Notes to the group financial statements

34	Share option scheme
	The group currently has the 2001, 2003 schemes and the 2006 share plan that are active. The objective of these schemes is to recognise the contributions of senior staff to the group's financial position and performance and to retain key employees.

	The options granted under the 2001 and 2003 schemes

	A fifth of the options granted under the 2001 and 2003 schemes are exercisable annually from grant date with an expiry date of 10 years from the grant date. The offer price of these options equaled the closing market price of the underlying shares on the trading date immediately preceding the granting of the options.

	On resignation and retirement, share options which have not yet vested will lapse and share options which have vested may be taken up at the employee's election before the last day of service. Payment of shares forfeited will therefore not be required. On death, all options vest immediately and the deceased estate has a period of twelve months to exercise these options.

	Following the introduction of the 2006 share plan, no further options are expected to be allocated under these two schemes.

Number of share options relating to the 2001 and 2003 option schemes	2010	2009
Share options granted	28 442 420	28 442 420
Exercised	19 133 887	18 570 971
Vested but not exercised	2 264 585	1 791 215
Unvested	–	1 059 343
Forfeited and lapsed	7 043 948	7 020 891
Vesting periods of unvested shares
Within one year	–	1 059 343
Total number of shares unvested	–	1 059 343

Activity on share options granted but not yet exercised	Shares	Weight average option price (SA rand)
For the year ended 30 June 2010
Balance at beginning of year	2 850 558	47.58
Options exercised	(562 916)	44.16
Options forfeited and lapsed	(23 057)	43.75
Balance at end of year	2 264 585	48.47
For the year ended 30 June 2009
Balance at beginning of year	4 528 239	49.14
Options exercised	(1 321 303)	51.42
Options forfeited and lapsed	(356 378)	53.12
Balance at end of year	2 850 558	47.58

The details pertaining to share options issued and exercised by directors during the year are disclosed in the Directors' report.

List of options granted but not yet exercised (listed by grant date) 2010	As at 30 June	Option plan (SA rand)	Remaining life (years)
24 April 2001	17 000	36.50	0.8
20 November 2001	167 901	49.60	1.4
23 September 2002	–	66.00	2.2
27 March 2003	125 300	91.60	2.7
10 August 2004	482 967	66.15	4.1
26 April 2005	1 471 417	39.00	4.8
Total option granted but not yet exercised	2 264 585

The number of shares held by the Harmony Share Trust at year end amounted to 63 500 (2009: 63 500). This trust is considered to be an SPE and is therefore consolidated in accordance with the group's accounting policies.

List of options granted but not yet vested (listed by grant date)	2010	2009
10 August 2004	–	316 498
26 April 2005	–	742 845
Total options granted but not yet vested	–	1 059 343

SA rand			US dollar
2009	2010	Figures in million	2010	2009
102	44	Average market price options traded during the year	6	11
128	61	Average fair value of share options vested during the year	8	14
6	3	Share-based cost recognised	–	1

	Option allocation
	10 August 2004	26 April 2005
The share-based cost is calculated using the binominal valuation model based on the following assumptions at grant date:
Price at date of grant (SA rand per share)	66.15	39.00
Risk-free interest rate:	9.9%	8.4%
Expected volatility:	40.0%	35.0%
Expected dividend yield:	0.0%	0.0%
Vesting period:	5 years	5 years

Share-based payments are measured at the fair value of the equity instruments at the date of the grant. The cost is expensed over the vesting period, based on the group’s estimate of the options that are expected to eventually vest.

The only vesting conditions for the 2001 and 2003 schemes is that the employees should be in the employment of the group.

The volatility measured at the standard deviation of expected share price returns were based on statistical analysis of daily share prices over the last three years before grant date.

The shares granted under the 2006 share plan

The 2006 share plan consist of both performance shares (PS) and share appreciation rights (SARs). The PS will vest after three years from the grant date, if and to the extent that performance conditions have been satisfied. The SARs will vest in equal thirds in year 3, 4 and 5 after grant date, subject to the performance conditions having been satisfied. The SARs have an expiry date of six years from the grant date and the offer price equals the closing market price of the underlying shares on the trading date immediately preceding the grant.

The aggregate number of shares which may be allocated to the share plan on any day, when added to the total number of unexercised SARs, unvested performance shares, and restricted shares which have been allocated for SARs and PS, and any other employee share scheme operating by the company,shall not exceed 14% of the number of issued ordinary shares of the company from time to time. On 30 June 2010, 4 361 937 PS and 7 992 023 SARS (2009: 3 718 127 PS 284 500 SARs) had been allocated to participating employees.

Termination of employees participation in the share plan is based on "No Fault" and "Fault" definitions.

In the case of SARs, if employment is terminated for No Fault reasons, then the value of the appreciation in all unvested and unexercised SARs is settled in shares or cash at the option of the employer as at the date of termination of employment, after the deduction of any tax payable.The employer has no past practice of settling in cash.

In the case of performance shares, if employment is terminated for No Fault reasons, then

First the maximum number conditionally awarded is pro-rated for the time period until the termination date;
Then this adjusted number is reduced to a third on the assumption that Harmony’s performance was a median one with one third vesting, after taking into account any portion of shares that have banked already in terms of the 2009 issue;
And then settled in shares sold on the market for cash, and paid to the participant after the deduction of any tax payable.

In either case,if employment is terminated for Fault reasons,all unvested and un-exercised SARs and all PS not yet vested are lapsed and cancelled.

Number of shares relating to the 2006 share plan at 30 June	2010	2009
Shares granted	12 353 960	9 002 627
Vested	185 473	–
Performance shares	–	–
Share appreciation rights	185 473	–
Unvested	10 082 512	7 854 749
Performance shares	3 492 402	3 302 163
Share appreciation rights	6 590 110	4 552 586
Shares forfeited	2 085 975	1 147 878
Performance shares	869 536	415 964
Share appreciation rights	1 216 439	731 914

Vesting periods of unvested shares:
Within one year	1 550 416	503 589
One to two years	3 463 496	1 651 892
Two to three years	2 728 330	3 675 954
Three to four years	1 492 598	1 329 960
Four to five years	847 672	693 354
Total number of unvested shares	10 082 512	7 854 749

For the year ended 30 June	2010		2009
	Shares	Weighted average option price (SA rand)	Shares	Weighted average option price (SA rand)
Balance at beginning of year	7 854 749		4 236 938
Performance shares	3 302 164	n/a	1 341 444	n/a
Share appreciation rights	4 552 585	79.38	2 895 494	81.04
Options granted	3 351 333		4 325 907
Performance shares	643 810	n/a	2 206 026	n/a
Share appreciation rights	2 707 523	77.28	2 119 881	77.81
Options lapsed	(938 097)		(708 096)
Performance shares	(453 572)	n/a	(245 306)	n/a
Share appreciation rights	(484 525)	78.54	(462 790)	92.79
Options vested	(185 473)		–
Performance shares	–	n/a	–	–
Share appreciation rights	(185 473)	112.64	–	–
Balance at end of year	10 082 512		7 854 749
Performance shares	3 492 402	n/a	3 302 164	n/a
Share appreciation rights	6 590 110	77.65	4 552 585	79.38

List of shares granted but not yet exercised (listed by grant date)	As at 30 June 2010	Strike price (SA rand)	Remaining life (years)
Performance shares
15 November 2007	777 910	n/a	0.40
7 March 2008	12 308	n/a	0.70
5 December 2008	2 058 372	n/a	1.40
15 November 2009	643 810	n/a	2.40
Share appreciation rights
15 November 2006	336 552	112.64	2.38
15 November 2007	1 729 611	70.54	3.38
7 March 2008	46 154	102.00	3.69
5 December 2008	1 934 780	77.81	4.44
16 November 2009	2 543 015	77.28	5.40
Total options granted but not yet exercised	10 082 512

SA rand			US dollar
2009	2010	Figures in million	2010	2009
–	21	Average fair value of share options vested	3	–
107	146	Share-based cost recognised	19	12

The share-based cost is calculated using the Monte Carlo simulation on the market-linked PS and Black-Scholes on the SARs. For the 2009 PS allocation the group linked 50% of the share allocation to market conditions and the remaining 50% to non-market internal conditions. The following assumptions were applied at grant date:


		Performance shares	SARs
Price at date of grant (SA rand per share)
–	15 November 2006 share allocation	n/a	112.64
–	15 November 2007 share allocation (valuation date 21 December 2007)	n/a	68.44
–	15 November 2007 share allocation (valuation date 21 April 2008)	n/a	92.25
–	7 March 2008 share allocation	n/a	102.00
–	5 December 2008 share allocation (valuation date 5 December 2008)	n/a	77.81
–	5 December 2008 share allocation (valuation date 16 February 2009)	n/a	116.90
–	16 November 2009 share allocation (valuation date 27 November 2009)	n/a	81.50
–	16 November 2009 share allocation (valuation date 23 December 2009)	n/a	75.60
–	16 November 2009 share allocation (valuation date 3 May 2010)	n/a	72.14

Risk-free interest rate:
–	15 November 2006 share allocation	9.58%	8.79%
–	15 November 2007 share allocation (valuation date 21 December 2007)	10.81%	9.84%
–	15 November 2007 share allocation (valuation date 21 April 2008)	11.71%	10.68%
–	7 March 2008 share allocation	11.04%	10.44%
–	5 December 2008 share allocation (valuation date 5 December 2008)	8.55%	8.43%
–	5 December 2008 share allocation (valuation date 16 February 2009)	8.18%	8.30%
–	16 November 2009 share allocation (valuation date 27 November 2009)	0.00%	8.63%
–	16 November 2009 share allocation (valuation date 23 December 2009)	0.00%	8.57%
–	16 November 2009 share allocation (valuation date 3 May 2010)	7.29%	0.00%

Expected volatility*:
–	15 November 2006 share allocation	34.71%	26.37%
–	15 November 2007 share allocation (valuation date 21 December 2007)	46.32%	35.10%
–	15 November 2007 share allocation (valuation date 21 April 2008)	49.52%	41.72%
–	7 March 2008 share allocation	50.49%	54.50%
–	5 December 2008 share allocation (valuation date 5 December 2008)	56.62%	48.61%
–	5 December 2008 share allocation (valuation date 16 February 2009)	70.86%	49.03%
–	16 November 2009 share allocation (valuation date 27 November 2009)	–	49.29%
–	16 November 2009 share allocation (valuation date 23 December 2009)	–	49.21%
–	16 November 2009 share allocation (valuation date 3 May 2010)	37.34%	–

Expected dividend yield:
–	for all allocations	0.00%	0.00%

Vesting period (from grant date):
–	for all allocations	3 years	5 years

*	The volatility is measured as an annualised standard deviation of historical share price returns, using an exponentially weighted moving average (EWMA) model, with a lambda of 0.99. The volatility is calculated on the grant date, and takes into account the previous three years of historical data.

Share-based costs are measured at the fair value of the equity instruments at the date of the grant as defined in IFRS 2. The grant date is the date at which the entity and counterparty have a shared understanding of the terms and conditions of the share-based payment arrangement. The cost is expensed over the vesting period, based on the group's estimate of the options that are expected to eventually vest, within the rules of IFRS 2.

For 15 November 2006, 15 November 2007 and 7 March 2008 issue:
The performance criteria imposed by the board and which must be satisfied before settlement of any PS under these awards are linked to the company's TSR in comparison to the Philadelphia XAU index of international gold and precious metal mining companies (50%) and the JSE Gold Mining index (50%).

The following performance criteria were imposed per the Harmony (2006) Share Plan and must be satisfied before the settlement of any SARs that the company's headline earnings per share have grown since the allocation date by a minimum of CPI plus 3%; that the company's performance has since the allocation date been a satisfactory achievement in terms of the company's sustainability index.
For 5 December 2008 issue:
The performance criteria, imposed by the board and which must be satisfied before the settlement of any PSs under this award, are linked to the company’s TSR (total shareholder return) in comparison to the JSE Gold Index (50%) and the JSE Resource Index (50%);

The following performance criteria were imposed per the Harmony (2006) Share Plan and must be satisfied before the settlement of any SARs: that the company's headline earnings per share have grown since the allocation date by more than the CPI.
For 16 November 2009 issue:
The performance criteria, imposed by the board and which must be satisfied before the settlement of any PSs Shares under this award, are as follows: 50% of the number of shares awarded are to be linked to annual gold production by the company in relation to the targets set annually. 50% of the number of shares awarded are to be linked to the company's TSR in comparison to the South African gold peers.
The following performance criteria were imposed per the Harmony (2006) Share Plan and must be satisfied before the settlement of any SARs: the company's headline earnings per share should grow, since the allocation date, by more than the CPI.
For options granted during the year, the following fair values were used as a basis to recognise share-based payment cost: For options measured on 27 November 2009, the value is R44.52 per share for SARs. For options measured on 23 December 2009, the value is R39.26 for SARs. For options measured on 3 May 2010, the value is R38.49 for PS.

34

Share option scheme

For the year ended 30 June 2010

For the year ended 30 June 2009