Financial director's review

The group’s financial statements for the year ended 30 June 2011, together with those of the company, appear on pages 210 to 293 and 294 to 329 of this report. These financial statements have been prepared using appropriate accounting policies, conforming to IFRS, supported by reasonable and prudent judgements and estimates where required.

Harmony continued its strategy of creating a sustainable company – generating earnings that fund dividends and growth – a company with free cash flow. Accordingly the financial year was characterised by two major themes: the closure of marginal shafts and continued significant investment and production ramp-up in our growth projects. While the cost of closing marginal shafts has affected the income statement, funding growth projects was managed with minimal debt.

This has placed Harmony in a stronger position to generate sustainable earnings from an optimised asset portfolio and as growth operations ramp up to full production. This stability will also ensure Harmony is able to unlock maximum value to shareholders from our exciting Wafi-Golpu project.

Given the challenges already dealt with, and the positive outlook on the asset portfolio, the board has declared a third consecutive annual dividend.

Contributing factors to these results are discussed below. Unless stated otherwise, discussions are for our continuing operations.

In FY11, we received an average gold price of R307 875/kg, an increase of 16% from R266 009/kg in FY10. In US dollar terms, we received an average of US$1 370/oz, 25% higher than the US$1 092/oz in FY10. In FY11, the gold price traded between US$1 157.00/oz and US$1 552.50/oz.

Gold is sold throughout the world in US dollars, but most of our operating costs are incurred in rand and the kina in PNG. As a result, any significant and sustained appreciation of these currencies against the US dollar will reduce our revenue in rand or kina with a reduction of operating profit in either rand or kina.