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Harmony is focussed on delivering long-term value

Growth projects starting to deliver results - higher production and lower costs

Johannesburg, 7 February 2011: Harmony today announced its results for the second quarter and six months ended 31 December 2010 of financial year 2011. “Growth projects are clearly starting to deliver results with higher production and lower costs. We have seen continued progress from numerous management initiatives at Doornkop, Phakisa and Hidden Valley. The star of the show has been our Papua New Guinean operations. It has been particularly pleasing to see good progress here, with improved production at Hidden Valley and positive exploration developments at Wafi-Golpu”, said chief executive officer Graham Briggs.

He added that “operating profit for the quarter increased by R215 million (33%) to R867 million, compared with R652 million in the September 2010 quarter”.

Commenting in greater detail on the results, Briggs notes that production at Doornkop, Phakisa and Hidden Valley improved substantially, by 19%, 34% and 23% respectively. While total gold production decreased by 4% quarter-on-quarter, from 10 471kg to 10 055kg, this was mainly as a result of safety stoppages at Bambanani and Kusasalethu, and this trend is set to recover. While volumes were 8% lower than the previous quarter at 4 675 000t, the average yield was 4% higher at 2.11g/t. Underground gold production was 5% lower at 8 273kg, as volumes were 4% lower at 1 759 000t and the underground grade declined by 2% to 4.6g/t.

Both Tshepong and Masimong showed a steady production performance, with Masimong still the lowest cost producer at R168 907/kg. Target 3 is back on track, with a 57% improvement in tonnes mined. Joel is also back in production. Following the closure of Merriespruit 1, the Virginia operations, now comprising solely of Unisel, produced net free cash of R43 million (compared with a loss of R36 million in the previous quarter), validating the decision to close the loss-making shafts.

Gold production at Hidden Valley increased by 23% to 53 169oz and silver production increased by 44% to 382 655oz quarter-on-quarter (50% attributable to Harmony). Hidden Valley is a high value asset for Harmony and it is particularly pleasing to see improved results after some commissioning problems.

Countering these production improvements was Evander 8, which experienced a drop in face grade causing gold production to decrease by 6%. Kalgold’s grade and volume was lower quarter-on-quarter and gold production decreased by 8%. Bambanani’s volume declined by 19%, as grade rose by 3%. The Steyn 2 production plan was revised and the major focus will now be to get the shaft pillar into production by August 2011.

Briggs said that “we faced operational challenges during the quarter, such as the unplanned production stoppage at Kusasalethu, but the necessary measures to rectify this have been implemented and I am confident the operation will meet its targets next quarter.”

The rock/ventilation shaft accident which occurred in October 2010 at Kusasalethu restricted hoisting and was the main contributor to the group’s overall lower production. The shaft is now back to hoisting capacity and the underground accumulations of the December 2010 quarter will be rectified.

The rand per kilogram unit cost for the December 2010 quarter decreased by 5% quarter-on-quarter to R216 595/kg from R228 658/kg. This is mainly attributable to the decrease in cash operating costs, which declined by R225 million (10%). The primary factors for the decrease were the lower electricity (winter tariffs of R147 million) and lower labour costs, as a result of Harmony’s restructuring efforts.

In rand per kilogram terms, the gold price received increased by 6% from R287 401/kg in the September 2010 quarter to R303 354/kg in the current quarter. A decrease in the gold sold for the December 2010 quarter of 823kg (8%) to 10 046kg resulted in a drop in revenue of 3% compared to the previous quarter.

Capital expenditure increased by R88 million (12%) to R835 million in the quarter under review compared with R747 million in the September 2010 quarter, in line with the company’s mine plans.

The Golpu resource continues to expand to the north as drilling continues to define further mineralisation. A significant intersection of 595m @ 2.03% copper and 1.65g/t gold (5.0g/t gold equivalent) has been reported. The drilling campaign this quarter included the drilling of boreholes to gain metallurgical samples of Wafi and geotechnical information for the Watut decline. The pre-feasibility study technical work packages have been allocated to various consultants and are progressing well.

“We remain confident that we will reach our long-term targets and our focus is to increase production to 2Moz of gold by FY13, with costs per tonne milled in the lowest quartile of South African producers. The company has turned the corner - unprofitable operations were closed and our longer-life lower cost operations are profitable and sustainable. With the closure of some shafts and unplanned production setbacks during the first six months of financial year 2011, production for the financial year 2011 will most likely be between 1.45Moz and 1.5Moz”, said Briggs.

For more details contact:

Marian van der Walt
Executive: Corporate and Investor Relations
+27 82 888 1242(mobile)

Henrika Basterfield
Investor Relations Officer
+27 11 411 2314 (work)
+27 82 759 1775(mobile)

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