and No. 2 Shafts were transferred to the Target mine,
becoming Target No. 1 and No. 2 Shafts, respectively. No 5 Shaft being the up-cast Ventilation
Shaft.
Numerous corporate actions since the 1940s until the 1990s saw the Loraine 3 and Freddies 7
& 9 shafts change ownership a number of times. Previous owners include the Free State Development
and Investment Corporation, Johannesburg Consolidated Investment, Avgold and Anglogold. In 1998,
PSGM was formed after purchasing Loraine 3 and Freddies 7 & 9 shafts from various individuals.
During 2002, the mine was sold to Thistle Mining Inc, an international company with interests in
the Philippines and South Africa. The mine struggled to make operational profits, and Thistle
undertook a restructuring program in 2006, which together with an increase in the Rand gold price
resulted in positive operational cash flows. In February 2008, PSGM was purchased by Pamodzi FS.
The mine was operated from that time until March 2009, when Pamodzi FS was placed into liquidation.
Geology: The gold mineralization currently exploited by Target is contained within a succession of
Elsburg and Dreyerskuil quartz pebble conglomerate reefs hosted by the Van Heeverrust 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 life of mine plan.
The majority of the mineral reserves at Target are contained within the Eldorado fan, a
structure with dimensions of some 135 meters vertically, 450 meters down-dip and 500 meters along
strike. The Eldorado fan is connected to the subsidiary Zuurbron fan by a thinner and lower grade
sequence of Elsburg reefs termed the Interfan area. To the north of the Eldorado fan, a number of
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 life of mine mineral reserve.
A number of faults that displace the reefs of Target 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 border of Target.
Target North is sub-divided into the Paradise, Siberia and Mariasdal areas by the east-west
trending Siberia and Mariasdal 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 2,500 meters below surface. Resources have been delineated on
strike up to 15 kilometers north of Target mine.
Approximately 40 kilometers north of Target 1, 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 Elsburg at depths of approximately 2,750 meters below surface.
Mining operations: Target is subject to the risks associated with underground mining detailed in
the Risk Factors section.
Mining operations at Target 1 comprise one primary underground mine commissioned in May 2002,
making use of information systems and mechanization, combined with process-driven organizational
design that relies on a multi-skilled workforce. The majority of the production is derived from
mechanized mining; however, conventional stoping is still employed primarily to de-stress areas
ahead of the mechanized mining.
The mine had successful and consistent production throughout fiscal 2010. Improved volumes resulted
from an increase in massive availability, improved environmental conditions in the narrow reef
stoping section, maintained development levels and improved discrepancy figures due to clean
mining. Grade also improved due to a program of geological remodeling and re-estimation of the
orebody, which led to better estimates of ore mined. Concerted efforst, including back-analysis of
the orebody, resulted in improved planning and the implementation of more effective control
systems. Block 3 remains an important future mining area and the orebody re-assessment process was
completed in December 2009.
The infrastructural upgrade program enabled the mine to maintain its current levels of
production by June 30, 2010 and the benefits of this upgrade is fully felt in fiscal 2010. A
15-point turnaround plan continues at Target. In particular, a great deal of attention is being
paid to development and improving flexibility. Some of the improvements effected during fiscal 2009
bore fruit by the end of fiscal 2010.
51
Target 3 is unique in that, for a mature mine, there still remains an excellent mix of remnant
ore blocks including shaft pillar blocks where scattered mining can be exploited and ample areas of
virgin ground where conventional mining can take place and even potential to exploit the Golden
Triangle in the Freddies 9 Shaft area.The Target 3 orebody also has characteristics that suit
massive mining techniques in the Eldorados which enables design to be centred on a mechanized
operation making use of Target 1 skilled employees and the latest proven technology to produce gold
at low cash costs.
The origin of massive mining methods on Target 3 is derived from the massive mining techniques
used currently at Target 1 Shaft workings, in particular the open stoping method used in the No. 1
Shaft area where a stope of 30m x 25m x 400m was excavated.
The depth of the workings at Target would normally eliminate the potential massive mining
methods; however narrow reef mining can be done to create a de-stressed environment for the areas
to be mined by massive mining techniques. The complex multiple reefs may require backfill as a
support medium in association with the various mining methods.
In order to exploit the above mentioned reef horizons an extensive program of opening up of
collapsed or caved airways has been embarked upon and the repair/reconditioning of both the York
and Carrier Fridge Plants in order to improve the mine cooling conditions to the required standard.
The shaft bottom, which was damaged during flooding in May and June 2009 as a result of the
pumps that were not repaired or maintained by Pamodzi FS, is in the process of rehabilitation.
In fiscal 2010, Targets operations accounted for 8% of our total gold production, compared to
6% in fiscal 2009 and 4% in fiscal 2008.
Safety: The safety statistics at Target during fiscal 2010 in terms of LTIFR of 3.39 (2009: 9.66)
per million hours worked is lower than the group average of 7.72. Regrettablly there were two
fatalities at Target during fiscal 2010 (2009: two fatalities).
Safety at the operation remains the number one priority and received constant and high-level
attention. Our mission is to create and maintain a positive Health and Safety awareness and mindset
amongst all our employees. More focus is also placed on being proactive by reporting and addressing
incidents. Good safety improvements were evident during fiscal 2010.
Plants: Target Plant was commissioned in November 2001 and currently treats both underground ore
and surface sources, which include both waste rock dump and plant clean up material. The process
route comprise of a closed circuit SAG mill as well as a closed circuit ROM mill. Both these mills
are in closed circuit with hydro-cyclones. The milling circuit is followed by thickening, cyanide
leaching, CIP adsorption, elution, electro-winning, smelting and tailings disposal. Both the
milling circuits are incorporated in the gravity concentration circuit and the concentrates from
this circuit are processed via intensive cyanidation and electro-winning.
The ROM mill was commissioned in November 2008 and it was installed in order to reduce the
steel ball consumption on the plant. The initial objective was to save R 1.2 million (US$0.13
million) on grinding media monthly, but when a review of the project was done in June 2009 it was
found that the actual saving amounted to R1.4 million (US$0.16 million) per month.
In February 2010 the plant obtained substantial ICMI accreditation, which will change to full
accreditation in January 2011. During the year the plant also embarked on a reagent saving
campaign, especially on cyanide, and through some minor process modifications cyanide consumption
was reduced by 76.09 tons year on year. Several power saving initiatives have also been implemented
on the plant to reduce the power consumption of the plant, and during the fourth quarter of fiscal
2010 there were already indications that this initiative was paying dividends.
The following table sets forth processing capacity and average tons milled during fiscal 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Milled For the |
|
|
Processing |
|
Fiscal Year Ended |
Plant |
|
Capacity |
|
June 30, 2010 |
|
|
(tons/month) |
|
(tons/month) |
Target Plant |
|
|
105,000 |
|
|
|
101,935 |
|
In fiscal 2010, the Target Plant recovered approximately 95.3% of the gold contained in the
ore delivered for processing.
52
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Target (includes Target 1 and 3) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
857 |
|
|
|
710 |
|
|
|
686 |
|
Recovered grade (ounces/ton)(1) |
|
|
0.128 |
|
|
|
0.123 |
|
|
|
0.116 |
|
Gold produced (ounces) (1) |
|
|
113,782 |
|
|
|
87,225 |
|
|
|
79,602 |
|
Gold sold (ounces) (1) |
|
|
110,598 |
|
|
|
87,611 |
|
|
|
85,006 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
115,772 |
|
|
|
76,435 |
|
|
|
69,469 |
|
Cash cost (000) |
|
|
87,563 |
|
|
|
59,599 |
|
|
|
51,463 |
|
Cash profit (000) |
|
|
28,209 |
|
|
|
16,836 |
|
|
|
18,006 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($)(1) |
|
|
783 |
|
|
|
645 |
|
|
|
716 |
|
Capex (000) ($) |
|
|
50,446 |
|
|
|
37,994 |
|
|
|
35,307 |
|
|
|
|
(1) |
|
3,762 ounces were produced by Target 3 and sold. The revenue has been credited against
capital expenditure as the shaft is not in production yet. The costs and ounces were not
used in the cash cost per ounce calculation. The ounces were also excluded from the grade
calculation. |
Tons milled from Target increased from 686,000 in fiscal 2008 to 710,000 in fiscal 2009.
Target experienced a number of issues impacting on production. These include:
|
|
|
infrastructural problems with the belts, fridge plants and other environmental
infrastructure, resulting in higher face temperatures and lower efficiencies; |
|
|
|
|
water handling; and |
|
|
|
|
low availability of massive stopes. |
The conveyor belt system was extensively rehabilitated during the course of fiscal 2009. An
executive audit was done by Good Year which formed the basis of the rehabilitation plan that was
implemented. The belt availability and reliability has increased. The crusher plant, which feeds
the belts, is in the process of rehabilitation.
During 2009 a campaign was started to update the reticulation, clean out the dams and getting
the dewatering equipment to a standard. In addition to updating the reticulation in the mining
areas, flow meters and dual pressure reducing valve systems are being installed to better
understand, measure and manage the water usage in the actual workplaces. This campaign was
completed in fiscal 2010. Electrical substations are being reviewed for compliance purposes.
Availability of massive stopes has been improved with increased focus on planning and
development.
Ounces produced were 87,225 in fiscal 2009, compared with 79,602 in fiscal 2008. The increase
in ounces produced was due to higher milled tonnages and improved recovered grade. The recovery
grade increased marginally from 0.116 in fiscal 2008 to 0.123 in fiscal 2009.
Cash costs for Target were US$59.6 million in fiscal 2009, compared with US$51.5 million in
fiscal 2008. This increase was primarily attributed to increased tonnages produced, increase in
total employees costed and inflationary cost increases. Cash costs per ounce were US$645 in fiscal
2009, compared with US$716 in fiscal 2008. This reduction in $/oz terms was due to more ounces
produced.
Ounces produced were 113,782 in fiscal 2010, compared with 87,225 in fiscal 2009. The
increase in ounces produced was due to higher milled tonnages and improved recovered grade.
Continued upgrading of infrastructure, resulting improved environmental conditions and higher
availability of the mechanized fleet have led to increasing and consistent production levels.
Tonnages milled from the Target 1 Shaft increased significantly from 710,000 in fiscal 2009 to
857,000 in fiscal 2010.
Maintenance of the average mining grades, and continuing focus on clean-up and clean mining
resulted in an improved recovery grade which increased marginally from 0.123 ounces per ton in
fiscal 2009 to 0.128 ounces per ton in fiscal 2010.
53
Cash costs for Target were US$87.6 million in fiscal 2010, compared with US$59.6 million in
fiscal 2009. This increase was primarily attributed to increased tonnages produced, increase in
total employees costed and inflationary cost increases, as well as the effect of the appreciation
of the Rand against the US$ dollar. Cash costs per ounce were US$783 in fiscal 2010, compared with
US$645 in fiscal 2009. This increase was due to higher production levels and the appreciation of
the Rand against the US$ exchange rate.
A major review of the geological modeling and evaluation of Targets mineral resources was
completed as planned. This resource was then utilized in a Life of Mine planning exercise which
was completed in December 2009. The outcomes should lead to improved confidence in short-term and
strategic planning. Plans to increase tonnages to 75,000 tons per month together with a capital
project to access Mining Block 3 through an additional decline are well advanced.
Assuming no additional reserves are identified, at expected production levels and, at the
current planned gold price, it is foreseen that the reported proven and probable mineral reserves
of 18.0 million tons (2.8 million ounces) will be sufficient for Tshepong to maintain underground
production until approximately 2023. Any future changes to the assumptions upon which the mineral
reserves are based, as well as any unforeseen events affecting production levels, could have an
effect on the expected period of future operations.
Capital Expenditure: Target incurred approximately R382 million (US$50.4 million) in capital
expenditures in fiscal 2010, principally for on-going underground development, Phase 1 of Block 3
to improve environmental conditions, continuing replacement of the underground vehicle fleet and
infrastructural rehabilitation. We have budgeted R457 million (US$59.9 million) in fiscal 2011, of
which R101 million (US$13.2 million) will be spent on Block 3.
Tshepong
Introduction: We acquired Tshepong when we, in January 2002, acquired the Freegold operations from
Anglogold through a 50% joint venture with ARMgold. In September 2003, we acquired 100% of these
operations when ARMgold became a wholly owned subsidiary. These operations are located in the Free
State province. Production from the operations is processed through Harmony 1 Plant.
History: Exploration, development and production history in the area of the Freegold assets dates
from the early 1900s, leading to commercial production by 1932. Subsequent consolidation and
restructuring led to the formation of Free State Consolidated Gold Mine (Operations) Limited, which
became a wholly-owned subsidiary of Anglogold in June 1998.
Geology: The operations are located in the Free State Goldfield, which is on the southwestern edge
of the Witwatersrand basin. The Tshepong mine is located to the north and west of Welkom. Mining is
primarily conducted in the Basal reef, with limited exploitation of the B Reef. The reefs generally
dip towards the east or northeast while most of the major faults strike north-south.
Mining Operations: These operations are subject to the underground mining risks detailed in the
Risk Factors section. The management teams regularly revisit their mining strategy and management
procedures in order to minimize risks.
Mining is conducted at depths ranging from 1,671 and 2,245 meters at Tshepong. Operations at
Tshepong were hampered during fiscal 2010 by safety stoppages, following two fatal accidents.
Given the proximity of Tshepong to Phakisa, there are access, ventilation and service
synergies that can be exploited to allow access at depth.
The Tshepong Decline project, which started in April 2003, has accessed an additional two
levels (69 and 71) of the Tshepong Shaft. The Sub 66 project was completed at the end of June 2010
with a total capital expenditure of R295 million (US$36 million). Production commenced at Sub 66
Decline during fiscal 2010, with the build-up to continue over the next three years. Emphasis is
being placed on increasing mineable reserves from this area. The final development component was
completed in June 2008. Poor ground condition necessitated intense secondary support and ore pass
lining delayed completion. Secondary support has been completed and the lining of orepasses was
completed safely during fiscal 2010.
Sub 71 Project made good progress until November 2008 when extreme poor ground conditions were
experienced in the developed section. A decision was taken to stop all development and install
secondary support in the area. The stoppage continued for seven months until end fiscal 2009. The
work was completed safely, without disrupting the production operations from the Sub 66 decline.
The development of the Material Decline and Chairlift ends commenced during July 2009 as planned
following the stoppage of the ends due to bad ground conditions in November 2008. Progressive a
total of 2,146 meters have been completed. The material decline is 50% complete and the chairlift
is 62% complete. The installation of the Sub 71 main conveyor has commenced with the civil work and
mechanical erecting of steelwork. To date the baseline variation on the original plan is one year. During fiscal 2010 the project was negatively
impacted by mine stoppages resulting
54
from two fatalities, as well as flooding incidents and long hauling distances from the working
faces to the temporary tipping arrangements. The escalation of input costs, combined with delays
and additional material required had a negative impact on the project. First production is expected
in towards the end of fiscal 2012, with full production anticipated in July 2019. The total
estimated cost of this project is R247 million (US$30.2 million).
During fiscal 2010, Tshepong accounted for 15% (15% in 2009 and 14% in 2008) of our total gold
production.
Safety: During fiscal 2010, the LTIFR for Tshepong was 12.2 (2009: 15.8) per million hours. There
were regrettably two fatalities during the year (2009: 7). Tshepong achieved 1 million
fatality-free shifts on February 18, 2010 and came seventh in the category for the most improved
LTIFR at the second Hard Rock Safety Summit. Safety at these operations receives constant and
high-level attention.
Plants: The ore from these operations are sent to Harmony 1 Plant for processing. See Item 4.
Information of the Company Business Bambanani for a discussion on the plant.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Tshepong |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
1,674 |
|
|
|
1,516 |
|
|
|
1,649 |
|
Recovered grade (ounces/ton) |
|
|
0.130 |
|
|
|
0.152 |
|
|
|
0.161 |
|
Gold produced (ounces) |
|
|
216,986 |
|
|
|
230,778 |
|
|
|
265,914 |
|
Gold sold (ounces) |
|
|
219,332 |
|
|
|
227,113 |
|
|
|
273,119 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
240,473 |
|
|
|
197,726 |
|
|
|
223,185 |
|
Cash cost (000) |
|
|
151,382 |
|
|
|
108,605 |
|
|
|
124,720 |
|
Cash profit (000) |
|
|
89,091 |
|
|
|
89,121 |
|
|
|
98,465 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($) |
|
|
677 |
|
|
|
483 |
|
|
|
455 |
|
Capex (000)($) |
|
|
34,402 |
|
|
|
27,711 |
|
|
|
26,834 |
|
Tons milled declined by 8% from 1,649,000 tons in fiscal 2008 to 1,516,000 in fiscal 2009,
with gold production decreasing by 13% from 265,914 ounces in fiscal 2008 to 230,778 ounces in
fiscal 2009. The decrease was attributable to the decrease in the recovery grade to 0.152 in fiscal
2009, compared with 0.161 in fiscal 2008. The decrease in recovery grade was primarily due to a
decrease in the average mining grade which was 1153 cmg/t in fiscal 2009, compared to 1275 cmg/t in
fiscal 2008. The drop in the average mining grade is in line with the Life of Mine profile. During
fiscal 2008 the mining in the east south block was on the edge of the main high grade pay shoot and
as mining continued south during fiscal 2009 mining have moved out of this high grade channel. The
continuation of this channel will be mined once Sub 66 and Sub 71 decline is completed.
Cash costs for Tshepong were US$108.6 million in fiscal 2009, compared with US$124.7 million
in fiscal 2008. Cash costs per ounce were US$483 in fiscal 2009, compared with US$455 in fiscal
2008. This increase in unit cost is attributable primarily to decrease in the number of ounces of
gold produced. Cash cost for fiscal 2009 was impacted by increases in the costs of labor and
electric power.
Tons milled increased year on year by 10% (1,516,000 tons in fiscal 2009 compared with
1,674,000 tons in fiscal 2010), with gold production decreasing by 6% from 230,778 ounces in fiscal
2009 to 216,986 ounces in fiscal 2010. The decrease was attributable to the decrease in the
recovery grade to 0.130 in fiscal 2010 compared with 0.152 in fiscal 2009. The decrease in recovery
grade was primarily due to a decrease in the average mining grade, which was 1039 cmg/t in fiscal
2010 compared with 1153 cmg/t in fiscal 2009. The drop in the average mining grade is in line with
the Life of Mine profile. During fiscal 2009 the mining in the east south block was on the edge of
the main high grade pay shoot and as mining continued south during fiscal 2010 mining has moved out
of this high grade channel. The continuation of this channel will be mined in the decline area once
Sub 71 decline reaches full production.
Cash costs for Tshepong were US$151.4 million in fiscal 2010, compared with US$108.6 million
in fiscal 2009. Cash costs per ounce were US$677 in fiscal 2010, compared with US$483 in fiscal
2009. The increase in unit cost is attributable primarily to the decrease in the number of ounces
of gold produced. The increase in cash costs were primarily due to increases in the costs of labor
and abnormal tariff increases in electrical power rates as well as the effect of inflation on costs
of materials and supply contracts. In addition, the cost of medical separation was included in
operational cost. This was historically not included in operational cost. Also, the effect of the
appreciation of the Rand against the US dollar had a negative impact in US$ dollar terms.
55
Assuming no additional reserves are identified, at expected production levels and, at the
current planned gold price, it is foreseen that the reported proven and probable mineral reserves
of 24.9 million tons (3.9 million ounces) will be sufficient for Tshepong to maintain underground
production until approximately 2026. Any future changes to the assumptions upon which the mineral
reserves are based, as well as any unforeseen events affecting production levels, could have an
effect on the expected period of future operations.
Capital Expenditure: Tshepong incurred approximately R261 million (US$34.4 million) in capital
expenditure during fiscal 2010. The expenditure was primarily for the decline project and ongoing
development. For fiscal 2011 capital expenditure of R273 million (US$35.8 million) is planned,
primarily for ongoing capital development.
Virginia operations
Introduction: The Virginia operations are located in the Free State province, near Virginia and
Welkom. The Virginia operations consist of the original Harmony mines, the Unisel mine, Brand
shafts 1 and 3 (mined from Brand 1 shaft). Mining is conducted at these operations at depths
ranging from 1,000 meters to 2,000 meters. Ore is treated at the Central Plant and Harmony 1 Plant.
During fiscal 2010, Harmony 2, Merriespruit 3 and Brand 3 shafts were placed on care and
maintenance.
History: Our operations in the Free State began with the Harmony mine, which is an amalgamation of
the Harmony, Virginia and Merriespruit mines. Beginning in 1996, we began purchasing neighboring
mine shafts. The Unisel mine was purchased in September 1996, the Saaiplaas mine Shafts 2 and 3
were purchased in April 1997, the Brand mine Shafts 1, 2, 3 and 5 were purchased in May 1998.
Geology: These operations are located in the Free State Goldfield on the south-western edge of the
Witwatersrand Basin. The basin, situated on the Kaapvaal Craton, has been filled by a 6-kilometre
thick succession of sedimentary rocks, which extends laterally for hundreds of kilometers. The Free
State goldfield is divided into two sections, cut by the north-south striking De Bron Fault. This
major structure has a vertical displacement of about 1,500m in the region of Bambanani, as well as
a lateral shift of 4km. This lateral shift can allow a reconstruction of the orebodies of Unisel to
the west of the De Bron and Merriespruit to the east.
A number of other major faults (Stuirmanspan, Dagbreek, Arrarat and Eureka) lie parallel to
the De Bron Fault.
Unisel and Brand are situated to the west of the De Bron. Dips are mostly towards the east,
averaging 30 degrees but become steeper approaching the De Bron Fault. To the east of the fault lie
Merriespruit 1 and 3 and Harmony 2 mines. These mostly dip towards the west at 20 degrees, although
Masimong is structurally complex and dips of up to 40 degrees have been measured. Between these two
blocks lies the uplifted horst block of West Rand Group sediments with no reef preserved. The
western margin area is bound by synclines and reverse thrusts faults and is structurally complex.
Towards the south and east, reefs sub-crop against overlying strata, eventually cutting out against
the Karoo to the east of the lease area.
Most of the Mineral Resource tends to be concentrated in reef bands located on one or two
distinct unconformities. A minority of the Mineral Resource is located on other unconformities.
Mining that has taken place is mostly deep-level underground mining, exploiting the narrow,
generally shallow dipping tabular reefs.
The Basal Reef is the most common reef horizon and is mined at all shafts. It varies from a
single pebble lag to channels on more than 2m thick. It is commonly overlain by shale, which
thickens northwards.
The second major reef is the Leader Reef, located 15-20m above the Basal Reef. This is mostly
mined at the shafts to the south Unisel, Harmony 2, Merriespruit 1 and Merriespruit 3. Further
north, it becomes poorly developed with erratic grades. The reef consists of multiple conglomerate
units, separated by thin quartzitic zones, often totaling up to 4 meters thick. A selected mining
cut on the most economic horizon is often undertaken.
Mining Operations: The operations are subject to the underground mining risks detailed in the Risk
Factors section. Due to the shallow to moderate depths of the underground operations, seismicity
related problems are relatively infrequent with the exception of Unisel and Harmony shafts and
Merriespruit 1 shaft pillar, where these problems receive constant attention. We regularly revisit
our mining strategy and management procedures in connection with our efforts to mitigate risks of
these problems. There is a risk of subterranean water locally at Merriespruit 1, referred to as
water pillar area, and/or gas intersections in some areas of the mine. However, this risk is
mitigated by active and continuous management and monitoring, which includes the drilling of
boreholes in advance of faces. Where water and/or gas are indicated in the drilling, appropriate
preventative action is taken. The principal challenges at the operations of achieving optimal
volumes and grades of ore production are addressed by stringent mineral reserve management.
56
The inner Basal Reef shaft pillar at Merriespruit 1 is being successfully mined. Approximately
90% of the pillar is mined out. A decision was taken on April 14, 2010 to issue a section 189 to
close this operation. After negotiation with organized labor, it was decided to continue operating
the shaft, as long as it is profitable. Subsequent to year-end, the decision was made to close the
shaft as it failed to meet the agreed targets. See Item 8.Recent Developments. A decision was
taken on April 14, 2010 to issue a section 189 to close Merriespruit 3 Shaft, and the shaft was
placed on care and maintenance.
A decision was taken during November 2009 to close Brand 3 and the shaft has been placed on
care and maintenance. Brand 5 serves as a major pumping shaft for the Steyn, Brand, Unisel and
Bambanani mining areas. Harmony 2 was also placed on care and maintenance during fiscal 2010.
Unisel mining is scattered to the south of the shaft and in the decline area towards the east
of the shaft. Mining also takes place to the west in the Tarka block. Development is targeted
towards Basal and Leader Reef channels which cut the lease area in a west to east direction.
Prospecting for A and B Reefs is in progress. Prospecting did not prove any significant values and
was discontinued during 2010.
In fiscal 2010, Virginia operations accounted for approximately 12% (17% in fiscal 2009 and
13% in fiscal 2008) of Harmonys total gold production. This reduction is attributable to the
closures of Brand 1, Harmony 2 and Merriespruit 3 during fiscal 2010.
Safety: The safety record during fiscal 2010 in terms of LTIFR of 12.86 (2009: 12.38) per million
hours worked compared unfavorably to the group average of 7.72. Regrettably there were five
fatalities during fiscal 2010 (2009: 1).
Plants: Ore from Virginia operations is treated at Central plant. The Central plant was
commissioned in 1986 and employs CIP/CIL hybrid technology. It is currently dedicated to the
treatment of both underground ore and waste rock.
The following table sets forth processing capacity and average tons milled during fiscal 2010
for the Central plant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Milled |
|
|
|
|
|
|
for the Fiscal Year |
|
|
Processing |
|
Ended |
Plant |
|
Capacity |
|
June 30, 2010 |
|
|
(tons/month) |
|
(tons/month) |
Central |
|
|
185,190 |
|
|
|
152,120 |
|
In fiscal 2010, Central plant recovered approximately 92.3% of the gold contained in the ore
delivered for processing.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Virginia operations |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
1,826 |
|
|
|
2,493 |
|
|
|
2,349 |
|
Recovered grade (ounces/ton) |
|
|
0.093 |
|
|
|
0.104 |
|
|
|
0.106 |
|
Gold produced (ounces) |
|
|
170,013 |
|
|
|
258,170 |
|
|
|
247,820 |
|
Gold sold (ounces) |
|
|
173,035 |
|
|
|
259,070 |
|
|
|
250,324 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
186,649 |
|
|
|
225,897 |
|
|
|
204,807 |
|
Cash cost (000) |
|
|
176,774 |
|
|
|
165,274 |
|
|
|
180,133 |
|
Cash profit (000) |
|
|
9,875 |
|
|
|
60,623 |
|
|
|
24,674 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($) |
|
|
1,036 |
|
|
|
638 |
|
|
|
726 |
|
Capex (000) ($) |
|
|
23,744 |
|
|
|
22,133 |
|
|
|
20,868 |
|
Tons milled from the Virginia operations increased to 2,493,000 in fiscal 2009, compared with
2,349,000 in fiscal 2008. This is partially attributable to the fire in the Basal pillar as well as
power shortages in 2008.
Ounces produced were 258,170 in fiscal 2009, compared with 247,820 in fiscal 2008. The
increase in ounces produced was as a result of improved volumes.
57
Cash costs were US$165.3 million in fiscal 2009, compared with US$180.1 million in fiscal
2008. Cash costs per ounce were US$638 in fiscal 2009, compared with US$726 in fiscal 2008. This
decrease was attributable primarily to higher tons produced resulting in higher ounces as well as
the effect of the weakening Rand/US$ exchange rate.
Tons milled from the Virginia operations decreased to 1,826,000 in fiscal 2010, compared with
2,493,000 in fiscal 2009. This is mainly attributable to the closure of Brand 3 during November
2009, and Harmony 2 and Merriespruit 3 during April 2010. Merriespruit 1 has downscaled production
from February 2010.
Ounces produced were 170,013 in fiscal 2010, compared with 258,170 in fiscal 2009. The
decrease in ounces produced was as a result of volumes that decreased due to the closure of the
three shafts as mentioned above during fiscal 2010, while Merriespruit 1 has downscaled production
from February 2010.
Cash costs were US$176.8 million in fiscal 2010, compared with US$165.3 million in fiscal
2009. Cash costs per ounce were US$1,036 in fiscal 2010, compared with US$638 in fiscal 2009. This
increase was attributable primarily to lower tons produced resulting in lower ounces as well as an
increase in our cash costs and the effect of the appreciation of the Rand against the US dollar.
Assuming no additional reserves are identified, at expected production levels, it is foreseen
that the reported proven and probable mineral reserves of 4.7 million tons (0.6 million ounces)
will be sufficient for the Virginia operations to maintain production until approximately 2018, but
at a reduced rate from 2012 as some shafts have closed. However, any future changes to the
assumptions upon which the reserves are based, as well as any unforeseen events affecting
production levels, could have a material effect on the expected period of the future operations.
Capital Expenditure: Virginia incurred approximately R180 million (US$23.7 million) in capital
expenditures at the Virginia operations in fiscal 2010, principally for ongoing capital
development. We have only budgeted R57 million (US$7.4 million) for ongoing capital development in
fiscal 2011, as well as R21 million (US$2.8 million) for maintaining/upgrading the shaft
infrastructure of Unisel due to the closure of the other three shafts during fiscal 2010.
Other Surface
Introduction: Other Surface consists of Kalgold, Phoenix and the surface operations owned by the
Freegold, Avgold and Evander companies. As the results of operations for Other Surface consists
primarily of the results from Kalgold and Phoenix, these two operations are discussed separately.
Kalgold
Introduction: Harmonys only open pit mining operation in South Africa is the Kalgold gold mine
that is situated 60 kilometers south of Mafikeng in the North West Province of South Africa.
Through Kalgold, Harmony also control extensive mineral rights on the Kraaipan Greenstone Belt in
the North West Province of South Africa.
History: Harmony acquired Kalgold on July 1, 1999 and fully incorporated Kalgold into its existing
operations in October 1999. Prior to Harmonys acquisition of the Kalgold mine, the mine had
already been in operation for three years.
Geology: The Kalgold operation is located within the Kraaipan Greenstone Belt, 60km south of
Mafikeng. This is part of the larger Amalia-Kraaipan Greenstone terrain, consisting of north
trending linear belts of Archaean meta-volcanic and metasedimentary rocks, separated by granitoid
units. Mineralization occurs in shallow dipping quartz veins, which occur in clusters or swarms,
within the steeply dipping magnetitechert banded iron formation. Disseminated sulphide
mineralization, dominated mostly by pyrite, occurs around and between the shallow dipping quartz
vein swarms. The D Zone is the largest orebody encountered and has been extensively mined within a
single open-pit operation, along a strike length of 1,300m. Mineralization has also been found in
the Mielie Field Zone (adjacent to the D Zone), the A Zone and A Zone West (along strike to the
north of the D Zone), and the Watertank and Windmill areas to the north of the A Zone.
Mining Operations: The Kalgold operation is engaged in open-pit mining. This operation is subject
to the open cast mining risks detailed in the Risk Factors section. Small subterranean water
intersections in the pit are common and are actively managed and appropriate action is taken when
necessary. The primary mining challenges at the Kalgold operations of achieving optimal volumes and
grades of ore production are addressed by stringent mineral reserve management. The processing
design capacity of the Kalgold operation is 150,000 tons per month. The average tons milled in
fiscal 2010 were 156,083 tons per month.
Gold production declined by 24% to 49 063 ounces in fiscal 2010, a result of the planned decline in
grade as operations at the
high-grade D Zone pit came to an end in March 2009. The sulphide material, which does not present
the same problems as the oxidised material, is now
58
being mined at the lower-grade Watertank pit. Mining at the A zone pit,
where grades will be similar to
those at the Watertank pit, is scheduled to start in 18 months time. Harmony continued with the
brownfields exploration in areas surrounding the Kalgold operation.
In fiscal 2010, the Kalgold operations accounted for approximately 3% (4% in fiscal 2009 and
5% in fiscal 2008) of our total gold production.
Safety: The Kalgold operations had a LTIFR of 1.49 (2009: 2.94) per million hours worked in fiscal
2010, and recorded no fatal accidents in fiscal 2010. Kalgold achieved 2,250,000 fatality free
shifts on June 14, 2010.
Plants: Ore is trucked from the pit and is directly tipped into the feed bin of the pre-primary
crusher or stockpiled. The ore then undergoes a four phase crushing process before it reaches the
Dome stockpile. Three ball mills are used to grind the ore down to between 70-80% less than 75
micron for the leaching process.
The following table sets forth processing capacity and average tons milled during fiscal 2010
for the plant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Milled for the |
|
|
Processing |
|
Fiscal Year Ended |
Plant |
|
Capacity |
|
June 30, 2010 |
|
|
(tons/month) |
|
(tons/month) |
CIL |
|
|
165,345 |
|
|
|
141,681 |
|
Heap Leach(1) |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Active use of heap leaching was discontinued in July 2001. |
In fiscal 2010, the plant at our Kalgold operations recovered approximately 85.6% of the
gold contained in the ore delivered for processing.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Kalgold |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
1,873 |
|
|
|
1,700 |
|
|
|
1,687 |
|
Recovered grade (ounces/ton) |
|
|
0.026 |
|
|
|
0.038 |
|
|
|
0.055 |
|
Gold produced (ounces) |
|
|
49,063 |
|
|
|
64,784 |
|
|
|
92,229 |
|
Gold sold (ounces) |
|
|
48,097 |
|
|
|
66,841 |
|
|
|
93,172 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales ($) (000) |
|
|
51,437 |
|
|
|
56,915 |
|
|
|
76,685 |
|
Cash cost ($) (000) |
|
|
36,162 |
|
|
|
32,390 |
|
|
|
38,272 |
|
Cash profit ($) (000) |
|
|
15,275 |
|
|
|
24,525 |
|
|
|
38,413 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($) |
|
|
748 |
|
|
|
506 |
|
|
|
404 |
|
Capex ($) (000) |
|
|
1,389 |
|
|
|
1,090 |
|
|
|
1,347 |
|
Tons milled increased from 1,687,000 in fiscal 2008 to 1,700,000 in fiscal 2009. Ounces
produced decreased to 64,784 in fiscal 2009, compared with 92,229 in fiscal 2008, due to a lower
recovered grade.
Cash costs decreased from US$38.3 million in fiscal 2008 to US$32.4 million in 2009 mainly due
to the deferred stripping write off from the previous financial year.
Tons milled increased from 1,700,000 in fiscal 2009 to 1,873,000 in fiscal 2010. Ounces
produced decreased to 49,063 in fiscal 2010, compared with 64,784 in fiscal 2009, due to the a
lower recovered grade.
Cash costs increased from US$32.4 million in fiscal 2009 to US$36.2 million in 201, mainly due
to an increase in plant costs in lieu of engineering breakdowns.
The processing design capacity of the Kalgold operation is 165,345 tons per month. The average
tons milled in fiscal 2010 were 141,681 tons per month.
59
Assuming no additional reserves are identified and at expected production levels, it is
foreseen that the reported proven and probable mineral reserves of 32.4 million tons (0.8 million
ounces) will be sufficient for the Kalgold operations to maintain production until approximately
fiscal 2024. However, any future changes to the assumptions upon which the reserves are based, as
well as any unforeseen events affecting production levels, could have a material effect on the
expected period of future operations.
Capital Expenditure: Harmony incurred approximately R11 million (US$1.4 million) in capital
expenditures at the Kalgold operations in the fiscal 2010. Harmony budgeted R67 million (US$8.8
million) for capital expenditures in fiscal 2011, primarily for CIL tank farm replacement and
replacing some of the plant structures.
Phoenix
Introduction: Phoenix is a tailings retreatment operation, located at Virginia and adjacent to our
current and historical mining operations in the Free State province. The Saaiplaas plant is used
for the treatment of the material from this project.
History: The project commenced during fiscal 2007 and is aimed at treating the surface sources from
our operations in the Free State province.
Safety: Safety at the Phoenix operations improved year-on-year in fiscal 2010. The LTIFR improved
by 32.4% to 1.46 per million hours worked from 2.16 in fiscal 2009. There were no fatalities during
fiscal 2010.
Plant: The Saaiplaas plant, commissioned in the late 1950s, has been converted from the zinc
precipitation filter process to the CIL. During 2007, the ROM mills were de-commissioned and the
plant started treating slime from Dam 22 and Brand A tailings storage facilities. The plant
currently processes reclaimed slime at 6 million tons per annum.
The following table sets forth processing capacity and average tons milled during fiscal 2010
for the Saaiplaas plant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Milled |
|
|
|
|
|
|
for the Fiscal Year |
|
|
Processing |
|
Ended |
Plant |
|
Capacity |
|
June 30, 2010 |
|
|
(tons/month) |
|
(tons/month) |
Saaiplaas |
|
|
551,155 |
|
|
|
507,063 |
|
In fiscal 2010, Saaiplaas plant recovered approximately 40.6% of the gold contained in the ore
delivered for processing.
Mining operations: Slimes tonnage reclamation decreased during fiscal 2010, to an average of
459,812 tons per month by year end, adversely affected by heavy rain, low slurry densities, and
critical equipment breakdown. The focus during the year was on improving efficiencies, recoveries
and ultimately profitability.
Slime deposition capacity constraints played a major factor in the treatment capacity of
Phoenix. Two new deposition sites were earmarked for use by Phoenix late in fiscal 2009. These
Tailing Storage Facilities (TSFs) were commissioned in fiscal 2010. Although the FSS 1 and FSS 4
dams were commissioned to provide additional deposition capacity, residue slime deposition remained
problematic due to low pulp densities below 1,300, heavy rain, pipe bursts and penstock failure on
the newly commissioned FSS 4. A floating penstock and new ring main have been installed at FSS 4
and the dam was re-commissioned during August 2010.
Fiscal 2010 was characterized by tonnage production problems mainly due to heavy rain, low
reclamation slurry densities and thickener breakdown and settling problems. The mining mix from the
Brand A source was changed to move from reclaiming top low grade only to 50:50 top:bottom with the
bottom higher grade lifting the average grade from the source to above 0.30g/t, though the recovery
from this source remains below 40%. The dam 22 source is depleting fast and will be replaced by dam
21 towards the end of fiscal 2011. Dam 21 is planned to deliver 60% of plant feed to improve the
average recovery grade once commissioned.
Upgrading of the flocculent plant storage capacity at the end of fiscal 2010 yielded improved
thickener settling and throughput capacity to achieve target tonnage, which greatly improves the
outlook for fiscal 2011. The installation and commissioning of cluster dewatering cyclones ahead of
the thickeners is expected to improve the ability to operate at ideal 50% solids through the plant
even further.
During fiscal 2010, Phoenix accounted for 1.5% of our total gold production (1.4% in fiscal 2009
and 1.7% in fiscal 2008).
60
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Free State (Phoenix) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
6,083 |
|
|
|
6,578 |
|
|
|
7,033 |
|
Recovered grade (ounces/ton) |
|
|
0.003 |
|
|
|
0.003 |
|
|
|
0.005 |
|
Gold produced (ounces) |
|
|
20,801 |
|
|
|
22,345 |
|
|
|
32,215 |
|
Gold sold (ounces) |
|
|
20,801 |
|
|
|
22,345 |
|
|
|
32,215 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
22,723 |
|
|
|
19,448 |
|
|
|
26,247 |
|
Cash cost (000) |
|
|
15,856 |
|
|
|
11,924 |
|
|
|
12,286 |
|
Cash profit (000) |
|
|
6,867 |
|
|
|
7,524 |
|
|
|
13,961 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($) |
|
|
762 |
|
|
|
534 |
|
|
|
381 |
|
Capex (000) ($) |
|
|
0.660 |
|
|
|
0.279 |
|
|
|
0.492 |
|
Tons treated from Phoenix decreased to 6,578,000 tons in fiscal 2009, compared with 7,033,000
in fiscal 2008. Ounces produced decreased to 22,345 ounces in fiscal 2009, compared with 32,215 in
fiscal 2008, primarily due to the decrease in tons treated as well as the lower recovery grade.
Cash costs decreased to US$11.9 million in fiscal 2009 from US$12.3 million in fiscal 2008,
despite the increase in some reagent costs, rising by as much as 40%. Cash costs per ounce
increased to US$534 per ounce, primarily due to the decrease in ounces produced for fiscal 2009.
Tons treated from Phoenix were 6,083,000 in fiscal 2010, compared with 6,578,000 in fiscal
2009. Ounces produced dropped to 20,801 in fiscal 2010, compared with 22,345 in fiscal 2009,
primarily due to the decrease in tons treated. The recovered grade remained at 0.003 ounces/ton in
fiscal 2010. The grade of the tons treated is dependent on the waste grade at the time at which the
original deposition was done.
Cash costs were US$15.9 million in fiscal 2010, compared with US$11.9 million in fiscal 2009,
primarily due to the decrease in volumes as well as the higher costs of reagents. Cash costs per
ounce increased during fiscal 2010 to US$762 per ounce, compared with US$534 in fiscal 2009 due to
the decrease in volume and increase in transport rates and the price of consumables and
electricity.
Capital Expenditure: We incurred approximately R5 million (US$0.7 million) in capital expenditures
at the Free State operations in fiscal 2010. For 2011, R30 million (US$3.9 million) is planned for
commissioning of Dam 21, plant feed dewatering cluster cyclones, pipeline replacement, completion
of additional adsorption stage, flotation pilot plant trials and other minor plant upgrades.
Cooke operations
Introduction: The Cooke operations are located in the Gauteng Province of South Africa,
approximately thirty kilometers west of Johannesburg.
During fiscal 2008, an agreement was entered into for the sale of the Cooke operations,
together with the associated surface assets. As a result, the assets and related liabilities were
classified as held for sale and the results from operations have been included under Discontinued
Operations in the income statement. On November 21, 2008, the conditions precedent were fulfilled
and the sale of an effective 60% interest in the operations was recognized. The discussion below
relates to the period up to the effective date of the sale.
Geology: These operations are situated in the West Rand Goldfield of the Witwatersrand Basin, 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. At the
Cooke operations, two major fault trends are present. The first is parallel to the Panvlakte Fault
and strikes north to north-east, having small throws and no lateral shift. The second trend, which
runs north-west to west, has small throws, but significant lateral shift, resulting in the
payshoots becoming displaced.
There are six identified main reef groupings in the area of these operations: the Black Reef;
the Ventersdorp Contact Reef; the Elsburg Formations; the Kimberleys; the Livingstone Reefs; and
the South Reef. Within these, several economic reef horizons have been mined at depths below
surface between 600 and 1,260 meters.
61
The reefs comprise fine to coarse grained pyritic mineralization within well developed thick
quartz pebble conglomerates or narrow single pebble lags, which in certain instances are replaced
by narrow carbon seams.
Mining Operations: The Cooke assets and related liabilities were classified as a disposal group and
held-for-sale during fiscal 2008.
Production at the Cooke operations was negatively affected in fiscal 2008 by a change in the
mining mix, with less ore from the high grade VCR reef at Cooke 3 Shaft and lower than expected
grades from 128 South project at Cooke 3 Shaft and from the 90 North 6 area at Cooke 2 Shaft. The
power shortages during the third quarter in 2008 also impacted negatively on volumes.
The Cooke operations accounted for 5% and 12% in fiscal 2009 and 2008, respectively of our
total gold production.
Plants: The processing facilities at the operations presently comprises of the Cooke metallurgical
plant, which is serviced by a surface rail network. The Cooke metallurgical plant, commissioned in
1977, is a hybrid CIP/CIL plant, which processes the tailings from the surface sands dumps around
Randfontein.
Feasibility studies are being done for a proposed Uranium Plant of an approximate capacity of
500,000 tons per month. It is envisaged that the plant will be completed in approximately three
years once approved, when it will treat uranium ore from the Cooke dumps as well as from the Cooke
3 underground operations.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Cooke operations |
|
2010 |
|
|
2009(1) |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
|
|
|
|
1,419 |
|
|
|
3,905 |
|
Underground |
|
|
|
|
|
|
514 |
|
|
|
1,322 |
|
Surface |
|
|
|
|
|
|
905 |
|
|
|
2,583 |
|
Recovered grade (ounces/ton) |
|
|
|
|
|
|
0.057 |
|
|
|
0.060 |
|
Underground |
|
|
|
|
|
|
0.137 |
|
|
|
0.152 |
|
Surface |
|
|
|
|
|
|
0.011 |
|
|
|
0.013 |
|
Gold produced (ounces) |
|
|
|
|
|
|
80,377 |
|
|
|
236,170 |
|
Underground |
|
|
|
|
|
|
70,378 |
|
|
|
201,884 |
|
Surface |
|
|
|
|
|
|
9,999 |
|
|
|
34,286 |
|
Gold sold (ounces) |
|
|
|
|
|
|
85,746 |
|
|
|
236,242 |
|
Underground |
|
|
|
|
|
|
75,747 |
|
|
|
201,939 |
|
Surface |
|
|
|
|
|
|
9,999 |
|
|
|
34,305 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
|
|
|
|
68,204 |
|
|
|
193,613 |
|
Cash cost (000) |
|
|
|
|
|
|
49,625 |
|
|
|
121,978 |
|
Cash profit (000) |
|
|
|
|
|
|
18,579 |
|
|
|
71,635 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($) |
|
|
|
|
|
|
644 |
|
|
|
511 |
|
Underground |
|
|
|
|
|
|
613 |
|
|
|
545 |
|
Surface |
|
|
|
|
|
|
868 |
|
|
|
525 |
|
Capex (000) ($) |
|
|
|
|
|
|
9,655 |
|
|
|
22,357 |
|
|
|
|
(1) |
|
As the operations were sold on November 21, 2008, the results are for the five
months then ended and are not comparable with the prior years. |
During fiscal 2008, the assets and related liabilities for Cooke 1, 2 and 3 as well as
the Cooke plant were classified as a disposal group and are held for sale. The results from the
operations were also classified as discontinued operations in the income statement. The table above
and the discussion below include the results of the surface operations.
Other Discontinued operations
Introduction: The results of operation from Other Discontinued Operations in fiscal 2008
consists of results from the Orkney operations and South Kalgoorlie. South Kalgoorlie formed part
of our International operations. Refer to Western Australia below for a discussion on its
operations and results.
The discussion on Orkney follows below.
62
Introduction: We acquired the Orkney operations when on September 22, 2003, we merged with ARMgold
via a share exchange which resulted in ARMgold becoming our wholly-owned subsidiary. In September
2007, we announced that we had entered into formal agreements with Pamodzi for the sale of the
Orkney Shafts. The sale was finalized on February 27, 2008 and the related assets and liabilities
derecognized.
History: Exploration and development at Orkney started 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 in 1944.
Geology: At the Orkney operations, the Vaal Reef is the most significant reef mined. The reef
strikes northeast, dipping southeast and is heavily faulted to form a series of graben structures.
The dip is generally less than 30 degrees but can vary locally in direction and magnitude to exceed
45 degrees. The VCR is also exploited, as well as the Elsburg Reef. There are several major faults
in the lease area, being Nooitgedacht, Buffelsdoorn, Witkop, WK2, No 3 BU, No 5 BU and No 2 BU
Fault. These faults typically have throws of tens of meters and further divide the reef into blocks
of up to 100 meters in width.
Mining operations: During February 2008, the Orkney shafts were sold to Pamodzi. These shafts had
been managed by Pamodzi since October 2007.
For fiscal 2008, the Orkney operations accounted for approximately 2% of our total gold
production.
Plants: Ore from the Orkney operations was treated at Vaal River Operations (VRO) No. 1 Gold
Plant (of Anglogold). Various agreements between us and VRO governed the supply and quality of the
ore and gold apportionment.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Orkney operations |
|
2010 |
|
|
2009 |
|
|
2008(1) |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
|
|
|
|
|
|
|
|
571 |
|
Recovered grade (ounces/ton) |
|
|
|
|
|
|
|
|
|
|
0.100 |
|
Gold produced (ounces) |
|
|
|
|
|
|
|
|
|
|
46,655 |
|
Gold sold (ounces) |
|
|
|
|
|
|
|
|
|
|
57,132 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
|
|
|
|
|
|
|
|
42,810 |
|
Cash cost (000) |
|
|
|
|
|
|
|
|
|
|
51,482 |
|
Cash (loss)/profit (000) |
|
|
|
|
|
|
|
|
|
|
(8,672 |
) |
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($) |
|
|
|
|
|
|
|
|
|
|
1,093 |
|
Capex ($) |
|
|
|
|
|
|
|
|
|
|
3,579 |
|
|
|
|
(1) |
|
The results are for the eight months ended February 2008. |
The Orkney operations were sold to Pamodzi during fiscal 2008 and therefore the results
for fiscal 2008 are only for eight months.
63
International Mining Operations
Western Australia Operations
Corporate Action Mount Magnet and Big Bell Operations
As indicated previously in various applications Harmony has been pursuing an exit strategy
from its Western Australian assets. This led to an agreement by Harmony to sell Mount Magnet and
Big Bell Gold Operations (BBGO) to Monarch Gold Mining Company Limited (Monarch).
However, the transaction fell through as Monarch was subsequently liquidated in July 2008.
Still in pursuant of the Western Australia exit strategy, Harmony opened a competitive bidding
process with three Australian companies for the disposal and sale of Mount Magnet and BBGO.
The highest and most attractive offer for the purchase of Mount Magnet was received from
Ramelius in July 2010. Harmony entered into a Share Sales Agreement with Ramelius for a total
consideration of A$35.3 million in cash plus replacement environmental bonds of A$4.7 million
totaling A$40.0 million consideration. Final settlement of the transaction took place in July 2010.
In accordance with IFRS requirements the Mount Magnet disposal group is classified as a
held-for-sale and discontinued operation at 30 June 2010.
The highest and most attractive offer for the purchase of BBGO was received from Fulcrum in
November 2009. Harmony entered into a Share Sales Agreement with Fulcrum for a total consideration
of A$3.5 million in cash plus replacement environmental bonds of A$3.2 million totaling A$6.7
million consideration. The sale effective on January 18, 2010 and final settlement of the
transaction took place in May 2010.
As of June 30, 2010, our Western Australian operations had 14 employees (these include care
and maintenance and exploration personnel on the Mount Magnet site).
In fiscal 2010, our Australian operations accounted for 0% of our total gold production, as
compared to 0% in fiscal 2009 and 4% in fiscal 2008.
Mount Magnet Operations
Introduction: In 2002, we acquired Mount Magnet as part of the Hill 50 transaction. In fiscal 2009,
Mount Magnets operations accounted for approximately 0% of our total gold production, as compared
to 4% and 6% respectively in fiscal years 2008 and 2007. This change was the result of the site
being placed on care and maintenance as from December 31, 2007.
History: Mining at Mount Magnet began after the discovery of gold in 1896. From that time to June
30, 2009, the Mount Magnet area has produced approximately 6 million ounces. The most recent Mount
Magnet operations commenced production in the late 1980s on the Hill 50 and Star underground mines
and nearby open-pits, and the processing of low grade ore from previously accumulated stockpiles.
Production ceased at the Star underground mine in June 2005. The Star underground mine was
subsequently replaced by St. George, a new underground mine. The Mount Magnet site was put on care
and maintenance as from December 31, 2007.
Geology: The Mount Magnet operations are located near the town of Mount Magnet in the Murchison
region, some 600 kilometers northeast of Perth. The geology consists of folded basaltic and
komatiitic greenstones with intercalated banded iron formations and volcaniclastic units. In
addition to having been intensely folded, the area has undergone substantial faulting and later
intrusion by felsic intrusives. Mineralization within the Murchison belt consists of sulphide
replacement style (characteristic of the Hill 50 mine) and quartz lode and shear-hosted
hydrothermally emplaced bodies proximal to fault conduits. Smaller stockwork bodies within felsic
intrusives are also common. As is typical of the Archaean Shield, the deep weathering profile at
Mount Magnet has resulted in supergene enrichment and hypogene dispersion of gold in the oxidizing
environments. These effects lend themselves well to the process of small scale open-pit mining.
Historically underground mining of primary lodes was the largest contributor to Mount Magnets gold
production.
Mining Operations:. The Mount Magnet operations were engaged in underground, open-pit and waste
rock mining prior to site closure. These operations are subject to the underground, open-pit, and
waste rock mining risks detailed in the Risk Factors section.
64
Underground operations at Mount Magnet consisted of the Hill 50 and St. George mines, each of
which operated a decline. The Hill 50 mine, which approached 1,525 meters in depth, was one of
Australias deepest underground mines. The St. George Mine was approximately 300 meters in depth.
Underground mining was conducted by decline tunnel access. The principal challenges confronted by
the Hill 50 underground mine related to its continuing depth and the geotechnical, ventilation and
cost impediments that increased depth imposes, including increased ground stress and potential
increased seismic activity. A decision was made in May 2007 which placed the Hill 50 mines decline
development on hold due to significant seismic activity, and effectively put the mine in harvest
mode at that time.
With the closure of Star, the development of the new underground mine at the St. George
open-pit provided additional underground tonnage for the Mount Magnet operations. Underground
development at St. George started in December 2005. The first stope was mined in the second quarter
of fiscal 2006. Underground mining continued at this mine during fiscal 2007. This mine reached its
economic depth limit during fiscal 2007, and was put in harvest mode, with mining operations
ceasing in October 2007. Open-pit production was hindered by the delay in the start up of the Cue
open-pits until the last quarter of fiscal 2005 as a result of delayed mining approvals and
extended contractor negotiations, although these were subsequently resolved and mining commenced in
fiscal 2006. Open-pit mining mainly took place around Mount Magnet during fiscal years 2007 and
2008.
Surface operations at Mount Magnet exploited several medium-sized open-pits, as well as
numerous smaller open-pits. Surface materials from areas previously involved in production,
including waste rock dumps and tailings dams, are also processed at Mount Magnet. The principal
challenge faced by the Mount Magnet operations involved the short mine lives which result from the
open-pits being situated on small orebodies. The Mount Magnet site was put on care and maintenance
as from December 31, 2007.
Plant: The Mount Magnet operations include one metallurgical plant which was built in 1989 as a CIL
plant and upgraded in 1999 to a CIP plant. Actual throughputs of the Mount Magnet plant varies
based upon the blend of oxide and sulphide ores in their feed. Processing capacity is an estimate
of nominal throughput based on a 70% hard (sulphide) and 30% oxide (soft) blend.
Throughput rates at Mount Magnet were at zero during in fiscal 2009 and 2010 due to the site
being closed and the plant being placed on care and maintenance.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
Mount Magnet |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
|
|
|
|
|
|
|
|
966 |
|
Recovered grade (ounces/ton) |
|
|
|
|
|
|
|
|
|
|
0.080 |
|
Gold produced (ounces) |
|
|
|
|
|
|
|
|
|
|
75,297 |
|
Gold sold (ounces) |
|
|
|
|
|
|
|
|
|
|
77,097 |
|
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
|
|
|
|
|
|
|
|
56,215 |
|
Cash cost (000) |
|
|
|
|
|
|
|
|
|
|
41,405 |
|
Cash profit (000) |
|
|
|
|
|
|
|
|
|
|
14,810 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold ($) |
|
|
|
|
|
|
|
|
|
|
545 |
|
Capex (000) ($) |
|
|
|
|
|
|
|
|
|
|
3,909 |
|
The majority of declared mineral reserves were mined during fiscal 2008. The mines were closed
and the processing plant has been put on care and maintenance in December 2007.
Capital Expenditure: We spent A$0 million on capital expenditure at the Mount Magnet operations in
fiscal 2009 and 2010, primarily due to the fact that the site was put on care and maintenance
during 2009 and a feasibility study was commenced during April 2009. No capital expenditure was
therefore incurred.
Exploration: Activities at Mount Magnet, Western Australia, were performed to the minimum level
required to keep the tenements in good standing as the site and the plant is currently on care and
maintenance.
65
South Kalgoorlie Operations
Introduction: The South Kalgoorlie Operations are made up of New Hamptons Jubilee Operations and
Hill 50s New Celebration operations. Since the commencement of operations to November 30, 2007,
total gold production from the mines in the South Kalgoorlie area has exceeded 2.5 million ounces.
In fiscal 2008, South Kalgoorlie operations accounted for 1% of Harmonys total gold production,
and accounted for 4% of our total gold production in 2007.
In July 2007, we announced the sale of the South Kalgoorlie Mine to Dioro. The total purchase
price was A$45 million (US$39.8 million), which consisted of a cash and a shares component. On
November 30, 2007, all conditions precedent to the transaction were satisfied. The results for
fiscal 2008 below reflect only the 5 months ended November 30, 2007.
History: The South Kalgoorlie operations included several open-pits at Jubilee and New Celebration,
as well at the Mount Marion underground mine. The Jubilee operations were originally comprised of
the large Jubilee open-pit and a number of smaller open-pits. The New Celebration operations were
initially developed in 1987 by Newmont exploiting the same ore body that hosted the Jubilee Pit.
Hill 50 acquired these operations from Newcrest in June 2001. The Mount Marion decline was
established in 1998. Open-pit mining ceased at the South Kalgoorlie Operations at the end of fiscal
2005, with only low grade stockpiles treated during fiscal 2006 together with Mount Marion ore.
During fiscal years 2008 and 2007, open-pit mining recommenced at South Kalgoorlie Mines, with a
cutback on the HBJ pit, as well as the Shirl open-pit.
Geology: The South Kalgoorlie mines were located approximately 30 kilometers south of Kalgoorlie in
the Eastern Goldfields region of Western Australia. The South Kalgoorlie orebodies were located in
a number of geological domains including the Kalgoorlie-Kambalda belt, the Boulder-Lefroy
Structure, the Zuleika Shear, the Coolgardie Belt and Yilgarn-Roe Structures. At South Kalgoorlie,
the mining tenure and geology straddled the three major fault systems or crystal sutures considered
to be the main ore body plumbing systems of the Kalgoorlie Goldfield. The geology consisted of
Archaean greenstone stratigraphy of basalts and komatiites with intercalated sediments, tuffs,
volcaniclastics and later felsic intrusives. Late stage and large scale granitic (Proterozoic)
intrusion stoped out large sections of the greenstone. Quartz filled lode and shear-hosted bodies
are the most dominant among many mineralization styles. Large scale stockwork bodies hosted in
felsic volcanics were an important contributor to bulk tonnage of relatively low grade deposits.
Mining Operations: The South Kalgoorlie operations are engaged in open-pit, underground and waste
rock mining. These operations are subject to the underground, open pit and waste rock mining risks
detailed in the Risk Factors section.
At the South Kalgoorlie operations during fiscal 2008, open cast mining took place at Shirl
open-pit, together with a cutback project on the HBJ open-pit. The HBJ open-pit had a mine life of
three years and consisted of 3.3 million tons of 0.048 ounces per ton at the time the cutback was
completed. The discovery of the Shirl prospect during fiscal 2006, which resulted in an open-pit
reserve of 50,000 ounces and a 15 month mine life, together with an improved gold price
environment, lead to the recommencement of open-pit mining at South Kalgoorlie mines during fiscal
years 2008 and 2007. The primary challenge that faced the South Kalgoorlie operations involved
identifying adequate sources of new open-pit and underground reserves and managing the geotechnical
risk on the HBJ pit cutback. See Item 3. Key Information Risk Factors Risks Relating to Our
Business and Our Industry To maintain gold production beyond the expected lives of Harmonys
existing mines or to increase production materially above projected levels, Harmony will need to
access additional reserves through development or discovery.
Plant:. The South Kalgoorlie operation had a metallurgical plant located at Jubilee. This CIL
treatment plant was capable of treating the planned production from the mining operations. Ore was
hauled from the open-pits and from low grade Shirl stockpiles to the treatment plant by
conventional road trains. Actual throughputs of the Jubilee plant varied based upon the blend of
oxide and sulphide ores in their feed. Processing capacity was an estimate of nominal throughput
based on a 70% hard (sulphide) and 30% soft (oxide) blend.
Production analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
South Kalgoorlie |
|
2010(1) |
|
2009(1) |
|
2008(1) |
Production |
|
|
|
|
|
|
|
|
|
|
|
|
Tons (000) |
|
|
|
|
|
|
|
|
|
|
477 |
|
Recovered grade (ounces/ton) |
|
|
|
|
|
|
|
|
|
|
0.058 |
|
Gold produced (ounces) |
|
|
|
|
|
|
|
|
|
|
27,778 |
|
Gold sold (ounces) |
|
|
|
|
|
|
|
|
|
|
27,778 |
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
South Kalgoorlie |
|
2010(1) |
|
2009(1) |
|
2008(1) |
Results of operations ($) |
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (000) |
|
|
|
|
|
|
|
|
|
|
18,858 |
|
Cash cost (000) |
|
|
|
|
|
|
|
|
|
|
14,453 |
|
Cash profit (000) |
|
|
|
|
|
|
|
|
|
|
4,405 |
|
Cash costs |
|
|
|
|
|
|
|
|
|
|
|
|
Per ounce of gold($) |
|
|
|
|
|
|
|
|
|
|
517 |
|
Capex (000) ($) |
|
|
|
|
|
|
|
|
|
|
12,526 |
|
|
|
|
(1) |
|
The South Kal Operations sales process was concluded on November 30, 2007. The results for
fiscal 2008 are for the five months ended November 2007. |
67
Papua New Guinean Operations and Exploration
Overview
Introduction: Fiscal 2010 was the second year of the Morobe Mining Joint Venture between Harmony
and Newcrest. The Morobe Mining Joint Venture is a 50:50 Joint Venture encompassing:
|
1. |
|
the Hidden Valley Operation; |
|
|
2. |
|
the Wafi-Golpu Project; and |
|
|
3. |
|
an Exploration Joint Venture on the surrounding tenement package. |
Outside of the Morobe province Harmony have expanded the PNG exploration portfolio with four
new projects that are 100% owned:
|
1. |
|
Mount Hagen in the Western Highlands |
|
|
2. |
|
Amanab in the Sandaun Province |
|
|
3. |
|
Two tenement applications in the Central Province |
|
|
4. |
|
Two tenement applications in the Southern Highlands Province |
In addition several tenement applications have been lodged with the MRA including ELA1785-1786
In the Southern Highlands and ELA1784-1785 in the Central Province. However, grant notifications
for these applications had not been received by the end of fiscal 2010.
In terms of regional geological setting, Harmonys tenement interests are all located within
the New Guinea mobile belt. The mobile belt comprises tracts of metamorphosed Lower Jurassic and
Cretaceous sediments and oceanic crust. These rocks have undergone deformation in the collision
zone between the Australian and Pacific Plates and multiple intrusive events including Tertiary
granodiorite and younger mineralized porphyries.
Exploration expenditure in PNG for fiscal 2010 was A$22.4 million (US$19.8 million). This
breaks down into A$18.5 million (US$16.3 million) as Harmonys 50% contribution to the Morobe
Mining Joint Venture exploration program and A$3.9 million (US$3.4 million) for Harmony 100%
projects. Results from exploration work have been highly encouraging, with a major Resource
expansion achieved at the Wafi-Golpu Project, and a number of targets with the potential for major
stand-alone gold and copper/gold deposits identified and advanced to the drill testing phase.
68
Hidden Valley Operation
Introduction: The Hidden Valley project is an open pit gold-silver mine and processing plant. Two
separate open pits are in operation, being Hidden Valley-Kaveroi (HVK) pit, and Hamata pit. The
mill has been constructed to process a nominal 4.2 million tonnes (dry metric) of ore per year from
the two pits, with de-bottlenecking of the plant planned up to 4.7 million tonnes per year.
Newcrest purchased an initial 30.01% interest in the project on June 30, 2008, and provided
sole funding of the project to June 30, 2009 to earn a further 19.99%. On June 30, 2009 Newcrest
formally achieved 50% ownership in the project, such that the project is now a 50:50 joint venture
between Newcrest and Harmony.
The mine is located in a highly prospective exploration lease area and it is envisaged that,
as active exploration continues, the life of the process facility may be extended as it is fed from
a number of sources.
The project comprises four exploration licenses of 966 square kilometers in the Wau District
of Morobe Province, PNG and is located 210 kilometers north-northwest of Port Moresby and 90
kilometers south-southwest of Lae, the two largest cities in PNG. Access to the project is
presently by sealed road from the deepwater port of Lae to Bulolo. Harmony constructed an
all-weather gravel road from Bulolo to the Hidden Valley mine site to access the site.
History: Alluvial gold was first discovered at Hidden Valley in 1928 but it was not until the early
1980s that the area was investigated by CRA Exploration using modern exploration techniques that
resulted in the discovery of the Hidden Valley and Kaveroi gold deposits on EL 677. A number of
feasibility studies have been prepared for the Hidden Valley Project by the various owners,
including one by Abelle in 2003. Harmony extensively reviewed and updated the Abelle feasibility
study during fiscal 2006 in order to: (a) reflect changes in the projects
ore body interpretation; (b) incorporate
increases in capital and operating costs as a result of energy prices and scarce resources in the
mining industry as well; and (c) resolve technical aspects that were outstanding from the previous
study. The updated feasibility study was presented to the board during June 2006 with subsequent
approval given for construction of the project. In late 2007, Harmony began a search for a partner
to partake in all of our PNG mining and exploration activities, culminating in the selection of
Newcrest as a partner.
Project Overview: Currently ramping up to full production, the Hidden Valley Mine is expected to
initially process 4.6 million tons (short) of ore per annum from ore mined at two open-pits, The
HVK pit and the Hamata pit. Currently planned de-bottlenecking is expected to increase the
processing rate to 5.2 million tons (short) of ore per annum by year three of operations.
The HVK pit, at an elevation of between 2,500 m and 2,700 m above sea level, is the larger pit
supplying the majority of the ore. The HVK pit is located some 5 to 6 kilometers from the
processing plant.
The smaller Hamata pit is directly adjacent to the processing plant on the northern side of
the processing plant and is at an elevation of between 1,850 m and 2,040 m above sea level.
Current estimates are that at annual full production over 14 years, Hidden Valley will process
an average of 4.7Mt from both pits to produce around 250 000oz of gold and 3.4Moz of silver
annually.
The resources will be mined in a sequence that sees the low silver, high gold Hamata ore mined
first, with plant and infrastructure development for the project developed in close proximity to
the Hamata deposit. The next ore mined will be the Hidden Valley/Kaveroi oxide/transition ores
(high silver) followed by the Hidden Valley/Kaveroi primary ores.
Geology: The major gold-silver deposits of the Morobe Goldfield, and the Hidden Valley project are
hosted in the Wau Graben. The Wau Graben developed as a back-arc rift basin in the southern
extension of the New Guinea Mobile Belt (Owen Stanley Foreland Thrust Belt) covering an area of
approximately 850 square kilometers in which the Morobe Goldfield, including the Hidden Valley and
Hamata deposits are developed.
The Hidden Valley Deposit is interpreted as a low-sulphidation or adularia-sericite-type
epithermal gold-silver system. The Hidden Valley deposit further forms part of the
carbonate-base-metal-gold subgroup, with abundant carbonate vein-gangue. Other gold-silver deposits
around the Pacific Rim in this sub-group are Kelian (Indonesia), Woodlark (PNG) and Gold Ridge
(Solomon Islands).
Discrete zones of intense stockwork fracture and mineralized veining comprise individual
lodes. At the Hidden Valley deposit, gold and silver are related to steeply dipping (Hidden Valley
Zone, HVZ) and flat-lying (Kaveroi Creek Zone, KCZ) sheeted vein swarms associated with an
underlying shallow thrust.
Reserves: The proven and probable gold reserves for the Hidden Valley/Kaveroi/Hamata deposits (50%
attributable interest) are 1.8 million ounces at 0.054 ounces per ton. Silver proven and probable
reserves at Hidden Valley/Kaveroi and Hamata amount to 32.0 million ounces at 1.036 ounces per ton.
See Item 4. Reserves.
69
Site Access: The Hidden Valley site is located approximately 90 kilometers south-southwest of Lae,
which is the nearest deepwater port for the project, and the Capital of Morobe Province. Access to
the site from Lae uses an existing 110 kilometers sealed two-lane main road to the town of Bulolo,
continuing to Hidden Valley via an all-weather two-lane gravel access road constructed by Harmony.
Power Supply: The ability to obtain an alternate power supply from PNGs national power supplier,
PNG Power Limited (PPL), is of importance to the project. On May 14, 2007, Harmony announced that
it had signed an agreement with PPL to supply the Hidden Valley mine with electricity. PPL has
committed to construct new transmission lines and infrastructure in order to supply
hydro-electricity from the Yonki Dam. Contracts for this work have already been awarded.
Construction on site of the connecting supply power lines and pylons is currently underway. We
expect to receive our full quota of electricity from PPL by the end of December 2010.
Harmony acquired and installed sufficient diesel generators for the purpose of providing 100%
backup power supply to the project, and has to date been powering the site with these diesel
generators.
Customs and Excise: In November 2006 the PNG National Executive Committee approved exemptions to
customs and excise on a range of commodities that will be required for the construction of the
project. This was gazetted, and customs officials at Lae port are already applying the exemptions,
based on the draft gazettal notice.
Environment: The environmental investigation and completion of the Environmental Impact Statement
(EIS), was undertaken by
Enesar Consulting Pty Ltd. The investigation applied the data and knowledge gathered since 1987 and
baseline studies undertaken as part of the 2004 Feasibility Study, to establish the environmental
impacts of the revised development plan.
The EIS has been approved by the Minister for Environment and Conservation of the PNG
Government and Environment (Waste Discharge) and Environment (Water Extraction) permits were
granted in March 2005. The Hidden Valley Project is the first mining project in PNG to be
completely permitted under the new Environment Act 2000.
A condition of the Environmental Permit is the development and submission for approval of an
Environmental Management Plan (EMP). The EMP was approved in April 2006. Other conditions of the
Environmental Permit included the development of an Acid Mine Drainage (AMD) management strategy
and a waste management strategy, which were submitted in 2007. Management of AMD and waste disposal
remain a critical issue being tackled by the site.
Hidden Valley is the first major open pit mine in PNG to build a Tailings Storage Facility
(TSF) to contain all tailings, followed by discharge of treated decant (involving cyanide
detoxification).
Community affairs/landowner discussions: Through its subsidiary Morobe Consolidated Gold (MCG),
Harmony worked extensively with the landowners, local and national government to agree an
appropriate sharing of the benefits of the Hidden Valley proposed mine. This culminated in the
signing of a Memorandum of Agreement (MOA) between MCG and relevant affected parties on the
August 5, 2005. These parties were PNG National Government, the Morobe Provincial Government, the
immediate area Local Level Government units and the local Landowner Association. This MOA clearly
defines the roles and responsibilities of each signatory and in particular removes any of the
grey area with regards to the distribution of proceeds from mineral royalties.
Community support and development of the mine in compliance with the MOA with landowner groups
is critical to the success of the project. Meetings are held regularly with these groups and
officials from the provincial and national government to monitor progress and ensure these
objectives are met. A range of opportunities for the commercial participation of landowner groups
in the development of the project have occurred, and community relations initiatives focused on
positive outcomes for health, education and infrastructure are ongoing.
Mining and Mining Fleet: The mine is being developed by conventional open pit mining techniques.
The primary mining fleet consists of three Komatsu PC-2000 hydraulic backhoe excavators, two
Komatsu PC-800 hydraulic backhoe excavators, two Komatsu WA-900 front-end loaders and 25 Komatsu
785-7 rigid dump trucks (100 t class). Drilling equipment comprises seven Atlas Copco ECM720 drill
rigs, drilling 6.5 meter holes at 127 mm diameter. A range of ancillary equipment includes track
dozers, graders, a fuel truck, and numerous light vehicles.
Ore is delivered by truck to the Hamata and Hidden Valley crusher stations. Crushed Hamata ore
is delivered by conventional conveyor to the primary stockpile and Hidden Valley ore is delivered
via an overland pipe conveyor to the same stockpile.
70
Plant: Once fully operational the processing plant is expected to process ore at a rate of
approximately 4.6 million tons of ore per annum and has been designed with three distinct process
routes that complement the metallurgical characteristics of the three ore types to be mined. The
processing plant will commence as:
|
(a) |
|
a primary crushing, grinding (with the incorporation of a gravity gold recovery circuit),
CIL, Merrill-Crowe zinc precipitation, goldroom and tailings detox plant for the low silver
Hamata ores, and |
|
|
(b) |
|
will revert to a primary and secondary crushing, grinding, flotation, concentrate
regrind, counter-current decantation circuit with Merrill-Crowe zinc precipitation,
flotation concentrate and tailing CIL, goldroom and tailings detox for the high silver
oxide/transition ores, and |
|
|
(c) |
|
then a similar circuit without flotation tail CIL for high silver sulphide ores from
Hidden valley/Kaveroi ores. |
The gravity gold recovered will be processed through an intensive cyanide leach followed by
electro-winning circuit to produce a high quality ore product.
All tailings will be stored in a tailings storage facility, and all water recovered will be
subject to detoxification prior to being re-cycled or released to the environment. The processing
plant and tailings storage facility will be built to meet or exceed the requirement of the
International Cyanide Management Code. Gold production commenced in August 2009, and the plant is
currently ramping up to nameplate production.
Government royalty and other rights: The gold and silver production from the Hidden Valley Project
will be subject to a 2% royalty, payable on the net return from refined production if refined in
PNG or 2% royalty on the realized price if refined out of PNG.
The government of PNG also has a statutory right to acquire up to a 30% participatory interest
in mining development projects, at sunk cost. Once an interest is acquired by the government of
PNG, it contributes to the further exploration and development costs on a pro rata basis. This
right was not exercised by the government over Hidden Valley, however the memorandum of agreement
signed between the government and ourselves negotiated a participation right of 5%, for the
landowners. Subsequent negotiations have seen this right transferred into a Benefit Sharing
Agreement. The benefit is equivalent to a 0.2% royalty on gold and silver production and payable
into an agreed community trust structure, the Hidden Valley Mine Trust. This Trust is administered
by a reputable corporate trustee, who is guided by the recommendations of a Board of Governors,
comprising representatives of the three landowner villages, the Morobe Provincial government, the
MRA and the Hidden Valley Mine Joint Venture.
Third Party Royalties: On March 28, 2007, we announced that we had concluded negotiations with Rio
Tinto pursuant to which we would purchase the Rio Tinto rights under a royalty agreement relating
to Hidden Valley, which was entered into prior to our acquisition of the Hidden Valley and
Kerimenge deposits in PNG. Under the royalty agreement, Rio Tinto had the right to receive a
portion of between 2% and 3.5% of future ounces produced by the Hidden Valley mine in PNG. The
consideration we paid to Rio Tinto totaled US$22.5 million, which was settled with our issue of
ordinary shares valuing US$20 million, with the balance of US$2.5 million paid in cash.
The transaction will reduce the cash costs per ounce of gold produced at Hidden Valley, and
all further extensions to the project, mine life and reserves will be free of this royalty.
Production analysis: Full production began in May 2010 and by the end of fiscal 2010 monthly
production had risen to 300KMt, equivalent to 87% of nameplate capacity and reflecting the more
stable operating performance and consistent plant use. In all for fiscal 2010, 2.7 million tons
were processed to yield 122,346 ounces of gold and 445,435 ounces of silver.
Capital Expenditure: Capital expenditure on the project for fiscal 2010 was US$121 million (A$143
million) compared to the US$319 million (A$399 million) spent in fiscal 2009. Capital was mainly
spent on completing the overland pipe conveyor, flotation and regrind circuit in the processing
plant and capitalization of commissioning costs prior to reaching commercial levels of production
on 1st May 2010. The total project capital cost was US$661 million (A$781 million), which
represents a 1.6% increase in A$ terms on the last reported budget. There were no significant
changes in the scope of work of the project. This value excludes US$37 million for mine fleet
repayments post the construction phase which is not considered part of the construction capital.
71
Wafi-Golpu Project
Introduction: The Wafi prospect is a 50:50 joint venture with Newcrest of Australia. Harmonys
ownership is through its wholly owned subsidiary, Wafi Mining Limited. The first exploration at
Wafi dates back to the nationwide porphyry copper search by CRA Exploration Ltd in the late 1960s.
Elders Resources farmed-in to the project from 1989-1991, and AGF subsequently farmed-in to the
project for a short period in 1997 prior to going into administration in 1998. Aurora subsequently
acquired the project from Rio Tinto (CRA) in 1999, with ownership passing to Abelle when it merged
with Aurora in 2002. We assumed control of the Wafi Project by way of the acquisition of Abelle in
2003. The project is held under 2 contiguous exploration licenses (EL 440, and EL 1105), totaling
130.5 square kilometers. The Wafi Golpu Project comprises a porphyry and epithermal copper and gold
systems within a 2.5km x 2.5km area and contains numerous lodes including the Golpu copper gold
porphyry, the Nambonga gold copper porpyryr and the Wafi epithermal gold lodes. The Wafi gold
mineralization is hosted by sedimentary/volcanoclastic rocks of the Owen Stanley Formation which
surrounds the intrusive Wafi Diatreme. Gold mineralization occurs in the form of extensive
high-sulphidation epithermal alteration overprinting porphyry mineralization and epithermal style
vein-hosted and replacement gold mineralization with associated wall-rock alteration. Exploration
expenditure (including Pre-feasibility studies) on the project for fiscal 2010 was US$17.1 million
(A$20.2 million).
Geography: The Wafi prospect is located near Mount Watut in the Morobe Province of PNG,
approximately 60 kilometers southwest of Lae and about 60 kilometers northwest of Wau. The Wafi
camp is located at an elevation of approximately 400 meters above sea level in terrain that is
mountainous and forested in most areas. The site is accessed by sealed road (Lae to Bulolo) which
comes within 5 kilometers of the eastern edge of the tenements and 15 kilometers from the Wafi
camp. From the sealed road, a 38 kilometer dirt-base access track to the prospect is accessible
during most weather conditions. The site is serviced by helicopter when the road access is cut due
to extreme wet weather. Watut Valley is located immediately west of the project, and the foothills
of Watut Valley provide an option for placement of ore processing and mine infrastructure.
Alternatively, the processing plant may be located in the Markham River valley closer to Lae.
Mining Reserves. Following completion of the Golpu Copper/Gold pre-feasibility study, a probable
mineral reserve has been declared. See Item 4. Reserves.
The Golpu Mineral Reserve is derived from the 2007 Golpu Stand Alone Project Pre Feasibility
Study. This study assumes a block cave underground mine with ore processed on site to produced a
copper and gold concentrate for shipping to smelter. Metallurgical Studies indicate that recoveries
of 88% for copper, 54% for gold and 36% for molybdenum can be expected. Metal prices are assumed at
US$2.30/lb for copper, US$520/oz gold and US$20/lb for molybdenum in this declaration
In declaring the probable reserve, the following considerations are required:
|
1. |
|
The PFS is completed to industry accepted standards for a PFS (±20-25% accuracy). The
outcome of further more detailed studies may affect the reserve. |
|
|
2. |
|
The location for the tailings storage facility has not been finalized, however potential
sites proximal to the project have been defined. |
|
|
3. |
|
There are outstanding issues associated with traditional land owners required to be
resolved before the project is able to be constructed. |
|
|
4. |
|
The board has not yet committed to completing subsequent phases of study, or to project
construction. |
Subsequent drilling has expanded the Resource considerably. This new Resource is allowing a re
working of the Pre Feasibility study and a new Reserve will be declared upon completion of the
study, which is expected in 2011.
A reserve for the Wafi gold ore bodies has not been declared.
Government Royalty and Other Rights: The metal production from the Wafi Project is subject to a 2%
royalty payable on the net return from refined production if refined in PNG or a 2% royalty payable
on the realized price if refined outside of PNG. The government royalty has been accounted for in
project financial models. PNG also has a statutory right to acquire up to a 30% participatory
interest in mining development projects at sunk cost. Once an interest is acquired by the
government of PNG, it contributes to the further exploration and development costs on a pro rata
basis.
Third Party Royalties: There are no third party royalties. A royalty that was over the project was
bought out from Rio Tinto in 2008.
Capital Expenditures: No capital expenditures were incurred during fiscal 2010 as exploration
drilling work was still underway, and costs were expensed as a result.
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Concept Study: Due to the increased resource at Golpu a Concept study was completed for Wafi-Golpu
that builds on previous studies and is updated based on new information and enhanced development
approaches.
The objective of the concept study is to:
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Outline the key drivers and major development options; |
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Define at least one technically and commercially viable business case; and |
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Establish further value building opportunities and a work plan for Prefeasibility; |
The concept study evaluated a number of development alternatives for Wafi and Golpu
respectively. A range of potential viable alternatives were identified. The base case involves the
integrated development of Wafi and Golpu in a number of sequenced development stages.
The initial development focuses on the early establishment of open pit mining and oxide
process plant to treat the gold rich Wafi and Golpu oxide ores to minimize upfront capital and
reduce the timeframe from execution to production.
The second phase of development focuses on increasing gold production through the expansion of
the Wafi orebody at depth and expansion of the process plant to increase throughput and treat the
refractory ore.
The last phase of development is the construction of the Golpu underground block cave and
construction of a 14mtpa copper concentrator with a pyrite circuit integrated into the refractory
treatment plant. Significant additional resources have been identified below the current Golpu
mining footprint and are likely to result in a second mining lift directly below the current
design.
The development strategy generates future opportunities for value creation that are not
currently included in the project, including:
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Expansion of the Golpu resources to the north; |
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Improved Wafi resource recovery through enhanced resource modeling; |
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Development of Wafi at depth and the Western zone adjacent to Wafi A zone; |
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Further refractory process development and enhancement; and |
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Produce a Molybdenum concentrate from Golpu copper concentrate. |
It is estimated that capital investment of between US$2,000 and US$2,600 million (real) is
required to develop all necessary mining openings and physical infrastructure to allow
establishment of all three stages. The range reflects the range of potential mining methods and
refractory processing routes.
Wafi-Golpu open pits and Golpu underground produce standalone positive NPV projects.
Wafi Gold Projects
Introduction: The Wafi Gold resource is comprised of three main zones: Zone A, Zone B and the Link
Zone (high grade lenses within Zone B). In addition to the Wafi resource, the Western Zone is an
advanced exploration project.
Geology: The Wafi-Golpu deposit is hosted by the regionally extensive Owen Stanley Metamorphics in
a location characterized by a north-west trending structural corridor and an associated intrusive
cluster. About 60 km to the south the same structural corridor forms Wau Graben which is host to
the Hidden Valley-Kaveroi deposits.
Mineralization covers an approximate aerial extent of 1.5 km square and a known depth of 1,500
meters. Trends indicate mineralization may extend to 2000 meters or more. Exploration drilling is
in progress to systematically evaluate the depth extents. This exploration is driven by indications
that significant tonnage may yet remain to be discovered that is higher in gold grade and copper
grade.
The mineralization is associated with an intermediate intrusive complex comprising
diorite-dacite-andesite intrusives. At one point an explosive release from the intrusive complex
produced a large diatreme breccia which occupies the central part of the deposit. Evolution of the
mineralizing system continued through a porphyry mineralization phase (which produced the Golpu and
Nambonga deposits) and into an epithermal veining phase which produced advanced argillic
mineralization and both high sulphidation (pyrite) and low sulphidation carbonate base metal
mineralization for example the Zone A-B-Link deposits.
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The combination of low grades and the partially refractory nature of the ore, means in order
to achieve the desired business outcomes the processing scale and geo-metallurgical knowledge
required will be at or greater than that achieved elsewhere for a refractory gold deposit.
Geological activities will provide key geo-metallurgical inputs to ongoing exploration,
geotechnical, mining, metallurgical and environmental studies inclusive of a structural model,
oxidation surface, geochemistry, mineralogy and ore types.
Project Status: The Wafi lodes will be taken in Pre Feasibility study testing the various mining
and milling options identified in the Concept Study. This will include but not be limited to
geotechnical, mining, infrastructure, and environmental investigations.
Golpu Copper-Gold Project
Introduction: The Golpu Copper-Gold Project, or Golpu Project, is located approximately one
kilometer northeast of the Wafi gold orebodies and is part of the same geological system.
Geology: The Golpu copper gold deposit is a typical zoned porphyry copper system. Alteration grades
from potassic to phyllic to advanced argillic upwards from the core. Outwards from the core, the
alteration grades from intense potassic to propylitic alteration around the margin. Sulphide
species are also zoned from chalcopyrite dominant core to pyrite dominant around the margins. The
mineralized body is a porphyritic diorite intrusive, approximately 300 meters by 200 meters plan
dimension. However this mineralized body still remains open to the north.
Copper and gold mineralization extends some way into the metasediment host rock immediately
adjacent to the porphyry body by virtue of a stock vein network containing chalcopyrite and
molybdenum. As vein density decreases away from the porphyry contact, the copper-gold grades also
decreases. The overall footprint of the system is currenty 500m by 700m with drilling continuing to
extend mineralisation to the north.
The surface expression is oxidized and leached to about 150 meters vertical depth, resulting in a
residual gold only mineralization from which the copper has been leached. At the oxidation
interface, a strong 20- to 30 meters thick zone of supergene copper enrichment is developed which
transitions at depth into a lower grade covellite-enargite ore.
Beneath this is a zone of more covellite rich mineralization that contains
lesser enargite and consequently less arsenic. From
approximately 300 meters below surface, the ore exists in a covellite-rich (arsenic-poor) form
grading into a chalcopyrite rich zone from approximately 500 meters to its current known depth of
approximately 1.4 kilometers.
Project Status: Both Wafi gold and the Golpu copper-gold deposits were considered as part of a
concept study with Golpu and Wafi integrated into one operation. This concept study has been based
on:
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previous work carried out by Harmony (at PFS level) in 2007; |
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further study work carried out by the MMJV during mid 2009 and early 2010; |
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mine re-design using a new integrated geological model extrapolated based on new drill
results from Golpu deposit extensions in February 2010; |
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process re-design and thinking to process Wafi refractory ores; and |
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re-evaluation of hydropower generation. |
The studies have been based on the February 2010 geological model, and has since been revised
to include additional drilling results and provide an updated Mineral Resource. The new resource
model has validated the Golpu deeps extrapolation and as a result the model used for the study is
considered satisfactory at the concept stage.
The standard of mine design engineering is satisfactory for a concept level study. The mining
study has utilized a block model, and recognized open pit and block cave modeling packages. Costing
completed for mining the ore deposit is considered to be of a satisfactory standard for this level
of study and within the +/-35% accuracy level. The major exposure to the mining plan is the limited
geotechnical knowledge of the deposit and surrounding country rock. The Wafi area is geologically
very complex, and as such the limited geotechnical drilling which has been completed gives an
indication only of the likely structural, hydrological, and lithological conditions to be
encountered. Planning has commenced for the exploration decline which will be important for
collecting data necessary to complete the geotechnical and mine designs.
The standard for process engineering is of an acceptable level for the concept study. The
primary processing plant requirements for the oxide and Golpu copper porphyry have been
established, allowing a reasonable estimate or recovery and costs to be calculated. The basis for
the refractory ore processing alternatives are less defined and a number of enhancements have
little basis, but are considered acceptable at the concept stage. Reagent consumption and other
parameters such as power and water requirements, as well as manning levels have been established to
a level to allow the calculation of a concept level operating estimate for the project. Costs have
been calculated using factors.
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It is considered that the on site infrastructure investigations have been completed to a
concept level. Conceptual level studies have been completed for all major infrastructure areas and
these studies will be used to assess which options should be progressed to pre-feasibility stage.
A Competent Independent Review (CIR) has been completed for study. The CIR forms a key part
of the submission of the project proposal to the MMJV and the respective partners boards to ensure
that due diligence and corporate governance are maintained.
Additional Prospects and Exploration Potential: The Golpu and Wafi pre-feasibility studies focused
on developing the Golpu copper-gold, the high-grade gold link zone mineralization and the
non-refractory (oxide) portion of the A and B zone gold mineralization. However, excellent
prospects remain in the immediate vicinity of the existing resource areas for porphyry Cu-Au and
related epithermal Au mineralization. During fiscal 2008, the focus of the exploration program was
within a 2 km radius of the Wafi Golpu deposits, and the Nambonga North Prospect has been
identified where drilling has obtained a number of significant porphyry Cu-Au intercepts. At
Western Zone, drilling has intersected high-grade Au mineralization similar to that of the Link
Zone.
Wafi Transfer Structure & Regional Targets
Introduction: The Wafi Transfer structure comprises approximately 17km of strike and includes the
Wafi-Golpu Project area. The area has seen little exploration and remains highly prospective for
gold and porphyry copper gold resources similar to those at Wafi Golpu. A major regional
exploration program commenced during fiscal 2010 which included both grid based and ridge and spur
soil sampling (1252 samples), stream sediment sampling (208 samples), rock chip sampling (688
samples), magnetic interpretation and geological mapping (48 line kilometers). Drilling included 4
holes at the Kesiago prospect for 2508m.
Geology: The Wafi Transfer structure separates the Tertiary Babwaf conglomerate in the west from
Jurassic and Cretaceous metasedimentary rocks of the Owen Stanley Metamorphic group in the east.
Regional magnetics show the contact is intruded by a number of
magnetic intrusive
bodies similar to those at the Wafi-Golpu project and suggest
excellent potential for additional mineralized porphyry copper-gold and related gold deposits.
Project Status: Work completed to date has defined three high priority prospect areas , Mount Tonn,
Pekumbe, and Bavaga, all located within a 7 km radius of the Wafi-Golpu project
Bavaga is located approximately 5 km north of Wafi-Golpu. Results for stream sediment
reconnaissance over the area has been particularly encouraging with a large high tenor Au anomaly
defined from first pass sampling. A program of follow-up ridge and spur soils and reconnaissance
mapping and sampling is underway.
At Pekumbe prospect, grid based soil sampling defined a high tenor, coherent, coincident
copper, gold, molybdenum anomaly. Four drill holes have been approved for the first quarter of
fiscal 2010 to test the core of the anomaly over approximately 600m of strike
At Mount Tonn, grid based surface soil sampling has defined a significant Au anomaly
associated with a magnetic intrusive complex on the Wafi Transfer structure. Infill sampling is
underway to provide detail for optimizing first pass drilling in fiscal 2011.
Mount Hagen Project (Harmony 100%)
Introduction: Exploration work on the Mount Hagen project comprised ridge and spur soil sampling
(906 samples), trench sampling (9 trenches / 186 samples) and mapping (426 samples). First pass
drilling was completed at Kurunga prospect for a total of 4 holes for 1501.2 meters.
Project Status: During the year, the focus of exploration activities was drill testing the Kurunga
prospect where local artisanal miners were actively recovering gold from outcropping copper-gold
skarn mineralization.
Initial field-work involved the trenching of the area surrounding the outcropping Au
mineralization, in order to determine the orientation and controls to mineralization. A systematic
program of ridge and spur soil sampling was also undertaken in order to obtain geochemical coverage
over the surrounding area and the associated strong aeromagnetic anomalies. Ridge and spur soil
sampling was accompanied by creek traverses and mapping by geologists, in order to provide not only
a background geological context to the area, but also to delineate potential controlling structures
and pathfinder features.
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The soil sampling and mapping were successful in delineating the extent of the potential
mineralized system at Kurunga, along with a series of further targets hosting structurally
controlled Au and Cu mineralization. An eight hole diamond drilling program was designed to test
these targets, with four holes completed during the reporting period. Drilling was successful in
intersecting the observed surface Au and Cu mineralization at depth below the artisanal workings.
Additionally, other potential mineralization styles including epithermal style Au mineralization
was also intersected. The drill program and compilation of results was ongoing at the end of the
reporting period.
With the commencement of drilling operations at Kurunga, further reconnaissance mapping and
sampling was undertaken at the Bakil prospect, approximately 8km southwest of Kurunga. This
prospect was identified by visual observation of a significant area of landslip activity in an area
of no previous exploration activity, possibly corresponding to a large alteration system.
Subsequent initial investigations revealed an extensive system of altered volcaniclastic sediments
and intrusive units, with visible structurally hosted Cu mineralization. Several float samples
demonstrating visual Cu mineralization were also observed and sampled from local creeks and rivers.
Further reconnaissance work is ongoing at Bakil at the reporting period end including ridge and
spur soil sampling, with the goal of defining suitable drill targets for testing in the first half
of the fiscal 2011.
Amanab Project (Harmony 100%)
Introduction: Exploration work on the Amanab project commenced during the fourth quarter of fiscal
2010 with initial field visits to plan activities, and develop community contacts and support. This
is an extremely remote area of western PNG and only accessible by air, with the nearest regional
centre at Vanimo some 180kms to the north. Fly camps were in place and surface sampling commenced
at year end.
Project Status: The Amanab project consists of one granted lease, EL1708, with in the Sandaun
Province of PNG. During the reporting period, the final grant was received for EL1708. A thorough
review of previous exploration activities was undertaken by Brisbane based technical staff,
resulting in the definition of several highly prospective target areas (Yup River East, Yup River
West, Biaka, Dio River, Akraminag, Mouri and Akrani Nth). However, initial field work was postponed
until exploration activities could successfully be established at Mount Hagen.
An initial field team was established at Amanab station, with construction of a fly camp at
Oweniak village. Initial sampling commenced with ridge and spur soil sampling at the Yup East
prospect, which was defined from an examination of historic exploration results and reported local
alluvial gold mining. This program will continue with additional ridge and spur soil sampling
campaigns planned for Yup River West, and the Biaka prospects during fiscal 2011.
Hidden Valley ML Exploration
Introduction: Exploration work on the Hidden Valley ML (outside of the deposit areas) comprised
ridge and spur soil sampling (803 samples), trench sampling and mapping (1080 samples). First pass
drilling was completed at Apu Creek, Big Wau, and Yafo prospects for a total of 3 holes/1253
meters.
Project Status: With major drill programs undertaken for Hidden Valley resource definition and the
Wafi Golpu resource expansion, drilling activities on grassroots prospects on the ML was curtailed
during 2010. Work focused on integrating the geological and geochemical datasets with detailed
helimagnetics to generate new targets for fiscal 2011.
Project generation work together with continuous channel sampling and mapping south of the
Hidden Valley Kaveroi deposits generated several high priority targets for drill testing. These
include the Tais Creek and Waterfall prospect areas.
Follow-up drilling at Apu creek returned several zones of base metal mineralization with
associated alteration. Interpretation of alteration patterns and the metal zonation through the
main deposit, as well as, prospects along strike such as Hidden Valley South and Apu Creek, is
being completed to develop a mineralization model.
Drilling at Big Wau has downgraded the prospect and no further work is planned at this stage.
Kerimenge and the broader prospect potential
Introduction: The Broader Kerimenge project area lies approximately 7 kilometers east of the Hidden
Valley Kaveroi deposit. The area is being targeted for high grade satellite mineralization to
supplement the ore feed through Hamata Processing Plant . Work completed during fiscal 2010 focused
on trenching and reconnaissance sampling over the broader project area. A total of 433 surface
samples were collected and assayed, and over 22.3 line kilometers of creek mapping completed.
Project Status: Results from the work have highlighted the Kauri Wara Muli areas located
approximately 2km north of the Kerimenge Prospect. First pass ridge and spur soils was completed
over a 7 square kilometer. Results have highlighted a mineralized contact with anomalous gold and
base metal assays with potential for up to 4 km of strike. Mapping has confirmed prospectivity with
mineralized vein stockworks along the porphyry-granodiorite contact. Follow-up work and first pass
drilling is planned for fiscal 2011.
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Figure 1: Morobe Mining Joint Venture (Harmony 50%) Tenement Location Map
Morobe Coast Exploration License
Introduction: The Morobe Coast exploration license, EL1403, encompasses 520.2 square kilometers of
tenure. A compulsory 50% reduction was completed in April 2010, although a application (ELA 1849)
encompassing the relinquished portion was successful in securing priority to the ground. The area
lies to the southeast of the Morobe Goldfield, and we believe it presents grassroots exploration
potential. Historical exploration work has been limited, but returned anomalous gold assays in rock
chip and stream sediment samples from the Lokaniu volcanics.
Wiwo and Giu Prospect. The Giu and Wiwo prospect areas fall approximately 10 kilometers
southwest of the Morobe township on the east coast of PNG, and has been the main focus of
exploration activities on EL1403. A detailed airborne magnetic survey was completed during fiscal
2010 for over 8000 line kilometers. 563 surface soil samples were completed as part of a first pass
ridge and spur soil sampling program over the Wiwo prospect area
Mapping to date has outlined several areas of structurally controlled epithermal vein
mineralization, hosted in vesicular basalts. Rock chip results continue to be encouraging with
anomalous values of copper, gold, molybdenum and zinc returned.
Project Status: Integration of new geochemical and geophysical datasets is currently underway to
define targets for follow-up work.
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REGULATION
Mineral Rights
South Africa
South African law no longer provides for the separate ownership of surface and mineral rights.
Prior to the promulgation of the MPRDA on May 1, 2004, it was therefore possible for one person to
own the surface of a property, another to own rights to precious metals, and yet another to own
rights to base minerals. In terms of the MPRDA, all mineral rights in South Africa are now vested
in the South African State. The principal objectives of the Act are:
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to recognize the internationally accepted right of the state of South Africa to exercise
full and permanent sovereignty over all the mineral and petroleum resources within South
Africa; |
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to give effect to the principle of South Africas custodianship of its mineral and
petroleum resources; |
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to promote equitable access to South Africas mineral and petroleum resources to all the
people of South Africa; |
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to substantially and meaningfully expand opportunities for HDSAs including women, to
enter the mineral and petroleum industry and to benefit from the exploitation of South
Africas mineral and petroleum resources; |
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to promote economic growth and mineral and petroleum resources development in South
Africa; |
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to promote employment and advance the social and economic welfare of all South Africans; |
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to provide security of tenure in respect of prospecting, exploration, mining and
production operations; |
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to give effect to Section 24 of the South African Constitution by ensuring that South
Africas mineral and petroleum resources are developed in an orderly and ecologically
sustainable manner while promoting justifiable social and economic development; and |
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to ensure that holders of mining and production rights contribute towards socio-economic
development of the areas in which they are operating. |
Under the MPRDA, tenure over established mining operations is secured for up to 30 years (and
renewable for periods not exceeding 30 years each thereafter), provided that mining companies apply
for new order mining rights over existing operations within five years of May 1, 2004, or before
the existing right expires, whichever is the earlier date and fulfill requirements specified in the
MPRDA, its Regulations and the Mining Charter.
The Mining Charter was signed by government and stakeholders in October 2002 and contains
principles relating to the transfer, over a ten-year period, of 26% of South Africas mining assets
(as equity or attributable units of production) to HDSAs, as defined in the Mining Charter. An
interim target of 15% HDSA participation over five years was set and to this end, the South African
mining industry committed to securing financing to fund participation of HDSAs in an amount of
R100.0 billion within the first five years of the Mining Charters tenure. The Mining Charter
provides for the review of the participation process after five years to determine what further
steps, if any, are needed to achieve the 26% target participation. In order to measure progress in
meeting the requirements of the Mining Charter, companies are required to complete a scorecard,
in which the levels of compliance with the Mining Charter can be ticked-off after five and ten
years respectively. The Mining Charter and Scorecard require programs for black economic
empowerment and the promotion of value-added production (mineral beneficiation), such as
jewelry-making and other gold fabrication, in South Africa. In particular, targets are set out for
broad-based black economic empowerment in the areas of human resource and skills development;
employment equity; procurement beneficiation and direct ownership. In addition, the Mining Charter
addresses socio-economic issues such as migrant labor, mine community and rural development, and
housing and living conditions.
Following a review of the progress made by the mining industry after five years of
implementing the provisions of the Mining Charter , the DMR recently amended the Mining Charter and
the Revised Mining Charter was released on September 13, 2010. The requirement under the Mining
Charter for mining entities to achieve a 26% HDSA ownership of mining assets by the year 2014 has
been retained. Amendments to the Mining Charter in the Revised Mining Charter include, inter alia,
the requirement by mining companies to:
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facilitate local beneficiation of mineral commodities; |
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procure a minimum of 40% of capital goods, 70% of services and 50% of consumer goods
from HDSA suppliers (i.e. suppliers of which a minimum of 25% + 1 vote of their share
capital must be owned by HDSAs) by 2014. These targets will however be exclusive of
non-discretionary procurement expenditure; |
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achieve a minimum of 40% HDSA demographic representation by 2014 at executive
management (board) level, senior management (EXCO) level, core and critical skills, middle
management level and junior management level; |
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invest up to 5% per cent of annual payroll in essential skills development activities;
and |
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implement measures to improve the standards of housing and living conditions for
mineworkers by converting or upgrading mineworkers hostels into family units, attaining an
occupancy rate of one person per room and facilitating home ownership options for all
mineworkers in consultation with organised labour, all of which must be achieved by 2014. |
In addition, mining companies are required to monitor and evaluate their compliance to the
Revised Mining Charter, and must submit annual compliance reports to the DMR. The Scorecard makes
provision for a phased-in approach for compliance with the above targets over the five year period
ending in 2014. For measurement purposes, the Scorecard allocates various weightings to the
different elements of the Revised Mining Charter. Failure to comply with the provisions of the
Revised Mining Charter will amount to a breach of the MPRDA and may result in the cancellation or
suspension of a mining companys existing mining rights.
We actively carry out mining and exploration activities in all of our material mineral rights
areas. Accordingly, the MPRDA has not had a significant impact on these mining and exploration
activities because we applied for and were granted the conversion of all of our old order mining
rights into mining rights in terms of the MPRDA. We now have to comply with the required annual and
bi-annual reporting to the DMR on the Social and Labor Plans, Environmental Management Programmes,
and Progress Reports on our prospecting rights.
We have already complied with the requirements of the Mining Charter, with an equivalent of
36% of production ounces qualifying as empowerment credit ounces. We have been working on our
program of licensing since 2004, which involved the compilation of a mineral assets register and
the identification of all of our economic, mineral and mining rights. We have secured all old
mining rights and validated existing mining authorizations. Our strategy has been to secure all
strategic mining rights on a region-by-region basis. The first application for conversion from old
order to new order mining rights was for the Evander Operations and was lodged on May 21, 2004.
The Evander mining license was the first conversion application in the region and in October 2004
we became the first senior company to convert old order to new order mining rights for our
Evander and Randfontein operations. We have worked closely with the DMR to help ensure, to the
extent we are able, that the licenses are granted as swiftly as possible. The conversion of
licenses for all our remaining operations were granted during November 2007 and Doornkop was
executed in October 2008. All of our mining areas are therefore secured/supported by new order
mining rights.
The Mineral and Petroleum Royalty Act 28 of 2008 and the Mineral and Petroleum Royalty
Administration Act 29 of 2008 were assented to on November 21, 2008 with the commencement date set
as May 1, 2009. However, the date on which royalties became payable was deferred to March 1, 2010.
Royalties are payable to the government according to formula based on earnings before interest and
tax. This rate is then applied to revenue to calculate the royalty amount due, with a minimum of
0.5% and a maximum of 5% for gold. Since the effective date of March 1, 2010, the average royalty
rate for our South African operations is 1.5% of gross sales.
The MPRDA intends to, among other things:
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give effect to the Ministers stated intention to promote investment in the South African
mining industry; |
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establish objective criteria for compliance with the MPRDAs socio- economic objectives; |
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remove the technical deficiencies of the MPRDA; |
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align the MPRDA with the Promotion of Administrative Justice Act, 2000; and |
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coordinate the environmental requirements between the MPRDA and the National
Environmental Management Act. |
Papua New Guinea
According to the Mining Act of 1992 (PNG) mineral rights in PNG belong to the government of
PNG and they have a statutory right to obtain up to a 30% participating interest in mining
development projects. The government then issues and administers mining tenements under the
relevant mining legislation, and mining companies must pay royalties to the government based on
production.
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The key difference in PNG is that citizens have the right to carry out non-mechanized mining
of alluvial minerals on land owned by them. These customary rights do not extend over a mining
lease, unless an alluvial mining lease is obtained.
Almost all land in PNG is owned by a person or group of persons, and is not generally overlaid
by landowner title issues. There is, however, considerable difficulty in identifying landowners of
a particular area of land because land ownership may arise from both contract and inheritance, and
because of the absence of a formal written registration system.
Prior to commencing exploration, compensation for loss or damage must be agreed with the
landowners. Prior to commencing mining, a written agreement must be entered into with landowners
dealing with compensation and other matters.
In PNG, Morobe Consolidated Goldfields Limited and Newcrest PNG 1 Limited hold a mining lease
and various exploration licenses granted by the Department of Mineralogy and Geohazards Management
for the Hidden Valley Project. Both parties have obligations under a memorandum of agreement with
the state, local government and the landowners.
Wafi Mining Limited and Newcrest PNG 2 Limited hold various exploration licenses granted by
the Department of Mineralogy and Geohazards Management for the Wafi-Golpu Project, and has entered
into a compensation agreement with landowners on one of its exploration licenses.
Harmony Gold (PNG) Exploration Limited manages three exploration licences granted in the
Western Highlands and the Sandaun Provinces. The company has also applied for four tenements in the
Central and Southern Highlands Provinces and is still awaiting ministerial approval.
In PNG there are no applicable exchange control restrictions but the PNG central bank does
have to be informed of all transactions and has to approve lending facilities and interests rates
charged.
Environmental Matters
South Africa
We are committed to conducting our business in an ethically, morally, socially and
environmentally responsible manner that will protect human health, natural resources and the
environment in which we live. We aim to balance our economic, social and environmental goals and
responsibilities to achieve sustainable, profitable growth in our business and, more importantly,
to work with communities and regulatory agencies to implement sound management practices which will
ensure that our mining is conducted in an environmentally-safe manner. In addition, with regard to
legacy mining impacts, we remain committed to identifying and implementing coordinated remediation
plans that are acceptable to all relevant parties.
Harmony has recently approved its environmental strategy which is geared towards:
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managing the business with environment as an integral part of the business processes; |
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focusing relentlessly on effectiveness of risk controls; |
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radically reducing the environmental liability in the organisation; |
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create a sharing, learning, challenging and innovative enviromental culture. |
In support of the above commitment, our environmental policy stipulates that:
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Compliance |
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We will strive to comply with all applicable municipal, provincial and national laws and
regulations, as well as the other requirements to which the company subscribes that are
relevant to the environmental aspects of our activities. |
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Continual Improvement |
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We will evaluate and continually improve the effectiveness of our Environmental Management
System (EMS) through periodic audits and management reviews, and we will review our
environmental policy on an annual basis. |
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Pollution Prevention |
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We will actively design our operations and undertake our mining activities so as to prevent
pollution. We will strive towards the continual reduction of adverse environmental effects and
support the principle of sustainable development. |
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Awareness |
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We will communicate our environmental policies to our employees, contractors and suppliers,
and will provide appropriate training to all employees to ensure their continuing awareness of
our environmental responsibilities. |
To address and minimize the impact of the companys operations on the environment, taking into
account regulatory requirements, the board has approved a number of five year targets relating to
emissions to air, water consumption and usage, energy consumption, recycling and land use based on
fiscal 2008, namely:
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Compliance |
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The Company will reduce the number of significant incidents to zero. |
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Air Pollution |
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All sites with emissions >100,000 tonnes per year CO2 equivalent is required to have and
maintain energy conservation plans by 2012. |
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Harmonys aggregate group target for reduction in energy consumption per ton milled is 10% by
2013 based on a 2005 base year. |
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Harmonys aggregate group target for reduction in GHG per ton milled is 5% by 2013 based on a
2005 base year. |
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Biodiversity |
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All sites will have a biodiversity action plan by 2012. |
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Water Management |
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The aggregate group target for increased affected water consumption per ton milled is a 5%
improvement by 2013 based on a 2008 base year. |
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The aggregate group target for reducing fresh water consumption per ton milled is a 2%
improvement by 2013 based on a 2008 base year. |
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Recycling |
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All steel, plastic and timber waste to be handled through designated areas, to improve levels
of recycling, and 50% of all oil and grease to be recycled. |
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Land Use |
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The aggregate group target is a 5% reduction in the land available for rehabilitation. |
Environmental performance
ISO14001 implementation
An ISO14001 EMS is being introduced progressively across our operations, and it is planned
that the implementation program at the longer-life operations will be completed in 2012. Formal
certification will be sought progressively. By the end of June 2010, the implementation status at
the various operations was estimated as follows:
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Doornkop shaft achieved certification in fiscal 2010; Doornkop plant is
scheduled for certificate in November 2010; |
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Kusasalethu Certification audit planned for March 2011; |
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Evander 8 Shaft Certification audit planned for October 2010; |
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Kalgold Certification audit planned for October 2010; and |
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Free State Harmony 1 plant December 2011. |
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The EMS forms the basis for the implementation of the environmental policy and monitoring
compliance, while the Environmental Management Programme Report (EMPR) developed in line with
legislative requirements, contain specific as well as general principles governing environmental
management during the life of the mine. The EMPRs identify individual impacts, mitigation measures
and rehabilitation requirements.
Generic closure objectives are set and high-level closure plans formulated within the EMPR,
including investigation of the potential for re-use of existing infrastructure, preparation of a
rehabilitation plan, rehabilitation and vegetation of the affected area and post-closure
monitoring. These EMPRs are legally binding and forms part of our submission for, and receipt, of
mining rights conversions. Revised EMPRs (aligned with new minerals legislation) were developed for
Doornkop, Kalgold, Joel, St Helena, Target, Evander, the Virginia operations and Kusasalethu in
fiscal 2009, and submitted to the regulatory authorities for approval. As part of this process,
public participation meetings have been held with interested and affected parties.
A number of annual compliance audits were undertaken during the year, most notably by the DMR.
Areas of non-compliance identified by the audits have been and are being addressed.
Significant environmental incidents
Significant incidents are defined as those that have an impact outside the Groups boundaries,
which may cause irreparable harm or which require significant expenditure to remedy. In fiscal
2010, five significant environmental incidents were reported. These related primarily to:
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localised sewage spill onto adjacent land (one incident); |
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localised slimes spillage into the Winkelhaakspruit (two incidents); |
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overflow of affected water from a water containment facility into a tributary stream as
a result of flash floods (one incident); and |
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overflow of affected water from a water containment facility into the adjoining storm
water facility (one incident). |
Financial provision
In accordance with legislation, Harmony has constituted independent environmental
rehabilitation trust funds to make adequate financial provision for the expected cost of
environmental rehabilitation at mine closure and for the discharge of its obligations and
contingent liabilities. Each operation reviews and updates the financial provision for its expected
environmental closure liability annually in consultation with a consultant. This estimate is then
used to calculate the contributions to be made to the rehabilitation trust funds, and, if
necessary, adjustments are made to the trust fund provisions.
The accumulated amount in the various South African rehabilitation trust funds was R1,702
million (US$223.2 million) at the end of June 2010 (compared with fiscal 2009, which was R1,597
(US$206.8 million)), while the total rehabilitation liability was estimated at R2,229 million
(US$292.2 million) (compared with fiscal 2009, which was R1,918 (US$248.3 million)). During the
year, we contributed R5 million (US$0.7 million) to the trust funds.We also arranged guarantees for
the environmental liabilities with Nedbank Limited amounting to R286 million (US$37.5 million).
The assets of each mine within each fund are ring-fenced and may not be used directly to
cross-subsidise one another.
Papua New Guinea
Our PNG operations are in various phases of activity including exploration, pre-feasibility
study and commissioning. We are subject to applicable environmental legislation including specific
site conditions attached to the mining tenements imposed by the PNG Government DEC, the terms and
conditions of operating licenses issued by the PNG MRA and DEC, and the Environment Permits for
water extraction and waste discharge issued by DEC.
Some non-compliances with these requirements have been identified at the Hidden Valley Mine
and remedial actions are being implemented in consultation with DEC and MRA. All other operations
in PNG are compliant with their respective statutory requirements.
All PNG operations have departments and personnel dedicated to environmental matters who are
responsible for implementing the company environmental management programs, monitoring the impact
of mining on the environment and responding to impacts that require specific attention outside of
the normal program of environmental activities.
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A framework for a Sustainable Business Management System (SBMS) has been completed which
complies with relevant Australian and international standards and principles for safety,
environment, quality and sustainable development (including AS/NZS ISO14001:Environmental
Management Systems, Equator Principles, and the Cyanide Code). This system will be implemented at
all PNG operations over the next two years.
Significant environmental incidents
There were a number of environmental incidents reports in PNG that may have had a moderate
impact on the receiving environment but were not considered major or at a level that would have
affected ecosystem function.
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Health and Safety Matters
South Africa
The Mine Health and Safety Act
For many years, the safety of persons working in South African mines and quarries was
controlled by the Mines and Works Act of 1956 and then by the Minerals Act of 1991 which was
replaced by the Mine Health and Safety Act. The Minerals Act of 1991 has subsequently been repealed
and the MPRDA promulgated. The Mine Health and Safety Act has since been amended by Act 74 of 2008.
The objectives of the Mine Health and Safety Act are:
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to protect the health and safety of employees and other persons at mines; |
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to promote a culture of health and safety; |
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to require employers and employees to identify hazards and eliminate, control and
minimize the risks relating to health and safety at mines; |
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to give effect to the public international law obligations of South Africa that concern
health and safety at mines; |
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to provide for employee participation in matters of health and safety through health and
safety representatives and health and safety committees at mines; |
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to provide for the effective monitoring of health and safety conditions at mines; |
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to provide for the enforcement of health and safety measures at mines; and |
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to foster and promote co-operation and consultation on health and safety between the DMR,
employers, employees and their representatives. |
The Mine Health and Safety Act prescribes general and specific duties for employers and
others, determines penalties and a system of administrative fines, and provides for employee
participation by requiring the appointment of health and safety representatives and the
establishment of health and safety committees. It also entrenches the right of employees to refuse
to work in dangerous conditions. Key amendments to this Act are the following:
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Training records to be kept |
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Employer investigations |
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Permanent committees of the MHSC |
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Health and Safety Management system |
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Administrative fines increased from R200,000 to R1million |
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Offences applicable to the Employer |
Government, through the DMR, ordered the institution of audit teams to conduct legal
compliance and systems and explosives control audits on mines across all commodities.
It is anticipated that Harmony will incur additional expenditure in order to comply with the
prescribed legislative requirements. Management anticipates that such additional expenditure will
not have a material adverse effect upon our operational results or financial condition.
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Criminal mining
Security issues with regard to criminal mining came to the fore during fiscal 2009. In June
2009, criminal mining resulted in the deaths of criminal miners. Harmony continues to address the
issue of criminal mining on a daily basis with enhanced security, together with the South African
Police Services, the Department of Justice, the National Prosecuting Authority and other affected
mining companies. We are doing everything reasonably practicable to ensure that the unauthorized
miners do not get access to shafts in order to prevent them from going underground illegally and to
prevent them from destroying existing infrastructure. We have invested a significant amount of
money in infrastructure and systems to achieve this.
Healthcare services
In South Africa, approximately 80% of primary health care and occupational health services are
provided to employees and their dependants through company-managed healthcare facilities which
include two private hospitals, one mine hospital and three private pharmacies. Casualty departments
at these hospitals provide 24-hour emergency services to local communities as well as to the
companys employees. The health and well-being of the remainder of Harmony employees, their
dependants and contractors is ensured through medical aid membership or third-party
service-providers, as part of their employment benefits.
In fiscal 2010, we embarked on a pro-active healthcare strategy with a shift in focus from
curative care towards preventative healthcare. Integrated individual healthcare was provided to
employees with the assistance of management information systems which enable Harmony Healthcare to
monitor and track the risk profile of each individual in terms of health and well-being. An
individual disease management plan is then developed and continually reviewed to assess progress.
Occupational health
In compliance with the Mine Health and Safety Act, medical surveillance continued at the
groups four medical surveillance centres. Medical surveillance examinations were conducted
including entry examinations (for new employees), annual examinations, exit (end of service)
examinations, and out-of-cycle examinations (for transfers, for example).
We align our occupational health statistics reporting to international standards such as the
International Labour Organizations Code of Practice on the Recording and Notification of
Occupational Accidents and Diseases, as well as the Mine Health and Safety Act. In the case of an
employee being identified as having a compensable occupational illness, the company submits his or
her details on the employees behalf to the Medical Bureau for Occupational Diseases (MBOD) or to
the Rand Mutual Assurance Company (RMA), depending on the illness and legislation that covers it.
The MBOD is a statutory body, responsible for certification and compensation in terms of the
Occupational Diseases in Mines and Works Act, 1973, to which Harmony contributes. RMA is an
industry body that provides compensation under the Compensation for Occupational Injuries and
Diseases Act of 1993.
The primary occupational health risk areas in fiscal 10 were silicosis, noise induced hearing
loss (NIHL), tuberculosis (TB) and occupational injuries.
HIV & AIDS Policy
We have managed to look at HIV & AIDS awareness campaigns holistically with our South African
workforce. Our HIV and AIDS campaigns are in line with the national HIV counseling and testing
(HCT) campaigns. Our treatment policy is also in line with the National Guidelines on Anti
Retroviral Treatment, which assists employees who decide to leave their place of work and return
home for care and are cared for at their homes through the TEBA home based care system, to which we
contribute. See Item 3. Key Information Risk Factors Risks Relating to Our Business and Our
Industry HIV & AIDS poses risks to Harmony in terms of productivity and costs and Item 3. Key
Information Risk Factors Risks Relating to Our Business and Our Industry The cost of
occupational healthcare services may increase in the future.
In South Africa, we have an agreement with the relevant stakeholders concerning the management
of HIV & AIDS in the workplace. This agreement, originally signed in 2002 with the National Union
of Mine Workers (NUM) and the United Association of South Africa (UASA) has been subsequently
amended, the latest in August 2006. While many aspects of the policy have remained unaltered, the
most fundamental change is the inclusion in the policy of a broad spectrum of chronic manageable
diseases other than HIV & AIDS such as diabetes, asthma and hypertension. This was done in order to
minimize the stigma surrounding stand alone HIV & AIDS treatment centers and also to emphasize our
view that HIV & AIDS should no longer be viewed as a death sentence, but rather a chronic,
manageable disease. We have decentralized some of the functions of the HIV and AIDS centers to the
clinics at the shafts where these functions can be easily accessed by employees. The agreement also
serves to reassure our employees of our commitment to the respect of all human rights and
commitment to non-discriminatory practices and zero tolerance to discrimination of any of our
employees. During the early stages of the implementation of the
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HIV & AIDS program, the agreement was also used as a marketing tool to
encourage employee participation in the Harmony HIV & AIDS Program.
Management of HIV & AIDS & Tuberculosis (TB)
The HIV & AIDS pandemic continues to have a significant impact on the company (through
absenteeism, reduced performance, loss of skills) and employees and their families. At Harmony HIV
& AIDS is managed at three levels.
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At a clinical level, the symptoms of the illness are managed by the Groups health care
services. |
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Company-wide and mine-specific initiatives are conducted. Shaft-based HIV & AIDS
committees form an integral part of the Health and Safety Committees, which meet on a
monthly basis. |
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Group policy and practice is overseen by a specialist health care professional. |
A revised integrated clinical strategy, developed as part of the new strategy to address TB
and HIV & AIDS was implemented during the year. This strategy was developed through a workshopping
process that was led by academics and experts drawn from the Universities of Cape Town, Pretoria
and Witwatersand, and with the participation of the 19 Harmony health care staff, ranging from
medical doctors, to occupational health practitioners, nursing sisters and others.
A number of key issues have been highlighted in this new strategy that integrate and
consolidate the traditional HIV &AIDS and TB approaches. These include:
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Concerted efforts will be made to enhance and sustain the groups Voluntary Counselling
and Testing (VCT) programs. |
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Enhanced education and counselling will be provided to employees who are HIV-negative. |
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Anti-retroviral therapy (ART) will be introduced at an earlier stage, which is expected
to have a significant impact on reducing HIV & AIDS incidence rates. |
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In addition, efforts will be made to intensify case findings, introduce isoniazid
preventative treatment and improve infection control with further infection control measures
such as the use of masks, ultra-violet lights, etc. |
HIV & AIDS performance
It is currently estimated (based on estimates within the gold mining industry) that around 27%
of Harmonys employees are HIV positive. It is possible, however, that actual prevalence rates are
higher than this as a result of the current treatment campaigns (including ART). We continue to
focus on early detection and treatment to increase the likelihood of extended, healthy lives for
infected employees. New electronic data collation systems were implemented in fiscal 2009 and we
envisage that there will be an improvement in monitoring and evaluation of the program outcomes in
fiscal 2011. During fiscal 2010, a total of 18,971 individuals were tested (2009: 22,806 tests), a
decrease of 17%. The decrease is because the initial VCT campaigns targeted a broader spectrum of
candidates and included the community as well as dependants.
Australia
Australia, via each State and Territory has a well regulated system of occupational health and
safety (OH&S), comprised of legislation (Acts and Regulations) and Codes of Practice. Australia is
moving to National OH&S Legislation and Draft Legislation has been circulated to the various levels
of government and industry for consultation. Several of these specifically apply to the mining
industry, including specific legislation and extensive codes of practice and guidelines. There is
also a well developed certification and licensing system for employees for the usage of certain
items of plant and equipment. The legislation governing this area also refers to the many
Australian Standards and specifically AS/NZS 4801 Occupational health and safety management
systems Specification with guidance for use which is the specific AS for the management of Safety
Systems.
In the event of injury while at work, employees are protected by a compulsory workers
compensation scheme, which are different for each state.
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Papua New Guinea
PNG has a significant mining industry, and a developing system of occupational health and
safety. The PNG Mining (Safety) Act of 1977 is the principal legislation that addresses a range of
issues such as working hours, minimum safety and reporting requirements. Other legislation and
regulations also apply.
Although reliable statistics with regard to infection rates are not readily available,
preliminary results indicate that PNG is in the early stages of an AIDS pandemic. As part of the
development of the Hidden Valley project, and other exploration activities carried out by us in
PNG, we have rolled out a health care strategy for our employees to increase AIDS awareness. See
Item 3. Key Information Risk Factors Risks Relating to Our Business and Our Industry
HIV/AIDS poses risks to Harmony in terms of productivity and costs and Item 3. Key Information
Risk Factors Risks Relating to Our Business and Our Industry The cost of occupational
healthcare services may increase in the future.
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Item 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis together with the consolidated financial
statements, including the related notes, appearing elsewhere in this annual report.
Overview
We conduct underground and surface gold mining and related activities, including exploration,
processing, smelting and beneficiation. We are currently the third largest producer of gold in
South Africa, producing some 22% of the countrys gold output, and are among the worlds top ten
gold producers. Our gold sales for fiscal 2010 were approximately 1.4 million ounces of gold. As at
June 30, 2010, our mining operations reported total proven and probable reserves of approximately
48.1 million ounces and in fiscal 2010, we processed approximately 19.8 million tons of ore.
For segment purposes, management distinguishes between Underground and Surface, with each
shaft or group of shafts managed by a team (headed by a single general manager) being considered to
be an operating segment.
Our reportable segments are as follows:
Bambanani, Doornkop, Evander, Joel, Kusasalethu (previously Elandsrand), Masimong, Phakisa,
Target, Tshepong, Virginia and PNG;
Cooke operations (sold in November 2008) and Mount Magnet are classified as discontinued
operations; and
All other shafts and surface operations, including those that treat historic sand dumps, rock
dumps and tailings dams, are grouped together under Other Underground and Other Surface.
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with IFRS requires management to
make estimates and assumptions that affect the reported results of our operations. Actual results
may differ from those estimates. We have identified the most critical accounting policies upon
which our financial results depend. Some of our accounting policies require the application of
significant judgment and estimates by management in selecting the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject to an inherent degree
of uncertainty and are based on our historical experience, terms of existing contracts,
managements view on trends in the gold mining industry and information from outside sources.
Our significant accounting policies are described in more detail in note 2 to the consolidated
financial statements. This discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes included in Item 18. Financial Statements.
Management has identified the following as critical accounting policies because estimates used in
applying these policies are subject to material risks and uncertainties. Management believes the
following critical accounting policies, together with the other significant accounting policies
discussed in the notes to the consolidated financial statements, affect its more significant
judgments and estimates used in the preparation of the consolidated financial statements and could
potentially impact our financial results and future financial performance.
Gold mineral reserves
Gold mineral reserves are estimates of the amount of ounces that can be economically and
legally extracted from the Groups properties. In order to calculate the gold mineral reserves,
estimates and assumptions are required about a range of geological, technical and economic factors,
including quantities, grades, production techniques, recovery rates, production costs, commodity
prices and exchange rates.
Estimating the quantities and/or grade of the reserves requires the size, shape and depth of
the orebodies to be determined by analyzing geological data such as the logging and assaying of
drill samples. This process may require complex and difficult geological judgments and calculations
to interpret the data. These reserves are determined in accordance with SAMREC, JORC and SEC
Industry Guide 7.
Because the economic assumptions used to estimate the gold mineral reserves change from year
to year, and because additional geological data is generated during the course of operations,
estimates of the mineral reserves may change from year to year.
Changes in the proven and
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probable reserves may affect the Groups financial results and
financial position in a number of ways, including depreciation and amortization charged in the
income statement may change as they are calculated on the units-of-production method.
The estimate of the total expected future lives of our mines could be materially different from the
actual amount of gold mined in the future. See Item 3. Key Information Risk Factors
Harmonys gold reserve figures are estimated based on a number of assumptions, including
assumptions as to mining and recovery factors, future cash costs of production and the price of
gold and may yield less gold under actual production conditions than currently estimated.
Impairment of Property, Plant and Equipment
We review and evaluate our mining assets for impairment when events or changes in
circumstances indicate the related carrying amounts may not be recoverable. An impairment loss is
recognized for the amount by which the assets carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an assets fair value less costs to sell and value in use. For
the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash generating units). Each operating shaft, along with
allocated common assets such as plants and administrative offices, is considered to be a cash
generating unit as each shaft is largely independent of the cash flows of other shafts and assets.
Future cash flows are estimated based on estimated quantities of recoverable minerals, expected
gold prices (considering current and historical prices, price trends and related factors),
production levels and cash costs of production, capital and reclamation costs, all based on
detailed life-of-mine plans. The significant assumptions in determining the future cash flows for
each individual operating mine at June 30, 2010, apart from production cost and capitalized
expenditure assumptions unique to each operation, included a long-term gold price of US$1,050 per
ounce and South African and Australian dollar exchange rates of US$1 = R8.19 and A$1 = US$0.80,
respectively. The term recoverable minerals refers to the estimated amount of gold that will be
obtained from proven and probable reserves and related exploration stage mineral interests, except
for other mine-related exploration potential and greenfields exploration potential discussed
separately below, after taking into account losses during ore processing and treatment. Estimates
of recoverable minerals from such exploration stage mineral interests are risk adjusted based on
managements relative confidence in such materials. With the exception of other mine-related
exploration potential and Greenfields exploration potential, estimates of future undiscounted cash
flows are included on an area of interest basis, which generally represents an individual operating
mine, even if the mines are included in a larger mine complex. In the case of mineral interests
associated with other mine-related exploration potential and Greenfields exploration potential,
cash flows and fair values are individually evaluated based primarily on recent exploration results
and recent transactions involving sales of similar properties.
As discussed above under Gold mineral reserves, various factors could impact our ability to
achieve our forecasted production schedules from proven and probable reserves. Additionally, gold
prices, capital expenditure requirements and reclamation costs could differ from the assumptions
used in the cash flow models used to assess impairment. The ability to achieve the estimated
quantities of recoverable minerals from exploration stage mineral interests involves further risks
in addition to those factors applicable to mineral interests where proven and probable reserves
have been identified, due to the lower level of confidence that the identified mineralized material
can ultimately be mined economically. Assets classified as other mine-related exploration potential
and Greenfields exploration potential have the highest level of risk that the carrying value of the
asset can be ultimately realized, due to the still lower level of geological confidence and
economic modeling.
During fiscal 2010, 2009 and 2008, we recorded impairments of US$43 million, US$89 million and
US$27 million respectively, on property, plant and equipment, all from continuing operations.
Reversal of previously recorded impairments amounted to US$28 million and US$5 million in fiscal
2009 and fiscal 2008 respectively. These reversals related to the Mount Magnet operation, which has
been classified as discontinued operations. Material changes to any of these factors or assumptions
discussed above could result in future impairment charges, particularly around future gold price
assumptions. A 10% decrease in gold price at June 30, 2010 would have resulted in the additional
impairments amounting to US$1.8 million at the Steyn 2 shaft in the Bambanani segment.
Carrying Value of Goodwill
We evaluate, on at least an annual basis, the carrying amount of goodwill to determine whether
current events and circumstances indicate that such carrying amount may no longer be recoverable.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash generating units). Each operating shaft, along with
allocated common assets such as plants and administrative offices, is considered to be a cash
generating unit as each shaft is largely independent of the cash flows of other shafts and assets.
To accomplish this, we compare the recoverable amounts of our cash generating units to their
carrying amounts. The recoverable amount is the higher of an assets fair value less costs to sell
and value in use. If the carrying value of a cash generating unit were to exceed its recoverable
amount at the time of the evaluation, an impairment loss is
recognized by first reducing goodwill, and then the
other assets in the
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cash
generating unit on a pro rata basis. Assumptions underlying fair value
estimates are subject to risks and uncertainties. If these assumptions change in future, we may
need to record impairment charges on goodwill not previously recorded.
During fiscal 2008, we recorded an impairment of US$13 million on goodwill. No impairment was
recorded during fiscal 2009 and 2010.
Provision for environmental rehabilitation
Our mining and exploration activities are subject to various laws and regulations governing
the protection of the environment. Estimated long term environmental obligations, comprising
pollution control, rehabilitation and mine closure, are based on the Groups environmental
management plans. Annual changes in the provision consist of finance costs relating to the change
in the present value of the provision and inflationary increases in the provision estimate, as well
as changes in estimates. The present value of environmental disturbances created is capitalized to
mining assets against an increase in the rehabilitation provision. The rehabilitation asset is
depreciated as discussed above. Rehabilitation projects undertaken, included in the estimates are
charged to the provision as incurred. The cost of ongoing current programs to prevent and control
pollution is charged against income as incurred.
Deferred taxes
The taxable income from gold mining at our South African operations is subject to a formula to
determine the taxation expense. The tax rate calculated using the formula is capped to a maximum
mining statutory rate of 43% or 34%, depending on whether or not the taxpayer has elected to be
exempt from Secondary Taxation on Companies. See Item 5. Results of OperationsContinuing
OperationsIncome and Mining Taxes. Taxable income is determined after the deduction of
qualifying mining capital expenditure to the extent that it does not result in an assessed loss.
Excess capital expenditure is carried forward as unredeemed capital and is eligible for deduction
in future periods, taking the assessed loss criteria into account. Further to this, mines are
ring-fenced and are treated separately for tax purposes, with deductions only being utilised
against the mining income of the relevant ring-fenced mine.
In terms of IAS 12 Income Taxes, deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the period when the asset is realised or the liability is
settled, and at our South African operations, such average tax rates are directly impacted by the
profitability of the relevant ring-fenced mine. The deferred tax rate is therefore based on the
current estimate of future profitability of an operation when temporary differences will reverse,
based on tax rates and tax laws that have been enacted at balance sheet date.
The future profitability of each ring-fenced mine, in turn, is determined by reference to the
life-of-mine plan for that operation. The life-of-mine plan is based on parameters such as the
Groups long term view of the US$ gold price and the Rand/US$ exchange rate, as well as the
reserves declared for the operation. As some of these parameters are based on market indicators,
they differ from one year to the next. In addition, the reserves may also increase or decrease
based on updated or new geological information.
We do not recognize a deferred tax asset when it is more likely than not that the asset will
not be utilized. Assessing recoverability of deferred tax assets requires management to make
significant estimates related to expectation of future taxable income. Estimates of future taxable
income are based on forecasted cash flows from operations, reversals of deferred tax liabilities
and the application of existing tax laws in each jurisdiction. To the extent that future taxable
income differs significantly from estimates, our ability to realize the net deferred tax assets
recorded at the balance date could be impacted. Additionally, future charges in tax laws in the
jurisdictions in which we operate could limit our ability to obtain the future tax benefits
represented by deferred tax assets recorded at the balance date.
Revenue
Substantially most of our revenues are derived from the sale of gold. As a result, our
operating results are directly related to the price of gold. Historically, the price of gold has
fluctuated widely. The gold price is affected by numerous factors over which we do not have
control. See Item 3. Key Information Risk Factors The profitability of Harmonys operations,
and the cash flows generated by those operations, are affected by changes in the market price for
gold, which in the past has fluctuated widely.
As a general rule, we sell our gold produced at market prices to obtain the maximum benefit
from increases in the prevailing gold price and do not enter into hedging arrangements such as
forward sales or derivatives that establish a price in advance for the sale of our future gold
production.
90
Significant changes in the price of gold over a sustained period of time may lead us to
increase or decrease our production in the near-term.
Harmonys Realized Gold Price
The average gold price in U.S. dollars received by us has generally increased since January 1,
2002. In fiscal 2010, the average gold price in U.S. dollars received by us for continuing
operations was US$1,092 per ounce. The market price for gold (and, accordingly, the price received
by us) is affected by numerous factors over which we have no control. See Item 3. Key Information
Risk Factors The profitability of Harmonys operations, and the cash flows generated by those
operations, are affected by changes in the market price for gold, which in the past has fluctuated
widely.
The following table sets out the average, the high and the low London Bullion Market price of
gold and our average U.S. dollar sales price during the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
|
June 30, |
|
|
2010 |
|
2009 |
|
2008 |
|
|
|
|
|
|
($/oz) |
|
|
|
|
Average |
|
|
1,089 |
|
|
|
874 |
|
|
|
821 |
|
High |
|
|
1,261 |
|
|
|
989 |
|
|
|
1,011 |
|
Low |
|
|
908 |
|
|
|
713 |
|
|
|
649 |
|
Harmonys average sales price continuing operations(1) |
|
|
1,092 |
|
|
|
867 |
|
|
|
818 |
|
|
|
|
(1) |
|
Our average sales price differs from the average gold price due to the timing of
our sales of gold within each year. |
Costs
Our cash costs and expenses typically make up over 80% of our total costs. The remainder of
our total costs consists primarily of exploration costs, employment termination costs, corporate
and sundry expenditure, and depreciation and amortization. Our cash costs consist primarily of
production costs exclusive of depreciation and amortization. Production costs are incurred on
labor, equipment, consumables and utilities. Labor costs are the largest component and typically
comprise approximately 54% of our production costs.
Our cash costs for continuing operations has increased from US$600 per ounce in fiscal 2008 to
US$801 per ounce in fiscal 2010, mainly as a result of lower production volumes, the impact of
increased labor and energy costs as well as inflationary pressures on supply contracts. In U.S.
dollar terms, the appreciation of the Rand-U.S. dollar exchange rate added to these increases.
Our U.S. translated costs are very sensitive to the exchange rate of the Rand and other
non-U.S. currencies to the U.S. dollar. See Item 5. Operating and Financial Review and Prospects
Exchange Rates. Appreciation of the Rand and other non-U.S. currencies against the U.S. dollar
increases working costs at our operations when those costs are translated into U.S. dollars. See
Item 3. Key Information Risk Factors Because most of Harmonys production costs are in Rand
and other non-U.S. currencies, while gold is generally sold in U.S. dollars, Harmonys financial
condition could be materially harmed by an appreciation in the value of the Rand and other non-U.S.
currencies.
The average rate of the South African Rand appreciated approximately 16% against the U.S.
dollar in fiscal 2010 compared to fiscal 2009. In the case of our International operations, the
Australian dollar appreciated approximately 18%, while the Kina remained steady against the U.S.
dollar in fiscal 2010 compared to fiscal 2009.
Reconciliation of Non-GAAP Measures
Total cash costs and total cash costs per ounce are non-GAAP measures.
Our cash costs consist primarily of production costs and are expensed as incurred. The cash
costs are incurred to access ore to produce current mined reserves. Cash costs do not include
capital development costs, which are incurred to allow access to the ore body for future mining
operations and are capitalized and amortized when the relevant reserves are mined.
We have previously calculated total cash costs and total cash costs per ounce by dividing
total cash costs, as determined using the guidance previously provided by the Gold Institute, by
gold ounces sold. Total cash costs, as defined in the guidance provided by the Gold Institute,
include mine production costs, transport and refinery costs, applicable general and administrative
costs, costs associated with movements in
91
production inventories, ore stockpiles, as well as ongoing
environmental rehabilitation costs as well as transfers to and from deferred stripping and costs
associated with royalties. Ongoing employee termination cost is included, however, employee
termination costs associated with major restructuring and shaft closures are excluded. Management
has recalculated these measures to exclude the costs associated with movements in production
inventories, and in line with this change, now use gold ounces produced as the denominator. The
measures have been re-presented for all comparative periods shown.
Changes in cash costs per ounce are affected by operational performance, as well as changes in
the currency exchange rate between the Rand and the U.S. dollar and, in the case of the
International operations, the Australian dollar and Kina. Total cash costs and total cash costs per
ounce are non-GAAP measures. Total cash costs and total cash costs per ounce should not be
considered by investors in isolation or as an alternative to production costs, cost of sales, or
any other measure of financial performance calculated in accordance with IFRS. In addition, while
the Gold Institute has provided guidance for the calculation of total cash costs and total cash
costs per ounce, the calculation of total cash costs and total cash costs per ounce may vary from
company to company and may not be comparable to other similarly titled measures of other companies.
However, we believe that cash costs per ounce is a useful indicator to investors and management of
a mining companys performance as it provides (1) an indication of the cash generating capacities
of our mining operations, (2) the trends in cash costs as the companys operations mature, (3) a
measure of a companys performance, by comparison of cash costs per ounce to the spot price of gold
and (4) an internal benchmark of performance to allow for comparison against other companies.
Continuing operations
The following is a reconciliation of total cash costs from continuing operations, as a
non-GAAP measure, to the nearest comparable GAAP measure, cost of sale from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended June 30, |
|
|
2010 |
|
2009 |
|
2008 |
|
|
(in $ millions, except per ounce amounts) |
Total cost of sales from continuing operations under IFRS |
|
|
1,383 |
|
|
|
1,083 |
|
|
|
1,122 |
|
Depreciation and amortization expense |
|
|
(181 |
) |
|
|
(139 |
) |
|
|
(117 |
) |
Rehabilitation costs |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Care and maintenance costs of restructured shafts |
|
|
(8 |
) |
|
|
(5 |
) |
|
|
(10 |
) |
Employment termination and restructuring costs |
|
|
(27 |
) |
|
|
(4 |
) |
|
|
(29 |
) |
Share-based payments |
|
|
(20 |
) |
|
|
(13 |
) |
|
|
(6 |
) |
Impairment of assets |
|
|
(43 |
) |
|
|
(71 |
) |
|
|
(40 |
) |
Reversal/(provision) for post retirement benefits |
|
|
3 |
|
|
|
|
|
|
|
(1 |
) |
Gold inventory movement |
|
|
|
|
|
|
2 |
|
|
|
(4 |
) |
Total cash costs from continuing operations using Gold Institute guidance |
|
|
1,103 |
|
|
|
852 |
|
|
|
914 |
|
Per ounce calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
Ounces produced (1) |
|
|
1,377,499 |
|
|
|
1,460,831 |
|
|
|
1.524,557 |
|
Total cash cost per ounce from continuing operations using Gold
Institute guidance |
|
|
801 |
|
|
|
583 |
|
|
|
600 |
|
|
|
|
(1) |
|
The ounces produced for fiscal 2010 exclude ounces from Hidden Valley, Target 3 and
Steyn 2 for the period in which these shafts were not in production. The associated costs
have been capitalized. |
92
Discontinued operations
The following is a reconciliation of total cash costs from discontinued operations, as a
non-GAAP measure, to the nearest comparable GAAP measure, cost of sales from discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended June 30, |
|
|
2010 |
|
2009 |
|
2008 |
|
|
(in $ millions, except per ounce amounts) |
Total cost of sales from discontinued operations under IFRS |
|
|
1 |
|
|
|
71 |
|
|
|
237 |
|
Depreciation and amortization expense |
|
|
|
|
|
|
(28 |
) |
|
|
(7 |
) |
Rehabilitation costs |
|
|
|
|
|
|
(2 |
) |
|
|
(1 |
) |
Care and maintenance costs of restructured shafts |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
Employment termination and restructuring costs |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Share-based payments |
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of impairment of assets |
|
|
|
|
|
|
10 |
|
|
|
5 |
|
Gold inventory movement |
|
|
|
|
|
|
2 |
|
|
|
6 |
|
Total cash costs from discontinued operations using Gold Institute guidance |
|
|
|
|
|
|
52 |
|
|
|
236 |
|
Per ounce calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
Ounces produced |
|
|
|
|
|
|
80,377 |
|
|
|
385,900 |
|
Total cash cost per ounce from discontinued operations using Gold
Institute guidance |
|
|
|
|
|
|
644 |
|
|
|
612 |
|
Total Harmony Continuing and discontinued operations
The following is a reconciliation of total cash costs, as a non-GAAP measure, to the nearest
comparable GAAP measure, cost of sales under IFRS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended June 30, |
|
|
2010 |
|
2009 |
|
2008 |
|
|
(in $ millions, except per ounce amounts) |
Total production costs under IFRS |
|
|
1,384 |
|
|
|
1,154 |
|
|
|
1,359 |
|
Depreciation and amortization expense |
|
|
(181 |
) |
|
|
(167 |
) |
|
|
(124 |
) |
Rehabilitation costs |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
Care and maintenance costs of restructured shafts |
|
|
(9 |
) |
|
|
(6 |
) |
|
|
(10 |
) |
Employment termination and restructuring costs |
|
|
(27 |
) |
|
|
(4 |
) |
|
|
(33 |
) |
Share-based payments |
|
|
(20 |
) |
|
|
(13 |
) |
|
|
(6 |
) |
(Impairment)/reversal of impairment of assets |
|
|
(43 |
) |
|
|
(61 |
) |
|
|
(35 |
) |
Reversal/(provision) for post retirement benefits |
|
|
3 |
|
|
|
|
|
|
|
(1 |
) |
Gold inventory movement |
|
|
|
|
|
|
4 |
|
|
|
2 |
|
Total cash costs using Gold Institute guidance |
|
|
1,103 |
|
|
|
904 |
|
|
|
1,150 |
|
Per ounce calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
Ounces produced |
|
|
1,377,499 |
|
|
|
1,541,208 |
|
|
|
1,910,457 |
|
Total cash cost per ounce using Gold Institute guidance |
|
|
801 |
|
|
|
586 |
|
|
|
602 |
|
Within this disclosure document, our discussion and analysis is focused on the total cash
costs measure as defined by the Gold Institute, as modified to exclude the effects of changes in
production inventory.
While recognizing the importance of reducing cash costs, our chief focus is on controlling
and, where possible, reducing total costs, including overhead costs. We aim to control total unit
costs per ounce produced by maintaining our low total cost structure at our existing operations. We
have been able to reduce total costs by implementing a management structure and philosophy that is
focused on reducing management and administrative costs, implementing an mineral reserve management
system that allows for greater grade control and acquiring higher grade reserves. See Item 4.
Information on the Company Business Strategy.
Exchange Rates
Our revenues are very sensitive to the exchange rate of the Rand and other non-U.S. currencies
to the U.S. dollar.
Currently, the majority of our earnings are generated in South Africa and, as a result, most
of our costs are incurred in Rand. Since gold is generally sold in U.S. dollars, most of our
revenues are received in U.S. dollars. The average gold price received by us during fiscal 2010
increased US$225 per ounce to US$1,092 per ounce from US$867 per ounce during fiscal 2009.
Appreciation of the Rand against the U.S. dollar increases our U.S. dollar working costs at our
South African operations when those costs are translated into U.S. dollars, which serves to reduce
operating margins and net income from our South African operations.
Depreciation of the Rand against the U.S. dollar reduces these
93
costs
when they are translated into U.S. dollars, which serves to increase operating margins and net income from our
South African operations. Accordingly, strength in the Rand generally results in poorer earnings
for us if there is not a similar increase in the gold price.
The exchange rates obtained when converting U.S. dollars to Rand are determined by foreign
exchange markets, over which we have no control. The conversion rate for balance sheet items as at
June 30, 2010 is R7.63 per US$1.00, expect for specific items within equity that are converted at
the exchange rate prevailing on the date the transaction was entered into. This compares with a
conversion rate of R7.72 per US$1.00 as at June 30, 2009, reflecting an appreciation of 1% of the
Rand against the U.S. dollar when compared with June 30, 2009. Income statement items were
converted at the average exchange rate for the fiscal 2010 (R7.58 per US$1.00), reflecting an
appreciation of 16% of the Rand against the U.S. dollar when compared with fiscal 2009. The
majority of our working costs are incurred in Rands and as a result this appreciation of the Rand
against the U.S. dollar would increase our working costs when translated into U.S. dollars. Adding
to this increase are increases in our labor costs as well as inflationary pressures on our
consumable stores and energy cost, which served to decrease operating margins and net income
reflected in our consolidated income statement for fiscal 2010. Depreciation of the Rand against
the U.S. dollar would cause a decrease in our costs in U.S. dollar terms. Similarly, at our
International operations, depreciation of the Australia dollar or Kina against the U.S. dollar
would cause a decrease in our costs in U.S. dollar terms. See Item 3. Key Information Risk
Factors Because most of Harmonys production costs are in Rand and other non-U.S. currencies,
while gold is generally sold in U.S. dollars, Harmonys financial condition could be materially
harmed by an appreciation in the value of the Rand and other non-U.S. currencies.
Inflation
Our operations have been materially affected by inflation. At the end of fiscal 2010,
inflation in South Africa was 4.2%, although it reached 6.9% in fiscal 2009 and over 12% in fiscal
2008. However, working costs, and wages especially, have increased considerably over the past three
years resulting in significant cost pressures for the mining industry. In addition, the effect on
inflation of the increase in electricity tariffs of 25% during fiscal 2010, together with two more
increases of approximately 26% each in the next two years, will have a negative effect on the
profitability of our operations.
The inflation rate in PNG eased from 10.6% to 7.0% in fiscal 2009 and remained relatively
stable at 7% in fiscal 2010. Due to higher food and energy prices, as well as increased labor
prices, the inflation rate is expected to be 8.0% in fiscal 2011. This increase in inflation
together with the strength of the Kina against the US and Australian dollar could have an adverse
effect on the profitability of the PNG operations.
Our profits and financial condition could be adversely affected if the cost inflation is not
offset by a concurrent devaluation of the Rand and other non-U.S. currencies and/or an increase in
the price of gold. See Item 3. Key Information Risk Factors Our operations may be negatively
impacted by inflation.
South African Socio-Economic Environment
We are a South African company and the majority of our operations are in South Africa. As a
result, we are subject to various economic, fiscal, monetary and political policies and factors
that affect South African companies generally. See Item 3. Key Information Risk Factors
Socio-economic instability in South Africa or regionally may have an adverse effect on Harmonys
operations and profits.
South African companies are subject to exchange control limitations. While exchange controls
have been relaxed in recent years, South African companies remain subject to restrictions on their
ability to deploy capital outside of the Southern African Common Monetary Area. See Item 10.
Additional Information Exchange Controls.
Social and Labor Plans, or SLPs, have been developed for each of our South African operations.
These SLPs are prepared in line with legislation governing the participation of HDSAs in mining
assets.
We have been granted all of our mining licenses under the MPRDA. We have therefore already
started to incur expenses relating to HDSA participation. We believe the biggest challenge will lie
in maintaining these licenses, as we will have a responsibility in respect of human resource
development, procurement and local economic development. We are unable, however, to provide a
specific amount of what the estimated cost of compliance will be but we will continue to monitor
these costs on an ongoing basis.
94
Royalties
The MPRDA makes reference to royalties payable to the South African state in terms of the
Mineral and Petroleum Resources Royalty Act (Act 28 of 2008). The Act provides for the payment of a
royalty according to a formula based on earnings before interest, tax and depreciation, after the
deduction of capital expenditure. This rate is then applied to revenue to calculate the royalty
amount due, with a minimum of 0.5% and a maximum of 5% for gold mining companies. At the end of
fiscal 2010, the average royalty rate for the South African operations was 1.5%. The royalty became
effective on March 1, 2010 and will have an adverse impact on the profits generated by our
operations in South Africa.
As our operation at Hidden Valley is now in production, they are subject to a 2% royalty
payable to the PNG government and local community groups.
Cost control
As part of our Back-to-Basics strategy in fiscal 2008, we reinstated the focus on monthly
reviews to ensure that stringent cost control measures are in place and enforced. This will assist
us in monitoring and reducing consumable costs.
Due to the fact that the new mines are expected to start producing high volumes of ore, with
better economies of scale, at higher grades, we expect that real cash operating costs in dollar per
ounce terms will be reduced. This will be dependent on our achieving our operational plans. An
increase is expected in revenue due to the increase in the gold price, as per our long term view on
the various factors influencing the Rand gold price.
We reassessed our labor force and implemented several measures to reduce labor costs. These
measures included terminating some contractors and offering voluntary severance packages to
employees.
Conops
For some years, mining companies have been trying to implement the concept of Conops on the
basis that it is, in theory, a better practice to utilize the companys capital intensive, fixed
assets for every day (excluding public holidays) of the year rather than for 80% of the year. It
was estimated that Conops should result in increased production of around 25%, with a cost increase
in the region of 18%, which would lead to increased profitability. We have been one of the few
companies that has actually been able to implement Conops, with some degree of success and with the
cooperation of the labor unions.
However as part of our complete review of the operations in fiscal 2008, our Executive
Committee took a long and hard look at the real benefits of Conops. In essence, we undertook a due
diligence as if we were evaluating it for the first time.
As a result of these assessments, Conops was stopped at all operations by the end of fiscal
2008, with the exception of Evander 8 and Target. During 2009 and 2010, Conops continued at these
two operations. It was, however, decided to cease Conops at Evander 8 during June 2010.
Productivity
The decline in productivity has been one of the challenges facing the South African gold
industry for a number of years. This decline in our productivity mainly came as a result of an
aging workforce, the health of the workforce that has been negatively impacted by HIV and AIDS,
increased working distances from shafts and aging infrastructure. We reacted to these challenges
through various initiatives including the Healthy workforce drive, the VCT campaign, upgrade of
rail bound equipment and track work and other improvement projects.
Electricity in South Africa
Supply
Historically, South Africa has enjoyed both low-cost electrical energy provision, and a stable
supply. In early 2008, however, the national power utility Eskom experienced a major capacity
shortage resulting in country-wide blackouts and reduced energy supply. The mining industry was
severely affected for a period of five days in January 2008, and thereafter Eskom imposed
limitations which continued to have an impact. We have devised new strategies so as to optimize our
usage of 90% of our previous electricity supply allowed in terms of the Energy Conservation Scheme
(ECS) and interim rules imposed by Eskom. All operations were allocated an ECS allocation in line
with the Eskom allocation and equipment and management structures were put in place to monitor and
manage real-time consumption. Since 2008, we have reduced our electricity consumption by 28%.
95
Applications submitted to Eskom for additional energy allocation to the four future growth
projects were approved, enabling us to proceed with the projects and to ramp-up to full capacity
utilizing Eskom power. We also submitted applications for additional power allocation for four
metallurgical projects in the Free State, which were also approved by Eskom. Annual re-submissions
for the verification of the fiscal 2010/2011 allocations, including additional allocation for all
approved projects, and Nominated Maximum Demand (NMD) to secure adequate network capacity were
made to Eskom in June 2010 as required by the interim ECS and new NMD rules.
Government at national level intervened to develop an integrated resource plan in order to arrest
the supply constraint situation and map a long-term plan to add much needed generation capacity to
the grid according to projected electricity demand increase. It is also expected that the
electricity supply constraint situation will intensify towards the end of calendar 2010 and that it
will continue to worsen until the first generators at the 4 800 MW Medupi power station are
commissioned in calendar 2012. Alleviation of the situation will however remain dependant on
Eskoms ability to execute the build program successfully and on time as well as the successful
development and implementation of the integrated resource plan. We will remain a voluntary
participant in the ECS until such time that the national ECS becomes compulsory and Eskom
relationships are maintained on this basis. The challenge for us is to improve production to the
required levels without compromising the cost-saving initiatives achieved during fiscal 2008 and
2009.
Cost
The average 25% per annum tariff increase for the three year multi-year price determination
period (MYPD), as approved by NERSA, contributes significantly to escalate the cost of production
well above inflationary figures in the foreseeable future. Electricity price projections based on
the approved tariffs and extrapolations indicate that electricity costs could be as high as 25% of
the total cost of production within the next five years. Spiralling electricity costs sparked
renewed electrical consumption awareness where operations and service departments alike are
actively analysing all opportunities to improve energy efficiency and optimising electricity usage.
Renewable energy
The Eskom supply constraint renewed South African industrys interest in renewable energy and
various companies have obtained access to internationally-proven technology that was previously not
readily available or affordable in South Africa. Investigations into solar heating and solar
electricity generation initiatives are currently underway to identify viable projects that could
potentially contribute towards our energy efficiency improvement and carbon footprint reduction.
Although progress has been made with the investigations, capital cost and subsequent cost of
generation remain high and are not yet comparable to Eskom-projected tariffs. This has not deterred
the willingness of industry to participate in such projects, a number of which are being considered
currently. Technical development of renewable technologies are however accelerating, with
international implementation contributing towards cost reduction. International investors with
access to green funds are also interested in South African renewable projects. This latest
development can open the door to enter into direct private power agreements at Eskom with
comparable tariffs in the foreseeable future.
Results of Operations
Years Ended June 30, 2010 and 2009
Continuing Operations
Revenues
Revenue increased by US$212 million, or 17%, from US$1,277 million in fiscal 2009 to US$1,489
million in fiscal 2010. This increase can primarily be attributed to the higher average price of
gold received by us, US$1,092 per ounce in fiscal 2010 compared to US$867 per ounce in 2009. This
was offset by a decrease in ounces sold.
Our gold sales decreased 109,699 ounces, or 7%, from 1,473,562 in fiscal 2009 to 1,363,863
(excluding the capitalized ounces from Target 3, Steyn 2 and Hidden Valley) in fiscal 2010. The
grade recovered was constant, at 0.07 ounces per ton in fiscal 2010 and 2009.The decrease in ounces
can be attributed to the operations in Evander and Virginia being placed on care and maintenance.
At Bambanani ounces sold increased by 11%, from 119,665 in fiscal 2009 to 133,105 in fiscal
2010. This was due to a better recovery grade which increased from 0.213 in fiscal 2009 to 0.227 in
fiscal 2010.
96
At Doornkop ounces sold increased by 44% from 43,211 in fiscal 2009 to 62,275 in fiscal 2010.
This is due to the higher recovery grade, which improved from 0.070 in fiscal 2009 to 0.105 in
fiscal 2010 due to the change in the mining mix by the increase in higher grade ore from the South
Reef section.
At Evander ounces sold decreased by 43%, from 195,668 in fiscal 2009 to 111,499 in fiscal
2010. This was primarily due to a decrease in production volumes as a result of the closure of
Evander 2, 5 and 7 shafts.
At Phakisa ounces sold increased from 21,477 in fiscal 2009 to 44,496 in fiscal 2010. This was
due to an increase in production volumes as the various sections moved into production, building up
to full production in the next three to five years.
At Target ounces sold increased by 22% from 87,611 in fiscal 2009 to 106,837 in fiscal 2010. This
is due to higher production volumes of 857,000 tons in fiscal 2010, compared with 710,000 tons in
fiscal 2009.
At Virginia ounces sold decreased to 173,035 ounces from 259,070 in fiscal 2009. This is due to the
closure of Harmony 2, Brand 3 and Merriespruit 3 shafts during fiscal 2010.
At Hidden Valley in PNG ounces sold was 8,327 in fiscal 2010. This was the first year that
production has been recognized from the operation.
Cost of sales
Cost of sales includes production costs, depreciation and amortization, impairment of assets
and employment termination and restructuring costs.
a) Production costs (cash costs)
The following table sets out our total ounces produced and weighted average cash costs per
ounce for fiscal 2010 and fiscal 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
Year Ended June 30, |
|
Year Ended June 30, |
|
(Increase)/decrease |
|
|
2010 |
|
2009 |
|
in Cash |
|
|
(oz) |
|
($/oz) |
|
(oz) |
|
($/oz) |
|
Costs per ounce |
SOUTH AFRICA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bambanani(1) |
|
|
133,007 |
|
|
|
723 |
|
|
|
121,530 |
|
|
|
611 |
|
|
|
(18.3 |
) |
Doornkop |
|
|
62,694 |
|
|
|
822 |
|
|
|
42,150 |
|
|
|
804 |
|
|
|
(2.2 |
) |
Evander |
|
|
111,724 |
|
|
|
1,018 |
|
|
|
190,075 |
|
|
|
572 |
|
|
|
(78.0 |
) |
Joel |
|
|
64,495 |
|
|
|
792 |
|
|
|
65,684 |
|
|
|
636 |
|
|
|
(24.3 |
) |
Kusasalethu (2) |
|
|
175,029 |
|
|
|
857 |
|
|
|
174,321 |
|
|
|
660 |
|
|
|
(29.8 |
) |
Masimong |
|
|
155,609 |
|
|
|
602 |
|
|
|
154,034 |
|
|
|
476 |
|
|
|
(26.5 |
) |
Phakisa |
|
|
44,079 |
|
|
|
953 |
|
|
|
22,216 |
|
|
|
555 |
|
|
|
(71.7 |
) |
Target (3) |
|
|
113,782 |
|
|
|
783 |
|
|
|
87,225 |
|
|
|
645 |
|
|
|
(21.4 |
) |
Tshepong |
|
|
216,986 |
|
|
|
677 |
|
|
|
230,778 |
|
|
|
483 |
|
|
|
(40.2 |
) |
Virginia |
|
|
170,013 |
|
|
|
1,036 |
|
|
|
258,170 |
|
|
|
638 |
|
|
|
(62.4 |
) |
Other surface |
|
|
119,954 |
|
|
|
680 |
|
|
|
114,648 |
|
|
|
521 |
|
|
|
(30.5 |
) |
INTERNATIONAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PNG (4) |
|
|
61,173 |
|
|
|
1,003 |
|
|
|
|
|
|
|
|
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total continuing operations |
|
|
1,428,544 |
|
|
|
|
|
|
|
1,460,831 |
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
|
|
|
|
801 |
|
|
|
|
|
|
|
583 |
|
|
|
(37.4 |
) |
|
|
|
(1) |
|
Includes 1,061 ounces from President Steyn 2 shaft, which have not been
included in the cash cost calculation as the shaft was not in production. |
|
(2) |
|
Previously known as Elandsrand. |
|
(3) |
|
Includes 3,762 ounces from Target 3, which have not been included in the
cash cost calculation as the shaft was not in production. |
|
(4) |
|
Includes 46,223 ounces for the period ended April 2010, which have not been
included in the cash cost calculation as the operation was not in production during that period. |
Our average cash costs from continuing operations increased by US$218 per ounce, or
37.4%, from US$583 per ounce in fiscal 2009 to U.S$801 per ounce in fiscal 2010. Cash costs per
ounce vary with the working costs per ton (which is, in turn,
affected by the number of tons
97
processed) and grade of ore processed. Cash costs expressed in
U.S. dollars per ounce also vary with fluctuations in the Rand-U.S. dollar exchange rate, because
most of our working costs are incurred in Rand. The increase in cash cost expressed in U.S. dollars
per ounce in fiscal 2010 was attributable primarily to the appreciation of the South African Rand
against the U.S. dollar, as well as an increase in operating cost and the decrease in ounces
produced when compared to fiscal 2009. Annual increases in labor cost as well as inflationary
pressures on our consumable stores and energy costs were the main contributors towards a higher
operating cost.
At Evander, the cash costs per ounce increased by 78%, from US$572 in fiscal 2009 to US$1,018,
primarily due to a decrease in ounces produced as a result of the closure of Evander 2, 5 and 7
shafts.
At Joel, the cash costs per ounce increased from US$636 in fiscal 2009 to US$792. This increase is
due to the increase in labor and energy costs as well as additional costs related to the
development of level 129.
At Kusasalethu the cash costs per ounce increased by 30% from US$660 in fiscal 2009 to US$857 in
fiscal 2010. This increase is primarily due to the increase in labor and utility costs as well as
inflationary pressures on supply costs.
At Masimong, the cash costs per ounce increased by 27% from US$476 in fiscal 2009 to US$602 in
fiscal 2010, primarily due to the higher labor and electricity costs, as well as the appreciation
of the Rand against the US dollar.
At Phakisa, the cash costs per ounce increased from US$555 to US$953, or 72%, in fiscal 2010.
This was due to the increase in tons mined as a result of the planned ramp-up in production.
At Target, the cash costs per ounce increased from US$645 in fiscal 2009 to US$783, or by 21%.
This increase was due to higher production volumes, an increase in employees at the operation as
well as inflationary cost increases.
At Tshepong, the cash costs per ounce increased from US$483 in fiscal 2009 to US$677, or 40%,
in fiscal 2010. This was due to the decrease in ounces produced in fiscal 2010, increases in labor
and electricity costs as well as inflationary increases in material and supply costs.
At Virginia, the cash costs per ounce increased from US$638 to US$1,036 in fiscal 2010,
primarily due to the decrease in ounces produced in fiscal 2010, increases in labor and electricity
costs, as well as other inflationary cost increases.
At Hidden Valley in PNG, the cash costs per ounce was US$1,003 in fiscal 2010. The operation
has started ramping up and this is the first year that its production has been included.
b) Depreciation and amortization
Depreciation and amortization increased from US$139 million in fiscal 2009 to US$181 million
in fiscal 2010, or 30%. In Rand terms, the increase was 9.7%. The increase in US dollar terms was
partially due to the appreciation of the Rand against the US dollar in fiscal 2010. Also
contributing to the increase was the commencement of depreciation at Hidden Valley in PNG, Doorkop
and Phakisa as these operations were brought into production.
c) Employment termination and restructuring costs
The charge for employment termination and restructuring costs increased from US$4 million in
fiscal 2009 to US$27 million in fiscal 2010. The charge in fiscal 2010 relates primarily to the
cost of placing the Evander and Virginia shafts on care and maintenance. The charge for fiscal 2009
relates to the voluntary retrenchment process that was commenced in December 2007 when management
decided to de-centralize certain of the central services departments and the cessation of
continuous operations at several of the shafts.
d) Impairment of assets
The impairment charge decreased from US$71 million in fiscal 2009 to US$43 million in fiscal
2010. The charge in 2010 primarily relates to the impairments at the Virginia and Evander
operations when several shafts at these operations were placed on care and maintenance. These
operations were approaching the end of their planned lives, with between two and four years left in
marginal areas. The closures were due to it no longer being economically viable to continue
operating these shafts as a result of the increase in costs such as labor and electricity. The
charge in fiscal 2009 relates to impairments at the Virginia, Evander and Target operations
amounting to US$71 million. These impairments resulted primarily from a decrease in the expected
life of mine of these operations, as well as an increase in the costs to operate the shafts. At
Target and Evander, additional capital expenditure has been included
in the revised life-of-mine plans in order to access reserve ounces
in
98
areas where geological anomalies have been discovered. These changes resulted in the carrying amount
exceeding the recoverable amount.
e) Share based compensation
The charge for share based compensation increased from US$13 million in fiscal 2009 to US$20
million in fiscal 2010. This increase is primarily attributable to the appreciation of the Rand
against the US dollar, as well as the granting of additional share awards in November 2009.
Corporate, administration and other expenditure
The charge increase from US$36 million in fiscal 2009 to US$50 million in fiscal 2010. The
increase in US dollar terms was partially due to the appreciation of the Rand and Australian dollar
against the US dollar.
Corporate social investment expenditure
In fiscal 2010, the charge for corporate social investment expenditure increased from US$4
million in fiscal 2009 to US$11 million. This increase is primary due to the increase of costs
related to meeting our obligations in terms of our social and labor plans, or SLPs.
Profit on sale of property, plant and equipment
The profit decreased from US$114 million in fiscal 2009 to US$14 million in fiscal 2010. The
profit for fiscal 2009 included the sale of 50% of our interest in the PNG gold and copper assets
to Newcrest, which contributed US$112 million to the total. The profit for fiscal 2010 includes the
sale of the Jeanette prospecting rights to Taung Gold Limited for a total consideration and profit
of US$10 million, and the sale of royalty rights in Australia to Regis Resources Limited for a
total consideration and profit of US$4 million.
Other expenses net
The charge for other expenses increased to US$8 million, compared with a charge of US$3
million in fiscal 2009. The charge for fiscal 2010 includes a loss of US$12 million relating to the
translation of intercompany loans within the Australian operations which do not form part of the
net investment in foreign operations. Included in the total for fiscal 2009 is a charge of US$22
million recognized in the income statement for the foreign exchange movements after the
de-designation of loans previously designated as forming part of the net investment in foreign
operations. Also included in the total for fiscal 2009 is an amount of US$53 million relating to
the reclassification to the income statement, following the partial repayment of the loans, of a
portion of the accumulated gains recorded in equity that arose while these loans were considered to
form part of the net investment in the foreign operations. During fiscal 2010, bad debts written
off increased from US$3 million in fiscal 2009 to US$4 million. A credit of US$2 million was
recorded against the provision for bad debts in fiscal 2010. This compared favorably with the
provision for bad debts of US$11 million in fiscal 2009.
Profit from associates
The profit from associates was US$7 million in fiscal 2010, compared to US$1 million in fiscal
2009. The increase relates primarily to inclusion of a full year of profits from Rand Uranium in
fiscal 2010, compared to the seven months in fiscal 2009 since acquisition on November 21, 2008.
Also contributing to the increase was the fact that no losses where included for Pamodzi in fiscal
2010, compared to losses amounting to US$4 million in fiscal 2009.
Impairment of investment in associate
The charge in fiscal 2009 for the impairment of investment in associate relates primarily to
the impairment of the investment in Pamodzi. When Pamodzi was placed into liquidation and the
trading of its shares on the JSE suspended during fiscal 2009, the investment was fully impaired.
Loss on sale of investment in subsidiary
The amount in fiscal 2010 relates to the sale of the Australian subsidiary, Big Bell, after
taking the reclassification of foreign exchange losses recorded in other reserves into account.
99
Net gain/(loss) on financial instruments
The gain of US$5 million in fiscal 2010 relates primarily to the fair value gains on the
equity-linked deposits held by the environmental trusts, which are classified as fair value through
profit or loss investments. Also contributing to the gain is the realized portion of mark-to-market
gains prevously recognized in other reserves being reclassified to the income statement on the
disposal of certain listed investments during the year. The loss in fiscal 2009 relates primarily
to the impairment of the investment in Dioro of US$11 million reclassified from other reserves to
the income statement when the investment was considered to be permanently impaired at December 31,
2008. This was offset by the subsequent gain recognized in the income statement on the disposal of
the investment in April 2009.
Investment income
Investment income decreased from US$49 million in fiscal 2009 to US$25 million in fiscal 2010,
primarily due to the reduction in interest received on cash balances and loans receivables, where
the balances were lower, throughout the year. Interest received from the investments held by the
environmental trusts was also lower as the profile of these investment portfolios were diversified
from cash only to include equity-linked deposits.
Finance costs
Finance costs increased from US$24 million in fiscal 2009 to US$32 million in fiscal 2010.
This was due primarily to the decrease in interest capitalized to qualifying assets, from US$31
million in fiscal 2009 to US$nil in fiscal 2010, as well as the increase of US$6 million in the
time value of money and inflation component of rehabilitation costs from fiscal 2009.
Income and Mining Taxes
South Africa. We pay taxes on mining income and non-mining income. The amount of our South
African mining income tax is calculated on the basis of a formula that takes into account our total
revenue and profits from, and capital expenditures for, mining operations in South Africa. 5% of
total mining revenue is exempt from taxation in South Africa as a result of the application of the
applicable gold mine formula. The amount of revenue subject to taxation is calculated by deducting
qualifying capital expenditures from taxable mining income. The amount by which the taxable mining
income exceeds 5% of mining revenue constitutes taxable mining income. We and our subsidiaries each
make our own calculation of taxable income.
The tax rate applicable to the mining and non-mining income of a gold mining company depends
on whether the company has elected to be exempt from the Secondary Tax on Companies (STC). STC is
a tax on dividends declared and, at present, the STC tax rate is equal to 10% (previously 12.5%).
To the extent we receive dividends, such dividends received are offset against the amount of
dividends paid for purposes of calculating the amount subject to STC. In 1993, all existing South
African gold mining companies had the option to elect to be exempt from STC. If the election was
made, a higher tax rate would apply for both mining and non-mining taxable income. In 2009 and
2008, the tax rates for companies that elected the STC exemption were 43% for mining income and 35%
for non-mining income, compared with 34% for mining income and 28% for non-mining income if the STC
exemption election was not made. In 1993, the Harmony Company elected to pay the STC tax. All of
our South African subsidiaries, excluding Avgold, elected the STC exemption.
|
|
|
|
|
|
|
|
|
Income and Mining Tax |
|
2010 |
|
2009 |
Effective tax rate expense |
|
|
183 |
% |
|
|
9 |
% |
The effective tax rate for fiscal 2010 was higher than the statutory tax rate of 43% for us
and our subsidiaries as a whole. The higher effective tax rate results primarily from
non-deductible expenses and changes in the rates used to provide deferred tax at our South African
operations, offset by the additional capital allowance we receive at our Avgold operation
(effectively resulting in no tax payable at this operation).
Deferred tax rates for the South African operations are calculated based on estimates of the
future profitability of each ring-fenced mine when temporary differences will reverse. The future
profitability of each ring-fenced mine, in turn, is determined by reference to the life-of-mine
plan for that operation, which is is based on parameters such as the Groups long term view of the
US$ gold price and the Rand/US$ exchange rate, as well as the reserves declared for the operation.
As some of these parameters are based on market indicators, they differ from one year to the next.
In addition, the reserves may also increase or decrease based on updated or new geological
information. Changes in the future profitability if each ring-fenced mine impact the deferred tax
rates used to recognize temporary differences at these operations. See Critical Accounting
Policies and Estimates Deferred taxes. The increase in deferred tax on temporary differences
due to changes in estimated effective tax rates results primarily from increases in the effective
deferred tax rate at Evander Gold Mines Limited and Harmony Gold Mining Company Limited. The
deferred tax rate for Evander Gold Mines Limited increased from 6.9% in fiscal 2009 to 22.9% in
fiscal 2010 due to the increased estimated profitability of the operation over the life-of-mine as
a result of the closure of loss-making shafts, as well as an increase in the gold price and a
planned decrease in capital expenditure. Similarly, Harmony Gold Mining Company Limiteds deferred
tax rate increased from 17.1% to 23.1 mainly as a result of the closure of loss-making shafts.
100
Australia. Generally, Australia imposes tax on the worldwide income (including capital gains)
of all of our Australian incorporated and tax resident entities. The current income tax rate for
companies is 30%. Ongoing business, mining, exploration and rehabilitation costs incurred each year
are fully deductible. The cost of plant and capital mining expenditure may be depreciated and
deducted over its effective life.
Harmony Gold Australia Proprietary Limited and its wholly owned Australian subsidiary
companies are recognized and taxed as a single entity. Under the consolidations rules all of the
Australian subsidiary companies are treated as divisions of the Head Company, Harmony Gold
Australia. As a result inter company transactions between group members are generally ignored for
tax purposes. This allows the group to transfer assets between group members without any tax
consequences, and deems all tax losses to have been incurred by the Head Company of the group.
Withholding tax is payable on dividends, interest and royalties paid by Australian residents
to non-residents, which would include any dividends on the shares of our Australian subsidiaries
that are paid to us. In the case of dividend payments to non-residents, a 30% withholding tax
applies. However, where the recipient of the dividend is a resident of a country with which
Australia has concluded a double taxation agreement, the rate of withholding tax is generally
limited to 15% (or in the case of South Africa 5% where the dividend is paid to a company which
controls at least 10% of the Australian dividend paying company). Where dividends are fully
franked, no withholding tax applies as an effective credit is allowed against any withholding tax
otherwise payable, regardless of whether a double taxation agreement is in place. However, due to
the tax profile of Harmony Gold Australia it is not expected to have any franking credits in the
foreseeable future.
PNG. The Hidden Valley Project in PNG commenced operations in fiscal 2010. We are also
reviewing other potential projects and carrying out extensive exploration.
PNG mining projects are taxed on a project basis. Therefore each project is taxed as a
separate entity, even though it may be one of a number of projects carried on by the same company.
In certain circumstances there is an ability to transfer the tax benefit obtained through
exploration expenditure between projects and wholly owned companies. Tax losses are generally
quarantined and cannot be transferred between projects.
PNG mining companies are taxed at a rate of tax of 30%. Mining operations in PNG are subject
to a 2% royalty which is payable to the PNG Government.
Capital development and exploration expenditure incurred in PNG is capitalized for tax
purposes and can be generally deducted at 25% per annum on a diminishing value basis against
project income, with the deduction being limited to the lesser of 25% of the diminished value or
the income of the project for the year.
PNG imposes dividend withholding tax of 10% on dividends paid by PNG mining operations to non
residents. Although PNG also imposes interest withholding tax on interest paid off-shore, the PNG
Tax Act exempts interest paid to non resident lenders from withholding tax where the PNG company is
engaged in mining operations in PNG.
Discontinued Operations
Revenues
Revenues decreased from US$69 million in fiscal 2009 to US$nil in fiscal 2010. This was due to
the fact that the Cooke operation was sold in November 2008 and that Mount Magnet was placed on
care and maintenance in December 2007.
Costs
Costs decreased from US$103 million in fiscal 2009 to US$4 million in fiscal 2010. This was
due to fact that the sale of the Cooke operation was recognized in November 2008.
Reversal of impairment
The gain recognized in fiscal 2009 relates to the reversal of impairment when Mount Magnet was
re-measured in terms of IFRS 5 on no longer being classified as held for sale.
Profit on sale of shares
The profit on shares in fiscal 2009 relates to the sale of the Cooke operations in November
2008.
101
Income and Mining Taxes
South Africa. We pay taxes on mining income and non-mining income. For details, refer to the
discussion under Income and Mining Taxes in the Continuing Operations section.
In 2010 and 2009, the tax rates for companies that elected the STC exemption were 43% for
mining income and 35% for non-mining income, compared with 34% for mining income and 28% for
non-mining income if the STC exemption election was not made.
Australia. We pay taxes on mining income and non-mining income. For details, refer to the
discussion under Income and Mining Taxes in the Continuing Operations section. In fiscal 2010 and
2009, the income tax rate for companies was 30%.
Continuing and discontinued operations
Net (loss)/profit
The net (loss)/profit decreased from a net profit of US$311 million in fiscal 2009 to a net
loss of US$24 million. This is due to the factors discussed above.
Years Ended June 30, 2009 and 2008
Continuing Operations
Revenues
Revenue increased US$8 million, or 1%, from US$1,269 million in fiscal 2008 to US$1,277
million in fiscal 2009. This was mainly due to the higher average price of gold received by us,
US$867 per ounce in 2009 compared to US$813 per ounce in 2008. This was offset by the decrease in
ounces sold.
Our gold sales decreased 76,965 ounces, or 5%, from 1,550,527 in fiscal 2008 to 1,473,562 in
fiscal 2009. The grade recovered was lower, at 0.07 ounces per ton in fiscal 2009 compared to 0.08
ounces per ton in fiscal 2008, negatively impacting on the ounces produced. The lower recovery
grade was as a result of the increase in tons treated from surface tailings dams at a lower
recovery grade.
At Bambanani ounces sold decreased by 25%, from 158,985 in fiscal 2008 to 119,665 in fiscal
2009. This was due to a lower production as a result of the restructuring due to power constraints.
This was offset by a better recovery grade which increased from 0.170 ounces per ton in fiscal 2008
to 0.213 ounces per ton in fiscal 2009.
At Doornkop ounces sold decreased from 44,143 in fiscal 2008 to 43,211 in fiscal 2009. This is
due to the lower recovery grade, which deteriorated to 0.070 in fiscal 2009, compared with 0.089 in
fiscal 2008.
At Evander ounces sold decreased by 18%, from 240,037 in fiscal 2008 to 195,668 in fiscal
2009. This was due to a decrease in production volumes as a result of the closure of the pillars in
the old mine and poor environment conditions in the decline area which affected mining.
The ounces sold at Kalgold decreased by 28% from 93,172 in fiscal 2008 to 66,841 in fiscal
2009. This was due to a 31% decrease in recovery grade from 0.055 ounces per ton in fiscal 2008 to
0.038 ounces per ton in fiscal 2009. This was due to the depletion of the D-zone.
At Kusasalethu (previously known as Elandsrand ounces increased from 158,631 in fiscal 2008 to
183,676 in fiscal 2009. This was due to an increase in the production volumes.
At Masimong ounces sold increased by 31%, or 37,006 ounces, from 117,575 in fiscal 2008 to
154,581 in fiscal 2009. This was due to an increase in production volumes from 892,000 tons to
981,000 tons in fiscal 2009 and a higher recovery grade of 0.157 ounces per ton due to a higher
face grade being mined.
At Phakisa ounces sold increased from 4,212 in fiscal 2008 to 21,477 in fiscal 2009. This was
due to an increase in production volumes as the various sections moved into production, building up
to full production in the next two to three years.
102
At Tshepong ounces sold decreased by 17%, from 273,119 in fiscal 2008 to 227,113 in fiscal
2009. This was due to a lower recovery grade of 0.152 ounces per ton compared with 0.161 ounces per
ton in fiscal 2008.
Cost of sales
Cost of sales includes production costs, depreciation and amortization, impairment of assets
and employment termination and restructuring costs.
a) Production costs (cash costs)
The following table sets out our total ounces produced and weighted average cash costs per
ounce for fiscal 2009 and fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
Year Ended June 30, |
|
Year Ended June 30, |
|
(Increase)/decrease |
|
|
2009 |
|
2008 |
|
in Cash |
|
|
(oz) |
|
($/oz) |
|
(oz) |
|
($/oz) |
|
Costs per ounce |
SOUTH AFRICA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bambanani |
|
|
121,530 |
|
|
|
611 |
|
|
|
154,879 |
|
|
|
639 |
|
|
|
4.4 |
|
Doornkop |
|
|
42,150 |
|
|
|
804 |
|
|
|
44,038 |
|
|
|
749 |
|
|
|
(7.3 |
) |
Evander |
|
|
190,075 |
|
|
|
572 |
|
|
|
231,799 |
|
|
|
526 |
|
|
|
(8.7 |
) |
Joel |
|
|
65,684 |
|
|
|
636 |
|
|
|
59,557 |
|
|
|
638 |
|
|
|
|
|
Kusasalethu |
|
|
174,321 |
|
|
|
660 |
|
|
|
164,215 |
|
|
|
652 |
|
|
|
(1.2 |
) |
Masimong |
|
|
154,034 |
|
|
|
476 |
|
|
|
116,424 |
|
|
|
756 |
|
|
|
37.0 |
|
Phakisa |
|
|
22,216 |
|
|
|
555 |
|
|
|
4,024 |
|
|
|
497 |
|
|
|
(11.7 |
) |
Target |
|
|
87,225 |
|
|
|
645 |
|
|
|
79,602 |
|
|
|
716 |
|
|
|
9.9 |
|
Tshepong |
|
|
230,778 |
|
|
|
483 |
|
|
|
265,914 |
|
|
|
455 |
|
|
|
(6.2 |
) |
Virginia |
|
|
258,170 |
|
|
|
638 |
|
|
|
247,820 |
|
|
|
726 |
|
|
|
12.1 |
|
Other underground |
|
|
|
|
|
|
|
|
|
|
8,305 |
|
|
|
1,565 |
|
|
|
(100 |
) |
Other surface |
|
|
114,648 |
|
|
|
521 |
|
|
|
147,980 |
|
|
|
378 |
|
|
|
(37.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PNG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total continuing operations |
|
|
1,460,831 |
|
|
|
|
|
|
|
1,524,557 |
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
|
|
|
|
583 |
|
|
|
|
|
|
|
600 |
|
|
|
2.8 |
|
Our average cash costs from continuing operations decreased by US$17 per ounce, or 2.8%, from
US$600 per ounce in fiscal 2008 to US$583 per ounce in fiscal 2009. Cash costs per ounce vary with
the working costs per ton (which is, in turn, affected by the number of tons processed) and grade
of ore processed. Cash costs expressed in U.S. dollars per ounce also vary with fluctuations in the
Rand-U.S. dollar exchange rate, because most of our working costs are incurred in Rand. The
decrease in cash cost expressed in U.S. dollars per ounce in fiscal 2009 was attributable primarily
to the depreciation of the South African Rand against the U.S. dollar. This was offset by an
increase in operating cost as well as the decrease in ounces produced when compared to fiscal 2008.
Annual increases in labor cost as well as inflationary pressures on our consumable stores and
energy costs were the main contributors towards a higher operating cost.
At Doornkop, the cash costs per ounce increased by 7%, from US$749 in fiscal 2008 to US$804 in
fiscal 2009, primarily due to labor, consumables and services cost increases.
At Evander, the cash costs per ounce increased by 9%, from US$526 in fiscal 2008 to US$572 in
fiscal 2009, primarily due to a decrease in ounces produced.
At Masimong, the cash costs per ounce decreased by 37% from US$756 in fiscal 2008 to US$476 in
fiscal 2009, primarily due to the restructuring and cessation of Conops, as well as an increase in
ounces produced.
At Phakisa, the cash costs per ounce increased from US$497 in fiscal 2008 to US$555, or 12%,
in fiscal 2009. This was due to an increase in tons mined as a result of the planned ramp-up in
production.
At Target, the cash costs per ounce decreased from US$716 in fiscal 2008 to US$645, or 10%, in
fiscal 2009. This reduction was due to higher gold production.
103
At Tshepong, the cash costs per ounce increased from US$455 in fiscal 2008 to US$483, or 6%,
in fiscal 2009. This was due to the decrease in ounces produced in fiscal 2009 as well as increases
in labor and electricity costs.
Under Other Surface, the cash costs per ounce at Kalgold increased by 26% from US$401 in
fiscal 2008 to US$506 in fiscal 2009, primarily due to the decrease in ounces produced. Also
contributing was an increase of 40% at Phoenix, from US$381 to US$534, as a result of a decrease in
grade.
b) Depreciation and amortization
Depreciation and amortization increased to US$139 million in fiscal 2009 from US$117 million
in fiscal 2008. This increase relates to the increase is the commencement of depreciation at
Tshepongs Sub 66 Decline as well as the acceleration at Evander and Bambanani as a result of the
decrease in the reserves used as a denominator in the calculation.
c) Employment termination and restructuring costs
The charge for employment termination and restructuring costs decreased from US$29 million in
fiscal 2008 to US$4 million in fiscal 2009. The charges relate to the voluntary retrenchment
process that was initiated in December 2007 when management decided to decentralize certain of the
central services departments and the cessation of Conops at several of the operations.
d) Impairment of assets
The impairment charge increased from US$40 million in fiscal 2008 to US$71 million in fiscal
2009. The charge in fiscal 2009 relates to impairments at the Virginia, Evander and Target
operations amounting to US$71 million. These impairments resulted primarily from a decrease in the
expected life of mine of these operations, as well as an increase in the costs to operate the
shafts. At Target and Evander, additional capital expenditure has been included in the revised life
of mine plans in order to access reserve ounces in areas where geological anomalies have been
discovered. These changes resulted in the carrying amount exceeding the recoverable amount. The
charge in fiscal 2008 relates to impairments at the Evander and other underground operations as
well as surface operations (Kalgold). Included in the amount is US$13 million for goodwill related
to certain shafts that were included under Other Underground. These impairments resulted
primarily from a decrease in the expected life of mine of these operations, as well as an increase
in the costs to operate the shafts. These changes resulted in the carrying amount exceeding the
recoverable amount.
e) Share based compensation
The charge for share based compensation increased from US$6 million in fiscal 2008 to US$13
million in fiscal 2009. This increase is primarily attributable to the higher grant date fair value
of share options granted to eligible employees in December 2008. Also included in the charge for
2009 is the acceleration of the cost relating to unvested shares attributable to the employees at
the Cooke operations who were transferred to Rand Uranium.
Corporate, administration and other expenditure
The charge increase from US$30 million in fiscal 2008 to US$36 million in fiscal 2009,
primarily as a result of the allocation of certain central service departments and employees to the
corporate budget, which is not included in production costs.
Profit on sale of property, plant and equipment
The profit increased from US$nil in fiscal 2008 to US$114 million in fiscal 2009, primarily as
a result of the sale of 50% of our interest in the PNG gold and copper assets to Newcrest.
Other expenses net
The charge for other expenses decreased to US$3 million, compared with a charge of US$15
million in fiscal 2008. Included in the total for fiscal 2009 is a charge of US$22 million
recognized in the income statement for the foreign exchange movements after the de-designation of
loans previously designated as forming part of the net investment in foreign operations. The amount
in fiscal 2008 was a credit of US$15 million. Also included in the total for fiscal 2009 is an
amount of US$53 million relating to the reclassification to the income statement, following the
partial repayment of the loans, of a portion of the accumulated gains recorded in equity that arose
while these loans were considered to form part of the net investment in the foreign operations.
During fiscal 2009, bad debts amounting to US$3 million were written off. A provision for bad debts
of US$11 million was also raised in fiscal 2009, a decrease from fiscal 2008 of US$2 million.
104
Profit/(loss) from associates
The profit from associates was US$1 million in fiscal 2009, compared to the loss of US$11
million in fiscal 2008. The increase relates primarily to inclusion of profits from Rand Uranium
since acquisition on November 21, 2008. This was offset by the losses from Pamodzi of US$4 million
in fiscal 2009. The loss in fiscal 2008 relates to losses from Pamodzi recognized from the date of
acquisition.
Impairment of investment in associate
The charges in fiscal 2009 and 2008 for the impairment of investment in associate relates
primarily to the impairment of the investment in Pamodzi. When Pamodzi was placed into liquidation
and the trading of its shares on the JSE suspended during fiscal 2009, the investment was fully
impaired. At June 30, 2008, management determined that the recoverable amount of the investment was
US$19 million, which represented the market value of the listed shares on that date.
Net (loss)/gain on financial instruments
The loss in fiscal 2009 relates primarily to the impairment of the investment in Dioro of
US$11 million reclassified from other reserves to the income statement when the investment was
considered to be permanently impaired at December 31, 2008. This was offset by the subsequent gain
recognized in the income statement on the disposal of the investment in April 2009. The gain in
fiscal 2008 relates to the investment in ARM Limited held by the ARM Empowerment Trust, where the
increase in the share value of the ARM Limited shares above R29 (US$4.62) per share was limited to
the interest capitalized on the Nedbank loan.
Loss on sale of listed investments
The loss on sale of listed investments of US$63 million in fiscal 2008 relates to the sale of
the remainder of the investment in Gold Fields.
Investment income
Investment income increased from US$39 million in fiscal 2008 to US$49 million in fiscal 2009,
primarily due to the increase in interest received on cash balances, which were higher throughout
the year, as well as on held-to-maturity investments held by our environmental trust funds.
Finance costs
Finance costs decreased from US$70 million in fiscal 2008 to US$24 million in fiscal 2009.
This was due primarily to the decrease in interest rates as well as the decrease in the balance of
the outstanding debt. Also contributing to the decrease in finance cost expensed was the increase
in interest capitalized to qualifying assets, from US$22 million in fiscal 2008 to US$31 million in
fiscal 2009.
Income and Mining Taxes
South Africa. We pay taxes on mining income and non-mining income. The amount of our South
African mining income tax is calculated on the basis of a formula that takes into account our total
revenue and profits from, and capital expenditures for, mining operations in South Africa. 5% of
total mining revenue is exempt from taxation in South Africa as a result of the application of the
applicable gold mine formula. The amount of revenue subject to taxation is calculated by deducting
qualifying capital expenditures from taxable mining income. The amount by which the taxable mining
income exceeds 5% of mining revenue constitutes taxable mining income. We and our subsidiaries each
make our own calculation of taxable income.
The tax rate applicable to the mining and non-mining income of a gold mining company depends
on whether the company has elected to be exempt from the Secondary Tax on Companies, (STC). STC
is a tax on dividends declared and, at present, the STC tax rate is equal to 10% (previously
12.5%). To the extent we receive dividends, such dividends received are offset against the amount
of dividends paid for purposes of calculating the amount subject to STC. In 1993, all existing
South African gold mining companies had the option to elect to be exempt from STC. If the election
was made, a higher tax rate would apply for both mining and non-mining taxable income. In 2009 and
2008, the tax rates for companies that elected the STC exemption were 43% for mining income and 35%
for non-mining income, compared with 34% for mining income and 28% for non-mining income if the STC
exemption election was not made. In 1993, the Harmony Company elected to pay the STC tax. All of
our South African subsidiaries, excluding Avgold, elected the STC exemption.
105
|
|
|
|
|
|
|
|
|
Income and Mining Tax |
|
2009 |
|
2008 |
Effective tax rate expense |
|
|
9 |
% |
|
|
(167 |
%) |
The effective tax rate for fiscal 2009 was lower than the statutory tax rate of 43% for us and
our subsidiaries as a whole. The lower effective tax rate results primarily from changes in the
rates used to provide deferred tax at our South African operations and the additional capital
allowance we receive at our Avgold operation (resulting in no tax payable at the operation).
Offsetting this is non-deductible expenses and prior year adjustments. Included in the
non-deductible expenses is non-deductible interest of US$17 million, impairments of US$20 million,
as well as US$24 million relating to transfer pricing.
Deferred tax rates for the South African operations are calculated based on estimates of the
future profitability of each ring-fenced mine when temporary differences will reverse. The future
profitability of each ring-fenced mine, in turn, is determined by reference to the life-of-mine
plan for that operation, which is is based on parameters such as the Groups long term view of the
US$ gold price and the Rand/US$ exchange rate, as well as the reserves declared for the operation.
As some of these parameters are based on market indicators, they differ from one year to the next.
In addition, the reserves may also increase or decrease based on updated or new geological
information. Changes in the future profitability if each ring-fenced mine impact the deferred tax
rates used to recognize temporary differences at these operations. See Critical Accounting
Policies and Estimates Deferred taxes. The decrease in deferred tax on temporary differences
due to changes in estimated effective tax rates results primarily from a decrease in the effective
deferred tax rate for Evander Gold Mines Limited and Randfontein Estates Limited. The deferred tax
rate for Evander Gold Mines Limited decreased from 27.7% in fiscal 2008 to 6.9% in fiscal 2009.
This was primarily due to a decrease in profitability over the life-of-mine as a result of the
significant increase in working costs as well as capital expenditure. This was offset by an
increase in the gold price. Similarly, Randfontein Estates Limiteds deferred tax rate increased
from 28.4% to 20.0% for the same reasons.
Australia. Generally, Australia imposes tax on the worldwide income (including capital gains)
of all of our Australian incorporated and tax resident entities. The current income tax rate for
companies is 30%. Ongoing business, mining, exploration and rehabilitation costs incurred each year
are fully deductible. The cost of plant and capital mining expenditure may be depreciated and
deducted over its effective life.
Harmony Gold Australia Proprietary Limited and its wholly owned Australian subsidiary
companies are recognized and taxed as a single entity. Under the consolidations rules all of the
Australian subsidiary companies are treated as divisions of the Head Company, Harmony Gold
Australia. As a result all inter company transactions between group members are ignored for tax
purposes. This allows the group to transfer assets between group members without any tax
consequences, and deems all tax losses to have been incurred by the Head Company of the group.
Mining operations in Western Australia are also subject to a 2.5% gold royalty because the
mineral rights are owned by the State Government. All gold production from the Mount Magnet
operations is subject to this royalty.
Withholding tax is payable on dividends, interest and royalties paid by Australian residents
to non-residents, which would include any dividends on the shares of our Australian subsidiaries
that are paid to us. In the case of dividend payments to non-residents, a 30% withholding tax
applies. However, where the recipient of the dividend is a resident of a country with which
Australia has concluded a double taxation agreement, the rate of withholding tax is generally
limited to 15% (or in the case of South Africa 5% where the dividend is paid to a company which
controls at least 10% of the Australian dividend paying company). Where dividends are fully
franked, no withholding tax applies as an effective credit is allowed against any withholding tax
otherwise payable, regardless of whether a double taxation agreement is in place.
PNG. The Hidden Valley Project in PNG is expected to commence operations in fiscal 2010. We
are also reviewing other potential projects and carrying out extensive exploration.
PNG mining projects are taxed on a project basis. Therefore each project is taxed as a
separate entity, even though it may be one of a number of projects carried on by the same company.
In certain circumstances there is an ability to transfer the tax benefit obtained through
exploration expenditure between projects and wholly owned companies. Tax losses are generally
quarantined and cannot be transferred between projects.
PNG mining companies are taxed at a rate of tax of 30%.
Capital development and exploration expenditure incurred in PNG is capitalized for tax
purposes and can be generally deducted at 25% per annum on a diminishing value basis against
project income.
106
PNG imposes dividend withholding tax of 10% on dividends paid by PNG mining operations to non
residents. Although PNG also imposes interest withholding tax on interest paid off-shore, the PNG
Tax Act exempts interest paid to non resident lenders from withholding tax where the PNG company is
engaged in mining operations in PNG.
Discontinued Operations
Revenues
Revenues decreased from US$312 million in fiscal 2008 to US$69 million in fiscal 2009, due to
the fact that the Cooke operation was sold in November 2008 and Mount Magnet was placed on care and
maintenance during December 2007.
Costs
Costs decreased from US$243 million in fiscal 2008 to US$75 million in fiscal 2009. This was
due to the recognition of the sale of the Cooke operation in November 2008.
Reversal of impairment
The gain recognized in fiscal 2009 relates to the reversal of impairment when Mount Magnet was
re-measured in terms of IFRS 5 on no longer being classified as held for sale.
Profit on sale of shares
The profit on shares in fiscal 2009 relates to the sale of the Cooke operations in November
2008. The profit on sale of shares for fiscal 2008 relates to the profit of US$9 million on the
sale of Orkney.
Profit on sale of property, plant and equipment
The profit of US$4 million in fiscal 2008 relates primarily to the profit on sale of tenements
in Australia of US$14 million. This was offset by the loss of US$13 million on the sale of South
Kalgoorlie.
Income and Mining Taxes
South Africa. We pay taxes on mining income and non-mining income. For details, refer to the
discussion under Income and Mining Taxes in the Continuing Operations section.
In 2009 and 2008, the tax rates for companies that elected the STC exemption were 43% for
mining income and 35% for non-mining income, compared with 34% for mining income and 28% for
non-mining income if the STC exemption election was not made.
Australia. We pay taxes on mining income and non-mining income. For details, refer to the
discussion under Income and Mining Taxes in the Continuing Operations section. In fiscal 2009 and
2008, the income tax rate for companies was 30%.
Continuing and discontinued operations
Net profit/(loss)
The net profit/(loss) increased from a net loss of US$30 million in fiscal 2008 to a net
profit of US$311 million. This is due to the factors discussed above.
Recent Accounting Pronouncements
IFRS 1 (Amendment): First-time Adoption of International Financial Reporting Standards
Additional Exemptions for First-time Adopters (effective for periods beginning on or after January
1, 2010). The amendment addresses the retrospective application of IFRSs to particular situations
including: the use of deemed cost for oil and gas assets; determination of whether an arrangement
contains a lease; and decommissioning liabilities included in the cost of property, plant and
equipment and is aimed at ensuring that the entities applying IFRSs will not face undue cost or
effort in the transition process. This amendment will not have an impact on the group.
IFRS 1 (Amendment): First-time Adoption of International Financial Reporting Standards
Limited Exemptions from Comparative IFRS 7 Disclosures for First-time Adopters (effective for
periods beginning on or after July 1, 2010). The additional amendment relieves first-time
107
adopters of IFRSs from presenting comparative information for
new three level classification disclosures required by the March 2009 amendments to IFRS 7
Financial Instruments: Disclosures. It thereby ensure that first-time adopters benefit from the
same transition provisions that amendments to IFRS 7 provides to current IFRS preparers. This
amendment will not have an impact on the group.
IFRS 2 (Amendment) Group cash-settled and share-based payment transactions (effective from
periods beginning January 1, 2010). The amendment provide a clear basis to determine the
classification of share based payments in consolidated and separate financial statements. In
addition to incorporating IFRIC 8, Scope of IFRS 2, and IFRIC 11, IFRS 2 group and treasury
share transactions, the amendment also expand on the guidance in IFRIC 11 to address group
arrangements that were not considered by that interpretation. The group does not have a cash
settled share based payments scheme.
IFRS 5 (Amendment) Measurement of non-current assets (or disposal groups) classified as held
for sale (effective from periods beginning January 1, 2010). The amendment is part of the
International Accounting Standards Boards (IASB) annual improvements project published in April
2009. The amendment provides clarification on disclosures required in respect of non-current assets
(or disposal groups) classified as held for sale or discontinued operations. It also clarifies that
the general requirement of IAS 1 still apply, particularly paragraph 15 (to achieve a fair
presentation) and paragraph 125 (sources of estimation uncertainty). The group is still in process
of determining the effect of this amendment on the financial statements.
IFRS 9 Financial instruments (effective from periods beginning January 1, 2013). IFRS 9
simplifies accounting for financial assets as requested by many constituents and stakeholders. In
particular, it replaces multiple measurement categories in IAS 39 with a single principle-based
approach to classification. IFRS 9 removes complex rule-driven embedded derivative guidance in IAS
39 and requires financial assets to be classified in their entirety. IFRS 9 eliminates the need for
multiple impairment models, such that only one impairment model for financial assets carried at
amortized cost will be required. The group is still in the process of determining the effect of
this standard on the financial statements.
IAS 1 (Amendment) Presentation of financial statements (effective from periods beginning
January 1, 2010). The amendment is part of the IASBs annual improvements project published in
April 2009. The amendment provides clarification that the potential settlement of a liability by
the issue of equity is not relevant to its classification as current or non current. By amending
the definition of current liability, the amendment permits a liability to be classified as
non-current (provided that the entity has an unconditional right to defer settlement by transfer of
cash or other assets for at least 12 months after the accounting period) notwithstanding the fact
that the entity could be required by the counterparty to settle in shares at any time.
IAS 7 (Amendment) Statement of cash flows (effective from periods beginning January 1,
2010). The amendment is part of the IASBs annual improvements project published in April 2009. The
amendment clarifies that only expenditure that results in a recognized asset in the statement of
financial position can be classified as a cash flow from investing activities. The group
currently does not expect the amendment to impact the financial statements.
IAS 17 (Amendment) Leases (effective from periods beginning January 1, 2010). The amendment
is part of the IASBs annual improvements project published in April 2009. The amendment deletes
relevant guidance regarding classification of leases of land, so as to eliminate inconsistency with
the general guidance on lease classification. As a result, leases of land should be classified as
either finance or operating, using the general principles of IAS 17.
IAS 24 (Revised) Related-party disclosures (effective from periods beginning January 1,
2011). The revised standard removes the requirement for government-related entities to disclose
details of all transactions with the government and other government-related entities. It also
clarifies and simplifies the definition of a related party.
IAS 32 (Amendment) Classification of rights issues (effective from periods beginning
February 1, 2010). The amendment recognizes that the previous requirement to classify
foreign-currency denominated rights issued to all existing shareholders on a pro rata basis as
derivative liabilities is not consistent with the substance of the transaction, which represents a
transaction with owners acting in their capacity as such. The amendment therefore creates an
exception to the fixed for fixed rule in IAS 32 and requires rights issues within the scope of
the amendment to be classified as equity.
IAS 36 (Amendment) Impairment of Assets (effective from periods beginning January 1, 2010).
The amendment is part of the IASBs annual improvements project published in April 2009. The
amendment clarifies that the largest cash generating unit (or group of units) to which goodwill
should be allocated for the purposes of impairment testing is an operating segment as defined by
paragraph 5 of IFRS 8 Operating segments, that is; before the aggregation of segments with
similar economic characteristics permitted by paragraph 12 of IFRS 8.
IAS 38 (Amendment) Intangible assets (effective from periods beginning January 1, 2010). The
amendment is part of the IASBs annual improvements project published in April 2009. The amendment
clarifies the description of valuation techniques commonly used by entities when measuring the fair
value of intangible assets acquired in a business combination, where there is no active market.
The effect of the amendment will be recorded in future periods when such transactions are entered
into.
108
IAS 39 (Amendment) Financial instruments: Recognition and measurement (effective from
periods beginning January 1, 2010). There were 3 amendments made to IAS 39 as part of the IASBs
annual improvements project published in April 2009.
(i) The scope exemption within IAS 39.2(g) was amended to clarify that it only applies to forward
contracts that will result in a business combination at a future date, as long as the term of the
forward contract does not exceed a reasonable period normally necessary to obtain any required
approvals and to complete the transaction.
(ii) Clarification that amounts deferred in equity are only reclassified to profit or loss when
the underlying hedged cash flows affect profit or loss.
(iii) An additional example of a closely related embedded prepayment option in a debt instrument
was added to the adoption guidance in IAS 39 AG 30. Wording with respect to the assessment of put
and call features in convertible instruments was clarified.
IFRIC 14 (Amendment): The Limit on a Defined Benefit Asset, Minimum Funding Requirements and
their Interaction Prepayment of Minimum Funding Requirements (effective for financial periods
beginning on or after January 1, 2011). This amendment applies in the limited circumstances when an
entity is subject to minimum funding requirements and makes an early payment of contributions to
cover those requirements. The amendment permits such an entity to treat the benefit of such an
early payment as an asset. The group does not believe the amendment will have an impact on the
group.
IFRIC 19 Extinguishing financial liabilities with equity instruments (effective from periods
beginning July 1, 2010). This interpretation addresses the accounting by an entity when the terms
of a financial liability are renegotiated and result in the entity issuing equity instruments to a
creditor of the entity to extinguish all or part of the financial liability. It does not address
the accounting by the creditor, nor does it apply to situations where the liability may be
extinguished with equity instruments in accordance with the agreed terms of the instrument (for
example, convertible bonds). The group currently does not expect this interpretation to have a
material effect on the financial statements.
Improvements projects. Certain improvements to IFRS 2009 (periods beginning on or after
January 1, 2010) and IFRS 2010 (each has its own effective date, the earliest being periods
beginning on or after July 1, 2010).
Liquidity and Capital Resources
We centrally manage our funding and treasury policies. There are no legal or economic
restrictions on the ability of our subsidiaries to transfer funds to us. We have generally funded
our operations and our short-term and long-term liquidity requirements from (i) cash generated from
operations, (ii) credit facilities and other borrowings and (iii) sales of equity securities.
Cash Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended June 30, |
|
|
2010 |
|
2009 |
|
2008 |
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows |
|
|
216 |
|
|
|
246 |
|
|
|
165 |
|
Investing cash flows |
|
|
(453 |
) |
|
|
(108 |
) |
|
|
(313 |
) |
Financing cash flows |
|
|
85 |
|
|
|
(233 |
) |
|
|
78 |
|
Foreign exchange differences |
|
|
6 |
|
|
|
8 |
|
|
|
5 |
|
Total cash flows from continuing operations |
|
|
(146 |
) |
|
|
(87 |
) |
|
|
(65 |
) |
Discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows |
|
|
(6 |
) |
|
|
8 |
|
|
|
71 |
|
Investing cash flows |
|
|
|
|
|
|
202 |
|
|
|
(16 |
) |
Financing cash flows |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange differences |
|
|
|
|
|
|
77 |
|
|
|
(7 |
) |
Total cash flows from discontinued operations |
|
|
(6 |
) |
|
|
287 |
|
|
|
48 |
|
Operations
Net cash provided by operations is primarily affected by the quantities of gold sold, the gold
price, the Rand-U.S. dollar exchange rate, cash costs per ounce and, in the case of the
International operations, the Australian dollar and Kina versus U.S. dollar exchange rate. A
significant adverse change in one or more of these parameters could materially reduce cash provided
by operations as a source of liquidity.
Net cash generated by operations was US$210 million in fiscal 2010, as compared with US$254
million in fiscal 2009. The decrease is attributed primarily to the increase in production costs.
Also contributing to the decline is the decrease in interest received from US$51
109
million in fiscal 2009 to US$25 million. Offsetting this was a decrease in
interest and taxation paid of US$19 million and US$68 million, respectively.
Net cash generated by operations was US$254 million in fiscal 2009, as compared with US$236
million in fiscal 2008. This improvement is attributable primarily to the higher gold price
received during the year as well as the increase in interest received of US$13 million to US$51
million. Also contributing to the improvement is the decrease of interest paid of US$26 million to
US$31 million as a result of a decrease in the outstanding debt balances. Negating the effect of
the improvement was the increase in taxation paid of US$67 million to US$85 million.
Investing
Net cash utilized by investing activities was US$453 million in fiscal 2010, as compared with
net cash generated of US$94 million in fiscal 2009. This movement is mainly due to an increase in
capital expenditure of US$442 million during fiscal 2010, as well as the acquisition of the Pamodzi
Free State assets for US$36 million. The inclusion of proceeds on disposal of mining assets in
fiscal 2009 of US$444 million as contributed to the decrease year-on-year.
Net cash generated by investing activities was US$94 million in fiscal 2009, as compared with
net cash utilized of US$329 million in fiscal 2008. This movement was mainly due to the decrease in
capital expenditure during fiscal 2009 from US$552 million to US$339 million. Also contributing was
an increase in proceeds on disposal of mining assets, relating to the disposal of the PNG assets to
Newcrest and the Rand Uranium transaction (US$444 million). Offsetting this was an increase in the
restricted cash balance (US$9 million).
Financing
Net cash generated by financing activities was US$85 million in fiscal 2010, as compared with
net cash utilized of US$233 million in fiscal 2009. This movement is primarily attributed to the
reduction in repayment of borrowings of US$427 million in fiscal 2009 to US$57 million in fiscal
2010. Also contributing is the raising of the Nedbank term facility in fiscal 2010. During fiscal
2010, dividends of US$29 million was paid.
Net cash utilized by financing activities was US$233 million in fiscal 2009, as compared with
net cash generated of US$78 million in fiscal 2008. This movement was mainly due to the repayment
of the convertible bond and the Nedbank loan during the year. This decrease was partially offset by
the cash raised by the two share issues during the year, raising US$188 million, net of transaction
costs.
Outstanding Credit Facilities and Other Borrowings
On December 11, 2009, we entered into a loan facility with Nedbank Limited (Nedbank),
comprising a term facility of R900 million (US$119 million) and a revolving credit facility of R600
million (US$80 million). Interest accrues on a day to day basis over the term of the loan at a
variable interest rate, equal to 3 month Johannesburg Interbank Agreed Rate (JIBAR) plus 3.5%.
Interest is repayable quarterly. The term facility is repayable bi-annually in equal instalments of
R90 million (US$12 million) over five years. The revolving credit facility is repayable after three
years. The term facility was fully drawn during fiscal 2010 and R300 million (US$41 million) was
drawn on the revolving credit facility on April 15, 2010. We need to comply with certain debt
covenants, including that the interest cover ratios shall not be less than two times and the
current ratio not less than one time. We complied with the relevant covenants during fiscal 2010.
During July 2007, Morobe Consolidated Goldfields entered into a finance lease agreement with
Westpac Bank for the purchase of mining fleet to be used on the Hidden Valley project amounting to
US$37 million. Interest is charged at U.S. LIBOR plus 1.25% per annum. Interest is accrued
monthly and lease instalments are repayable quarterly terminating June 30, 2013. The mining fleet
financed is used as collateral for these loans. During fiscal 2009, 50% of the liability was
transferred to Newcrest as part of the sale of the PNG gold and copper assets. The balance at June
30, 2010 was US$11.9 million.
Recently Retired Credit Facilities and Other Borrowings
On July 30, 2003, AVRD entered into a term loan facility of R140 million (US$19 million) with
Nedbank for the purpose of partially funding AVRs purchase of an undivided 26% share of the Mining
titles, to be contributed to the Doornkop South Reef Project with Randfontein. Interest at a fixed
rate equal to JIBAR plus 2%, compounded monthly, and any stamp duties and holding costs. The terms
of the loan were extended from the original maturity of July 30, 2008, to September 30, 2009. It
was then extended again until March 31, 2010,, at which date all loan amounts and any interest
accrued were paid in terms of the agreement between AVRD and Harmony for the disposal of AVRDs 26%
interest in Doornkop. Interest capitalized during fiscal 2010 was US$2.2 million compared to US$3.3
million in fiscal 2009 (US$4.1 million in fiscal 2008). During fiscal 2005, AVRD borrowed
an additional R18 million (US$2.8 million) from its holding company
110
Africa Vanguard Resources
to service working capital commitments. When the disposal of AVRDs 26% interest in Doornkop to
Harmony was finalized, the loan was derecognized as AVRD was no longer considered to be an SPE. The
loan was uncollateralized and interest free.
On November 12, 2009 the Australian operations raised a new loan with BMW Finance of US$3.6
million for insurance premium funding. A deposit of US$0.7 million was paid. The loan bore interest
at 6.1% and was repayable monthly in equal installments of US$0.4 million with the last installment
paid in June 2010.
On May 21, 2004, we issued R1.7 billion (US$252.0 million) in international unsecured
fixed-rate convertible bonds in order to refinance our domestic Rand debt. Interest was calculated
on the convertible bonds at a rate of 4.875% per annum, payable semi-annually in arrears on May 21
and November 21 of each year. The bonds were convertible at the option of the bondholders into
fully paid up ordinary shares at any time on or after July 1, 2004 and up to, and including, May
15, 2009, unless they had been previously redeemed, converted or purchased and cancelled by us. The
trust deed for the convertible bonds contained clauses that restricted certain of our activities,
including a negative pledge, according to which we were not permitted to create or permit any
mortgage, charge, lien, pledge or other form of encumbrance of security interest with respect to
any part of our undertaking or assets, present or future, to secure any relevant debt, guarantee or
indemnity. In addition, the trust deed contained covenants that required us to, among other things,
maintain the listing of the bonds with the UK Listing Authority and to do all things necessary, in
the opinion of the trustee, to give effect to the trust deed. Included in the amortization charge
as per the income statement is US$0.9 million compared to US$1.2 million in fiscal 2008 and US$1.2
million in 2007 for amortization of the bond issue costs. On May 20, 2009, we repaid the
convertible bond.
On September 28, 2007, we entered into a term loan facility of R2 billion (US$283.9 million)
with Nedbank Limited, for the purpose of partially funding capital expenditure in respect of
projects, as well as to repay the short term bridging loan amounting to R500 million (US$68.6
million). Interest accrued on a day to day basis over the term of the loan at a variable interest
rate, which is fixed for three month periods, equal to the JIBAR plus 2.75% plus banking costs. The
interest is repayable every quarter commencing on September 28, 2007. During fiscal 2009, the loan
was repaid in tranches, with the last tranche of R750 million (US$83.6 million) being repaid on
April 21, 2009.
Contractual Obligations and Commercial Commitments
Our contractual obligations and commercial commitments consist primarily of credit facilities,
post-retirement healthcare and environmental obligations.
Contractual Obligations on the Balance Sheet
The following table summarizes our contractual obligations as of June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
Less Than |
|
12-36 |
|
36-60 |
|
After 60 |
|
|
|
|
|
|
12 Months |
|
Months |
|
Months |
|
Months |
|
|
|
|
|
|
July 1, 2010 |
|
July 1, 2011 |
|
July 1, 2013 |
|
Subsequent |
|
|
|
|
|
|
to June 30, |
|
to June 30, |
|
To June 30, |
|
June 30, |
|
|
Total |
|
2011 |
|
2013 |
|
2015 |
|
2015 |
|
|
($million) |
|
($million) |
|
($million) |
|
($million) |
|
($million) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nedbank facility (1) |
|
|
181 |
|
|
|
37 |
|
|
|
106 |
|
|
|
38 |
|
|
|
|
|
Westpac Bank(1) |
|
|
12 |
|
|
|
4 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
Post retirement health care(2) |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
Environmental obligations(3) |
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222 |
|
Total contractual obligations |
|
|
435 |
|
|
|
41 |
|
|
|
114 |
|
|
|
38 |
|
|
|
242 |
|
|
|
|
(1) |
|
See Item 5. Operating and Financial Review and Prospects Liquidity and
Capital Resources Credit Facilities and Other Borrowings Outstanding Credit Facilities and
Other Borrowings. |
|
(2) |
|
This liability relates to post-retirement medical benefits of former employees who
retired prior to December 31, 1996 and is based on actuarial valuations conducted during fiscal
2010. |
|
(3) |
|
We make provision for environmental rehabilitation costs and related liabilities
based on managements interpretations of current environmental and regulatory requirements. See
Item 5. Operating and Financial Review and Prospects Critical Accounting Policies. |
111
Contractual Obligations off the Balance Sheet
Our obligation with regards to operating leases is US$5 million for the next year and relates to
the International office in Brisbane as well as expenditure on mineral tenements. Of this amount,
US$4 million is due within 12 months.
Capital Expenditure
The following table sets forth our authorized capital expenditure as of June 30, 2010:
|
|
|
|
|
|
|
$million |
Authorized and contracted for (1) |
|
|
44 |
|
Authorized but not yet contracted for |
|
|
132 |
|
Total |
|
|
176 |
|
|
|
|
(1) |
|
Including our share of the PNG joint ventures capital expenditure of US$27 million. |
Commercial Commitments
The following table provides details regarding our commercial commitments as of June 30, 2010:
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|
|
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|
|
|
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|
|
|
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|
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|
Amount of Commitments Expiring by Period |
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|
|
|
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Less |
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|
|
|
|
|
|
|
|
|
|
|
Than 12 |
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12-36 |
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36-60 |
|
|
|
|
|
|
|
|
Months |
|
Months |
|
Months |
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After 60 |
|
|
|
|
|
|
July 1, |
|
July 1, |
|
July 1, |
|
Months |
|
|
|
|
|
|
2010 to |
|
2011 to |
|
2013 to |
|
Subsequent |
|
|
|
|
|
|
June 30, |
|
June 30, |
|
June 30, |
|
to June 30, |
|
|
Total |
|
2011 |
|
2013 |
|
2015 |
|
2015 |
|
|
($million) |
|
($million) |
|
($million) |
|
($million) |
|
($million) |
Guarantees(1) |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70 |
|
Capital commitments(2) |
|
|
44 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments expiring by period |
|
|
114 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
70 |
|
|
|
|
(1) |
|
Amount of Commitments Expiring by Period. |
|
(2) |
|
Capital commitments consist only of amounts committed to external suppliers,
although a total of US$132 million has been approved by the board for capital expenditures. |
Trend Information
Information on recent trends in our operations is discussed in Item 4. Information on the
Company Business Strategy and Results of Operations above.
Working Capital and Anticipated Financing Needs
The board believes that our working capital resources, by way of cash generated from
operations and existing cash on hand, are sufficient to meet our present working capital needs.
Several of the Growth projects will require additional capital expenditure over the next two to
three years to complete construction, most of which will be funded from cash generated by
operations and the balance by debt. For more information on our planned capital expenditures, see Capital Expenditures above and Item 4. Information on the Company Business Harmonys
Mining Operations. We may, in the future, explore debt and/or equity financing in connection with
our acquisition strategy. See Item 3. Key Information Risk Factors Harmonys strategy
depends on its ability to make additional acquisitions. Our board believes that we will have
access to adequate financing on reasonable terms given our cash-based operations and modest
leverage. Our ability to generate cash from operations could, however, be materially adversely
affected by increases in cash costs, decreases in production, decreases in the price of gold and
appreciation of the Rand and other non-US$ currencies against the U.S. dollar. Future financing
arrangements would also be subject to the limits on the boards borrowing powers described in Item
10. Additional Information Memorandum and Articles of Association Directors Borrowing
Powers. In addition, South African companies are subject to significant exchange control
limitations, which may impair our ability to fund overseas operations or guarantee credit
facilities entered into by overseas subsidiaries. See Item 10. Additional Information Exchange
Controls.
112
Other Financial Information
Export Sales
In fiscal years 2008, 2009 and 2010, 100% of our gold produced in South Africa was refined by
Rand Refinery, which is owned by a consortium of the major gold producers in South Africa. All of
our gold produced in Australia and PNG in those periods was sold to The Perth Mint Australia
(previously known as AGR Matthey), a Perth-based refinery.
113
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management
The members of the board, their principal past affiliations, information on their business
experiences and principal outside activities and selected other information are set forth below:
Board of directors
|
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|
Name |
|
Date of appointment |
Patrice Motsepe (1)
|
|
September 23, 2003 |
Frank Abbott (1)(2)
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|
October 1, 1994 |
Graham Briggs
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|
August 6, 2007 |
Joaquim Chissano (1)
|
|
April 20, 2005 |
Fikile De Buck(1) (3)(4)
|
|
March 30, 2006 |
Ken Dicks (1) (3)
|
|
February 13, 2008 |
Cheick Diarra (1) (3)
|
|
March 5, 2008 |
Dr Simo Lushaba (1) (3)
|
|
October 18, 2002 |
Cathie Markus (1) (3)
|
|
May 31, 2007 |
Harry Ephraim Mashego
|
|
February 24, 2010 |
Hannes Meyer
|
|
November 1, 2009 |
Modise Motloba (1) (3)
|
|
July 30, 2004 |
Cedric Savage (1) (3)
|
|
September 23, 2003 |
André Wilkens (1)
|
|
August 7, 2007 |
|
|
|
(1) |
|
Non-executive directors |
|
(2) |
|
Frank Abbott served as a non-executive director until August 20, 2007 and was appointed
interim financial director on August 21, 2007. Frank retired at the end of July 2010, and was
appointed as non-executive director on August 1 , 2010 . |
|
(3) |
|
Independent |
|
(4) |
|
Appointed lead independent director after June 30, 2010. |
Non-Executive Chairman
Patrice Motsepe (48) BA (Legal), LLB. Patrice was appointed to the board in 2003. Patrice was
a partner in one of the largest law firms in South Africa, Bowman Gilfillan Inc. He was a visiting
attorney in the USA with the law firm, McGuire Woods Battle and Boothe. In 1994 he founded Future
Mining, which grew rapidly to become a successful contract mining company. He then formed ARMgold
in 1997, which listed on the JSE in 2002. ARMgold merged with Harmony in 2003 and this ultimately
led to the takeover of Anglovaal Mining (Avmin) by African Rainbow Minerals Limited (ARM). In
2002 he was voted South Africas Business Leader of the Year by the CEOs of the top 100 companies
in South Africa. In the same year, he was winner of the Ernst & Young Best Entrepreneur of the Year
Award. He is also the Executive Chairman of ARM and the Deputy Chairman of Sanlam. His various
business responsibilities included being President of Business Unity South Africa (BUSA) from
January 2004 to May 2008, which is the voice of organized business in South Africa. He is also
President of Mamelodi Sundowns Football Club.
Executive Directors
Frank Abbott (55), BCom, CA (SA), MBL. Frank was appointed executive interim financial
director in August 2007. Frank initially joined the Harmony board as a non-executive director in
1994, after which he was appointed Financial Director in 1997. In 2004 Frank was appointed
financial director of ARM, while remaining on the Harmony board as non-executive director. In
August 2007, Frank was seconded to Harmony as interim financial director, a position he held until
handing over to Hannes Meyer in November 2009. Frank remained executive director until his early
retirement on July 31, 2010. Post-retirement, Frank serves as non-executive director of Harmony and
ARM.
Graham Briggs (57), BSc (Hons) (Geology), PrSciNat, Chief Executive Officer. Graham was
appointed as chief executive officer in January 2008, after his appointment to the board in 2007.
Having joined Harmony as new business manager in 1995, Grahams previous positions include that of
chief executive of Harmony Australia. A geologist by training, Graham has more than 35 years
experience in the field and in an operational capacity at a number of South African gold mines.
Graham serves as a director on Harmonys subsidiary companies and is a member of the board of
Virtual Metals Group in the United Kingdom.
Harry Ephraim Mashego Mashego (46), BA Ed, BA (Hons), GEDP, JMDP, Executive: Organizational
Development and Transformation. Mashego joined Harmony in July 2005 as Group Human Resources
Development Manager. Mashego, who has more than 20 years experience in human resources, began his
career as Human Resources Manager at Eskom. He then progressed in the field at JCI,
114
Atlantis Diesel Engines and Foskor Ltd. He was promoted to
General Manager at Harmonys Evander Operations in November 2005 and was appointed Executive: Human
Resources in August 2007. Mashego was appointed to the board as executive director in February
2010.
Hannes Meyer (40), CA (SA), BCom (Hons), Financial Director. Hannes joined Harmony in August
2009. During his 14 year career in the mining industry, he gained extensive mining and financial
experience at Randgold and Exploration Limited, Randgold Resources Limited, AngloGold and TEAL
Exploration and Mining Limited (TEAL). His exposure extended to gaining knowledge of mines in
Africa, corporate finance and business development. Before joining Harmony, Hannes served as chief
financial officer of TEAL, and served as acting chief executive officer of TEAL from May 2008. He
also serves as director on various Harmony subsidiaries and the board of Rand Uranium (Proprietary)
Limited.
Non-Executive Directors
Joaquim Chissano (70), Non-Executive Director. Joaquim was appointed to the board in April
2005. Formerly President of Mozambique (1986 2004), Joaquim also served as chairman of the
African Union for 2003/2004. On leaving the presidency, he established the Joaquim Chissano
Foundation for Peace Development and Culture, and has led various international peace initiatives
on behalf of the United Nations, African Union and the Southern African Development Community to
Guinea Bissau, the Democratic Republic of the Congo, Uganda and Madagascar. In 2006 he was awarded
the annual Chatham House Prize for significant contributions to improving international relations
and was the recipient of the inaugural Mo Ibrahim Prize for Achievement in African Leadership in
2007. He is also a non-executive director of ARM Limited and TEAL. Joaqim was appointed to the Bill
and Melinda Gates Foundation in December 2009.
Fikile De Buck (49), BA (Economics), FCCA (UK), Lead independent Non-Executive Director.
Fikile joined the board on March 30, 2006. A chartered certified accountant, she is a fellow of the
Association of Chartered Certified Accountants (ACCA) (UK) and a member. From fiscal 2000 to fiscal
2008, Fikile worked in various capacities at the Council for Medical Schemes in South Africa,
including that of chief financial officer and chief operations officer. Prior to that she was
treasurer at the Botswana Development Corporation. Fikile is also a non-executive director and
chairman of the Audit Committee of Rand Uranium (Proprietary) Ltd and of Anooraq Resources
Corporation. In August 2010 Fikile was appointed lead independent non-executive director and
chairman of the Nomination Committee.
Dr Cheick Diarra (58), PhD (Mechanical and Aerospace Engineering), Independent Non-Executive
Director. Dr Cheick Diarra joined the board in March 2008. He is also the chairman for Africa at
Microsoft. Dr Diarra graduated from the Pierre and Marie Curie University in Paris, France, and
obtained his PhD in mechanical and aerospace engineering from Howard University, Washington DC,
USA. After six years as an Assistant Professor at Howard, he joined the National Aeronautic and
Space Association (NASA) Jet Propulsion Laboratory. Dr Diarra has served as a UNESCO goodwill
ambassador and, in 2002 and 2003, he was chief executive officer of the African Virtual University
based in Kenya. He is a member of several international and African scientific organisations, and
was awarded an African Lifetime Achievement Award for Outstanding Contributions to Science.
Ken Dicks (71), Mine Managers Certificates (Metalliferous and Fiery Coal Mines), Management
Development Diploma and Management Diploma, Independent Non-Executive Director. Ken joined the
board in February 2008. He has 39 years experience in the mining industry, mainly in the Anglo
American group. He has served on the boards of mining companies such as Freegold, Western Deep
Levels and Elandsrand. He is also a non-executive director of Gold One International, following a
reverse takeover by Aflease Gold Limited and Bauba Platinum Limited.
Dr Simo Lushaba (44), BSc (Hon), MBA and DBA, Independent Non-Executive Director. Simo joined
the Harmony board in October 2002. An entrepreneur and an executive business coach, he previously
held senior management positions at Spoornet and Lonmin plc and was chief executive of Rand Water.
Simo is a member of the board of the Nepad Business Foundation (SA), chairman of Spescom Limited
and a board member of Gidani.
Cathie Markus (53), BA LLB, Independent Non-Executive Director. Cathie joined the board in May
2007. Cathie spent 16 years at Impala Platinum Holdings Limited (Implats), initially as legal
advisor and latterly, from 1998 to 2007, as executive director with responsibility for legal
compliance and public affairs. Having graduated from the University of the Witwatersrand, Cathie
served articles at Bell Dewar & Hall. On qualifying as an attorney, notary and conveyancer, she
joined the legal department of Dorbyl Limited. She is currently a trustee of the Impala Bafokeng
Trust.
Modise Motloba (44), BSc, Diploma in Strategic Management, Independent Non-executive Director.
Modise joined the board in July 2004. Currently the chief executive of Quartile Capital
(Proprietary) Limited, Modise is also a director of Rand Merchant Bank Structured Insurance,
Deutsche Bank Securities SA (Proprietary) Limited, the Land Bank and the Small Enterprise
Foundation. Modises 17 years experience in investment banking, treasury and fund management
includes appointments at Rand Merchant Bank, African Harvest Fund
115
Managers and Goldman Sachs. Modise is
a former President of the Association of Black Securities and Investment Professionals (ABSIP)
where he was instrumental in formulating and negotiating the historic Financial Services Charter in
October 2003.
Cedric Savage (71), BSc (Eng), MBA, ISMP (Harvard), Independent Non-executive Director. Cedric
joined the board in September 2003. He retired as the chairman of the Tongaat Hulett Group in May
2009 but remains a trustee of the Tongaat Hulett Group Pension Fund. He started his career in the
United Kingdom in 1960 as a graduate engineer with Fairey Aviation. He returned to South Africa in
1963 and worked in the oil (Mobil), textile (Felt & Textiles) and chicken (Rainbow Chickens
Limited) industries. He was President of the South African Chamber of Business from 1993 to 1994.
He has also served as Chairman of the Board of Governors of the University of KwaZulu-Natals
Development Foundation and as a Member of Council of that university. He joined the Tongaat-Hulett
Group Limited in 1977 as Managing Director of Tongaat Foods and progressed to Executive Chairman of
the Building Materials Division; he became Chief Executive Officer of the group in 1991. In May
2000, he assumed the dual roles of Chief Executive Officer and Executive Chairman. He currently
serves on the board of Denel (Proprietary) Limited. He also served on the Nedbank board from 2002
until May 2008 when he retired as Non-Executive Director, and on the board of Datatec Limited from
2001 and Datatec International from 2004, after which he retired from both boards in August 2009.
André Wilkens (61), Mine Managers Certificate of Competency, MDPA, RMIIA, Non-Executive
Director. André joined the board in August 2007. He is currently the chief executive officer of ARM
Limited and previously held the same position at ARM Platinum. Prior to this, he was the chief
operating officer at Harmony, following the merger of Harmony with ARMgold in 2003. André has a
wealth of experience in the mining industry, having joined Anglo American in 1969 and moved up the
ranks to mine manager of Vaal Reefs south mine.
Management
The members of our management, their principal past affiliations, information on their
business experiences and principal outside activities and selected other information are set forth
below:
Bob Atkinson (58), NHD (Metalliferous Mining), Executive: New Business and Projects. Bob
joined Harmony as a Section Manager in 1986 and served as Operations Director on the Executive
Committee from June 2001 to May 2003. He was appointed Chief Operating Officer at Harmony Gold
Australia and was appointed as Executive: Sustainable Development (Safety and Occupational Health)
at Harmony in South Africa in July 2004. He has more than 32 years experience in the mining
industry.
Jaco Boshoff (41), BSc (Hons), MSc (Geology), MBA, PrSciNat, Executive: Reserves and
Resources. Jaco joined Harmony in April 1996. He has served as the Executive: Reserves and
Resources and Competent Person since March 2004. Prior to this, he was a Ore Reserve Manager from
1998 to 2004 and before that was a geologist at Harmony and at Gengold. Jaco is registered as a
professional geological scientist with the South African Council for Natural Scientific Professions
and has worked in the mining industry for more than 12 years. In July 2010 Projects and New
Business were added to his portfolio.
Matthews Pheello Dikane (44), LLB, LLM (Labor Law), Postgraduate Diploma In Management
Practice, Postgraduate Diploma in Corporate Law, Executive: Legal and Compliance. Matthews joined
Harmony in 2009. He has more than 20 years experience in the mining industry, working his way up
through the ranks from learner official to production mine overseer at AngloGold Ashanti Limited.
During this time, he studied for his law degree and served his articles at Perrott Van Niekerk
Woodhouse Incorporated. He also completed his Masters degree in Labor Law and Postgraduate
Diplomas in Management Practice and Corporate Law. He returned to AngloGold Ashantis corporate
office as a Legal Counsel, later joining Brink Cohen Le Roux as a senior associate where he was
made a director.
Leon le Roux (54), NHD (Mechanical and Electrical Engineering), Executive: Risk Management and
Engineering. Leon joined Harmony on its merger with ARMgold in 2003. Having begun his mining career
as a learner official in 1979 and obtaining his GCC (Mines and Works), he worked as an engineer on
several AngloGold operations. He joined ARMgold on its formation in 1999 where he held a number of
positions in the management team and was later seconded to ARMplatinum. He was appointed to the
Harmony executive team in June 2009. Post year-end, in September 2010, Leon was deployed to
Harmonys South East Asian operations.
Jackie Mathebula (40), B Admin Honours, MBA, Master of Management (MM, HR), Executive:
Corporate Affairs. Jackie joined Harmony in September 2002 as Employee and Industrial Relations
Executive. In 2005, his portfolio became Training, Human Resource Development and Occupational
Health, and in 2005 he was appointed Executive: Corporate Affairs. Prior to joining Harmony, he
worked at Gensec Bank, Gold Fields Limited and then Iscor group (now ArcelorMittal South Africa).
He also worked for the South African government in the Gazankulu Public Service Commission.
Melanie Naidoo-Vermaak (36), MSc (Sustainable Development), Executive: Environment. Melanie
joined Harmony in August 2009. She is an experienced environmental specialist who has worked for
both the private sector in the mining industry, as well as the public
116
sector in the Departments of Water Affairs and Forestry and Minerals and
Energy. She has spent more than 10 years in this discipline and has international environmental
management exposure gained in Australia, Papua New Guinea, Fiji as well as Africa. She has held
various positions at some of the leading mining companies, including BHP Billiton, Anglo American
PLC and De Beers Consolidated Mines Limited.
Alwyn Pretorius (39), BSc Mining Engineering, BSc Industrial Engineering, Chief Operating
Officer: North Region. Alwyn joined Harmony on its merger with ARMgold in 2003. He began his career
at Vaal Reefs mine as a mining graduate in training in 1993 and was appointed shift boss in 1995,
gaining experience in remnant mining. Alwyn obtained his BSc in Industrial Engineering in 1998 and
joined ARMgold in 1999 at its Orkney operations progressing to become mine manager in 2003. Alwyn
was appointed Executive, South African Operations at Harmony in March 2007, and is the Chief
Operating Officer: North Region.
Tom Smith (54), NHD (Mine Surveying and Metalliferous Mining), Chief Operating Officer: South
Region. Tom joined Harmony in 2002. Tom began his career in the mining industry in 1975 as a
sampler at Vaal Reefs mine, becoming chief surveyor in 1988. He made a career change in 1991 to
mining and worked as a section manager on Great Noligwa, Elandsrand and Mponeng mines. He was also
involved in projects at Tau Lekoa and Moab Khotsong, acquiring experience in conventional,
trackless, pillar and deep-level mining. Tom was promoted to Production Manager at Mponeng in 1998.
He was appointed General Manager of Tshepong in 2000. Following the merger with ARMgold he was
involved in the restructuring of the Free State operations. He joined the executive team in
September 2007 and is the Chief Operating Officer: South Region.
Marian van der Walt (37), BCom (Law), LLB, Higher Diploma in Tax, Diploma in Corporate
Governance, Diploma in Insolvency Law, Certificate in Business Leadership; Executive: Corporate and
Investor Relations. Marian, who has more than 12 years legal experience, was appointed Company
Secretary in 2003. She completed her articles at Routledges Modise Attorneys and was admitted as an
attorney and conveyancer in 1998. She then joined Deloitte and Touche as an insolvency
practitioner/administrator. She held legal and management positions at the Standard Bank of South
Africa Limited in the Commercial Properties Division prior to joining Harmony. Marian was appointed
to the Executive Committee in October 2005 with responsibility for legal, compliance and risk
management. Internal audit and Sarbanes-Oxley compliance were added to her portfolio in September
2007. In October 2008, she resigned as company secretary enabling her to accept the position of
Executive: Corporate and Investor Relations.
Johannes van Heerden (38), BCompt (Hons), CA(SA), Chief Executive Officer: South East Asia.
Johannes joined Harmony in 1998 as Financial Manager of the Free State operations. Here he obtained
broad financial management experience at an operational level. He was subsequently appointed Group
Financial Manager in 2001, before being relocated to Harmony Australasia as Chief Financial Officer
in 2003. Johannes presently holds the position of Chief Financial Officer: South East Asia.
Abre van Vuuren (50), BComm, MDP, DPLR, Executive: Services. Abre joined Harmony in 1997 when
the Group acquired Grootvlei Gold Mine (Grootvlei). Abres career in the mining industry started
in 1982 where he joined the Finance department at the Blyvooruitzicht Gold Mine. He gained
experience in Human Resources and progressed through the ranks at various gold mines and collieries
in the Rand Mines Group, including Grootvlei. On Harmonys acquisition of Grootvlei, Abre was
included in the management team and has since held various positions in services and human resource
management. He was promoted to the Executive Committee in 2000 when he became the Industrial
Relations Executive. In 2007, Abre was appointed to his current portfolio of Executive: Services.
In September 2010, Risk and Insurance were added to his portfolio following the deployment of Leon
le Roux to the Harmonys South East Asian operations.
Board Practices
Our Articles of Association provide that the board must consist of no less than four and no
more than twenty directors at any time. The board currently consists of fourteen directors.
Our Articles of Association provide that the longest serving one-third of directors retire
from office at each annual general meeting. Retiring directors normally make themselves available
for re-election and are re-elected at the annual general meeting at which they retire. Members of
our senior management who are also directors retire as directors in terms of the Articles of
Association, but their service as officers is regulated by standard industry employment agreements.
According to the Articles of Association, the board meets not less than quarterly.
Details of directors service contracts are described under Compensation of Directors and
Senior Management and Directors Terms of Employment, below. We also describe significant
ways in which our corporate governance practices differ from practices followed by U.S. companies
listed on the NYSE on our website under Corporate Governance.
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In order to ensure good corporate governance, the board has formed an Audit Committee, a
Remuneration Committee, a Nomination Committee, an Investment Committee, an Empowerment Committee,
a Sustainable Development Committee and a Technical Committee. All of the board committees are
comprised of a majority of independent, non-executive directors.
Executive Management Committee
Our Executive Committee comprises our executive directors and selected senior officers, each
with his or her own area of responsibility. The Executive Committee consists of 11 executives who
meet on a weekly basis and more often if required.
The composition of the Executive Management Committee (with areas of responsibility indicated)
is as follows:
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|
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Graham Briggs
|
|
Chief Executive Officer |
Hannes Meyer
|
|
Financial Director |
Harry Ephraim Mashego
|
|
Executive Director: Organisational Development and Transformation |
Frank Abbott
|
|
Executive Director (1) |
Bob Atkinson
|
|
New Business and Projects |
Jaco Boshoff
|
|
Reserves and Resources |
Jackie Mathebula
|
|
Corporate Affairs |
Alwyn Petorius
|
|
Chief Operating Officer North Operations South Africa |
Tom Smith
|
|
Chief Operating Officer South Operations South Africa |
Marian van der Walt
|
|
Corporate and Investor Relations |
Johannes van Heerden
|
|
Chief Executive Officer: South East Asia |
Abre van Vuuren
|
|
Services (2) |
Leon le Roux
|
|
Risk Management and Engineering (2) |
Melanie Naidoo-Vermaak
|
|
Environment |
Matthews Dikane
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Legal and Compliance |
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|
(1) |
|
Frank Abbott retired as executive director on July 31, 2010 and was appointed
non-executive director on August 1, 2010. |
|
(2) |
|
In September 2010 Leon le Roux was deployed to the South East Asian operations and Risk
and Insurance were added to Abre van Vuurens portfolio. |
Audit Committee
Members
In terms of its charter this committee must comprise at least three members. As at June 30,
2010, the members of this committee were:
|
|
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Cedric Savage
|
|
Chairman; appointed to the committee on January 26, 2004
and chairman as from August 5, 2005 |
Fikile De Buck
|
|
Appointed to the committee on March 30, 2006 |
Dr. Simo Lushaba
|
|
Appointed to the committee on January 24, 2003 |
Modise Motloba
|
|
Appointed to the committee on July 30, 2004 |
The internal and external auditors, the chief executive officer, the financial director and
executive managers are all invited to the Audit Committee meeting.
Frequency of meetings
The Audit committee is, in terms of its charter, required to meet at least four times a year,
or more frequently as circumstances dictate. During fiscal 2010, the committee met on five
occasions.
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Purpose and function
The Audit Committee was established to assist the board in discharging its duties relating to
the safeguarding of assets; the operation of adequate system and internal controls and control
processes; the preparation of accurate financial reporting and statements in compliance with all
applicable legal requirements, corporate governance and accounting standards. It also provides
support to the board on the risk profile and risk management of the group. The Audit Committee
ensures that there is an internal audit function in place and that the roles of the internal and
external audit functions are co-ordinated.
The Audit Committee recommends the appointment of the external auditors to the board and
shareholders, and also approved non-audit services provided by the external auditors. The Audit
Committee has reviewed the independence of the external auditors and is satisfied that the external
auditors are independent.
The Audit Committee reports and makes recommendations to the board, and the board retains
responsibility for implementing such recommendations.
The Committee considered the appropriateness of the expertise and experience of the Financial
Director and concluded that the Financial Director has the necessary expertise and experience. The
Committee is also satisfied that the expertise, resources and experience of the finance function
are adequate.
Independence/compliance
All members of the Audit Committee are independent, non-executive directors.
Currently, we do not have an individual audit committee financial expert as defined by the
rules of the SEC. It is our contention that the audit committee members, through their collective
experience, do meet the majority of the definitions of the SEC for an audit committee financial
expert in both the public and private sectors. The members have served as directors and officers of
numerous public companies and have over the years developed a good knowledge and understanding of
IFRS, overseeing the preparation, audit and evaluation of financial statements. We believe that the
combined knowledge, skills and experience of the Audit Committee, and their authority to engage
outside experts to provide them with advice on matters relating to their responsibilities as they
deem appropriate, enables them as a group to act effectively in the fulfillment of tasks and
responsibilities required under U.S. Sarbanes-Oxley Act of 2002.
Empowerment Committee
Members
The Empowerment Committee must comprise of at least three members. As at June 30, 2010, the
members of this committee were as follows:
|
|
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Joaquim Chissano
|
|
Chairman; appointed as chairman with effect from May 3, 2006 |
Modise Motloba
|
|
Appointed to the committee on May 3, 2006 |
Cathie Markus
|
|
Appointed to the committee on October 29, 2007 |
The chief executive officer and executive managers are all invited to attend the Empowerment
Committee meetings.
Frequency of meetings
The Empowerment Committee met on four occasions during fiscal 2010. The Empowerment Committee
charter requires that at least two members are present to constitute a quorum. Cathie Markus acted
as chairman of the meetings when Joaquim Chissano was unable to attend.
Purpose and function
The Empowerment Committee was established by the board to ensure that the company meets not
only regulations stipulated in the Employment Equity Act, the Labor Relations Act and the Mineral
and Petroleum Resources Development Acts Mining Charter Scorecard, but also in fulfilment of our
own empowerment imperatives.
The responsibilities of the Empowerment Committee include ensuring that a sustainable
organizational culture, structures and processes are in place to support the development of
empowerment in the company in line with the companys needs and requirements; to monitor the
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development and progress of empowerment within the company; to
address inequalities that may exist in staff profiles and organizational practices; and to review
and monitor whether appropriate support is given to previously disadvantaged staff in order to
equip them for successful careers in the company.
Independence/compliance
Even though the chairman is not considered an independent non-executive director, the rest of
the committee comprises of independent non-executive directors.
Investment Committee
Members
The Investment Committee must comprise of at least three members. As at June 30, 2010, the
members were:
|
|
|
Dr. Simo Lushaba
|
|
Chairman; appointed to the committee on January 26, 2004
and as Chairman with effect from August 5, 2005) |
Fikile De Buck
|
|
Appointed to the committee on May 3, 2006 |
Ken Dicks
|
|
Appointed to the committee on February 13, 2008 |
Cathie Markus
|
|
Appointed to the committee on October 29, 2007 |
Cedric Savage
|
|
Appointed to the committee on January 26, 2004 |
André Wilkens
|
|
Appointed to the committee on August 7, 2007 |
The chief executive officer, the financial director and executive managers are invited to
attend the meetings.
Frequency of meetings
The committee should meet at least four times a year, but may, at its discretion, meet more
often depending on the circumstances. The committee met on five occasions in fiscal 2010.
Purpose and function
The primary purpose of the Investment Committee is to consider projects, acquisitions and the
disposal of assets in line with the Groups overall strategy. This includes performing such other
investment related functions as may be designated by the board from time to time, considering the
viability of the capital project and/or acquisition and/or disposal and the effect it may have on
the Groups cash flow, as well as whether these will fit the Groups overall strategy. This
committees remit includes ensuring that due diligence procedures are followed when acquiring or
disposing of assets.
Independence/compliance
The Investment Committee consists of six non-executive members. Of the six non-executive
members, five are independent. The chairman is an independent, non-executive director.
Nomination Committee
Members
The Nomination Committee must comprise of at least three members. As at June 30, 2010, the
members of this committee were:
|
|
|
Patrice Motsepe
|
|
Chairman; appointed to the committee on October 24, 2003 |
Frank Abbott
|
|
Appointed to the committee August 5, 2005 |
Joaquim Chissano
|
|
Appointed to the committee on May 3, 2006 |
In August 2010 Fikile De Buck was appointed Chairman of the Nomination Committee.
Frequency of meetings
Members of this committee are required to meet annually or more often at the committees
discretion, depending on prevailing circumstances. The committee met three times in fiscal 2010 to
consider new appointments to the board in fiscal 2010.
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Purpose and function
The primary purpose of the Nomination Committee is to ensure that the procedures for
appointments to the board are formal and transparent, by making recommendations to the board on all
new board appointments and reviewing succession planning for directors. The duties and
responsibilities of this committee are set out in the Nomination Committee charter.
Independence/compliance
The chairman of the Nomination Committee was until August 2010 non-executive, but not
independent. Fikile De Buck was appointed as Chairman in August 2010. Frank Abbott retired as an
executive director in July 2010, and remained on the Board and the Committee as a non-executive
director.
Remuneration Committee
Members
The Remuneration Committee must comprise of at least three members. As at June 30, 2010, the
members of this committee were:
|
|
|
Cedric Savage
|
|
Chairman; appointed to the committee on January 24, 2004, and as chairman from May 3, 2006 |
Simo Lushaba
|
|
Appointed to the committee on August 5, 2005 |
André Wilkens
|
|
Appointed to the committee on August 7, 2007 |
The chief executive officer, the financial director and the executive: organizational development
and transformation are invited to attend all meetings.
Frequency of meetings
The Remuneration committee is expected to meet at least on a quarterly basis or to pass a
resolution by round robin if and when a formal meeting cannot be held. In fiscal 2010, the
committee met on six occasions, including two special meetings held on July 1, 2009 and March 18,
2010 (for approval of the share allocation and incentive schemes and appointment of the financial
director).
Purpose and function
The primary purposes of the Remuneration Committee are to ensure that the groups directors
and senior executives are fairly rewarded for their individual contributions to our overall
performance and to demonstrate to all stakeholders that the remuneration of our senior executive
members is set by a committee of board members who have no personal interest in the outcome of
their decisions, and who will give due regard to the interests of our shareholders and to our
financial and commercial health.
The committees primary objectives are to monitor and strengthen the objectivity and
credibility of our directors and senior executives remuneration system, and to make
recommendations to the board on remuneration packages and policies applicable to directors. A
formal reward philosophy was adopted by the Remuneration Committee in March 2006. This philosophy
is reviewed annually by the committee.
Independence/compliance
The committee comprises three non-executive directors, of which two are independent. It is
therefore not compliant with King III which requires that the committee comprise independent
directors only. The chairman of the Remuneration Committee is, however, an independent
non-executive director and ensures that decisions are fair and not biased. The chairman, as
independent non-executive director, was elected on the basis of his vast business knowledge and
experience, and his familiarity with the challenges facing directors and executive managers.
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Sustainable Development Committee
Members
The Sustainable Development Committee must comprise of at least three members. As at June 30,
2010, the following were members of this committee: