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RISK FACTORS

The directors believe that the company’s investors are entitled to full and open disclosure of relevant information. In terms of the requirement to file the company’s annual report on Form 20F with the Securities and Exchange Commission in the United States of America, certain risk factors regarding the gold mining industry in general and the company in particular have to be disclosed. In addition to other information included in this report, the following risk factors can influence the overall performance of the company. The risk factors are not exclusive as the conditions and environment in which the company operates are subject to change:

The profitability of Harmony’s operations and the cash flows generated by those operations are affected by changes in the market price of gold, which in the past has fluctuated widely.

Substantially, the company’s revenues come from the sale of gold. Historically, the market price of gold has fluctuated widely and has been affected by numerous factors, including:

the demand for gold for industrial uses and for use in jewellery;
international or regional political and economic trends;
the strength of the US dollar (the currency in which gold prices are generally quoted) and of other currencies;
interest rates;
speculative activities; and
forward sales by gold producers.

Historically, gold has tended to retain 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. Global production in any given year constitutes a significant portion of the total potential supply of gold.

Actual or expected sales of gold by central banks have had a significant impact on the price of gold.

The gold price has declined following each such announcement and sale, culminating in a drop in the gold price to its lowest level in at least 20 years in July 1999, after the Bank of England completed the first part of its announced sale of more than half its gold reserves. In September 1999, the central banks of 15 European countries agreed, through the Washington Accord, to limit sales of gold reserves for the next five years to sales announced at that time and to limit gold lending and derivative operations for a period of five years. The announcement of this agreement led to an immediate increase in the price of gold, although the gold price has since been subject to downward pressure around the time of the periodic auctions held by the Bank of England. The agreement by the central banks is voluntary. Any future sales or publicly announced proposed sales by central banks of their gold reserves are likely to result in volatility in the price of gold.

As Harmony is unhedged by choice and does not use commodity or derivative instruments to protect against low gold prices with respect to most of its production, the company is exposed to the impact of any significant drop in the gold price.

Unlike many other gold producers, Harmony is unhedged and sells its gold production at market prices. A portion of Randfontein’s and New Hampton’s production, which was already hedged when acquired by Harmony, remains hedged.

Harmony generally does not enter into forward sales, derivatives or other hedging arrangements to establish a price in advance of the sale of its future gold production. Although this means that the company can realise the positive impact of any increase in the gold price, it also means that Harmony is not fully protected against decreases in the gold price, and if the gold price decreases significantly, Harmony runs the risk of reduced revenues in respect of gold production that is not hedged.

Harmony’s reserve figures are subject to change at the hands of variations in the gold price and other factors.

Harmony’s gold reserve figures are estimates based on a number of assumptions, including assumptions about mining and recovery factors, future production costs and the price of gold, and may yield less gold under actual production conditions than Harmony currently estimates.

Harmony may experience problems in managing new acquisitions and integrating them with its existing operations.

Any difficulties or time delays in achieving successful integration of new acquisitions could have an adverse effect on Harmony’s business, operating results, financial condition and share price.

Due to the nature of mining and the type of gold mines it operates, Harmony faces a material risk of liability, delays and increased production costs from environmental and industrial accidents and pollution.

The business of gold mining by its nature involves significant risks and hazards, including environmental hazards and industrial accidents.

The company is at risk of experiencing any of these environmental or other industrial hazards. The occurrence of any of these hazards could delay production, increase production costs and result in liabilities.

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, and believes that its current insurance coverage for these potential liabilities is adequate and consistent with industry practice. The company may, however, become subject to liability for pollution or other hazards against which it has not insured or cannot insure due to exclusions and limitations on coverage.

Political or economic instability in South Africa or regionally may have an adverse effect on Harmony’s operations and profits.

The company is incorporated and produces most of its gold from operations in South Africa. As a result, there are important political and economic risks relating to South Africa which could affect an investment in Harmony. South Africa has been transformed into a democracy over the past seven years, with a successful second round of democratic elections held during 1999. We believe that the South African Government is stable. Government policies aimed at redressing the disadvantages suffered by the majority of citizens under previous governments may, however, impact on our operations and profits.

Harmony’s results of operations may be negatively impacted by inflation.

While Harmony’s operations have not in recent years been affected materially by inflation, a period of significant inflation in South Africa, without a concurrent devaluation of the Rand or an increase in the price of gold, could have a material adverse effect on its profits and financial condition.

Since Harmony’s labour force has substantial trade union participation, it faces the risk of disruption from labour disputes and new South African labour laws.

Due to the number of our employees belonging to unions, we are at risk of having production stopped for indefinite periods due to strikes and other labour disputes which may have a material adverse effect on our operations and financial condition. We are not able to predict whether we will experience significant labour disputes in the future.

HIV/AIDS poses risks to Harmony in terms of productivity and costs.

The incidence of HIV/AIDS in South Africa, which is forecast to increase over the next decade, poses risks to Harmony in terms of potentially reduced productivity and increased medical and other costs. Whilst the exact extent of infection in our workforce is not known at present, the prevalence of infected employees is estimated at 25%. Whilst the infection rate has probably reached a plateau, significant increases in HIV/AIDS related diseases among the workforce in the future could adversely impact the company’s operations and financial condition. Harmony is actively pursuing a number of HIV/AIDS awareness campaigns and social intervention community projects with its workforce.

Harmony’s internal HIV/AIDS intervention strategy is supported by all major role-players, i.e. management and the trade unions.

The Mine Health and Safety Act

In January 1997, the South African government introduced The Mine Health and Safety Act. This Act is intended to encourage greater interaction between government regulators, labour representatives and mining companies with regard to health and safety matters. The Act leaves room for self-regulation, but also provides for strict control by the government. As part of our compliance with this Act, we have made progress in establishing risk management and medical surveillance systems. These systems have resulted in improvements in the safety performance of our employees. Health and safety committees required by the Act have been established by the election of workplace representatives. To date, the cost of complying with the Act has not been material.

Mineral rights ownership

Currently, the company owns the majority of its mineral rights and actively carries out mining and exploration activities in all material mineral rights areas. On 18 December 2000 the Department of Minerals and Energy published the Minerals Development Bill, which is based on the principle that mineral resources are part of South Africa’s national patrimony and that the state is the custodian of the nation’s mineral resources.

On commencement of the new legislation, prospecting rights, mining rights, retention permits and permission to remove minerals will only be granted by the state. There are various transition periods to allow holders of existing rights to change over to the new dispensation and Harmony is working within the framework of these transition periods. No major impact on the company’s ownership status of its mineral rights is expected.

Harmony is subject to extensive environmental regulations.

As a gold mining company, Harmony is subject to extensive environmental regulations. The company has experienced and expects to continue to experience costs from compliance with South African environmental laws and regulations. The Minerals Act, certain other environmental legislation and the administrative policies of the South African government all regulate the impact of Harmony’s prospecting and mining operations on the environment.

Currently, the company provides for environmental liabilities by contributing to environmental trust funds. Although the current provision for compliance with South African environmental laws and regulations is reasonable, any future changes and development in environmental regulation may adversely affect its operations.

Harmony may not pay dividends to its shareholders in the future.

It is the current policy of the Harmony board to declare and pay cash dividends if profits and funds are available for that purpose. Whether or not funds are available depends on a variety of factors, including the amount of cash available, capital expenditure and other cash requirements existing at the time. No assurance can be given that cash dividends will be paid in the future.

Harmony’s non-South African shareholders face additional investment risk from currency exchange rate fluctuations since any dividends will be paid in Rand.

Dividends or distributions with respect to Harmony’s ordinary shares have historically been paid in Rand. The US dollar equivalent of any dividends or distributions with respect to Harmony’s ordinary shares will be adversely affected by potential future reductions in the value of the Rand against the US dollar.