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As filed with the Securities and Exchange Commission on October 24, 2011
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
| ¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2011
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission file number: 001 — 31545
HARMONY GOLD MINING COMPANY LIMITED
(Exact name of registrant as specified in its charter)
REPUBLIC OF SOUTH AFRICA
(Jurisdiction of incorporation or organization)
RANDFONTEIN OFFICE PARK, CNR WARD AVENUE AND MAIN REEF ROAD,
RANDFONTEIN, SOUTH AFRICA, 1760
(Address of principal executive offices)
Marian van der Walt, Executive: Corporate and Investor Relations
tel: +27 11 411 2037, marian@harmony.co.za, fax: +27 866 140 999,
Randfontein Office Park, CNR Ward Avenue and Main Reef Road, Randfontein, South Africa, 1760
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Ordinary shares, with nominal value Rand 50 cents per share*
(Title of Class)
American Depositary Shares (as evidenced by American Depositary Receipts),
each representing one ordinary share
(Title of Class)
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the last full fiscal year covered by this Annual Report was:
430,084,628 ordinary shares, with nominal value of Rand 50 cents per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES þ NO ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
YES ¨ NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:
YES þ NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES ¨ NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer þ |
Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ¨ |
International Financial Reporting Standards as issued by the International Accounting Standards Board þ |
Other ¨ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ¨ Item 18 þ
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO þ
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
YES þ NO ¨
| * | Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission. |
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USE OF TERMS AND CONVENTIONS IN THIS ANNUAL REPORT
Harmony Gold Mining Company Limited is a corporation organized under the laws of the Republic of South Africa. As used in this Annual Report on Form 20-F, or this annual report, unless the context otherwise requires, the term “Harmony” refers to Harmony Gold Mining Company Limited; the term “South Africa” refers to the Republic of South Africa; the terms “we”, “us” and “our” refer to Harmony and, as applicable, its direct and indirect subsidiaries as a “Group”.
In this annual report, references to “R”, “Rand” and “c”, “cents” are to the South African Rand, the lawful currency of South Africa, “A$” refers to Australian dollars, “K” or “Kina” refers to Papua New Guinean Kina and references to “$”, “US$” and “U.S. dollars” are to United States dollars.
This annual report contains information concerning our gold reserves. While this annual report has been prepared in accordance with the regulations contained in Securities and Exchange Commission Guide 7, it is based on assumptions which may prove to be incorrect. See Item 3. “Key Information — Risk Factors — Estimations of Harmony’s gold reserve figures are based on a number of assumptions, including mining and recovery factors, future cash costs or production and the price of gold. As a result, quantities of gold produced may differ from current estimates.”
This annual report contains descriptions of gold mining and the gold mining industry, including descriptions of geological formations and mining processes. We have explained some of these terms in the Glossary of Mining Terms included at the end of this annual report. This glossary may assist you in understanding these terms.
PRESENTATION OF FINANCIAL INFORMATION
We are a South African company and the majority of our operations are located in our home country. Accordingly, our books of account are maintained in South African Rand and our annual and interim financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). Prior to fiscal year ended June 30, 2008, our annual financial statements (translated into U.S. dollars) were prepared and filed with the U.S. Securities and Exchange Commission (“SEC”) in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). On December 21, 2007, the SEC adopted rules allowing foreign private issuers that file Annual Reports on Form 20-F to file financial statements with the SEC in accordance with IFRS without reconciliation to U.S. GAAP. As per these rules, we include in this annual report our consolidated financial statements prepared in accordance with IFRS, translated into U.S. dollars. All financial information, except as otherwise noted, is stated in accordance with IFRS.
In this annual report, we also present “cash operating costs” and “cash operating costs per ounce”, which are non-GAAP measures. An investor should not consider these items in isolation or as alternatives to production costs, cost of sales or any other measure of financial performance presented in accordance with IFRS. The calculation of cash operating costs, and cash operating costs per ounce may vary significantly among gold mining companies and, by themselves, do not necessarily provide a basis for comparison with other gold mining companies. For further information, see Item 5. “Operating and Financial Review and Prospects — Costs — Reconciliation of Non-GAAP Measures”.
We have included the U.S. dollar equivalent amounts of certain information and transactions in Rand, Kina and A$. Unless otherwise stated, we have translated (i) balance sheet items at the closing rate as reported by Reuters on the last business day of the period (R6.78 per US$1.00 as at June 30, 2011 and R7.63 per US$1.00 as at June 30, 2010), (ii) acquisitions, disposals and specific items included within equity at the rate prevailing at the date the transaction was entered into and (iii) income statement items at the average rate for the year (R6.99 per US$1.00 as at June 30, 2011, R7.58 per US$1.00 as at June 30, 2010 and R9.00 per US$1.00 for fiscal 2009). Capital expenditures for fiscal 2012 have been translated at the rates used for balance sheet items at June 30, 2011. By including these U.S. dollar equivalents in this annual report, we are not representing that the Rand, Kina and A$ amounts actually represent the U.S. dollar amounts, as the case may be, or that these amounts could be converted at the rates indicated. For further information, see Item 3. “Key Information — Exchange Rates”.
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FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations, business strategies, operating efficiencies, competitive positions, growth opportunities for existing services, plans and objectives of management, markets for stock and other matters. These include all statements other than statements of historical fact, including, without limitation, any statements preceded by, followed by, or that include the words “targets”, “believes”, “expects”, “aims” “intends” “will”, “may”, “anticipates”, “would”, “could” or similar expressions or the negative thereof. In particular, among other statements, certain statements in Item 4. “Information on the Company,” Item 5. “Operating and Financial Review and Prospects” and Item 11. “Quantitative and Qualitative Disclosures About Market Risk” are forward-looking in nature. Statements in this annual report that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended.
These forward-looking statements, including, among others, those relating to our future business prospects, revenues and income, wherever they may occur in this annual report and the exhibits to this annual report, are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. As a consequence, these forward-looking statements should be considered in light of various important factors, including those set forth in this annual report. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, without limitation:
| • | overall economic and business conditions in South Africa and elsewhere; |
| • | the ability to achieve anticipated efficiencies and other cost savings in connection with past and future acquisitions; |
| • | fluctuations in the market price of gold; |
| • | the occurrence of hazards associated with underground and surface gold mining; |
| • | the occurrence of labor disruptions; |
| • | availability, terms and deployment of capital; |
| • | changes in government regulation, particularly mining rights and environmental regulation; |
| • | fluctuations in exchange rates; |
| • | currency devaluations/appreciations and other macroeconomic monetary policies; and |
| • | socio-economic instability in South Africa and other countries in which we operate. |
We undertake no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
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SELECTED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction with, and are qualified in their entirety by reference to, our consolidated financial statements and the notes thereto and with Item 3. “Key Information — Risk Factors”, Item 5. “Operating and Financial Review and Prospects”, all included elsewhere in this annual report. Historical results are not necessarily indicative of results to be expected for any future period.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We are a South African company and the majority of our operations are located in our home country. Accordingly, our books of account are maintained in South African Rand and our annual and interim financial statements are prepared in accordance with IFRS. Prior to fiscal year ended June 30, 2008, our annual financial statements (translated into U.S. dollars) were prepared and filed with the SEC in accordance with U.S. GAAP. On December 21, 2007, the SEC adopted rules allowing foreign private issuers that file Annual Reports on Form 20-F to file financial statements with the SEC in accordance with IFRS without reconciliation to U.S. GAAP. As per these rules, we have included in this annual report our consolidated financial statements prepared in accordance with IFRS, translated into U.S. dollars.
The selected historical consolidated income statement and balance sheet data for the last five fiscal years are, unless otherwise noted, stated in accordance with IFRS, and has been extracted from the more detailed information and financial statements prepared in accordance with IFRS, including our audited consolidated financial statements as of June 30, 2011 and 2010 and for each of the years in the three years ended June 30, 2011 and the related notes, which appear elsewhere in this annual report. The historical consolidated financial data at June 30, 2009, 2008 and 2007, and for each of the years in the two years ended June 30, 2008, has been extracted from our audited consolidated financial statements not included in this annual report as adjusted for discontinued operations and the accounting changes described below.
During fiscal 2008, we early adopted IAS 23 (Revised) — Borrowing Costs. In accordance with the Revised Standard’s transitional provisions, we designated July 1, 2000 as the effective date and applied the requirements of the Revised Standard to all qualifying projects for which the commencement date of capitalization was on or after that date. The effect of this change on the 2007 year has been included in the selected consolidated information below.
Discontinued operations for the periods below include our Cooke and Orkney operations in South Africa, as well as our South Kalgoorlie and Mount Magnet operations in Australia, up to the date of their disposal. The assets and liabilities of the Cooke operation were first classified as held for sale in fiscal 2008 and the results of this operation presented as discontinued operations until the time of its disposal to Rand Uranium (Proprietary) Limited (“Rand Uranium”) in November 2008. The assets and liabilities of the Orkney and Australia’s South Kalgoorlie operations were first classified as held for sale in fiscal 2007, and the results of these operations reflected as discontinued operations in anticipation of their disposal in fiscal 2008. In fiscal 2010, Australia’s Mount Magnet operations were classified as held for sale and the results of the Mount Magnet operation presented as discontinued operations when an agreement for its disposal to Ramelius Resources Limited (“Ramelius”) was concluded. The reclassifications in respect of discontinued operations were done in terms of IFRS 5 — Non-Current Assets Held for Sale and Discontinued Operations. See note 16 of the consolidated financial statements and Item 4. “Information on the Company — Business — Mount Magnet Operations”, Item 4. “Information on the Company — Business — Cooke Operations”.
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| Fiscal year ended June 30, | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
| ($ in millions, except per share amounts and cash operating costs per ounce) | ||||||||||||||||||||
| Income Statement Data |
||||||||||||||||||||
| Revenue |
1,781 | 1,489 | 1,277 | 1,269 | 1,116 | |||||||||||||||
| Operating profit |
4 | 22 | 236 | 73 | 154 | |||||||||||||||
| (Loss)/profit from associates |
(7 | ) | 7 | 1 | (11 | ) | (3 | ) | ||||||||||||
| Profit from continuing operations before taxation |
14 | 24 | 238 | (39 | ) | 156 | ||||||||||||||
| Taxation |
69 | (44 | ) | (22 | ) | (65 | ) | (39 | ) | |||||||||||
| Profit/(loss) from continuing operations |
83 | (20 | ) | 216 | (104 | ) | 117 | |||||||||||||
| Profit/(loss) from discontinued operations |
3 | (4 | ) | 95 | 74 | (66 | ) | |||||||||||||
| Net profit/(loss) |
86 | (24 | ) | 311 | (30 | ) | 51 | |||||||||||||
| Basic earnings/(loss) per share from continuing operations ($) |
0.19 | (0.05 | ) | 0.52 | (0.26 | ) | 0.29 | |||||||||||||
| Diluted earnings/(loss) per share from continuing operations ($) |
0.19 | (0.05 | ) | 0.51 | (0.26 | ) | 0.29 | |||||||||||||
| Basic earnings/(loss) per share ($) |
0.20 | (0.06 | ) | 0.75 | (0.08 | ) | 0.12 | |||||||||||||
| Diluted earnings/(loss) per share ($) |
0.20 | (0.06 | ) | 0.74 | (0.08 | ) | 0.12 | |||||||||||||
| Weighted average number of shares used in the computation of basic earnings/(loss) per share |
429,310,123 | 426,381,581 | 414,120,732 | 400,750,167 | 397,910,797 | |||||||||||||||
| Weighted average number of shares used in the computation of diluted earnings/(loss) per share |
430,420,068 | 427,846,547 | 415,962,899 | 402,894,248 | 402,382,011 | |||||||||||||||
| Dividends per share ($)(1) |
0.07 | 0.06 | — | — | — | |||||||||||||||
| Dividends per share (R)(1) |
0.50 | 0.50 | — | — | — | |||||||||||||||
| Other Financial Data |
||||||||||||||||||||
| Cash operating cost per ounce of gold from continuing operations ($/oz) (2) |
1,009 | 801 | 583 | 600 | 484 | |||||||||||||||
| Total cash operating cost per ounce of gold ($/oz) (2) |
1,009 | 801 | 586 | 602 | 489 | |||||||||||||||
| Balance Sheet Data |
||||||||||||||||||||
| Assets |
||||||||||||||||||||
| Property, plant and equipment |
4,607 | 3,874 | 3,614 | 3,531 | 3,484 | |||||||||||||||
| Assets of disposal groups classified as held for sale |
40 | 32 | — | 197 | 182 | |||||||||||||||
| Total assets |
5,880 | 5,141 | 4,925 | 4,710 | 5,160 | |||||||||||||||
| Net assets |
4,450 | 3,828 | 3,824 | 3,172 | 3,366 | |||||||||||||||
| Equity and liabilities |
||||||||||||||||||||
| Share capital |
4,033 | 4,027 | 4,004 | 3,787 | 3,752 | |||||||||||||||
| Total equity |
4,450 | 3,828 | 3,824 | 3,172 | 3,366 | |||||||||||||||
| Borrowings (current and non-current) |
230 | 156 | 47 | 525 | 653 | |||||||||||||||
| Liabilities of disposal groups held for sale |
2 | 18 | — | 64 | 77 | |||||||||||||||
| Other liabilities |
1,198 | 1,139 | 1,054 | 949 | 1,064 | |||||||||||||||
| Total equity and liabilities |
5,880 | 5,141 | 4,925 | 4,710 | 5,160 | |||||||||||||||
| (1) | Dividends per share relates to the dividends recorded and paid during the fiscal year. |
| (2) | Cash operating costs is a non-GAAP measure. We calculate cash operating costs per ounce by dividing total cash operating costs by gold produced which therefore excludes the effect of the movement in the gold inventory from the cash operating cost amount. Cash operating costs, include mine production costs, transport and refinery costs, applicable general and administrative costs, ongoing environmental rehabilitation costs as well as transfers to and from deferred stripping and costs associated with royalties. Ongoing employee termination costs are included; however, employee termination costs associated with major restructuring and shaft closures are excluded. Cash operating costs have been calculated on a consistent basis for all periods presented. Changes in cash operating costs per ounce are affected by operational performance, as well as changes in the currency exchange rate between the Rand and the U.S. dollar. Because cash operating costs is a non-GAAP measure, it should therefore not be considered by investors in isolation or as an alternative to production costs, cost of sales, or any other measure of financial performance calculated in accordance with IFRS. The calculation of cash operating costs and cash operating cost per ounce may vary from company to company and may not be comparable to other similarly titled measures of other companies. However, we believe that cash operating costs per ounce is a useful indicator to investors and management of a mining company’s performance as it provides (1) an indication of the cash generating capacities of the mining operations, (2) the trends in cash operating costs as the company’s operations mature, (3) a measure of a company’s performance, by comparison of cash operating costs per ounce to the spot price of gold and (4) an internal benchmark of performance to allow for comparison against other companies. For further information, see Item 5. “Operating and Financial Review and Prospects — Costs — Reconciliation of non-GAAP measures”. |
EXCHANGE RATES
Unless otherwise stated, balance sheet item amounts are translated from Rand to U.S. dollars at the exchange rate prevailing on the last business day of the period (R6.78 per US$1.00 as at June 30, 2011), except for acquisitions, disposals and specific items included within equity that are converted at the exchange rate prevailing on the date the transaction was entered into, and income statement
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item amounts that are translated from Rand to U.S. dollars at the average exchange rate for the period (R6.99 per US$1.00 for fiscal 2011). During the year, the Rand/dollar closing exchange rate ranged between R6.57 and R7.75 per US$1.00.
As of October 17, 2011, the exchange rate per US$1.00 was R7.99. (1)
The following table sets forth, for the past five fiscal years, the average and period end rates for Rand expressed in Rand per US$1.00. For periods prior to December 31, 2008, the following tables express the exchange rates in terms of the noon buying rate in New York City for cable transfers in Rand as certified for customs purposes by the Federal Reserve Bank of New York. As of December 31, 2008, the Federal Reserve Bank ceased publication of the noon buying rate and, as such, the exchange rates for fiscal 2009, 2010 and 2011 are sourced from Reuters, being the closing rate at period end.
| Fiscal Year Ended June 30, |
Average(1) | Period End | ||
| 2007 |
7.20(2) | 7.04 | ||
| 2008 |
7.26(2) | 7.80 | ||
| 2009 |
9.00(3) | 7.72 | ||
| 2010 |
7.58(3) | 7.63 | ||
| 2011 |
6.99(3) | 6.78 | ||
| Month of |
High | Low | ||
| May 2011 |
7.03 | 6.59 | ||
| June 2011 |
6.88 | 6.69 | ||
| July 2011 |
6.99 | 6.63 | ||
| August 2011 |
7.26 | 6.68 | ||
| September 2011 |
6.98 | 8.27 | ||
| October 2011 (through October 17, 2011) |
8.28 | 7.83 | ||
| (1) | Based on the interbank rate as reported by Reuters. |
| (2) | The average of the noon buying rates on the last day of each full month during the relevant period as certified for customs purposes by the Federal Reserve Bank of New York. |
| (3) | The daily average of the closing rate during the relevant period as reported by Reuters. |
Fluctuations in the exchange rate between Rand and the U.S. dollar will affect the dollar equivalent of the price of ordinary shares on the Johannesburg Stock Exchange, which may affect the market price of the American Depositary Shares (“ADSs”) on the New York Stock Exchange. These fluctuations will also affect the dollar amounts received by owners of ADSs on the conversion of any dividends on ordinary shares paid in Rand.
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CAPITALIZATION AND INDEBTEDNESS
Not applicable.
REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
RISK FACTORS
In addition to the other information included in this annual report and the exhibits, you should also carefully consider the following factors related to our ordinary shares and ADSs. There may be additional risks that we do not currently know of or that we currently deem immaterial based on information currently available to us. Although Harmony has a formal risk policy framework in place, the maintenance and development of which is undertaken on an ongoing basis so as to help management address systematic categories of risk associated with its business operations, any of these risks could have a material adverse effect on our business, financial condition or results of operations, leading to a decline in the trading price of our ordinary shares or our ADSs. The risks described below may, in retrospect, turn out to be incomplete and therefore may not be the only risks to which we are exposed. Additional risks and uncertainties not presently known to us or that we now believe are immaterial (and have therefore not been included), could also adversely affect our businesses, results of operations or financial condition. The order of presentation of the risk factors below does not indicate the likelihood of their occurrence or the magnitude or the significance of the individual risks. The risks described below could occur individually or cumulatively and intensify in case of a cumulative occurrence.
Risks Relating to Our Business and the Gold Mining Industry
The profitability of our operations, and cash flows generated by those operations, are affected by changes in the price of gold. A fall in the gold price below our cash cost of production for any sustained period may lead to losses and require Harmony to curtail or suspend certain operations.
Substantially all Harmony’s revenues come from the sale of gold. Although the gold price has increased over the last decade, historically, the market price for gold has fluctuated widely and been affected by numerous factors over which Harmony has no control, including:
| • | demand for gold for industrial uses, jewellery and investment; |
| • | international or regional political and economic trends; |
| • | strength or weakness of the US dollar (the currency in which gold prices generally are quoted) and of other currencies; |
| • | financial market expectations on the rate of inflation; |
| • | interest rates; |
| • | speculative activities; |
| • | forward sales by gold producers; |
| • | actual or expected purchases and sales of gold bullion held by central banks or other large gold bullion holders or dealers; and |
| • | production and cost levels for gold in major gold-producing nations, such as South Africa, China, the United States and Australia. |
In addition, current demand and supply affects the price of gold, but not necessarily in the same manner as current demand and supply affect the prices of other commodities. Historically, gold has retained its value in relative terms against basic goods in times of inflation and monetary crisis. As a result, central banks, financial institutions and individuals hold large amounts of gold as a store of value and production in any given year constitutes a very small portion of the total potential supply of gold. Since the potential supply of gold is large relative to mine production in any given year, normal variations in current production will not necessarily have a significant effect on the supply of gold or its price.
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The volatility of gold prices is illustrated in the table, which shows the annual high, low and average of the afternoon London bullion market fixing price of gold in US dollars for the past ten years:
Annual gold price: 2001 –2011
| Price per ounce (US$) | ||||||||||||
| Calendar year | High | Low | Average | |||||||||
| 2001 |
293 | 256 | 271 | |||||||||
| 2002 |
332 | 278 | 309 | |||||||||
| 2003 |
412 | 322 | 361 | |||||||||
| 2004 |
427 | 343 | 389 | |||||||||
| 2005 |
476 | 411 | 434 | |||||||||
| 2006 |
725 | 525 | 604 | |||||||||
| 2007 |
841 | 608 | 695 | |||||||||
| 2008 |
1,011 | 713 | 872 | |||||||||
| 2009 |
1,212 | 810 | 972 | |||||||||
| 2010 |
1,421 | 1,058 | 1,225 | |||||||||
| 2011 (year to October 17, 2011) |
1,990 | 1,314 | 1,541 | |||||||||
On October 17, 2011, the afternoon fixing price of gold on the London bullion market was US$1,682/oz.
While the aggregate effect of these factors is impossible to predict, if gold prices should fall below Harmony’s cash cost of production and capital expenditure required to sustain production and remain at these levels for any sustained period, Harmony may record losses and be forced to curtail or suspend some or all of its operations. In addition, Harmony would also have to assess the economic impact of low gold prices on its ability to recover any losses that may be incurred during that period and on its ability to maintain adequate reserves.
Harmony’s average cash cost per ounce of gold produced from continuing operations was US$1,009 in fiscal 2011, US$801 in fiscal 2010 and US$583 in fiscal 2009.
Foreign exchange fluctuations could have a material adverse effect on Harmony’s operational results and financial condition.
Gold is priced throughout the world in US dollars and, as a result, Harmony’s revenue is realized in US dollars, but most of our operating costs are incurred in Rand and other non-US currencies, including the Australian dollar and Kina. Any significant and sustained appreciation of the Rand and other non-US currencies against the dollar will materially reduce Harmony’s Rand revenues and overall net income.
As Harmony currently does not enter into forward sales, commodity derivatives or hedging arrangements on future gold production, it is exposed to the impact of any significant decreases in the gold price.
As a rule, Harmony sells its gold at the prevailing market price. Currently, the company does not enter into forward sales, commodity derivative or hedging arrangements to establish a price in advance for the sale of future gold production, although Harmony may do so in future. As a result, Harmony may realize the benefit of any short-term increase in the gold price, but is not protected against decreases; if the gold price should decrease significantly, Harmony’s revenues may be materially adversely affected.
Global economic conditions could adversely affect the profitability of Harmony’s operations.
Harmony’s operations and performance depend on global economic conditions. A global economic downturn may have follow-on effects on our business. These could include:
| • | key suppliers could become insolvent, resulting in a break-down in the supply chain; or |
| • | the availability of credit may be reduced — this may make it more difficult for Harmony to obtain financing for its operations and capital expenditure or make financing more expensive. |
In addition, uncertainty on global economic conditions may also increase volatility or negatively impact the market value of Harmony’s securities.
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Estimations of Harmony’s gold reserves are based on a number of assumptions, including mining and recovery factors, future cash costs of production and the price of gold. As a result, quantities of gold produced may differ from current estimates.
The mineral reserve estimates in this annual report are estimates of the mill-delivered quantity and grade of gold in Harmony’s deposits and stockpiles. They represent the amount of gold that Harmony believes can be mined, processed and sold at prices sufficient to recover its estimated future cash costs of production, remaining investment and anticipated additional capital expenditures. Harmony’s mineral reserves are estimated based on a number of factors, which have been stated in accordance with the SAMREC and JORC codes, SEC Industry Guide 7 and Sarbanes-Oxley. Calculations of Harmony’s mineral reserves are based on estimates of:
| • | future cash costs; |
| • | future gold prices; and |
| • | future currency exchange rates. |
These factors, which significantly impact mineral reserve estimates, are beyond Harmony’s control. As a result, reserve estimates in this annual report should not be interpreted as assurances of the economic life of Harmony’s gold and other precious metal deposits or the future profitability of operations.
Since these mineral reserves are estimates based on assumptions related to factors detailed above, should there be changes to these, we may in future need to revise these estimates. In particular, if Harmony’s cash operating and production costs increase or the gold price decreases, recovering a portion of Harmony’s mineral reserves may become uneconomical. This will lead, in turn, to a reduction in estimated reserves.
To maintain gold production beyond the expected lives of Harmony’s existing mines or to increase production materially above projected levels, Harmony will need to access additional reserves through exploration or discovery.
Harmony’s operations have limited proved and probable reserves, and exploration and discovery are necessary to maintain current gold production levels at these operations. Exploration for gold and other precious metals is speculative in nature, may be unsuccessful and involves many risks, including those related to:
| • | locating orebodies; |
| • | geological nature of the orebodies; |
| • | identifying the metallurgical properties of orebodies; |
| • | estimating the economic feasibility of mining orebodies; |
| • | developing appropriate metallurgical processes; |
| • | obtaining necessary governmental permits; and |
| • | constructing mining and processing facilities at any site chosen for mining. |
Harmony’s exploration efforts might not result in the discovery of mineralization, and any mineralization discovered might not result in an increase in proved and probable reserves. To access additional reserves, Harmony will need to successfully complete development projects, including extensions to existing mines and, possibly, new mines. Development projects would also be required to access any new mineralization discovered by exploration activities around the world. Harmony typically uses feasibility studies to determine whether to undertake significant development projects. Feasibility studies include estimates of expected or anticipated economic returns, which are based on assumptions about:
| • | future gold and other metal prices; |
| • | anticipated tonnage, grades and metallurgical characteristics of ore to be mined and processed; |
| • | anticipated recovery rates of gold and other metals from the ore; and |
| • | anticipated total costs of the project, including capital expenditure and cash costs. |
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Actual cash costs, capital expenditure, production and economic returns may differ significantly from those anticipated by feasibility studies for new development projects.
It can take a number of years from the initial feasibility study until development is completed and, during that time, the economic feasibility of production may change. In addition, there are a number of inherent uncertainties in developing and constructing an extension to an existing mine or any new mine, including:
| • | availability and timing of necessary environmental and governmental permits; |
| • | timing and cost of constructing mining and processing facilities, which can be considerable; |
| • | availability and cost of skilled labor, power, water and other materials; |
| • | accessibility of transportation and other infrastructure, particularly in remote locations; |
| • | availability and cost of smelting and refining arrangements; |
| • | availability of funds to finance construction and development activities; and |
| • | spot and expected future commodity prices of metals including gold, silver, copper, uranium and molybdenum. |
Harmony currently maintains a range of focused exploration programs, concentrating on areas not too distant from its operational mines, as well as a number of prospective known gold mineralized regions around the world. During fiscal 2010 and fiscal 2011, the bulk of exploration expenditure was allocated to activities in Papua New Guinea (“PNG”) and South Africa. However, there is no assurance that any future development projects will extend the life of our existing mining operations or result in any new commercial mining operations.
Costs associated with pumping water inflows from closed mines adjacent to our operations could adversely affect Harmony’s operational results.
Certain of our mining operations are adjacent to the mining operations of other companies. A mine closure can affect continued operations at an adjacent mine if appropriate preventative steps are not taken. In particular, this could include the ingress of underground water when pumping operations at the closed mine are suspended. This can result in damage to property, operational disruptions and additional pumping costs, which would adversely affect any one of our adjacent mining operations.
Fluctuations in input production prices linked to commodities may adversely affect Harmony’s operational results and financial condition.
Fuel, energy and consumables, including diesel, heavy fuel oil, chemical reagent, explosives, tyres, steel and mining equipment consumed in mining operations form a relatively large part of the operating costs and capital expenditure of a mining company. Harmony has no control over the costs of these consumables, many of which are linked to some degree to the price of oil and steel.
Fluctuations in oil and steel prices have a significant impact on operating cost and capital expenditure estimates and, in the absence of other economic fluctuations, could result in significant changes in the total expenditure estimates for new mining projects or render certain projects non-viable.
The supply of electricity and increases in the cost of power may adversely affect our results of operations and our financial condition.
In South Africa, each of our mining operations depends on electrical power generated by the state utility, Eskom, which holds a monopoly on the South African market. As a result of increased demand exceeding available generating capacity, South Africa has been subject to disruptions in electrical power supply. In fiscal 2008, electricity supply was interrupted by Eskom, halting production at certain of our mines. This led to management restructuring operating processes to control and reduce our consumption of electricity at all our operations. There have been no further disruptions and we have been able to continue production at a reduced electricity allocation as required by the energy conservation scheme (“ECS”) and interim rules imposed by Eskom. However, an insufficient supply of electricity may affect our operational results and financial condition.
As a result of Eskom’s planned capital expansion program to deal with power constraints, an average annual tariff increase of 25% for the three-year multi-year price determination period has been approved by the National Energy Regulator South Africa (“NERSA”). The first increase was implemented on 1 April 2010. These increases will have a negative impact on our results of operations going forward.
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PNG has limited power generation and distribution capacity. This capacity is increasing but, currently, Harmony mines and projects still rely heavily on own power generation using diesel. The cost of this power will fluctuate with changes in the oil price.
Also, see Item 5. “Electricity in South Africa.”
We may experience problems in identifying, financing and managing new acquisitions and integrating them with our existing operations.
Acquiring new gold mining operations involves a number of risks including:
| • | our ability to identify appropriate assets for acquisition and/or to negotiate acquisitions on favorable terms; |
| • | obtaining the financing necessary to complete future acquisitions; |
| • | difficulties in assimilating the operations of the acquired business; |
| • | difficulties in maintaining our financial and strategic focus while integrating the acquired business; |
| • | problems in implementing uniform standards, controls, procedures and policies; |
| • | increasing pressures on existing management to oversee a rapidly expanding company; and |
| • | to the extent we acquire mining operations outside South Africa or Australasia, encountering difficulties relating to operating in countries in which we have not previously operated. |
Our ability to make successful acquisitions and any difficulties or time delays in achieving successful integration of any of such acquisitions could have a material adverse effect on our business, operating results, financial condition and share price.
Certain factors may affect our ability to support the carrying value of our property, plant and equipment, goodwill and other assets on our balance sheet.
Harmony reviews and tests the carrying value of its assets when events or changes in circumstances suggest that this amount may not be recoverable.
At least on an annual basis for goodwill, and when there are indications that impairment of property, plant and equipment and other assets may have occurred, estimates of expected future cash flows for each group of assets are prepared. These estimates are prepared at the lowest level at which identifiable cash flows are considered as being independent of the cash flows of other mining assets and liabilities. Expected future cash flows are inherently uncertain, and could materially change over time. Such cash flows are significantly affected by reserve and production estimates, together with economic factors such as spot and forward gold prices, discount rates, currency exchange rates, estimates of costs to produce reserves and future capital expenditures.
As at 30 June 2011, Harmony had substantial amounts of property, plant and equipment, goodwill and other assets on its consolidated balance sheets. Impairment charges relating to these assets were recorded and if any one or a combination of these uncertainties should occur, management may be required to recognize further impairment charges, which could affect Harmony’s financial results and condition.
Given the nature of mining and the type of gold mines we operate, we face a material risk of liability, delays and increased cash costs of production from environmental and industrial accidents and pollution.
The business of gold mining involves significant risks and hazards, including environmental hazards and industrial accidents. In particular, hazards associated with underground mining include:
| • | rock bursts; |
| • | seismic events; |
| • | underground fires; |
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| • | cave-ins or falls of ground; |
| • | discharges of gases and toxic chemicals; |
| • | release of radioactive hazards; |
| • | flooding; |
| • | pillar mining; |
| • | accidents; and |
| • | other conditions resulting from drilling, blasting and the removal and processing of material from a deep-level mine. |
Hazards associated with opencast mining (also known as open-pit mining) include:
| • | flooding of the open-pit; |
| • | collapse of open-pit walls; |
| • | accidents associated with operating large open-pit and rock transportation equipment; and |
| • | accidents associated with preparing and igniting of large-scale open-pit blasting operations. |
Hazards associated with waste-rock mining include:
| • | accidents associated with operating a waste dump and rock transportation; and |
| • | production disruptions caused by weather. |
We are at risk from any or all of these environmental and industrial hazards. The occurrence of any of these hazards could delay production, increase cash costs and result in financial liability to Harmony.
The nature of our mining operations presents safety risks.
The environmental and industrial risks identified above also present safety risks for Harmony’s operations and its employees and could lead to the suspension and potential closure of operations for indeterminate periods. Safety risks, even in situations where no injuries occur, can have a material adverse effect on Harmony’s operations and production.
See Item 4. “Regulation — Health and Safety Matters”.
Illegal mining, or criminal mining, at our operations could pose a threat to the safety of employees and result in damage to property.
Security issues related to criminal mining came to the fore in fiscal 2009, when criminal mining activities resulted in the deaths of criminal miners. The threat of fire caused by these activities poses a risk to the safety of our employees and could also result in property damage, which in turn could have an adverse impact on production.
See Item 4. “Regulation — Health and Safety Matters”.
Harmony’s insurance coverage may prove inadequate to satisfy future claims against it.
Harmony has third-party liability coverage for most potential liabilities, including environmental liabilities. While we believe that our current insurance coverage for the hazards described above is adequate and consistent with industry practice, we may be subject to liability for pollution (excluding sudden and accidental pollution) or other hazards against which we have not insured or cannot insure,
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including those for past mining activities. Harmony also maintains property and liability insurance consistent with industry practice, but this insurance contains exclusions and limitations on coverage. In addition, there can be no assurance that insurance will be available at economically acceptable premiums. As a result, in future, Harmony’s insurance coverage may not cover the claims against it for environmental or industrial accidents or pollution.
Harmony’s operations may be negatively impacted by inflation.
Harmony’s operations have been materially affected by inflation. Inflation in South Africa has fluctuated widely in recent years, reaching 11.6% at the end of fiscal 2008 before decreasing to 6.9% at the end of fiscal 2009 and to 4.2% by the end of fiscal 2010. Levels were flat during fiscal 2011, with the inflation rate increasing slightly to 4.6% at the end of fiscal 2011. However, working costs and wages, especially, have increased in recent years, resulting in significant cost pressures for the mining industry. In addition, electricity prices rose by 25% in fiscal 2010 and fiscal 2011 and are expected to increase by a further 25% in fiscal 2012.
The inflation rate in PNG has been relatively flat in recent years at around 7%, ending fiscal 2011 at 9.6%. Rising fuel and food prices contributed to the result as did the historically low level of the PGK/A$ cross rate which led to imported inflation. While the PNG central bank has implemented measures aimed at addressing inflationary pressure, higher fuel prices, ongoing government spending and rising domestic demand, along with the construction of the LNG plant, are still present and will continue to keep upward pressure on inflation.
Harmony’s profits and financial condition could be adversely affected when cost inflation is not offset by devaluation in operating currencies or an increase in the price of gold.
The socio-economic framework in the regions in which Harmony operates may have an adverse effect on its operations and profits.
Harmony has operations in South Africa and PNG. As a result, changes or instability to the economic or political environment in any of these countries or in neighboring countries could affect an investment in Harmony. It is difficult to predict the future political, social and economic direction in these countries, or any other country in which Harmony operates, and the impact government decisions may have on its business.
Actual and potential shortages of production inputs may affect Harmony’s operations and profits.
Harmony’s operational results may be affected by the availability and pricing of consumables such as fuel, chemical reagents, explosives, steel and other essential production inputs. Issues with regards to availability of consumables may result from shortages as well as long lead times to deliver, which could result in production delays and production shortfalls. These shortages and delayed deliveries may be experienced where industrial action affects Harmony’s suppliers. These issues could also affect the pricing of the consumables, especially if shortages are experienced. The price of consumables may be substantially affected by changes in global supply and demand, along with weather conditions, governmental controls and other factors. A sustained interruption to the supply of any of these consumables would require Harmony to find acceptable substitute suppliers and could require it to pay higher prices for such materials. Any significant increase in the prices of these consumables would increase operating costs and affect production considerations.
We compete with mining and other companies for key human resources.
Harmony competes with mining and other companies globally to attract and retain key human resources at all levels with the appropriate technical skills and operating and managerial experience necessary to continue operating its business. The need to recruit, develop and retain skilled employees is particularly critical with historically disadvantaged South Africans (“HDSAs”), women in mining in South Africa, and recruiting and training local landowners in PNG. The global shortage of key mining skills, including geologists, mining engineers, metallurgists and skilled artisans has been exacerbated by increased mining activity across the globe. Despite various initiatives, there can be no assurance that we will attract and retain skilled and experienced employees. Should Harmony lose any of its key personnel, its business may be harmed and its operational results and financial condition could be affected. See Item 6. “Employees”.
Since our South African labor force has substantial trade union participation, we face the risk of disruption from labor disputes and new South African labor laws.
Despite a history of constructive engagement with labor unions, there are periods when various stakeholders are unable to agree on dispute resolution processes. Disruptive activities on the part of labor, which normally differ in intensity, then become unavoidable. Due to the high level of union membership among our employees, we are at risk of production stoppages for indefinite periods due to
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strikes and other disputes. Significant labor disruptions have affected our operations and financial condition before and we are not able to predict whether we will experience significant labor disputes in future.
South African employment law sets out minimum terms and conditions of employment for employees. Although these may be improved by agreements between us and the trade unions, prescribed minimum terms and conditions form the benchmark for all employment contracts. See Item 6. “Employees”.
We are required to submit a report under South African employment law detailing the progress made towards achieving employment equity in the workplace. If this report is not submitted, we could incur substantial penalties.
Developments in South African employment law may increase our cash costs of production or alter our relationship with our employees and trade unions, which may have an adverse effect on our business, operating results and financial condition.
HIV/AIDS poses risks to us in terms of productivity and costs.
The HIV/AIDS epidemic in South Africa and PNG poses risks to us in terms of potentially reduced productivity, and increased medical and other costs. If there is a significant increase in the incidence of HIV/AIDS infection and related diseases among the workforce over the next several years, this may have an adverse impact on our operations, projects and financial condition.
See Item 4. “Regulation — Health & Safety Matters”.
The cost of occupational healthcare services and the potential liabilities related to occupational health diseases may increase in future.
Harmony’s operations in South Africa are subject to health and safety regulations which could impose significant costs and burdens. The present Mine Health and Safety Act 29 of 1996 imposes various duties on mines and grants the authorities broad powers to, among others, close unsafe mines and order corrective action on health and safety matters. Operations in PNG are subject to the following laws and regulations: PNG Mining Act 1992, PNG Mining Safety Act 1997, PNG Mining Safety Regulation 1935 (updated 2006) and PNG Environment Act 2000.
There is a risk that the cost of providing health services and implementing various programs could increase in future, depending on changes to underlying legislation and the profile of its employees. This increased cost, should it transpire, is currently indeterminate.
The Occupational Diseases in Mines and Works Act 78 of 1973 (“ODIMWA”) governs the payment of compensation and medical costs for certain illnesses contracted by people employed in mines or at sites where activities ancillary to mining are conducted. The principles of compensation under ODIMWA are currently being tested in the Mr. Thembekekile Mankayi v AngloGold Ashanti court case. Please see Item 8. “Financial Information — Legal Proceedings” for further information. Should anyone bring similar claims against Harmony in future, those claimants would need to provide evidence proving that silicosis was contracted while in the employment of the Company and that it was contracted due to negligence on the Company’s part. The link between the cause (negligence by the Company while in its employ) and the effect (the silicosis) will be an essential part of any case. It is therefore uncertain as to whether the Company will incur any costs related to silicosis claims in the future and due to the limited information available on any claims and potential claims and the uncertainty of the outcome of these claims, no estimation can be made for the possible obligation. Should Harmony be unsuccessful in defending any claims that may be lodged, it would have an adverse impact on the Company’s financial condition.
Laws governing mineral rights affect our business.
Our operations in South Africa and PNG are subject to legislation regulating mineral rights and mining those rights. In South Africa, we are governed by the South African Mineral and Petroleum Resources Development Act 2002 (“MPRDA”) and in PNG by the Mining Act of 1992 (PNG). See Item 4. “Regulation — South Africa” for a description of the principal objectives set out in the MPRDA.
Under the MPRDA, tenure over established mining operations is secured for up to 30 years (and then renewable for periods not exceeding 30 years each), provided that mining companies applied for new-order mining rights over existing operations within five years of May 1, 2004 or before the existing right expires, whichever was the earlier date and fulfill requirements specified in the MPRDA and the Broad-Based Socio-Economic Empowerment Charter for the South African mining industry (“Mining Charter”).
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The licenses for all of our South African operations have been granted. We will be eligible to apply for new licenses over existing operations, provided we comply with the MPRDA. Failure to comply with the conditions of the mining licenses could have a material adverse effect on our operations and financial condition.
The Mining Charter was signed by government and stakeholders in October 2002, and contains principles relating to the transfer, over a ten-year period, of 26% of South Africa’s mining assets (as equity or attributable units of production) to HDSAs as defined in the Mining Charter. An interim target of 15% HDSA participation over five years was also set and the South African mining industry committed to securing financing to fund participation by HDSAs totaling R100 billion in the first five years of the Mining Charter’s tenure. The Mining Charter provides for the review of the participation process after five years to determine what further steps, if any, are needed to achieve target participation of 26%. In order to measure progress in meeting the requirements of the Mining Charter, companies are required to complete a scorecard, in which the levels of compliance with the objectives of the Mining Charter can be “ticked off” after five and ten years, respectively. The Mining Charter and Scorecard require programs for black economic empowerment and the promotion of value-added production, such as jewelry-making and other gold fabrication, in South Africa. In particular, targets are set out for broad-based black economic empowerment in the areas of human resources and skills development; employment equity; procurement and beneficiation. In addition, the Mining Charter addresses socio-economic issues, such as migrant labor, mine community and rural development and housing and living conditions.
Following a review of progress made by the mining industry after five years of implementing the provisions of the Mining Charter, the Department of Mineral Resources (“DMR”) released the Revised Mining Charter on September 13, 2010. The requirement under the Mining Charter for mining entities to achieve a 26% HDSA ownership of mining assets by 2014 has been retained. Amendments in the Revised Mining Charter include, inter alia, the requirement by mining companies to:
| (i) | facilitate local beneficiation of mineral commodities; |
| (ii) | procure a minimum of 40% of capital goods, 70% of services and 50% of consumer goods from HDSA suppliers (i.e. suppliers of which a minimum of 25% + 1 vote of their share capital must be owned by HDSAs) by 2014. These targets will exclude non-discretionary procurement expenditure; |
| (iii) | achieve a minimum of 40% HDSA demographic representation by 2014 at executive management (board) level, senior management (executive committee) level, core and critical skills, middle management level and junior management level; |
| (iv) | invest up to 5% of annual payroll in essential skills development activities; and |
| (v) | implement measures to improve the standards of housing and living conditions for mineworkers by converting or upgrading mineworkers’ hostels into family units, attaining an occupancy rate of one person per room and facilitating home ownership options for all mineworkers in consultation with organized labor. |
All these targets must be achieved by 2014.
In addition, mining companies are required to monitor and evaluate their compliance to the Revised Mining Charter, and must submit annual compliance reports to the DMR. The revised scorecard makes provision for a phased-in approach for compliance with the above targets over the five year period ending in 2014. For measurement purposes, the Scorecard allocates various weightings to the different elements of the Revised Mining Charter. Failure to comply with the provisions of the Revised Mining Charter will amount to a breach of the MPRDA and may result in the cancellation or suspension of a mining company’s existing mining rights. Harmony obtained all of its licenses three years ago and has no reason to believe that our mining licenses will be cancelled or suspended. Harmony will incur costs in meeting its obligations under the Revised Mining Charter and Scorecard.
The MPRDA also makes reference to royalties payable to the South African state in terms of the Mineral and Petroleum Resources Royalty Act (Act 28 of 2008). The Act provides for the payment of a royalty according to a formula based on earnings before interest, tax and depreciation, after the deduction of capital expenditure. This rate is then applied to revenue to calculate the royalty amount due, with a minimum of 0.5% and a maximum of 5% for gold mining companies. For fiscal 2011, the average royalty rate for our South African operations was 0.63% of gross sales.
The Mining Act of 1992 (PNG) is based on Australian legislation. Accordingly, mineral rights in PNG also belong to the government of PNG which has a statutory right to obtain a participating interest of up to 30% in mining development projects. The
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government then issues and administers mining tenements under the relevant mining legislation, and mining companies must pay royalties to the government based on production. The types of tenements issued include: exploration license; mining lease; special mining lease; alluvial mining lease; lease for mining purpose; and mining easement.
Harmony’s PNG mining operation is subject to a 2% royalty payment to the government of PNG. If we want to expand any of our initiatives in PNG into additional areas under exploration, these operations would need to convert the existing exploration licenses prior to the start of mining and that process could require landowner title approval. There can be no assurance that any approval would be received.
Please also see Item 4. “Regulation” for further information.
We are subject to extensive environmental regulations.
As a gold mining company, Harmony is subject to extensive environmental regulation. We expect the trend of rising production costs due to compliance with South African and PNG environmental laws and regulations to continue.
The MPRDA, certain other environmental legislation and the administrative policies of the South African government regulate the impact of the Company’s prospecting and mining operations on the environment. On the suspension, cancellation, termination or lapsing of a prospecting permit or mining authorization, Harmony will remain liable for compliance with the provisions of various relevant regulations, including any rehabilitation obligations. This liability will continue until the appropriate authorities have certified that the Company has complied with such provisions.
Estimates of ultimate closure and rehabilitation costs are significant and based principally on current legal and regulatory requirements that may change materially. Environmental provisions are accrued when they become known, probable and can be reasonably estimated. In future, Harmony may incur significant costs for compliance with increasingly stringent requirements being imposed under new legislation. This may include the need to increase and accelerate expenditure on environmental rehabilitation and to alter environmental provisions, which could have a material effect on its results and financial condition. Harmony may also face increased environmental costs should other mines in the vicinity fail to meet their obligations on pumping or treatment of water. Also impacting on the financial condition of the Company is the requirement by the DMR for cash collateral or guarantees for Harmony’s environmental obligations.
The South African government has reviewed requirements imposed on mining companies to ensure environmental restitution. For example, following the introduction of an environmental rights clause in South Africa’s constitution, a number of environmental legislative reform processes have been initiated. Legislation passed as a result of these initiatives has tended to be materially more onerous than previous laws in South Africa. Examples of such legislation include the MPRDA, the National Nuclear Regulator Act 1999, the National Water Act of 1998 and the National Environmental Management Act 1998, which include stringent ‘polluter pays’ provisions. The adoption of these or additional or more comprehensive and stringent requirements, particularly for the management of hazardous waste, pollution of ground and groundwater systems and duty to rehabilitate closed mines, may result in additional costs and liabilities.
Harmony’s PNG operations are also subject to various laws and regulations relating to protection of the environment, which are similar in scope to those of South Africa. The Environment Act 2000 governs the environmental permitting and regulatory aspects of mining projects. An environmental impact statement is required when projects are likely to have an adverse impact on the environment. This statement must be lodged with the Department of Environmental Conservation where, for large projects, it may be forwarded to Environment Council for review. Public consultation is an integral part of this review.
See Item 4. “Regulation — Environmental Matters” for further discussion on the applicable legislation and our policies on environmental matters.
Mining companies are increasingly required to consider and ensure the sustainable development of, and provide benefits to, the communities and countries in which they operate.
As a result of public concern about the perceived ill effects of economic globalization, businesses in general and large international companies such as Harmony, in particular, face increasing public scrutiny of their activities.
These businesses are under pressure to demonstrate that while they seek a satisfactory return on investment for shareholders, other stakeholders including employees, communities surrounding operations and the countries in which they operate, also benefit from their commercial activities. Such pressures tend to be particularly focused on companies whose activities are perceived to have a high
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impact on their social and physical environment. The potential consequences of these pressures include reputational damage, legal suits and social spending obligations.
Existing and proposed mining operations are often located at or near existing towns and villages, natural water courses and other infrastructure. Mining operations must therefore be designed to mitigate and/or manage their impact on such communities and the environment. Specifically at our PNG operations, cognizance of landowner rights may require measures that could include agreed levels of compensation for any adverse impact the mining operation may continue to have on the community. The cost of these measures could increase capital expenditure and operating costs and therefore impact Harmony’s operational results and financial condition.
Compliance with emerging climate change regulations could result in significant costs for Harmony, and climate change may present physical risks to our operations.
Greenhouse gases (“GHGs”) are emitted directly by Harmony’s operations and indirectly as a result of consuming electricity generated by external utilities. Emissions from electricity consumption are indirectly attributable to Harmony’s operations. There are currently a number of international and national measures to address or limit GHG emissions, including the Kyoto Protocol and the Copenhagen Accord, in various phases of discussion or implementation. Both South Africa and PNG are non-Annex I countries and therefore do not have emission reduction targets under the Kyoto Protocol in the first commitment period, ending 2012.
After the climate summit in Copenhagen in December 2009, South Africa committed to 30% clean energy by 2025 with the vision that South Africa’s GHG emissions would peak by 2020-2025 at the latest, plateau for a decade and then decline by 40% by 2050. The South Africa government published a climate change response green paper in November 2010 and a carbon tax discussion paper in December 2010. The policy process, culminating in the publication of a climate change response white paper, is expected later in 2011, with GHG legislation likely to be enacted after that. An emissions trading discussion paper is expected during 2011. It is possible that legislation to cap national emissions, introduce a trading scheme for GHG emission allowances and/or extend the current carbon tax will be enacted, though timing of this is uncertain.
The largest portion of GHG emissions is predominantly electricity related, with electricity expenditure amounting to 15% of Harmony’s operational costs in South Africa. While cost management is clearly a strategic issue for Harmony, of even greater importance is that energy supply be constant and reliable, given the implications of loss of energy on both production and health and safety. GHG emissions regulations, which would increase the price of energy, within reason, will not affect Harmony as significantly as regulation that stipulates emission thresholds, or sets technology standards that may result in insecure energy supply. Already certain compliance costs from power suppliers are being passed on to the Group in the form of price increases. For instance, in South Africa since 2009, Harmony has paid a levy of R0.02 per kilowatt hour for electricity generated by fossil fuels. These levies may increase over time and additional levies may be introduced in future in South Africa or PNG, which could result in a significant increase in our costs.
The South African government is exploring implementing a carbon tax to offset carbon emissions in the country. A discussion paper on carbon taxation was published by the South African government in December 2010. This discussion paper mentions a potential carbon tax of R75 – R200 per tonne of CO2 emitted.
The aim is to reduce emissions in terms of South Africa’s commitment made at the Copenhagen conference. The proposed tax follows the undertaking by government to reduce South Africa’s carbon footprint by an ambitious 34% by 2020.
The South African National Treasury has established a working group comprising a number of different industries to evaluate the impact of this proposed tax on the different sectors of industry. Harmony is participating in this initiative, as is the Chamber of Mines.
As our current mines have a life expectancy of up to 25 years, we are undertaking capital projects to sustain and increase production at Phakisa, Doornkop, Kusasalethu, Tshepong and Hidden Valley operations. These expansions will extend our mining operations by ten years or more, by which time GHG regulations are expected to be a permanent feature of the global economy. Future climate change regulation will therefore need to be considered for all Harmony’s extensions and acquisitions. All new greenfields and brownfields projects are required by company policy to consider the impact of climate change in their design and planning.
Harmony is also likely to be exposed to GHG emission regulation thresholds, specifically leakage from refrigerant gas use. Harmony will therefore be required to manage CFC-free refrigerant gas, and will consider using absorption chillers. This could have cost implications for the Company.
In addition, Harmony’s operations could be exposed to a number of physical risks from climate change, such as increased rainfall, reduced water availability, higher temperatures and extreme weather events. Events or conditions such as flooding or inadequate water supplies could disrupt Harmony’s operations and rehabilitation efforts, and could increase health and safety risks at operations. In
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addition, such events or conditions could have adverse effects, such as increased disease prevalence, on Harmony’s workforce and communities close by.
See Item 4. “Environmental Matters” for disclosure regarding our GHG emissions.
Our operations in South Africa are subject to water use licenses, which could impose significant costs.
Under South African law, Harmony’s local operations are subject to water use licenses that govern each operation’s water use. These licenses require, among other issues, that mining operations achieve and maintain certain water quality limits for all water discharges, where these apply. The majority of our South African operations are lawful users with existing water permits in terms of the Water Act of 1954. Nevertheless, the South African operations have applied to the relevant regional directors for water use licenses in terms of the National Water Act, 1998. Submissions were made as early as 2003 and Harmony has been working closely with the regional directors in the review process; a number of our operations have been issued with licenses or draft licenses.
We anticipate that the conditions of the licenses may require Harmony to consider and implement alternate water management measures that may have a significant cost implication for our business. Any failure on Harmony’s part to achieve or maintain compliance with the requirements of these licenses for any of its operations may result in Harmony being subject to penalties, fees and expenses or business interruption due to revoked water licenses. Any of these could have a material effect on our business, operating results and financial condition.
See Item 4. “Regulation — Environmental Matters” for disclosure regarding our water usage and management.
We may have exposure to rehabilitate potential groundwater pollution, which may include salination, and radiation contamination that may exist where we have operated or continue to operate.
Due to the interconnected nature of mining operations, any proposed solution for potential flooding and decant risk posed by deep groundwater needs to be a combined one supported by all mines located in the goldfields and government in the event of legacy issues. As a result, the DMR and affected mining companies are involved in developing a regional mine closure strategy. In view of limited current information, no reliable estimate can be made for this possible obligation, which could be material and have an adverse impact on Harmony’s financial condition.
Harmony has initiated analytical assessments to identify, quantify and mitigate impacts, should they arise. Numerous scientific, technical and legal studies are under way to assist in determining the magnitude of possible contamination of groundwater and to find sustainable remediation solutions. Harmony has instituted processes to reduce possible future potential seepage and it has been demonstrated that monitored natural attenuation by the existing environment will contribute to improvement in some instance. The ultimate outcome of the matter cannot presently be determined and no provision for any potential liability has been made in the financial statements. Should these costs be significant, this could have a material impact on Harmony’s operational results and financial condition.
Investors in the United States may have difficulty bringing actions, and enforcing judgments, against us, our directors and our executive officers based on the civil liabilities provisions of the federal securities laws or other laws of the United States or any state thereof.
We are incorporated in South Africa. Each of our directors and executive officers (and our independent registered public accounting firm) resides outside the United States. Substantially all of the assets of these persons and substantially all our assets are located outside the United States. As a result, it may not be possible for investors to enforce a judgment against these persons or ourselves obtained in a court of the United States predicated upon the civil liability provisions of the federal securities or other laws of the United States or any state thereof. A foreign judgment is not directly enforceable in South Africa, but constitutes a cause of action which will be enforced by South African courts provided that:
| • | the court that pronounced the judgment had jurisdiction to entertain the case according to the principles recognized by South African law with reference to the jurisdiction of foreign courts; |
| • | the judgment is final and conclusive; |
| • | the judgment has not lapsed; |
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| • | the recognition and enforcement of the judgment by South African courts would not be contrary to public policy, including observance of the rules of natural justice which require that the documents initiating the United States proceeding were properly served on the defendant and that the defendant was given the right to be heard and represented by counsel in a free and fair trial before an impartial tribunal; |
| • | the judgment does not involve the enforcement of a penal or revenue law; and |
| • | the enforcement of the judgment is not otherwise precluded by the provisions of the Protection of Business Act 99 of 1978, as amended, of the Republic of South Africa. |
Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance.
Laws, regulations and standards relating to accounting, corporate governance and public disclosure, new SEC regulations and other listing regulations applicable to us are subject to change and can create uncertainty for companies like us. New or changed laws, regulations and standards could lack specificity or be subject to varying interpretations. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty on compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards.
In terms of Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on our internal control over financial reporting. The report in this annual report contains, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year, including a statement as to whether or not our internal controls over financial reporting are effective. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act. The requirement to evaluate and report on our internal controls also applies to companies that we may acquire and therefore, this assessment may be complicated by any future acquisitions. While we continue to dedicate resources and management time to ensuring that we have effective controls over financial reporting, failure to achieve and maintain an effective internal control environment could have a material adverse effect on the market’s perception of our business and our stock price. See Item 15. “Disclosure Controls and Procedures” for management assessment as of June 30, 2011. In addition to management’s assessment of internal controls over financial reporting, we are required to have our independent registered public accounting firm publicly disclose their conclusions regarding the effectiveness of Harmony’s internal controls over financial reporting.
We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard have resulted in, and are likely to continue to result in, increased general and administrative expenses.
Sales of large quantities of our ordinary shares and ADSs, or the perception that these sales may occur, could adversely affect the prevailing market price of such securities.
The market price of our ordinary shares or ADSs could fall if large quantities of ordinary shares or ADSs are sold in the public market, or there is a perception in the marketplace that such sales could occur. Subject to applicable securities laws, holders of our ordinary shares or ADSs may decide to sell them at any time. The market price of our ordinary shares or ADSs could also fall as a result of any future offerings it makes of ordinary shares, ADSs or securities exchangeable or exercisable for its ordinary shares or ADSs, or the perception in the marketplace that these sales might occur. We may make such offerings of additional ADS rights, letters of allocation or similar securities at any time or from time to time in the future.
Because we have a significant number of outstanding share options, our ordinary shares are subject to dilution.
We have employee share option schemes as well as other share schemes. The employee share option schemes came into effect in 2001, 2003 and 2006. Our board has authorized up to 14% of the issued share capital to be used for these plans. As a result, shareholders’ equity interests in us are subject to dilution to the extent of the potential future exercises of the options through share schemes.
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We may not pay dividends or make similar payments to our shareholders in the future.
Harmony’s dividend policy is to pay cash dividends only if funds are available for that purpose. Whether funds are available depends on a variety of factors, including the amount of cash available, our capital expenditures and other cash requirements existing at the time. Under South African law, we are only entitled to pay a dividend or similar payment to shareholders if we meet the solvency and liquidity tests set out in the Companies Act 71 of 2008 (as amended) including its Regulations (the “Companies Act”) and our Articles of Association. Cash dividends or other similar payments may not be paid in the future.
In February 2007, the South African Government announced a proposal to replace Secondary Tax on Companies with a 10% withholding tax on dividends and other distributions payable to shareholders. The amendments will be implemented in phases and are expected to become effective in the near future. Although this may reduce the tax payable on our South African operations, thereby increasing distributable earnings, the withholding tax will generally reduce the amount of dividends or other distributions received by shareholders.
Item 4. INFORMATION ON THE COMPANY
BUSINESS
History and Development
We conduct underground and surface gold mining and related activities, including exploration, processing and smelting. We are currently the third largest producer of gold in South Africa, producing approximately one-fifth of the country’s annual gold output, and we ranked among the largest gold producers in the world, with operations and projects in South Africa and PNG. Our gold sales were approximately 1.3 million ounces of gold in fiscal 2011. As at June 30, 2011, our mining operations reported total proven and probable reserves of 41.6 million ounces, primarily from South African sources. In fiscal 2011, we processed approximately 21.3 million tons of ore.
In fiscal 2011, 92% of our total gold production took place in South Africa. In fiscal 2011, approximately 90% of our South African gold came from underground mines, and approximately 10% came from our surface operations (which include the Kalgold opencast operation and the Phoenix operation). For more detailed information about our activities, see Item 4. “Information on the Company — Business — Harmony’s Mining Operations — Overview” and the notes to the consolidated financial statements included in this annual report. Mining is a highly regulated industry, and we operate under a variety of statutes and regulations. For more detailed information about these statutes and regulations, see Item 4. “Information on the Company — Regulation” and Item 10. “Additional Information — Memorandum and Articles of Association”.
The majority of our exploration and evaluation done during fiscal 2011 has been focused on PNG. Our PNG exploration and evaluation opportunities are handled through the international office in Brisbane, Australia. Exploration in South Africa focused on Joel North and Poplar (north-west of Evander 8).
We were incorporated and registered as a public company in South Africa on August 25, 1950 (under registration number 1950/038232/06). We have expanded from a single lease-bound mining operation into an independent, world-class gold producer. From 1997 to 2004, we acquired additional mineral rights in the Free State, Mpumalanga, Gauteng and North West provinces in South Africa through various mergers and acquisitions. In our most recent transaction in fiscal 2010, we acquired the President Steyn 1 and 2 shafts, Loraine 3 shaft, Freddies 7 and 9 shafts as well as the President Steyn gold plant, collectively known as the Pamodzi Free State assets, from Pamodzi Gold Free State (Proprietary) Limited (In Liquidation) (“Pamodzi FS”). See Item 4. “Principal Investments”. These shafts have been included in the Bambanani and Target operations. In building our international portfolio, we acquired Hill 50 and New Hampton in Western Australia in 2001 and 2002, respectively, and started our exploration portfolio in PNG with projects in the Morobe province originally through our acquisition of Abelle in 2003. In the past three years, we disposed of several operations in South Africa and Australia, as well as 50% of our interests in gold and copper assets in PNG. See Item 4. “Disposals”.
Our principal executive offices are located at Randfontein Office Park, Corner of Main Reef Road and Ward Avenue, Randfontein, 1760, South Africa and the telephone number at this location is +27-11-411-2000.
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Business overview
South African Operations
In South Africa, we operate a total of ten underground operations, several surface operations including an opencast mine, and nine processing plants which are located in all of the currently known goldfields in the Witwatersrand basin of South Africa as well as the Kraaipan Greenstone Belt. These operations produced approximately 1.2 million ounces in fiscal 2011, and South Africa represented approximately 94% (or 39.1 million ounces) of our total proven and probable reserves. The deep level gold mines are located in four provinces in this basin, being the Free State province, Mpumalanga, the West Rand Goldfields in Gauteng province and the North West province. Surface operations are located in all these provinces.
Ore from the shafts and surface material are treated at nine metallurgical plants in South Africa, located near the operations (five in the Free State province, two in the North West province, one in Mpumalanga and one in Gauteng). We are currently demolishing three plants in the Free State — the Virginia plant’s demolishment is almost completed, while the process for Steyn plant will continue until fiscal 2012; the demolishment of St Helena Plant has started and will continue until the beginning of fiscal 2014. In addition, Winkelhaak plant at the Evander operations was placed on care and maintenance during fiscal 2010, and the demolishment of the plant is in progress and will be completed in the first half of 2012.
Each operation, consisting anywhere from a single shaft to a group of shafts, is managed by a team headed up by a general manager. See “— Harmony’s Management Structure” below.
Operations are classified as “Underground” or “Surface” with the reportable segments in South Africa being as follows:
| • | Bambanani (includes Steyn 1 and 2 shafts), Doornkop, Evander, Joel, Kusasalethu, Masimong, Phakisa, Target (includes Loraine 3, now known as Target 3), Tshepong and the Virginia operations (the Cooke operations have been disclosed under discontinued operations until the time of its disposal in November 2008); and |
| • | all other shafts and surface operations, including those that treat historic sand dumps, rock dumps and tailings dams, are grouped together under “Other — Underground” and “Other — Surface”. |
International Operations
Our interests internationally are currently located in PNG and represent 6% (or 2.5 million ounces) of our total proven and probable reserves.
PNG operations
In PNG, through our wholly-owned PNG-based subsidiaries, Morobe Consolidated Goldfields Limited (“Morobe Consolidated Goldfields”), Wafi Mining Limited (“Wafi”), Morobe Exploration Limited (“MEL”) and Harmony Gold (PNG) Exploration Limited (“HGEL”) we own development and exploration prospects.
In August 2008, Newcrest Mining Limited (“Newcrest”) acquired a 30.01% interest in our assets and tenements in the Morobe Province through the Morobe Mining Joint Venture (“MMJV”). By the end of fiscal 2009, Newcrest had earned an additional 19.99% in terms of the farm-in agreement, resulting in Newcrest and us each owning a 50% interest in MMJV. Through MMJV, we continued with the process of building the Hidden Valley mine, with partial commissioning of the plant completed by the end of fiscal 2009. The plant was fully commissioned during the June 2010 quarter. The pre-feasibility study at Wafi Golpu commenced during fiscal 2011 and is expected to be completed by June 2012. We are also continuing with exploration at three key project sites which are 100% owned, being Mt Hagen, Amanab and Tari.
Australian operations
During fiscal 2011 we disposed of our interests in Australia, which consisted solely of one site located at Mount Magnet in Western Australia. This site was closed down and the plant placed on care and maintenance in December 2007. During fiscal 2009, we started an intensive drilling program at Mount Magnet and carried out feasibility studies in order to support our decision to either resume mining operations or sell it. A decision was taken by management during May 2010 to sell Mount Magnet, and at June 30, 2010, Mount Magnet was disclosed as held for sale and discontinued operation. We entered into a Share Sales Agreement with Ramelius for a total consideration of A$35.3 million (US$31.6 million) in cash plus replacement environmental bonds of A$4.7 million (US$4.2 million) totaling A$40.0 million (US$35.8 million) consideration. Final settlement of the transaction took place in July 2010.
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Strategy
Our strategy is to deliver long-term value by creating a sustainable company, capable of generating earnings that fund dividends and growth — a company with free cash flow. This strategy has as its overall goal the production of 1.8 to 2 million safe and profitable ounces of gold by 2015 (excluding any future acquisitions or disposals).
We have invested significant capital in developing and commissioning gold mining assets in South Africa. Harmony has undertaken a number of strategic initiatives in recent years with the aim of achieving robust and sustainable financial results, with better controlled cash costs and improved grade.
Three key objectives underpin our strategy, namely:
| • | growth in quality, through our growth assets and geographic diversification; |
| • | growth through partnerships and exploration; and |
| • | optimizing our asset portfolio by improving cash costs and productivity. |
Our emphasis is on safe, profitable ounces and important steps have been taken to ensure that these goals are and will be met. To ensure this we have:
| • | closed high-cost mines to give us a better mix of assets; |
| • | commissioned gold mines in South Africa and in PNG; |
| • | tailored each mine’s business plan to its individual requirements; |
| • | aimed to address ongoing industry challenges. Please see Item 3. “Risk Factors” for further information; |
| • | aimed to improve production and productivity; and |
| • | increased our exploration exposure. |
Principal Investments
We have concluded several strategic transactions within and outside South Africa in the last three fiscal years, which are summarized below.
During fiscal 2010, we acquired the President Steyn 1 and 2 shafts, Loraine 3 and the Freddies 7 and 9 shafts, along with the President Steyn gold plant, collectively known as the Pamodzi Free State assets, for R405 million (US$53 million). The assets were acquired from Pamodzi FS, a subsidiary of Pamodzi Gold Limited (“Pamodzi”), which is an associate of Harmony and has been placed in liquidation.
During fiscal 2009, we reached an agreement with Africa Vanguard Resources (Doornkop) (Proprietary) Limited (“AVRD”) to re-acquire AVRD’s 26% interest in the Doornkop mining right. In March 2010, the condition precedent to the agreement became effective. As a result the 26% interest in the Doornkop mining right was transferred from AVRD to Harmony in exchange for our repayment of the Nedbank loan of R244 million (US$33.4 million) and the issue of 2,162,359 Harmony ordinary shares. Under the terms of the agreement, 975,419 of these shares are to remain in escrow until May 2014.
In August 2009, we acquired 100% interest in two new exploration tenements, the Mount Hagen and Amanab Projects, in PNG.
On April 17, 2009, we exchanged our interest in Dioro for shares in Avoca Resources Limited (“Avoca”). See Item 4.”Disposals”. In terms of the offer by Avoca, we received one Avoca share for every three Dioro shares held. The market value of the Avoca shares on the date was US$4.2 million (A$1.50 per share).
On December 1, 2008, we issued 3,364,675 shares to Rio Tinto plc (“Rio Tinto”) for the purchase of Rio Tinto’s rights to the royalty agreement entered into prior to our acquisition of the Wafi deposits in PNG. The shares were valued at US$23 million on the transaction date. An additional US$10 million in cash will be payable when the decision to mine is made. Of this amount, Harmony is responsible for paying the first US$6 million, with the balance of US$4 million being borne equally by the joint venture partners. The effect of the transaction will be to reduce the cost of any gold produced at Wafi.
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On November 21, 2008, we transferred our Cooke operations to Rand Uranium in exchange for cash of US$209 million and a 40% interest in Rand Uranium. See Item 4. “Disposals”.
Disposals
During September 2010, Harmony concluded an agreement with Witwatersrand Consolidated Gold Resources Limited (“Wits Gold”) for the cancellation of the Freegold farm-in option in exchange for Wits Gold shares. The conditions precedent were fulfilled on November 5, 2010 and Harmony received 4,376,194 shares in Wits Gold valued at R275 million (US$41 million).
On July 20, 2010, the conditions precedent for the sale of the Mount Magnet operation were fulfilled. A total consideration of A$35.3 million (US$31.6 million) was received from Ramelius in exchange for 100% of the issued share capital in Mount Magnet.
In June 2010, the group sold the Jeanette prospecting rights to Taung Gold Limited (“Taung”) for a total consideration and profit of R75 million (US$10 million).
On January 18, 2010, we disposed of our investment in our Australian subsidiary, Big Bell Operations (Proprietary) Limited to Fulcrum Resources (Proprietary) Limited (“Fulcrum”) for A$3.5 million (US$3.2 million) in cash and replacement environmental bonds of A$3.2 million (US$3.0 million), resulting in total consideration of A$6.7 million (US$6.2 million).
During September and October 2009, we sold our interest in Avoca into the market for a total consideration of R42 million (US$5.8 million).
On April 17, 2009, we disposed of our Dioro shares in exchange for shares in Avoca. On that date, the market value of the Dioro shares was A$0.50 per share, or US$4.2 million.
On November 21, 2008, we transferred our Cooke assets to our wholly-owned, newly formed subsidiary, Rand Uranium, for the consideration of US$328 million, settled with Rand Uranium shares. In a related transaction on the same date, 60% of these shares were sold to Pamodzi Resources Fund 1 LLP (“PRF”) for US$197 million. US$40 million was paid on the effective date and the balance of US$157 million, together with interest at 5% per annum, was paid on April 20, 2009. The conditions precedent for the second part of the Rand Uranium transaction, relating to the sale of the Old Randfontein assets, were fulfilled on April 22, 2009. Additional shares were issued in settlement and 60% of these shares were sold to PRF. PRF paid its portion of the purchase price, amounting to US$12 million, in cash on April 20, 2009. We recognized a gain of US$171 million on these transactions.
During fiscal 2009, we disposed of 50% of our interest in our PNG assets in three tranches to Newcrest. The first tranche of 30.01% was disposed of on July 31, 2008 in exchange for US$229 million in cash, which was received on August 7, 2008. On February 28, 2009, the second tranche of 10% was disposed of in terms of the farm-in agreement. Newcrest earned in a further 9.99% interest by contributing to the capital expenditure at Hidden Valley as well as with a cash payment of US$6 million on June 30, 2009. A net profit of US$112 million was realized for the total disposal.
Description of Mining Business
Exploration
Exploration activities are focused on the extension of existing orebodies and identification of new orebodies, both at existing sites and at undeveloped sites.
Our gold-focused exploration program has two components:
| • | on-mine exploration, which looks for resources within the economic radius of existing mines; and |
| • | new mine exploration, which is the global search for early to advanced stage projects. |
Once a potential orebody has been discovered, exploration is extended and intensified in order to enable clearer definition of the orebody and the potential portions to be mined. Geological techniques are constantly refined to improve the economic viability of prospecting and mining activities.
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We conduct exploration activities on our own or with joint venture partners. As at June 30, 2011, our prospecting interest in South Africa measured 69,942 hectares (172,824 acres) and 1,198,400 hectares (2,961,311 acres) in PNG. We spent US$57 million on exploration in PNG and South Africa in fiscal 2011. In fiscal 2012, we intend to carry out exploration in PNG and at Masimong in South Africa.
Mining
The mining process can be divided into two main phases: (i) accessing the orebody; and (ii) mining the orebody. This basic process applies to both underground and surface operations.
| • | Accessing the orebody. |
In our South African underground mines, access to the orebody is by means of shafts sunk from the surface to the lowest economically and practically mineable level. Horizontal development at various intervals of a shaft (known as levels) extends access to the horizon of the reef to be mined. On-reef development then provides specific mining access. Horizontal development at various intervals of the decline extends access to the horizon of the mineral to be mined. The declines are advanced on a continuous basis to keep ahead of the mining taking place on the levels above. In our open-pit mines, access to the orebody is provided by overburden stripping, which removes the covering layers of topsoil or rock, through a combination of drilling, blasting, loading and hauling, as required.
| • | Mining the orebody. |
The process of ore removal starts with drilling and blasting the accessible ore. The blasted faces are then cleaned, and the ore is transferred to the transport system. In open-pit mines, gold-bearing material may require drilling and blasting, and is usually collected by bulldozers or shovels to transfer it onto trucks, which transport it to the mill.
In our South African underground mines, once ore has been broken, train systems collect ore from the faces and transfer it to a series of ore passes that gravity feed the ore to hoisting levels at the bottom of the shaft. The ore is then hoisted to the surface in dedicated conveyances and transported either by conveyor belts directly or via surface railway systems or roads to the treatment plants. In addition to ore, waste rock broken to access reef horizons must similarly be hoisted and then placed on waste rock dumps.
Processing
We currently have nine operational metallurgical plants in South Africa. We also have a metallurgical plant at the Hidden Valley project in PNG. The principal gold extraction processes we use are carbon in leach, or CIL, and carbon in pulp, or CIP.
The gold plant circuit consists of the following:
| • | Comminution. |
Comminution is the process of breaking up the ore to expose and liberate the gold and make it available for treatment. Conventionally, this process occurs in multi-stage crushing and milling circuits, which include the use of jaw and gyratory crushers and rod and tube and ball mills. Our more modern milling circuits include semi- or fully-autogenous milling where the ore itself is used as the grinding medium. Typically, ore must be ground to a minimum size before proceeding to the next stage of treatment.
| • | Treatment. |
In most of our metallurgical plants, gold is extracted into a leach solution from the host ore by leaching in agitated tanks. Gold is then extracted onto activated carbon from the solution using the CIL or CIP processes. Gold in solution at one of our plants is recovered using zinc precipitation. Recovery of the gold from the loaded carbon takes place by elution and electro-winning. Cathode sludge or dore bars produced from electro-winning are currently sent directly to the Rand Refinery. Most of the South African plants no longer use smelting to produce rough gold bars (dore). Our South African zinc precipitation
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plants continue to smelt precipitate to produce rough gold bars. These bars are then transported to the Rand Refinery, which is responsible for refining the bars to a minimum of good delivery status.
All the production from our South African operations is sent to the Rand Refinery, which is owned by a consortium of the major gold producers in South Africa. The Australian and PNG gold production for fiscal years 2009 to 2011 was refined in Australia at an independent refiner, The Perth Mint Australia.
Harmony’s Management Structure
We have a de-centralized management structure that is based on small, empowered management teams led by General Managers at each of our operations. In South Africa, the General Managers report to the Chief Operations Officers, and are responsible for business optimization, mineral reserve optimization, and for developing a business culture at the operations. They also focus on long-term viability and growth of the operations. The General Managers are supported by a Mineral Reserve Manager, a Financial Manager, a Human Resources Manager and a Technical Manager in ensuring the growth and long-term sustainability of the operations
Morobe Mining Joint Venture consists of three unincorporated joint ventures (Hidden Valley Mine Joint Venture (“HVJVM”), Wafi-Golpu Mine Joint Venture (“WGMJV”) and Morobe Exploration Joint Venture (“MEJV”) which are owned 50/50 by respective Harmony and Newcrest 100% owned subsidiaries (“owners”).
The Joint Ventures are managed by a Joint Venture Committee (“JVC”) appointed by the respective owners. The JVC is responsible for the supervision of each of the three Joint Ventures, and implementation of the owners’ policy and strategy. The members act as owner representatives within the unincorporated joint ventures.
Three legal operator entities (“operator co.”), Hidden Valley Services Proprietary Limited, Wafi Golpu Services Limited and Morobe Exploration Services Limited have been established and appointed as operator of / agent for the respective unincorporated joint ventures (HVMJV, WGMJV and MEJV). Shareholding is held equally by the owners who appoint a board of directors (“board”) for each operator co.
The respective operator co. boards appoint Operational Steering Committees and General Managers who are responsible for implementation of the operating plan as approved by the JVC as well as making recommendation to the JVC for growth and sustainability. The General Managers report to the Operational Steering Committees. The General Managers are supported by functional managers.
Capital Expenditures
Capital expenditures for continuing operations incurred for fiscal 2011 amounted to US$444 million compared with US$442 million in fiscal 2010 and US$487 million for fiscal 2009. During fiscal 2011, capital expenditure at Kusasalethu and Phakisa each accounted for 12% of the total, with expenditure at PNG and Target accounting for 11% and 14% respectively. For fiscal 2010, the capital development at PNG accounted for 16% of the total, with development at Phakisa and Kusasalethu accounting for 14% and 13%, respectively. Capital development also took place at the Doornkop South Reef Project and Tshepong Sub 71 Declines, as well as at the newly acquired President Steyn and Loraine shafts. The capital expenditure, including the non-cash portion, in fiscal 2009 was primarily related to the development of the PNG assets, which accounted for 41% of the project capital expended. The majority of this development was funded by Newcrest in terms of the farm-in agreement. Capital was also expended on the Doornkop South Reef Project, Tshepong Sub 71 Decline, as well as Phakisa and the Kusasalethu New Mine.
The focus of our capital expenditures in recent years has been underground development and plant improvement and upgrades. Construction at these projects has been completed in certain areas, and production, if not yet at full capacity, has started from these areas at all our current growth projects. Capital will still be expended at these projects in the next two to three years to complete construction. During fiscal 2011, the capital expenditure was funded from the Company’s cash reserves, as well as by the loan facility from Nedbank.
Capital expenditure for discontinued operations, incurred for fiscal 2011 and 2010 totaled US$nil, compared with US$10 million for fiscal 2009.
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We have budgeted approximately US$537 million for capital expenditures in fiscal 2012. Details regarding the capital expenditures for each operation are found in the individual mine sections under Item 4. “Information on the Company — Business — Harmony’s Mining Operations”. We currently expect that our planned operating capital expenditures will be financed from operations and new borrowings as needed.
Reserves
As at June 30, 2011, we have declared proven and probable reserves of 41.6 million ounces, broken down as follows: 39.1 million ounces in South Africa and 2.5 million ounces in PNG. Of our 41.6 million ounces of mineral reserves, 6.8 million ounces are classified as below infrastructure (that is, reserves for which capital expenditure has yet to be approved). There has been a 6.5 million ounces year-on-year negative variance in mineral reserves due to the following reasons:
| • | normal depletion of 1.5 million ounces; |
| • | mine closures and the exclusion of projects previously included in reserves (Poplar and Libra) resulted in a decrease of 4.7 million ounces; |
| • | geology and scope changes resulted in an increase of 0.9 million ounces; and |
| • | a decrease of 1.2 million ounces of mineral reserves from the exclusion of Rand Uranium (attributable interest of 40%) which has been classified as held for sale. |
We use the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (“SAMREC Code”), which sets out the internationally recognized procedures and standards for reporting of mineral resources and mineral reserves. We use the term “mineral reserves” herein, which has the same meaning as “ore reserves”, as defined in the SAMREC code. Our reporting of the PNG Mineral Reserves complies with the Australian Code for the Reporting of Mineral Resources and Mineral Reserves (“JORC”) of the Australian Institute of Mining and Metallurgy. This code is materially the same as the SAMREC Code. In reporting of reserves, we have complied with Industry Guide 7 of the U.S. Securities and Exchange Commission.
For the reporting of Mineral Reserves at our South African and PNG operations, we use a gold price of US$1,150 per ounce. An exchange rate of R7.57 per U.S. dollar is used for South Africa and for PNG an exchange rate of US$0.75 per Australian dollar is used giving a gold price of R280,000 per kilogram and A$1,133 per ounce, respectively. These gold prices have also been used in mine planning.
In order to define that portion of a measured and indicated mineral resource that can be converted to a proven and probable mineral reserve at our underground operations, we apply the concept of a cut-off grade. This is done by defining the optimal cut-off grade as the lowest grade at which an orebody can be mined such that the total profits, under a specified set of mining parameters, are maximized. The cut-off grade is determined using our Optimizer computer program which requires the following as input:
| • | the database of measured and indicated resource blocks (per operation); |
| • | an assumed gold price which, for this mineral reserve statement, was taken as R280,000 per kilogram; |
| • | planned production rates; |
| • | the mine recovery factor which is equivalent to the mine call factor (“MCF”) multiplied by the plant recovery factor; and |
| • | planned cash costs (cost per tonne). |
Rand per tonne cash costs of the mines are historically based, but take into account distinct changes in the cost environment, such as the future production profile, restructuring, right-sizing, and other cost reduction initiatives which we expect in the aggregate to lead to lower unit costs, and for below-infrastructure ounces, an estimate of capital expenditure.
The block cave reserve at Golpu (PNG) used the PCBC computer program to define the optimal mine plan and sequencing.
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The open pit reserve at Hidden Valley (PNG) is defined by a pit design based on the Whittle open pit optimization program guiding the most efficient mine design given this constraint.
See the table below in this section for the cut-off grades and cost per tonne for each operation.
The mineral reserves represent that portion of the measured and indicated resources above cut-off in the life-of-mine plan and have been estimated after consideration of the factors affecting extraction, including mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. A range of disciplines which includes geology, survey, planning, mining engineering, rock engineering, metallurgy, financial management, human resources management and environmental management have been involved at each mine in the life-of-mine planning process and the conversion of resources into reserves. The mineral flow-related modifying factors used to convert the mineral resources to mineral reserves through the life-of-mine planning process are stated for each individual operation. For these factors, historical information is used, except if there is a valid reason to do otherwise. Because of depth and rock engineering requirements, some shafts design stope support pillars into their mining layouts which accounts for approximately 7% to 10% discounting. Further discounting relates to the life-of-mine extraction to provide for unpaid and geological losses.
Our standard for narrow reef sampling with respect to both proven and probable reserve calculations for underground mining operations in South Africa is applied on a 6 meter by 6 meter grid. Average sample spacing on development ends is at 2 meter intervals in development areas. For the massive mining at the Target operations, our standard for sampling with respect to both proven and probable reserves are fan drilling with “B” sized diamond drill holes (43mm core) sited at 50 meter spaced sections along twin access drives. The Kalgold opencast operations are sampled on diamond drill and reverse circulation drill spacing of no more than 25 meters on average. Surface mining at South African operations other than Kalgold involves recovering gold from areas previously involved in mining and processing, such as metallurgical plants, waste rock dumps and tailing dams (slimes and sand) for which random sampling is used.
The PNG resources are hosted in large porphyry or related mesothermal geological systems. Data is gained through diamond drilling using PQ down to NQ sized core. The core is cut in half, one half sampled at a maximum of 2 meter intervals and the other half stored in designated core storage facilities. Drill spacing is typically on less than 20 meter centers for Measured category, 20 to 40 meter centers for the Indicated category and greater than 40 meters for Inferred category material. Assaying for gold is by fire assay and various methods are used for copper and other elements. All assays informing the resource calculation are analyzed at a National Association of Testing Authorities accredited commercial laboratory. Some sample preparation is done at the mine site laboratory. Extensive Quality Assurance/Quality Control work is undertaken and data is stored in an electronic database.
Our mining operations’ reported total proven and probable reserves as of June 30, 2011 are set out below:
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Mineral Reserves statement (Imperial) as at June 30, 2011
| OPERATIONS | PROVEN RESERVES | PROBABLE RESERVES | TOTAL RESERVES | |||||||||||||||||||||||||||||||||
| GOLD |
Tons | Grade | Gold oz(1) | Tons | Grade | Gold oz(1) | Tons | Grade | Gold oz(1) | |||||||||||||||||||||||||||
| (million) | (oz/ton) | (000) | (million) | (oz/ton) | (000) | (million) | (oz/ton) | (000) | ||||||||||||||||||||||||||||
| South Africa Underground |
||||||||||||||||||||||||||||||||||||
| Bambanani |
3.6 | 0.333 | 1,195 | 0.1 | 0.212 | 12 | 3.7 | 0.331 | 1,207 | |||||||||||||||||||||||||||
| Joel |
1.5 | 0.182 | 268 | 1.8 | 0.146 | 262 | 3.3 | 0.163 | 530 | |||||||||||||||||||||||||||
| Masimong |
5.7 | 0.159 | 905 | 1.5 | 0.158 | 245 | 7.2 | 0.159 | 1,150 | |||||||||||||||||||||||||||
| Phakisa |
1.9 | 0.221 | 421 | 19.1 | 0.248 | 4,743 | 21.0 | 0.246 | 5,164 | |||||||||||||||||||||||||||
| Target |
7.8 | 0.159 | 1,243 | 9.2 | 0.162 | 1,492 | 17.0 | 0.161 | 2,735 | |||||||||||||||||||||||||||
| Tshepong |
15.1 | 0.153 | 2,302 | 9.0 | 0.153 | 1,377 | 24.1 | 0.153 | 3,679 | |||||||||||||||||||||||||||
| Virginia (Unisel) |
2.0 | 0.139 | 285 | 1.2 | 0.130 | 149 | 3.2 | 0.136 | 434 | |||||||||||||||||||||||||||
| Doornkop |
3.1 | 0.099 | 315 | 6.4 | 0.098 | 627 | 9.5 | 0.099 | 942 | |||||||||||||||||||||||||||
| Kusasalethu |
13.8 | 0.202 | 2,790 | 23.4 | 0.187 | 4,383 | 37.2 | 0.193 | 7,173 | |||||||||||||||||||||||||||
| Evander |
2.6 | 0.219 | 571 | 1.1 | 0.226 | 252 | 3.7 | 0.221 | 823 | |||||||||||||||||||||||||||
| Evander (below infrastructure) |
— | — | — | 28.8 | 0.236 | 6,790 | 28.8 | 0.236 | 6,790 | |||||||||||||||||||||||||||
| Total South Africa Underground |
57.1 | 0.180 | 10,295 | 101.6 | 0.200 | 20,332 | 158.7 | 0.193 | 30,627 | |||||||||||||||||||||||||||
| South Africa Surface |
||||||||||||||||||||||||||||||||||||
| Kalgold |
20.5 | 0.024 | 492 | 7.8 | 0.025 | 193 | 28.3 | 0.024 | 685 | |||||||||||||||||||||||||||
| Free State Surface |
405.6 | 0.008 | 3,111 | 637.0 | 0.007 | 4,307 | 1,042.6 | 0.007 | 7,418 | |||||||||||||||||||||||||||
| Evander Surface |
— | — | — | 43.7 | 0.009 | 409 | 43.7 | 0.009 | 409 | |||||||||||||||||||||||||||
| Total South Africa Surface |
426.1 | 0.008 | 3,603 | 688.5 | 0.007 | 4,909 | 1,114.6 | 0.008 | 8,512 | |||||||||||||||||||||||||||
| Total South Africa |
483.2 | 13,898 | 790.1 | 25,241 | 1,273.3 | 39,139 | ||||||||||||||||||||||||||||||
| Papua New Guinea (2) |
||||||||||||||||||||||||||||||||||||
| Hidden Valley |
4.0 | 0.052 | 211 | 29.5 | 0.048 | 1,405 | 33.5 | 0.048 | 1,616 | |||||||||||||||||||||||||||
| Hamata |
— | — | — | 2.7 | 0.061 | 166 | 2.7 | 0.061 | 166 | |||||||||||||||||||||||||||
| Golpu |
— | — | — | 39.0 | 0.018 | 694 | 39.0 | 0.018 | 694 | |||||||||||||||||||||||||||
| Total Papua New Guinea |
4.0 | 0.052 | 211 | 71.2 | 0.032 | 2,265 | 75.2 | 0.033 | 2,476 | |||||||||||||||||||||||||||
| GRAND TOTAL |
487.2 | 14,109 | 861.3 | 27,506 | 1,348.5 | 41,615 | ||||||||||||||||||||||||||||||
In addition to the gold reserves, we also report our attributable reserves for silver, copper and molybdenum from our PNG operations. Metal prices are assumed at US$24/oz for silver, US$4.45/lb for copper and US$24/lb for molybdenum.
| SILVER |
Tons | Grade | Silver oz (1) | Tons | Grade | Silver oz (1) | Tons | Grade | Silver oz (1) | |||||||||||||||||||||||||||
| (million) | (oz/ton) | (000) | (million) | (oz/ton) | (000) | (million) | (oz/ton) | (000) | ||||||||||||||||||||||||||||
| Papua New Guinea (2) |
||||||||||||||||||||||||||||||||||||
| Hidden Valley |
4.0 | 0.853 | 3,447 | 29.5 | 1.032 | 30,457 | 33.5 | 1.010 | 33,904 | |||||||||||||||||||||||||||
| COPPER |
Tons | Grade | Cu lb (1) | Tons | Grade | Cu lb (1) | Tons | Grade | Cu lb (1) | |||||||||||||||||||||||||||
| (million) | (%) | (million) | (million) | (%) | (million) | (million) | (%) | (million) | ||||||||||||||||||||||||||||
| Papua New Guinea (2) |
||||||||||||||||||||||||||||||||||||
| Golpu |
— | — | — | 39.0 | 0.998 | 858 | 39.0 | 0.998 | 858 | |||||||||||||||||||||||||||
| MOLYBDENUM |
Tons | Grade | Mo lb (1) | Tons | Grade | Mo lb (1) | Tons | Grade | Mo lb (1) | |||||||||||||||||||||||||||
| (million) | (lb/ton) | (million) | (million) | (lb/ton) | (million) | (million) | (lb/ton) | (million) | ||||||||||||||||||||||||||||
| Papua New Guinea (2) |
||||||||||||||||||||||||||||||||||||
| Golpu |
— | — | — | 39.0 | 0.231 | 9 | 39.0 | 0.231 | 9 | |||||||||||||||||||||||||||
| URANIUM |
Tons | Grade | U3O8 lb (1) | Tons | Grade | U3O8 lb (1) | Tons | Grade | U3O8 lb (1) | |||||||||||||||||||||||||||
| (million) | (lb/ton) | (million) | (million) | (lb/ton) | (million) | (million) | (lb/ton) | (million) | ||||||||||||||||||||||||||||
| Masimong |
2.9 | 0.376 | 1 | 3.7 | 0.355 | 1 | 6.6 | 0.364 | 2 | |||||||||||||||||||||||||||
| Phakisa |
2.7 | 0.320 | 1 | 18.4 | 0.269 | 5 | 21.1 | 0.276 | 6 | |||||||||||||||||||||||||||
| Tshepong |
7.2 | 0.189 | 1 | 14.8 | 0.217 | 3 | 22.0 | 0.208 | 4 | |||||||||||||||||||||||||||
| Grand total |
12.8 | 0.259 | 3 | 36.9 | 0.257 | 9 | 49.7 | 0.257 | 12 | |||||||||||||||||||||||||||
| (1) | Metal figures are fully inclusive of all mining dilutions and gold losses, and are reported as mill delivered tons and head grades. Metallurgical recovery factors have not been applied to the reserve figures. |
| (2) | Represents Harmony’s attributable interest of 50% |
Note: 1 ton = 907 kg = 2,000 lbs
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Our methodology for determining our reserves is subject to change and is based upon estimates and assumptions made by management regarding a number of factors as noted above in this section. Cost per tonne and cut-off grade per operation is as follows.
| OPERATIONS | UNDERGROUND OPERATIONS |
SURFACE AND MASSIVE MINING |
||||||||||||||
| GOLD |
Cut-off | Cut-off | Cut-off | Cut-off | ||||||||||||
| grade (cmg/t) | cost (R/Tonne) | grade (g/t) | cost (R/Tonne) | |||||||||||||
| South Africa Underground |
||||||||||||||||
| Bambanani |
1,600 | 1,640 | — | — | ||||||||||||
| Joel |
748 | 978 | — | — | ||||||||||||
| Masimong |
942 | 1,019 | — | — | ||||||||||||
| Phakisa |
600 | 1,073 | — | — | ||||||||||||
| Target |
701 | 1,102 | 4.85 | 1,095 | ||||||||||||
| Tshepong |
650 | 1,069 | — | — | ||||||||||||
| Virginia (Unisel) |
975 | 1,000 | — | — | ||||||||||||
| Doornkop |
676 | 598 | — | — | ||||||||||||
| Kusasalethu |
782 | 1,172 | — | — | ||||||||||||
| Evander |
1,196 | 1,286 | — | — | ||||||||||||
| Evander (below infrastructure) |
600 | 688 | — | — | ||||||||||||
| South Africa Surface |
||||||||||||||||
| Kalgold |
— | — | 0.56 | 173 | ||||||||||||
| Free State Surface |
— | — | 0.125 | 25 | ||||||||||||
| Evander Surface |
— | — | 0.207 | 28 | ||||||||||||
| Cut-off | Cut-off cost | Cut-off | Cut-off cost | |||||||||||||
| %Cu | (A$/Tonne) | grade (g/t) | (A$/Tonne) | |||||||||||||
| Papua New Guinea |
||||||||||||||||
| Hidden Valley |
— | — | 0.800 | 20.4 | ||||||||||||
| Hamata |
— | — | 0.700 | 20.4 | ||||||||||||
| Golpu |
0.3 | % | 22.0 | — | — | |||||||||||
| SILVER |
Cut-off | Cut-off cost | Cut-off | Cut-off cost | ||||||||||||
| %Cu | (A$/Tonne) | grade (g/t) | (A$/Tonne) | |||||||||||||
| Papua New Guinea |
||||||||||||||||
| Hidden Valley |
— | — | 0.800 | 20.4 | ||||||||||||
| COPPER |
||||||||||||||||
| Papua New Guinea |
||||||||||||||||
| Golpu |
0.3 | % | 22.0 | — | — | |||||||||||
| MOLYBDENUM |
||||||||||||||||
| Papua New Guinea |
||||||||||||||||
| Golpu |
0.3 | % | 22.0 | — | — | |||||||||||
Notes on Cut-off:
| 1) | Surface and massive mining are stated in g/t (g/t is grams of metal per tonne of ore). |
| 2) | All SA underground operations are stated in cmg/t (cmg/t is the Reef Channel width multiplied by the g/t which indicates the gold content within the Reef Channel). |
Notes on Cut-off cost:
Cut-off cost refers to the cost in R/Tonne or A$/Tonne to mine and process a tonne of ore.
Notes on Copper:
Cut-off is stated in % Cu
Notes on Golpu:
Cut-off is based on 0.3% copper : molybdenum and gold mined as by-product.
29
Table of Contents
Worldwide Operations
Description of Property
The following is a map of our worldwide operations:
30
Table of Contents
Our operational mining areas in South Africa are set forth below:
| Hectares | Acres | |||||||
| Doornkop |
2,941 | 7,267 | ||||||
| Kusasalethu |
5,113 | 12,634 | ||||||
| Free State (includes Masimong and Virginia operations) |
22,583 | 55,802 | ||||||
| Tshepong and Phakisa |
10,799 | 26,683 | ||||||
| Bambanani |
2,356 | 5,821 | ||||||
| Joel |
2,162 | 5,342 | ||||||
| St Helena |
5,856 | 14,470 | ||||||
| Kalgold |
615 | 1,520 | ||||||
| Evander |
36,898 | 91,174 | ||||||
| Target (includes Loraine) |
7,952 | 19,649 | ||||||
| Loraine 3, 7 & 9 |
1,888 | 4,665 | ||||||
| Steyn 1 & 2 |
3,087 | 7,628 | ||||||
| Total |
102,250 | 252,656 | ||||||
In PNG, we hold tenements as set forth below:
| Hectares | Acres | |||||||
| PNG (50% - JV Interest) |
472,600 | 1,167,820 | ||||||
| PNG (Harmony exploration outside of JV) |
725,800 | 1,793,491 | ||||||
| Total International Operations |
1,198,400 | 2,961,311 | ||||||
| TOTAL |
1,300,650 | 3,213,967 | ||||||
We acquired new tenements in PNG for exploration in fiscal 2010.
In line with the rest of the South African mining industry, and in an effort to reduce costs, we have been rationalizing our mineral rights holdings in recent years. Accordingly, over the past three years, we have disposed of our shares and participation rights in areas within and outside of South Africa in which we have not actively pursued mining. However, in some cases we have retained certain participation rights and option clauses in properties and mining rights we have disposed of. We may continue to investigate further disposals.
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Geology
The major portion of our South African gold production is derived from mines located in the Witwatersrand Basin in South Africa. The Witwatersrand Basin is an elongated structure that extends approximately 300 kilometers in a northeast-southwest direction and approximately 100 kilometers in a northwest-southeast direction. It is an Archean sedimentary basin containing a six kilometer thick stratigraphic sequence consisting mainly of quartzites and shales with minor volcanic units. The majority of production is derived from auriferous placer reefs situated at different stratigraphic positions and at varying depths below the surface in three of the seven defined goldfields of the Witwatersrand Basin.
Our Hidden Valley project comprises low sulphidation carbonate-base metal-gold epithermal deposits within the Morobe Goldfield, in the Morobe Province of PNG. In the Hidden Valley project area, a batholith of Morobe Granodiorite (locally a coarse grained monzogranite) is flanked by fine metasediments of the Owen Stanley Metamorphics. Both are cut by dykes of Pliocene porphyry ranging from hornblende-biotite to feldspar-quartz porphyries. A number of commonly argillic altered and gold anomalous breccias are known, including both hydrothermal and over printing structural breccias. The Hidden Valley deposit area is dominated by a series of post Miocene faults controlling the gold mineralization, including an early north trending set and the main northwest faulting.
Our Wafi project comprises the sedimentary/volcaniclastic rocks of the Owen Stanley Formation that surround the Wafi Diatreme and host the gold mineralization. Gold mineralization occurs as extensive high-sulphidation epithermal alteration overprinting porphyry mineralization and epithermal style vein-hosted and replacement gold mineralization with associated wall-rock alteration. The Golpu Copper-Gold project is located about one kilometer northeast of the Wafi gold orebody. It is a porphyry (diorite) copper-gold deposit. The host lithology is a diorite that exhibits a typical zoned porphyry copper alteration halo together with mineralization in the surrounding metasediment. The mineralized body can be described as a porphyry copper-gold “pipe”.
Harmony’s Mining Operations
Overview
In South Africa, we conduct underground mining at 10 operations:
| • | Bambanani (includes Steyn 1 & 2 Shafts from February 2010); |
| • | Doornkop; |
| • | Evander (Evander 8 is in operation, with Evander 2 & 5 and 7 having been placed on care and maintenance during fiscal 2010); |
| • | Joel; |
| • | Kusasalethu; |
| • | Masimong; |
| • | Phakisa; |
| • | Target (consists of Target 1, and as of February 2010 Loraine 3 (now Target 3) and Freddies 7 & 9 shafts); |
| • | Tshepong; and |
| • | Virginia (at June 30, 2011, Unisel was the only operating shaft. Previously also included Harmony 2, Merriespruit 1 & 3 and Brand 3 & 5). |
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Table of Contents
An effective 60% interest in the Cooke operations (consists of Cooke 1, 2 and 3 Shafts) was sold on November 21, 2008 and the results for the five months up to that date have been included in discontinued operations for fiscal 2009.
We conduct surface mining at five sites (all included in “Other — Surface”):
| • | Evander; |
| • | Free State (also known as Phoenix); |
| • | Freegold; |
| • | Kalgold; and |
| • | Target. |
Surface mining was conducted at Randfontein’s Cooke operations up to the date of sale in fiscal 2009 and the Cooke plant has been classified as discontinued operations along with the Cooke operations.
Surface mining conducted at the South African operations other than Kalgold involves recovering gold from areas previously involved in mining and processing, such as metallurgical plants, waste rock dumps and tailings dams (slimes and sand). We are conducting studies to determine the feasibility of further retreatment projects in the Free State, including uranium extraction from material.
Internationally, we conduct mining activities in PNG at the Hidden Valley mine, which is a joint venture, known as Morobe Mining Joint Venture, between Harmony and Newcrest in which we each have a 50% interest.
We previously conducted mining at Mount Magnet in Australia which was put on care and maintenance at the end of December 2007. A decision was taken by management during May 2010 to sell the operation and in July 2010 the disposal was finalized.
Underground and surface mining was conducted at the operation, with underground access through two declines and surface access principally through open-pits.
The following discussion is a two-part presentation of our operations:
| • | an overview of our South African mining operations with a discussion and production analysis of each of our operating segments; and |
| • | an overview of our International (Australian and PNG) operations with a discussion and production analysis for each segment. We have also included a discussion on the exploration projects in the MMJV as well as for the wholly-owned projects. |
Where we have translated the Rand amount budgeted for capital expenditures in fiscal 2012 into U.S. dollars, we have used the closing rate at the balance sheet date.
33
Table of Contents
South African Mining Operations
Unless indicated otherwise, the discussions below are for continuing operations.
34
Table of Contents
Underground
Bambanani
Introduction: We acquired Bambanani when we, in January 2002, acquired the Freegold operations from AngloGold Ashanti Limited (“Anglogold”) through a 50% joint venture with African Rainbow Minerals Gold Limited (“ARMgold”). In September 2003, we acquired 100% of these operations when ARMgold became a wholly-owned subsidiary. During February 2010, we acquired President Steyn 1 & 2 Shafts in the transaction with Pamodzi FS. These shafts have been incorporated into Bambanani. These operations are located in the Free State province. Production from the operations is processed through Harmony 1 Plant.
History: Exploration, development and production history in the area of the Freegold assets dates from the early 1900’s, leading to commercial production by 1932. Subsequent consolidation and restructuring led to the formation of Free State Consolidated Gold Mine (Operations) Limited, which became a wholly-owned subsidiary of Anglogold in June 1998.
In 1998, President Steyn Gold Mine (Free State) (Proprietary) Limited (“PSGM”) was formed after purchasing shafts from various individuals. During 2002, the mine was sold to Thistle Mining Inc, an international company with interests in the Philippines and South Africa. The mine struggled to make operational profits, and Thistle undertook a restructuring program in 2006, which together with an increase in the Rand gold price resulted in positive operational cash flows. In February 2008, PSGM was purchased by Pamodzi FS. The mine was operated from that time until March 2009, when Pamodzi FS was placed into liquidation.
Geology: The operations are located in the Free State Goldfield, which is on the southwestern edge of the Witwatersrand basin. The Free State Goldfield is divided into two sections, cut by the north-south striking De Bron Fault. This major structure has a vertical displacement of about 1,500 meters in the region of Bambanani, as well as a lateral shift of 4 kilometers. Bambanani is to the west of the De Bron Fault. The reefs generally dip towards the east. Mining is conducted in the Basal reef.
Mining Operations: These operations are subject to the underground mining risks detailed in the Risk Factors section. The management teams regularly revisit their mining strategy and management procedures in order to minimize risks.
The Bambanani mine consists of a surface shaft and a sub-shaft. Mining is conducted at depths ranging from 1,911 and 3,680 meters. Activities at the mine include mining the Basal Reef and remnant pillar extraction. The primary mining challenges at these operations are seismic risks, ventilation and fire avoidance. Bambanani is classified as a seismically active operation with seismic activity monitoring systems installed to do active seismic risk evaluation. The seismic activity monitoring systems were upgraded during fiscal 2010.
Volumes in fiscal 2011 were severely affected by refrigeration constraints from September 2010 to January 2011. Following the seismic event in September, which resulted in two fatalities, we conducted a safety risk review on the remnant pillars. Mining on all remnant pillars along the major fault structure was stopped. These were very high-grade pillars, which affected the overall grade of the operation. Bambanani is preparing to mine the shaft pillar in the near future and production in the sub-shaft will therefore stop soon as the orebody in this area of the mine is almost depleted. We anticipate that the shaft pillar will be mined for around eight years from fiscal 2013.
Shaft-pillar preparation has proceeded well, with major equipping in the incline shaft set to begin in December 2011. The incline shaft is alternative infrastructure to replace the main shaft infrastructure which will be destroyed below 60 level during shaft pillar extraction. The only development left at Bambanani is capital waste meters for the shaft pillar project and follow-on development for cleaning purposes.
Mining in the decline area will end in the next six months, after which mining will take place around the high-grade shaft pillar over the next eight to ten years. Backfill will be used to minimize ground control-related risks when mining begins in the shaft pillar in 2013.
Steyn 1 consists of a main shaft and two sub-decline shafts. No mining activities have taken place at the shaft since acquisition due to an underground fire. The shaft has been placed on care and maintenance.
Steyn 2 consists of a main shaft and two sub-decline shafts. Equipping of the Steyn 2 shaft, in build-up phase, continues to improve face length flexibility. Only capital waste meters for the shaft pillar project are still outstanding.
During fiscal 2011, Bambanani accounted for 7% (9% in 2010 and 8% in 2009) of our total gold production.
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Table of Contents
Safety: Regrettably three fatalities occurred at Bambanani during fiscal 2011 (2010: one) and the lost time injury frequency rate (“LTIFR”) was reported as 10.74 per million hours worked (2010: 9.29). This is an unsatisfactory performance and more work is being done to improve safety behavior.
Plants: The ore from Bambanani, along with ore from Tshepong and Phakisa, is sent to Harmony 1 Plant for processing. This plant, which processes underground ore, waste rock and various surface accumulations, was commissioned in 1986 and is a conventional CIP plant processing ore that has been milled by fully-autogenous grinding. Gold is recovered from the eluate solution using zinc precipitation and a precoat vacuum filter. The precipitate recovered from the filter is calcined and smelted to bullion.
The following table sets forth processing capacity and average tons milled during the fiscal 2011 for the Harmony 1 Plant:
| Plant |
Processing Capacity |
Average Milled for the Fiscal Year Ended June 30, 2011 | ||
| (tons/month) | (tons/month) | |||
| Harmony 1 |
463,000 | 380,417 |
In fiscal 2011, Harmony 1 Plant recovered approximately 95.9% of the gold contained in the ore delivered for processing. The plant had three consecutive quarters with no lost time injuries during fiscal 2011.
Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Bambanani | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
470 | 582 | 570 | |||||||||
| Recovered grade (ounces/ton)(1) |
0.203 | 0.227 | 0.213 | |||||||||
| Gold produced (ounces)(1) |
98,092 | 133,007 | 121,530 | |||||||||
| Gold sold (ounces)(1) |
99,443 | 134,165 | 119,665 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
131,753 | 146,971 | 102,645 | |||||||||
| Cash cost (‘000) |
118,442 | 98,289 | 72,343 | |||||||||
| Cash profit (‘000) |
13,311 | 48,682 | 30,302 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($)(1) |
1,247 | 723 | 611 | |||||||||
| Capex (‘000) ($) |
45,884 | 27,300 | 5,779 | |||||||||
| (1) | 2,894 ounces (2010: 1,061) were produced by Steyn 2 and sold. The revenue has been credited against capital expenditure as the shaft is not in production yet. The cost of these ounces has not been included in the cash cost per ounce amount. The calculation of grade also excludes these ounces. |
Tons milled from Bambanani increased to 582,000 in fiscal 2010 compared with 570,000 in fiscal 2009. Ounces produced were 133,007 in fiscal 2010 compared with 121,530 in fiscal 2009. This increase was due to better recovered grade, which increased by 0.014 ounces per ton compared to fiscal 2009.
Cash costs per ounce for Bambanani were US$723 in fiscal 2010, compared with US$611 in fiscal 2009. The costs per ounce increased by 18% in fiscal 2010 compared with fiscal 2009, due to increases in the costs of labor and supplies, combined with the increase in power and water costs year on year of 37% (utility costs comprise approximately 22% of cash costs).
Tons milled from Bambanani decreased from 582,000 in fiscal 2010 to 470,000 in fiscal 2011. Ounces produced were 98,092 in fiscal 2011 compared with 133,007 in fiscal 2010. Grade decreased by 11% to 0.203 ounces per ton in fiscal 2011, which together with the production constraints during the first half of the year and the cessation of mining on the remnant pillars contributed to the lower production.
Cash costs per ounce for Bambanani were US$1,247 in fiscal 2011, compared with US$723 in fiscal 2010. The costs per ounce increased by 72% in fiscal 2011 compared with fiscal 2010. This was mainly due to a 26% increase in the cost of electricity, which now constitutes 28% of the total operational cost. Also contributing was an increase in labor cost, which reflects the annual salary increases of 7.5% as well as an increase in the average staff complement of 278.
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The rock hoisting capacity at Bambanani is 116,000 tons per month. The average tons milled in fiscal 2011 were 39,200 tons per month where we planned 54,500 tons per month for fiscal 2011.
Assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable mineral reserves of 3.7 million tons (1.2 million ounces) will be sufficient for Bambanani to maintain underground production until approximately 2020. Any future changes to the assumptions upon which the mineral reserves are based, as well as any unforeseen events affecting production levels, could have a material effect on the expected period of future operations.
Capital Expenditure: Bambanani incurred approximately R321 million (US$45.9 million) in capital expenditure in fiscal 2011, primarily to extract the shaft pillar and to equip the Steyn operations (R162 million (US$23.2 million). We budgeted R244 million (US$36.1 million) for capital expenditure in fiscal 2012, primarily for the access development for the shaft pillar extraction and the Steyn operations (R61 million (US$8.9 million)).
Doornkop
Introduction: Doornkop is located in the Gauteng Province of South Africa, approximately thirty kilometers west of Johannesburg. The operation is owned by Randfontein Estates Limited (“Randfontein”). Doornkop currently operates under its own mining authorization of 2,941 hectares. Production is treated at the Doornkop plant.
History: Harmony acquired this operation when it took over Randfontein in 2000.
Geology: These operations are situated in the West Rand Goldfield of the Witwatersrand Basin, the structure of which is dominated by the Witpoortjie and Panvlakte Horst blocks, which are superimposed over broad folding associated with the southeast plunging West Rand Syncline.
The Doornkop operation lease area is bounded by and lies to the south-east of the major north-easterly striking Roodepoort Fault, which dips to the south and constitutes the southern edge of the Witpoortjie Horst Block or Gap. This Horst Block is comprised of the stratigraphically older sediments of the West Rand Group, the overlying Central Rand Group sediments having been removed by erosion. A number of other faults, forming part of and lying southeast of the Roodepoort Fault, including the Saxon Fault, also constitute conspicuous structural breaks. A second major fault, the Doornkop Fault, which trends in an east west direction, occurs towards the southern portion of the lease area. This fault dips to the south and has an up-throw to the north. Nearly the entire upper Witwatersrand section is present in the lease area and therefore all the major zones are present, though due to the distance of the area from the fan head, the number of economic bands and their payability is limited. Eight of the well-known reefs are present in the area, but only the Kimberley Reef and South Reef are considered viable at this stage. The resource is concentrated in the Kimberley and South Reefs. The Kimberley Reef is contained in the Vlakfontein Member of the Westonaria Formation. This reef, also known as the K9 Reef horizon, rests on an unconformity and is a complex multi-pulse conglomerate, which can be separated into four facies or cycles. All four cycles consist on average of an upper conglomerate and a lower quartzite. The characteristics of every cycle are area-dependent and the grades are variable within each cycle. The South Reef is approximately 900 meters below the current Kimberley Reef mining, and between 7.5 and 60 meters above the Main Reef horizon. The hanging wall to the South Reef consists of siliceous quartzites with non-persistent bands of “blue-shot” grit and thin argillite partings. The footwall to the South Reef is a light colored and fairly siliceous quartzite. Secondary conglomerate bands and stringers in the hanging wall and footwall of the South Reef may contain sporadic gold values. The general strike of the reef is east-west, with a dip from 10 to 20 degrees. The orebody at Doornkop has a strike length of 4km and a width of 4km from west to east.
During fiscal 2011, the gathering of additional geological information from on-reef development and exploration drilling on the South Reef resulted in an increase in confidence to successfully build up maximum production. The geological, depositional, facies & evaluation models receive regular attention and are being expanded as the new data becomes available. A 3-D geological model was developed for the mine. This model incorporates the Kimberley, South & Main Reefs.
Mining Operations: These operations are subject to the underground mining risks detailed in the Risk Factors section. Due to the shallow to moderate depths of the operations, seismicity and high rock stress related problems are infrequent. There is a risk of subterranean water and/or gas intersections in some areas of the mines. However, this risk is mitigated by active and continuous management and monitoring, which includes the drilling of boreholes in advance of faces. Where water and/or gas are indicated in the drilling, appropriate preventative action is taken.
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The Doornkop South Reef Project was announced on January 22, 2003. The project involved the deepening of the Doornkop main shaft to 1,973 meters to access the South Reef between 1,650 and 2,000 meters below surface, and includes development towards these mining areas. The estimated final capital cost is R1,793 million (US$264.5 million) with R1,606 million (US$236.9 million) spent as of June 30, 2011.
The massive improvement in year-on-year production at Doornkop reflects the production build-up on the South Reef and introduction of new trackless machinery on the Kimberley Reef during the year. The transfer of an additional 13 production crews from the closed Merriespruit 1 shaft in the December 2010 quarter supported build-up on the South Reef and preserved the jobs of employees affected by restructuring.
Tons mined from the South Reef areas accounted for 58% of total tons mined in fiscal 2011 — up from 50% the year before — while the contribution from the Kimberley Reef declined from 50% to 42%. Overall results were affected by plant constraints in the third quarter, particularly a breakdown in the thickener. A project to optimize equipment availability and the beneficiation process in the plant was launched in the final quarter of fiscal 2011, with phase 1 scheduled for completion by March 2012. The project is focused on installing or replacing equipment to minimize downtime in the plant and optimize gold recovery.
In addition, the surface rock winder was commissioned and fully automated during the year to give the shaft more flexibility to hoist rock available from underground. The conveyor belts on 212 level were commissioned and are now fully automated, and a second settler on 205 level has been commissioned. All locomotives have been fitted with anti-collision systems, enhancing safety and preventing accidents or damage to railbound equipment. The smart rail system on 192 level was installed and fully commissioned, improving ore accounting on that level. This will be rolled out to other levels in fiscal 2012.
Development meters increased by 44% or 3,868 meters from the previous year to ensure build-up in the South Reef project is achieved and targets are met. As more mining takes place on the South Reef, the level of confidence on the geology of this reef improves. Few surprises were encountered during the year in terms of geology. The exploration program to further improve confidence will continue. The conversion of the South Reef resource to reserves continued, with an increase of 236,000 ounces of gold (75%) and 1,198,619 tons (51%).
A business case conducted during the year indicated that the Kimberley Reef can add economic benefit to the operation over the life-of-mine and not only for four years as initially anticipated. The Kimberley Reef has therefore been planned over the total life-of-mine and will contribute 12% of total gold produced over that period.
During fiscal 2011, Doornkop accounted for 6% (5% in 2010 and 3% in 2009) of our total gold production.
Safety: The safety record at Doornkop during fiscal 2011 was as follows: LTFR deteriorated to 8.04 (2010: 5.50) per million hours worked. There were no fatalities at Doornkop during fiscal 2011 (2010: two). The mine achieved 1 million fatality-free shifts and 4 million fall-of-ground/fatality-free shifts during the year. The increased focus on safety has streamlined procedures and improved training, maintenance and behaviour. The fall-of-ground initiative being piloted at Doornkop and Kusasalethu has produced encouraging results, particularly from netting development sections.
Plants: The processing facilities presently comprise one operating plant, the Doornkop metallurgical plant. The Doornkop metallurgical plant, commissioned in 1985, is a conventional CIP plant, which was used to treat waste rock and other surface accumulations. It is now treating all ore from underground mining at the Doornkop and some of the ore from Rand Uranium’s Cooke operations. The plant is serviced by a surface rail network from the Cooke shafts and by a conveyor belt configuration system from Doornkop shaft.
The following table sets forth processing capacity and average tons milled during fiscal 2011 for the Doornkop plant:
| Plant |
Processing Capacity |
Average Milled for the Fiscal Year Ended June 30, 2011 | ||
| (tons/month) | (tons/month) | |||
| Doornkop |
242,500 | 149,070 |
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In fiscal 2011, the Doornkop plant recovered approximately 94.2% of the gold contained in the ore delivered for processing. During fiscal 2010 a split-stream configuration that isolates the Doornkop ore from the Rand Uranium ore was adopted to improve the accuracy of gold accounting to the respective companies.
Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Doornkop | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
792 | 595 | 605 | |||||||||
| Recovered grade (ounces/ton) |
0.102 | 0.105 | 0.070 | |||||||||
| Gold produced (ounces) |
80,763 | 62,694 | 42,150 | |||||||||
| Gold sold (ounces) |
81,149 | 62,275 | 43,211 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
111,759 | 68,169 | 38,128 | |||||||||
| Cash cost (‘000) |
85,999 | 54,042 | 31,253 | |||||||||
| Cash profit (‘000) |
25,760 | 14,127 | 6,875 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($) |
1,054 | 822 | 804 | |||||||||
| Capex (‘000) ($) |
41,782 | 45,097 | 43,918 | |||||||||
Tons milled from Doornkop were 595,000 in fiscal 2010, compared with 605,000 in fiscal 2009. Although throughput remained flat, the higher grade South Reef made up a much larger portion of total ore milled than in fiscal 2009. This change in the mix of milled tons resulted in an increase in recovered grade to 0.105 in fiscal 2010, compared with 0.070 in fiscal 2009. Ounces produced were 62,694 in fiscal 2010, compared with 42,150 in fiscal 2009.
Production from trackless areas in the Kimberley Reef section will continue through the build-up phase of mining from the South Reef project areas.
Cash costs per ounce of gold were US$822 in fiscal 2010, compared with US$804 in fiscal 2009. This increase was mainly from labor, services and consumables costs. Labor costs increased due to an increase in labor to cater for the new South Reef production levels and from annual wage increases. Consumable costs increased as a result of the South Reef production build-up where additional square meters were mined. In addition, significant increases in power cost (35%) were incurred, measured against fiscal 2009.
Tons milled from Doornkop were 792,000 in fiscal 2011, compared with 595,000 in fiscal 2010. This was due to the production build-up in the South Reef and the introduction of new trackless machinery on the Kimberley Reef during the year. Recovered grade deteriorated slightly from 0.105 ounces per ton in fiscal 2010 to 0.102 in fiscal 2011. This was due to the decrease of the grade in the South Reef, which was offset by the increase in grade recovered from the Kimberley Reef. Ounces produced increased from 62, 694 in fiscal 2010 to 80,763 in fiscal 2011, reflecting the production build-up of the South Reef.
Revenue received increased from US$68.2 million in fiscal 2010 to US$111.8 million in fiscal 2011 as a result of the increase in ounce produced and the higher gold price received. Cash costs per ounce were 28% higher at US$1,054/oz, mainly due to the increase in production. Also contributing was the annual increase in labor rates of 7.5% and the 25% increase in electricity costs.
The hoisting capacity of the Doornkop shaft is 185,000 tons per month. The average tons milled in fiscal 2011 were 66,000 tons per month.
On a simplistic basis, assuming no additional resources are identified, at expected production levels, it is foreseen that: the reported proven and probable mineral reserve of 9.5 million tons (0.9 million ounces) will be sufficient for the Doornkop shaft to maintain production until approximately fiscal 2025.
Capital Expenditure: Harmony incurred R292 million (US$41.8 million) in capital expenditure in fiscal 2011 at Doornkop, primarily for the South Reef project (44%) and ongoing capital development (37%). The planned capital expenditure for fiscal 2012 is R291 million (US$42.9 million) for the Doornkop South Reef project and ongoing capital development.
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Evander Operations
Introduction: The Evander operations are located in the province of Mpumalanga in South Africa and comprise an amalgamation of the former Kinross, Bracken, Leslie and Winkelhaak mines into a mining right of 36,898 hectares, and additional adjacent prospecting rights comprising 19,933 hectares. Ore is treated at the Kinross plant, after the closure of the Winkelhaak plant.
History: Gold mining in the Evander Basin began in 1955. Eventually, four mining operations were established at Evander. In 1996, as a result of the depletion of mineral reserves, all four mining areas were merged to form Evander Gold Mines Limited. In August 1998, Harmony acquired Evander as a wholly-owned subsidiary.
Geology: The area covered by Evander’s mining authorization and mineral rights is situated within the Evander basin, a geologically discrete easterly extension of the main Witwatersrand Basin. Only one economic reef type, the Kimberley Reef, is mined at Evander. In addition to the faulting of the reef horizon, there are numerous dykes and sills that complicate the mining layouts, the most significant of which is an extensively developed dolerite footwall sill that occasionally intersects the Kimberley Reef, causing displacements within it.
Mining Operations: The Evander operations are primarily engaged in underground mining but a limited amount of surface material, containing gold, from the surface cleanup operations are also processed. These operations are subject to the underground mining risks detailed in the Risk Factors section. Due to the shallow to moderate depths of the Evander underground operations, seismicity and high rock stress related problems are relatively infrequent. There is a risk of subterranean water and/or gas intersections in some areas of the mine. However, this risk is mitigated by active and continuous management and monitoring, which includes the drilling of boreholes in advance of faces. Where water and/or gas are indicated in the drilling, appropriate preventative action is taken.
A due diligence of the operations during fiscal 2010 led to the conclusion that the only economically viable shaft was Evander 8. Mining operations at Evander 2 and 5 and 7 shafts ceased during the year and Evander 8 was restructured. This restructuring included the cessation of Conops, or continuous operations, in the decline section at Evander 8. The production in this section had been constrained by ventilation issues, which resulted in lower than expected production. This resulted in the decision to stop Conops as the benefit of production did not outweigh the cost of running the shaft for the extended period, as well as the effect of limited time for maintenance work on the shaft. The personnel from this area were redeployed to other areas where positions needed to be filled as a result of natural attrition. The impact on the results has been insignificant. The shaft infrastructure at Evander 7 is being utilised by Evander 8 for the pumping of water and the hoisting of rock as well as being available for use as a second escape. High temperatures underground, caused by ventilation return capacity restrictions at Evander 8 remained problematic and hampered production during the first half of fiscal 2011.
Following the feasibility study that proved the viability of Evander 8, greater attention was given to re-engineering this shaft which involves not just deepening the decline but repositioning within the payshoot for immediate access to the high-grade areas between 24 and 25 levels. The project’s parameters include the optimizing of logistics, cooling and ventilation as well as an upgrade of the refrigeration plant. The results of these initiatives started to materialize in the last quarter of fiscal 2011. During the June 2011 quarter, more mining crews were moved into the main payshoot of the decline section, where the grade is higher.
During fiscal 2011, the chilled water project was completed. This now pumps cold water from the 7 shaft refrigeration plant to 8 shaft, significantly reducing the heat load in the decline section and improving underground environmental conditions. In addition, much work went into electricity savings through load control on the compressors, and controlling the Winkelhaak water via 8 shaft. An external belting company was contracted for repairs and maintenance to conveyors on the decline, considerably reducing the number of conveyor belt breakdowns.
Ongoing improvements to ventilation at Evander will include a new raise borehole between 17 and 21 levels, more return airways and the installation of a second refrigeration plant at 18 level. This will improve both temperature and air quality, and enable Evander to operate to 25 level using the same ventilation infrastructure.
Following the closure of the Evander 2 and 5 shafts as well as the Winkelhaak plant, a short-term clean-up program commenced during fiscal 2010 at and in the vicinity of the plant. The aim of this program is to clean up any metal contained in the plant footprints, to process rock from the rock dumps in the vicinity, to rehabilitate the Winkelhaak plant, and to clean the surface rail network. In fiscal 2011, approximately 320,000 tons were treated via this program, yielding 13,889 ounces of gold. Benefits from this program are expected to contribute to Evander’s results for another year.
Potential exists at several areas in Evander:
Twistdraai and Shaft 6
| • | Joint Venture with the African Precious Minerals (“APM”) was formed to explore these two target areas. |
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| • | APM may earn in a 52% equity stake upon completion of the full bankable feasibility study for each area. |
| • | A conceptual study was completed and approval given during fiscal 2010 for the project to proceed to pre-feasibility. |
| • | Surface drilling commenced in fiscal 2011. |
| • | We entered into an agreement with Taung Gold Mining Limited for the sale of these assets during September 2010. Certain conditions precedent to the agreement still need to be fulfilled. |
Poplar
| • | Surface drilling was started in fiscal 2010 and involved drilling 25 holes (19,500 meters). |
| • | Results from the drilling were used to update the resource model. |
| • | Additional drilling is required, particularly in the south where good grades were returned and the reef is closest to the surface. |
| • | New scoping study to commence based on the updated model. |
Rolspruit
| • | This is a future mining area on the down-dip extension of the 8 shaft payshoot. |
| • | The resource model was updated at the same time as the Poplar model was updated. |
| • | A pre-feasibility study has been commissioned and is due for completion in fiscal 2012. |
Project Libra
| • | This is a planned surface retreatment project being considered near Evander, based on an extensive drilling program. |
| • | Results from drilling conducted on the Kinross, Winkelhaak and Bracken/Leslie tailings dams indicate a viable business case could be made for such a project. |
| • | In fiscal 2011, an initial pre-feasibility study was completed on a mini-retreatment (mini-Libra, lower-tonnage option (220,000 tons per month), using the spare capacity at the Kinross plant. Indications are that this option could be implemented at a much lower cost than the larger Libra project. |
| • | A feasibility study was completed in June 2011. Results confirmed a project with ten year life (this is constrained to the present Evander underground life-of-mine but could be extended to 18 years on its own) and that would require R152 million (US$22.4 million) in capital funding. If approved, mini-Libra would require a 12-month construction period. |
| • | Estimates are that mini-Libra could yield 12,800 ounces per annum at peak production over the ten-year duration of the operation |
In fiscal 2011, the Evander operations accounted for approximately 6% (8% in fiscal 2010 and 12% in fiscal 2009) of Harmony’s total gold production.
Safety: The behavior-based safety initiatives at the Evander operations produced significant results in fiscal 2011, with an improvement in terms of LTIFR from 7.41 per million hours worked in fiscal 2010 to 3.72 during fiscal 2011. There were no fatalities at Evander during fiscal 2011 (2010: two fatalities).
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Plants: Evander has one active processing plant, the Kinross plant. Ore from Evander 8 is hoisted directly to and treated at the Kinross plant, which is a hybrid CIP/CIL plant.
The following table sets forth processing capacity and average tons milled during fiscal 2011 for the operating plant:
| Plant |
Processing Capacity |
Average Milled for the Fiscal Year Ended June 30, 2011 | ||
| (tons/month) | (tons/month) | |||
| Kinross |
220,460 | 69,235 |
In fiscal 2011, the Kinross plant recovered approximately 93.5% of the gold contained in the ore delivered for processing.
Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Evander operations | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
596 | 869 | 1,241 | |||||||||
| Recovered grade (ounces/ton) |
0.124 | 0.129 | 0.153 | |||||||||
| Gold produced (ounces) |
74,011 | 111,724 | 190,075 | |||||||||
| Gold sold (ounces) |
74,655 | 111,499 | 195,668 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
102,611 | 120,092 | 168,180 | |||||||||
| Cash cost (‘000) |
89,009 | 113,327 | 110,869 | |||||||||
| Cash profit (‘000) |
13,602 | 6,765 | 57,311 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($) |
1,186 | 1,018 | 572 | |||||||||
| Capex (‘000) ($) |
28,102 | 23,100 | 23,352 | |||||||||
Tons milled at the Evander operations were 869,000 in fiscal 2010, compared with 1,241,000 in fiscal 2009, and ounces produced 111,724 in fiscal 2010 compared with 190,075 in fiscal 2009. The decrease in tons milled is predominantly attributable to the closure of Evander 2 & 5 and 7 Shafts. Recovered grade was 0.129 ounces per ton in fiscal 2010, compared with 0.153 in fiscal 2009.
The increase in cash costs from US$572 per ounce in fiscal 2009 to US$1,018 per ounce in fiscal 2010 was attributable primarily to the decrease in gold ounces produced in fiscal 2010 compared to fiscal 2009 due to the closure of Evander 2 & 5 and 7.
Tons milled at Evander during fiscal 2011 were 596,000, compared with 869,000 in fiscal 2010. Ounces produced amounted to 74,011 in fiscal 2011, a decrease of 34% from fiscal 2010. These decreases are primarily as a result of the closure of Evander 2 & 5 and 7 shafts during fiscal 2010 and the lower production from Evander 8 due to the ventilation constraints in the decline shaft. A decrease in the grade year on year also contributed to the decrease in ounces produced.
Revenue decreased from US$120.1 million in fiscal 2010 to US$102.6 million in fiscal 2011 as a result of the decrease in ounces produced. This was offset by the higher average gold price received. The increase in cash costs per ounce of 17% is due to the lower production of 34%, annual labor rate increases of 7.5% and the 25% increase in electricity tariffs.
Assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable mineral reserves of 3.7 million tons (0.8 million ounces) (excluding the below infrastructure reserves) will be sufficient for the Evander operations to maintain production until approximately fiscal 2022 at Evander 8. Any future changes to the assumptions upon which the reserves are based, as well as any unforeseen events affecting production levels, could have a material effect on the expected period of future operations.
Capital Expenditure: Harmony incurred approximately R196 million (US$28.1 million) in capital expenditures at the Evander operations in fiscal 2011. The expenditure was primarily for the re-engineering project at Evander 8 as well as ongoing development. Harmony budgeted R167 million (US$24.6 million) for capital expenditures in fiscal 2012 primarily for the upgrading of major equipment, ongoing development and the 8 shaft deepening project.
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Joel
Introduction: Joel is located in the Free State province, on the south-western edge of the Witwatersrand basin. The mine comprises of two shafts, North and South shafts. Previously ore mined at Joel was transported to Central Plant, 38 kilometers away, for processing, but since the recommissioning of the Joel plant in November 2009, the ore is now processed on site.
History: Joel was purchased from a subsidiary of AngloGold at the same time as the rest of the Freegold assets in January 2002.
Geology: Joel is mining the shallow flat-dipping Beatrix/VS5 Reef. This varies from a single-pebble lag to a multiple conglomerate, often showing mixing of the reef with some of the overlying lower grade VS5 (mixed pebble conglomerate) material. None of the other reefs are present this far south, having sub-cropped against the Beatrix Reef.
Mining operations: These operations are subject to the underground mining risks detailed in the Risk Factors section.
Scattered mining takes place on the Beatrix Reef, down to a depth of some 1,400 meters. Upgrading of the infrastructure at North Shaft is currently in progress.
While production at Joel has progressively moved to the deeper portions of the mine, some 1,400 meters below surface, the North Shaft, which accesses these areas, was never fully equipped for this and adjustments to the shaft spillage arrangements are now being made retrospectively. The modifications being made include:
| • | changing the winder from sinking to production mode; |
| • | installing larger skips; |
| • | ensuring that emergency egress is available; |
| • | raise boring the lift shaft from 121 to 129 level; and |
| • | improving cleaning arrangements at the shaft bottom. |
After excessive spillage at the bottom of North shaft at the end of the prior year, which cost Joel 43 production days in the first quarter of fiscal 2011, the shaft bottom rehabilitation process was completed in 50 days (rather than the planned 59 days) with production resuming in September 2010. A permanent spillage arrangement (spillage skip) was installed by December 2010.
Performance was hampered mid-year as the higher grades on 129 level could not be accessed until the lift shaft was commissioned. The lift shaft is an integral part of the logistics of mining at Joel, and was only equipped to 121 level. To facilitate future production for mining below 121 level, we decided to ream and equip the lift shaft to 129 level. A sub-level was developed on 121 level for access to the conveyance only, giving us time to equip the raise bore shaft to 129 level. Equipping of the lift shaft was completed at the end of June 2011.
The mining support design has changed with the shaft changing from shallow to intermediate depth. This will impact on the face advance as well as the costs per square meter. The face time and tramming time will decrease in fiscal 2012 with the completion of the lift shaft and mining raises being concentrated closer to the lift shaft.
To ensure production targets are met, plans are in place to ensure the operability of North shaft through a planned maintenance program to minimize breakdowns, maintain blast advances and assess the feasibility of mining below 129 level. Supported by a successful drilling program in 2009 and pre-feasibility study in 2010, a feasibility study on possible mining of 137 level and testing the upside potential of 145 level was completed by the end of the fiscal 2011.
During fiscal 2011, Joel accounted for 4% of our total gold production (5% in fiscal 2010 and 4% in fiscal 2009).
Safety: Safety at Joel improved during fiscal 2011 with the LTIFR at Joel improving from 4.26 per million hours worked in fiscal 2010 to 2.05 in fiscal 2011. There was tragically one fatality during fiscal 2011 (2010: one).
Plants: The Joel plant is a hybrid CIP/CIL plant and was commissioned in 1987. During fiscal 2005, it was decided to close the Joel Plant and place the plant under care and maintenance. Joel Plant was re-commissioned in November 2009 and during fiscal 2011 the plant processed an average of 72,282 tons per month with two mills. This comprised 53% surface sources (which included waste and Virginia plant clean-up) and 47% reef. The current monthly capacity is 88,185 tons of rock.
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The following table sets forth processing capacity and average tons milled during fiscal 2011 for the operating plant:
| Plant |
Processing Capacity |
Average Milled for the Fiscal Year Ended June 30, 2011 | ||
| (tons/month) | (tons/month) | |||
| Joel Plant |
88,185 | 72,282 |
In fiscal 2011, the Joel Plant operations recovered approximately 90.5% of the gold ore delivered for processing.
Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Joel | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
448 | 484 | 566 | |||||||||
| Recovered grade (ounces/ton) |
0.104 | 0.133 | 0.116 | |||||||||
| Gold produced (ounces) |
46,586 | 64,495 | 65,684 | |||||||||
| Gold sold (ounces) |
46,618 | 63,788 | 64,784 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
64,928 | 69,150 | 55,862 | |||||||||
| Cash cost (‘000) |
59,690 | 50,017 | 40,649 | |||||||||
| Cash profit (‘000) |
5,238 | 19,133 | 15,213 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($) |
1,297 | 792 | 636 | |||||||||
| Capex (‘000) ($) |
10,461 | 11,587 | 6,183 | |||||||||
The decrease in tons milled from 566,000 in fiscal 2009 to 484,000 in fiscal 2010 is mainly due to the lift shaft between 110 level and 121 level being stopped as a project was initiated to deepen this shaft from 121 level down to 129 level to enable the mining of 129 level. This entailed raising a borehole from 129 level to 121 level. This extension was then equipped, resulting in all men and material having to travel down raise lines, which slowed the delivery of material to the working places and also impacted on stoping and development crews’ face time. This also resulted in a decrease in square meters from 83,413 in fiscal 2009 to 78,229 in fiscal 2010.
The increase in cash costs for Joel from US$40.6 million in fiscal 2009 to US$50.0 million in fiscal 2010 is due to wage and salary increases granted. Development labor also increased as development meters increased from 3,554 meters in 2009 to 4,537 meters in 2010. Development costs were also severely impacted by costs to contain excessive fissure water encountered during development of level 129. Also impacting on costs was a substantial increase of 32% in electricity rates.
Cash costs per ounce were US$792 in fiscal 2010, compared with US$636 in fiscal 2009. This decrease was primarily attributable to the increase in costs as discussed above, and the reduction in ounces recovered due to the drop in tonnage due to closure of the lift shaft.
Tons decreased from 484,000 in fiscal 2010 to 448,000 in fiscal 2011. Grade decreased by 22% to 0.104 ounces per ton and ounces produced decreased from 64,495 to 46,586 in fiscal 2011. The decreases in production were as a result of the shaft stoppage in July and August 2010 and the process of equipping the lift shaft, which was completed by the end of fiscal 2011.
Revenue decreased by 6% to US$64.9 million in fiscal 2011, despite the increase in the gold price year on year. Cash costs per ounce increased by 64% in fiscal 2011, primarily as a result of the decrease in ounce produced. Also contributing was the increase in electricity tariffs of 25%.
The rock hoisting capacity at Joel is 50,000 tons per month. The average tons milled in fiscal 2011 was 37,333 tons per month.
Assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable mineral reserves of 3.3 million tons (0.5 million ounces) will be sufficient for Joel to maintain underground production until
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approximately 2018. Any future changes to the assumptions upon which the mineral reserves are based, as well as any unforeseen events affecting production levels, could have a material effect on the expected period of future operations.
Capital Expenditure: We incurred R73 million (US$10.5 million) in capital expenditures at Joel in fiscal 2011 on deepening the lift shaft from 121 level to 129, to enable mining on 129 level and to equip it and the spillage skip at North Shaft. Capital budgeted for fiscal 2012 is R52 million (US$7.7 million), primarily for ongoing capital development.
Kusasalethu
Introduction: Kusasalethu is located near Carletonville on the Gauteng/North West border in South Africa. The assets and associated liabilities were purchased during fiscal 2001 for approximately R1 billion (US$128.4 million) from Anglogold. Ore from the operation is treated at the Kusasalethu plant.
History: Gold mining began at Kusasalethu in 1978 following approval of the project in 1974 by Elandsrand Gold Mining Company. Two surface shafts and two adjoining sub-vertical shafts were sunk at Elandsrand. The sub-vertical shafts at Elandsrand, which accessed the deeper part of the VCR reef in the lease area, were completed in 1984. The deepening of the sub-vertical shafts to approximately 3,600 meters below surface has been completed after the deepening project was commissioned in 1991. Activities are currently focused on accessing and opening up areas of the new mine and on the development and construction of support infrastructure.
Geology: At Kusasalethu we primarily exploit the Ventersdorp Contact Reef, or VCR, the Carbon Leader Reef, or CLR and the Elsburg Reef. Only the VCR is economic to mine and has been mined at depths below surface between 1,600 and 3,400 meters with future production to take place up to 3,600 meters below surface at the Kusasalethu operations. The VCR consists of a narrow (20 centimeters to 2 meters) tabular orebody of quartz pebble conglomerates hosting gold, with extreme lateral continuity. The VCR strikes east-northeast and has a regional dip of 21 degrees to the south-southeast. Local variations in dip are largely due to the terrace-and-slope palaeotopography surface developed during VCR deposition.
Mining Operations: The Kusasalethu mine is subject to the underground mining risks detailed in the Risk Factors section.
The Kusasalethu mine has the challenge of developing a new mine underneath the original mine after the shaft was deepened to access the deeper part of the VCR orebody. The operation is still hampered by the lack of flexibility, an issue that will be addressed by the full commissioning of the new mine. Due to the operating depths of the Kusasalethu underground operations, seismicity and high rock stress are significant risks at the mine. Steps were taken during fiscal 2010 to improve the quality of the pre-conditioning at the stope face and seismic management systems so as to reduce the possibility of face ejection during small, volatile seismic events.
Planned build-up at Kusasalethu during fiscal 2011 was hampered by an accident that caused one fatality, damaged the hoisting shaft and therefore constrained hoisting ore to surface. The subsequent implementation of more stringent controls improved production in the remainder of the year.
The largely completed deepening project has extended the sub-vertical shafts, accessing the Ventersdorp Contact Reef up to 3,388 meters below collar. Remaining project work is focused on extending the service shaft to 113 level, completing the refrigeration complex at 100 level and commissioning the 92 level turbine complex.
In terms of grades, Kusasalethu has now reached an area of localized enrichment although the higher grade was diluted by waste being hoisted with reef and delivered to the plant. A decision to rehabilitate the shaft orepass system after major scaling took place inside these excavations resulted in only one orepass system being available for production. Estimates are that the rehabilitation work will take around two years to complete.
The sub-station for the 100-level refrigeration complex and 98-level complex was commissioned early in the year, and mechanical construction work on the refrigeration plants was completed by year end. Sinking was completed to 113 level from 109 level during the year. The mechanical installation of the turbine on 92 level was completed in March 2011.
Other engineering initiatives include greater use of thermal scanning to detect potential ‘hot connections’ on electrical panels, protection relays to prevent power outages and a central monitoring system for all pumps. Rotational dam cleaning has eliminated the
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risk of silting, which has compromised dam capacity in the past and constrained pumping. Additional instrumentation has been installed on all large dams to monitor their levels and prevent mud from being drawn into the valves, causing production delays.
These and other initiatives are expected to improve productivity. Currently, 70% of production at Kusasalethu is from production areas below 100 level (the new mine expansion project) and 30% from production areas in the old mine, above 100 level.
In fiscal 2011, our Kusasalethu operations accounted for approximately 14% (12% in 2010 and 11% in fiscal 2009) of our total gold production.
Safety: The focus on creating a safe working environment at Kusasalethu continued to add value, with the mine recording 1 million fatality-free shifts during fiscal 2011. Regrettably there were two fatalities after this achievement (2010: two). The LTIFR regressed to 7.74 per million hours worked (2010: 6.88).
Seismicity remains a risk and management continues to focus on improving the quality of pre-conditioning at the stope face to reduce the risk presented by small, but damaging, seismic events.
Plants: Commissioned in 1978, the Kusasalethu Plant consist of milling in closed circuit with primary and secondary hydrocyclones, thickening and cyanide leaching in a CIP pump cell carousel circuit. The CIP was commissioned after an upgrade of the facility in 1999. Ore from Kusasalethu underground operations is delivered to the plant for treatment via conveyor belt after being hoisted from underground. Loaded carbon from the Kusasalethu Plant is transported by road to the Kinross Plant for elution, electro-winning and smelting to produce gold. Residues from the CIP are pumped either to a backfill plant or directly to the tailings facility.
The following table sets forth processing capacity and average tons milled during fiscal 2011 for the plant:
| Plant |
Processing Capacity |
Average Milled for the Fiscal Year June 30, 2011 | ||
| (tons/month) | (tons/month) | |||
| Kusasalethu Plant |
203,925(1) | 103,174 |
| (1) | Processing capacity will reach its optimal capacity upon completion of the Kusasalethu New Mine Project. |
In fiscal 2011, the Kusasalethu Plant recovered approximately 96.0% of the gold contained in the ore delivered for processing.
Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Kusasalethu | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
1,212 | 1,141 | 1,061 | |||||||||
| Recovered grade (ounces/ton) |
0.149 | 0.153 | 0.164 | |||||||||
| Gold produced (ounces) |
180,334 | 175,029 | 174,321 | |||||||||
| Gold sold (ounces) |
185,510 | 168,244 | 183,676 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
253,812 | 183,603 | 157,956 | |||||||||
| Cash cost (‘000) |
189,090 | 143,985 | 117,321 | |||||||||
| Cash profit (‘000) |
64,722 | 39,618 | 40,635 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($) |
1,008 | 857 | 660 | |||||||||
| Capex (‘000) ($) |
54,335 | 56,687 | 46,915 | |||||||||
Tons milled from Kusasalethu were 1,141,000 in fiscal 2010, compared with 1,061,000 in fiscal 2009. Ounces produced increased to 175,029 in fiscal 2010, compared with 174,321 in fiscal 2009 as a result of the increased volumes in production. Mining continues in the old, upper areas of the mine, while the new mine project is completed. Recovered grades decreased during fiscal 2010, resulting in an average of 0.153 ounces per ton in fiscal 2010, compared to the average of 0.164 ounces per ton in fiscal 2009.
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The increase in labor rates and the higher than normal electricity increases approved by NERSA were the main contributors to the increased cash cost. Electricity rates are expected to continue rising by an estimated 25% annually for the next two years. Potable water previously received from Rand Water Board was increased by 32% for fiscal 2010 by the Merafong Local Council due to a change in legislation allowing local councils to take over this service from Rand Water Board. The increase in electricity costs, labor rates and inflation were the main contributors to the increase in cash cost from US$660 per ounce in fiscal 2009 to US$857 per ounce in fiscal 2010.
Tons milled from Kusasalethu increased from 1,141,000 in fiscal 2010 to 1,212,000 in fiscal 2011. Ounces produced increased by 3% in fiscal 2011 to 180,344, despite a 3% decline in recovered grade. The increases in production reflects the build-up of the new mine, although the planned build-up was hampered by the accident which damaged the hoisting shaft.
Revenue was 38% higher at US$253.8 million in fiscal 2011, mainly due to the higher average gold price and the increase in ounces sold. Cash costs per ounce increased by 18% to US$1,008/oz as a result of the annual labor increases of 7.5% and the 25% increase in the electricity tariffs.
Kusasalethu has a hoisting capacity of 209,440 tons per month. The average tons milled in fiscal 2011 was 101,000 tons per month.
Assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable mineral reserves of 37.2 million tons, or 7.2 million ounces, will be sufficient for the Kusasalethu shaft to maintain underground production until approximately calendar year 2036. Any future changes to the assumptions upon which the mineral reserves are based, as well as any unforeseen events affecting production levels, could have a material effect on the expected period of future operations.
Capital Expenditure: Harmony incurred R380 million (US$54.3 million) in capital expenditure at the Kusasalethu operations in fiscal 2011, mainly for ongoing development (70%), equipment maintenance (17%) and development of the new mine (13%). Harmony budgeted R400 million (US$59.0 million), for capital expenditure at the Kusasalethu operations in fiscal 2012, primarily for ongoing development expenditure.
Masimong
Introduction: Masimong is located in the Free State province, near Riebeeckstad. The Masimong complex comprises an operating shaft, 5 shaft and 4 shaft which, although closed, is used for ventilation, pumping and as a second outlet. Mining is conducted at depths ranging from 1,518 meters to 2,300 meters. Ore is treated at the Harmony 1 Plant, approximately 23 kilometers away.
History: Masimong is located in the Free State Goldfield on the south-western edge of the Witwatersrand Basin. The Company purchased the Masimong complex (formerly know as Saaiplaas Shafts 4 and 5) during September 1998.
Geology: The operation exploits the Basal Reef, which varies from a single pebble lag to channels on more than 2m thick (although the thicker channels greater than 1m were only seen on Masimong 4 in the Steyn facies). It is commonly overlain by shale, which thickens northwards and completely disappears again north of the North dyke. Masimong is also mining secondary reefs, most notably the B Reef (140m above Basal). The B Reef is a highly channelized orebody. Within the channels, grades are excellent, but this falls away to nothing outside of the channels. Consequently, the operation has undertaken extensive exploration to locate these pay channels.
Mining Operations: The operations are subject to the underground mining risks detailed in the Risk Factors section. Due to the shallow to moderate depths of the underground operations, seismicity related problems are relatively infrequent. We regularly revisit our mining strategy and management procedures in connection with our efforts to mitigate risks of these problems. There is a risk of subterranean water and/or gas intersections in some areas of the mine. However, this risk is mitigated by active and continuous management and monitoring, which includes the drilling of boreholes in advance of faces. Where water and/or gas are indicated in the drilling, appropriate preventative action is taken.
In line with Masimong’s mine plan, grade declined by 8%, mainly on lower grades from the B Reef. Maintaining grades on the B reef is challenging as mining moves out of the high-grade channels. Grades mined on the Basal reef were consistently good, but
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started to decline towards the end of the year, due to an underlying sill in the north-east area, and completion of mining in the high-grade south-west 7 line.
The infrastructural upgrade completed in fiscal 2010 is producing the expected improvements in productivity, efficiencies and output, facilitated by the process of cycle mining in which specific tasks are performed on specific days. However, results for the period were affected by an underground lock-up of tons at the interim stage, caused by a ventilation change-over process and unwarranted stoppages by the Department of Mineral Resources. To address Masimong’s historical ventilation issues, the whole ventilation circuit was changed from a booster fan system which itself generated heat. The process was completed in three days and improved ventilation conditions are already evident. A new refrigeration plant will be installed by September 2011.
Following the upgrade program, production face advances are planned to increase and every effort made to ensure that panels are well equipped and crews motivated. In addition, steps have been taken to overcome the erratic grade of the B Reef.
In fiscal 2011, Masimong accounted for approximately 11% (11% in fiscal 2010 and 10% in fiscal 2009) of our total gold production.
Safety: Overall safety performance at Masimong improved in 2011, with the mine achieving one million fatality-free shifts at the interim stage. Regrettably, there was a subsequent fatality (2010: one). The LTIFR deteriorated to 13.13 per million hours worked (2010: 7.37).
Plants: The ore from the operation is sent to Harmony 1 Plant for processing. See Item 4. “Information of the Company — Business — Bambanani” for a discussion on the plant.
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Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Masimong Shaft Complex | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
957 | 991 | 981 | |||||||||
| Recovered grade (ounces/ton) |
0.144 | 0.157 | 0.157 | |||||||||
| Gold produced (ounces) |
137,605 | 155,609 | 154,034 | |||||||||
| Gold sold (ounces) |
139,437 | 153,937 | 154,581 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
189,716 | 168,439 | 135,025 | |||||||||
| Cash cost (‘000) |
108,172 | 92,571 | 73,494 | |||||||||
| Cash profit (‘000) |
81,544 | 75,868 | 61,531 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($) |
788 | 602 | 476 | |||||||||
| Capex (‘000) ($) |
25,446 | 23,407 | 14,479 | |||||||||
Tons milled from Masimong were 991,000 in fiscal 2010, compared with 981,000 in fiscal 2009, and ounces produced were 155,609 in fiscal 2010, compared with 154,034 in fiscal 2009. Year-on-year gold production increased due to an increase in tons.
Cash costs were US$92.6 million in fiscal 2010 compared with US$73.5 million in fiscal 2009 with cash costs per ounce at US$602 in fiscal 2010 compared with US$476 in fiscal 2009. This increase in cash cost is mainly attributable to a 16% lower R/US$ exchange rate and annual cost increases. The biggest cost increase contributors were annual labor cost and electricity cost increases.
Recovered grade remained unchanged in fiscal 2010 compared to fiscal 2009.
Tons milled decreased by 3% in fiscal 2011 to 957,000 tons. Recovered grade decreased in line with the mine plan to 0.144 ounces per ton. Ounces produced decreased by 12% to 137,605 in fiscal 2011.
Revenue increased from US$168.4 million in fiscal 2010 to US$189.7 million in fiscal 2011. This was due to the higher average gold price received. Cash costs per ounce increased by 31%, due to increases in labor costs (the annual labor rate increases of 7.5%) and the 25% increase in electricity tariffs.
Assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable mineral reserves of 7.2 million tons (1.2 million ounces) will be sufficient for the Masimong shaft complex to maintain underground production until approximately fiscal 2023. Any future changes to the assumptions upon which the reserves are based, as well as any unforeseen events affecting production levels, could have a material effect on the expected period of future operations.
Capital Expenditure: Masimong incurred approximately R178 million (US$25.5 million) in capital expenditures in fiscal 2011, largely spent on the refrigerator plant, Masimong 4 plug, e-learning and the infrastructure upgrade. We have budgeted a total of R220 million (US$32.4 million) for capital expenditures at Masimong in fiscal 2012, primarily for ongoing capital development.
Phakisa
Introduction: We acquired Phakisa when we, in January 2002, acquired the Freegold operations from Anglogold through a 50% joint venture with ARMgold. In September 2003, we acquired 100% of these operations when ARMgold became a wholly-owned subsidiary. The operation is located in the Free State province. Production from the operations is processed through Harmony 1 Plant.
History: Exploration, development and production history in the area of the Freegold assets dates from the early 1900’s, leading to commercial production by 1932. Subsequent consolidation and restructuring led to the formation of Free State Consolidated Gold Mine (Operations) Limited, which became a wholly-owned subsidiary of Anglogold in June 1998.
Geology: The operation is located in the Free State Goldfield, which is on the southwestern edge of the Witwatersrand basin. The Goldfield is divided into two sections, cut by the north-south striking De Bron Fault. The Phakisa mine is located to the west of the De Bron Fault. Mining is conducted in the Basal Reef. The reefs generally dip towards the east.
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Mining Operations: These operations are subject to the underground mining risks detailed in the Risk Factors section. The management teams regularly revisit their mining strategy and management procedures in order to minimize risks.
The start of the review period was tragically marred for Phakisa after an explosion, caused by an underground fire, in which five mine rescue team members died while manning a fresh-air base. This event also resulted in the loss of 13 production days, exacerbated by an ice-pipe failure in the shaft and fire in the 66-63 stope.
The production build-up was affected by geological issues, illegal mining activities and down-time on the new infrastructure. Pleasingly, Phakisa set a record of 1,943 tons of ice per day, resulting in water temperatures of <6°C which in turn improved both ventilation and productivity. Some remaining issues with the ice plant as well as settler failure at Nyala are being addressed. Equipment salvaged from the closed Merriespruit 1 shaft early in fiscal 2011 reduced the need for capital spent on equipment. Most of phase 1 infrastructure was completed before the interim stage and modifications to loading boxes on 77 level by the new year.
Since it is still a new mine, development at Phakisa is currently centered close to the shaft in the lower-grade areas. The major drive is on developing the area to the north to access higher-grade zones and move closer to the average reserve grade. Grades will improve further as development progresses towards the north and more reef is exposed in the major north-west to south-east trending Basal Reef payshoot.
During fiscal 2011, Phakisa accounted for 4% (3% in 2010 and 1.4% in 2009) of our total gold production.
Safety: As reported in 2010, an explosion underground shortly after year end tragically resulted in five fatalities (2010: three). There were no further fatalities in the review period. The LTIFR for 2011 was 10.27 per million hours worked (2010: 8.40).
Plants: The ore from the operation is sent to Harmony 1 Plant for processing. See Item 4. “Information of the Company — Business — Bambanani” for a discussion on the plant.
| Fiscal Year Ended June 30, | ||||||||||||
| Phakisa | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
427 | 374 | 204 | |||||||||
| Recovered grade (ounces/ton) |
0.133 | 0.118 | 0.109 | |||||||||
| Gold produced (ounces) |
56,649 | 44,079 | 22,216 | |||||||||
| Gold sold (ounces) |
57,227 | 44,496 | 21,477 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
78,831 | 49,458 | 19,009 | |||||||||
| Cash cost (‘000) |
67,658 | 43,040 | 11,903 | |||||||||
| Cash profit (‘000) |
11,173 | 6,418 | 7,106 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($) |
1,200 | 953 | 555 | |||||||||
| Capex (‘000) ($) |
52,866 | 64,106 | 51,210 | |||||||||
Tons milled increased from 204,000 tons in fiscal 2009 to 374,000 tons in fiscal 2010, with gold production increasing from 22,216 ounces to 44,079 ounces. This was as a result of the planned ramp up in production during the year. Grade was higher in fiscal 2010 at 0.118 ounces per ton, compared to 0.109 in fiscal 2009.
Cash costs per ounce for Phakisa were US$953 per ounce in fiscal 2010, compared with $555 per ounce in fiscal 2009. This increase is primarily attributable to the increase in tons mined, as well as the cost of employees transferred to Phakisa from shafts that were closed during fiscal 2010.
Tons milled in fiscal 2011 were 427,000, compared with 374,000 tons in fiscal 2010. Gold produced increased by 29% to 56,649 ounces in fiscal 2011. These increases reflect the production build-up at Phakisa. Recovered grade was 0.133 ounces per ton in fiscal 2011, compared with 0.118 in fiscal 2010.
Revenue was 59% higher at US$78.8 million in fiscal 2011 as a result of the higher average gold price received and the increase in production. Cash costs per ounce for Phakisa was US$1,200/oz in fiscal 2011, compared with US$953/oz in fiscal 2010. Costs increased as a result of the production build-up and the cost of employees transferred from closed shafts to Phakisa.
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The expected capacity of Phakisa will be 73,000 reef tons per month. Phakisa has no rock hoisting facilities and all rock will be transported via a rail system on 55 level to the Nyala shaft for hoisting to surface. First production took place during September 2007, with a build up to full production expected by fiscal 2013.
On a simplistic basis reported proven and probable underground mineral reserves of 21.0 million tons (5.2 million ounces) will be sufficient for the Phakisa shaft to, once production commences, maintain production until approximately fiscal 2033. Any future changes to the assumptions upon which the reserves are based, as well as any unforeseen events affecting production levels, could have a material effect on the expected period of future operations.
Capital Expenditure: We incurred approximately R369 million (US$52.9 million) in capital expenditures at the Phakisa operations in the fiscal year ended June 30, 2011, mainly for the expansion project and ongoing development. We have budgeted R320 million (US$47.2 million) for capital expenditures in fiscal 2012, primarily for ongoing capital development.
Target operation
Introduction: The Target operation consists of Target 1, Target 3 and Freddies 7 & 9 shafts. We acquired Target 1 when Avgold became a wholly-owned subsidiary in fiscal 2004. Target 3, previously Loraine 3, and Freddies 7 & 9 shafts were acquired from Pamodzi FS in February 2010. They have been incorporated into our Target operation. Target is situated near the town of Allanridge in the Free State Province, some 270 kilometers southwest of Johannesburg. Located on the northern limit of the Welkom Goldfields, the site is accessed via the R30 motorway situated between the towns of Bothaville and Welkom.
History: Target 1 was initially explored through surface drilling in the late 1980s with further exploration being undertaken from a 5.6 kilometers long decline, commenced in 1995, driven from 203L at Loraine No. 1 Shaft. A positive feasibility study into the development of a 105 ktpm operation was produced in May 1998 resulting in the decision to develop Target 1. A detailed mine design was produced in 2000 and the mine officially opened in May 2002. Upon closure of the Loraine mine in August 1998, the Loraine No. 1 and No. 2 Shafts were transferred to the Target mine, becoming Target No. 1 and No. 2 Shafts, respectively. No 5 Shaft being the up-cast Ventilation Shaft.
Numerous corporate actions since the 1940’s until the 1990’s saw the Loraine 3 and Freddies 7 & 9 shafts change ownership a number of times. Previous owners include the Free State Development and Investment Corporation, Johannesburg Consolidated Investment, Avgold and Anglogold. In 1998, PSGM was formed after purchasing Loraine 3 and Freddies 7 & 9 shafts from various individuals. During 2002, the mine was sold to Thistle Mining Inc, an international company with interests in the Philippines and South Africa. The mine struggled to make operational profits, and Thistle undertook a restructuring program in 2006, which together with an increase in the Rand gold price resulted in positive operational cash flows. In February 2008, PSGM was purchased by Pamodzi FS. The mine was operated from that time until March 2009, when Pamodzi FS was placed into liquidation.
Geology: The gold mineralization currently exploited by Target 1 is contained within a succession of Elsburg and Dreyerskuil quartz pebble conglomerate reefs hosted by the Van Heeverrust and Dreyerskuil Members of the Eldorado Formation, respectively. Additional mineral resources have been delineated in the Big Pebble Reefs of the Kimberley Formation but these are not planned to be exploited in the current life-of-mine plan.
The majority of the mineral reserves at Target 1 are contained within the Eldorado fan, a structure with dimensions of some 135 meters vertically, 450 meters down-dip and 500 meters along strike. The Eldorado fan is connected to the subsidiary Zuurbron fan by a thinner and lower grade sequence of Elsburg reefs termed the Interfan area. To the north of the Eldorado fan, a number of fans have been intersected by surface drilling of which the Siberia and Mariasdal fans are the most significant. These fans are subject to ongoing technical studies and do not form part of the current Target 1 life-of-mine mineral reserve.
A number of faults that displace the reefs of Target 1 have been identified, of which the most prominent are the north-south trending Eldorado fault and the east-west trending Dam and Blast faults. The Eldorado uplifts the more distal portions of the Elsburg and Dreyerskuil Reefs while the Blast fault forms the northern border of Target 1.
Target North is sub-divided into the Paradise, Siberia and Mariasdal areas by the east-west trending Siberia and Mariasdal faults. To the north of the Siberia fault, the Eldorado fault continues trending more to the northwest and an additional north-south trending
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fault, the Twin fault has uplifted the distal portions of the reefs. North of the Maraisdal fault, the reef horizons are at a depth greater than 2,500 meters below surface. Resources have been delineated on strike up to 15 kilometers north of Target 1 mine.
Approximately 40 kilometers north of Target 1, surface boreholes have intersected gold bearing reefs in the Oribi area close to the town of Bothaville. Resources have been delineated at Oribi on the VCR and Elsburg at depths of approximately 2,750 meters below surface.
At Target 3 Shaft there remains a mix of remnant ore blocks including shaft pillar blocks where scattered mining can be exploited, and a number of areas of virgin ground where conventional mining can take place, with the potential to exploit zone 3 in the Freddies 9 Shaft area.
The Target 3 Shaft ore body has characteristics that suit massive mining techniques in the Eldorados which enable design to be centered on a mechanized operation, utilizing employees from Target 1 skilled in this type of mining, to produce gold at low cash costs.
Mining operations: Target is subject to the risks associated with underground mining detailed in the Risk Factors section.
Mining operations at Target 1 comprise one primary underground mine commissioned in May 2002, making use of information systems and mechanization, combined with process-driven organizational design that relies on a multi-skilled workforce. The majority of the production is derived from mechanized mining; however, conventional stoping is still employed primarily to de-stress areas ahead of the mechanized mining.
At Target 1, the benefits of improved planning and design in the prior year resulted in greater availability of the massive stopes during fiscal 2011. In addition, with ventilation and cooling issues resolved, all ten narrow-reef, conventional mining panels were in production during the review period, supported by a clean-mining initiative. Collectively, this has enabled Target to manage its ore reserves better, which is crucial to the mine’s success. Unplanned stoppages caused by problems with the decline belt and delayed delivery of the new belt affected production in the third and fourth quarters, which in turn affected tonnages and grade.
At Target 3, the focus during the year was on continued shaft build-up and infrastructural improvements. In September 2010 we decided to abandon the shaft below 71 level after the collapse of orepasses, and create a new belt level on 71 level. Commendably, the new belt was designed, manufactured and installed in four weeks. This has greatly assisted in the build-up of the sub-shaft on Basal Reef, which offers better grades. Several challenges remain in improving sub-shaft conditions. After protracted delays, the fridge plant was commissioned by year end, which will enable access to more panels in the sub-shaft, contributing in turn to higher grades. Good progress has been made in cleaning sub-shaft infrastructure to access the higher-grade Basal Reef mining area. Once all infrastructural improvements have been completed, we expect further improvements in gold production.
In fiscal 2011, Target’s operations accounted for 10% of our total gold production, compared to 8% in fiscal 2010 and 6% in fiscal 2009.
Safety: The concerted effort in recent years to improve safety at Target paid off during the review period when the mine reached one million fatality-free shifts for a fatality-free year (2010: two). The LTIFR, however, regressed to 7.71 per million hours worked (2010: 3.73).
Plants: Target Plant was commissioned in November 2001 and currently treats both underground ore and surface sources, which include both waste rock dump and plant clean up material. The process route comprise of a closed circuit SAG mill as well as a closed circuit ROM mill. Both these mills are in closed circuit with hydro-cyclones. The milling circuit is followed by thickening, cyanide leaching, CIP adsorption, elution, electro-winning, smelting and tailings disposal. Both the milling circuits are incorporated in the gravity concentration circuit and the concentrates from this circuit are processed via intensive cyanidation and electro-winning.
The following table sets forth processing capacity and average tons milled during fiscal 2011:
| Plant |
Processing Capacity |
Average Milled For the Fiscal Year Ended June 30, 2011 | ||
| (tons/month) | (tons/month) | |||
| Target Plant |
105,000 | 102,917 |
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In fiscal 2011, the Target Plant recovered approximately 95.0% of the gold contained in the ore delivered for processing.
Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Target (includes Target 1 and 3) | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
888 | 857 | 710 | |||||||||
| Recovered grade (ounces/ton)(1) |
0.125 | 0.128 | 0.123 | |||||||||
| Gold produced (ounces) (1) |
127,992 | 113,782 | 87,225 | |||||||||
| Gold sold (ounces) (1) |
129,312 | 110,598 | 87,611 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
154,483 | 115,772 | 76,435 | |||||||||
| Cash cost (‘000) |
116,679 | 87,563 | 59,599 | |||||||||
| Cash profit (‘000) |
37,804 | 28,209 | 16,836 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($)(1) |
1,011 | 783 | 645 | |||||||||
| Capex (‘000) ($) |
62,792 | 50,446 | 37,994 | |||||||||
| (1) | 17,073 (2010: 3,762) ounces were produced by Target 3 prior to it being considered to be in production. The revenue has been credited against capital expenditure for the period that the shaft was not in production. The costs and ounces were not used in the cash cost per ounce calculation. The ounces were also excluded from the grade calculation. |
Ounces produced were 113,782 in fiscal 2010, compared with 87,225 in fiscal 2009. The increase in ounces produced was due to higher milled tonnages and improved recovered grade.
Continued upgrading of infrastructure, resulting improved environmental conditions and higher availability of the mechanized fleet have led to increasing and consistent production levels. Tonnages milled from the Target 1 Shaft increased significantly from 710,000 in fiscal 2009 to 857,000 in fiscal 2010.
Maintenance of the average mining grades, and continuing focus on clean-up and clean mining resulted in an improved recovery grade which increased marginally from 0.123 ounces per ton in fiscal 2009 to 0.128 ounces per ton in fiscal 2010.
Cash costs for Target were US$87.6 million in fiscal 2010, compared with US$59.6 million in fiscal 2009. This increase was primarily attributed to increased tonnages produced, increase in total employees costed and inflationary cost increases, as well as the effect of the appreciation of the Rand against the US$ dollar. Cash costs per ounce were US$783 in fiscal 2010, compared with US$645 in fiscal 2009. This increase was due to higher production levels and the appreciation of the Rand against the US$ exchange rate.
Ounces produced increased by 12% to 127,992 in fiscal 2011, primarily as a result of Target 3 increased production.
Revenue increased to US$154.5 million in fiscal 2011 as a result of the higher average gold price and the increase in ounces produced. Cash costs per ounce increased from US$783/oz to US$1,011/oz in fiscal 2011. This was mainly due to the delayed start-up of the sub shaft at Target 3 and labor transfers earlier than planned from other Harmony operations to avoid retrenchments.
Assuming no additional reserves are identified, at expected production levels and, at the current planned gold price, it is foreseen that the reported proven and probable mineral reserves of 17.0 million tons (2.7 million ounces) will be sufficient for Target to maintain underground production until approximately 2026. Any future changes to the assumptions upon which the mineral reserves are based, as well as any unforeseen events affecting production levels, could have an effect on the expected period of future operations.
Capital Expenditure: Target incurred approximately R439 million (US$62.8 million) in capital expenditures in fiscal 2011, principally for ongoing capital development (R199 million (US$28.5 million)), development of Block 3 at Target 1 (R62 million (US$8.9 million) and development at Target 3 (R102 million (US$14.6 million)). We have budgeted R415 million (US$61.2 million) in fiscal 2012, principally for ongoing capital development and the continuation of Block 3 development and infrastructure at Target 1.
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Tshepong
Introduction: We acquired Tshepong when we, in January 2002, acquired the Freegold operations from Anglogold through a 50% joint venture with ARMgold. In September 2003, we acquired 100% of these operations when ARMgold became a wholly-owned subsidiary. These operations are located in the Free State province. Production from the operations is processed through Harmony 1 Plant.
History: Exploration, development and production history in the area of the Freegold assets dates from the early 1900’s, leading to commercial production by 1932. Subsequent consolidation and restructuring led to the formation of Free State Consolidated Gold Mine (Operations) Limited, which became a wholly-owned subsidiary of Anglogold in June 1998.
Geology: The operations are located in the Free State Goldfield, which is on the southwestern edge of the Witwatersrand basin. The Tshepong mine is located to the north and west of Welkom. Mining is primarily conducted in the Basal Reef, with limited exploitation of the B Reef. The reefs generally dip towards the east or northeast while most of the major faults strike north-south.
Mining Operations: These operations are subject to the underground mining risks detailed in the Risk Factors section. The management teams regularly revisit their mining strategy and management procedures in order to minimize risks.
Mining is conducted at depths ranging from 1,671 and 2,245 meters at Tshepong. Tshepong is one of Harmony’s lowest-cost producers, although its grade remains sensitive to stoping width. This is rigorously controlled by the under-cut mining method used at this mine. Development of sub-71 decline progressed well during fiscal 2011, despite the area being directly affected by the fire at neighbouring Phakisa in the first quarter. After commissioning the belt and completing the temporary tip on 73 level, the development rate improved for the rest of the period. The sub-71 project, which will connect Tshepong with Phakisa, remains on track for completion in May 2012. This project extends the existing double decline from 71 to 76 level to enable mining on both 73 and 75 levels. The project’s goal is to sink the decline to 76 level by May 2012.
During fiscal 2011, Tshepong accounted for 16% (15% in 2009 and 2010) of our total gold production.
Safety: Despite achieving 750,000 fatality-free shifts during fiscal 2011, overall safety performance deteriorated slightly with LTIFR at 12.60 (2010: 12.22) per million hours. There were regrettably two fatalities during the year (2010: two).
Plants: The ore from these operations are sent to Harmony 1 Plant for processing. See Item 4. Information on the Company — Business — Bambanani” for a discussion on the plant.
Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Tshepong | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
1,481 | 1,674 | 1,516 | |||||||||
| Recovered grade (ounces/ton) |
0.140 | 0.130 | 0.152 | |||||||||
| Gold produced (ounces) |
207,950 | 216,986 | 230,778 | |||||||||
| Gold sold (ounces) |
209,976 | 219,332 | 227,113 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
287,257 | 240,473 | 197,726 | |||||||||
| Cash cost (‘000) |
167,742 | 151,382 | 108,605 | |||||||||
| Cash profit (‘000) |
119,515 | 89,091 | 89,121 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($) |
810 | 677 | 483 | |||||||||
| Capex (‘000)($) |
39,030 | 34,402 | 27,711 | |||||||||
Tons milled during fiscal 2010 increased year on year by 10% (1,516,000 tons in fiscal 2009 compared with 1,674,000 tons in fiscal 2010), with gold production decreasing by 6% from 230,778 ounces in fiscal 2009 to 216,986 ounces in fiscal 2010. The decrease was attributable to the decrease in the recovery grade to 0.130 in fiscal 2010 compared with 0.152 in fiscal 2009. The decrease in recovery grade was primarily due to a decrease in the average mining grade, which was 1039 cmg/t in fiscal 2010 compared with 1153 cmg/t in fiscal 2009. The drop in the average mining grade is in line with the Life-of-mine profile. During fiscal 2009 the mining in the east south block was on the edge of the main high grade pay shoot and as mining continued south during fiscal
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2010 mining has moved out of this high grade channel. The continuation of this channel will be mined in the decline area once Sub 71 decline reaches full production.
Cash costs for Tshepong were US$151.4 million in fiscal 2010, compared with US$108.6 million in fiscal 2009. Cash costs per ounce were US$677 in fiscal 2010, compared with US$483 in fiscal 2009. The increase in unit cost is attributable primarily to the decrease in the number of ounces of gold produced. The increase in cash costs were primarily due to increases in the costs of labor and abnormal tariff increases in electrical power rates as well as the effect of inflation on costs of materials and supply contracts. In addition, the cost of medical separation was included in operational cost. This was historically not included in operational cost. Also, the effect of the appreciation of the Rand against the US dollar had a negative impact in US$ dollar terms.
Tons milled decreased from 1,674,000 to 1,481,000 in fiscal 2011. Production output was disrupted by two fatal accidents during the year, as well as production stoppages imposed by the DMR. Gold produced was 4% lower in fiscal 2011 at 207,950 ounces. This decrease was due to the lower tons mined, but was offset by the 8% increase in recovered grade, from 0.130 ounces per ton in fiscal 2010 to 0.140 in fiscal 2011.
Despite the decrease in ounces produced, revenue increased by 19% to US$287.3 million in fiscal 2011 as a result of the higher gold price received. Cash costs increased by 11% from US$151.4 million to US$167.7 million, while cash costs per ounce increased by 20% to US$810/oz in fiscal 2011. This was due to annual labor rates increases of 7.5% and the 25% increase in electricity tariffs. Cash costs per ounce were also negatively affected by the decrease in ounces produced.
Assuming no additional reserves are identified, at expected production levels and, at the current planned gold price, it is foreseen that the reported proven and probable mineral reserves of 24.1 million tons (3.7 million ounces) will be sufficient for Tshepong to maintain underground production until approximately 2027. Any future changes to the assumptions upon which the mineral reserves are based, as well as any unforeseen events affecting production levels, could have an effect on the expected period of future operations.
Capital Expenditure: Tshepong incurred approximately R273 million (US$39.0 million) in capital expenditure during fiscal 2011. The expenditure was primarily for the decline project and ongoing development. For fiscal 2012 capital expenditure of R285 million (US$42.0 million) is planned, primarily for ongoing capital development.
Virginia operations
Introduction: The Virginia operations are located in the Free State province, near Virginia and Welkom. The Virginia operations consist of the original Harmony mines, the Unisel mine and Brand shafts 1 and 3. By end of fiscal 2011, only Unisel was still in operation, following the closure of Merriespruit 1 during the year. Mining is conducted at Unisel at depths ranging from 1,000 meters to 2,000 meters. Ore is treated at the Harmony 1 Plant.
History: Our operations in the Free State began with the Harmony mine, which is an amalgamation of the Harmony, Virginia and Merriespruit mines. Beginning in 1996, we began purchasing neighboring mine shafts. The Unisel mine was purchased in September 1996, the Saaiplaas mine Shafts 2 and 3 were purchased in April 1997, the Brand mine Shafts 1, 2, 3 and 5 were purchased in May 1998.
Geology: These operations are located in the Free State Goldfield on the south-western edge of the Witwatersrand Basin. The basin, situated on the Kaapvaal Craton, has been filled by a 6 kilometer thick succession of sedimentary rocks, which extends laterally for hundreds of kilometers. The Free State goldfield is divided into two sections, cut by the north-south striking De Bron Fault.
Unisel is situated to the west of the De Bron Fault. Dips are mostly towards the east, averaging 30 degrees but become steeper approaching the De Bron Fault. The western margin area is bound by synclines and reverse thrusts faults and is structurally complex. Towards the south and east, reefs sub-crop against overlying strata, eventually cutting out against the Karoo to the east of the lease area.
Most of the Mineral Resource tends to be concentrated in reef bands located on one or two distinct unconformities. A minority of the Mineral Resource is located on other unconformities. Mining that has taken place is mostly deep-level underground mining, exploiting the narrow, generally shallow dipping tabular reefs.
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The Basal Reef is the most common reef horizon. It varies from a single pebble lag to channels on more than 2m thick. It is commonly overlain by shale, which thickens northwards.
The second major reef is the Leader Reef, located 15-20m above the Basal Reef. Further north, it becomes poorly developed with erratic grades. The reef consists of multiple conglomerate units, separated by thin quartzitic zones, often totaling up to 4 meters thick. A selected mining cut on the most economic horizon is often undertaken.
The Middle Reef, a secondary reef, is mined at Unisel where it comprises approximately 5% of the shaft production. The Middle Reef is a localized channel deposit and lies at irregular elevations between the Basal and the Leader reef.
Mining Operations: The operations are subject to the underground mining risks detailed in the Risk Factors section. Due to the shallow to moderate depths of the underground operations, seismicity related problems are relatively infrequent with the exception of Unisel and Harmony shafts and Merriespruit 1 shaft pillar, where these problems receive constant attention. We regularly revisit our mining strategy and management procedures in connection with our efforts to mitigate risks of these problems. There is a risk of subterranean water locally at Merriespruit 1, referred to as water pillar area, and/or gas intersections in some areas of the mine. However, this risk is mitigated by active and continuous management and monitoring, which includes the drilling of boreholes in advance of faces. Where water and/or gas are indicated in the drilling, appropriate preventative action is taken. The principal challenges at the operations of achieving optimal volumes and grades of ore production are addressed by stringent mineral reserve management.
The fiscal 2010 review of Harmony’s asset portfolio included the economic viability of the Virginia operations, characterised by depleted orebodies, mature infrastructure and low grades. Accordingly, Brand 3, Harmony 2 and Merriespruit 3 were closed. After careful review, the Company announced in October 2010 that it would also close Merriespruit 1 shaft. Earlier in fiscal 2011, a productivity-linked deal with trade unions was reached allowing Merriespruit 1 to continue operations, provided it did not make a loss (on a total cost basis, including capital expenditure) for two consecutive months and total costs remained under R250 000/kg. Despite the best endeavours of the operational team, Merriespruit 1 failed to meet these conditions and closure procedures started. After formal consultation with employees on alternatives to retrenchment, 1 200 of the 1 470 employees affected by closure were transferred to our growth operations, resulting in minimal and mainly voluntary retrenchments. The company also successfully renegotiated mortgage conditions for affected employees to preserve their homes.
As a result of restructuring the Virginia operations, production for the year was down 65% to 636,000 tons milled. However grade improved markedly, validating the decision to close the lossmaking shafts. Gold production decreased 58% to 71,149 ounces.
At Unisel, both Basal and Leader Reef development produced good results after environmental constraints in the E block were removed by the completion of the cooling project. Middle Reef development focused on the decline area pillars and was affected by seismicity and poor ground conditions. No development was undertaken on the A or B Reefs. Overall, the shaft produced reserves on the Basal and Leader Reefs. Future development will continue to focus more on the better-grade E block and portions of the Brand 5 shaft pillar.
In fiscal 2011, Virginia operations accounted for approximately 5% (12% in fiscal 2010 and 17% in fiscal 2009) of Harmony’s total gold production. This reduction is attributable to the closures of Brand 1, Harmony 2 and Merriespruit 3 during fiscal 2010 and Merriespruit 1 during fiscal 2011.
Safety: The safety record during fiscal 2011 for LTIFR was 11.57 (2010: 12.86) per million hours worked. Regrettably there was one fatality during fiscal 2011 (2010: five).
Plants: The ore from the operation is sent to Harmony 1 Plant for processing. See Item 4.“Information of the Company — Business — Bambanani” for further information on the plant. Central plant is no longer used for the processing of ore from Unisel, the last remaining producing shaft in the Virginia operations.
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Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Virginia operations | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
636 | 1,826 | 2,493 | |||||||||
| Recovered grade (ounces/ton) |
0.112 | 0.093 | 0.104 | |||||||||
| Gold produced (ounces) |
71,149 | 170,013 | 258,170 | |||||||||
| Gold sold (ounces) |
72,017 | 173,035 | 259,070 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
97,542 | 186,649 | 225,897 | |||||||||
| Cash cost (‘000) |
80,371 | 176,774 | 165,274 | |||||||||
| Cash profit (‘000) |
17,171 | 9,875 | 60,623 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($) |
1,114 | 1,036 | 638 | |||||||||
| Capex (‘000) ($) |
11,373 | 23,744 | 22,133 | |||||||||
Tons milled from the Virginia operations decreased to 1,826,000 in fiscal 2010, compared with 2,493,000 in fiscal 2009. This is mainly attributable to the closure of Brand 3 during November 2009, and Harmony 2 and Merriespruit 3 during April 2010. Merriespruit 1 has downscaled production from February 2010.
Ounces produced were 170,013 in fiscal 2010, compared with 258,170 in fiscal 2009. The decrease in ounces produced was as a result of volumes that decreased due to the closure of the three shafts as mentioned above during fiscal 2010, while Merriespruit 1 has downscaled production from February 2010.
Cash costs were US$176.8 million in fiscal 2010, compared with US$165.3 million in fiscal 2009. Cash costs per ounce were US$1,036 in fiscal 2010, compared with US$638 in fiscal 2009. This increase was attributable primarily to lower tons produced resulting in lower ounces as well as an increase in our cash costs and the effect of the appreciation of the Rand against the US dollar.
Tons milled and ounces produced decreased to 636,000 tons and 71,149 ounces, respectively, in fiscal 2011. This was due to the shaft closures during fiscal 2010 and 2011. Grade increased from 0.093 ounces per ton in fiscal 2010 to 0.112 in fiscal 2011. Cash costs decreased by 55% as a result of the shaft closures. This increased the operation’s profitability by 74%. Cash costs per ounce increased by 8% to US$1,114/oz in fiscal 2011.
Assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable mineral reserves of 3.2 million tons (0.4 million ounces) will be sufficient for the Virginia operations to maintain production until approximately 2017. However, any future changes to the assumptions upon which the reserves are based, as well as any unforeseen events affecting production levels, could have a material effect on the expected period of the future operations.
Capital Expenditure: Virginia incurred approximately R79 million (US$11.3 million) in capital expenditures at the Virginia operations in fiscal 2011, principally for ongoing capital development. We have budgeted R89 million (US$13.1 million) for ongoing capital development in fiscal 2012. 75% of this capital will be spent on the ongoing development capital and 11% on major equipment repairs/replacements.
Other — Surface
Introduction: Other — Surface consists of Kalgold, Phoenix and the surface operations owned by the Freegold, Avgold and Evander companies. As the results of operations for Other — Surface consist primarily of the results from Kalgold and Phoenix, these two operations are discussed separately.
Kalgold
Introduction: Harmony’s only opencast mining operation in South Africa is the Kalgold gold mine that is situated 60 kilometers south of Mahikeng in the North West Province of South Africa.
History: Harmony acquired Kalgold on July 1, 1999 and fully incorporated Kalgold into its existing operations in October 1999. Prior to Harmony’s acquisition of the Kalgold mine, the mine had already been in operation for three years.
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Geology: The Kalgold operation is located within the Kraaipan Greenstone Belt. This is part of the larger Amalia-Kraaipan Greenstone terrain, consisting of north trending linear belts of Archaean meta-volcanic and metasedimentary rocks, separated by granitoid units. Mineralization occurs in shallow dipping quartz veins, which occur in clusters or swarms, within the steeply dipping magnetite-chert banded iron formation. Disseminated sulphide mineralization, dominated mostly by pyrite, occurs around and between the shallow dipping quartz vein swarms. The D Zone is the largest orebody encountered and has been extensively mined within a single open-pit operation, along a strike length of 1,300m. Mineralization has also been found in the Mielie Field Zone (adjacent to the D Zone), the A Zone and A Zone West (along strike to the north of the D Zone), and the Watertank and Windmill areas to the north of the A Zone.
Mining Operations: The Kalgold operation is engaged in open-pit mining. This operation is subject to the opencast mining risks detailed in the Risk Factors section. Small subterranean water intersections in the pit are common and are actively managed and appropriate action is taken when necessary. The primary mining challenges at the Kalgold operations of achieving optimal volumes and grades of ore production are addressed by stringent mineral reserve management. The processing design capacity of the Kalgold operation is 165,345 tons per month. The average tons in fiscal 2011 were 147,917 tons per month.
Volumes at Kalgold declined 5% over the year, largely due to several mechanical breakdowns in the mill section of the metallurgical plant. Gold produced declined by 18% to 40,285 ounces. The Watertank pit will be mined out within nine months in fiscal 2012 and mining in the A zone is planned to start in the latter part of 2012. A project to replace the carbon in-leach tanks in the plant will start in fiscal 2012. Harmony continued with brownfields exploration in areas surrounding the Kalgold operation.
In fiscal 2011, the Kalgold operations accounted for approximately 3% (3% in fiscal 2010 and 4% in fiscal 2009) of our total gold production.
Safety: The Kalgold operations had a LTIFR of 5.43 (2010: 1.49) per million hours worked in fiscal 2011, and recorded no fatal accidents in fiscal 2011. During fiscal 2011, Kalgold plant achieved one million fatality free shifts over a 16-year period.
Plants: Ore is trucked from the pit and is directly tipped into the feed bin of the pre-primary crusher or stockpiled. The ore then undergoes a four phase crushing process before it reaches the Dome stockpile. Three ball mills are used to grind the ore down to between 70-80% less than 75 micron for the leaching process.
The following table sets forth processing capacity and average tons milled during fiscal 2011 for the plant:
| Plant |
Processing Capacity |
Average Milled for the Fiscal Year Ended June 30, 2011 | ||
| (tons/month) | (tons/month) | |||
| CIL |
165,345 | 134,187 | ||
| Heap Leach (1) |
— | — |
| (1) | Active use of heap leaching was discontinued in July 2001. |
In fiscal 2011, the plant at our Kalgold operations recovered approximately 78.3% of the gold contained in the ore delivered for processing.
Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Kalgold | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
1,775 | 1,873 | 1,700 | |||||||||
| Recovered grade (ounces/ton) |
0.023 | 0.026 | 0.038 | |||||||||
| Gold produced (ounces) |
40,285 | 49,063 | 64,784 | |||||||||
| Gold sold (ounces) |
41,828 | 48,097 | 66,841 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales ($) (‘000) |
57,064 | 51,437 | 56,915 | |||||||||
| Cash cost ($) (‘000) |
45,473 | 36,162 | 32,390 | |||||||||
| Cash profit ($) (‘000) |
11,591 | 15,275 | 24,525 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($) |
1,135 | 748 | 506 | |||||||||
| Capex ($) (‘000) |
2,631 | 1,389 | 1,090 | |||||||||
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Tons milled increased from 1,700,000 in fiscal 2009 to 1,873,000 in fiscal 2010. Ounces produced decreased to 49,063 in fiscal 2010, compared with 64,784 in fiscal 2009, due to the lower recovered grade.
Cash costs increased from US$32.4 million in fiscal 2009 to US$36.2 million in 2011, mainly due to an increase in plant costs in lieu of engineering breakdowns.
Volumes mined decreased from 1,873,000 tons in fiscal 2010 to 1,775,000 in fiscal 2011. Gold produced decreased by 18% in fiscal 2011 to 40,285 ounces. This decrease was due to mechanical breakdowns in the mill section of the plant.
Revenue increased by 11% to US$57.1 million in fiscal 2011, due to the higher average gold price received. Cash costs per ounce increased by 52% to US$1,135/oz, mainly due to the lower ounces produced.
The processing design capacity of the Kalgold operation is 165,345 tons per month. The average tons milled in fiscal 2011 were 147,900 tons per month.
Assuming no additional reserves are identified and at expected production levels, it is foreseen that the reported proven and probable mineral reserves of 28.3 million tons (0.7 million ounces) will be sufficient for the Kalgold operations to maintain production until approximately fiscal 2024. However, any future changes to the assumptions upon which the reserves are based, as well as any unforeseen events affecting production levels, could have a material effect on the expected period of future operations.
Capital Expenditure: Harmony incurred approximately R18 million (US$2.6 million) in capital expenditures at the Kalgold operations in the fiscal 2011. Harmony budgeted R65 million (US$9.6 million) for capital expenditures in fiscal 2012, primarily for CIL tank farm replacement and replacing some of the plant structures.
Phoenix
Introduction: Phoenix is a tailings retreatment operation, located at Virginia and adjacent to our current and historical mining operations in the Free State province. The Saaiplaas plant is used for the treatment of the material from this project.
History: The project commenced during fiscal 2007 and is aimed at treating the surface sources from our operations in the Free State province.
Safety: Safety at the Phoenix operations deteriorated year-on-year in fiscal 2011 with LTIFR declining to 2.89 per million hours worked from 1.46 in fiscal 2010. There were no fatalities during fiscal 2011.
Plant: The Saaiplaas plant, commissioned in the late 1950’s, has been converted from the zinc precipitation filter process to the CIL. During 2007, the ROM mills were de-commissioned and the plant started treating slime from Dam 22 and Brand A tailings storage facilities. The plant currently processes reclaimed slime at 6 million tons per annum.
The following table sets forth processing capacity and average tons milled during fiscal 2011 for the Saaiplaas plant:
| Plant |
Processing Capacity |
Average Milled for the Fiscal Year Ended June 30, 2011 | ||
| (tons/month) | (tons/month) | |||
| Saaiplaas |
551,155 | 444,128 |
In fiscal 2011, Saaiplaas plant recovered approximately 35.1% of the gold contained in the ore delivered for processing.
Mining operations: Phoenix, which began four years ago, involves retreating around 6 million tons annually (551,155tpm) at plant capacity. Phoenix operations were severely hampered by exceptionally high rainfall, the depletion of the H1 feed source with delayed completion and commissioning of the replacement source Dam 21, severe increases in plant intrusions and cable theft activities. Dam 21 was fully commissioned and teething problems resolved early in May 2011 and tonnage production has since reached target levels. The Dam 21 source proved problematic with plant recovery requiring process modifications. Plans to increase processed volumes up
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to 992,000 tons per month, at which rate the life of the project is around 12 years, have been placed on hold pending performance in fiscal 2012 to reestablish confidence in performance and profitability.
During fiscal 2011, Phoenix accounted for 1.5% of our total gold production (1.5% in fiscal 2010 and 1.4% in fiscal 2009).
Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Free State (Phoenix) | 2011 | 2010 | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
5,846 | 6,083 | 6,578 | |||||||||
| Recovered grade (ounces/ton) |
0.003 | 0.003 | 0.003 | |||||||||
| Gold produced (ounces) |
18,937 | 20,801 | 22,345 | |||||||||
| Gold sold (ounces) |
18,873 | 20,801 | 22,345 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
25,847 | 22,723 | 19,448 | |||||||||
| Cash cost (‘000) |
20,761 | 15,856 | 11,924 | |||||||||
| Cash profit (‘000) |
5,086 | 6,867 | 7,524 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($) |
1,141 | 762 | 534 | |||||||||
| Capex (‘000) ($) |
3,108 | 0.660 | 0.279 | |||||||||
Tons treated from Phoenix were 6,083,000 in fiscal 2010, compared with 6,578,000 in fiscal 2009. Ounces produced dropped to 20,801 in fiscal 2010, compared with 22,345 in fiscal 2009, primarily due to the decrease in tons treated. The recovered grade remained at 0.003 ounces/ton in fiscal 2010. The grade of the tons treated is dependent on the waste grade at the time at which the original deposition was done.
Cash costs were US$15.9 million in fiscal 2010, compared with US$11.9 million in fiscal 2009, primarily due to the decrease in volumes as well as the higher costs of reagents. Cash costs per ounce increased during fiscal 2010 to US$762 per ounce, compared with US$534 in fiscal 2009 due to the decrease in volume and increase in transport rates and the price of consumables and electricity.
Volumes decreased by 4% year on year to 5,846,000 tons, due to the issues experienced (as discussed above in “— Mining Operations”) during fiscal 2011. This affected the ounces produced, which decreased from 20,801 ounces in fiscal 2010 to 18,937 in fiscal 2011.
Despite the lower ounces produced, revenue increased by 14% to US$25.8 million in fiscal 2011 as a result of the higher average gold price received. Cash costs per ounce in fiscal 2011 were US$1,141/oz, compared with US$762/oz in fiscal 2010 due to the lower production as well as the 25% increase in electricity and the increase in the cost of consumables.
Capital Expenditure: We incurred approximately R22 million (US$3.1 million) in capital expenditures at the Phoenix operation in fiscal 2011. For 2012, R12 million (US$1.8 million) is planned for various minor plant upgrades.
Discontinued operations — Cooke operations
Introduction: The Cooke operations are located in the Gauteng Province of South Africa, approximately thirty kilometers west of Johannesburg.
During fiscal 2008, an agreement was entered into for the sale of the Cooke operations, together with the associated surface assets. As a result, the assets and related liabilities were classified as held for sale and the results from operations have been included under “Discontinued Operations” in the income statement. On November 21, 2008, the conditions precedent were fulfilled and the sale of an effective 60% interest in the operations was recognized. The discussion below relates to the period up to the effective date of the sale.
Geology: These operations are situated in the West Rand Goldfield of the Witwatersrand Basin, the structure of which is dominated by the Witpoortjie and Panvlakte Horst blocks, which are superimposed over broad folding associated with the southeast plunging West Rand Syncline. At the Cooke operations, two major fault trends are present. The first is parallel to the Panvlakte Fault and strikes north to north-east, having small throws and no lateral shift. The second trend, which runs north-west to west, has small throws, but significant lateral shift, resulting in the payshoots becoming displaced.
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There are six identified main reef groupings in the area of these operations: the Black Reef; the Ventersdorp Contact Reef; the Elsburg Formations; the Kimberleys; the Livingstone Reefs; and the South Reef. Within these, several economic reef horizons have been mined at depths below surface between 600 and 1,260 meters.
The reefs comprise fine to coarse grained pyritic mineralization within well developed thick quartz pebble conglomerates or narrow single pebble lags, which in certain instances are replaced by narrow carbon seams.
Mining Operations: The Cooke assets and related liabilities were classified as a disposal group and held-for-sale during fiscal 2008.
The Cooke operations accounted for 5% in fiscal 2009 of our total gold production.
Plants: The processing facilities at the operations presently comprises of the Cooke metallurgical plant, which is serviced by a surface rail network. The Cooke metallurgical plant, commissioned in 1977, is a hybrid CIP/CIL plant, which processes the tailings from the surface sands dumps around Randfontein.
Feasibility studies are being done for a proposed Uranium Plant of an approximate capacity of 500,000 tons per month. It is envisaged that the plant will be completed in approximately three years once approved, when it will treat uranium ore from the Cooke dumps as well as from the Cooke 3 underground operations.
Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Cooke operations | 2011 | 2010 | 2009(1) | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
— | — | 1,419 | |||||||||
| – Underground |
— | — | 514 | |||||||||
| – Surface |
— | — | 905 | |||||||||
| Recovered grade (ounces/ton) |
— | — | 0.057 | |||||||||
| – Underground |
— | — | 0.137 | |||||||||
| – Surface |
— | — | 0.011 | |||||||||
| Gold produced (ounces) |
— | — | 80,377 | |||||||||
| – Underground |
— | — | 70,378 | |||||||||
| – Surface |
— | — | 9,999 | |||||||||
| Gold sold (ounces) |
— | — | 85,746 | |||||||||
| – Underground |
— | — | 75,747 | |||||||||
| – Surface |
— | — | 9,999 | |||||||||
| Results of operations ($) |
||||||||||||
| Product sales (‘000) |
— | — | 68,204 | |||||||||
| Cash cost (‘000) |
— | — | 49,625 | |||||||||
| Cash profit (‘000) |
— | — | 18,579 | |||||||||
| Cash costs |
||||||||||||
| Per ounce of gold ($) |
— | — | 644 | |||||||||
| – Underground |
— | — | 613 | |||||||||
| – Surface |
— | — | 868 | |||||||||
| Capex (‘000) ($) |
— | — | 9,655 | |||||||||
| (1) | The operations were sold on November 21, 2008 and the results are for the five months then ended. |
International Mining Operations
Western Australia Operations
Corporate Action — Mount Magnet and Big Bell Operations
As indicated previously in various applications Harmony has been pursuing an exit strategy from its Western Australian assets. This led to an agreement by Harmony to sell Mount Magnet and Big Bell Gold Operations (“BBGO”) to Monarch Gold Mining Company Limited (“Monarch”).
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However, the transaction fell through as Monarch was subsequently liquidated in July 2008. Still in pursuant of the Western Australia exit strategy, Harmony opened a competitive bidding process with three Australian companies for the disposal and sale of Mount Magnet and BBGO.
The highest and most attractive offer for the purchase of Mount Magnet was received from Ramelius in July 2010. Harmony entered into a Share Sales Agreement with Ramelius for a total consideration of A$35.3 million in cash plus replacement environmental bonds of A$4.7 million totaling A$40.0 million consideration. Final settlement of the transaction took place in July 2010.
In accordance with IFRS requirements, the Mount Magnet disposal group was classified as a held-for-sale and discontinued operation at 30 June 2010.
The highest and most attractive offer for the purchase of BBGO was received from Fulcrum in November 2009. Harmony entered into a Share Sales Agreement with Fulcrum for a total consideration of A$3.5 million in cash plus replacement environmental bonds of A$3.2 million totaling A$6.7 million consideration. The sale effective on January 18, 2010 and final settlement of the transaction took place in May 2010.
No gold was produced at our Australian operations in fiscal 2011, 2010 and 2009.
Mount Magnet Operations
Introduction: In 2002, we acquired Mount Magnet as part of the Hill 50 transaction. The site was placed on care and maintenance as from December 31, 2007. The operation was sold to Ramelius during July 2010.
History: Mining at Mount Magnet began after the discovery of gold in 1896. From that time to June 30, 2009, the Mount Magnet area has produced approximately 6 million ounces. The most recent Mount Magnet operations commenced production in the late 1980s on the Hill 50 and Star underground mines and nearby open-pits, and the processing of low grade ore from previously accumulated stockpiles. Production ceased at the Star underground mine in June 2005. The Star underground mine was subsequently replaced by St. George, a new underground mine. The Mount Magnet site was put on care and maintenance as from December 31, 2007.
Geology: The Mount Magnet operations are located near the town of Mount Magnet in the Murchison region, some 600 kilometers northeast of Perth. The geology consists of folded basaltic and komatiitic greenstones with intercalated banded iron formations and volcaniclastic units. In addition to having been intensely folded, the area has undergone substantial faulting and later intrusion by felsic intrusives. Mineralization within the Murchison belt consists of sulphide replacement style (characteristic of the Hill 50 mine) and quartz lode and shear-hosted hydrothermally emplaced bodies proximal to fault conduits. Smaller stockwork bodies within felsic intrusives are also common. As is typical of the Archaean Shield, the deep weathering profile at Mount Magnet has resulted in supergene enrichment and hypogene dispersion of gold in the oxidizing environments. These effects lend themselves well to the process of small scale open-pit mining. Historically underground mining of primary lodes was the largest contributor to Mount Magnet’s gold production.
Mining Operations: The Mount Magnet operations were engaged in underground, open-pit and waste rock mining prior to site closure. These operations are subject to the underground, open-pit, and waste rock mining risks detailed in the Risk Factors section.
Underground operations at Mount Magnet consisted of the Hill 50 and St. George mines, each of which operated a decline. The Hill 50 mine, which approached 1,525 meters in depth, was one of Australia’s deepest underground mines. The St. George Mine was approximately 300 meters in depth. Underground mining was conducted by decline tunnel access. The principal challenges confronted by the Hill 50 underground mine related to its continuing depth and the geotechnical, ventilation and cost impediments that increased depth imposes, including increased ground stress and potential increased seismic activity. A decision was made in May 2007 which placed the Hill 50 mine’s decline development on hold due to significant seismic activity, and effectively put the mine in harvest mode at that time.
With the closure of Star, the development of the new underground mine at the St. George open-pit provided additional underground tonnage for the Mount Magnet operations. Underground development at St. George started in December 2005. The first stope was mined in the second quarter of fiscal 2006. Underground mining continued at this mine during fiscal 2007. This mine reached its economic depth limit during fiscal 2007, and was put in harvest mode, with mining operations ceasing in October 2007.
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Open-pit production was hindered by the delay in the start up of the Cue open-pits until the last quarter of fiscal 2005 as a result of delayed mining approvals and extended contractor negotiations, although these were subsequently resolved and mining commenced in fiscal 2006. Open-pit mining mainly took place around Mount Magnet during fiscal years 2007 and 2008.
Surface operations at Mount Magnet exploited several medium-sized open-pits, as well as numerous smaller open-pits. Surface materials from areas previously involved in production, including waste rock dumps and tailings dams, are also processed at Mount Magnet. The principal challenge faced by the Mount Magnet operations involved the short mine lives which result from the open-pits being situated on small orebodies. The Mount Magnet site was put on care and maintenance as from December 31, 2007.
Plant: The Mount Magnet operations include one metallurgical plant which was built in 1989 as a CIL plant and upgraded in 1999 to a CIP plant. Actual throughputs of the Mount Magnet plant varies based upon the blend of oxide and sulphide ores in their feed. Processing capacity is an estimate of nominal throughput based on a 70% hard (sulphide) and 30% oxide (soft) blend.
Throughput rates at Mount Magnet were at zero in fiscal 2009 and 2010 due to the site being closed and the plant being placed on care and maintenance.
Papua New Guinean Operations and Exploration
Overview
Introduction: Fiscal 2011 was the third year of the Morobe Mining Joint Venture between Harmony and Newcrest. The Morobe Mining Joint Venture is a 50:50 Joint Venture encompassing:
| 1. | the Hidden Valley Operation; |
| 2. | the Wafi-Golpu Project; and |
| 3. | an Exploration Joint Venture on the surrounding tenement package. |
Outside of the Morobe province Harmony has expanded the PNG exploration portfolio with three key projects that are 100% owned:
| 1. | Mount Hagen in the Western Highlands |
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| 2. | Amanab in the Sandaun Province |
| 3. | Tari in the Southern Highlands Province |
In terms of regional geological setting, Harmony’s tenement interests are all located within the New Guinea mobile belt. The mobile belt comprises tracts of metamorphosed Lower Jurassic and Cretaceous sediments and oceanic crust. These rocks have undergone deformation in the collision zone between the Australian and Pacific Plates and multiple intrusive events including Tertiary granodiorite and younger mineralized porphyries.
Exploration expenditure in PNG for fiscal 2011 was US$48.9 million. This breaks down into US$41.4 million as Harmony’s 50% contribution to the Morobe Mining Joint Venture exploration program and US$7.5 million for Harmony 100% projects. Results from exploration work have been highly encouraging, with a major Resource expansion achieved at the Wafi-Golpu Project, and a number of targets with the potential for major stand-alone gold and copper/gold deposits identified and advanced to the drill testing phase.
Hidden Valley Operation
Introduction: The Hidden Valley project is an open pit gold-silver mine and processing plant. Two separate open pits are in operation, being Hidden Valley-Kaveroi (“HVK”) pit, and Hamata pit. The mill has been constructed to process a nominal 4.2 million tonnes (dry metric) of ore per year from the two pits, with de-bottlenecking of the plant planned up to 4.7 million tonnes per year. The mine was officially opened on September 30, 2010.
Newcrest purchased an initial 30.01% interest in the project on June 30, 2008, and provided sole funding of the project to June 30, 2009 to earn a further 19.99%. On June 30, 2009 Newcrest formally achieved 50% ownership in the project, such that the project is now a 50:50 joint venture between Newcrest and Harmony.
The mine is located in a highly prospective exploration lease area and it is envisaged that, as active exploration continues, the life of the process facility may be extended as it is fed from a number of sources.
The project comprises a number of mining and exploration licenses in the Wau District of Morobe Province, PNG and is located 210 kilometers north-northwest of Port Moresby and 90 kilometers south-southwest of Lae, the two largest cities in PNG. Access to the project is presently by sealed road from the deepwater port of Lae to Bulolo. Harmony constructed an all-weather gravel road from Bulolo to the Hidden Valley mine site to access the site.
History: Alluvial gold was first discovered at Hidden Valley in 1928 but it was not until the early 1980’s that the area was investigated by CRA Exploration using modern exploration techniques that resulted in the discovery of the Hidden Valley and Kaveroi gold deposits on EL 677. A number of feasibility studies have been prepared for the Hidden Valley Project by the various owners, including one by Abelle in 2003. Harmony extensively reviewed and updated the Abelle feasibility study during fiscal 2006 in order to: (a) reflect changes in the project’s ore body interpretation; (b) incorporate increases in capital and operating costs as a result of energy prices and scarce resources in the mining industry as well; and (c) resolve technical aspects that were outstanding from the previous study. The updated feasibility study was presented to the board during June 2006 with subsequent approval given for construction of the project. In late 2007, Harmony began a search for a partner to partake in all of our PNG mining and exploration activities, culminating in the selection of Newcrest as a partner.
Mining operations: Currently ramping up to full production, the Hidden Valley Mine is expected to initially process 4.6 million tons (short) of ore per annum from ore mined at two open-pits, The HVK pit and the Hamata pit. Currently planned de-bottlenecking is expected to increase the processing rate to 5.2 million tons (short) of ore per annum by year three of operations.
The HVK pit, at an elevation of between 2,500 meters and 2,700 meters above sea level, is the larger pit supplying the majority of the ore. The HVK pit is located some 5 to 6 kilometers from the processing plant. The smaller Hamata pit is directly adjacent to the processing plant on the northern side of the processing plant and is at an elevation of between 1,850 meters and 2,040 meters above sea level. The resources will be mined in a sequence that sees the low silver, high gold Hamata ore mined first, with plant and infrastructure development for the project developed in close proximity to the Hamata deposit. The next ore mined will be the Hidden Valley/Kaveroi oxide/transition ores (high silver) followed by the Hidden Valley/Kaveroi primary ores.
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The planned ramp-up throughput rates were interrupted in the third quarter when a conveyor belt splice failed on the Hidden Valley conveying circuit. The work required to reinstate and recommission the belt is scheduled to be completed by the end of quarter 1 in the fiscal 2012. Much of the production impact of this event was mitigated via rapid mobilization of additional contractor haulage trucks, which were used to haul ore from the Hidden Valley stockpile to the process plant. As a result of this unexpected situation annual production came in at the lower end of management guidance, with gold recoveries reaching nameplate levels and a significant increase in silver recoveries compared to 2010 levels.
A program to systematically identify constraints in the process plant and to optimize plant capacity and performance is under way. This will facilitate plant throughput rates achieving nameplate in the second quarter of fiscal 2012, after reinstatement of the Hidden Valley overland conveyor.
Hidden Valley mine was connected to the national electricity grid in the third quarter, and is receiving up to 10MW of grid power (50 – 60% of total requirements). This has already reduced operational costs in terms of trucking diesel to site, with concomitant environmental benefits, and lessened demand on the site’s diesel-fired power station. In terms of the offtake agreement in place, the national utility benefits from securing a large customer which, in turn, will support its infrastructural development and rural electrification program.
In fiscal 2011, additional waste dump capacity was created as part of a long-term strategy to match waste dump capacity to the target mining rate. This ensures that all waste rock mined at Hidden Valley is retained on site and that the potential for impacts on the Watut River is minimised and managed effectively. Innovative waste dump designs that require less rock are successfully addressing this requirement and have allowed a steady ramp-up in the open-pit mining rate in fiscal 2011.
Implementation of Hidden Valley’s policy of community engagement and local employment, as well as training local employees, continued throughout the year.
Geology: The major gold-silver deposits of the Morobe Goldfield, and the Hidden Valley project are hosted in the Wau Graben. The Wau Graben developed as a back-arc rift basin in the southern extension of the New Guinea Mobile Belt (Owen Stanley Foreland Thrust Belt) covering an area of approximately 850 square kilometers in which the Morobe Goldfield, including the Hidden Valley and Hamata deposits are developed.
The Hidden Valley Deposit is interpreted as a low-sulphidation or adularia-sericite-type epithermal gold-silver system. The Hidden Valley deposit further forms part of the carbonate-base-metal-gold subgroup, with abundant carbonate vein-gangue. Other gold-silver deposits around the Pacific Rim in this sub-group are Kelian (Indonesia), Woodlark (PNG) and Gold Ridge (Solomon Islands).
Discrete zones of intense stockwork fracture and mineralized veining comprise individual lodes. At the Hidden Valley deposit, gold and silver are related to steeply dipping (Hidden Valley Zone, “HVZ”) and flat-lying (Kaveroi Creek Zone, “KCZ”) sheeted vein swarms associated with an underlying shallow thrust.
Safety: As production ramps up at Hidden Valley, the implementation of a comprehensive risk management strategy is evident in the excellent safety performance for the year, with no fatalities (2010: one) and only one lost-time injury, resulting in an LTIFR of 0.2 (2010: 0.7). A key aspect of the risk management strategy is ensuring that each work function is undertaken within a risk management framework, and that hazards are identified and managed to maintain this safety performance.
Plant: The processing plant production rate is 4.6 million tons of ore per annum and operates using process routes that complement the metallurgical characteristics of the ore types mined. The processing plant operates as:
| (a) | a primary crushing plant for the low silver Hamata ores; |
| (b) | a primary and secondary crushing plant for Hidden Valley / Kaveroi ore; and |
| (c) | a combined treatment of all ore through grinding, gravity gold recovery, flotation, concentrate regrind, flotation concentrate leaching and counter-current decantation circuit (“CCD”) with Merrill-Crowe zinc precipitation, CIL of flotation and CCD tailings, goldroom and tailings detoxification via the INCO process. |
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The circuit is designed to enable discard of flotation tailings when treating primary ore only from Hidden Valley / Kaveroi orebodies. Tailings from the CCD circuit would still be subject to final treatment through the CIL circuit.
The gravity gold recovered is processed through an intensive cyanide leach followed by electro-winning circuit to produce a high quality dore product.
Gold and silver rich carbon is processed in an elution plant and precious metals are recovered in the gold room via Merrill-Crowe zinc precipitation stream independent of the CCD circuit.
All tailings are stored in a tailings storage facility, and all water recovered is subjected to detoxification prior to being recycled or released to the environment.
The processing plant and tailings storage facility was built to meet the requirements of the International Cyanide Management Code. Gold production commenced in August 2009 and the plant is currently ramping up to nameplate production.
Production analysis:
| Fiscal Year Ended June 30, | ||||||||||||
| Hidden Valley | 2011 | 2010(1) | 2009 | |||||||||
| Production |
||||||||||||
| Tons (‘000) |
1,852 | 335 | — | |||||||||
| Recovered grade (ounces/ton) |
||||||||||||
| – Gold |
0.054 | 0.045 | — | |||||||||
| – Silver |
0.401 | 0.233 | — | |||||||||
| Gold produced (ounces) |
100,246 | 61,173 | — | |||||||||
| Silver produced (ounces) |
673,032 | 222,717 | — | |||||||||
| Gold sold (ounces) |
101,017 | 53,274 | — | |||||||||
| Results of operations ($) |
— | |||||||||||
| Product sales (‘000) |
139,688 | 10,422 | — | |||||||||
| Cash cost (‘000) |
102,294 | 8,357 | — | |||||||||
| Cash profit (‘000) |
37,394 | 2,065 | — | |||||||||
| Cash costs |
— | |||||||||||
| Per ounce of gold ($) |
993 | 1,003 | — | |||||||||
| Capex (‘000) ($) |
41,376 | 71,420 | — | |||||||||
| (1) | Production for fiscal 2010 was only for three months and is therefore not comparable to fiscal 2011. |
Capital Expenditure: Attributable capital expenditure by Harmony during the year was R289 million (US$41.3 million), which included work on approved mine development (sustaining capital) projects, process plant debottlenecking, new mobile equipment and mine expansion feasibility studies. Harmony’s portion of the capital budgeted for fiscal 2012 is US$46.3 million).
Exploration in PNG
The Morobe JV land holding comprises some 4,726 km2 of tenure. The tenements sit in a broader strategic alliance area where both Harmony and Newcrest operate as JV partners. The tenement package encompasses the Wafi-Golpu and Hidden Valley projects and is a key strategic holding in the Morobe goldfields district. Although prospecting and mining activities date back to the early 1900s, the true potential of the district is only now beginning to crystallise. Fiscal 2011 exploration expenditure for the Morobe JV totaled A$31.9 million and has been hugely successful.
By far the highlight of the 2011 work program was the expansion of the Golpu copper-gold deposit. However, greenfields exploration continued with work programs undertaken on 24 separate prospects in the Morobe JV area. Exploration statistics for fiscal 2011 include:
| • | 92,097m diamond drilling; and |
| • | 12,654 surface samples (soils, rock chips, trenches). |
The underlying strategy of the Morobe JV exploration program is threefold:
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| • | Wafi-Golpu |
— Near-mine project work and brownfields exploration to develop Wafi-Golpu into a second mining operation for the Morobe JV
— Wafi transfer — greenfields exploration targeting discovery of additional resources to expand Wafi-Golpu into a mineral district
| • | Hidden Valley district — brownfields exploration in a 10km radius of the Hidden Valley plant to develop resources to replace mining depletion and support expansion |
| • | Regional greenfields exploration — develop a project pipeline capable of delivering additional quality resources and sustaining future growth and operations in the province. |
Work programs and results for these activities are detailed below.
The drilling success highlights the fact that the region is under-explored and still has significant potential for the discovery of additional multimillion-ounce gold deposits. Accordingly, the Morobe exploration JV proposes to spend A$70 million on exploration in fiscal 2012, of which A$35 million will be Harmony’s share.
Wafi-Golpu Project
Introduction: The Wafi prospect is a 50:50 joint venture with Newcrest of Australia. Harmony’s ownership is through its wholly-owned subsidiary, Wafi Mining Limited. The first exploration at Wafi dates back to the nationwide porphyry copper search by CRA Exploration Ltd in the late 1960’s. Elders Resources farmed-in to the project from 1989-1991, and AGF subsequently farmed-in to the project for a short period in 1997 prior to going into administration in 1998. Aurora subsequently acquired the project from Rio Tinto (CRA) in 1999, with ownership passing to Abelle when it merged with Aurora in 2002. We assumed control of the Wafi Project by way of the acquisition of Abelle in 2003. The project is held under 2 contiguous exploration licenses (EL 440, and EL 1105), totaling 130.5 square kilometers. The Wafi Golpu Project comprises a porphyry and epithermal copper and gold systems within a 2.5km x 2.5km area and contains numerous lodes including the Golpu copper gold porphyry, the Nambonga gold copper porpyryr and the Wafi epithermal gold lodes. The Wafi gold mineralization is hosted by sedimentary/volcanoclastic rocks of the Owen Stanley Formation which surrounds the intrusive Wafi Diatreme. Gold mineralization occurs in the form of extensive high-sulphidation epithermal alteration overprinting porphyry mineralization and epithermal style vein-hosted and replacement gold mineralization with associated wall-rock alteration.
Geography: The Wafi prospect is located near Mount Watut in the Morobe Province of PNG, approximately 60 kilometers southwest of Lae and about 60 kilometers northwest of Wau. The Wafi camp is located at an elevation of approximately 400 meters above sea level in terrain that is mountainous and forested in most areas. The site is accessed by sealed road (Lae to Bulolo) which comes within 5 kilometers of the eastern edge of the tenements and 15 kilometers from the Wafi camp. From the sealed road, a 38 kilometer dirt-base access track to the prospect is accessible during most weather conditions. The site is serviced by helicopter when the road access is cut due to extreme wet weather. Watut Valley is located immediately west of the project, and the foothills of Watut Valley provide an option for placement of ore processing and mine infrastructure. Alternatively, the processing plant may be located in the Markham River valley closer to Lae.
Project Status: The discovery of extensive zones of additional high-grade mineralization at Wafi-Golpu has been one of the most significant in the world this year. The Wafi-Golpu resource has world-class credentials compared with other similar projects: in size, it is substantial, and it has the highest copper and gold grade among its peers. This is phenomenal growth in an already-large system and we have not yet defined the full extent of the resource. Golpu itself is open to the north and at depth, which is being tested with the ongoing drilling program.
The Golpu copper-gold deposit is a nested porphyry system that comprises at least three separate mineralized intrusions. There is strong potential for additional mineralised intrusives along strike from Golpu, at Nambonga, and for additional feeder zones around the margins and at depth below the diatreme. In overall assessment, the area remains hugely prospective and under-explored.
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The Wafi epithermal gold system is also expanding, with new zones of gold mineralization discovered off the northern margin of the diatreme. We have identified additional Wafi-style gold mineralization adjacent to the Golpu porphyry in drill holes designed to target the latter deposit.
The exploration strategy for the Wafi-Golpu system is to expand the known resource through step-out drilling while exploring for more Wafi- and Golpu-style mineralization via brownfields exploration strategies inside the 2.5km2 project zone and greenfield exploration programs along the Wafi transfer structure outside the project zone.
To help realize the potential of this world-class mineral province, the MMJV is increasing the drill fleet at Wafi-Golpu from five drills to eight. The budget for drilling this year is A$46 million. Some of this drilling will specifically target areas of the existing resources requiring additional geotechnical, hydrological and metallurgical information. The majority will focus on resource extension and discovery.
Pre-feasibility study: Technical and economic evaluation of the Wafi gold and Golpu copper-gold deposits progressed this year into pre-feasibility study. This process is under the control of a joint-venture project team and studies group comprizing mainly seconded technical and projects staff from Harmony and Newcrest.
The study is well under way, with most major study elements advancing and specialised work contracted out to expert consultants and engineering firms. The spectacular success of the exploration program has meant that much of the detailed mine design work done in earlier phases of study has been superseded by the growth of the Wafi resource. This work is being updated to consider the impact on current concepts for mine development.
The work to date does confirm the findings of earlier iterations of concept and pre-feasibility studies that the Golpu deposit will be the initial economic driver for exploitation of the Wafi mineral province. The primary objective of the pre-feasibility study is to identify the optimal development sequence and scale for the Golpu copper-gold orebody, together with a staged underground access. The intent is to recommend a development approach that can bring forward mine development without sacrificing strategic optionality and flexibility to accommodate the outcomes of ongoing feasibility studies and the resource drill-out program that will be happening concurrently.
The study scope also includes consideration of potential scenarios for economic development of the Wafi gold deposits, using synergies with the adjacent Golpu deposit, but without detracting from the timing or operability of solutions for bringing Golpu into production. The Wafi gold deposits include both refractory and non-refractory mineralization, with much of the resource at depths suitable for open-pit mining. Additionally, options are being considered to exploit the higher-grade deeper zones by underground mining.
Additional elements of the projects include social and environmental programs, statutory permitting and licensing, and community agreements; all necessary to advance the project to development. These aspects are being progressed within the scope of the project execution plan by dedicated in-country staff who are closely engaged with the relevant stakeholders and government agencies. Defining the pathway to an approval to mine, including plans for managing environmental and social impacts, a basis of agreement with government and community stakeholders and gaining adequate security of tenure are critical in any development.
Wafi Transfer Structure & Regional Targets
Introduction: The Wafi Transfer structure comprises approximately 17km of strike and includes the Wafi-Golpu Project area. The area has seen little exploration and remains highly prospective for gold and porphyry copper gold resources similar to those at Wafi Golpu.
Geology: The Wafi Transfer structure separates the Tertiary Babwaf conglomerate in the west from Jurassic and Cretaceous metasedimentary rocks of the Owen Stanley Metamorphic group in the east. Regional magnetics show the contact is intruded by a number of magnetic intrusive bodies similar to those at the Wafi-Golpu project and suggest excellent potential for additional mineralized porphyry copper-gold and related gold deposits.
Project Status: Work in fiscal 2011 was focused on prospect development with 2,329 surface samples completed over three prospects: Mt Tonn, Bavaga and Zimake. First-pass drilling (498 meters) was also undertaken at the Pekumbe prospect, with additional testing of ranked targets to continue in fiscal 2012.
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Bavaga is located approximately 5 km north of Wafi-Golpu. Results for stream sediment reconnaissance sampling over the area has been particularly encouraging with a large high tenor Au anomaly defined from first pass sampling. A program of follow-up ridge and spur soils and reconnaissance mapping and sampling is underway.
At Pekumbe prospect, which lies around 5.5 kilometers south-west of Golpu, grid based soil sampling defined a high tenor, coherent, coincident copper, gold, molybdenum anomaly. Two drill holes were completed during fiscal 2011, with a third hole started but abandoned short of target due to drilling difficulties. Follow-up drilling is planned for fiscal 2012.
At Mt Tonn, grid-based surface soil sampling has defined a significant Au anomaly associated with a magnetic intrusive complex on the Wafi Transfer structure. The anomaly remains open to the south off the grid and has distinctly elevated copper assays. Additional surface sampling and drill testing is planned for fiscal 2012.
The Zimake target is a circular magnetic anomaly of about 5km x 6km. Historical pan concentrate samples from the target area contain anomalous gold grades. Initial observations from reconnaissance mapping and rock-chip sampling have been encouraging, with alluvial gold working mapped in association with both propylitic and phyllitc altered sedimentary rocks, adjacent a granodioritic contact. Fieldwork is continuing to the north where alteration intensity appears to become more intense.
Hidden Valley ML Exploration
Project Status: Work in fiscal 2011 on the Hidden Valley mining lease and surrounding tenure included over 10,000 meters of diamond drilling (excludes resource definition drilling) and an extensive program of reconnaissance mapping and surface sampling (500 samples). Development of a district-scale mineralization model for the Hidden Valley Wau district also started and will be completed in fiscal 2012. The work program is being undertaken to provide additional new resources to extend mine life or support expansion of the operation. There is also potential in the district for high-grade satellite resources to supplement ore feed to the plant. Although drilling undertaken at Waterfall and Tais Creek downgraded the prospectivity of these targets, results from the Mungowe and Kulang-Kerimenge prospect areas have been particularly encouraging.
Mungowe: The Mungowe prospect is roughly 6 kilometers northwest of Hidden Valley, and was highlighted by historical stream sediment results with anomalous values over a 4 kilometer zone. Follow-up reconnaissance mapping and rock-chip sampling (203 samples) have outlined a high-grade zone of outcropping mineralization. High grades are localised at the intersection of several fault zones, but this sits within a broader envelope of carbonate-base metal mineralization and alteration covering an area of some 3 kilometers by 1.5 kilometers. Results may represent leakage of mineralization through a sediment ‘cap’ in a structural-geological setting similar to that at Hidden Valley. The first-pass reconnaissance results are highly encouraging and drill testing is planned for fiscal 2012.
Kulang-Kerimenge: The Kulang-Kerimenge trend is 7-10 kilometers west of the Hidden Valley processing facility and comprises a 5 kilometer zone of clay-pyrite (argillic) alteration. The alteration zone encompasses a number of historical prospect areas including the high-sulphidation gold mineralization at Kerimenge, and outcropping base metal carbonate veins at Kulang. The zone is interpreted as alteration and mineralization in the lithocap above a major porphyry copper-gold system. First-pass drilling at Kulang prospect (4 kilometers north-north-east of Kerimenge) comprised six holes (2 686 meters). Although no ore grade intercepts were obtained, gold results indicate widespread Au anomalism associated with colloform-banded quartz, rhodochrosite and base metal sulphide veins. These anomalous gold zones carry elevated Ag assays, suggesting they formed at a high level in the system. Trenching and detailed alteration mapping continues along the trend to identify vectors to the porphyry source at depth.
Other — Morobe regional exploration
Regional greenfields exploration work continued to develop the project pipeline over the broader tenement package. This work included over 1,200 soil, rock-chip and stream sediment samples, predominantly focused at the Morobe coast, following up on magnetic targets generated in fiscal 2011.
Mount Hagen Project (Harmony 100%)
Introduction: Located some 20 kilometers from Mt Hagen, the Mt Hagen project forms a contiguous block of tenure covering 994 square kilometers. It consists of two granted exploration licences (EL1596 and EL1611) and several tenement application areas (ELA
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1864-1867). Regional stream sediment samplinghas obtained copper and gold anomalies up to 4.08g/t Au and 1 200ppm Cu. It is one of the highest-tenor copper-gold anomalies in the belt of rocks extending between the Frieda River and Yandera Cu-Au-Mo projects.
Project Status: Work in fiscal 2011 has focused on the Kurunga intrusive complex and comprised over 3 386 soil and rock-chip samples. Results from this work have defined a number of high-tenor Cu-Au anomalies in close proximity, centered on the Kurunga intrusive complex. The scale and tenor of the anomalies indicate excellent prospectivity for a major porphyry copper system and drill testing has commenced.
Amanab Project (Harmony 100%)
Introduction: Located in Sandaun Province of western PNG, some 160 kilometers north of the Ok Tedi copper-gold mine, this project encompasses a significant alluvial goldfield which has never seen drill testing. The Amanab project (EL1708) comprises 932 square kilometers of tenure and encompasses one of the 17 recognised alluvial goldfields in PNG. Major PNG deposits at Porgera, Bougainville and Morobe (includes Hidden Valley, Wau and Edie Creek) all had similar alluvial gold occurrences established prior to discovery.
Project Status: Fieldwork at Amanab comprised first-pass ridge and spur soil sampling and reconnaissance rock-chip sampling at Yup River East and West prospects. A total of 700 surface samples were collected. Results received to date indicate potential for a major gold system with a footprint over 5 kilometers of strike. Outcrop sampling at the Yup River East target area in Amanab returned anomalous gold values from chlorite-quartz-pyrite altered shale in Galemu Creek close to the alluvial gold workings.
Follow-up work is planned for the first quarter of fiscal 2012.
Tari Project (Harmony 100%)
Introduction: Located in the Southern Highlands Province around 50 kilometers south-west of Porgera where new exploration licence applications encompass several magnetic targets with excellent potential for porphyry copper-gold mineralization and Porgera-style epithermal gold.
Project Status: The Tari project applications (EL1785 and 1786) in the Southern Highlands Province comprise some 2,800 square kilometers of tenure. The tenements cover the south-west extension of the Porgera transfer structure, and are in the Papuan fold belt with the same host stratigraphy as Ok Tedi and Grasberg deposits. Data compilation has highlighted the Lake Kopiago area where previous explorers mapped outcropping skarn mineralization with high grade rock-chip gold assays. This will be the focus of the fiscal 2012 exploration program.
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REGULATION
Mineral Rights
South Africa
South African law no longer provides for the separate ownership of surface and mineral rights. Prior to the promulgation of the MPRDA on May 1, 2004, it was therefore possible for one person to own the surface of a property, another to own rights to precious metals, and yet another to own rights to base minerals. In terms of the MPRDA, all mineral rights in South Africa are now vested in the South African State. The principal objectives of the Act are:
| • | to recognize the internationally accepted right of the state of South Africa to exercise full and permanent sovereignty over all the mineral and petroleum resources within South Africa; |
| • | to give effect to the principle of South Africa’s custodianship of its mineral and petroleum resources; |
| • | to promote equitable access to South Africa’s mineral and petroleum resources to all the people of South Africa; |
| • | to substantially and meaningfully expand opportunities for HDSAs including women, to enter the mineral and petroleum industry and to benefit from the exploitation of South Africa’s mineral and petroleum resources; |
| • | to promote economic growth and mineral and petroleum resources development in South Africa; |
| • | to promote employment and advance the social and economic welfare of all South Africans; |
| • | to provide security of tenure in respect of prospecting, exploration, mining and production operations; |
| • | to give effect to Section 24 of the South African Constitution by ensuring that South Africa’s mineral and petroleum resources are developed in an orderly and ecologically sustainable manner while promoting justifiable social and economic development; and |
| • | to ensure that holders of mining and production rights contribute towards socio-economic development of the areas in which they are operating. |
Under the MPRDA, tenure over established mining operations is secured for up to 30 years (and renewable for periods not exceeding 30 years each thereafter), provided that mining companies apply for new-order mining rights over existing operations within five years of May 1, 2004, or before the existing right expires, whichever is the earlier date and fulfill requirements specified in the MPRDA, its Regulations and the Mining Charter.
The Mining Charter was signed by government and stakeholders in October 2002 and contains principles relating to the transfer, over a ten-year period, of 26% of South Africa’s mining assets (as equity or attributable units of production) to HDSAs, as defined in the Mining Charter. An interim target of 15% HDSA participation over five years was set and to this end, the South African mining industry committed to securing financing to fund participation of HDSAs in an amount of R100.0 billion within the first five years of the Mining Charter’s tenure. The Mining Charter provides for the review of the participation process after five years to determine what further steps, if any, are needed to achieve the 26% target participation. In order to measure progress in meeting the requirements of the Mining Charter, companies are required to complete a “scorecard”, in which the levels of compliance with the Mining Charter can be ticked-off after five and ten years respectively. The Mining Charter and Scorecard require programs for black economic empowerment and the promotion of value-added production (mineral beneficiation), such as jewelry-making and other gold fabrication, in South Africa. In particular, targets are set out for broad-based black economic empowerment in the areas of human resource and skills development; employment equity; procurement beneficiation and direct ownership. In addition, the Mining Charter addresses socio-economic issues such as migrant labor, mine community and rural development, and housing and living conditions.
Following a review of the progress made by the mining industry after five years of implementing the provisions of the Mining Charter, the DMR recently amended the Mining Charter and the Revised Mining Charter was released on September 13, 2010. The requirement under the Mining Charter for mining entities to achieve a 26% HDSA ownership of mining assets by the year 2014 has
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been retained. Amendments to the Mining Charter in the Revised Mining Charter include, inter alia, the requirement by mining companies to:
| (i) | facilitate local beneficiation of mineral commodities; |
| (ii) | procure a minimum of 40% of capital goods, 70% of services and 50% of consumer goods from HDSA suppliers (i.e. suppliers of which a minimum of 25% + 1 vote of their share capital must be owned by HDSAs) by 2014. These targets will however be exclusive of non-discretionary procurement expenditure; |
| (iii) | achieve a minimum of 40% HDSA demographic representation by 2014 at executive management (board) level, senior management (EXCO) level, core and critical skills, middle management level and junior management level; |
| (iv) | invest up to 5% per cent of annual payroll in essential skills development activities; and |
| (v) | implement measures to improve the standards of housing and living conditions for mineworkers by converting or upgrading mineworkers’ hostels into family units, attaining an occupancy rate of one person per room and facilitating home ownership options for all mineworkers in consultation with organised labor. |
All targets must be achieved by 2014.
In addition, mining companies are required to monitor and evaluate their compliance to the Revised Mining Charter, and must submit annual compliance reports to the DMR. The Scorecard makes provision for a phased-in approach for compliance with the above targets over the five year period ending in 2014. For measurement purposes, the Scorecard allocates various weightings to the different elements of the Revised Mining Charter. Failure to comply with the provisions of the Revised Mining Charter will amount to a breach of the MPRDA and may result in the cancellation or suspension of a mining company’s existing mining rights.
We actively carry out mining and exploration activities in all of our material mineral rights areas. Accordingly, the MPRDA has not had a significant impact on these mining and exploration activities because we applied for and were granted the conversion of all of our old-order mining rights into mining rights in terms of the MPRDA. We now have to comply with the required annual and bi-annual reporting to the DMR on the Social and Labor Plans, Environmental Management Programs, and Progress Reports on our prospecting rights.
We have already complied with the requirements of the Mining Charter, with an equivalent of 36% of production ounces qualifying as empowerment credit ounces. We have been working on our program of licensing since 2004, which involved the compilation of a mineral assets register and the identification of all of our economic, mineral and mining rights. We have secured all “old mining rights” and validated existing mining authorizations. Our strategy has been to secure all strategic mining rights on a region-by-region basis. The first application for conversion from old-order to new-order mining rights was for the Evander Operations and was lodged on May 21, 2004. The Evander mining license was the first conversion application in the region and in October 2004 we became the first senior company to convert old-order to new-order mining rights for our Evander and Randfontein operations. We have worked closely with the DMR to help ensure, to the extent we are able, that the licenses are granted as swiftly as possible. The conversion of licenses for all our remaining operations were granted during November 2007 and Doornkop was executed in October 2008. All of our mining areas are therefore secured/supported by new-order mining rights.
The Mineral and Petroleum Royalty Act 28 of 2008 and the Mineral and Petroleum Royalty Administration Act 29 of 2008 were assented to on November 21, 2008 with the commencement date set as May 1, 2009. However, the date on which royalties became payable was deferred to March 1, 2010. Royalties are payable to the government according to formula based on earnings before interest and tax. This rate is then applied to revenue to calculate the royalty amount due, with a minimum of 0.5% and a maximum of 5% for gold. For fiscal 2011, the average royalty rate for our South African operations was 0.63% of gross sales.
The MPRDA intends to, among other things:
| • | give effect to the Minister’s stated intention to promote investment in the South African mining industry; |
| • | establish objective criteria for compliance with the MPRDA’s socio- economic objectives; |
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| • | remove the technical deficiencies of the MPRDA; |
| • | align the MPRDA with the Promotion of Administrative Justice Act, 2000; and |
| • | coordinate the environmental requirements between the MPRDA and the National Environmental Management Act. |
Papua New Guinea
According to the Mining Act of 1992 (PNG) mineral rights in PNG belong to the government of PNG and they have a statutory right to obtain up to a 30% participating interest in mining development projects. The government then issues and administers mining tenements under the relevant mining legislation, and mining companies must pay royalties to the government based on production.
The key difference in PNG is that citizens have the right to carry out non-mechanized mining of alluvial minerals on land owned by them. These customary rights do not extend over a mining lease, unless an alluvial mining lease is obtained.
Almost all land in PNG is owned by a person or group of persons, and is not generally overlaid by landowner title issues. There is, however, considerable difficulty in identifying landowners of a particular area of land because land ownership may arise from both contract and inheritance, and because of the absence of a formal written registration system.
Prior to commencing exploration, compensation for loss or damage must be agreed with the landowners. Prior to commencing mining, a written agreement must be entered into with landowners dealing with compensation and other matters.
In PNG, Morobe Consolidated Goldfields Limited and Newcrest PNG 1 Limited hold a mining lease and various exploration licenses granted by the Department of Mineralogy and Geohazards Management for the Hidden Valley Project. Both parties have obligations under a memorandum of agreement with the state, local government and the landowners.
Wafi Mining Limited and Newcrest PNG 2 Limited hold various exploration licenses granted by the Department of Mineralogy and Geohazards Management for the Wafi-Golpu Project, and have entered into a compensation agreement with landowners on one of its exploration licenses.
HGEL manages three main project areas which include the Amanab project in the Sandaun Province, Mt Hagen project in the Western Highlands Province and Tapini project in the Central Province. A fourth project area, Tari project in the Southern Highlands, remains as applications pending.
In PNG there are no applicable exchange control restrictions but the PNG central bank does have to be informed of all transactions and has to approve lending facilities and interests rates charged.
Environmental Matters
We are committed to conducting our business in an ethically, morally, socially and environmentally responsible manner that will protect human health, natural resources and the environment in which we live. We aim to balance our economic, social and environmental goals and responsibilities to achieve sustainable, profitable growth in our business and, more importantly, to work with communities and regulatory agencies to implement sound management practices which will ensure that our mining is conducted in an environmentally-safe manner. In addition, with regard to legacy mining impacts, we remain committed to identifying and implementing coordinated remediation plans that are acceptable to all relevant parties.
South Africa
Harmony has recently approved its environmental strategy which is geared towards:
| • | managing the business with environment as an integral part of the business processes; |
| • | focusing relentlessly on effectiveness of risk controls; |
| • | reducing the environmental liability in the organisation; and |
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| • | create a sharing, learning, challenging and innovative environmental culture. |
Environmental compliance is monitored through internal and external audits and technical audits.
Ultimate oversight for environmental strategy and performance in Harmony rests with the Social and Ethics Committee of the board. In addition to an executive environmental manager, an environmental leadership committee drives environmental improvement strategically at group level, which cascades down to the various operations. At each operation, general managers are accountable for environmental management, and each operation develops annual environmental management plans to identify opportunities to increase compliance and minimize pollution.
In support of the above strategy, our environmental policy stipulates that:
| • | Compliance |
We will strive to comply with all applicable municipal, provincial and national laws and regulations, as well as the other requirements to which the Company subscribes that are relevant to the environmental aspects of our activities.
| • | Continual Improvement |
We will evaluate and continually improve the effectiveness of our Environmental Management System (“EMS”) through periodic audits and management reviews, and we will review our environmental policy on an annual basis.
| • | Pollution Prevention |
We will actively design our operations and undertake our mining activities so as to prevent pollution. We will strive towards the continual reduction of adverse environmental effects and support the principle of sustainable development.
| • | Awareness |
We will communicate our environmental policies to our employees, contractors and suppliers, and will provide appropriate training to all employees to ensure their continuing awareness of our environmental responsibilities.
To address and minimize the impact of the Company’s operations on the environment, taking into account regulatory requirements, the board has approved a number of five year targets relating to emissions to air, water consumption and usage, energy consumption, recycling and land use based on fiscal 2008, namely:
| • | Compliance |
The Company will reduce the number of significant incidents to zero.