Chief Executive Officer’s Review
A key feature of the quarter and year under review has been the
restructuring of Harmony’s asset base in line with our stated strategy
to deliver safe, profitable and sustainable ounces. Significant steps
taken during the financial year to improve the quality of our
Closure of the Brand 3, Merriespruit 3, Harmony 2, Evander 2,
5 and 7 shafts as their orebodies reached the end of their
Continued investment in exploration and development at the
company’s Phakisa, Kusasalethu, Doornkop and Hidden Valley
growth projects, reaffirming their robust life-of-mine plans and
Acquisition of Pamodzi Gold Mining Limited’s (in liquidation)
Free State assets which includes President Steyn 1 and 2
shafts, Lorraine 3, Freddies 7 and 9, the Steyn plant and surface
An international exploration programme resulting in the discovery
of a new zone of mineralisation adjacent to the main Golpu
resource in Papua New Guinea (PNG);
The reassessment of the Evander operations and projects.
Following a review of the economic viability of the Evander
South project under various scenarios, it has been excluded from
Harmony’s reserves. The Libra project (retreating the Evander
tailings) has been included in the reserve statement;
Post year-end, Mount Magnet in Western Australia was sold,
which allows us to focus on growing, developing and operating
our portfolio of quality assets in PNG.
It is with deep regret we report that seven of our colleagues died
in work-related incidents during the quarter. Those who died
were: Paseka Lechaka, loader operator and Albert Lebetsa, rock
drill operator at Tshepong; Vuyo Mali, development team leader
and Bokang Mariti, miner’s assistant at Phakisa; Mamayo Bangani,
winch driver at Merriespruit 1; Volakhe Bezena, rock drill operator
at Joel; and Loti Mohave, an artisan assistant at Doornkop.
We extend our deepest condolences to their families, friends and
Our focus on safety remains of paramount importance and a core
pillar of our corporate strategy and it is clear we have ground to
cover in reaching the standards we aspire to. Please also see the
section on Safety and Health on page 6.
A pillar in our growth strategy is aimed at acquiring long-life
assets that offer higher grades. During the past year we assessed
assets in Africa and South East Asia, which could potentially fit the
Harmony portfolio. However we did not identify any projects of
sufficient value at a reasonable price. As a result we have decided
to increase our exploration expenditure, so as 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 world’s premier new gold regions, PNG. While returns may only
be generated in the long-term, we do have an existing track record
of success in PNG, with an exceedingly low cost of exploration – in
the region of $10/oz discovery.
In August 2010, we announced a significant increase in the mineral
resource at the Wafi-Golpu porphyry copper-gold project in PNG,
which is part of the company’s 50/50 joint venture with Newcrest
Mining Limited. This mineral resource for Wafi-Golpu now contains
16 million ounces (Moz) of gold and 4.8 million tonnes (Mt) of
copper. Expressed as gold equivalents, this resource amounts to
38.5 Moz of gold*. This indicates an exciting and promising future
for this project and also provides a significant opportunity for
These results have a profoundly positive impact on our resource
base and drilling results continue to prove that investing in
exploration was a very good long term decision.
While we are seeking greater diversity, we will continue to invest
in our growth projects. We believe these assets will become
the best gold mines in South Africa in the next three years and
provide the necessary cash flow to allow us to fund the growth
in Wafi/Golpu and other opportunities that may arise. We remain
committed to South Africa and see our South African assets as
an important part of our portfolio. Harmony’s management has
extensive knowledge of and skills in deep level gold mining. South
African mining companies have a global footprint and are amongst
the top gold producers in the world and we believe in maintaining
healthy relationships with government departments, unions and
During the past quarter, the gold price has remained robust in dollar
terms and we have even benefited from a higher R/kg gold price.
Year-on-year the US dollar gold price received increased by 25.9%,
from an average of US$867/oz for the previous financial year to
US$1 092/oz during the past year. During the same period the rand
strengthened against the US dollar by 15.8% from R9.00/US$ to
R7.58/US$, resulting in an average net increase of 6.1% in the rand
per kilogram price received from R250 826/kg to R266 009/kg.
Quarter-on-quarter, the R/kg gold price received for the fourth
quarter increased by 10.5% to R295 580/kg from R267 469/kg
in the third quarter. The US dollar gold price increased by 9.9%
to an average of US$1 219/oz during the quarter with the rand
remaining fairly constant at R7.54/US$ compared to R7.50/US$ in
the third quarter.
The rand has strengthened against the US dollar throughout the
year, which has continued to place pressure on our margins.
Our planning for the 2011 financial year is done at a gold price of
R250 000/kg, assuming a gold price of $950/oz and an exchange
rate of R8.19/US$, with financial modelling done at R275 000/kg.
It is our view that the global financial markets have not yet stabilised
and we believe that gold will remain a safe haven. It is likely then
that the gold price in dollar terms will increase in the medium to
* Gold equivalents based on US$ 950 oz Au, $4,412 /t Cu at 100% recovery for both metals.