INTEGRATED ANNUAL REPORT 2017

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the safe harbour provided by Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, with respect to our financial condition, results of operations, business strategies, operating efficiencies, competitive positions, growth opportunities for existing services, plans and objectives of management, markets for stock and other matters. These include all statements other than statements of historical fact, including, without limitation, any statements preceded by, followed by, or that include the words “targets”, “believes”, “expects”, “aims”, “intends”, “will”, “may”, “anticipates”, “would”, “should”, “could”, “estimates”, “forecast”, “predict”, “continue” or similar expressions or the negative thereof.

These forward-looking statements, including, among others, those relating to our future business prospects, revenues and income, wherever they may occur in this report and the exhibits to this report, are essentially estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. As a consequence, these forward-looking statements should be considered in light of various important factors, including those set forth in this report. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, without limitation: overall economic and business conditions in South Africa, Papua New Guinea, Australia and elsewhere, estimates of future earnings, and the sensitivity of earnings to the gold and other metals prices, estimates of future gold and other metals production and sales, estimates of future cash costs, estimates of future cash flows, and the sensitivity of cash flows to the gold and other metals prices, statements regarding future debt repayments, estimates of future capital expenditures, the success of our business strategy, development activities and other initiatives, estimates of reserves statements regarding future exploration results and the replacement of reserves, the ability to achieve anticipated efficiencies and other cost savings in connection with past and future acquisitions, fluctuations in the market price of gold, the occurrence of hazards associated with underground and surface gold mining, the occurrence of labour disruptions, power cost increases as well as power stoppages, fluctuations and usage constraints, supply chain shortages and increases in the prices of production imports, availability, terms and deployment of capital, changes in government regulation, particularly mining rights and environmental regulation, fluctuations in exchange rates, the adequacy of the Group’s insurance coverage and socio-economic or political instability in South Africa and Papua New Guinea and other countries in which we operate.

For a more detailed discussion of such risks and other factors (such as availability of credit or other sources of financing), see the company’s latest Integrated Annual Report and Form 20-F which is on file with the Securities and Exchange Commission, as well as the company’s other Securities and Exchange Commission filings. The company undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law.

INTEGRATED ANNUAL REPORT 2017

Key features YEAR-ON-YEAR

  • FIFTH CONSECUTIVE ANNUAL INCREASE IN
    UNDERGROUND GRADE RECOVERED (FY17: 5.07g/t) (FY16: 5.02g/t)
  • PRODUCTION GUIDANCE MET FOR
    SECOND CONSECUTIVE YEAR (FY17: 1.088Moz) (FY16: 1.082Moz)
  • NET DEBT REDUCED TO
    R887 million (US$68 million) (FY16: R1.08 billion, US$74 million)
  • HEDGING STRATEGY
    SECURES CASH MARGINS (FY17: R1.7 billion (US$126 million) realised)
  • HEADLINE EARNINGS PER SHARE UP 35%
    298 SA CENTS (21 US cents) (FY16: 221 SA cents (15 US cents))
  • TOTAL DIVIDEND DECLARED FOR THE YEAR OF
    85 SA CENTS (7 US cents)
 

WHO
WE ARE

Harmony, a gold mining and exploration company, conducts its activities in South Africa, one of the world’s best-known gold mining regions, and in Papua New Guinea, one of the world’s premier new gold-copper regions. With 67 years of experience, Harmony is South Africa’s third largest gold producer.

Headquartered in Randfontein, South Africa, Harmony is listed on the Johannesburg Stock Exchange and on the New York Stock Exchange, on which its shares are quoted as American Depositary Receipts.

WHAT WE DO

Our activities cover the entire spectrum of the mining pipeline.

  • EXPLORATION AND ACQUISITION

    EXPLORING FOR AND EVALUATING ECONOMICALLY VIABLE ORE BODIES AND/OR VALUE-ACCRETIVE ACQUISITIONS

    Our mining activities are supported by brownfields and greenfields exploration programmes – in South Africa and Papua New Guinea respectively. Our greenfields exploration programme, which focuses on highly prospective areas has been instrumental in establishing a significant gold-copper portfolio and underpins our ability to sustain long-term value creation.

  • MINING AND PROCESSING

    ESTABLISHING, DEVELOPING AND OPERATING MINES AND RELATED PROCESSING INFRASTRUCTURE

    Our principal activities are the mining of gold-bearing ore which is then processed on site to extract gold and produce unrefined gold bars known as doré. Silver is produced as a by-product.

  • BENEFICIATION

    REFINING AND MARKETING

    All our gold is fully refined and beneficiated to final product by the Rand Refinery (Pty) Limited in South Africa and by the Perth Mint Australia for gold produced in Papua New Guinea. The refined gold, which is 99.5% pure, is sold to bullion banks and commodity houses.

  • REHABILITATION

    REHABILITATING LAND AND CLOSURE

    Once our mines have reached the end of their economic lives, mine closure plans are implemented. These plans include rehabilitation, which is ongoing throughout a mine’s operating life, to restore impacted land, making it suitable for an alternative economic use.

  

WHERE WE OPERATE

In FY17:
  • Gold production totalled
    1.09Moz (FY16: 1.08Moz)
  • Silver production totalled
    1.05Moz (FY16: 1.33Moz)
At year-end:
  • Total gold mineral resources
    104.3Moz (FY16: 105.2Moz)
  • Total gold mineral reserves
    36.7Moz (FY16: 36.9Moz)
  • 33 201 employees
    including contractors (FY16: 30 547)

South Africa

UNDERGROUND

SURFACE

Papua New Guinea

  

How we create value

Our business is to unlock and create value from the ore bodies that we own by safely, profitably and cost effectively extracting gold.

OUR STRATEGY AND STRATEGIC OBJECTIVES

Our strategy is to mine safe, profitable ounces and increase our margins.

Our medium-term growth aspiration for FY19 is to achieve annual gold production of 1.5Moz

OPERATIONAL EXCELLENCE

Prioritising safety, strict control and management of grades mined, disciplined mining and improved productivity

IN FY17:

  • Safety performance – the number of fatalities and related fatality frequency rate – improved. Safety is a priority
  • Achieved production guidance for second consecutive year
  • Increased underground grade recovered for fifth year in a row

CASH CERTAINTY

Achieving operational plans, supported by the current hedging strategy, contributes to cash flow certainty, in turn leading to balance sheet flexibility

IN FY17:

  • Successful hedging strategy strengthened cash flow margins
  • Low levels of net debt contribute to improved balance sheet flexibility

EFFECTIVE CAPITAL ALLOCATION

Evaluating and prioritising organic growth opportunities and value-accretive acquisitions to ensure positive stakeholder returns (dividends only paid out of profits)

IN FY17:

  • Interim and final dividends declared for FY17
  • Acquired full ownership of Hidden Valley and invested in stage 5 and 6 cut-backs
  • Organic growth – the integration of Tshepong and Phakisa approved and development of the Joel decline nearing completion
  

How we distribute
value created

By sustaining our business and creating value, as measured by the earnings generated, we are able to share the value created among key stakeholders.

  • Employees

    Share of value

    45%

    In FY17 paid wages and salaries of R9.2bn to 33 201 employees (including contractors) (FY16: R7.9bn to 30 547 employees)

    For more information see Employees

  • Investors

    Share of value

    21%*

    * Of which 19% was: Investment in creation of future value and in sustaining the business equated to total capital and exploration expenditure of R4.1bn (FY16: R2.7bn)

    * Of which 2% was: Total dividend paid to shareholders of R439m (US$33m) (FY16: nil). Total dividends declared for the year of 85 SA (7 US) cents a share (FY16: 50 SA (4 US) cents a share.

    For more information see financial director’s report

  • Suppliers

    Share of value

    29%

    In South Africa, 78% (R4.5bn) of total procurement was preferential procurement with black economic empowerment entities

    In FY17, Harmony spent R3.8bn in total on the procurement of goods and services and R2.2bn on electricity (FY16: R5.0bn and R2.0bn respectively)

    For more information see Procurement

  • Governments

    Share of value

    4%

    In FY17, Harmony paid taxes and royalties to governments of R779m (FY16: R258m).

    Also paid income tax of R1.38bn on behalf of employees on salaries wages earned (FY16: R1.13bn).

    For more information see Financial Report 2017

  • Communities

    Share of value

    1%

    In FY17, Harmony contributed R74m to economic and social initiatives (FY16: R58m)

    For more information see Communities
  

From leadership

Chairman’s letter

“Good production results for the year combined with positive market conditions enabled us to increase our margins”

DOWNLOAD PDF
Patrice Motsepe Chairman

Chief executive officer’s review

“Operational excellence was key in improving safety performance, and we achieved annual production guidance for a second consecutive year”

DOWNLOAD PDF
Peter Steenkamp Chief executive officer

Financial director’s report

“Good production results for the year combined with market conditions contributed to positive earnings”

DOWNLOAD PDF
Frank Abbott Financial director

Social and ethics committee: chairman’s report

“Our moral obligation to our host communities extends beyond providing direct employment opportunities and financial benefits”

DOWNLOAD PDF
Modise Motloba Chairman: social and ethics committee

Remuneration report

“Harmony’s reward strategy underpins our business strategy to produce profitable ounces, safely, and increase our margins”

DOWNLOAD PDF
Vishnu Pillay Chairman, remuneration committee

Audit and risk committee: chairman’s report

“Sound governance and independent assurance confirmed an effective control environment for quality internal and external reporting and legislative compliance”

DOWNLOAD PDF
John Wetton Chairman: audit and risk committee
  

About this report

Our Integrated Annual Report 2017 covers Harmony’s performance for the 2017 financial year (FY17), from 1 July 2016 to 30 June 2017. Certain comparative historical information is presented where relevant and to provide insight into our future plans.

The report covers all of Harmony’s operations in South Africa as well as its operational and exploration activities (joint venture and own) in Papua New Guinea. It details the material environmental, socio-economic and governance aspects of our operations, and of Harmony as a whole.

Suite of reports 2017: