Bernard's review   
"In our current environment of industry consolidation and a dollar gold price which remains under pressure, the company identified the need to aggressively continue with its growth strategy. This will be achieved through focus on increasing profit margins of existing operations and further identifying mainly South African and Australian acquisition opportunities."
– Bernard Swanepoel,
Chief Executive

Our strategy of growth through acquisition continues with the incorporation of Elandskraal in South Africa and New Hampton in Australia.
Annual production growth of 32%.
Successful capital raising and bond issue restructure balance sheet.
Final dividend declaration of 70 cents 120 cents for 2000/01 financial year.
Successful turnaround at Elandskraal as implementation of "Harmony Way" delivers results.
Discovery of significant platinum and palladium resources on Kraaipan belt.

Our growth story delivers shareholder value
The company has probably experienced its most exciting year since its independence from Randgold in 1997. Our strategy of growth through the acquisition of undervalued assets, mainly in South Africa and Australia, has again enabled the company to deliver shareholder value.

The effectiveness of this strategy to create value, as demonstrated by our financial results for the year, is set out in the table below:

acquisition of
Elandskraal and
New Hampton*
as %
Tonnes milled (‘000) 17 074 8 995 8 079 89.8
Recovery grade (g/t) 3.90 4.28 (0.38) (8.9)
Kilograms produced (kg) 66 563 38 510 28 053 72.8
Ounces produced (oz) 2 140 043 1 238 089 901 954 72.9
Cash operating costs (R/kg) 57 416 59 452 2 036 3.4
Cash operating costs (R/t) 224 254 30 11.8
Cash operating costs ($/oz) 234 243 9 3.7
Cash operating profit (R million) 672.9 305.5 367.4 120.3
Net income/(loss) before minority interests (R million) 117.5 (103.6) 221.1 213.4
Capital expenditure (R million) 422.4 270.7 151.7 56.0
* Elandskraal and New Hampton have been included from 1 April 2001.

It is evident from the preceding table that the company has changed significantly over the past 18 months and is now well positioned, both operationally and financially, to participate in the continued consolidation of the global gold industry.


The company now has operations situated in the Freestate, Evander, Randfontein and West Rand regions of the Witwatersrand basin, as well as the Kalgold, Bissett and New Hampton greenstone hosted mines. The Freestate operations were the company’s sole producer in 1995, with a production output of 580 000 ounces per annum. Today, Harmony produces 2.5 million ounces per annum.

Harmony has shown steady growth in its reserve base from approximately 8 million ounces in 1996 to approximately 33 million ounces today. The quality of these reserves has increased significantly with the inclusion of Evander, Randfontein and Elandskraal. These reserves have been calculated at a gold price of R67 500/kg (US$262/oz) and an exchange rate of R8.00 to US$1.00. This conservative approach to the evaluation of our reserve base is necessary considering the unhedged nature of the company. It does, however, allow for a significant increase in production with a gold price increase.

The decrease in cash costs from US$360 in 1995 to US$234 by the end of the financial year ending 30 June 2001, are significant considering that in R/kg terms the costs of the company have only increased by 19% over the last four years. This includes the incorporation of the high cost operations acquired by the company during that time.

The company can claim to have established itself as one of the major gold producers in the industry, thereby creating value and delivering above average returns to shareholders. The consolidation of our industry, locally and in Australia, is not yet complete and we believe that we will continue to participate as further restructuring takes place.


In our current environment of industry consolidation and a dollar gold price which remains under pressure, the company will aggressively continue with its growth strategy. This will be achieved through focus on increasing profit margins of existing operations and identifying further acquisition opportunities, focusing mainly on South Africa and Australia.

Our growth story June 1998 June 1999 June 2000 June 2001
Gold produced                
- kg 23 853 39 997 50 572 66 563
- oz 766 890 1 285 931 1 625 925 2 140 043
Cash operating profit (million)                
- SA Rand 24.0 390.0 461.0 672.9
- US Dollar 5.0 64.0 73.0 88.4
Cash operating cost                
- R/kg 47 991 46 759 50 121 57 416
- US$/oz 305 240 246 234

Year-on-year analysis of our performance
During the 2000/2001 financial year the company has delivered growth in terms of reserves, production and cash operating profit. Despite the continued low gold price, Harmony has grown in most of its performance areas as the year-on-year analysis of the last four years indicates.


Our strategy has enabled the company to increase its production by 31.6% from 1 625 925 ounces in the 1999/2000 financial year, to 2 140 043 ounces.


Cash operating profit increased by 46% from R461 million to R672.9 million over the same period. Our strategy of acquiring undervalued operations with turnaround potential means that, on inclusion, these operations impact negatively on our working cost (R/kg), which has increased from R50 121/kg to R57 416/kg. Our relentless focus on controlling working costs at all our operations should impact favourably on these costs over the next twelve months as the "Harmony Way" is implemented.


Lower than planned recovery grades from our Freestate operations accounted for 6% of the increase in working costs per kilogram. However, the overall quality of our assets following these acquisitions has significantly improved, which will impact favourably on the overall recovery grade of the company’s operations. Measured in US$/oz terms, the benefits of having a natural currency hedge are evident. The adverse impact of having to incorporate these higher cost operations has been reduced by the depreciation of our currency as working costs measured in US$/oz decreased from US$246/oz to US$234/oz for the financial year. The average gold price received decreased from US$290/oz to US$276/oz over the same period, constituting a decrease of 5%.


Earnings before impairment were marginally lower at R330 million compared to the R364 million for the previous year. This was mainly because of the interest charges associated with the debt used to finance our acquisitions, which amounted to R114.2 million and taxation of R111.3 million.


Despite accounting for the non-cash effect of impairment, the strong cash generating ability of the company has enabled the board to recommend that a final dividend of 70 cents be paid. The total dividend declared for the financial year ended 30 June 2001 totalled 120 cents.


Following the acquisition of Elandskraal and New Hampton in the latter part of this financial year, the company announced its intention to restructure its balance sheet to enable it to continue with its growth strategy. This was achieved in four phases, namely:


the consolidation of the company’s debt following the acquisitions of Randfontein, Elandskraal and New Hampton through an international syndicated loan facility of R2.1 billion,

a cash injection following our black economic empowerment transaction with the IDC and Simane, the total transaction value being R400 million,

the issue of a five year fixed rate domestic bond of R1.2 billion to retire the South African currency debt taken on during the first phase, and

the successful completion of a specific issue of shares and options for cash which resulted in an additional R1.2 billion being made available to retire the mainly US Dollar denominated debt taken on during the initial phase. A total of 27.1 million ordinary shares at a price of R43.00 per share and 9 million options were issued. One option was attached per three shares subscribed to. The options are listed on the JSE Securities Exchange South Africa under the symbol "HARW" and on the NASDAQ under the symbol "HGMCW". As at 30 June 2001 the company had 144.6 million ordinary shares outstanding.


In line with our policy of not producing gold at a total cost above the spot price, thereby destroying value for our shareholders and the industry at large, we completed a detailed review of all the company’s operations in early 2001.


Our decision to put Bissett on care and maintenance, and to close certain Randfontein, Evander and Freestate shafts, has resulted in the company having to impair its asset base by R215.1 million. The company has, despite the low gold price over the past few years, been prudent in the valuation of its assets and ore reserves. Closures of shafts do, however, necessitate impairment adjustments.


The impact of these closures, whilst being tough decisions to implement from a social and employment perspective, will reflect in the expected improved overall performance of the company in the following financial year.

Financial year ending: June 1999 June 2000 June 2001
Impairment 112.0 - 215.1

It is our belief that in the short term the South African gold mining industry, and more specifically the Freestate goldfields, has reached the stage whereby orebody consolidation remains the only alternative to create increased operational margins and shareholder value for all stakeholders. During the past twelve months we have experienced decreased margins at our Freestate operations, mainly due to the average grade being lower than the previous reporting period. This has impacted adversely on the company’s overall R/kg cost and profitability results. The other stakeholders in the region experience a similar trend and restructuring for increased efficiency could make this region financially attractive again.


Action plans to redress this negative trend in recovery grades have been implemented at our Freestate operations and an improvement in results is expected during the forthcoming financial year.


In the short to medium term we will remain competitive through the further upgrade of our production base, as well as continuous focus on cost reductions and improved productivity at all our operations.


Growth in production and shareholder value will be achieved through the continued acquisition of assets with turnaround potential and organic growth through operational improvements.