Letter to stakeholders from the CEO

Dear stakeholder

Sustainable development is not just a buzz word or fad for Harmony. It is an integral part of the way in which we conduct our business, and is directly linked to the governance processes that we have in place. As a resources company operating in developing economies in South Africa and PNG, our responsibilities are far greater than those simply to our shareholders. Our stakeholders are broad and many, and they have varying interests. We have tried to address these through this report, but welcome further dialogue on those issues that we have not addressed.

While we have placed greater emphasis on developing our strategies in support of our objectives, in setting quantifiable targets, and in better methods of data collation, we have at the same time become more acutely focused on those issues that are most critical to the group.

We have, indicated our sustainability priorities during the year under review. In some areas we have enjoyed success, while in others we have been less successful. I am confident though that, on the whole, we have made progress.

Disappointments

Looking back on the year, there have been four areas of disappointment:

The most significant is that 22 Harmony employees lost their lives at work at our South African operations. Not a single accident is acceptable to us. Our leadership team has been personally involved in driving our programme to eliminate accidents in our workplaces, both through the adoption of and adherence to standards and to the changing of a mindset (at all levels) that accidents in deep level underground mining are inevitable. Overcoming both of these issues cannot be done by management, employees or the regulators acting on their own; it will require the partnership and co-operation of all parties.
An area of significant concern for us has been illegal mining at our operations in the Free State, and the tragic death of 91 people engaged in these activities in FY09. Clearly, from an economic perspective illegal mining activities place a strain on operations, not only in economic value lost but also the additional strain placed on infrastructure and the risk posed by these activities to employees and rescue workers. More importantly though, is the cost of health and well-being of the individuals and their families who are locked into an unforgiving spiral of criminal activity and who place their lives at risk. The tragic reality is that the individuals at greatest personal risk gain the least and are inevitably trapped into a life of crime. We are working closely with the Department of Mineral Resources (DMR), the South African Police Services (SAPS), the National Prosecuting Authority (NPA), communities, local councils and unions in combating criminal mining and have tightened up controls significantly at all our operations. But, when stakes are as high as they are in this case we will, I fear, continue to struggle with this issue for some time to come, both as an individual mining company and as an industry.
The higher-than-expected sediment impacts in the Watut River in PNG have given rise to serious concern within and outside the company. The mine’s Environmental Impact Statement (EIS) predicted sediment loads in the Watut River during construction but, as it has taken longer than expected to reach hard rock at the mine which will be used to construct the interim waste dumps, the construction of stable waste dumps has been delayed resulting in a continued high sediment load in the Watut River. Construction of the interim waste dumps has been prioritised, with specific resources allocated to the project to ensure speedy progress. This will reduce the sediment load in the river, and allow the current sedimentation to flush out. In addition, mining activities which contributed to the increased sediment load have been stopped. The MMJV commissioned further impact assessments so that we could better understand the impact of these sediment loads on the river. These studies show that the increased sediment load in the Watut River (of which the mine is one source) has resulted in a change in the course of a section of the lower Watut River, and a die-back of vegetation in that area as a result of flooding. Although these changes in the river course occur naturally over time, the mine's contribution to the sediment load in the lower Watut River has speeded up this process. The MMJV has committed to expanding its monitoring programme to quantify the impacts coming from the mine and other sources, taking remedial action wherever possible, and working with the government to assess fair compensation for those affected.
Another area of disappointment has been the slower-than-anticipated implementation of both ISO14001 and the Cyanide Code in South Africa. While our environmental team has continued to pursue both of these standards, efforts and imperatives in FY09 have been focused on the operational issues. This is an area of increased attention in FY10.

Highlights

There have been numerous positives during the year:

Probably the most significant is the fact that as a group we have continued to deliver on our turnaround strategy and have largely cleared our debt – all of this in the midst of a major global recession. More importantly, we have not had to embark on any major restructuring or resizing programmes, and given the potential socio-economic ramifications that this could have entailed, our management and employees deserve credit for that.
Another highlight has been that, notwithstanding the fatal accidents, our underlying safety performance has improved, with key indicators showing the fruits of the safety programmes we have put in place. Again, in this regard, credit must be given to our management and employees, and to the joint management/union health and safety committees on our mines. I would like to give particular recognition to Kalgold (12 years without a fatal accident), Joel (two years without a fatal accident) and Evander 2 & 5 Shafts, which won the Safety Achievement Flag presented by the Mine Health and Safety Council. Safety performance in PNG has continued to be world-class.
On the human capital front, I am pleased to report the appointment of three new executive members, Leon le Roux as Executive: Risk Management and Engineering, Matthews Dikane as Executive: Legal and Compliance, and Melanie Naidoo-Vermaak as Executive: Environmental Management; as well as four new general managers. We have also made substantial progress in continuing to boost the depth of management at our operations, particularly in the technical and engineering disciplines.
Our fight to combat both tuberculosis (TB) and HIV & AIDS continued during the year, and we have seen positive outcomes in both the number of voluntary counselling and testing (VCT) encounters reported and the effectiveness of our highly active anti-retroviral therapy (HAART) programmes. Our participation in an internationally recognised TB research programme, being undertaken by the Aurum Institute for Health Research, has seen us contribute to some fundamental new research in this area. While new infection levels in these two critical illnesses continued to rise during the year, we have embarked on a new strategy that we believe will undermine these diseases and deliver more positive outcomes in the year ahead. In PNG, our efforts to combat the impact of malaria on our employees and communities, continued. A new health care strategy has been developed for the SA operations and will be implemented in FY10. This strategy is aimed at improving the effectiveness of our well-being programme, improving hospital optimisation, and transforming the current centralised health care service provision towards a comprehensive, site-based health care service profile.
In PNG, we have continued to make good progress with the employment of landowners at our operations, and in ensuring economic development and benefit flows through to these landowner communities in a sustainable fashion. Over the past three years, the MMJV has awarded contracts worth K60 million per year (R185 million) to the landowner company NKW Holdings Limited (NKW). The major contracts are for catering, fuel, haulage, general freight, plant hire, security, labour hire and bus services. These landowner groups – Nauti, Kwembu and Winima – are the sole shareholders in NKW. The cash flow from NKW is intended to provide seed capital to encourage individual landowners to start small businesses, and already eight sub-contracts have been awarded.

Governance

We are very fortunate to have an energetic and committed Sustainable Development Committee, chaired by Modise Motloba, and supported by senior and operational management. We also have an Empowerment Committee in place, chaired by Joaquim Chissano, and again supported by senior and operational management. The Empowerment Committee specifically deals with our compliance with South African minerals legislation and PNG-regulated targets, as well as our own transformation imperatives. These committees have played a valuable role in providing guidance and counsel to Harmony in respect of sustainability and transformation issues during the year.

While we have chosen again to produce a separate Sustainable Development Report, we remain highly cognisant of the fact that sustainability is, and must be, a core part of our business. We recognise international trends and the revisions to both the King II report embodied in King III and the new South African Companies Act. In particular, we note the imperative to integrate sustainability reporting into our mainstream financial reporting. We have, however, chosen not to send the full Sustainable Development Report to all shareholders, but to make it available on our website in the spirit of conserving natural resources. Providing a printed copy of our Sustainable Development Report to all shareholders would have used an additional 2.7 tonnes of paper, 190 kilograms of ink, and would have required the postage and freighting of more than 7 500 additional documents.

This Sustainable Development Report has been developed in accordance with the G3 guidelines of the GRI. Key performance indicators (KPIs) in this report have been assured by external auditors PwC. As required by GRI, we have declared a B+ level of reporting, which has been third-party verified by PwC. Finally, we are pleased to have been admitted to the Socially Responsible Investing (SRI) index of the JSE for the third consecutive year. We have also responded to the Carbon Disclosure Project (CDP) on our assessment of the risks and opportunities posed by climate change and our carbon emissions.

Feedback welcome

We welcome feedback from our stakeholders. For convenience, a feedback form (PDF - 34KB) is provided.

Graham Briggs
Chief Executive Officer
Harmony Gold Mining Company Limited
26 October 2009

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