| Mon 27 Jan 2003, 12:10 | | Harmony Gold Mining Company Limited - Quarterly Re |
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Harmony Gold Mining Company Limited
(Registration number 1950/038232/06)
ISIN: ZAE000015228
Trading Symbols
Ordinary Shares
JSE Securities Exchange HAR
NYSE HMY
London Stock Exchange HRM
Euronext Paris HG
Euronext Brussels HMY
Berlin Stock Exchange HAM1
Warrants
JSE Securities Exchange HARW
NYSE HMYWS
Options
Chicago Board Options
Exchange QHG
HARMONY REVIEW for the quarter ended 31 December 2002
This review includes certain information that is based on management`s
reasonable expectations and assumptions. These `forward-looking statements`
include, but are not limited to, statements regarding estimates, intentions and
beliefs, as well as anticipated future production, mine life, market conditions
and costs. While management has prepared this information using the best of
their experience and judgment, and in all good faith, there are risks and
uncertainties involved which could cause results to differ from projections.
Cautionary Note to US Investors - The United States Securities and Exchange
Commission (the `SEC`) permits mining companies, in their filings with the SEC,
to disclose only those mineral deposits that a company can economically and
legally extract or produce. We may use certain terms in this quarterly review,
such as `resources`, that the SEC guidelines strictly prohibit us from including
in our filings with the SEC.
Key indicators
* Successful listing on NYSE on 27 November 2002
* Agreement on HIV/Aids
* Official launch of Doornkop South Reef Project on 22 January 2003
* Cash operating profit of R763 million
* Half-year earnings per share of 509 cents, up 89% on corresponding period for
last year
* Interim dividend of 125 cents, up 67%
* Strategic investments continue to deliver value
Financial highlights
31 December 2002 30 September 2002
Cash operating profit
- Rand 763 million 950 million
- US$ 79 million 91 million
Earnings
- Rand 457 million 426 million
- US$ 48 million 41 million
Earnings per share
- SA cents per share 262 247
- US cents per share 27 24
31 December 2002 30 September 2002
Gold produced
- kg 24 078 24 778
- oz 774 121 796 497
Cash costs
- R/kg 68 500 68 110
- $/oz 222 204
Chief executive`s review December 2002
`Concerns that a gold price of above US$350/oz would see producers returning to
their bad habits of hedging has been shown to be unfounded. The low interest
rate environment resulted in a low gold contango and not even the most prolific
hedgers are prepared to continue to ignore the clearly expressed wishes of
investors when the potential benefits of hedging are negligible. Exotic
financial instruments are out of favour with investors and simple (`vanilla`)
hedging is not worth the risk of further alienating investors who want exposure
to a rising gold price. The record long positions held by speculators show that
they expect the two year rising trend to continue.`
Safety Report
During the past quarter, six of our employees lost their lives in 6 separate
incidents underground. Our deep felt sympathy and condolences go to their
families, friends and colleagues.
Most indicators, i.e., Fall of Ground (FOG), Fatal Injury Frequency Rate (FIFR),
Total Injury Accident Frequency Rate (TIAFR), Lost Time Injury Frequency Rate
(LTIFR) show a declining trend.
Evander 8 shaft achieved 500 000 fatality free shifts on 9 October 2002.
The second quarter saw audits of all working areas at every Harmony shaft being
completed. Reports from these audits will assist the shafts to draw up site
specific safety plans and update baseline risk assessments. Our current policies
and codes of practices were reviewed to ensure that these are applicable and
relevant.
Strategic Overview
6% Growth in earnings per share
The company reported a 6% increase in earnings per share, up from 247 cents to
262 cents quarter on quarter despite receiving 6% less in R/kg gold price. The
board has approved an interim dividend of 125 cents up 67% on last year`s
interim dividend of 75 cents. In US Dollar terms the dividends could increase by
100% from 7 cents to 14 cents if the Rand is at R9,00 to the US Dollar.
To show the effect of the appreciation of the South African Rand, the first 6
months of the current financial year has been compared to the corresponding
period in the previous financial year.
Earnings per share for the first six months of the financial year totals 509
cents, which is an increase of 89% over the 270 cents reported for the
corresponding period in the previous financial year.
6 months 6 months
ending ending
31 Dec 2002 31 Dec 2001 % Variance
Gold produced Kgs 48 852 37 645 30
Gold produced oz 1 570 618 1 210 310 30
Yield g/t 3,50 3,75 (7)
Cash operating costs 68 302 63 473 (8)
R/Kg
Cash operating costs 213 213 0
US$/oz
Gold price R/Kg 103 362 81 199 27
Cash operating profit 1 712 751 667 277 157
(R)
Earnings per share - 509 270 89
cents
Dividends per share - 125 75 67
cents
Assumptions
US$ Exchange rate R10,00 R9,28 (8)
Shares in issue 173,5 million 149,1 million (16)
In terms of growth in production and e.p.s. the company is well on track to
improve on the previous year`s performance. We are confident that our planned
16% year on year growth in production, which will see the company produce in
excess of 3,1 million ounces per annum, is achievable.
Cash operating profits quarter on quarter decreased by 20% from R950 million to
R763 million.
The stronger Rand alone contributed R150 million to the R187 million drop in
cash operating profits.
The performance of the operations is highlighted in the following table:
Dec 2002 Sept 2002 % Variance
Production - kg 24 078 24 774 (3)
Production - oz 774 121 796 497 (3)
Revenue - R/kg 100 171 106 463 (6)
Revenue - US$/oz 324 319 2
Cash cost - R/kg 68 500 68 110 (1)
Cash cost - US$/oz 222 204 (9)
Exchange rate R/US$ 9,61 10,39 8
The company achieved a US$102/oz or 31% cash-operating profit margin with cash
costs of US$222/oz. A profit margin of US$115/oz or 36%, was achieved during the
September 2002 quarter.
Quarter on quarter, the gold price received in South African Rand terms
decreased by 6% from R106 463/kg to R100 171/kg.
Grade from the underground operations decreased from 5,5 g/t to 5,2 g/t. The
grade variances of the Free State (4,41 g/t to 4,28 g/t) and Randfontein (5,29
g/t to 5,06 g/t) are simply statistical deviations from the optimum mining
grades at those operations. The most significant drop in grade (7,6 g/t - 7,0
g/t) occurred, as predicted, at Free Gold (50% JV with ARMGold). The inclusion
of St Helena for the first time masks the planned grade reduction at Free Gold
to its long-term sustainable grade of 7,2 g/t to 7,4 g/t. Grade underperformance
at Evander and Elandsrand is receiving attention and is expected to be corrected
in the medium term.
Cash operating costs decreased by 2% or R38 million from R1 687 million to R1
649 million quarter on quarter. In cost terms, the operations performed well,
despite South African inflation reaching a recent high of 12%. Rand/tonne costs
decreased by 4% from R244/tonne to R235/tonne. Despite the 3% decrease in
overall production, 24 078 kgs compared to 24 774 kgs previously, R/kg costs
remained flat at R68 500.
The effects of the appreciation of the South African Rand is clear with Dollar
cash costs increasing from US$204/oz using a R10,39 exchange rate to US$222/oz
at R9,61 to the Dollar.
Gold price and South African Rand performance
The increase in the US Dollar price of gold (2%) helped despite the fact that
the 8% stronger rand has seen our price received drop to just over R100 000/kg.
The rising Dollar gold price is great news as it reflects interest from
investors and speculators in gold as an alternative investment, hedging
themselves against the current uncertainty in world markets. The current Dollar
weakness is as always good for the gold price.
It is pleasing to see gold trading above US$350,00 per ounce as this shows there
is solid support for gold at these levels and in the continued absence of
significant hedging activities, we could see the gold price supported at these
levels.
Concerns that a gold price of above US$350/oz would see producers returning to
their bad habits of hedging has been shown to be unfounded. The low interest
rate environment resulted in a low gold contango and not even the most prolific
hedgers are prepared to continue to ignore the clearly expressed wishes of
investors when the potential benefits of hedging is negligible. Exotic financial
instruments are out of favour with investors and simple (`vanilla`) hedging is
not worth the risk of further alienating investors who want exposure to a rising
gold price. The record long positions held by speculators show that they expect
the two year rising trend to continue.
However, from a South African perspective, the benefits from the increase in
the US Dollar gold price have been eroded by the strengthening of the SA Rand.
The South African Rand is well known for its volatility. During 2002 it was the
strongest currency against the Dollar in the world. Although the Rand has
strengthened to R8,50 to the Dollar, it is our view that it will tend to
depreciate for the remainder of 2003.
Harmony is renowned for its cost control and we will continue to focus on
working costs to retain the competitive advantage we built up during the time
that the Rand price of gold was higher.
To buy or to build?
Harmony has been a phenomenal growth story over the past seven years. The
initial two years was a period of survival, establishing the profitability of
the company and preparing for growth. Market conditions, i.e. the declining US
Dollar gold price and shrinking profit margins of mainly the South African gold
producers, positioned the company ideally for our strategy of growth through
acquisitions. The cost of acquiring marginal operations when compared to the
cost of developing greenfields projects was low and affordable to Harmony at the
time.
With the 23 acquisitions that we have completed to date came a portfolio of
probably the most prospective shallow to medium depth mining project areas
remaining in South Africa, at no cost. The returns from these acquisitions have
been spectacular.
Return on investments
Acquisition cost Cash operating profit
Project/Operation (R`m) (R`m)
Evander - June `98 415 1 190
Randfontein - Dec` 00 750 1 590
Elandskraal - Mar` 01 988 651
Free Gold (50%) - Dec `01 1 350 916
The rising gold price may mean that now is not the smartest time to be buying
growth opportunities. At these prices excellent returns are available from
internal or organic growth projects which your company today owns. A simple
example will demonstrate my point.
Doornkop South Reef Free Gold Tshepong
(74% JV) (50% JV)
Project Status Approved Approved
Acquisition Cost -$26m Nil
sold 26%) to BEE
Construction cost $134m $30m
Total capital $108m $30m
Ounces recoverable 3,75m oz 1,25m oz
Capital Cost/oz $29/oz $24/oz
Total Cash Cost @ $190/oz $160/oz
R9,5/$
Total Cost $219/oz $184/oz
Gold Price $350/oz $350/oz
Profit Margin $131/oz or 37% $166/oz or 47%
(Exchange rate of US$1,00 = R9,50)
Projects that have been evaluated and will yield excellent returns under the
current gold price environment are:
i. Doornkop South Reef Project, Randfontein - approved
The detailed project which was announced on 22 January 2003, will allow for
significant production growth at Randfontein.
It is estimated that the South Reef project has an in situ resource of 6,6
million ounces. For project purposes, it is estimated that 117 tonnes or 3,75
million ounces of gold will be recovered from the resource at a recovery grade
of 6,37g/t.
The life of the project will be 20 years with gold production building up from
approximately 9 000 ounces in the first year to 42 000 ounces in year four.
After year four, gold production will increase rapidly to approximately 330 000
ounces per annum for 10 years, whereafter it will start declining. The estimated
capital expenditure using July 2002 as a base, is R1 270 million with a maximum
funding requirement of R500 million. Using a gold price of R95 000/kg the
project has a NPV of R876 million (real discount rate of 7,5%) and IRR of 48%.
At the full production level of 330 000 oz/annum, 2 798 employment opportunities
will have been created.
In line with an undertaking to ensure compliance with the Mineral and Petroleum
Resources Development Bill, 26% of the project has been offered to Africa
Vanguard Resources (Doornkop) (Pty) Limited for a consideration of R250 million.
In terms of the sale agreement AVR acquires 26% of the Doornkop mineral rights
with payment being R140 million in cash and R110 million in call options on 290
000 oz of gold. (The 290 000 oz of gold being equal to 16% of the gold produced
at Doornkop during the first 10 years).
The project will be managed as a joint venture in which Randfontein will fund
all the project capital. The profits will be shared, 84% to Randfontein and 16%
to AVR.
ii. Tshepong North Decline Project at Free Gold
The project involves the sinking of a decline, at a cost of approximately R280
million, from the bottom of the current shaft system. The project returns a
robust NPV of R765 million (discount rate of 10%) and an IRR of 51%. An area
comprising approximately 1 210 000 m at 1 300 cmg/t containing 39 tonnes of
recoverable gold will be accessed.
Production rates of 49 000 tonnes per month at an average grade of 8,8 g/t will
add an additional 5 194 kgs (167 000 oz per annum) to the current production
profile of the Tshepong North mine. The upgrading of the current infrastructure
commences in March 2003 and the shaft will reach full production in July 2007.
Some 980 employment opportunities will be created through this project.
iii. Tshepong South Shaft at Free Gold - commissioning of new shaft
infrastructure
The project was started by AngloGold in October 1993 and sinking commenced
during February 1994. The project was subsequently twice suspended, in August
1995 and again in mid-1999. The shaft has been completed to 120 metres from full
design depth. The shaft was designed to hoist 80 000 tonnes of reef per month at
a recovered grade of 7,24 g/t over a 19 year period, producing 106 tonnes of
gold at an average of 6 843 kgs or 220 000 oz/annum.
A proposal on the project will be presented to the Freegold board during the
following quarter.
iv. Joel North Shaft Project - getting to understand the orebody
Joel mine has had a chequered history, not delivering the returns originally
planned. Since the acquisition thereof by Freegold from AngloGold, the
operations were immediately restructured for optimal profitability.
Although underground tonnage decreased significantly, the ensuing profitability
allowed the re-evaluation of the orebody available for mining.
Although the process to re-evaluate the current Joel North Shaft projectis at an
early stage, we are slowly becoming comfortable with the orebody. Joel`s current
results warrant a re-look at the viability of this resource.
v. Evander - growth projects being evaluated
Much has been said about the Poplar and Roslpruit project areas which were
included in the acquisition of Evander in 1998 at no cost.
The Poplar Project is a greenfields area, which contains 10,8 million ounces of
gold. A feasibility study which evaluates the exploration of this perspective
orebody, through a twin shaft system from surface to a depth of 1 200 metres
below surface, is currently underway.
The resource from the Rolspruit Project which is contiguous to Evander 8 Shaft
is situated between 1 535m to 2 515m below surface. Various options are
currently being evaluated to exploit this geological resource of 17,4 million
ounces of gold.
Strategic investments
In line with our growth strategy it has in the past, and definitely will in the
future, become necessary for the company to make strategic investments in
corporate entities. To date these activities have seen Harmony establish a
sizeable international production base.
i. Investment in Goldfields Limited of Australia
The company`s acquisition of a 21% stake in Goldfields Limited of Australia at a
cost of R165 million, which was concluded in February 2000, is a good example of
making good returns from strategic investments. The South African exchange rate
and funding constraints at the time resulted in the cost of acquiring Goldfields
Limited of Australia being too high for Harmony. The additional investment by
Harmony of R60 million and subsequent corporate activity with Delta and Placer
Dome has seen the value of our initial R225 million investment increasing to
R855 million.
The investment in Goldfields was a step in the phased approach in building a
sizeable operational base in Australia.
Subsequent corporate activity with New Hampton and Hill 50 has established the
Australasian production base of the company to the current level of
approximately 20% or 580 000 oz per annum.
ii. Bendigo
The 32% stake, which the company acquired on 14 December 2001, at a cost of A$50
million, is currently valued at A$83 million.
Initial sampling of the D3 and S3 orebodies has been completed. Bulk samples are
currently being processed. Results to date confirm the existence of the robust
but highly variable orebodies that were predicted in the original reports. The
underground development is on schedule but the surface treatment has been
unnecessarily delayed by bureaucratic environmental issues relating to tailings
and water discharge, which has since been overcome.
Harmony has until 31 December 2003 to exercise an A$104 million option to take a
+ 50% control of the company and develop the mine.
iii. The listing of Highland Gold Limited
On 18 December 2002, Highland Gold Limited successfully listed on AIM
(`Alternative Investment Market of London Stock Exchange plc`).
Highland Gold is the owner of Mnogovershinoe (`MNV`), Russia`s fourth largest
producing gold mine in 2001, as well as two development projects - Darasun and
Novoshirokinskoye which together comprise four gold deposits.
MNV estimated a production target of 175 000 oz for 2002 and has proven and
probable reserves of 2,3 million ounces. Measured, indicated and inferred
resources total 3,0 million ounces of gold. Of the above 31% is for our account.
Highland Gold believes that the abundance of natural resources and the recent
positive developments in the Russian gold industry will provide an opportunity
for the company to establish a portfolio of Russian gold projects.
The acquisition of a 31% at US$18,9 million stake in Highland Gold on 29
September 2002 and subsequent investment of US$7,5 million allows for a
promising entry point for Harmony into the re-emerging Russian gold sector. Our
total investment of US$26,4 million is currently valued at approximately US$134
million.
iv. Acquiring a 21% stake in High River Gold Mines Limited
On 21 November the company completed the acquisition of 17 074 861 ordinary
shares, or a 21% interest, of High River Gold. High River Gold (TSA:HRG) is a
Toronto based company with gold interests in Russia, Canada and West Africa.
The total purchase consideration amounted to R141 million (US$14,5 million)
which represented a 16% discount on the weighted average share price for the 30
day trading period prior to the execution of the agreement. Following a
significant rise in the High River share price our investment is now valued at
approximately US$24 million.
The principle assets of High River Gold are:
* a 53% equity interest in OJSC Buryatzoloto, the 5th largest gold producer in
Russia, with two operating mines producing approximately 150 000 oz per year,
* a 100% interest in the Berezitovoye Project, which is a deposit amenable to
low cost open-pit mining,
* a 50% interest and joint operatorship of the New Britannia gold mine situated
in Manitoba Canada, producing approximately 110 000 oz per year, and
* an 80% interest in the Taparko gold project in Bukino Faso which has a gold
resource of approximately 1 million ounces.
Kalplats - metallurgical results feedback by end March 2003
Our Kalplats project is progressing well with an amount of R8,5 million spent
during the quarter. The programme to collect bulk samples will be completed by
the end of January 2003 to fit in with the work schedule of the Mintek pilot
plant. Results from the pilot plant flotation tests are expected by the end of
the March quarter.
Based on the outcome of these tests we will be taking a decision on the mining
of the orebody and whether any further activities will be undertaken to enhance
our understanding and valuation of the demarcated 5 orebodies.
An agreement on HIV/AIDS - Harmony declares war on AIDS
On 19 September 2002, Harmony, the National Union of Mineworkers (NUM) and the
United Association of South Africa (UASA) entered into an historical agreement
whereby the stakeholders will develop and maintain programmes to reverse the
impact of HIV/AIDS.
The objectives are:
* reducing the number of infections among employees and consequently their
families and communities,
* to ensure that the rights of employees living with HIV/AIDS are upheld and in
compliance with existing legislation,
* to create a conducive environment in the workplace for dealing with the
epidemic constructively, and
* to ensure that the parties remain committed to the health, safety and well
being of employees in relation to HIV/AIDS by implementing HIV/AIDS programmes.
Activities which have been identified to assist in achieving these objectives
are; focussing on prevention, ongoing counselling, appointment of a Group
HIV/AIDS Co-ordinator, adequate medical care and access to medical facilities.
Progress will be monitored, evaluated, reviewed and adjusted accordingly.
Social Plan
Much has been said about the Social Plan, which forms part of the Mineral and
Petroleum Resources Development Bill.
The Social Plan, which emphasises the tripartite relationship between
government, the company and the respective unions, calls for stakeholders to be
proactive in devising strategies to deal with:
* skills development of current employees,
* retraining of employees to be retrenched, and
* the redeployment of employees to their communities in a way through which
social upliftment is achieved.
Harmony, which focuses on all matters of sustainable development, sees this as
an opportunity to contribute to the alleviation of the social and economic
impact on individuals and the economies of the regions in which we operate.
In addition, the company will participate in:
* re-aligning procurement activities to allow for broader participation for new
entrants, and
* the promotion and support of economic activities in mining communities that
will ensure sustainability of those regional economies beyond mine closure.
Expanding our beneficiation activities
i. Musuku to deliver value downstream
On 11 December 2002 the company announced that it had entered into an agreement
with Mintek, the leader in minerals and metals technology in South Africa, to
create Musuku Beneficiation Systems. Musuku means gold in the Venda language.
Musuku combines the business management systems and practices that have been
established at the Harmony refinery and the specialised refining technologies
from Mintek, thereby potentially integrating value-adding processes into the
company and the gold industry.
This relationship is expected to unlock significant value in the value chain of
the precious metals industry and help South Africa and the company to gain a
significant position in the downstream value-adding industries such as jewellery
manufacturing and industrial applications for precious metals.
ii. The Lord of the Rings Project - spreading the benefits
The company was successful in acquiring the rights to distribute various gold
products associated with the `Lord of the Rings` trilogy in the United States,
Canada and South Africa.
The products have been extremely popular with sales increasing as market
awareness of the product range has increased.
Benefits from our involvement have been extended to our communities in the Free
State region with both the Virginia Jewellery School and Emthuthwini, a local
jewellery manufacturer, supplying Harmony with finished products for
international distribution. Employment opportunities have been created and
significant skills transfer is taking place. This success has enhanced our
initiative of establishing a jewellery manufacturing hub, focussing on the
international market, in the Free State goldfields.
QUARTERLY OPERATIONAL REVIEW
A quarter on quarter cash operating profit analysis of the various operations is
as follows:
Total cash operation profit (R`million)
Operations Dec 2002 Sept 2002 Variance R`m
Free State 117 190 (73)
Evander 88 101 (13)
Randfontein 180 200 (20)
Elandskraal 70 105 (35)
Kalgold 17 25 (8)
Australian Operations 92 100 (8)
Sub-total 564 721 (157)
Free Gold (50%) 199 229 (30)
Total 763 950 (187)
Free State Operations - leveraged to the gold price
The Free State operations reported a 39% decrease in cash operating profits from
R190,0 million to R116,5 million. Underground tonnage milled decreased from 1
105 000 tonnes to 1 053 000 tonnes. The lower tonnage at a lower underground
recovery grade of 4,28 g/t compared to the 4,41 g/t reported previously resulted
in a 7% net decrease in overall gold recovered, down from 5 104 kgs to 4 740
kgs.
In line with the lower tonnage working costs decreased by 3% with expenditure of
R375,6 million compared to R388,5 million for the September 2002 quarter. Whilst
underground unit costs in Rand terms were similar the lower grade resulted in
cost/kg increasing by 3% to R78 708/kg.
Evander Operations - great team effort achieves further improvements
Evander continued with its operational recovery following the adverse effects of
the seismic event in the second half of 2002. Cash operating profits decreased
by 14% from R101,2 million to R87,5 million, the main contributing factor being
the lower gold price and a lower recovery grade.
Underground tonnages increased by 10% from 477 000 tonnes to 526 000 tonnes. The
benefit from the increased tonnage was negated by a lower recovery grade of 5,33
g/t compared to 5,74 g/t for the previous period. The net result being a 3%
increase in gold production. Actual working costs increased by only 3% from
R190,4 million to R196,8 million.
When measured in R/kg terms, working costs increased marginally from R68 857/kg
to R69 360/kg and in R/tonne terms decreased by 8% from R374/tonne to
R345/tonne.
Randfontein Operations - a good quarter
Despite slightly lower grades, an increase in volumes resulted in Randfontein
continuing with its excellent operational performance, returning a cash
operating profit of R179,7 million, down 10% from the R199,7 million reported
for the September 2002 quarter.
Underground tonnage milled increased from 758 000 tonnes to 768 000 tonnes. At a
lower recovery grade of 5,06 g/t compared to the 5,29 g/t reported previously,
the operations reported lower underground gold recovery at 3% or 3 887 kgs.
Excellent cost control resulted in working costs decreasing by 8%, from R260,2
million to R240,6 million. When measured in R/kg terms, working costs decreased
by 4% from R59 583/kg to R57 350/kg.
In R/tonne terms, working costs decreased by 8% from R312/tonne to R286/tonne.
Capital expenditure following the announcement of the Doornkop South Reef
Project is expected to increase from R6 million in the December 2002 quarter to
R31 million for the March 2003 quarter.
Elandskraal Operations - recovery underway
The Elandskraal operations after experiencing a tough September quarter is
showing the signs that recovery is underway and more improvements can be
expected. Although operating profits of R70 million were 33% lower compared to
R104,8 million achieved during the September 2002 quarter, the adverse variance
can mainly be attributed to gold price weakness and below average grades.
Underground tonnage was 5% higher at 479 000 compared to 458 000 tonnes reported
previously. Despite the increased volumes, working costs were lower at R234,0
million.
Underground recovery grades were still low at 6,00 g/t, gold produced being 4%
lower at 2 876 kgs compared to the 2 998 kgs for the September 2002 quarter.
The higher tonnage at no increase in costs favourably impacted on working costs
in R/tonne terms with these costs being 5% lower at R468/tonne. When measured in
R/kg terms, working costs increased by 4% from R75 076/kg to R77 890/kg due to
the lower grade.
The R1,4bn Shaft Deepening Project or `new Elandsrand mine project` is
progressing very well. An amount of R396 million remains as expenditure over a
period of 4 years. Activities are mainly limited to the development of the four
haulages to the higher grade pay shoot which has a resource of 26 million tonnes
at 1 067 cmg/t containing 210,8 tonnes of gold. It is planned to recover 152,8
tonnes (4,9 million ounces) of gold over the project lifetime of 18 years.
Scheduling to access the pay shoot is as follows:-
102 Level on reef - May 2002
102 Level ledging for mining commences - May 2003
105 Level on reef - December 2003
105 Level ledging for mining commences - December 2004
109 Level on reef - June 2005
109 Level ledging for mining commences - June 2006
113 Level on reef - June 2007
113 Level ledging for mining commences - June 2008
Free Gold Operations - good performance, excellent growth opportunities
The Free Gold Joint Venture operations reported a 13% decrease in cash operating
profit with Harmony`s 50%, down from R229,1 million to R199,1 million. The
strong rand resulted in a negative variance of R23 million.
The Free Gold Joint Venture took control of the St Helena assets on 29 October
2002. In terms of the agreement concluded on 24 May 2002, the venture acquired
these assets for a gross sale consideration of R120 million. In addition, a
royalty of 1% would be payable for a period of 48 months from the effective
date.
St Helena was included for the first time and added 100 000 tonnes and 463
kilograms at a cost of some R46,5 m to the Free Gold results. (Of this, 50% is
included in our Free Gold results). It is expected that 3 to 6 months will be
required to stabilise and restructure the St Helena operations, but higher
volumes and grades should see it starting to contribute significantly to Free
Gold`s results.
Excluding St Helena, Free Gold had a good, steady quarter. On a 50% attributable
basis underground volume was up 25 000 tonnes or 4,7% to 565 000 tonnes. As
expected the comparable grade was reduced from 7,62 g/t to a more sustainable
7,25 g/t (-4,8%). Despite higher volumes cost increases were contained to only
R7,3 million (3,3%).
The March quarter will be slightly affected by the Christmas break, but on the
positive side we should see the implementation of continuous operations on all
the Free Gold shafts.
Tonnages from surface were again lower in volume, but a 17% increase in recovery
grade resulted in a higher net recovery of 300 kgs.
Significant operational improvements have been made at Free Gold since
acquisition thereof in December 2001. At Bambanani mine no underground fires
have been reported over the past 12 months. By optimising the ventilation
reticulation, more productive working environments have been created.
Joel mine experienced no reportable injuries for the past 7 consecutive months.
In order to firm up on our understanding of the Joel orebody, increased
development charges to the extent of R40,00/tonne have been incurred. This
approach is similar to our actions undertaken at all our operations.
Tshepong mine continues to make excellent operational improvements, with its
latest success being the achievement of a record 39 000 m2 in December 2002.
Other measurements reflected this achievement with 24,4 m2/stope man, 11,4
m2/total employee costed and 5,4/m development man being reported.
In respect of surface operations cost savings of R20 million per quarter were
made by optimising current plant infrastructure.
Hospital treatment cost, both in actual and in unit cost terms, have been
reduced by more than half since acquisition.
The Free Gold operations are now well balanced in terms of operational
efficiency and optimisation of the orebody. The successes achieved at Free Gold
in respect of mining to the average grade of the orebody and with the benefit of
a lower working cost structure have positioned these operations for further
production growth. A number of projects are currently being evaluated and
announcements will be made in due course.
Australian Operations - aggressively delivering into inherited hedgebooks
The effect of significant movements in the gold price, the A$:US$ exchange rate
and the R:US$ exchange rate during the quarter makes the financial results for
the December quarter for the Australian operations not comparable with the
September results.
Gold production at 4 021 kgs was 8% below that of September 2002 and the gold
price received was 5% lower at R96 525/kg. Total costs however decreased by 14%
resulting in a net cash operating profit of R92,3 million, a decrease of 8% on
the previous quarter.
Harmony, being unhedged by choice, has in place a policy to reduce the hedge
books we inherited from both New Hampton and Hill 50 as soon as possible. The
best way for us to achieve this is to aggressively deliver into these hedges.
Our operations saw very little benefit from the improvement in the Australian
spot gold price in the quarter as more than 85% of our production was delivered
into our hedging contracts. We intend to continue to deliver into the
outstanding hedge positions.
In the last quarter, a total of 537 500 oz of lease rate swaps were fixed or
closed out because of favourable market movements. Total outstanding lease rate
swap commitments now stand at 1,4 million oz and this number will reduce as
these swaps amortise, or if market conditions permitting they will be closed
out. The close-outs were completed at zero cost.
The quarter`s operational results can be summarised as follows:
* a generally steady performance from our large range of open pit operations
across the 3 sites.
* underground operations at Big Bell, Mount Marion (South Kal) and Star (Mt
Magnet) generally produced well, but the good production and grades that were
achieved from the Hill 50 mine in the September quarter did not follow through
into December.
Progress with development initiatives can be summarised as follows:
* Mt Magnet - as we will achieve a better financial result by continuing with
our existing truck haulage strategy a decision was taken not to proceed with the
A$21 million (R110 million) shaft at Hill 50. This will be possible by upgrading
the equipment over a period of 8 months to incorporate new `Road Train`
technology.
Excellent exploration results have significantly improved both the tonnage and
grade potential of the Water Tank Hill area next to the town of Mount Magnet.
This area will in due course yield 3 open pits and a profitable underground
operation from the reserve of 150 000 oz delineated to date. Development in this
area is currently constrained by delays in moving some of the town`s
infrastructure.
* South Kal - the first ore production has started from the new Lake Cowan
complex to the south of our South Kal operations. Initial feasibility studies of
a `super pit` concept at Hampton Boulder shows a marginal four year project
which could become more exciting if current gold prices prevail. The feasibility
studies should be completed during this quarter.
Capital Expenditure
Actual Forecast
December 2002 March 2003
Free State 34 31
Evander 27 34
Randfontein 2 31
Elandskraal 41 34
Kalgold 6 4
Free Gold (50%) 12 10
Australian Operations 58 60
Total 180 204
Notice of interim dividend
A dividend No.76 of 125 cents per ordinary share, being the interim dividend for
the six month period ended 31 December 2002, has been declared payable on 3
March 2003 to those shareholders recorded in the books of the company at the
close of business on 28 February 2003.
The dividend is declared in the currency of the Republic of South Africa.
Payment will be made on 3 March 2003.
Any change in address or dividend instruction to apply to this dividend must be
received by the company`s transfer secretaries or registrar not later than 21
February 2003.
No dematerialisation or rematerialisation of share certificates may occur
between 24 February 2003 and 28 February 2003, both dates inclusive, nor may any
transfers between registers take place during this period.
This announcement will be mailed to all shareholders recorded in the register on
or about 31 January 2003.
Last date to trade ordinary shares cum dividend 21 February 2003
Ordinary shares trade ex dividend 24 February 2003
Record date 28 February 2003
Payment date 3 March 2003
By order of the board
A le Roux Virginia
Acting company secretary 24 January 2003
Operating and Financial Results (Rand/Metric)
Free Free Rand-
State State Evander Evander fontein
U/g Surface U/g Surface U/g
Ore milled Dec-02 1 053 332 526 44 768
- t`000 Sep-02 1 105 220 477 32 758
Gold Dec-02 4 507 233 2 804 33 3 887
produced - kg Sep-02 4 872 232 2 739 26 4 010
Yield - g/t Dec-02 4,28 0,70 5,33 0,75 5,06
Sep-02 4,41 1,05 5,74 0,81 5,29
Cash
operating Dec-02 78 708 89 742 69 289 75 394 56 562
costs - R/kg Sep-02 76 504 67 772 68 714 83 962 58 945
Cash
operating
costs Dec-02 337 63 369 57 286
- R/tonne Sep-02 337 71 395 68 312
Working
revenue Dec-02 468 760 23 430 280 987 3 280 389 511
(R`000) Sep-02 553 968 24 505 288 766 2 767 422 508
Cash
operating Dec-02 354 738 20 910 194 285 2 488 219 855
costs (R`000) Sep-02 372 728 15 723 188 207 2 183 236 371
Cash
operating Dec-02 114 022 2 520 86 702 792 169 656
profit (R`000) Sep-02 181 240 8 782 100 559 584 186 137
Rand- Elands- Elands- Free
Ore milled Dec-02 fontein kraal kraal Kalgold Gold
- t`000 Sep-02 Surface U/g Surface Opencast U/g
Gold Dec-02 498 479 248 267 615
produced - kg Sep-02 460 458 231 252 540
Yield - g/t Dec-02 308 2 876 161 617 4 331
Sep-02 357 2 998 180 581 4 113
Cash 0,62 6,00 0,65 2,31 7,04
operating Dec-02 0,78 6,55 0,78 2,31 7,62
costs - R/kg Sep-02
Cash 67 295 77 890 61 963 71 580 56 498
operating 66 739 75 076 57 583 62 800 51 920
costs Dec-02
- R/tonne Sep-02
Working 42 468 40 165 398
revenue Dec-02 52 491 45 145 395
(R`000) Sep-02
Cash 30 810 288 207 16 026 61 365 431 632
operating Dec-02 37 345 321 278 18 981 61 472 433 181
costs (R`000) Sep-02
Cash 20 727 224 013 9 976 44 165 244 692
operating Dec-02 23 826 225 078 10 365 36 487 213 545
profit (R`000) Sep-02
10 083 64 194 6 050 17 200 186 940
13 519 96 200 8 616 24 985 219 636
Ore milled Dec-02 Free Australian
- t`000 Sep-02 Gold Operations
Gold Dec-02 Surface Total Total
produced - kg Sep-02 509 1 676 7 015
Yield - g/t Dec-02 557 1 836 6 926
Sep-02 300 4 021 24 078
Cash 281 4 385 24 774
operating Dec-02 0,59 2,40 3,43
costs - R/kg Sep-02 0,50 2,39 3,58
Cash
operating 58 930 73 565 68 500
costs Dec-02 71 544 78 162 68 110
- R/tonne Sep-02
Working
revenue Dec-02 35 176 235
(R`000) Sep-02 36 187 244
Cash
operating Dec-02 29 785 388 129 2 411 922
costs (R`000) Sep-02 29 600 443 148 2 637 519
Cash
operating Dec-02 17 679 295 804 1 649 332
profit (R`000) Sep-02 20 104 342 741 1 687 358
12 106 92 325 762 590
9 496 100 407 950 161
Prepared in accordance with International Accounting Standards.
Total Operations - financial results (Rand/Metric)
6 Months 6 Months Quarter Quarter
ended ended ended ended
31 Dec 31 Dec 31 Dec 30 Sept
2001 2002 2002 2002
10 034 13 941 Ore milled - 7 015 6 926
t`000
37 465 48 852 Gold produced 24 078 24 774
- kg
81 199 103 362 Gold price 100 171 106 463
received - R /
kg
63 473 68 302 Cash operating 68 500 68 110
costs - R / kg
R million R million R million R million
3 057 5 049 Gold sales 2 412 2 638
2 390 3 337 Cash operating 1 649 1 687
costs
667 1 713 Cash operating 763 950
profit
(105) (271) Amortisation (121) (150)
(137) 77 Mark-to-market 12 65
of financial
instruments
- (21) Rehabilitation (11) (10)
cost provision
(24) (27) Employment (15) (12)
termination
costs
16 101 Other income - 53 48
net
(79) (119) Interest paid (60) (59)
(28) (58) Corporate
marketing and
new business (30) (28)
expenditure
(23) (57) Exploration (27) (30)
expenditure
- 469 Profit on sale - 469
of Aurion Gold
shares
246 (506) Mark-to-market 105 (611)
of listed
investments
533 1 301 Profit before 669 632
taxation
South African
normal
taxation
(103) (245) - Current tax (87) (158)
(29) (173) - Deferred tax (125) (48)
401 883 Net earnings 457 426
Adjustments:
(12) (16) - Profit on (11) (5)
sale of
property,
plant and
equipment
389 867 Headline 445 422
earnings
Earnings per
share - cents*
270.0 508.8 - Basic 261.8 247.0
earnings
263.0 499.5 - Headline 255.2 244.2
earnings
267.3 500.3 - Fully 257.4 242.7
diluted
earnings **
75.0 125.0 Dividends per - -
share -
(cents)
Prepared in accordance with International Accounting Standards.
* Calculated on weighted number of shares in issue at quarter end December
2002: 174,4 million (September 2002: 172,6 million). Calculated on weighted
number of shares in issue at 6 months ended December 2002 (173,5 million).
(December 2001: 149,1 million)
** Calculated on weighted average number of diluted shares in issue at quarter
ended December 2002: 177,4 million (September 2002: 175,6 million). Calculated
on weighted number of diluted shares in issue at 6 months ended December 2002
(December 2001: 150,0 million)
Abridged balance sheet (Rand)
At At At
31 December 30 September 31 December
2002 2002 2001
R million R million R million
Employment of capital 8 945 9 434 5 868
Mining assets after
amortisation
Investments 1 409 1 133 694
Net current
(liabilities)
(excluding cash) (431) (599) (447)
Short-term investments
- Aurion Gold - - 489
- Placer Dome 723 746 -
Cash 1 439 1 626 1 213
Total assets 12 085 12 340 7 817
Capital employed
Shareholders` equity 7 863 7 848 4 929
Loans 2 009 2 095 1 338
Long-term provisions 697 725 475
Unrealised hedging loss 736 854 664
Deferred tax 779 819 411
Total equity and 12 085 12 340 7 817
liabilities
Basis of Accounting
The unaudited results for the quarter and 6 months ended have been prepared on
the International Accounting Standards basis. The accounting policies are
consistent with those applied in the previous financial year.
Issued share capital: 174,6 million ordinary shares of 50 cents each.
September 2002: (174,4 million) (December 2001: 149,1 million)
Operating and financial results (US$/Imperial)
Free Free
State State Evander Evander
U/g Surface U/g Surface
Ore milled Dec-02 1 161 366 580 49
- t`000 Sep-02 1 219 243 526 35
Gold
produced Dec-02 144 903 7 491 90 150 1 061
- oz Sep-02 156 638 7 459 88 060 836
Yield Dec-02 0,125 0,020 0,155 0,022
- oz/ton Sep-02 0,128 0,031 0,167 0,024
Cash
operating Dec-02 255 290 224 244
costs - $/oz Sep-02 229 203 206 251
Cash
operating Dec-02 32 6 35 5
costs - $/t Sep-02 29 6 34 6
Working
revenue Dec-02 48 778 2 438 29 239 341
($`000) Sep-02 53 317 2 359 27 793 266
Cash
operating Dec-02 36 913 2 176 20 217 259
costs ($`000) Sep-02 35 874 1 513 18 114 210
Cash
operating Dec-02 11 865 262 9 022 82
profit ($`000) Sep-02 17 443 846 9 679 56
Rand- Rand- Elands- Elands- Kalgold Free
fontein fontein kraal kraal Open- Gold
U/g Surface U/g Surface cast U/g
Ore milled Dec- 847 549 528 273 294 678
02
- t`000 Sep- 836 507 505 255 278 595
02
Gold
produced Dec- 124 969 9 902 92 465 5 176 19 837 139 244
02
- oz Sep- 128 924 11 478 96 387 5 787 18 679 132 235
02
Yield Dec- 0,148 0,018 0,175 0,019 0,067 0,205
02
- oz/ton Sep- 0,154 0,023 0,191 0,023 0,067 0,222
02
Cash
operating Dec- 183 218 252 201 232 183
02
costs - $/oz Sep- 176 200 225 172 188 155
02
Cash
operating Dec- 27 4 44 4 16 38
02
costs - $/t Sep- 27 5 43 4 13 35
02
Working
revenue Dec- 40 532 3 206 29 990 1 668 6 386 44 915
02
($`000) Sep- 40 665 3 594 30 922 1 827 5 916 41 692
02
Cash
operating Dec- 22 878 2 157 23 310 1 038 4 596 25 462
02
costs Sep- 22 750 2 293 21 663 998 3 512 20 553
($`000) 02
Cash
operating Dec- 17 654 1 049 6 680 630 1 790 19 453
02
profit Sep- 17 915 1 301 9 259 829 2 404 21 139
($`000) 02
Free Australian
Gold Operations
Surface Total Total
Ore milled Dec-02 561 1 848 7 734
- t`000 Sep-02 614 2 025 7 638
Gold
produced Dec-02 9 645 129 278 774 121
- oz Sep-02 9 034 140 980 796 497
Yield Dec-02 0,017 0,070 0,100
- oz/ton Sep-02 0,015 0,070 0,104
Cash
operating Dec-02 191 238 222
costs - $/oz Sep-02 214 234 204
Cash
operating Dec-02 3 17 22
costs - $/t Sep-02 3 16 21
Working
revenue Dec-02 3 099 40 388 250 980
($`000) Sep-02 2 849 42 651 253 851
Cash
operating Dec-02 1 840 30 781 171 627
costs ($`000) Sep-02 1 935 32 988 162 403
Cash
operating Dec-02 1 259 9 607 79 353
profit ($`000) Sep-02 914 9 663 91 448
Prepared in accordance with International Accounting Standards.
Total Operations - financial results (US$/Imperial)
6 months 6 months Quarter Quarter
ended ended ended ended
31 Dec 31 Dec 31 Dec 30 Sept
2001 2002 2002 2002
11 064 15 372 Ore milled - 7 734 7 638
t`000
1 210 310 1 570 618 Gold produced 774 121 796 497
- oz
274 321 Gold price 324 319
received - $ /
oz
213 213 Cash operating 222 204
costs - $ / oz
$million $million $million $million
329 505 Gold sales 251 254
257 334 Cash operating 172 162
costs
72 171 Cash operating 79 91
profit
(11) (27) Amortisation (13) (14)
(15) 8 Mark-to-market 1 6
of financial
instruments
- (2) Rehabilitation (1) (1)
cost provision
(3) (3) Employment (2) (1)
termination
costs
2 10 Other income - 6 5
net
(9) (12) Interest paid (6) (6)
Corporate,
marketing and
(3) (6) new business (3) (3)
expenditure
(3) (6) Exploration (3) (3)
expenditure
- 45 Profit on sale - 45
of Aurion Gold
shares
27 (48) Mark-to-market 11 (59)
of listed
investments
57 130 Profit before 69 61
taxation
- South African
normal
taxation
(11) (24) - Current tax (9) (15)
(3) (18) - Deferred tax (13) (5)
43 89 Net earnings 48 41
Adjustments:
(1) (2) - Profit on (1) (1)
sale of
property,
plant and
equipment
42 87 Headline 46 41
earnings
Earnings per
share - cents*
28.0 52.9 - Earnings 27.2 23.8
27.0 52.0 - Headline 26.6 23.5
earnings
26.6 52.1 - Fully 26.8 23.4
diluted
earnings **
7.0 13.0 Dividends per - -
share -
(cents)
Prepared in accordance with International Accounting Standards.
Currency conversion rates average for the quarter: December 2002: US$1 = R9,61
(September 2002: US$1 = R10,39). Currency conversion rates average for 6 months:
December 2002: US$1 = R10,00 (December 2001: US$1 = R10,05).
* Calculated on weighted number of shares in issue at quarter ended December
2002: 174,4 million (September 2002: 172,6 million) Calculated on weighted
number of shares in issue for 6 months ended December 2002: 173,5 million.
(December 2001: 149,1 million)
** Calculated on weighted average number of diluted shares in issue at quarter
ended December 2002: 177,4 million (September 2002: 175,6 million). Calculated
on average number of diluted shares in issue for 6 months ended December 2002:
176,5 million (December 2001: 150,0 million).
Abridged balance sheet (US$)
At At At
31 December 30 September 31 December
2002 2002 2001
US$ million US$ million US$ million
Employment of capital
Mining assets after 1 046 898 471
amortisation
Investments 165 108 56
Net current
(liabilities)/assets
(excluding cash) (50) (57) (36)
Short-term investments
- Aurion Gold - - 39
- Placer Dome 85 71 -
Cash 168 155 97
Total assets 1 414 1 174 628
Capital Employed
Shareholders` equity 920 747 396
Loans 235 199 107
Long-term provisions 82 69 38
Unrealised hedging loss 86 81 53
Deferred tax 91 78 33
Total equity and 1 414 1 174 628
liabilities
Prepared in accordance with International Accounting Standards.
Issued share capital: 174,6 million ordinary shares of 50 cents each. (September
2002: 174,4 million) (December 2001: 149,1 million)
Currency converted at closing rate: December 2002: US$1 = R8,55 (September 2002:
US$1 = R10,51) (December 2001: US$1 = R12,45)
Condensed statement of changes in shareholders` equity (Unaudited)
At At At At
31 Dec 31 Dec 31 Dec 31 Dec
2002 2001 2002 2001
R million R million US$ million US$ million
Balance as at the 7 963 4 594 931 369
beginning of the
financial year
Currency (454) (116) (53) (9)
translation
adjustment and
other
Issue of share 213 157 25 13
capital
Net earnings 883 401 103 32
Dividends paid (741) (112) (87) (9)
Balance as at the 7 863 4 924 920 396
end of December
Prepared in accordance with International Accounting Standards.
Abridged cashflow statements (unaudited)
6 Months 6 Months 6 Months 6 Months
ended ended ended ended
31 Dec 31 Dec 31 Dec 31 Dec
2001 2002 2002 2001
US $ US $ R million R million
million million
57 125 Cash flow from 1 252 525
operating activites
(47) (26) Cash utilised in (618) (432)
investing activities
(4) (64) Cash utilised in (635) (38)
financing activities
(53) 30 Translation - -
adjustment
(Decrease)/Increase
in cash and
(47) 30 equivalents (2) 55
144 139 Opening cash and 1 441 1 159
equivalents
97 168 Closing cash and 1 439 1 213
equivalents
Prepared in accordance with International Accounting Standards.
Operating activities translated at average rates of: December 2002: US$1 =
R10,00
(December 2001: US$1 = R9,28).
Closing balance translated at closing rates of: December 2002 US$1 = R8,55
(December 2001: US$1 = R12,45).
Group`s commodity, currency, interest and lease rate contracts at 31 December
2002
Normal sale contracts Maturity schedule for the years
AUS Dollar (A$) Gold 2003 2004 2005 2006
Forward sales agreements
Ounces*1 230 000 229 000 225 000 145 500
A$/ounce 519 522 523 525
Variable price sales
contracts
with (`caps`)*2
Ounces 67 425 175 500 130 000 40 000
A$/ounce 566 544 512 552
Variable price sales
contracts with
(`floors`)*3
Ounces 19 250 - - -
A$/ounce 500 - - -
Total 316 675 404 500 355 000 185 500
AUS Dollar (A$) Gold 2007 2008 2009 Total
Forward sales agreements
Ounces*1 147 000 100 000 100 000 1 176 500
A$/ounce 515 518 518 520
Variable price sales
contracts
with (`caps`)*2
Ounces - - - 412 925
A$/ounce - - - 538
Variable price sales
contracts with
(`floors`)*3
Ounces - - - 19 250
A$/ounce - - - 500
Total 147 000 100 000 100 000 1 608 675
*1 The Group must deliver into these agreements at the prices indicated.
*2 The Group must deliver its production into these agreements subject to the
capped price indicated in the table above.
*3 The Group must deliver its production into these agreements subject to the
floor price indicated in the table above.
These contracts are treated as normal purchase, normal sale contracts. The mark-
to-market of these contracts was a negative R975 million (US$113 million) as at
31 December 2002, based on the independent valuations. The value was based on a
gold price of US$347 (A$615) per ounce, exchange rates of US$/R8,60 and
A$/US$0,56 and prevailing market interest rates at the time.
Interest rate swap
The Group has interest rate swap agreements to convert R600 million of its R1,2
billion fixed rate bond to variable rate debt. The interest rate swap runs over
the term of the bond, interest is received at a fixed rate of 13% and the
company pays a floating rate based on JIBAR plus a spread ranging from 1,8% to
2,2%.
The mark-to-market value of the transaction making up the positions was a
negative R2 million (US$0,2 million) as at 31 December 2002, the value was based
on an exchange rates of US$/R8,60 and the prevailing interest rates and
volatilities at the time.
Gold lease
