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Bernard's review   
  

THE WAY FORWARD

Despite the past financial year presenting a series of challenges to deliver on our strategy, the company can claim to have created value for our shareholders. With the successful restructuring of our balance sheet, the company has been repositioned to continue with its growth strategy. This aspect will be pursued aggressively during a time in which the gold industry, locally and internationally, will experience a high level of consolidation activity.

The gold mining industry will change from being heavily fragmented to an industry of probably fewer than ten large producers, generating perhaps as much as 80% of global production.

Harmony is ideally positioned to participate in this continued process of consolidation.

From a shareholder perspective, the company is an ideal vehicle for exposure to gold by means of three scenarios:

Should the gold price increase shareholders will have full exposure to the benefits due the unhedged nature of the company. Production and earnings gearing under these conditions are huge and will result in significant increases in production as well as in earnings per share.

With a constant gold price in the range of US$260/oz to US$270/oz, the company can expect to deliver improved results to those of the past year. Our continued focus on working costs and productivity improvements will translate into savings which should address the impact of the increased cost of labour and supplies. The benefit from a depreciating local currency will, however, result in increased revenues and improved financial results.

This scenario will result in significant pressure on all gold producers to realise the benefits of further rationalisation and consolidation. These are the circumstances for which Harmony is ideally situated with its operational track record and strong balance sheet.

Should the gold price decrease to trading ranges of below US$260/oz, the company will continue to be profitable and deliver good value to our shareholders. By being unhedged, the company will be exposed to the full impact of the decreased gold price. However, as a company which has the bulk of its production generated in South Africa, the local currency will continue to act as a natural hedge which should impact favourably on the revenues generated. The company is able to adapt its production base incrementally to a falling gold price and will continue to deliver value to our shareholders through profitable gold production.

A falling gold price scenario will exponentially increase our chances of finding value enhancing acquisition targets. This is the very same scenario as the one in which the team at Harmony has converted a loss-making lease bound mine into one of the premier gold mining companies in the world.