Harmony Gold Mining Limited - Review For The Quarter Ended 31 March 2006 Release Date: 05/05/2006 08:00:15 Code(s): HAR Harmony Gold Mining Limited - Review For The Quarter Ended 31 March 2006
HARMONY GOLD MINING LIMITED
Registration number 1950/038232/06
Incorporated in the Republic of South Africa
Share Code: HAR
Issuer Code: HAPS
ISIN: ZAE000015228
REVIEW FOR THE QUARTER ENDED 31 MARCH 2006
QUARTERLY HIGHLIGHTS
* Higher gold price partially offsets weak quarter.
* CONOPS implementation now completed.
* Tshepong holes "spot on" with Phakisa mine on 66 level after 5 360m of
development.
* Surface operations shows the optionallity that exists in a rising gold
environment.
* Environmental Management Plan on Hidden Valley signed off by Government.
* Australian hedge book reduced by 25 000 oz.
QUARTERLY FINANCIAL HIGHLIGHTS
31 March 31 December
2006 2005
Gold produced
- kg 17 464 20 316
- oz 561 477 653 171
Cash costs
- R/kg 92 914 83 154
- $/oz 470 396
Cash operating profit
- Rand 306 million 389 million
- US$ 50 million 60 million
Cash earnings
- SA cents per share 78 99
- US cents per share 13 15
Basic (loss)/earnings
- SA cents per share (46) 6
- US cents per share (8) 1
Headline loss
- SA cents per share (50) (75)
- US cents per share (8) (12)
Fully diluted (loss)/earnings
- SA cents per share (46) 6
- US cents per share (8) 1
CHIEF EXECUTIVE"S REVIEW - MARCH 2006
"We have stuck to our growth strategy by continuing to invest in our growth
projects which are progressing well. I believe that this puts our shareholders
in a much better position to take advantage of the increase in the gold price,
which has reached a 25-year high."
SAFETY REPORT
Although the overall safety performance is still not acceptable to us as a
company, there were a number of pockets of excellence that are worth
mentioning. Merriespruit 3 achieved 2 million fatality free shifts after going
for 7 years without any fatal accidents. Brand 3 shaft has also been running
for the last 4.5 years without any fatalities. Masimong remains an excellent
safety performer with a Lost Time Injury Frequency Rate (LTIFR) of 8.86.
Safety achievements during this quarter:
Mine Fatality free shifts achieved Date
Merriespruit 3 Shaft 2 000 000 3 March 2006
Masimong 5 Shaft 1 000 000 18 March 2006
Tshepong 500 000 20 March 2006
Evander 7 Shaft 500 000 17 January 2006
The LTIFR increased by 4.3% from 17.27 in December 2005 to 18.02 in March 2006.
At the same time the SLFR increased to 424 compared with 404 in December 2005,
a regression of 5%.
Five employees lost their lives in five separate incidents during the past
quarter at our South African operations. This is an improvement of 11% on our
fatality rate compared with the previous quarter. We are proud to report that
Harmony Australia had no fatalities or serious incidents during the period
under review.
Our biggest problem still originates from unsafe behaviour by individuals and
it is this segment that the company wants to give the correct attention. In
order to re-energise the safety awareness in Harmony, the company has
introduced the "Sindile Mosha" safety campaign, which is based on the
"alertness" of the mongoose. Harmony still maintains that safety is a state of
mind and believes that deep level mining operations can be executed safely,
without loss of life or damage to equipment.
PAST QUARTER UNDER REVIEW
We have once again struggled to have the December break make less of an impact
on our operational performance, but have not been successful and gold produced
fell by 14%. Recovered grades were also down in the quarter. As stated during
the December quarterlies, our Evander 7 shaft has hit a sill and at our
Elandsrand operations the reef and waste has had to be combined until the new
orepass system has been equipped. Both these areas are temporary problems and
it is expected that they will return to normal recovery grades during the
September quarter. We do not have a cost problem. Our lack of flexibility
(shortage of face length) manifests itself as a volume (tons) underperformance
which reflects as high unit costs. Some of our grade underperformance also
stems from our flexibility shortage.
The performance of the company is best highlighted in the following table:
March December Percentage
2006 2005 variance
Production - kg 17 464 20 316 (14)
Production - oz 561 477 653 171 (14)
Revenue -R/kg 110 399 102 333 8
Revenue -US$/oz 559 487 15
Cash cost - R/kg 92 914 83 154 (12)
Cash cost - US$/oz 470 396 (19)
Exchange rate - USDZAR 6.15 6.53 (6)
Although total operating costs were lower, unit cost in rand per ton and rand
per kilogram costs went up from R348/t to R363/t and R83,154/kg to R92,914/kg,
respectively. On the revenue side the gold price received for the March quarter
improved from R102,333 per kilogram during the December 2005 quarter to
R110,399 per kilogram causing the drop in revenue in real terms to be only
7.2%.
Cash operating margins
March 2006 December 2005
Cash operating profit (Rm) 305,6 389,4
Cash operating profit margin 15,9% 18,7%
The March 2006 quarter"s results reflected a reduction in the operating profit
of R83.8 million compared with the December 2005 quarter. This was mainly due
to a reduction in gold ounces produced as a result of lower production volumes
and grades as explained above.
Quarter on quarter cash operating profit variance analysis
Cash operating profit - December 2005 R389,4 million
- volume reduction (R144,3) million
- working cost reduction R66,7 million
- recovery grade reduction (R147,6) million
- gold price increase R141,4 million
- net variance (R83,8) million
Cash operating profit - March 2006 R305,6 million
As can be seen from the above table our biggest problem existed as a result of
the lower tonnage mined (Christmas break impact) and the lower yields
(operational constraints). Both these problems are temporary in nature and it
is expected that we will regain a substantial portion of this lost ground
during the June quarter. We are now in the territory where Harmony"s gearing is
clearly evident as can be seen in the profitability despite the lower gold
produced.
Analysis of earnings per share (SA cents)
Quarter ended Quarter ended
Earnings per share (SA cents) March 2006 December 2005
Cash earnings 78 99
Basic (loss)/earnings (46) 6
Headline loss (50) (75)
Fully diluted (loss)/earnings (46) 6
The net loss for the current quarter was R182 million (loss per share of 46
cents) compared with a net profit of R22 million (earnings per share of 6
cents) for the previous quarter. It should however be noted that the December
2005 quarter"s net profit included the profit on the disposal of the remaining
investment in Gold Fields of R306 million. The current quarter"s results were
mainly negatively affected in two areas, a lower operating profit associated
with the lower gold ounces produced and secondly the negative mark-to-market of
the Australian hedge book.
Reconciliation between basic and headline loss
Headline earnings in cents per share
Quarter ended March 2006
Basic loss (46)
Profit on sale of mining assets (4)
Headline loss (50)
Our cash earnings for the year to date total 207 cents per share.
FOCUS ON OUR GROWTH PROJECTS REMAINS
Despite the harsh financial and operating conditions encountered in the past
year the company has remained focused on rebuilding its growth strategy.
Accordingly expenditure on all of the local and international growth projects
continued as planned. During the past quarter a total of R391 million was spent
on capital. Of this, R134 million was spent on our growth projects.
Capital expenditure (Rm) Actual Forecast
OPERATIONAL CAPEX March 2006 June 2006
South African Operations 225 195
Australasian Operations 32 33
Total Operational Capex 257 228
PROJECT CAPEX
Doornkop South Reef 33 36
Elandsrand New Mine 35 43
Tshepong North Decline 13 24
Phakisa Shaft 22 56
Target Shaft 12 14
PNG 19 26
Total Project Capex 134 199
TOTAL CAPEX 391 427
Our focus to grow the company, with respect to ounces and quality, continues
and has led to a unique pipeline of projects in South Africa and abroad. We
continued as planned with all of our South African projects. At our Hidden
Valley project in PNG, the construction of the road is now past the 60% mark
and it is envisaged that the team will reach the base camp on the mine by the
end of June 2006. The construction of our Hidden Valley Mine in PNG is well on
track and we believe that it will demonstrate to our shareholders our ability
to also build mines internationally.
Cash position
Harmony Group cash reconciliation for March 2006
Cash and equivalents on 31 December 2005 (R"million) 2 914.4
Operational (51.2)
Operating profit 305.6
Capex - net (231.1)
Development cost capitalised (160.2)
Corporate/exploration expenditure (26.7)
Care and maintenance costs (29.4)
Interest paid (96.1)
Movement in working capital excluding accrued liabilities 80.3
Movement in accrued liabilities 7.4
Other items 98.9
Non operational (1 082.0)
Net sundry revenue 76.5
Foreign exchange losses (1.1)
Shares issued - net of expenses 12.2
Australian hedge close outs (62.6)
SARS payments (5.2)
Payment BOE loan (ARMgold) (89.6)
RMB loan raised 1 000.0
Investment in Western Areas (2 012.2)
Cash and equivalents on 31 March 2006 1 781.2
During the past quarter our cash balance decreased from R2 914 million to
R1 781 million. The breakdown shows an operating contribution of R305.6 million
being offset by R356.8 million spent on Capex, corporate overheads,
exploration, financing charges and working capital movements. A R1 000 million
loan raised by RMB partially financed the acquisition of our investment in
Western Areas at a total cost of R2 012.2 million.
OPERATIONAL REVIEW
Operational highlights were as follows:
- Tshepong holed correctly with Phakisa mine on 66 level after 5 360m of
development.
- CONOPS implementation at Masimong 5 was completed at the end of the quarter.
- The North shaft at Joel Mine was commissioned in March 2006.
- On Kalgold a new contract has been awarded for the mining operation.
Quarterly profit comparison for operations
WORKING PROFIT (Rm)
December March
OPERATION 2005 2006 Variance
South African operations
Quality ounces 263.7 245.7 (18.0)
Growth ounces (2.5) (21.0) (18.5)
Leverage ounces 76.0 36.2 (39.8)
Surface operations 10.9 13.0 2.1
41.3 31.7 (9.6)
Australasian operations
Total Harmony 389.4 305.6 (83.8)
VARIANCES (Rm)
OPERATION Volume Grade Price Costs
South African operations
Quality ounces (32.4) (63.9) 69.9 8.4
Growth ounces 17.9 (44.1) 11.7 (4.0)
Leverage ounces (98.6) (15.2) 38.2 35.8
Surface operations (15.5) (0.7) 6.0 12.3
(4.5) (33.6) 15.8 12.7
Australasian operations
Total Harmony (133.1) (157.5) 141.6 65.2
Quality operations
Includes the following shafts: Target, Tshepong , Masimong , Evander and
Randfontein"s Cooke Shafts
March 2006 December 2005
U/g tons milled ("000) 1 522 1 574
U/g recovery grade (g/t) 5,69 6,10
U/g kilograms produced (kg) 8 661 9 604
U/g working costs (R/kg) 81 886 74 725
U/g working costs (R/t) 466 456
Underground tons decreased by 3.3% to 1 522 million tons during the quarter
whilst recovery grades decreased by 6.7% to 5.69 g/t. The combined effect of
this was an 9.8% decrease in gold production to 8 661kg. Although real cost
went down by 1.2% or R8.4 million, unit working costs in R/kg terms increased
by 9.6% bringing the cost of production to R81 886/kg . This gave our Quality
Operations a profit margin of 25.7% taking the average gold price received of
R110 253. As a result of the decrease in volumes and grades, the operating
profit dropped by 6.8% to R245.7 million compared with a profit of
R263.7 million in the previous quarter.
OPERATING AND FINANCIAL RESULTS (Rand/metric) (unaudited)
Underground production - South Africa
Leve-
Quality Growth raged
Ounces Projects Ounces Sub-total
Ore milled - t"000 Mar-06 1 522 343 1 055 2 920
Dec-05 1 574 312 1 252 3 138
Gold produced - kg Mar-06 8 661 1 498 4 996 15 155
Dec-05 9 604 1 756 6 113 17 473
Yield - g/t Mar-06 5.69 4.37 4.74 5.19
Dec-05 6.10 5.63 4.88 5.57
Cash operating
costs - R/kg Mar-06 81 886 124 774 102 857 93 040
Dec-05 74 725 104 188 90 074 83 057
Cash operating
costs - R/t Mar-06 466 545 487 483
Dec-05 456 586 440 462
Working revenue
(R"000) Mar-06 954 903 165 919 550 139 1 670 961
Dec-05 981 335 180 504 626 599 1 788 438
Cash operating
costs (R"000) Mar-06 709 214 186 912 513 873 1 409 999
Dec-05 717 658 182 954 550 621 1 451 233
Cash operating profit
(R"000) Mar-06 245 689 (20 993) 36 266 260 962
Dec-05 263 677 (2 450) 75 978 337 205
Capital
expenditure
(R"000) Mar-06 145 579 127 022 67 254 339 855
Dec-05 148 711 135 214 59 391 343 316
Quality Ounces - Evander Shafts, Randfontein Cooke Shafts, Target, Tshepong,
Masimong
Growth Projects - Doornkop shaft and South Reef Project, Elandsrand shaft and
New Mine Project, Phakisa shaft, Tshepong Decline Project
Leveraged Ounces - Bambanani, Joel, West, St Helena 8, Harmony 2, Merriespruit
1 and 3, Unisel, Brand 3 and Orkney 2 and 4
OPERATING AND FINANCIAL RESULTS (Rand/metric) (unaudited)
South Africa South Africa Australia Harmony
Surface Total Total Total
Ore milled - t"000 Mar-06 783 3 703 763 4 466
Dec-05 938 4 076 781 4 857
Gold produced - kg Mar-06 766 15 921 1 543 17 464
Dec-05 926 18 399 1 917 20 316
Yield - g/t Mar-06 0.98 4.30 2.02 3.91
Dec-05 0.99 4.51 2.45 4.18
Cash operating
costs - R/kg Mar-06 92 535 93 014 91 876 92 914
Dec-05 89 849 83 398 80 820 83 154
Cash operating
costs - R/t Mar-06 91 400 186 363
Dec-05 89 376 198 348
Working revenue
(R"000) Mar-06 83 889 1 754 850 173 421 1 928 271
Dec-05 94 098 1 882 536 196 270 2 078 806
Cash operating costs
(R"000) Mar-06 70 882 1 480 881 141 764 1 622 645
Dec-05 83 200 1 534 433 154 931 1 689 364
Cash operating
profit (R"000) Mar-06 13 007 273 969 31 657 305 626
Dec-05 10 898 348 103 41 339 389 442
Capital expenditure
(R"000) Mar-06 785 360 640 50 586 391 226
Dec-05 304 343 620 105 103 448 723
TOTAL OPERATIONS - QUARTERLY FINANCIAL RESULTS (Rand/metric) (unaudited)
Quarter ended Quarter ended Quarter ended
31 March 31 December 31 March
2006 2005 2005
(restated)
Ore milled t"000 4 466 4 857 5 463
Gold produced kg 17 464 20 316 21 126
Gold price received R/kg 110 399 102 333 83 273
Cash operating costs R/kg 92 914 83 154 79 333
R million R million R million
Revenue 1 928 2 079 1 759
Cash operating costs (1) 1 622 1 690 1 676
Cash operating profit 306 389 83
Amortisation and depreciation
of mining properties,
mine development costs and
mine plant facilities (1) (270) (249) (246)
Corporate, administration and
other expenditure (6) (72) (46)
Provision for rehabilitation
costs (1) (2) (14)
Operating profit/(loss) 29 66 (223)
Amortisation and depreciation
other than mining
properties, mine development
costs and mine plant
facilities (17) (10) (10)
Employment termination and
restructuring costs - (15) (142)
Care and maintenance costs (30) (27) (29)
Share based compensation (30) (30) (19)
Exploration expenditure (21) (32) (13)
Profit on sale of investment
in Gold Fields - 306 -
Mark-to-market of listed
investments 22 22 -
Interest paid (96) (98) (96)
Interest received 71 48 24
Other income/(expenses) - net 5 6 (15)
(Loss)/gain on financial
instruments (260) (183) 51
(Loss)/gain on foreign
exchange (1) (21) 21
Loss on sale of listed
investments and subsidiaries - (1) (111)
Impairment of fixed assets - - (1 513)
(Loss)/profit before tax (328) 31 (2 075)
Current tax - (expense) (1) (4) (5)
Deferred tax -
benefit/(expense) (1) 147 (5) 428
Net (loss)/profit (182) 22 (1 652)
(1) The change in accounting
policy on capitalisation of
mine development costs had the
following effect:
- Cash operating costs -
decrease 160 161 138
- Amortisation and
depreciation of mining
properties,
mine development costs and
mine plant facilities (88) (75) (59)
- Deferred tax - expense (16) (18) (15)
- Net effect of change in
accounting policy 56 68 64
The effects of the change in policy are in the process of being audited. The
company does not expect any material change to arise from the audit.
TOTAL OPERATIONS - QUARTERLY FINANCIAL RESULTS (Rand/metric) (unaudited)
Quarter ended Quarter ended Quarter ended
31 March 31 December 31 March
2006 2005 2005
(restated)
Loss per share - cents*
- Basic earnings/(loss) (46) 6 (420)
- Headline loss (50) (75) (96)
- Fully diluted
earnings/(loss)** *** (46) 6 (420)
Dividends per share -
(cents)
- Interim - - -
- Proposed final - - -
* Calculated on weighted average number of shares in issue at quarter end March
2006: 393.4 million (December 2005: 392.7 million) ( March 2005: 393.2
million).
** Calculated on weighted average number of diluted shares in issue at quarter
end March 2006: 400.5 million (December 2005: 398.5 million) (March 2005: 392.9
million).
*** The effect of the share options is anti-dilutive.
Reconciliation of headline loss:
Net (loss)/profit (182) 22 (1 652)
Adjustments:
- Profit on sale of assets (13) (12) (18)
- Loss on sale of ARM Ltd -
net of tax - - 111
- Loss on disposal of Sangold
investment - 1 -
- Profit on disposal of investment
in Gold Fields - (306) -
- Impairment of fixed assets -
net of tax - - 1 182
Headline loss (195) (295) (377)
TOTAL OPERATIONS - YEAR TO DATE FINANCIAL RESULTS (Rand/metric) (unaudited)
Year to date Year to date
31 March 31 March
2006 2005
(restated)
Ore milled t"000 13 923 17 943
Gold produced kg 56 999 71 552
Gold price received R/kg 101 282 83 450
Cash operating costs R/kg 87 019 73 751
R million R million
Revenue 5 773 5 971
Cash operating costs (1) 4 960 5 277
Cash operating profit 813 694
Amortisation and depreciation of mining
properties, mine
development costs and mine plant
facilities (1) (763) (799)
Corporate, administration and other
expenditure (134) (125)
Provision for rehabilitation costs (6) (42)
Operating loss (90) (272)
Amortisation and depreciation other than
mining properties,
mine development costs and mine plant
facilities (38) (25)
Employment termination and restructuring costs 79 (322)
Care and maintenance costs (138) (112)
Share based compensation (93) (49)
Exploration expenditure (71) (57)
Profit on sale of investment in Gold Fields 306 -
Mark-to-market of listed investments 65 -
Interest paid (290) (300)
Interest received 171 87
Other expenses - net (10) (30)
(Loss)/gain on financial instruments (558) 23
(Loss)/gain on foreign exchange (1) 34
Loss on sale of listed investments and
subsidiaries (1) -
Profit on Australian-listed investments - 4
Loss on sale of listed investments and
subsidiaries - (111)
Impairment of fixed assets - (1 513)
(669) (2 643)
Loss before tax
Current tax - (expense)/benefit (5) 34
Deferred tax - benefit (1) 190 474
Net loss (484) (2 135)
(1) The change in accounting policy on
capitalisation of mine
development costs had the following effect:
- Cash operating costs - decrease 455 453
- Amortisation and depreciation of mining
properties, mine
development costs and mine plant facilities (234) (172)
- Deferred tax - expense (46) (53)
- Net effect of change in accounting policy 175 228
The effects of the change in policy are in the process of being audited. The
company does not expect any material change to arise from the audit.
TOTAL OPERATIONS - YEAR TO DATE FINANCIAL RESULTS (Rand/metric) (unaudited)
Year to date Year to date
31 March 31 March
2006 2005
(restated)
Loss per share - cents*
- Basic loss (123) (605)
- Headline loss (211) (255)
- Fully diluted loss** *** (123) (605)
Dividends per share - (cents)
- Interim - -
- Proposed final - -
* Calculated on weighted average number of shares in issue for 9 months to
March 2006: 392.9 million (March 2005: 352.7 million).
** Calculated on weighted average number of diluted shares in issue for 9
months to March 2006: 398.1 million (March 2005: 352.7 million).
*** The effect of the share options is anti-dilutive.
Reconciliation of headline loss:
Net loss (484) (2 135)
Adjustments:
- Profit on sale of assets (40) (52)
- Profit on Australian listed investments - (4)
- Loss on sale of ARM ltd - net of tax - 111
- Loss on disposal of Sangold investment 1 -
- Profit on disposal of investment in Gold
Fields (306) -
- Impairment of fixed assets - net of tax - 1 182
Headline loss (829) (898)
ABRIDGED BALANCE SHEET AT 31 MARCH 2006 (Rand)
At 31 March At 31 December At 31 March
2006 2005 2005
R million R million R million
(Unaudited) (Unaudited) (Unaudited)
(restated)
ASSETS
Non-current assets
Property, plant and equipment 22 628 22 735 22 267
Intangible assets 2 268 2 268 2 268
Investments 2 259 2 191 6 531
Investments in associates 2 012 - -
29 167 27 194 31 066
Current assets
Inventories 593 560 571
Receivables 775 744 614
Income and mining taxes 28 24 18
Cash and cash equivalents 1 781 2 914 (233)
3 177 4 242 970
Total assets 32 344 31 436 32 036
EQUITY AND LIABILITIES
Share capital and reserves
Issued capital 25 702 25 689 25 512
Fair value and other reserves (791) (717) (1 501)
Deferred share-based
compensation (156) (185) (110)
Accumulated loss (1 895) (1 708) (430)
22 860 23 079 23 471
Non-current liabilities
Long-term borrowings 2 549 2 506 2 944
Net deferred taxation
liabilities 1 963 2 122 2 369
Net deferred financial
liabilities 679 498 452
Long-term provisions 943 943 847
6 134 6 069 6 612
Current liabilities
Accounts payables 1 035 892 997
Accrued liabilities 316 309 340
Short-term portion of
long-term borrowings 1 981 1 079 607
Shareholders for dividends 18 8 9
3 350 2 288 1 953
Total equity and liabilities 32 344 31 436 32 036
Number of ordinary shares in
issue 394 369 190 394 161 367 393 231 894
Net asset value per share
(cents) 5 797 5 853 5 969
The balance sheet at 30 June 2005 is in accordance with the audited balance
sheet except for the effects of the adoption of IFRS 2, Share-based payments,
and the change in the accounting policy relating to the capitalisation of
development costs.
CONDENSED STATEMENT OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED 31 MARCH 2006 (unaudited)
Issued Fair value Deferred
share and other share-based
capital reserves compensation
R million R million R million
Balance at 1 July 2005 25 645 (670) (248)
Issue of share capital 57 - -
Currency translation
adjustment and other - (121) -
Adoption of IFRS 2,
share-based payments - - 92
Net loss - - -
Dividends paid - - -
Balance at 31 March 2006 25 702 (791) (156)
(restated)
Balance as 1 July 2004 20 945 (1 186) (27)
Issue of share capital 4 436 - -
Currency translation
adjustment and other - (315) -
Adoption of IFRS 2,
share-based payments 131 - (83)
Net earnings - - -
Dividends paid - - -
Balance at 31 March 2005 25 512 (1 501) (110)
Retained
earnings Total
R million R million
Balance at 1 July 2005 (1 406) 23 321
Issue of share capital - 57
Currency translation
adjustment and other - (121)
Adoption of IFRS 2,
share-based payments - 92
Net loss (484) (484)
Dividends paid (5) (5)
Balance at 31 March 2006 (1 895) 22 860
(restated)
Balance as 1 July 2004 1 801 21 533
Issue of share capital - 4 436
Currency translation
adjustment and other - (315)
Adoption of IFRS 2,
share-based payments - 48
Net earnings (2 135) (2 135)
Dividends paid (96) (96)
Balance at 31 March 2005 (430) 23 471
SUMMARISED CASH FLOW STATEMENT
FOR THE NINE MONTHS ENDED 31 MARCH 2006 (unaudited)
Nine Nine
months months
ended ended
31 March 31 March
2006 2005
R million R million
Cash flow from operating activities
Cash utilised by operations (88) (461)
Interest and dividends received 176 104
Interest paid (143) (192)
Income and mining taxes paid (8) (51)
Cash utilised by operating activities (63) (600)
Cash flow from investing activities
Net proceeds on disposal
of listed investments 2 461 92
Acquisition of investment
in associate (2 012) -
Net additions to property, plant
and equipment (1 164) (989)
Other investing activities (18) 1
Cash utilised by investing activities (733) (896)
Cash flow from financing activities
Long-term loans raised 615 81
Ordinary shares issued - net of expenses 55 (36)
Dividends paid - (95)
Cash generated/ (utilised) by financing
activities 670 (50)
Foreign currency translation adjustments 77 (101)
Net (decrease)/increase in cash and
equivalents (49) (1 647)
Cash and equivalents - 1 July 1 830 1 414
Cash and equivalents - 31 March 1 781 (233)
SUMMARISED CASH FLOW STATEMENT
FOR THE THREE MONTHS ENDED 31 MARCH 2006 (unaudited)
Three Three
months months
ended ended
31 March 31 December
2006 2005
R million R million
Cash flow from operating activities
Cash generated/(utilised) by operations 229 (136)
Interest and dividends received 76 48
Interest paid (48) (47)
Income and mining taxes paid (5) (2)
Cash generated/(utilised) by operating activities 252 (137)
Cash flow from investing activities
Net proceeds on disposal of listed investments - 2 461
Acquisition of investment in associate (2 012) -
Net additions to property, plant and equipment (378) (436)
Other investing activities (21) 3
Cash (utilised)/generated by investing activities (2 411) 2 028
Cash flow from financing activities
Long-term loans raised 910 -
Ordinary shares issued - net of expenses 10 45
Cash generated by financing activities 920 45
Foreign currency translation adjustments 106 7
Net (decrease)/increase in cash and equivalents (1 133) 1 943
Cash and equivalents - beginning of quarter 2 914 971
Cash and equivalents - end of quarter 1 781 2 914
NOTES TO THE RESULTS FOR THE PERIOD ENDED 31 MARCH 2006
1. Basis of accounting The unaudited results for the quarter have been prepared
using accounting policies that comply with International Financial Reporting
Standards (IFRS). 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,
except for the adoption of the revised international accounting standards
forthcoming from the IAS improvements project and the changes which are
described in Note 2 and 3.
2. New accounting policies adopted
(a) Share-based Payments (IFRS 2) On 1 July 2005, the Company adopted the
requirements of IFRS 2, Share-based Payments. In accordance with the
transitional provisions, IFRS 2 has been applied to all grants of
equity-settled payments after 7 November 2002 that were unvested as at
1 January 2005. The Company issues equity-settled instruments to certain
qualifying employees under an Employee Share Option Scheme to purchase
shares in the Company"s authorised but unissued ordinary share capital.
Equity share-based payments are measured at the fair value of the equity
instruments at the date of the grant. The total fair value of the options
granted is recorded as deferred share-based compensation as a separate
component of shareholders" equity with a corresponding amount recorded as
share premium. The deferred share-based compensation is expensed over the
vesting period, based on the Company"s estimate of the number of shares
that are expected to eventually vest. The Company used the binominal
option pricing model in determining the fair value of the options granted.
The impact of this adjustment on the net profit/(loss) is an expense
of R93 million for the March 2006 year to date (March 2005 year to
date: R48 million) (March 2006 quarter: R30 million) (December 2005
quarter: R33 million) (March 2005 quarter: R19 million).
(b) Determining whether an arrangement contains a lease (IFRIC 4) On
1 July 2005, the Company applied the requirements of IFRIC 4, Determining
whether an arrangement contains a lease. The objective of the
interpretation is to determine whether an arrangement contains a lease
that falls within the scope of IAS 17, Leases. The lease is then accounted
in accordance with IAS 17. The application of the interpretation had no
impact on the results of the quarter or any prior reporting period.
3. Change in accounting policy
(a) Capitalisation of mine development costs Previously mine development
costs were capitalised when the reef horizon was intersected.
Expenditure for all development that will give access to proven and
probable ore reserves will now be capitalised. Capitalised costs are
amortised over the estimated life of the proven and probable reserves
to which the costs give access.
The impact of this adjustment on the net profit/(loss) is as follows:
- A decrease in the cash operating costs of R458 million for the March
2006 year to date (March 2005 year to date: R454 million) (March 2006
quarter: R160 million) (December 2005 quarter: R161 million)
(March 2005 quarter: R138 million).
- Additional amortisation charges of R234 million for the March 2006 year
to date (March 2005 year to date: R172 million) (March 2006 quarter: R88
million) (December 2005 quarter: R75 million) (March 2005 quarter:
R59 million).
- Taxation effect of the capitalised development costs and additional
amortisation charges of R47 million for March 2006 year to date (March
2005 year to date: R53 million) (March 2006 quarter: R16 million)
(December 2005 quarter: R18 million) (March 2005 quarter: R15 million).
4. Investment in associate
On 9 March 2006, the Company announced that it had acquired a 29.2%
investment in Western Areas Ltd. The investment will be treated as an
associate. The accounting policies of the associate is in line with the
investment in an associate is in line with the accounting policies of the
Company, therefore no significant adjustments are foreseen. The most
practicable date of the transaction for accounting purposes is 1 April 2006.
The Company"s portion of the results of the associate from 9 March 2006 to
31 March 2006, will therefore be accounted for in the June 2006 quarter.
5. Derivative financial instruments
Commodity contracts
The Harmony Group"s outstanding commodity contracts against future
production, by type at 31 March 2006 are indicated below. The total net
delta of the hedge book at 31 March 2006 was 431,285 oz (13 414 kg).
Year 30 June 30 June 30 June 30 June
2006 2007 2008 2009 Total
AUSTRALIAN DOLLAR GOLD
Forward contracts
Kilograms 2,333 4,572 3,110 3,110 13,126
Ounces 75,000 147,000 100,000 100,000 422,000
AUD per oz 509 515 518 518 515
Call options sold
Kilograms - 311 - - 311
Ounces - 10,000 - - 10,000
AUD per oz - 562 - - 562
Total commodity
contracts
Kilograms 2,333 4,883 3,110 3,110 13,437
Ounces 75,000 157,000 100,000 100,000 432,000
Delta (kg) 2,333 4,881 3,105 3,096 13,414
Total net gold*
Delta (oz) 74,995 156,943 99,818 99,529 431,285
* The Delta of the hedge position indicated above, is the equivalent gold
position that would have the same marked- to-market sensitivity for a small
change in the gold price. This is calculated using the Black-Scholes option
formula with the ruling market prices, interest rates and volatilities at
31 March 2006.
These contracts are classified as speculative and the marked-to-market movement
is reflected in the income statement.
The mark-to-market of these contracts was a negative R654 million (negative
USD106 million) at 31 March 2006 (at 31 December 2005: negative R486 million or
negative USD77 million). The values at 31 March 2006 were based on a gold price
of USD588 (AUD821) per ounce, exchange rates of USD1/R6.15 and AUD1/USD0.72 and
prevailing market interest rates and volatilities at that date. These
valuations were provided by independent risk and treasury management experts.
At 20 April 2006, the marked-to-market value of the hedge book was a negative
R745 million (negative USD91 251 million), based on a gold price of USD644
(AUD865) per ounce, exchange rates of USD1/R5.96 and AUD1/USD0.74 and
prevailing market interest rates and volatilities at that time.
These marked-to-market valuations are not predictive of the future value of the
hedge position, nor of the future impact on the revenue of the company. The
valuation represents the cost of buying all hedge contracts at the time of the
valuation, at market prices and rates available at the time.
Harmony closed out 25,000oz forward contracts during the quarter ending
31 March 2006 at a cost of R62.6 million (USD 10.2 million). During the quarter
ending 31 December 2005, Harmony closed out 10,000oz call option contracts at
a cost of R3.3 million (USD 500,000).
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 a 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
hedges. The marked-to-market value of the transactions was a positive
R25 million (USD4 million) as at 31 March 2006 (at 31 December 2005 positive
R11 million or USD 2 million), based on the prevailing interest rates and
volatilities at the time.
Z B Swanepoel N V Qangule
Chief Executive Financial Director
Virginia
3 May 2006
CONTACT DETAILS
Harmony Gold Mining Company Limited
Corporate Office
Suite No. 1
Private Bag X1
Melrose Arch, 2076
South Africa
First Floor
4 The High Street
Melrose Arch, 2196
Johannesburg
South Africa
Telephone: +27 11 684 0140
Fax: +27 11 684 0188
Website: http://www.harmony.co.za
Directors
P T Motsepe (Chairman)*
Z B Swanepoel (Chief Executive)
F Abbott*, J A Chissano* , V N Fakude*
Dr D S Lushaba*, M Motloba*,
N V Qangule, C M L Savage*
F Mothobi
(*non-executive) ( Mozambique)
Investor Relations
Philip Kotze
Executive: Investor Relations
Telephone: +27 11 684 0147
Fax: +27 11 684 0188
Cell: +27 (0) 83 453 0544
E-mail: philip.kotze@harmony.co.za
Vusi Magadana
Investor Relations Officer
Telephone: +27 11 684 0149
Fax: +27 11 684 0188
Cell: +27 (0) 72 157 5986
E-mail: vusi.magadana@harmony.co.za
Marian van der Walt
Company Secretary
Telephone: +27 11 411 2037
Fax: +27 11 411 2398
Cell: +27 (0) 82 888 1242
E-mail: mvanderwalt@harmony.co.za
South African Share Transfer Secretaries
Ultra Registrars (Pty) Ltd
PO Box 4844
Johannesburg, 2000
Telephone: +27 11 832 2652
Fax: +27 11 834 4398
Date: 05/05/2006 08:00:37 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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