Harmony’s approacH to sustainability reporting

The chairman and chief executive have detailed our approach to sustainable development and integrated reporting in the printed annual report, which is also available on our website. I elaborate on our progress with strategic imperatives and the key drivers for continual improvement.

Our commitment to sustainability begins at the top – with the Harmony board. A committee of the board, whose members are both independent and experienced in related matters, is mandated to oversee sustainable development issues and our progress, including:

• Safety – improved safety rates reflect the focus on company-specific risks and behaviour-based training (refer to www.harmony.co.za). With effect from May 2011, safety was moved into the technical committee
• Health – proactive health management through our own facilities and others (refer to www.harmony.co.za)
• HIV/Aids – increased awareness and adherence to treatment regimes (refer to www.harmony.co.za)
• Social investment – going beyond compliance in our social and labour plans in adding value to stakeholders (refer to www.harmony.co.za)
• Environmental management – intense focus on key risks reflects commendable improvements in use of natural resources (refer to www.harmony.co.za).

The charter and composition of this committee are detailed in the governance section.

Our sustainable development strategy is dynamic; evolving with changing conditions, and in response to the changing needs and expectations of Harmony and our stakeholders:

• For our shareholders, we need to operate our mines profitably, generating cash flows to pay dividends and finance sustainable organic or acquisitive growth
• For all stakeholders, our primary responsibility is the sustainable development of our operations.

The common thread is profitability. Without profits we cannot make a sustainable investment in our communities or society at large. Without sustainable development, we will not retain the operations that generate returns for our investors. Profitability and sustainable development are therefore inextricably linked.

Clearly, we focus most acutely on issues that are critical to the group’s own sustainability. These, in turn, drive progressive refinements of our sustainable development programmes.

A vital element in implementing both sustainable development programmes and business initiatives is a dedicated and skilled management team. During the year we expanded our executive team to ensure we reach our various goals.

Our aim is a sustainable company benefiting the widest group of stakeholders. Despite economic events of recent years, the past year has convincingly answered those who questioned the safe-haven nature of gold. We believe gold remains a solid hedge against the uncertainty and instability in various parts of the world.

Mining itself remains a cornerstone of the South African economy, contributing significantly to economic activity, job creation and foreign exchange earnings. The sector accounts for roughly 43% of the market capitalisation of the JSE and, according to the Chamber of Mines of South Africa (2010 statistics), contributes:

• Some 8.6% directly, and another 10% indirectly, to the country’s GDP. In Harmony’s case, the bulk of our mines are in the Free State, where mining accounts for almost 90% of the province’s GDP
• Over 50% of merchandise exports (including secondary beneficiated mineral exports)
• About 1 million jobs (some 500 000 directly)
• About 20% of gross investment (12% directly)
• Some 30% of capital inflows into the economy via the financial account of the balance of payments
• Over 94% of the country’s electricity-generating capacity
• About 30% of South Africa’s liquid fuel supply
• About 20% of direct corporate tax receipts (worth over R16 billion)

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The mining industry is also arguably the largest contributor by value to black economic empowerment (BEE) in the country’s economy, measured by value of transactions completed.

The team at Harmony is creating a company that does not only rely on a rising South African rand price of gold. We are also on track to our objective to form a company that can operate successfully under different circumstances: older, non-core assets have been closed or sold, and unnecessary costs are being removed from the system. What is emerging is a collection of world-class assets designed to build significant shareholder wealth.

Importantly, it is not only shareholders who will benefit from the reinvigorated Harmony strategy. Our stakeholder base reaches hundreds of thousands when you include employees and their dependants, suppliers and their dependants, governments, partners and others who rely on our successful performance. We are very conscious of our responsibility to ensure that our growth benefits all these stakeholders, and the strategies in place consider their needs too as we advance towards common goals.

Harmony has made a significant improvement at our South African operations. Since 2003, fatalities have declined by almost 60%. Recording this progress at greater operational depths, in the face of a national skills shortage and a poor national culture of safety, is an exceptional achievement for which all stakeholders must be recognised.

The ultimate target, must be zero harm to all. To reach this goal – and avoid the scale of suffering associated with every death and injury – means working more actively together as stakeholders in a common industry to share and adopt leading practices and prioritise collaborative involvement. Harmony willingly accepts this responsibility, as evidenced by the solid decrease in the fatality rate for the year, but we will not rest until we reach zero.

Over the past five years, our lost-time injury frequency rate has halved (from 16.42 per million hours worked in 2006 to 8.32 for the review period. In the same period, fatalities have dropped from 30 to 16. We have some way to go to reach our target, but the trend is firmly in the right direction.

Harmony has turned the corner – unprofitable operations have been closed and our longer-life, lower-cost operations are profitable and sustainable. More importantly, we are making steady progress on key sustainability performance indicators:

• Group-level environmental strategy developed
• Safety and health: we are receiving excellent results from our initiative to prevent fall-of-ground, and our healthcare facilities have been expanded
• Housing: Over 2 000 residents moved out of hostels into family accommodation during the year
• Community: R84 million spent on local economic development and corporate social responsibility projects. In PNG, US$0.4 million spent on community programmes
• Over 40% of discretionary expenditure going to BEE companies
• Environment: ISO 14001 certification for two operations, with another two recommended for certification. International cyanide code implemented at all metallurgical plants, except Kalgold and Joel

Rehabilitation is a particular issue for the mining industry at present, given extensive media coverage about the unintended consequences of poor closure procedures – most evident in coverage of acid mine drainage. While this is not an issue for Harmony, we are implementing high standards of rehabilitation across our operations. With the decommissioning of the Virginia shaft area, the Free State operations are actively rehabilitating this area. Particularly at Virginia 2 shaft, there has been significant surface infrastructure demolition, clean-up and restoration. The total area cleared at Virginia 2 at end June 2011 was some 10 000m² at an initial cost of R1 200 000. In the main, rehabilitation initiatives are intended to be cost neutral, with reclamation initiative funding demolition activities. The priority for June was breaking down remaining structures at Virginia 2 and St Helena 4 shafts. Priority for the next year will be the complete rehabilitation of St Helena 4 and 2 as well as Brand 2 and 3 and Virginia 2.

St Helena 4 shaft has been completely demolished, and rehabilitation will begin shortly. At St Helena 2 shaft, demolition is almost 50% complete. Brand 2 and 3 shafts will follow. Clean-up at Virginia 2 shaft was completed by the end of July 2011.

Harmony’s comprehensive disclosure is well known. While integrated reporting does require more in-depth disclosure of the risks we face, this exercise had its own benefits. It has enabled us to crystallise our understanding of these issues, and initiate strategies to protect all stakeholders’ interests as best we can.

Equally, 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, we focus on ensuring these diverse needs, mutual benefit, and the willing participation of all parties. The rewards of achieving this balance are evident in our SA and PNG operations, where stakeholders range from national and provincial government to local communities and individual employees, as well as our shareholders. In PNG, in particular, 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. Similarly, in South Africa, communities and government alike are engaging even more as partners in unlocking social and local economic value.

Today, Harmony is acknowledged as one of the more innovative and most cost-effective explorers and our Wafi-Golpu project is an acknowledged company-changer. 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.

In the year ahead, our focus will remain on the areas of greatest significance to our broad stakeholder base:

• Safety: An experienced Harmony executive has been appointed to spearhead our safety strategy, using an analytical approach to address critical issues. We are aiming for a systemic improvement that blends behaviour-based metrics with operational controls
• Occupational health: Our proactive approach to managing the health of our people will continue as we focus on awareness and training to keep people healthy and reinforce training on the efficacy of personal protective equipment
• Environment: We will continue to roll out the new group environmental strategy, and steadily improve compliance levels where we do not already exceed these, and optimise the implementation of systems to entrench best practice
• Communities: Harmony is already preparing for the cycle of licence renewals that begins in January 2013, ensuring that our commitments under each social and labour plan and local economic development programme are honoured and that our corporate social responsibility projects add measurable value
• Governance: Robust structures and controls are a hallmark of Harmony’s governance. Our aim is global best practice and we will continue to refine our processes accordingly.

Globally, Harmony employs over 42 000 people (incl MMJV), who, in turn, support around 200 000 others. Add to that our broad base of suppliers and their dependants, all our communities, as well as 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 enhances both financial and social value.

Modise Motloba
Chairman: social and ethics committee