Annual Report 2010 Annual Report 2010

Notes to the company financial statements

For the years ended 30 June 2010
 SA rand
Figures in million20102009

1

Cost of sales

  
 Production costs (a)2 2742 334
 Amortisation and depreciation of mining properties, mine development costs and mine plant facilities249294
 Amortisation and depreciation of assets other than mining and mining related assets (b)3469
 Rehabilitation expenditure (c)35(46)
 Care and maintenance cost of restructured shafts2719
 Employment termination and restructuring costs (d)7110
 Share-based payments (e)3822
 Impairment of assets (f)24952
 Provision for post-retirement benefits12
 Total cost of sales2 9782 756
     
 (a)Production costs include mine production, transport and refinery costs, applicable general and administrative costs, movement in inventories and ore stockpiles, and ongoing environmental rehabilitation costs as well as transfers to and from deferred stripping. Ongoing employee termination costs are included, however employee termination costs associated with major restructuring and shaft closures are excluded. Production costs, analysed  by nature, consist of the following:  
  Labour  costs, including contractors1 5121 410
  Stores and materials545549
  Water and electricity281210
  Insurance4755
  Transportation6868
  Changes in inventory(14)8
  Capitalisation of mine development costs(239)(234)
  By-products sales(1)(1)
  Royalty expense5–
  Other70269
  Total production cost2 274 2 334
     
 (b)Amortisation and depreciation of assets other than mining and mining related assets  
  Other non-mining assets2–
  Intangible assets3024
  Amortisation of issue costs245
  Total amortisation and depreciation 3469
     
 (c)For the assumptions used to calculate the rehabilitation costs, refer to note 3.4 of the Group financial statements.  
     
 (d) During the 2010 financial year, Brand 3, Harmony 2 and Merriespruit 3 shafts were closed and placed on care and maintenance. The closures contributed to employment termination and restructuring cost. The group also engaged in a voluntary retrenchment process during the year, resulting in additional retrenchment costs.  
     
 (e)Refer to note 27 for details on the share-based payments schemes operated by the company.  
     
 (f) Impairments were recognised during the year as a result of shaft closures discussed in 1(d) above as well as the revised business (life-of-mine) plans, which affected Merriespruit 1 shaft. Impairments recorded in the 2009 financial year relates mainly to revised business plans, which included increases in labour and electricity costs.  
     
  Impairment tests were performed as required by IAS 36, Impairment of Assets, and as a result these impairments were recorded. For assumptions used to calculate the recoverable amount, refer to note 3.1 of the group financial statements.  
    

2

Other expenses – net

  
 Foreign exchange gain–net (a)–(139)
 Profit on sale of property, plant and equipment (b)(2)(1)
 Bad debts provision expense (c)475217
  Bad debts written-off (d)107
 Other expenses–net1041
 Total other expenses – net493125
     
 (a)Included in the 2009 financial year is R205 million exchange gains on the forward contract arranged by Harmony for the receipt of the proceeds for the Randfontein Cooke transaction. Refer to note 7(a)(iii) in the group financial statements. Also included were foreign exchange losses of R66 million relating to the repayment of the intercompany loan by Harmony Gold (Australia) (Proprietary) Limited.  
     
 (b)Profit on sale of property, plan and equipment relates to scrap sales.  
     
 (c)(i)The bad debts provision expense mainly relates to the provision for irrecoverable loans to associates and subsidiaries. The increase in the provision in the 2010 financial year relates to the following:  
      
   The loan of R482 million to ARMGold/Harmony Joint Investment Company (Proprietary) Limited (the Investment Company) was impaired. This was as a result of the impairment of the investment in Pamodzi Gold Limited (Pamodzi) held by the Investment Company. Refer to note 14 for more detail.  
      
  (ii)Included in the total for the 2009 financial year are provisions for the following loans: Pamodzi: R116 million Harmony Gold (Marketing) (Proprietary) Limited: R25 million Harmony HIV/Aids Company (Proprietary) Limited: R10 million Musuku Benefication Systems (Proprietary) Limited: R57 million Refer to note 13 and 14.  
     
 (d) Trade debts and loans of R10 million were written-off as the company considered the debt irrecoverable.  
    

3

Operating (loss)/profit

  
 The following have been included in operating (loss)/profit:  
    
 Auditors’ remuneration86
 External  
 Fees – current year53
 Fees – prior year under provision –1
 Fees – Other services11
 Internal  
 Fees – other services21
    

4

Net gain on financial instruments

  
 Fair value through profit or loss  
 Fair value gain on environmental trust funds4–
 Available-for-sale instruments  
 Impairment recognised in profit or loss (a)(1)–
 Loss on sale of investments (b)(2)–
 Realised portion of fair value movement (b)6–
 Total net gain on financial instruments7–
    
 (a)The impairment in the 2010 financial year relates to various small investments, which were considered to be permanently impaired.  
     
 (b)The company disposed of a number of listed investments it held through New Africa Mining Fund during the 2010 financial year for a total consideration of R8.5 million. Total fair value movement gains of R6 million relating to these investment were reclassified from other reserves to the income statement. Refer to note 12 and 19 in this regard.  
    

5

Investment income

  
 Interest received117211
 Loans and receivables2121
 Held-to-maturity investments1226
 Cash and cash equivalents84164
 Dividend income (a)84–
 Total investment income201211
      
 (a)Included in the amount is a cash dividend of R82 million received from Lydenburg Exploration Limited, a wholly owned subsidiary of Harmony.  
    

6

Finance costs

  
 Financial liabilities  
 Bank and short-term facilities122
 Convertible unsecured fixed rate bonds–135
 Nedbank Limited63175
 Total finance costs from financial liabilities64332
 Non-financial liabilities  
 Post-retirement benefit1–
 Time value of money and inflation component of rehabilitation costs3223
 South African Revenue Services (SARS)9–
 Total finance costs from non-financial liabilities4223
    
 Total finance costs106355
    

7

Taxation

  
 SA normal taxation  
 Mining tax (a)  
 – current year257
 – prior year––
 Non-mining tax (b)  
 – current year35143
 – prior year–4
 Deferred tax (c)  
 – deferred tax87109
 Total normal taxation124313
    
 (a)Mining tax on gold mining income in South Africa is determined according to a formula, based on the taxable income from mining operations. The company had made no election to be exempt from Secondary Tax on Companies (STC) and is therefore taxed at a lower rate.  
     
  All qualifying mining capital expenditure is deducted from taxable mining income to the extent that it does not result in an assessed loss and accounting depreciation is eliminated when calculating the company's mining taxable income. Excess capital expenditure is carried forward as unredeemed capital to be claimed from future mining taxable income.  
     
  The formula for determining the South African gold mining tax rate for the 2009 and 2010 financial years is:  
     
  Y = 34 – 170/X  
     
  Where Y is the percentage rate of tax payable and X is the ratio of taxable income, net of any qualifying capital expenditure bears to mining income so derived, expressed as a percentage.  
     
 (b)Non-mining income is taxed at 28%.  
     
  (c)The deferred tax rate used to calculate deferred tax is based on the current estimate of future profitability when temporary differences will reverse. Depending on the profitability of the operations, the deferred tax rate can consequently be significantly different from year to year. The deferred tax rate for the 2010 financial year was 23.1% (2009: 17.1%).  
    
 The tax rates remained unchanged for the 2010 and 2009 financial years.  
    
 Major items causing the income tax provision to differ from the maximum mining statutory tax rate of 34% were:  
 Tax on net (loss)/income at the maximum mining statutory tax rate139(94)
 Non-allowable deductions(208)(332)
 Effect on temporary differences due to changes in effective tax rate(55)117
 Prior year adjustment – mining and non-mining tax–(4)
 Income and mining taxation(124)(313)
    
 Effective income and mining tax rate(30%)113%
    
 Deferred tax  
 Deferred tax liabilities and assets on the balance sheet as at 30 June 2010 and 30 June 2009, relate to the following:  
 Gross deferred tax liability380243
 Amortisation and depreciation379237
 Product inventory not taxed–3
 Other13
 Gross deferred income and mining tax assets(86)(36)
 Unredeemed capital expenditure(3)(1)
 Provisions, including non-current provisions(83)(35)
    
 Net deferred tax liability294207
    
 Movement in the net deferred tax liability recognised in the balance sheet is as follows:  
 Balance at beginning of year20798
 Total charge per income statement87109
 Balance at end of year294207
    
 The following amounts that are expected to realise or be recovered in the next 12 months have been included in the deferred tax liabilities and assets:  
 Deferred tax liabilities396
 Deferred tax assets(25)(17)
 Net current deferred tax liability/(asset)14(11)
    
 At 30 June 2010, the company has unredeemed capital expenditure of R13 million (2009: R6 million) and a nil tax loss (2009: nil) available for deduction against future mining taxable income. These future deductions are utilisable against mining taxable income generated only from the company’s current mining operations and does not expire unless the company ceases to trade for a period longer than one year.  
    
 As at 30 June 2009 and 2010, the company had recognised all deferred tax assets in the determination of the net deferred tax liability.  
    
 During the years ended 30 June 2010 and 2009, there was no tax charged directly to equity.  
    
 Secondary Taxation on Companies  
 STC is a tax levied on South African companies at a rate of 10% with effect from 1 October 2007 on dividends distributed.  
    
 Current and deferred tax are measured at the tax rate applicable to undistributed income and therefore only take STC into account to the extent that dividends have been received or paid.  
    
 On declaration of a dividend, the company includes the STC on this dividend in its computation of the income tax expense in the period of such declaration.  
    
 Available STC credits at end of year141273
    
 On 13 August 2010, the board of directors approved a final dividend for the 2010 financial year of 50 SA cents per share. The total dividend amounts to R214 million. As the dividends declared exceed the STC credits available, STC on the amount of R73 million is payable at a rate of 10%.   
    

8

Property, plant and equipment

  
 Mining properties, mine development costs and mine plant facilities2 0481 355
 Undeveloped properties402410
 Other non-mining assets64
 Total property, plant and equipment2 4561 769
    
 

Mining properties, mine development costs and mine plant facilities

  
 Cost  
 Balance at beginning of year3 9093 570
  Acquisition Pamodzi FS assets (a) 180–
 Acquisition – AVRD (b)398–
 Additions515353
 Adjustment to rehabilitation asset97(14)
 Balance at end of year5 0993 909
 Accumulated depreciation and impairments  
 Balance at beginning of year2 5542 208
 Impairment of assets24852
 Depreciation249294
 Balance at end of year3 0512 554
 Net book value2 0481 355
    
 Undeveloped property  
    
 Cost  
 Balance at beginning of year410410
 Disposal(8)–
 Net book value402410
    
 Other non-mining assets  
    
 Cost  
 Balance at beginning of year4440
 Additions44
 Balance at end of year4844
 Accumulated depreciation and impairments  
 Balance at beginning of year4040
 Depreciation2–
 Balance at end of year4240
 Net book value64
    
 Total net book value2 4561 769
    
 (a)During the 2010 financial year, the company concluded separate purchase agreements with the liquidators of Pamodzi FS for the purchase of its Free State South assets and inventories (refer to note 16). The consideration paid for the mining assets was R180 million and R100 million was paid for the inventories.  
     
 (b)During March 2010, the company acquired the 26% shares of the mining title of Doornkop South Reef from AVRD for a total consideration of R398 million. Refer to note 15 for more detail.  
    

9

Intangible assets

  
 Computer software (a)  
    
 Cost  
 Balance at the beginning of year10163
 Additions during the year1638
 Balance at end of year117101
    
 Accumulated amortisation and impairments  
 Balance at the beginning of year4016
 Amortisation charge for the year3024
 Balance at end of year7040
 Total net book value4761
    
 (a)The amount relates to the implementation of an Oracle ERP software application.  
    

10

Restricted cash

  
 Environmental guarantees call account112112
    
 The amount relates to funds set aside for guarantees made to the Department of Mineral Resources for environmental and rehabilitation obligations.  
    

11

Restricted investments

  
 Investments held by Environmental Trust Fund (a)225212
 –Fair value through profit or loss equity-linked deposits177–
 –Held-to-maturity call deposits48212
 Investments held by Social Trust Fund (b)4043
 Total restricted investments265255
    
 (a)The environmental trust funds are irrevocable trusts under the company's control. Contributions to the trust are invested in interest-bearing short term investments or medium term equity-linked notes issued by commercial banks that provide guaranteed interest and additional interest or growth linked to the growth of the Shareholder Weighted Top 40 index (SWIX 40) of the JSE. The equity-linked notes are designated fair value through profit or loss investments and recorded at fair value whilst the interest-bearing short term investments are classified as held-to-maturity and recorded at amortised cost. These investments provide for the estimated cost of rehabilitation at the end of the life of the group's mines. Income earned on the investments is retained in the funds and reinvested.  
     
  Reconciliation of the movement in the Environmental Trust Fund:  
  Balance at beginning of year212190
  Fair value gain4–
  Interest accrued922
  Balance at end of year225212
     
 (b) The social trust fund is an irrevocable trust under the company's control. In terms of an agreement signed on 3 November 2003, the company has undertaken to make donations to The Harmony Gold Mining Company Social Plan Trust over a period of 10 years. An initial donation of R18.5 million was made during the 2004 year. The balance will be donated in instalments of R3.5 million per annum with the final instalment to be made in 2013. The purpose of the Trust is to fund the social plan to reduce the negative effects of restructuring on the company's workforce, to put measures in place to ensure that the technical and life skills of the company's workforce are developed and to develop the company's workforce in such a manner to avoid or minimise the effect of job losses and a decline in employment through turnaround or redeployment strategies.  
     
  Reconciliation of the movement in the Social Trust Fund:  
  Balance at beginning of year4336
  Contributions made44
  Interest accrued34
  Claims paid(10)(1)
  Balance at end of year4043
    

12

Investment in financial assets

  
 Available-for-sale financial assets  
 Balance at beginning of year82
 Additions36
 Disposals(11)–
 Fair value movement of available-for-sale investments4–
 Balance at end of year48
    
 The carrying amount consists of the following:  
 Investment in listed and unlisted shares48
    
 These investments have been valued by the directors by performing independent valuations on an annual basis to ensure that no significant prolonged decline in the value of the investments has occurred. During the 2010 financial year the group disposed of certain listed investments for a net loss of R2 million. Refer to note 4. Fair value gains recognised in other comprehensive income for the year totalled R10 million with R6  million being reclassified to the income statement on the disposal of the listed investments. During the 2010 financial year, the group did not receive any income from these investments (2009: Nil).   
    

13

Investments in associates

  
 Balance at beginning of year–146
 Disposal of share in associate–(1)
 Impairment of share in associate–(145)
 Balance at end of year––
    
 On 27 February 2008 Pamodzi acquired the Orkney operations from the group for a consideration of 30  million Pamodzi shares. This resulted in Harmony owning 32.4% of Pamodzi valued at R345 million being R11.50 per share on acquisition date. Pamodzi was listed on the JSE and had interests in operating gold mines in South Africa

During March 2009, Pamodzi was placed in liquidation and the trading of its shares on the JSE was suspended.

The company recognised cumulative impairments of R345 million up to 30 September 2008 thereby reducing the carrying value of the investment to R0.

Refer to group financial statements note 21 for further details

  

14

Investments in subsidiaries

  
 Shares at cost (a)(b)22 52421 764
 Loans to subsidiary companies (c)4 4374 362
 Loans from subsidiary companies(740)(928)
 Total investments in subsidiaries26 22125 198
    
 Refer to Annexure A for a detailed listing of the company's investments in subsidiaries and the loans to and from these companies.  
    
 (a) During the 2010 financial year, the liquidation process of Harmony Precious Metal Services SAS, Harmony Gold (Peru) SA, Harmony Gold (Isle of Man) Limited and Harmony Gold Netherland BV was finalised. The investments in these companies, amounting to R6 million, were written-off in 2009 in anticipation of the liquidations.  
     
  The investment in the Investment Company of R0.8 million was impaired when it was determined that the carrying value exceeded the Investment Company's net asset value.  
     
 (b)During the 2010 financial year, Harmony Gold (Australia) (Proprietary) Limited (Harmony Australia) issued 212.9 million (2009: 435.2 million) ordinary shares, valued at R762 million (2009: R1 370 million), when the loan to Harmony Australia was capitalised as part of the company's net investment in Harmony Australia.  
      
 (c)During the 2010 financial year, R483 million was provided as irrecoverable for the investment in and loan to Investment Company (refer to note 2). The remaining loan balance of R1.2 billion will be evaluated periodically to determine whether further provision is required.  
     
  During the 2009 financial year, R94 million was provided as irrecoverable for loans to subsidiaries. These subsidiaries are dormant and will be liquidated in due course. Included in the balance are provisions raised for the following loans:  
  Musuku Benefication Systems (Proprietary) Limited–57
  Harmony Gold (Marketing) (Proprietary) Limited–25
  Harmony HIV/AIDS Company (Proprietary) Limited–10
  ARMGold/Harmony Joint Investment Company (Proprietary) Limited483–
    

15

Investment in joint venture

  
 Doornkop JV agreement  
 During the 2010 financial year, Harmony and Randfontein Estates Limited, a subsidiary of Harmony, entered into a joint venture agreement for the operation of the Doornkop mine following Harmony’s purchase of a 26% interest in the Doornkop mining right from AVRD.  
    
  The agreement to purchase AVRD’s 26% interest during the 2010 financial year is considered to be a repurchase of a call option (equity interest). The transaction became effective on 19 March 2010. As consideration for the 26% interest in Doornkop, the company repaid the outstanding balance of R244 million of the AVRD Nedbank loan (refer to note 29 of group financial statements) on 31 March 2010, as well as issued 2 162 359 shares to AVRD on 28 April 2010. The value of the consideration shares on the effective date was R151 million. The total purchase consideration was R398.0 million. In terms of the sales agreement, 975 419 consideration shares are to be held in escrow until 1 May 2014. The difference between the value of the shares issued of R151 million, the settlement of the AVRD Nedbank loan and transaction costs, have been taken directly to equity. Harmony recognised the cost of the mineral rights as part of property, plant and equipment (refer to note 8). Depreciation of R1.4 million was recorded during the 2010 financial year for this asset. The joint venture agreement entitles the company to a 16% share of the operating profit or loss of the Doornkop mine. During 2010, this amounted to a profit of R5 million for 3 months from the effective date.  
    
 The following are the company's effective share of income, expenses, assets and liabilities, which are included in the 2010 financial statements:16%–
 Revenue23–
 Operating costs(18)–
 Operating profit5–
    
  26%–
 Non-current assets398–
 Total assets398–
    

16

Inventories

  
 Gold in lock-up25–
 Gold in-process and bullion on hand10617
 Stores and materials at weighted average cost142147
 Total inventories273164
 Non-current portion of gold in lock-up and gold in-process(53)–
 Total current portion of inventories220164
    
 Included in the balance above is:  
 Inventories valued at net realisable value:25–
    
 During the year the company acquired a gold plant containing gold in lock-up valued at R100 million from Pamodzi FS, which has been included in the cost of inventory. Refer to note 8.  
    
 During the year, R2 million (2009: R2 million) was reversed against the slow moving stock provision. The total provision at 30 June 2010 was R10 million (2009: R12 million).  
    

17

Trade and other receivables

  
 Current  
 Financial assets:  
 Trade receivables (gold)333245
 Other trade receivables (a)3642
 Provision for impairment(19)(17)
 Trade receivables – net350270
 Interest and other receivables (b)1615
 Employee receivables1520
 Insurance claims receivable (c)543
    
 Non-financial assets:  
 Prepayments815
 Total current trade and other receivables443323
    
 Non-current  
 Financial assets:  
 Loans receivables (d)149186
 Provision for impairment (e)(116)(125)
 Loans receivables – net3361
 Loan to Harmony Share Trust33
 Total non-current trade and other receivables3664
      
 (a)Included in other trade receivables is an amount of R6 million (2009: R68 million) owed by Rand Uranium, a related party (refer to note 29).  
      
 (b)Included in interest and other receivables is an amount of R7 million owing by Pamodzi FS in terms of the asset purchase agreements, for rehabilitation trust funds to be released to the company.  
      
 (c)The insurance claim receivable of R54 million relates to damage caused by an underground fire at the Bambanani operation. The claim was settled subsequent to 30 June 2010.  
      
 (d)Loans comprise various loans, which have been valued by the directors. Included in this balance is the loan of R116 million (2009: R116 million) owed by Pamodzi. The loan bore interest at prime rate until March 2009 when Pamodzi was placed into liquidation. Also included in this balance in 2009 was a loan of R9 million due from Ubuntu Small Scale Mining (Pty) Ltd (Ubuntu). The loan bore interest at prime less 3% with no fixed repayment terms.  
      
 (e) Included in this balance is the amount of R116 million (2009: R116 million) relating to the loan owed by Pamodzi. Also included in the balance in the 2009 financial year is an amount of R9 million relating to the loan owed by Ubuntu, which was subsequently written-off in the 2010 financial year.  
      
 The movement in the provision for impairment of trade receivables during the year was as follows:  
 Balance at beginning of year1710
 Impairment loss recognised58
 Receivables written off during the year–(1)
 Unused amounts reversed(3)–
 Balance at end of year1917
    
 The movement in the provision for impairment of loans receivable during the year was as follows:  
 Balance at beginning of year12514
 Impairment loss recognised–117
  Loans written-off during the year(9)(6)
 Balance at end of year116125
    
 The ageing of trade receivables at the reporting date was:  
    
  2010
  GrossImpairment
 30 June 2010  
 Fully performing325–
 Past due by 1 to 30 days11–
 Past due by 31 to 60 days12–
 Past due by 61 to 90 days––
 Past due by more than 90 days98
 Past due by more than 361 days1211
 Balance at 30 June 200936919
  
  2009
  GrossImpairment
 30 June 2009  
 Fully performing250–
 Past due by 1 to 30 days17–
 Past due by 31 to 60 days1–
 Past due by 61 to 90 days––
 Past due by more than 90 days97
 Past due by more than 361 days1010
 Balance at 30 June 200928717
  
  2010
  GrossImpairment
    
 The ageing of loans receivable at the reporting date was:  
    
 30 June 2010  
 Fully performing33–
 Past due by 1 to 30 days––
 Past due by 31 to 60 days––
 Past due by 61 to 90 days––
 Past due by more than 90 days––
 Past due by more than 361 days116116
 Balance at 30 June 2009149116
  
  2009
  GrossImpairment
 30 June 2009  
 Fully performing61–
 Past due by 1 to 30 days––
 Past due by 31 to 60 days––
 Past due by 61 to 90 days––
 Past due by more than 90 days44
 Past due by more than 361 days121121
 Balance at 30 June 2008186125
    
 Based on past experience, the company believes that no impairment allowance is necessary in respect of fully performing receivables as the amount relates to customers that have a good track record with the company. Similarly, the loans and receivables noted above, other than those that have been provided for, are fully performing and considered to be a low risk  
    
 The company does not hold any collateral in respect of financial assets.  
    
 During the 2010 and 2009 financial years there was no renegotiation of the terms of any receivable.  
  

18

Share capital

 Authorised
 1 200 000 000 (2009: 1 200 000 000) ordinary shares of SA 50 cents each
 10 958 904 (2009: 10 958 904) redeemable convertible preference shares of SA 50 cents each
  
 Issued
 428 654 779 (2009: 425 986 836) ordinary shares of SA 50 cents each. All issued shares are fully paid.

Included in the total of issued shares is an amount of 2 314 shares held by Lydenburg Exploration Limited, a wholly owned subsidiary of the Company.

10% of the authorised unissued shares are under the control of the directors until the forthcoming annual general meeting. The Directors’ report and note 34 of the group financial statements set out details in respect of the share option scheme and shares held in trust for employees of the group.

The directors of the company have a general authority to issue its shares for cash up to a maximum of 5% of the issued share capital in any one financial year. This is in terms of the annual general meeting of shareholders on 23 November 2009 and valid until the forthcoming annual general meeting. The general authority is subject to the Listings Requirements of the JSE Limited and the Companies Act no 61 of 1973 of South Africa, as amended.

  
 Share issues
 2010 Financial year
 On 19 March 2010, Harmony concluded an agreement with AVRD. Refer to note 15 for more detail.
  
 2009 Financial year
 On 1 December 2008, Harmony issued 3 364 675 shares to Rio Tinto Limited. The Harmony shares were issued to cancel the Rio Tinto royalty rights over Wafi-Golpu in Papua New Guinea. The value of issued shares was R242 million at R71.98 per share.

Harmony engaged in capital raising by issuing two tranches of shares following the resolution passed by shareholders at the annual general meeting held on 24 November 2008. The first tranche was issued into the open market between 25 November 2008 and 19 December 2008. In this tranche, 10 504 795 Harmony shares were issued at an average subscription price of R93.20, resulting in R979 million before costs being raised. The cost of the issue was R15 million or 1,5% of the value of shares issued.

A second tranche of shares was issued for cash into the open market between 10 February 2009 and 6 March 2009. This tranche consisted of 7 540 646 Harmony shares at an average subscription price of R124.45, resulting in R938 million before costs being raised. The cost of the issue was R15 million or 1,6% of the value of shares issued. The combined share issue amounts to R1.9 billion or 4,5% of the issued share capital as at 30 September 2008.
    

19

Other reserves

  
  SA rand
 Figures in million20102009
 Other reserves comprises of:  
 Fair value movement of available-for-sale financial assets (a)4–
 Repurchase of equity interest (b)3–
 Equity component of convertible bond (c)277277
 Share-based payments (d)186148
 Total other reserves470425
    
 Fair value movement of available-for-sale financial assets  
 Fair value movement – unrealised10–
 Realised portion reclassified through profit or loss(6)–
 Balance at end of year4–
    
 Repurchase of equity interest  
 Equity reserve on issue of shares154–
 Shares issued(151)–
 Balance at end of year3–
    
 Equity component of convertible bond  
 Balance at beginning and end of year277277
    
 Share-based payments  
 At the beginning of the year148126
 Share-based payments expensed3822
 Balance at end of year186148
       
 (a)The balance of the fair value movement reserve represents the movement in the fair value of the available-for-sale financial assets. Refer to note 12 for details regarding the realised portion reclassified to profit or loss.  
    
 (b)The sale of 26% of the AVRD mining titles resulted in a R3 million repurchase of a call option (equity interest) by the company. Refer to note 15.  
     
 (c)Equity component of bond. Refer to note 26(c) of the group financial statements.  
     
 (d)Share-based payments. Refer to note 26(e) in the group financial statements  
    

20

Provision for environmental rehabilitation

  
 The company’s mining and exploration activities are subject to extensive environmental laws and regulations. These laws and regulations are continually changing and are generally becoming more restrictive. The company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. Estimated future reclamation costs are based principally on legal and regulatory requirements. The following is a reconciliation of the total liability for environmental rehabilitation:  
    
 Provision raised for future rehabilitation  
 Balance at beginning of year314351
 Change in estimate – Balance sheet28(14)
 Change in estimate – Income statement35(46)
 Additions69–
 Time value of money and inflation component of rehabilitation costs3223
 Total provision for environmental rehabilitation478314
    
 While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, the company has estimated that, based on current environmental and regulatory requirements, the total cost for the mines, in current monetary terms, is approximately R613 million (2009: R422 million). Refer to note 3.4 of the group financial statements for estimations and judgements used in the calculation.  
    
 Included in the charge to the income statement is an amount R4 million (2009: R6 million) relating to the time value of money.  
    
 Future net obligations  
 Ultimate estimated rehabilitation cost613422
 Amounts invested in environmental trust funds (refer to note 11)(225)(212)
 Total future net obligations388210
    
 The company intends to finance the ultimate rehabilitation costs from the money invested with environmental trust funds, ongoing contributions, as well as the proceeds on sale of assets and gold in lock-up from plant clean-up at the time of mine closure. The company has guarantees in place relating to the environmental liabilities. Refer to notes 10 and 28.  
    

21

Retirement benefit obligations and other provisions

  
 Non-current  
 Retirement benefit obligation (refer to note 25)75
 Other1614
 Closing balance2319
    

22

Borrowings

  
 Secured borrowings  
 Nedbank Limited (a)922–
 Principal amount1 110–
 Less: unamortised issue costs(11) 
 Less: current portion(177)–
 Total secured non-current borrowings922–
 Total non-current borrowings922–
 Total current portion of borrowings177–
 Total borrowings1 099–
    
 (a)For details on the Nedbank loan, refer to note 29(d) of the group financial statements.  
    

23

Trade and other payables

  
 Financial liabilities  
 Trade payables12064
 Other liabilities2810
    
 Non-financial liabilities  
 Payroll accruals203174
 Leave liabilities (a)7781
 Shaft related accruals3331
 Other accruals6276
 Value added tax3111
 Total trade and other payables554447
    
 (a) Leave liability  
  Employee entitlements to annual leave are recognised on an ongoing basis. An accrual is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date. The movement in the liability recognised in the balance sheet is as follows:  
  Balance at beginning of year8168
  Benefits paid(84)(76)
  Total expense per income statement8089
  Balance at end of year7781
    

24

Cash generated by operations

  
 Reconciliation of (loss)/profit before taxation to cash generated by operations:  
 (Loss)/profit before taxation(408)277
 Adjustments for:  
 Amortisation and depreciation283363
 Impairment of assets24852
 Profit on sale of mining assets(2)(1)
 Net increase in provision for post retirement benefits12
 Net increase/(decrease) in provision for environmental rehabilitation35(46)
 Impairment of investment in associate–145
 Impairment of investments in subsidiaries17
 Share-based payments3822
 Net gain on financial instruments(7)–
 Loss on sale of investment in associate–1
 Interest received(117)(211)
 Dividends received(84)–
 Interest paid106355
 Provision for doubtful debts475217
  Bad debts written-off107
 Other non cash transactions5(12)
 Effect of changes in operating working capital items:  
 Receivables(7)(29)
 Inventories(123)60
 Accounts payable and accrued liabilities9339
 Cash generated by operations5471 248
  
 Additional cash flow information
 The income and mining taxes paid in the statement of cash flow represents actual cash paid less refunds received

Acquisitions and disposals of subsidiaries/businesses and assets:

 For the financial year ended June 2010
 (a)Acquisition of President Steyn assets

On 18 February 2010, the company concluded the acquisition of the Pamodzi FS assets for a total consideration of R280 million of which R180 million was attributed to property, plant and equipment and R100 million to inventories.

The principal non-cash transactions for the year were the issue of shares for the acquisition of 26% share of the mining titles of Doornkop South Reef from AVRD (refer to note 15), the capitalisation of the Harmony Australia intercompany loan (refer to note 14(b)) and the share based-payments (refer to note 19).
   
 For the financial year ended June 2009
 (a)Disposal of Village Reef Gold Mining Company (Village)

On 10 July 2008, the company disposed of its 37.8% interest in Village to To the Point Growth Specialists Investments 2 (Pty) Ltd, for a consideration of R1.1 million. The investment in Village as at 30 June 2008 had a fair value of R0.7 million

The principal non-cash transactions for the year were the issue of shares to Rio Tinto for the acquisition of the Wafi Royalty on behalf of Harmony Australia (refer to note 18), the capitalisation of the Harmony Australia intercompany loan (refer to note 14(b)) and share-based payments (refer to note 19).
  

25

Retirement benefit obligations

 Pension and provident funds: The company contributes to several pension and provident funds governed by the Pension Funds Act, 1946 for its employees. The pension funds are multi-employer industry plans. The company’s liability is limited to its annually determined contributions.

The provident funds are funded on the ‘‘money accumulative basis’’ with the member’s and employer’s contributions having been fixed in the constitution of the funds.

Substantially all the company’s employees are covered by the above mentioned retirement benefit plans. Funds contributed by the company for the 2010 financial year amounted to R111 million (2009: R125 million).

Post-retirement benefits other than pensions: Most of the supervisory and managerial workers in South Africa participate in the Minemed medical scheme, as well as other medical schemes. The company contributes to these schemes on behalf of current employees and retired employees who retired prior to 31 December 1996 (Minemed scheme). The annual contributions for these retired employees are fixed. The company’s contributions to these schemes on behalf of current employees amounted to R24 million for the 2010 financial year and R27 million for the 2009 financial year.

Assumptions used to determine this liability include, a discount rate of 10.3%, a mortality rate according to the SA 1956/62 mortality table and a medical inflation rate of 8.1%. It is also assumed that all members will retire at the age of 60 and will remain on the current benefit option.
  
  SA rand
 Figures in million20102009
    
 The liability is based on an actuarial valuation conducted during the financial year ended 30 June 2010, using the projected unit credit method. The next actuarial valuation will be performed on 30 June 2011.  
    
 Present value of unfunded obligations75
 Movement in the liability recognised in the balance sheet:  
 Balance at beginning of year53
 Contributions paid(1)(1)
 Interest cost11
 Net actuarial loss recognised during the year22
 Balance at end of year75
    
 Net actuarial gain/(loss) for 2008, 2007 and 2006 financial years was Rnil.  
    
 The principal actuarial assumptions used for accounting purposes were:  
 Discount rate10.30%10.00%
 Healthcare inflation rate8.14%7.84%
 Normal retirement age6060
    
 The present value of the net liability of the defined benefit plan is as follows:  
 Present value of defined benefit obligation75
 Fair value of plan assets––
 Net pension liability75
    
 The present value of defined benefit obligation was R3 million in 2008, R4 million in 2007 and R4 million in 2006.  
    
 The effect of a one percentage point increase (and decrease) in the assumed medical cost trend rates is as follows:  
    
  1%1%
  Increase/Increase/
  decreasedecrease
 Effect on:  
 Aggregate of service cost and interest cost––
 Defined benefit obligation11
    
 The company expects to contribute approximately R0.73 million to its benefit plan in 2011.  
    

26

Employee benefits

  
 Number of permanent employees as at 30 June:9 96211 947
    
 Aggregate earnings:  
 The aggregate earnings of employees including directors were:  
 Salaries and wages and other benefits1 3791 554
 Retirement benefit costs111125
 Medical aid contributions2427
 Total aggregate earnings1 5141 706
  
  Directors’ remuneration is fully disclosed in the executive management remuneration table
  

27

Share option scheme

 The group currently has the 2001 and 2003 schemes and the 2006 share plan that are still active. The objective of these schemes is to recognise the contributions of senior staff to the value added to the group's financial position and performance and to retain key employees.
  
  Options granted under the 2001 and 2003 schemes
 Refer to note 34 of the group financial statements for the information relating to the 2001 and 2003 schemes. The following information relates specifically to the company.
  
  Number of shares
 Number of share options relating to the 2001 and 2003 option scheme20102009
 Share options granted 19 298 71919 298 719
 Exercised 13 413 39213 091 469
 Vested but not exercised 1 498 6661 234 321
 Unvested –602 667
 Forfeited and lapsed 4 386 6614 370 262
    
 Vesting periods of unvested options granted:  
 Within one year–602 667
 Total number of unvested shares–602 667
  
 No options were granted in the 2009 and 2010 financial years for the 2001 and 2003 option schemes.
  
 Activity on share options granted but not yet exercisedNumber
of
shares		Weighted
average
option
price
(SA rand)
 For the year ended 30 June 2010  
 Balance at beginning of year1 836 98747.54
 Options exercised(321 922)44.55
 Options forfeited and lapsed(16 399)44.09
 Balance at end of year1 498 66648.22
    
 For the year ended 30 June 2009  
 Balance at beginning of year2 410 62949.34
 Options exercised(948 444)50.53
 Options forfeited and lapsed(108 551)57.10
 Intercompany transfer of employees483 353 
 Balance at end of year1 836 98747.54
  
 List of options granted but not yet exercised
(listed by granted date)		At
30 June
2010		Strike
price
(SA rand)		Remaining
life
(year)
 24 April 200117 00036.500.8
 20 November 2001146 70149.601.4
 23 September 2002–66.002.2
 27 March 200332 90091.602.7
 10 August 2004389 51966.154.1
 26 April 2005912 54639.004.8
 Total options granted but not yet exercised1 498 666  
  
 List of options granted but not yet vested (listed by grant date)Number of shares
 20102009
 10 August 2004–199 556
 26 April 2005–403 111
 Total options granted but not yet vested–602 667
    
 Figures in millionSA rand
 20102009
 Average market value of share options traded during the year2549
 Average fair value of share options vested during the year2875
 Share-based cost recognised11
     
 Options granted under the 2006 share plan  
 Refer to note 34 of the group financial statements for the information relating to the 2006 share plan, the following information relates specifically to the company.  
  
  Number of shares
 Number of shares relating to the 2006 share plan20102009
 Shares granted6 698 7644 978 099
 Vested86 681–
 Performance shares––
 Share appreciation rights86 681–
 Unvested5 776 4044 536 526
 Performance shares2 231 2022 012 382
 Share appreciation rights3 545 2022 524 144
 Shares forfeited835 679441 573
 Performance shares450 105207 711
 Share appreciation rights385 574233 862
  
  Number of shares
 Number of shares relating to the 2006 share plan20102009
 Vesting periods of shares granted:  
 Within one year959 767292 704
 One to two years2 075 359984 755
 Two to three years1 588 6822 140 230
 Three to four years751 042753 272
 Four to five years401 554365 565
 Total number of unvested shares5 776 4044 536 526
   2010   2009
 Activity on PS and SARs granted but not yet exercisedNumber of
shares		Weighted
average
option
price
(SA rand)		Number of
shares		Weighted
average
option
price
(SA rand)
 For the year ended 30 June 2010    
 Balance at beginning of year4 536 526 2 237 522 
 Performance shares2 012 382n/a737 523n/a
 Share appreciation rights2 524 14478.681 499 99979.46
 Options granted1 720 665 2 426 727 
 Performance shares461 214n/a1 316 659n/a
 Share appreciation rights1 259 45177.281 110 06877.81
 Options lapsed(394 106) (184 342) 
 Performance shares(242 394)n/a(75 823)n/a
 Share appreciation rights(151 712)79.40(108 519)80.34
 Options vested(86 681) – 
 Performance shares–n/a– 
 Share appreciation rights(86 681)112.64––
 Intercompany transfers of employees– 56 619 
 Performance shares– 34 023 
 Share appreciation rights– 22 596 
 Balance at end of year5 776 404 4 536 526 
 Performance shares2 231 202n/a2 012 382n/a
 Share appreciation rights3 545 20277.322 524 14478.68
 List of shares granted but not yet exercised
(listed by granted date)		At
30 June
2010		Strike
price
(SA rand)		Remaining
life
(year)
 Performance shares   
 15 November 2007489 634n/a0.4
 7 March 200812 308n/a0.7
 5 December 20081 268 046n/a1.4
 16 November 2009461 214n/a2.4
     
 Share appreciation rights   
 15 November 2006162 801112.642.4
 15 November 20071 083 12070.543.4
 7 March 200846 154102.003.7
 5 December 20081 048 46577.814.4
 16 November 20091 204 66277.285.4
 Total options granted but not yet exercised5 776 404  
  
 None of the vested share options for the 2006 share plan have been exercised yet.
 SA rand
 Figures in million20102009
 Average fair value of share options vested during the year10–
 Share-based cost recognised3721
    

28

Commitments and contingencies

  
 Capital expenditure commitments  
 Contracts for capital expenditure2731
 Authorised by the directors but not contracted for–196
 Total capital commitments27227
    
 This expenditure will be financed from existing resources and where appropriate, borrowings.  
    
 Contingent liabilities  
 Environmental guarantees20128
 Refer to note 36 in the group financial statements for a discussion on contingent liabilities.  
     

29

Related parties

  
 In addition to the transactions disclosed below, the company concluded the following transactions with related parties:  
    – Pamodzi – Refer to note 8  
    – AVRD – Refer to note 15  
    
 Sales and services rendered to related parties  
 Direct associates–13
 Indirect associates69218
 Direct subsidiaries9 2728 087
 Indirect subsidiaries404347
 Total sales and services rendered to related parties9 7458 665
    
  Purchases and services acquired from related parties  
 Indirect associates226
    
 Outstanding balances due by related parties  
 Direct associates (a)7–
 Indirect associates2558
 Direct subsidiaries4 4374 361
 Total outstanding balances by related parties4 4694 419
 Outstanding balances due to related parties  
 Direct associates (b)27–
 Direct subsidiaries296500
 Indirect subsidiaries444427
 Total outstanding balances to related parties767927
 
(a)This amount has been included under trade and other receivables. Refer note 17(a).
(b)This amount relates to the acquisition of the President Steyn assets from Pamodzi FS and is payable when certain conditions are fulfilled. The balance has been classified as current as there is no fixed payment date.
 The loans are unsecured and interest-free, with the exception of the loan to Pamodzi.

Annexure A contains a full list of the loans to and from subsidiaries. Refer to note 14 for details of provisions made against these loans.

  

30

Subsequent events

 Refer to note 37 of the group financial statements.
  

31

Financial risk management

 The company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and other price risk, credit risk and liquidity risk. The company may use derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by a central group treasury department under policies approved by the board of directors. Group treasury identifies, evaluates and hedges financial risks in close co-operation with the company’s operating units. The board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and the investment of excess liquidity.

The company's financial instruments are set out below:
       Figures in million (SA rand)Loans
and
receivables		Available-
for-
sale
financial
assets		Held-to-
maturity
invest-
ments		Fair
value
through
profit
or loss		Financial
liabilities
at
amortised
cost
 At 30 June 2010:     
 Restricted cash112––––
 Restricted investments––88177–
 Investments in financial assets–4–––
 Loans to subsidiaries4 437––––
 Trade and other receivables471––––
 Cash and cash equivalents533––––
 Loans from subsidiaries––––740
 Trade and other payables––––148
       
 At 30 June 2009:     
 Restricted cash112––––
 Restricted investments––255––
 Investments in financial assets–8–––
 Loans to subsidiaries4 362––––
 Trade and other receivables372––––
 Cash and cash equivalents1 513––––
 Loans from subsidiaries––––928
 Trade and other payables––––74
       
 (a)Market risk     
  Foreign exchange risk 
  The company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar (US$). Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency. Harmony's revenues are sensitive to the ZAR/US$ exchange rate as all revenues are generated by gold sales denominated in US$. Harmony generally, does not enter into forward sales, derivatives or other hedging arrangements to establish exchange rates in advance for the sale of its future gold production.

The company has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Harmony generally does not enter into forward sales, derivatives or other hedging arrangements to manage this risk.

Sensitivity analysis

The company has reviewed its foreign currency exposure on financial assets and financial liabilities and concluded that a change of 10% in the exchange rate will not have a material effect on company balances.

  Other price risk
  The company is exposed to the risk of fluctuations in the fair value of the available-for-sale financial assets as a result of changes in market prices (other than changes in interest rates and foreign currencies). Harmony generally does not use any derivative instruments to manage this risk.

Sensitivity analysis
A one percent increase in the share price at the reporting date, with all other variables held constant, would have increased other comprehensive income by R1.8 million (2009: R0.1 million). An equal change in the opposite direction would have decreased other comprehensive income by R1.8 million (2009: R0.1 million).

During the 2009 financial year, the company's exposure to changes in market prices was not significant.

Commodity price sensitivity
The profitability of the company's operations, and the cash flows generated by those operations, are affected by changes in the market price of gold. Harmony generally does not enter into forward sales, derivatives or other hedging arrangements to establish a price in advance for the sale of future gold production.

   
  Cash flow and fair value Interest rate risk
  The company’s interest rate risk arises mainly from long-term borrowings. The company has variable interest rate borrowings. Variable rate borrowings expose the company to cash flow interest rate risk. The company has not entered into interest rate swap agreements.

Sensitivity analysis
A change of 100 basis points in interest rates during reporting period would have increased (decreased) profit or loss before tax by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2009.
   SA rand
  Figures in million20102009
  Increase by 100 basis points117
  Decrease by 100 basis points(11)(7)
   
 (b)Credit risk
  Credit risk is the risk that a counterparty may default or not meet its obligations timeously. Financial instruments, which subject the company to concentrations of credit risk, consist predominantly of restricted cash, restricted investments, trade and other receivables (excluding non-financial instruments) and cash and cash equivalents.

Exposure to credit risk on trade and other receivables is monitored on a regular basis. The credit risk arising from restricted cash, cash and cash equivalents and restricted investments is managed by ensuring amounts are only invested with financial institutions of good credit quality. The company has policies that limit the amount of credit exposure to any one financial institution.

It is the policy of the company to renegotiate credit terms with long-standing customers who have a good credit history with the company. These customers are monitored on an ongoing basis to ensure that the customer remains within the renegotiated terms.

The company's maximum exposure to credit risk is represented by the carrying amount of all financial assets determined to be exposed to credit risk, amounting to R1 204 million as at 30 June 2010 (2009: R2 439 million).

 (c)Liquidity risk
  Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities.

In the ordinary course of business, the company receives cash from its operations and is required to fund working cost and capital expenditure requirements. The cash is managed to ensure that surplus funds are invested in a manner to achieve market-related returns and to provide sufficient liquidity at the minimum risk. The company is able to actively source financing at competitive rates.

The following are the contractual maturities of financial liabilities (including principle and interest payments):
   
  Figures in million (SA rand) 2010CurrentMore than
1 year
  2010  
  Borrowings (1,2)2851 095
  Trade and other payables (excluding non-financial liabilities)148–
   4331 095
  2009  
  Borrowings ––
  Trade and other payables (excluding non-financial liabilities)74–
   74–
  
(1)R145 million (2009: R0 million) is due between 0 to 6 months. R140 million (2009: R0 million) is due between 6 to 12 months.
(2)R267 million is due between 1 to 2 years.
 (d)Fair value determination
  Effective 1 July 2009, the company adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
  
(1)Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
(2)Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
(3)Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
  The following table presents the company’s assets and liabilities that are measured at fair value at 30 June 2010.
   Figures in million (SA rand)
  AssetsLevel 1Level 2Level 3
  Available-for-sale financial assets –2 2
  Fair value through profit or loss –177 –
      
  The following table presents the company’s assets and liabilities that are measured at fair value at 30 June 2009.
      
   Figures in million (SA rand)
  AssetsLevel 1Level 2Level 3
  Available-for-sale financial assets–62

HARMONY ANNUAL REPORT 2010