Chief executive officer's review

Our progress on safety has been a notable highlight of the year, but we will not rest until we reach our goal of zero fatalities. Each death is one too many. Each incident has such enormous ramifications – for the families and friends involved, the teams and the company.

Given the high-risk nature of many of our deep-level operations, the safety, health and well-being of our people are our foremost priority: safety is a key performance indicator for management and a key component of performance reward for our people.

Tragically, in South Africa 15 employees lost their lives in mine-related incidents in FY11 (FY10: 21). There was one fatality at our PNG operations during the review period. Encouragingly, Harmony’s fatalities have decreased steadily from 42 in FY04, while the lost-time injury frequency rate has dropped from 19.22 in that year to 7.95 per million hours worked in the review period. Full details of our safety performance can be found in our sustainable development report.

Notably, our Doornkop mine achieved an industry milestone of four million fall-of-ground fatality-free shifts on 11 May 2011 – an accomplishment that took the Doornkop team over five-and-a-half years to achieve. This is a stellar achievement considering the nature of mining activity at this operation – shaft sinking, trackless mining, narrow-reef stoping and large excavations, among others.

The lessons learnt at Doornkop were incorporated into a major initiative launched during the year to address fall-of-ground – our key safety risk. This ground-control strategy formalises and consolidates efforts to prevent fall-of-ground incidents and promote safer and more stable underground environments.

As with other safety initiatives, this strategy includes behavioural aspects, competency training and development, as well as research and new technologies.

We believe safety in the workplace can be addressed only through a cooperative approach that ensures the right infrastructure is in place – from systems and planning, to communication and training. We also believe management and employees must accept joint responsibility for their actions and therefore it is imperative that the working environment empowers people – management, supervisors, workers and union representatives – to stop work and withdraw from the mining area when they feel it is unsafe, or prevent others from acting in an unsafe way.

Equally, safety is about attitudes and mindsets. We have renewed our focus on implementing, communicating and reinforcing safety in the workplace, and created a centralised safety function to coordinate initiatives between regions and shafts.

• Continued investment in development at the Phakisa, Kusasalethu, Doornkop and Tshepong, as well as Hidden Valley mines, reaffirming their robust life-of-mine plans and reserves
• The official opening of Hidden Valley mine in September 2010. This was Harmony’s first offshore greenfields project and an important step in our strategy of geographical and asset diversification. The experience gained with Hidden Valley will stand us in good stead as we progress our exploration initiatives in PNG
• In PNG, ongoing exploration, including those exploration tenements wholly owned by Harmony
• Excellent drilling results at Wafi-Golpu, justifying our confidence that this world-class asset will be the next mine in the area
• The closure of older or loss-making shafts. This included Merriespruit 1 in Virginia with over 80% of affected staff transferred to growth operations
• The sale of non-core assets such as Mount Magnet in Western Australia, the prospecting right over Merriespruit South area, and Evander 6 shaft, for a total consideration of R798 million
• The successful integration of the Pamodzi Free State assets, which were acquired in the prior year, into Harmony’s existing Free State operations in South Africa.

These are detailed in the Operational review and Exploration overview.

Harmony resumed paying dividends in FY09, which is aligned with its strategy of paying regular dividends. I am again very pleased to report that the company has declared an annual dividend for the third consecutive year. A payment of 60 SA cents per share is being proposed, underscoring Harmony’s steady delivery on its strategy to attain sustainable profitability that funds both dividends and growth.

• Gold production declined to 1.3Moz or 40 535kg (refer to page 48 for reasons)
• The gold price received rose by 16% to R307 875 and by 26% to US$1 370
• Revenue of R12 445 million – up 10%
• Operating margin of 26%
• Operating profit of R3 275 million – up 12%.

At 30 June 2011, Harmony’s mineral reserves were 41.6Moz of gold spread across our assets in South Africa and PNG. The reserves of Kusasalethu, Doornkop, Tshepong and Phakisa in South Africa and Hidden Valley in PNG now constitute 45% of our total mineral reserves.

Attributable gold mineral resources at that date were 163.9Moz. Our PNG resources now represent 10% of the company’s total at 16.3Moz – a 51% increase in the total amount of resources from PNG, largely due to the significant increase in the Wafi-Golpu resource (jointly held by Harmony and Newcrest in the Morobe Mining Joint Ventures).

Exploration has become a cornerstone of Harmony’s growth strategy. This entails acquiring quality assets that offer higher grades and, as such, we continue to identify and evaluate a number of assets in South Africa, elsewhere in Africa and in south-east Asia that may complement Harmony’s future portfolio. Against our stringent acquisition criteria, none of the opportunities identified during the review period offered sufficient value at a reasonable price.

In March 2011, we announced the highest mineralisation values to date from drill-hole results at our Wafi-Golpu project. This extended the known porphyry mineralisation outside the resource shell, with mineralisation open at depth and to the north of the latest intercept. This satisfies our latest exploration target of 30Moz of gold and 8Mt of copper at this world-class discovery.

In recent years, we have acquired valuable exploration tenements in PNG. Our aim is to enhance our competitive edge earlier in the pipeline, expand our geographic diversity and leverage our existing base in what has now become one of the world’s premier new gold regions. To achieve this, we increased our exploration budget significantly in the review period to R398 million (US$57 million), which has delivered tremendous benefit in terms of value enhancement. In FY12, this will be R474 million (US$70 million).

Importantly, our cost of exploration – under US$10/oz discovered – is unrivalled among the major mining groups.

The economic volatility of the past two years has entrenched gold’s function as a store of value and a currency, and this has been reflected in the spectacular price appreciation.

Our belief in gold remains steadfast and we are forecasting continued high dollar prices in our next financial year, especially given a weaker dollar and global economic uncertainty.

On 1 July 2010, as our new financial year started, the London afternoon gold fix was US$1 234.00/oz, climbing fairly steadily to end our first half 14% higher at US$1 405.00. By our year end, 30 June 2011, it was US$1 505.50. In fact, while preparing this report, gold exceeded US$1 800/oz.

This level reflects the ongoing search by investors for safe havens, particularly through the popular global exchange-traded funds or ETFs. More important, however, are the fundamentals of supply and demand for physical gold. On the supply side, new mines are coming on stream, some existing producers are ramping-up production and recycling of tailings and dumps has become an industry in itself, but deliveries from this sector depend largely on forecasts for the direction of the gold price. This supply must, however, be considered against falling production from mature mining regions, such as South Africa.

Our bullish sentiment on gold is tempered by the strength of the South African rand. While gold rose by 34% in dollar terms in FY11, in rand terms the rise was only 11%. In South Africa, our mine costs are incurred in rands and we face ongoing pressure from rising costs (mainly labour and electricity) over which we have limited control, as does the rest of the gold industry. In contrast, if the rand weakens, all stakeholders stand to benefit.

Harmony does not hedge gold and our shareholders, therefore, have complete exposure to spot gold prices and current exchange rates. As the gold price and strength of the rand are factors outside our control, we focus on factors we can control – safety, people, productivity, production and cost.

Globally, Harmony employs approximately 40 000 people who, in turn, support around 200 000 others. Add to that our broad base of suppliers and their dependants, and our communities, as well as all shareholders, and the ecosystem that is Harmony becomes large, influential and key to our continued success. Every one of these people plays a role in our sustainability; we will continue to reward them for their contributions through safe, healthy working conditions, fair remuneration and benefits, continual development and, most importantly, by reaching our full potential as a premier global gold mining company that delivers both financial and social value enhancement.

The results of Harmony over the past year illustrate the significant progress we are making on two key fronts: growth of quality resources and diversification. They also prove that the new Harmony has a good mix of assets including some of the best gold mines in South Africa and some of the best exploration prospects in the world.

As our growth projects come on stream, and our existing mines operate to tailored business plans, we are confident of reaching our long-term targets. Our focus is to increase production, with improved margins and improved grades, as well as improved costs per tonne milled in the lowest quartile of South African producers.

Harmony has turned the corner – we have dramatically improved the quality of our ounces, and will continue to do so with better cash costs and free cash flow in future.

Signed

Graham Briggs
Chief executive officer
24 October 2011