Issued share capital
At 30 September 2003 (R million)
12 month high (October 2002 - September 2003)
Commission (the "SEC") permits mining companies, in their filings with the SEC, to
disclose only those mineral deposits that a company can economically and legally
extract or produce. We may use certain terms in this quarterly review, such as
"resources", that the SEC guidelines strictly prohibit us from including in our filings
with the SEC.
highlights
- SA cents per share
excluding mark to market of
financial instruments and
impairment charges
- SA cents per share
including mark to market of
financial instruments and
impairment charges
- SA cents per share
- kg
- R/kg
• Harmony/ARMgold merger concluded on 22 September 2003
• Higher US Dollar gold price negates some impact of stronger
As predicted the South African Rand continued its strong trend against the US Dollar. This company however proved its robustness by returning a solid operational performance as well as effectively dealing with the impact of the annual wage increases through productivity improvements.
Following the successful completion of the merger between Harmony and ARMgold on 22 September 2003, we are presenting the Q1/F2004 results in a pro-forma combined format to allow for a quarter on quarter comparison.
On an operational level the merger has progressed well with the integration of the various activities of the underlying companies. At the time of the merger it was anticipated that savings of approximately R10,0 million per month would be achieved. I anticipate that it will be achieved within the next three months.
Although we have reached an agreement with the labour unions on the introduction of CONOPS (continuous operations) at our Free Gold operations, these benefits are only expected to contribute to the performance of the company in six to nine months time. Activities related to the introduction of CONOPS are underway at the various Free Gold shafts and are progressing well.
- SA cents per share
excluding mark to market of
financial instruments and
impairment charges
- SA cents per share
including mark to market of
financial instruments and
impairment charges
SA cents per share
When measured in cash earnings per share, earnings decreased by 2% from 133 cents per share to 130 cents per share.
RESTRUCTURING TO DEAL WITH THE STRONG SA RAND
Harmony has, over the past seven years, had to deal with the volatile cycles in the US Dollar gold price as well as the SA Rand.
The current low R/kg gold price scenario has again presented the company with the challenge to restructure its operations and as in the past, position itself to deal with its changing environment. The company has demonstrated on many occasions its ability to deal pro-actively with the adverse situations.
This restructuring exercise will see more focus being placed on the operational and financial performance of the company without neglecting areas of growth and marketing.
However, included in the portfolio of mature assets, were a range of growth projects, which at the time of acquiring them, had little value as the profitability of the acquired assets did not allow for sufficient funding to develop them. With the change in both the profitability of these operations and the long term US Dollar gold price board approval was given over the past twelve months to develop a number of these growth projects.
Our decision to pursue the development of these projects is paying off with the overall performance profile of the company improving as ounces from these projects are reporting to the mill.
CLEANING UP OUR PORTFOLIO OF STRATEGIC INVESTMENTS
The company announced on 13 October 2003 that it had disposed of its 31,7% shareholding in Highland Gold Mining Limited.
This stake which was acquired at a cost of US$26,6 million was disposed of for an amount of US$119 million, a return of some 350%. Following the strengthening of the Rand, this investment realised a return of 223% in Rand terms.
As a result of the challenges faced by non-Russian companies in operating in Russia and the improved exploration results from Wafi, a project within Abelle Limited, the company deemed it necessary to look at ways of strengthening its balance sheet to fund its future non-South African growth. Disinvesting from Highland Gold, which had significantly increased in value over the past 12 months, presented the company with such an opportunity.
Following the disposal of our investment in Highland Gold, the strategic relevance of our shareholding in High River Gold decreased. On 17 October 2003, the company announced that it had disposed of its 17 074 861 shares or 16% shareholding in High River Gold for a consideration of US$22,4 million. We realised a return of 55% on the US$14,5 million originally invested in November 2002. The strength of the South African Rand again impacted on the profit in Rand terms (R17,7 million).
The profit realised from these transactions totalled approximately R528,2 million or 206 cents per share and will be reflected in the Q2/F2004. Proceeds from this disposal will strengthen our balance sheet significantly and will be utilised in funding our future growth.
- Bendigo (31.8% Harmony)
Bendigo's management are due to complete the feasibility study regarding the commercial development of this asset before the end of the year.
- Abelle
The total ounces of gold produced in this first phase of operations drops to 2.06 million (plus 29.7 million ounces of silver), previously 2.7 million ounces of gold. This figure excludes inferred resources which exist within the pit shell. Further potential not included in the study is the possibility of mining from underground the depth extensions of the higher grade lenses which the new smaller open pits will not exploit.
Although the results from this study should be available before the end of 2003, activities related to financing the construction of the mine will be concluded early in 2004.
Tshepong continued to deliver good results with cash operating profits of R99,9 million. Gold recovery was 6% or 190 kg lower at 3 105 kg. With cash costs of R54 474/kg, this mine remains one of the most profitable in the South African industry.
Joel continues to improve, reporting a cash operating profit of R7,3 million. With underground tonnage of 135 000 tonnes at a recovery grade of 4,63 g/t, this mine increased gold production to 624 kg, 11% more than the planned 562 kg. Working cost per kilogram at R74 846/kg was 8% lower than planned.
At St Helena the underground recovery grade was higher at 4,89 g/t, but a 24% decrease in underground tonnage resulted in a net gold recovery of 565 kg. This shortfall being aggravated by excessive working costs resulted in a R17,2 million loss at this mine. Although St Helena 2 Shaft is in the process of being closed, the future of the other shafts remain in the balance and efforts are being made to ensure it becomes profitable in the short term. Excess labour at the St Helena shafts has been deployed elsewhere, displacing mining contractors. Additional labour costs are however being incurred in the short term as the remaining labour is expected to be utilised in CONOPS activities at Free Gold.
Free State Operations underground tonnage increases for second quarter in a row
The Free State Operations reported a marginal increase in cash operating profits, up from R4,0 million to R6,5 million despite significant operational improvements. Underground tonnage was 58 000 tonnes or 5% higher at 1 156 000 tonnes. At a higher recovery grade of 4,20 g/t underground production was 6% higher at 4 850kg. Over the past two quarters underground tonnage at our Free State Operations increased by 13%.
Working cost expenditure of R414,7 million was R37,3 million or 10% higher which included the cost of annual wage increases and costs associated with increased production. Unit costs increased by 4% to R359/tonne.
3/0471 Quarterly booklet 10/28/03 5:44 PM Page 13
The lower recovery can mainly be attributed to Evander 8 Shaft which is experiencing problems with discrepancies between mining grades and recovery grades. Clean mining practices are being followed to eliminate the shortfall.
Total cash working costs were R15,2 million higher at R222,9 million mainly due to the annual wage increases and increased production from underground. Underground unit costs in R/kg terms increased by 5% from R69 873/kg to R73 337/kg.
Surface tonnages treated increased marginally from 535 000 tonnes to 546 000 tonnes. At slightly lower recovery grades gold recovery was lower at 141 kg.
Deelkraal continues to suffer from the lack of mining flexibility. These operations reported a loss of R15,8 million as production targets in respect of tonnages and recovery grades were not met. Although four new mining areas are being made available for stoping, the future of these operations is currently under investigation. Negotiations are underway with the unions on the introduction of CONOPS at Deelkraal which in the short term will assist in addressing the loss- making situation at this shaft.
Total working costs were higher, increasing 9% or R20,9 million to R244,1 million from R223,2 million for the previous quarter. These operations reported an increase of 7% in underground R/tonne cost terms, increasing from R443/tonne to R475/tonne. In R/kg terms total cash costs decreased by 8% from R96 237/kg to R88 490/kg.
As predicted underground tonnage decreased by 21 000 tonnes to 560 000 tonnes and at a lower recovery grade of 5,56 g/t, gold recovery was 11% less at 3 117 kgs.
Working costs increased in line with the increased throughput, by 46% or R16,9 million to R53,9 million. In R/tonne terms, working costs increased by 26% from R117/tonne to R147/tonne. R/kg costs increased by 4% from R66 711/kg to R69 199/kg.
- significant improvements in the performance at our main operations at Mount
- the "bedding down" of the major managerial changes that were implemented at the end of the June quarter,
- orderly closure of the Big Bell Operations,
- Northern Territories (50% Harmony) the exploration and evaluation
- open pit exploration programmes close to our mine sites continue to produce
The open pit operations also had a significantly better quarter on both tonnes and grade.
During the quarter, the infrastructural work at the Watertank Hill was completed successfully providing access to the high grade discoveries which were made at this site in mid 2002.
In aggregate, operational profits at Mount Magnet increased from A$2.19 million in the June quarter to A$3.49 million for September as gold production increased from 36,967 to 42,070 ounces.
South Kal
The character of the South Kal Mines Operations changed significantly during the quarter when the New Celebration plant was transformed to a toll milling operation, whilst the Jubilee plant became the only dedicated treatment plant for Harmony ore.
The underground and open pit operations performed broadly according to plan with gold output dropping from 45,642 ounces to 36,865 ounces. Owing to good cost control, and an improvement in the average gold price received, operational profits at this operation for the quarter increased from A$1,17 million to A$1,57 million.
Good exploration results are being achieved from an underground drilling programme aimed to define the shape and grade of the Mt Marion orebody beneath the base of our current proven reserves. Both the grade and the size of the orebody appear to be increasing together with a shallowing of the plunge. The programme is not yet complete and the final information will still need to be subjected to geotechnical and mining studies, but the results to date bode well for extending the life and further improving the profitability of this operation.
Northern Territory (50% Harmony)0
The 10,000 tonnes development ore from the 980m and 1000m levels of the Zapopan decline were toll treated at Union Reefs. The gold production results provided the company with an excellent validation of our grade estimation figures (which are very difficult in this nuggetty orebody), good gold recoveries (99%) and A$400,000 towards our ongoing exploration and evaluation costs.
The combination of these results, the results of underground exploration holes drilled during the programme and further work on previous exploration and evaluation data are resulting in a continually improving economic prognosis for the development of this project under a gold price regime slightly better than the prevailing one.
Current tax
Basic earnings
Proposed final
quarter end September 2003: 192.3 million
(June 2003: 184.3 million)
(June 2003: 184.3 million)
Net earnings
Profit on sale of assets
Current tax
Basic earnings
(June 2003: 248.0 million)
Profit on sale of assets
598
Mining assets after amortisation
Shareholders' equity
The unaudited results for the quarter have been prepared on the International Financial Reporting Standards (IFRS) basis. These consolidated quarterly statements are prepared in accordance with IFRS 34, Interim Financial Reporting. The accounting policies are consistent with those applied in the previous financial year.
ARMgold.
Current tax
Basic earnings
Proposed final
Currency conversion rates average for the quarter: September 2003: US$1=R7.42
(June 2003: US$1=R7.73)
*
192.3 million (June 2003: 184.3 million)
Net earnings
Profit on sale of assets
Current tax
Basic earnings
Currency conversion rates average for the quarter: September 2003: US$1=R7.42 (June 2003:
US$1=R7.73)
*
256.0 million (June 2003: 248.0 million)
254.6 million (June 2003: 246.6 million)
Net earnings
Profit on sale of assets
Mining assets after amortisation
Shareholders' equity
equity
financial year
(September 2002: US$1 = R10.39)
(September 2002: US$1 = R10.51)
contracts by type as at 30 September 2003
During the quarter 135,000 ounces of gold contracts were closed out. The mark-to-market of the remaining contracts was a negative R396 million (US$57 million) as at 30 September 2003. These values were based on a gold price of US$388 (A$570) per ounce, exchange rates of US$/R6.96 and A$/US$0.68 and prevailing marketing interest rates at the time. These valuations were provided by independent risk and treasury management experts.
Interest rate swaps
The Group has interest rate swap agreements to convert R600 million of its R1.2 billion fixed rate bond to variable rate debt. The interest rate swap runs over the term of the bond, interest is received at a fixed rate of 13% and the company pays floating rate based on JIBAR plus a spread ranging from 1,8% to 2,2%.
These transactions which mature in June 2006 are designated as fair value hedged.
The market-to-market value of the transactions was a negative R44 million (US$6 million) as at 30 September 2003, based on exchange rates of US$/R6.96 and the prevailing interest rates and volatilities at the time.
Gold lease rates
Harmony holds certain gold lease rate swaps which were acquired through its acquisitions of New
Hampton and Hill 50. These instruments are all treated as speculative. The mark-to-market of the
above contracts was a negative R10 million (US$1 million) as at 30 September 2003, based on
valuations provided by independent treasury and risk management experts.
Chief Executive
24 October 2003
VCR Reef
Basal
Kimberley Reef
VCR Reef
Basal
Vaal Reef
VCR Reef
Basal
Kimberley Reef
VCR Reef
Basal
Vaal Reef
Company Limited
Suite No. 1
Private Bag X1
Melrose Arch, 2076
South Africa
Telephone: +27 (11) 684 0140
Fax:
Telephone: +27 (11) 684 0146
Fax:
Telephone: +27 (11) 684 0147
Fax:
11 Diagonal Street
Johannesburg 2001
(PO Box 4844, Johannesburg, 2000)
South Africa
Telephone: +27 (11) 832 2652
Fax:
Shareholder Relations Department
101 Barclay Street
22nd Floor, New York, NY 10286
United States of America
Telephone: +1888-BNY ADRS
Fax: +1 (212) 815 3050
Balfour House 390-398
High Road, Ilford
Essex IG1 1NQ, United Kingdom
Telephone: +44 (208) 639 1001
Fax: +44 (208) 478 2876
Z B Swanepoel (Chief Executive),
F Abbott, Dr MMMM Bakane-Tuoane,
F Dippenaar, V N Fakude,
T S A Grobicki, W M Gule, M W King,
D S Lushaba, M F Pleming,
Lord Renwick of Clifton KCMG*,
CML Savage, Dr S P Sibisi,
D V Simelane, Dr R V Simelane,
M V Sisulu, P Taljaard, A J Wilkens
Telephone: +27 (11) 411 2037
Fax:
JSE Securities Exchange:
London Stock Exchange:
this report to be signed on its behalf by the undersigned, thereunto duly authorized.