Chief executive officer's review

The year to 30 June 2011 – the start of Harmony’s seventh decade – has been characterised by several important milestones and developments for our company. In South Africa and Papua New Guinea, we have made excellent progress on our various safety initiatives and improvements. The excellent drilling results delivered from our joint venture at Wafi-Golpu in Papua New Guinea (PNG) confirmed that this is a world-class deposit, and the onset of production at our new mine, Hidden Valley, in PNG was a tremendously gratifying development. We have also realigned our assets in South Africa to dispose of non-core shafts and operations, and made significant strides at our growth projects – Doornkop, Phakisa and Kusasalethu – which will form the nucleus of our future South African gold production. Simultaneously, we are witnessing a re-energised belief among the investment community that gold remains a refuge of investment stability.

We produced 1.3Moz of gold for the period compared with 1.4Moz last year. While this was disappointing, it was largely a function of closing older shafts, safety stoppages and certain production challenges. These are detailed in the review of operations.

In South Africa, and indeed in the world, integrated reporting is in its infancy. The concept aims to present a holistic account of a company’s financial and non-financial performance, and its integrated strategy for building a sustainable business spanning economic, social and governance issues. Task groups are currently at work internationally and in South Africa to develop a framework that will guide companies preparing integrated reports to stakeholders. Expectations are that these may be finalised in time for our next reporting period.

Reporting to our broader stakeholder base is not new to Harmony. We have long ensured the interests of all our stakeholders in developing our strategies and operating plans.

To balance these diverse needs, we focus on ensuring mutual benefit and the willing participation of all parties. The rewards of achieving this balance are becoming evident in our PNG operations, where stakeholders range from national and provincial government to local communities and individual employees, as well as our shareholders. The level of stakeholder cooperation we are receiving in Morobe Province reflects their confidence in the sustainable benefits of a well-run, responsible mining operation with congruent goals.

Key elements of our sustainable development performance are integrated into this annual report, while the full report appears on our website. This report was aligned with the principles and recommendations of the latest King report on governance (King III) and the guidelines of the Global Reporting Initiative (GRI G3).

Encouragingly, our first integrated report (for the 2010 financial year) was well received, with one specialist assessment service ranking it among the top 20 in South Africa, out of some 300 companies analysed. For us, integrated reporting is a process – one that we will review and refine each year by talking to our stakeholders and listening to their concerns, and incorporating this knowledge into our planning.

In September 2010, the South African Minister of Mineral Resources released the revised Mining Charter and associated broad-based socio-economic empowerment scorecard.

Harmony has been at the forefront of implementing various transformation initiatives in terms of legislated empowerment objectives, and has already met most of the 2014 targets in the revised charter. While we focus on all areas, the one aspect that requires more attention is enterprise development, given different requirements in the revised charter. We have made solid progress with enterprise development, most notably through the initiatives under way in our enterprise development centres in Welkom and Soweto in South Africa.

• Critics of our industry sometimes accuse mining companies of selective enrichment, using shareholder dividends as an example. What they overlook is the years when shareholders receive no dividends because mining is by nature a cyclical and relatively low-margin business. Harmony is a case in point – our shareholders have just received their third dividend after a five-year hiatus. Mining inflation has been approximately 19%, well beyond the gold price, and a key component of that inflation rate is rising labour and electricity costs: in 2011 our payroll costs accounted for 52% of the total value added by operations. That excludes our investments in housing, local economic development and communities, which all offer long-term benefits for tens of thousands of people.
  Through the Chamber of Mines and at operational level, we face a considerable challenge in convincing stakeholders that the most sustainable reward lies in supporting the assets that continually pay these salaries.
• The pace of regulatory change has been relentless for the past 17 years. As an industry, we support legislation that makes mining friendlier to the environment and a sustainable benefit to its stakeholders. We remain committed to working with the various authorities in developing realistic frameworks and targets based on common goals.

South Africa is a global resource treasure house. Our aim is to capitalise on these resources for the widest possible benefit by operating profitably and responsibly.

We have just completed the fourth year of our strategy, which is showing early signs of convincingly demonstrating Harmony’s potential. We have diversified our geographic base, improved our safety record and produced sustainable benefits for our stakeholders. But this is only the beginning – in recent years much groundwork has been prepared and some tough decisions implemented.

• have closed high-cost mines to produce a better mix of assets
• have tailored each mine’s business plan to its unique requirements
• have employed an experienced team of people that will deliver value for all stakeholders well into the future
• have proactively addressed industry challenges
• have improved production and productivity
• have increased our exploration exposure
• have delivered value on social initiatives in all areas where the company operates
• are continuing to develop and commission excellent gold mines in South Africa and Papua New Guinea.

The benefits are now emerging as the company again becomes an exciting investment proposition, with a solid portfolio of producing assets and a successful international exploration programme. Today, Harmony is acknowledged as one of the more innovative and most cost-effective explorers and our Wafi-Golpu project has the potential to change this company materially. The rapid progress we have made in PNG, in particular, is proof of the benefits mining can deliver in an enabling environment when all stakeholders work together.

Harmony is unhedged, with low debt and we are building sustainable, lower-cost, higher-grade mines. We are drawing on the considerable expertise of an experienced, focused management team – an important advantage in an industry beset by critical skills shortages – and rewarding our shareholders for their steady support as we build a base of world-class assets.

Action steps