HAR - Harmony Gold Mining Company - Financial Review For The Second Release Date: 15/02/2008 09:00:03 Code(s): HAR HAR - Harmony Gold Mining Company - Financial Review For The Second
Quarter Ended 31 December 2007
HARMONY GOLD MINING COMPANY LIMITED
Registration number 1950/038232/06
Incorporated in the Republic of South Africa
ISIN: ZAE000015228
Trading Symbols
JSE Limited HAR
New York Stock Exchange, Inc. HMY
NASDAQ HMY
London Stock Exchange plc HRM
Euronext Paris HG
Euronext Brussels HMY
Berlin Stock Exchange HAM1
FINANCIAL REVIEW FOR THE SECOND QUARTER ENDED 31 DECEMBER 2007
SALIENT FEATURES
- Harmony signs agreement on establishing a separate uranium company
- Total operating costs down by 8.1%
- Cash operating profit up by 43.0%
- Elandsrand repaired and back in production
- Financial results for six months ended 31 December 2007 reviewed by external
auditors
FINANCIAL SUMMARY FOR THE SECOND QUARTER ENDED 31 DECEMBER 2007
(All results exclude Discontinued Operations unless otherwise indicated)
Quarter* Quarter Q-on-Q
Sep 2007 Dec 2007 % change
Gold produced - kg 13 523 12 403 (8.3)
- oz 434 773 398 764 (8.3)
Cash costs - R/kg 132 920 133 234 (0.2)
- $/oz 582 613 (5.3)
Cash operating profit - Rm 315 450 43.0
- US$m 44 66 50.0
Cash earnings - SA c/s 79 113 43.0
- US c/s 11 17 54.6
Basic (loss)/earnings - SA c/s (129) (49) 62.0
- US c/s (18) (7) 61.1
Headline (loss)/earnings - SA c/s (30) (43) (43.3)
- US c/s (4) (6) (50.0)
Fully diluted
(loss)/earnings - SA c/s (128) (48) 62.5
- US c/s (18) (7) 61.1
Quarter* Financial year
Dec 2006 2007
Gold produced - kg 13 515 25 926
- oz 434 515 833 537
Cash costs - R/kg 102 382 133 053
- $/oz 435 597
Cash operating profit - Rm 568 764
- US$m 78 110
Cash earnings - SA c/s 143 192
- US c/s 20 28
Basic (loss)/earnings - SA c/s 116 (178)
- US c/s 16 (26)
Headline (loss)/earnings - SA c/s 43 (73)
- US c/s 6 (11)
Fully diluted (loss)/earnings - SA c/s 114 (176)
- US c/s 16 (25)
*The figures were adjusted to exclude further discontinued operations. See
financial statements.
CHIEF EXECUTIVE`S REVIEW
In this, my first report to Harmony shareholders as Chief Executive Officer, I
would firstly like to thank the selection panel and the board of directors for
their confidence in my leadership to take Harmony forward and I look forward to
working closely with them in the years ahead.
Harmony will continue to focus on creating shareholder value and, over time, to
out-perform the market. One of my priorities for the company is to outline a
long-term strategy. Harmony has in the past few years been focusing on organic
growth and these projects are now mines under construction, most building up in
production from now to 2010. All of these mines will have longer life with
generally higher grades. These production units are larger and we will be
expecting more consistent results, both in tonnes and grade. These long life
mines, together with those already in production, will be the core of Harmony
in the future. They make up the bulk of Harmony`s reserves and will have lower
cash costs.
Management time will continue to be focused on striving to achieve desired
returns by reducing the planning gap and continually reviewing to squeeze the
best from the orebodies. Some short life assets will remain within the Harmony
stable, operations which under certain circumstances, possibly with a capital
injection, could have their lives vastly extended. These assets will continue
to have high cash cost, however, at today`s high gold prices these assets could
deliver significant profits. Management will endeavour to explore ways and
means of obtaining good value for shareholders from these assets by
investigating ways of recapitalising them.
Harmony is thus moving to a producer with a higher focus on quality. Our
aspirations are to have sustainable growth, a culture of achievement, a buoyant
and rising stock price, to be a responsible corporate citizen, have
professional business practice and have inspired, enthusiastic and competent
employees.
Turning to the second quarter`s financial results for the period ended 31
December 2007, I draw your attention to changes made to this quarter`s
reporting format. The previous structure of quality, growth, leverage and
international assets has been replaced with South African underground, surface
and international assets. We believe that it had become essential to re-assess
our company structure as four of our projects have begun to contribute to
turnover and as Harmony begins its transformation to a quality producer.
In addition to the company structure changes, and in accordance with the new
accounting regulations, we highlight the fact that four of Harmony`s
operations, Orkney shafts 1 - 7, St Helena, Cooke shafts and plant in
Randfontein, and Mt Magnet and South Kal in Australia, are now being reported
as discontinued operations in the income statement.
The company`s operational results for the second quarter 2008 were negatively
affected by the 44 days of stoppage time at Elandsrand after a shaft incident,
in order to carry out the investigation into the mine incident of 3 October
2007. Elandsrand accounted for 67.1% or 1 177 kg loss of production in the
December quarter. The one-day national strike called by the National Union of
Mineworkers in support of safety also impacted on production. However, both the
Elandsrand accident and the one- day strike has resulted in increased safety
focus and we are hopeful that this will result in positive safety behaviour and
a renewed safety effort from all Harmony employees.
Harmony`s total production for its underground continuing operations decreased
by 1.3% to 4 445 000 tonnes resulting in an 8.3% decrease in kilograms produced
to 12 403 kg and a 3.9% drop in grade to 4.87g/t. Cash operating costs remained
almost unchanged at R133 234/kg.
The gold price received at R169 502/kg was 8.5% higher than the September
quarter but the Rand/US dollar exchange rate was 4.7% stronger at 677 cents.
Harmony`s operating profit from continuing operations improved 43.0% to R449.8
million.
Capital expenditure increased during the quarter under review to R808 million,
this is mainly due to the ramp up in expenditure at Hidden Valley in Papua New
Guinea.
The benefits of Harmony`s intensive cost control measures that commenced early
in October 2007 will only materialise in the next half of the financial year.
Measures implemented included the termination of 2 827 external contractors and
the voluntary retrenchments and natural attrition of 2 123 and transfer to more
efficient shafts of 4 859 employees. The transfers were mainly service staff
from Randfontein central offices and from non-productive to productive areas.
St Helena Nos. 4 and 8 shafts were placed on care and maintenance and its 650
employees have been redeployed at other Harmony operations. The transfer of the
centralised staff at Randfontein to the operations is part of the company`s
decentralisation process to compel operations to take ownership of their costs.
Our total complement now stands at 43 800 employees and 5 700 contractors
compared with 47 431 employees and 7 019 contractors at 30 June 2007.
During the quarter, the internal due diligences on the effectiveness of the
continuous mining (Conops) method were completed at the Tshepong, Elandsrand,
Masimong, Evander No. 8 and Winkelhaak shafts, as well as Cooke 2 operations.
These operations and Target are the only Harmony shafts that operate on Conops.
The review revealed that Conops was not an effective mining method at Masimong
and it has subsequently been terminated and the majority of the workforce
transferred to Phakisa. Conops will be reviewed continually and it is our
intention to phase out Conops at those operations that do not deliver on our
objectives.
The costs savings drive have had effects of positively decreasing the working
cost from R1 798 million to R1 652 million and hence despite producing less
gold (mainly due to the Elandsrand accident) the cash cost remained virtually
unchanged.
All conditions precedent relating to South Kal disposal were met on 30 November
2007, with Dioro Exploration NL taking over operations on that date and the
purchase price of A$25 million cash paid and A$20 million of shares issued to
Harmony. Harmony also signed the sales contract with Australian-based junior
miner Monarch Gold Mining Company Limited for the sale of Mount Magnet. The
Mount Magnet operations completed mining during December 2007 and consequently
the last tonnages for Harmony`s account from this operation have been milled in
January 2008.
Harmony believes that partnerships may be one of the primary vehicles through
which we will enhance our growth strategy in the south-east Asian region. We
are thus pursuing alliances with interested parties with technical mining
skills and capital to equally share the Hidden Valley Gold and Silver Mine, the
Wafi/Golpu projects and the extensive exploration licenses in Papua New Guinea.
We will only consider transactions that are of good value to Harmony`s
shareholders.
To this end, we have progressed to a shortlist of leading international mining
companies with whom we are in discussions. We are confident that we will be in
a position to finalise this process in April 2008, with a partner to be
introduced thereafter. This new partnership will build on the excellent
relationships Harmony enjoys with the local government and contribute
significantly to the domestic economic growth.
Shareholders were advised on 19 December 2007 that a significant decision had
been made with regard to the future of Harmony`s Cooke shafts and its uranium
assets in the Randfontein area. Several proposals from interested parties were
considered but only the offer from Pamodzi Resources Fund was in line with
Harmony`s strategy of realising value for its shareholders.
In essence, the signed agreement proposes that certain uranium and gold assets
of the Randfontein Cooke Section be sold into a new company (Newco). The
purchase price payable by the still to be named Newco for these assets amounts
to US$420 million. In addition, Pamodzi Resources Fund will acquire a 60%
shareholding in Newco from Investco, the subsidiary of ArmGold/Harmony Joint
Investment Company, for a purchase consideration of US$252 million, with
Harmony retaining a 40% shareholding in Newco.
Both parties are currently in the process of meeting conditions precedent and
we are confident that these will be completed by 31 March 2008. A new dedicated
executive management team will assume responsibility for developing the project
and we will soon be appointing a chief executive officer to manage Newco.
The revenues from the Randfontein Cooke shafts will be equity accounted and the
profit from associates will be reflected in the income statement.
No material changes were made to Harmony`s Mineral Resources and Ore Reserves
for the quarter ended December 2007. Taking into account the last six months`
depletion of reserves, the Harmony Mineral Resources and Ore Reserves as stated
in the Harmony 2007 annual report are an accurate reflection of the company`s
current position. The Mineral Resources and Ore Reserves are comprehensively
audited by a team of internal competent persons that operate independently
from the operating units.
In the light of Eskom`s electricity supply disruptions and with mines operating
only at 90% of Harmony`s previous power supply, the company`s production for
the March 2008 quarter could decrease.
Harmony`s management is devising new strategies on optimising operations to
produce at 90% of electricity to ensure that we deliver returns on our
shareholders` investments.
THE SECOND QUARTER ENDED 31 DECEMBER 2007 UNDER REVIEW
Harmony`s SA underground operations, excluding the discontinued operations,
delivered a steady operational performance for the second quarter of financial
year 2008.
Tonnes Milled
Tonnes milled from the company`s underground operations, excluding discontinued
operations, decreased by 6.5% to 2 297 000 tonnes (2 457 000 tonnes). This
decrease in tonnes milled is mainly attributed to Elandsrand`s loss of
production for the quarter. The quarter saw Bambanani and Joel mine back in
production but the closure of St Helena and the restructuring at Masimong
impacted negatively on the company`s underground production.
Recovery Grades
Gold production dropped by 10.3% on lower recovery grade from SA underground
mines but mainly due to Elandsrand`s 1 177 kg loss of production. This impacted
on recovery grades which fell by 3.9% when compared with the previous quarter
to 4.87g/t (5.07g/t).
Cost Control
Cash operating costs were well contained with Target, Bambanani, Joel and
Virginia being the main contributors. Elandsrand`s costs impacted on an
otherwise cost-conscious quarter. Cash operating costs increased by 2.0% to
R138 531/kg (R135 776/kg).
The performance of the company is best highlighted in the following table*:
Q-on-Q
Sep 2007 Dec 2007 % Variance Dec 2006
Production - kg 13 523 12 403 (8.3) 13 515
Production - oz 434 773 398 764 (8.3) 434 515
Revenue - R/kg 156 187 169 502 8.5 144 416
Revenue - US$/oz 684 779 13.9 614
Cash cost - R/kg 132 920 133 234 (0.2) 102 382
Cash cost - US$/oz 582 613 (5.3) 435
Exchange
rate - USD/ZAR 7.10 6.77 4.7 7.32
Cash Operating Profit and Margin*
Q-on-Q
Sep 2007 Dec 2007 % Variance Dec 2006
Cash operating profit (Rm) 315 450 43.0 568
Cash operating profit
margin (%) 14.9 21.4 43.6 29.1
* Continuing Operations only
Quarter-on-quarter cash operating profit variance analysis (Continuing
Operations)
Cash operating profit - September 2007
R314.6 million*
- volume change (118.7)
- working cost change 145.0
- recovery grade change (56.5)
- gold price change 165.4
- net variance 135.2
Cash operating profit - December 2007 R449.8 million
*The figure was adjusted to exclude further discontinued operations. See
financial statements.
Analysis of earnings per share from continuing operations
Earnings per share (SA cents)
Quarter ended Quarter ended Quarter ended
September 2007 December 2007 December 2006
Cash earnings 79 113 143
Basic (loss)/earnings (129) (49) 116
Headline (loss)/earnings (30) (43) 43
Fully diluted
(loss)/earnings (128) (48) 114
Reconciliation between basic loss and headline loss from continuing operations
Headline earnings/(loss) per share (SA cents)
Quarter ended Quarter ended
September 2007 December 2007
Basic loss (129) (49)
Loss on sale of property, plant and
equipment (1) (7)
Profit on disposal of investment in Gold
Fields Limited 100 -
Provision for doubtful debt - 13
Headline loss (30) (43)
CONDENSED CONSOLIDATED INCOME STATEMENT (Rand)
For the quarter ended
December September December
2007 2007 2006
(Unaudited) (Unaudited) (Unaudited)
Notes (restated)* (restated)*
R million R million R million
Continuing operations Revenue 2 102 2 112 1 952
Production cost (1 652) (1 798) (1 384)
Amortisation and
depreciation (228) (201) (130)
Corporate expenditure (68) (72) (60)
Exploration
expenditure (42) (44) (51)
Care and maintenance
costs of restructured shafts (10) (9) (16)
Employment
termination and
restructuring costs 2 (75) - -
Share-based
compensation (9) (10) (12)
(Loss)/gain on
financial instruments (14) 4 17
Provision for
doubtful debt 3 (75) - -
Other
(expenses)/income - net (6) (19) 41
Operating
(loss)/profit (77) (37) 357
Profit/(loss) from
associates - - 30
Mark-to-market of
listed investments - 33 27
Loss on sale of
listed investments 4 - (459) -
Profit on sale of
investment in
associate 4 - - 236
Investment income 74 67 42
Finance cost** (138) (121) (97)
(Loss)/profit before
taxation (141) (517) 595
Taxation (54) 2 (134)
Net (loss)/profit
from continuing
operations (195) (515) 461
Discontinued
operations 5
Profit/(loss) from
discontinued
operations 226 (44) 10
Loss on the sale of the
South Kal operations (51) - -
Profit/(loss) from
measurement to
fair value less cost
to sell 66 (7) -
Net profit/(loss) 46 (566) 471
(Loss)/earnings per
share from
continuing operations
attributable
to the equity holders
of the company
during the year (cents) 6
- Basic
(loss)/earnings (49) (129) 116
- Headline
(loss)/earnings (43) (30) 43
- Fully diluted
(loss)/earnings (48) (128) 114
Earnings/(loss) per
share from
discontinuing
operations
attributable
to the equity holders
of the company
during the year (cents) 6
- Basic
earnings/(loss) 60 (13) 3
- Headline
earnings/(loss) 57 (11) 2
- Fully diluted
earnings/(loss) 59 (13) 2
For the six months ended
December December
2007 2006
(restated)*
R million R million
Continuing operations
Revenue 4 214 4 003
Production cost (3 450) (2 736)
Amortisation and depreciation (429) (351)
Corporate expenditure (140) (116)
Exploration expenditure (86) (85)
Care and maintenance costs of restructured shafts (19) (32)
Employment termination and restructuring costs (75) -
Share-based compensation (19) (23)
(Loss)/gain on financial instruments (10) 36
Provision for doubtful debt (75) -
Other (expenses)/income - net (25) 71
Operating (loss)/profit (114) 767
Profit/(loss) from associates - (18)
Mark-to-market of listed investments 33 51
Loss on sale of listed investments (459) -
Profit on sale of investment in associate - 236
Investment income 141 78
Finance cost** (259) (184)
(Loss)/profit before taxation (658) 930
Taxation (52) (262)
Net (loss)/profit from continuing operations (710) 668
Discontinued operations
Profit/(loss) from discontinued operations 182 85
Loss on the sale of the
South Kal operations (51) -
Profit/(loss) from measurement to
fair value less cost to sell 59 -
Net profit/(loss) (520) 753
(Loss)/earnings per share from
continuing operations attributable
to the equity holders of the company
during the year (cents)
- Basic (loss)/earnings (178) 168
- Headline (loss)/earnings (73) 92
- Fully diluted (loss)/earnings (176) 166
Earnings/(loss) per share from
discontinuing operations attributable
to the equity holders of the company
during the year (cents)
- Basic earnings/(loss) 47 21
- Headline earnings/(loss) 46 21
- Fully diluted earnings/(loss) 46 21
* The comparative figures were adjusted to exclude further discontinued
operations. See Note 3.
** The comparative figures were adjusted to exclude interest capitalised. See
Note 1b.
CONDENSED CONSOLIDATED BALANCE SHEET (Rand)
At At At
December September June
2007 2007 2007
Notes (Unaudited) (Audited)
R million R million R million
ASSETS
Non-current assets
Property, plant and
equipment 25 133 25 015 24 506
Intangible assets 2 307 2 308 2 307
Restricted cash 81 5 5
Investments in
financial assets 7 1 402 1 461 1 387
Investments in
associates 7 7 7
Deferred income tax 2 462 2 396 2 321
Trade and other
receivables 39 100 95
31 431 31 292 30 628
Current assets
Inventories 709 790 742
Investments in
financial assets 7 - - 2 484
Trade and other
receivables 851 778 918
Income and mining
taxes 41 26 16
Restricted cash - - 274
Cash and cash
equivalents 425 1 567 711
2 026 3 161 5 145
Non-current assets
classified as held
for sale 5 2 001 1 383 1 284
4 027 4 544 6 429
Total assets 35 458 35 836 37 057
EQUITY AND LIABILITIES
Share capital and
reserves
Share capital 25 677 25 652 25 636
Other reserves 84 20 (349)
Accumulated loss (2 124) (2 175) (1 604)
23 637 23 497 23 683
Non-current
liabilities
Borrowings 8 1 878 3 842 1 743
Deferred income tax 5 191 5 119 5 031
Provisions for other
liabilities and
charges 1 082 1 231 1 216
8 151 10 192 7 990
Current liabilities
Trade and other
payables 981 1 421 1 755
Borrowings 8 1 995 15 2 855
Bank overdraft - - 220
Shareholders for
dividends 7 7 7
2 983 1 443 4 837
Liabilities directly
associated with
non-current assets
classified as held
for sale 5 687 704 547
3 670 2 147 5 384
Total equity and
liabilities 35 458 35 836 37 057
Number of ordinary
shares in issue 400 196 978 400 011 182 399 608 384
Net asset value per
share (cents) 5 906 5 874 5 927
The accompanying notes are an integral part of these condensed consolidated
financials statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Rand)
Issued share Other
capital reserves
R million R million
Balance - 30 June 2007 (as previously reported) 25 636 (349)
Change in accounting policy for the capitalisation
of interest on assets under construction - -
Balance - 30 June 2007 (restated) 25 636 (349)
Issue of share capital 41 -
Currency translation adjustment and other - 433
Net loss - -
Balance as at 31 December 2007 25 677 84
Balance - 30 June 2006 (as previously reported) 25 489 (271)
Change in accounting policy for the capitalisation
of interest on assets under construction - -
Balance - 30 June 2006 (restated) 25 489 (271)
Issue of share capital 99 -
Currency translation adjustment and other - 85
Net profit - -
Balance as at 31 December 2006 25 588 (186)
Accumulated
loss Total
R million R million
Balance - 30 June 2007 (as previously reported) (1 681) 23 606
Change in accounting policy for the capitalisation
of interest on assets under construction 77 77
Balance - 30 June 2007 (restated) (1 604) 23 683
Issue of share capital - 41
Currency translation adjustment and other - 433
Net loss (520) (520)
Balance as at 31 December 2007 (2 124) 23 637
Balance - 30 June 2006 (as previously reported) (2 015) 23 203
Change in accounting policy for the capitalisation
of interest on assets under construction 48 48
Balance - 30 June 2006 (restated) (1 967) 23 251
Issue of share capital - 99
Currency translation adjustment and other - 85
Net profit 753 753
Balance as at 31 December 2006 (1 214) 24 188
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (Rand)
Three months ended
December September
2007 2007
Notes (Unaudited) (Unaudited)
R million R million
Cash flow from operating activities
Cash (utilised)/generated by operations (376) 54
Interest and dividends received 76 69
Interest paid (118) (59)
Income and mining taxes paid (9) (12)
Cash (utilised)/generated by
operating activities (427) 52
Cash flow from investing activities
(Increase)/decrease in restricted cash (71) 274
Net proceeds on disposal of listed
investments 4 - 1 310
Net additions to property, plant and
equipment (734) (833)
Other investing activities 65 (51)
Cash (utilised)/generated by
investing activities (740) 700
Cash flow from financing activities
Long-term loans raised 8 10 2 088
Long-term loans repaid 8 - (1 802)
Ordinary shares issued - net of expenses 5 19
Cash generated by financing activities 15 305
Foreign currency translation adjustments 16 20
Net (decrease)/increase in cash and equivalents (1 136) 1 077
Cash and equivalents - beginning of period 1 571 494
Cash and equivalents - end of period 9 435 1 571
Six months ended
December December
2007 2006
R million R million
Cash flow from operating activities
Cash (utilised)/generated by operations (322) 958
Interest and dividends received 145 81
Interest paid (177) (95)
Income and mining taxes paid (21) (6)
Cash (utilised)/generated by operating activities (375) 938
Cash flow from investing activities
(Increase)/decrease in restricted cash 203 -
Net proceeds on disposal of listed investments 1 310 30
Net additions to property, plant and equipment (1 567) (1 058)
Other investing activities 14 (14)
Cash (utilised)/generated by investing activities (40) (1 042)
Cash flow from financing activities
Long-term loans raised 2 098 -
Long-term loans repaid (1 802) (1)
Ordinary shares issued - net of expenses 24 98
Cash generated by financing activities 320 97
Foreign currency translation adjustments 36 5
Net (decrease)/increase in cash and equivalents (59) (2)
Cash and equivalents - beginning of period 494 906
Cash and equivalents - end of period 435 904
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER
AND SIX MONTHS ENDED 31 DECEMBER 2007
1. Accounting policies
(a) Basis of accounting
The condensed consolidated interim financial statements for the period ended 31
December 2007 have been prepared using accounting policies that comply with
International Financial Reporting Standards (IFRS), which are consistent with
the accounting policies used in the audited annual financial statements for the
year ended 30 June 2007, except for accounting policy changes made after the
date of the annual financial statements. These condensed consolidated interim
financial statements are prepared in accordance with IAS 34, Interim Financial
Reporting, and should be read in conjunction with the financial statements for
the year ended 30 June 2007.
New accounting standards and IFRIC interpretations
Certain new accounting standards and IFRIC interpretations have been published
that are mandatory for accounting periods beginning on or after 1 January 2008.
These new standards and interpretations have not been early adopted by the
Group and a reliable estimate of the impact of the adoption thereof for the
Group cannot yet be determined for all of them, as management are still in the
process of determining the impact thereof on future financial statements.
At the date of finalising of these financial statements, the following
Standards and Interpretations were in issue but not yet effective:
Title Effective date
New Statement
- IFRS 8 - Operating Segments ^ Financial year commencing on or after
1 January 2009
Amendments
- IAS 1 (Revised) - Presentation of
Financial Statements ^ Financial year commencing on or after
1 January 2009
- IAS 27 (Revised) - Consolidated
and Separate # Financial year commencing on or after
Financial Statements 1 July 2009
- IFRS 3 (Revised) - Business
Combination # Financial year commencing on or after
1 July 2009
New Interpretation
- IFRIC 12 - Service Concession
Arrangements * Financial year commencing on or after
1 January 2008
- IFRIC 13 - Customer Loyalty
Programmes * Financial year commencing on or after
1 July 2008
- IFRIC 14 - IAS 19 The Limit on a
Defined Benefit Asset, # Financial year commencing on or after
Minimum Funding Requirements and
their Interactions 1 January 2008
^ Affects disclosure
* Will not impact materially
# Not yet assessed
(b) Implementation of accounting policy
IAS 23 (Revised) - Borrowing Costs: The company early adopted IAS 23 (Revised)
- Borrowing Costs, retrospectively as of 1 July 2000, which requires that
management capitalise borrowing costs directly attributable to the acquisition
and construction of qualifying assets. Qualifying assets are assets that take a
substantial time to get ready for their intended use.
The impact of this adjustment was as follows:
Quarter ended
December September December
2007 2007 2006
(Unaudited) (Unaudited) (Unaudited)
R million R million R million
Effect on net loss:
Decrease in interest expense 21 8 6
Income tax (6) (2) (2)
Decrease in net loss 15 6 4
Effect on opening accumulated
loss:
Decrease in interest expense 116 108 74
Income tax (33) (31) (22)
Decrease in accumulated loss 83 77 52
Six months ended
December December
2007 2006
R million R million
Effect on net loss:
Decrease in interest expense 29 12
Income tax (8) (3)
Decrease in net loss 21 9
Effect on opening accumulated loss:
Decrease in interest expense 108 68
Income tax (31) (20)
Decrease in accumulated loss 77 48
The borrowing costs are capitalised to the cost of those assets, until such
time as the assets are substantially ready for their intended use.
All other borrowing costs are dealt with in the income statement in the period
in which they are incurred.
2. Employment termination and restructuring costs
During the December 2007 quarter, a voluntary retrenchment process was
commenced due to the decision to decentralise services.
3. Provision for doubtful debts
The full amount outstanding on the sale of the Deelkraal surface asset was
provided for as there is uncertainty whether the consideration will be
received. This does not take into account any amounts that may be recovered if
the assets are salvaged.
4. Loss on sale of listed investments
Harmony accounted for its 29.2% stake in Western Areas Limited through its
subsidiary, ARMgold/Harmony Joint Investment Company Pty Ltd, on the equity
basis of accounting until 1 December 2006. On this date Harmony accepted Gold
Fields Limited`s (GFI) offer of 35 GFI shares for every 100 Western Area
Limited shares held. The remaining investment in these GFI shares were sold
during the September 2007 quarter for a loss of R459 million.
5. Non-current assets held for sale and discontinued operations
The assets and liabilities related to Mt Magnet and South Kal (operations in
Australia), ARMgold Welkom and Orkney operations (operations in the Free State
and Northwest areas), and Kudu and Sable (operations in the Free State area),
have been presented as held for sale on 30 June 2007.
On 6 December 2007, the sale relating to the South Kal operation (operation in
Australia) was concluded at a loss, net of tax, of R51 million and the assets
were derecognised.
The assets and liabilities relating to the Cooke 1, Cooke 2, Cooke 3, Cooke
plant and relating surface operations (operations in the Gauteng area) have
been presented as held for sale following the approval of the Group`s
management on 16 October 2007.
Underground operations at St Helena shaft were ceased during November 2007 and
was classified as a discontinued operation.
The comparative results have been restated due to these reclassifications.
6. (Loss)/earnings per share
(Loss)/earnings per share is calculated on the weighted average number of
shares in issue for the quarter ended 31 December 2007: 399.8 million (30
September 2007: 399.5 million, 31 December 2006: 397.7 million) and the six
months ended 31 December 2007: 399.7 million (31 December 2006: 397.7 million).
The fully diluted (loss)/earnings per share is calculated on weighted average
number of diluted shares in issue for the quarter ended 31 December 2007: 402.1
million (30 September 2007: 402.8 million, 31 December 2006: 403.7 million) and
the six months ended 31 December 2007: 402.4 million (31 December 2006: 403.7
million). The effect of the share options is anti-dilutive.
Quarter ended
December September December
2007 2007 2006
(Unaudited) (Unaudited) (Unaudited)
Total earnings/(loss) per share
(cents):
Basic earnings/(loss) 11 (142) 119
Headline earnings/(loss) 14 (41) 45
Fully diluted earnings/(loss) 11 (141) 116
R million R million R million
Reconciliation of headline
earnings/(loss):
Continued operations
Net (loss)/profit (195) (515) 461
Adjusted for, net of tax:
Profit on sale of property,
plant and equipment (29) (2) (71)
Loss on sale of listed
investment (Gold Fields) - 392 -
Profit on sale of associate
(Western Areas) - - (220)
Provision for doubtful debt 53 - -
Headline (loss)/profit (171) (125) 170
Discontinued operations
Net profit/(loss) 241 (51) 10
Adjusted for:
(Profit)/loss on sale of
property,
plant and equipment 51 - (2)
Loss on sale of listed
investment
(GBS investment) - - -
Impairment of assets (66) 7 -
Headline profit/(loss) 226 (44) 8
Total headline profit/(loss) 55 (169) 178
Six months ended
December December
2007 2006
Total earnings/(loss) per share (cents):
Basic earnings/(loss) (131) 189
Headline earnings/(loss) (27) 113
Fully diluted earnings/(loss) (130) 187
R million R million
Reconciliation of headline earnings/(loss):
Continued operations
Net (loss)/profit (710) 668
Adjusted for, net of tax:
Profit on sale of property, plant and equipment (27) (84)
Loss on sale of listed investment (Gold Fields) 392 -
Profit on sale of associate (Western Areas) - (220)
Provision for doubtful debt 53 -
Headline (loss)/profit (292) 364
Discontinued operations
Net profit/(loss) 190 85
Adjusted for:
(Profit)/loss on sale of property,
plant and equipment 51 (2)
Loss on sale of listed investment
(GBS investment) - 1
Impairment of assets (59) -
Headline profit/(loss) 182 84
Total headline profit/(loss) (110) 448
7. Investment in financial assets
December September June
2007 2007 2007
(Unaudited) (Audited)
R million R million R million
Current
Investment in African Rainbow
Minerals Limited (see Note 8) - - 1 051
Investment in GoldFields Limited
(see Note 4) - - 1 433
- - 2 484
Non-current
Environmental Trust Funds 1 233 1 368 1 332
Other 169 93 55
1 402 1 461 3 871
8. Borrowings
December September June
2007 2007 2007
(Unaudited) (Audited)
R million R million R million
Unsecured long-term borrowings
Convertible unsecured fixed rate
bonds 1 583 1 562 1 541
Africa Vanguard Resources
(Proprietary) Limited 32 32 32
1 615 1 594 1 573
Less: Short-term portion - - -
Total unsecured long-term borrowings 1 615 1 594 1 573
Secured long-term borrowings
Westpac Bank Limited(1) 100 88 2
Africa Vanguard Resources
(Doornkop) (Pty) Limited
(Nedbank Limited) 181 175 170
ARM Empowerment Trust 1
(Nedbank Limited)(2) - - 450
ARM Empowerment Trust 2
(Nedbank Limited)(2) - - 601
Rand Merchant Bank - - 1 802
Nedbank Limited 2 000 2 000 -
Less: Transaction costs (23) - -
2 258 2 263 3 025
Less: Short-term portion (1 995) (15) (2 855)
Total unsecured long-term borrowings 263 2 248 170
Total long-term borrowings 1 878 3 842 1 743
(1) The lease was entered into for the purchase of mining fleet to be used on
the Hidden Valley project.
The future minimum lease payments are as follows:
December September June
2007 2007 2007
(Unaudited) (Audited)
R million R million R million
Due within one year 26 21 -
Due between one and five years 97 83 -
123 104 -
(2) The guarantees relating to the Nedbank loans were cancelled on 28 September
2007 and consequently Harmony has no further obligations to Nedbank. The ARM
investment and associated Nedbank loans were derecognised from this date.
9. Cash and cash equivalents
Comprises:
December September December
2007 2007 2006
(Unaudited)
R million R million R million
Continuing operations 425 1 567 904
Discontinued operations 10 4 -
Total cash and cash equivalents 435 1 571 904
10. Commitments and contingencies
December September June
2007 2007 2007
(Unaudited) (Audited)
R million R million R million
Capital expenditure commitments
Contracts for capital expenditure 819 462 352
Authorised by the directors but not
contracted for 1 987 1 870 1 881
2 806 2 332 2 233
This expenditure will be financed
from existing resources
and where appropriate, borrowings.
Contingent liabilities
Guarantees and suretyships 18 18 18
Environmental guarantees 152 129 129
170 147 147
11. Subsequent events
On 24 January 2008, ESKOM advised Harmony that it would be interrupting the
power supply to the Company`s South African operations. As the safety of the
miners could not be guaranteed, mining was halted for four days, after which
shafts operated at between 60% - 80%. A meeting between ESKOM and its
industrial consumers was held on 29 January 2008, whereby ESKOM committed to
supplying 90% of the Company`s electricity demand prior to the shut down. This
came into effect on 1 February 2008. Management is restructuring operating
processes in order to gain the most effective and efficient use of the
electricity allotted. At this stage, the effect of the interruption as well as
the decreased power supply has not been quantified but will impact on the gold
production.
12. Segment report
The primary reporting format of the Company is by business segment. As there is
only one business segment, being mining, extraction and production of gold, the
relevant disclosures have been given in the condensed consolidated financial
statements.
13. Review report
The condensed consolidated financial statements for the six months ended 31
December 2007 on pages 24 to 33 have been reviewed in accordance with
International Standards on Review Engagements 2410 - "Review of interim
financial information performed by the Independent Auditors of the entity" by
PricewaterhouseCoopers Inc. Their unqualified review opinion is available for
inspection at the Company`s registered office.
Johannesburg
15 February 2008
Sponsor
Merrill Lynch South Africa (Pty) Limited
Date: 15/02/2008 09:00:01 Supplied by www.sharenet.co.za
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