As filed with the Securities and Exchange Commission on December 23, 2002
WASHINGTON, D.C. 20549
Form 20-F
SECURITIES EXCHANGE ACT OF 1934,
for the fiscal year ended June 30, 2002
Commission File Number: 001-31545
(Exact name of registrant as specified in its charter)
(Jurisdiction of incorporation or organization)
Private Bag X1
Melrose Arch, 2076
South Africa
(Address of principal executive offices)
(Title of Class)
each representing one ordinary share
(Title of Class)
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the last full fiscal year covered by this Annual Report was:
8,013,446 warrants, each to purchase one ordinary share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:
Yes X No __
Indicate by check mark which financial statement item the registrant has elected to follow:
Item 17__ Item 18 X
TABLE OF CONTENTS | |
PART I | 1 |
Item 1. Identity of Directors, Senior Management and Advisers | 1 |
Item 2. Offer Statistics and Expected Timetable | 1 |
Item 3. Key Information | 1 |
SELECTED FINANCIAL DATA | 1 |
EXCHANGE RATES | 8 |
CAPITALIZATION AND INDEBTEDNESS | 8 |
REASONS FOR THE OFFER AND USE OF PROCEEDS | 8 |
RISK FACTORS | 9 |
Item 4. Information on the Company | 26 |
BUSINESS | 26 |
Introduction | 26 |
History | 27 |
Strategy | 32 |
Hedge Policy | 36 |
Description of Mining Business | 38 |
Harmony’s Management Structure | 41 |
Exploration | 42 |
Capital Expenditures | 45 |
Description of Property | 45 |
Geology | 48 |
Reserves | 48 |
Harmony’s Mining Operations | 51 |
REGULATION | 94 |
Mineral Rights | 94 |
Environmental Matters | 97 |
Health and Safety Matters | 99 |
Item 5. Operating and Financial Review and Prospects | 101 |
OVERVIEW | 101 |
CRITICAL ACCOUNTING POLICIES | 103 |
RESULTS OF OPERATIONS | 111 |
Years ended June 30, 2002 and 2001 | 111 |
Years ended June 30, 2001 and 2000 | 118 |
LIQUIDITY AND CAPITAL RESOURCES | 123 |
Cash Resources | 123 |
Credit Facilities and Other Borrowings | 124 |
Sales of Equity Securities | 127 |
Contractual Obligations and Commercial Commitments | 128 |
Trend Information | 129 |
Working Capital and Anticipated Financing Needs | 129 |
Item 6. Directors, Senior Management and Employees | 130 |
DIRECTORS AND SENIOR MANAGEMENT | 130 |
BOARD PRACTICES | 134 |
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT | 137 |
SHARE OWNERSHIP | 140 |
EMPLOYEES | 141 |
General | 141 |
Unionized Labor | 141 |
Share Option Scheme | 143 |
i
Share Purchase Scheme | 144 |
Item 7. Major Shareholders and Related Party Transactions | 144 |
MAJOR SHAREHOLDERS | 144 |
RELATED PARTY TRANSACTIONS | 147 |
INTERESTS OF EXPERTS AND COUNSEL | 147 |
Item 8. Financial Information | 147 |
CONSOLIDATED STATEMENTS | 147 |
OTHER FINANCIAL INFORMATION | 147 |
Export Sales | 147 |
Legal Proceedings | 148 |
Dividends and Dividend Policy | 148 |
SIGNIFICANT CHANGES | 149 |
Item 9. The Offer and Listing | 149 |
MARKETS | 149 |
OFFERING AND LISTING DETAILS | 150 |
THE JSE SECURITIES EXCHANGE SOUTH AFRICA | 151 |
PLAN OF DISTRIBUTION | 153 |
SELLING SHAREHOLDERS | 153 |
DILUTION | 153 |
EXPENSES OF THE ISSUE | 153 |
Item 10. Additional Information | 154 |
SHARE CAPITAL | 154 |
MEMORANDUM AND ARTICLES OF ASSOCIATION | 154 |
General | 154 |
Objects and Purposes | 154 |
Directors | 155 |
Share Capital | 157 |
Variation of Rights | 167 |
Changes in Capital or Objects and Powers of Harmony | 168 |
Meetings of Shareholders | 169 |
Title to Shares | 170 |
Non-South African Shareholders | 170 |
Disclosure of Interest in Shares | 171 |
Changes in Control | 171 |
Register of Members | 171 |
Annual Report and Accounts | 172 |
MATERIAL CONTRACTS | 172 |
EXCHANGE CONTROLS | 172 |
CERTAIN SOUTH AFRICAN TAX CONSIDERATIONS | 174 |
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS | 176 |
DIVIDENDS AND PAYING AGENTS | 178 |
STATEMENTS BY EXPERTS | 178 |
DOCUMENTS ON DISPLAY | 178 |
SUBSIDIARY INFORMATION | 179 |
Item 11. Quantitative and Qualitative Disclosures About Market Risk | 180 |
Item 12. Description of Securities Other than Equity Securities | 190 |
GLOSSARY OF MINING TERMS | 191 |
PART II | 199 |
Item 13. Defaults, Dividend Arrearages and Delinquencies | 199 |
Item 14. Material Modifications to the Rights of Securityholders and Use of Proceeds | 199 |
ii
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS | 199 |
USE OF PROCEEDS | 200 |
Item 15. Controls and Procedures | 200 |
Item 16. [Reserved] | 200 |
PART III | 201 |
Item 17. Financial Statements | 201 |
Item 18. Financial Statements | 201 |
Item 19. Exhibits | 203 |
SIGNATURES | 206 |
CERTIFICATIONS | 207 |
iii
Defined terms
Forward-looking statements
iv
statements. As a consequence, these forward-looking statements should be considered in light of various important factors, including those set forth in this annual report. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, without limitation:
Presentation of financial information
v
vi
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
SELECTED FINANCIAL DATA
Selected Historical Consolidated Financial Data
1
Fiscal year ended June 30, | |||||||||||||
20021 | 20012 | 20003 | 19994 | 1998 | |||||||||
(in $ thousands, except per share amounts) | |||||||||||||
Income statement data | |||||||||||||
Revenues | 696,840 | 607,220 | 490,651 | 381,412 | 249,536 | ||||||||
Operating Income | 206,375 | 88,424 | 72,971 | 64,878 | 3,640 | ||||||||
Equity income of joint venture | 13,176 | 5 | — | — | — | ||||||||
Equity loss of associate companies | 473 | 6 | — | 1,401 | 7 | ||||||||
Income before taxes and minority Interests | 103,659 | 29,804 | 73,489 | 30,199 | (7,149 | ) | |||||||
Minority interests | (1,575 | ) | (349 | ) | (2,910 | ) | — | — | |||||
Income/ (loss) before cumulative effect of change in accounting principle | 87,716 | 14,830 | 57,030 | 27,908 | (7,004 | ) | |||||||
Cumulative effect of change in accounting principle, net of tax8 | — | (5,822 | ) | — | — | — | |||||||
Net income/(loss) | 87,716 | 9,008 | 57,030 | 27,908 | (7,004 | ) | |||||||
Basic earnings per share ($) before cumulative effect of change in accounting principle9 | 0.57 | 0.15 | 0.68 | 0.42 | (0.14 | ) | |||||||
Basic earnings/(loss) per share ($)10 | 0.57 | 0.09 | 0.68 | 0.42 | (0.14 | ) | |||||||
Diluted earnings per share before cumulative effect of change in accounting principle11 | 0.53 | 0.14 | 0.67 | 0.41 | — | ||||||||
Diluted earnings per share11 | 0.53 | 0.09 | 0.67 | 0.41 | — | ||||||||
Weighted average number of shares used in the computation of basic earnings per share | 153,509,862 | 102,156,205 | 83,593,424 | 66,843,932 | 49,043,746 | ||||||||
Weighted average number of shares used in the computation of diluted earnings per share | 165,217,088 | 105,504,328 | 85,590,876 | 68,070,172 | — | ||||||||
Cash dividends per share ($) | 0.07 | 0.16 | 0.19 | 0.18 | — | ||||||||
Cash dividends per share (R) | 0.75 | 1.20 | 1.20 | 1.10 | — | ||||||||
Other financial data | |||||||||||||
Cash dividends per share ($)12 | 0.41 | — | — | — | — | ||||||||
Cash dividends per share (R)12 | 4.25 | — | — | — | — | ||||||||
Cash cost per ounce of gold ($/oz)13 | 196 | 234 | 245 | 239 | 305 |
1 | Hill 50’s financial results have been equity accounted for the month of March 2002 and consolidated thereafter. The Free Gold Company’s financial results have been equity accounted from May 1, 2002 and are, accordingly, reflected as a single line item “Equity income of joint venture.” |
2 | The financial results of the Elandskraal mines and New Hampton have been consolidated from April 1, 2001. |
3 | Randfontein’s financial results have been equity accounted from January 14, 2000 to February 29, 2000 and consolidated thereafter. The financial results of Kalgold have been consolidated from October 1, 1999. |
4 | The financial results of Evander have been consolidated from July 1, 1998. |
5 | Reflects Harmony’s equity accounted interest in the Free Gold Company’s results from May 1, 2002. |
6 | Reflects Harmony’s equity accounted interest in Bendigo’s results with effect from January 1, 2002 and in Hill 50’s results for the month of March 2002. |
7 | Reflects Harmony’s equity accounted interest in Randfontein’s results during the period from January 14 to February 29, 2000. |
8 | Harmony adopted FAS 133 on July 1, 2000. As Harmony’s derivative instruments held on that date did not meet the FAS 133 criteria for hedge accounting, these derivatives were fair valued and recorded on the balance sheet, resulting in a cumulative effect of change in accounting principle adjustment of approximately $5.8 million. |
9 | Calculated by dividing income/(loss) before cumulative effect of change in accounting principle by the weighted average number of shares used in the computation of basic earnings per share. |
10 | Calculated by dividing net income/(loss) by the weighted average number of basic shares used in the computation of basic earnings per share. |
11 | Presented where there is a dilutive effect when including potential ordinary shares in the calculations in 9 and 10 above. |
12 | Reflects dividends related to fiscal 2002 that were declared on August 2, 2002. |
2
13 | Harmony has calculated cash costs per ounce by dividing total cash costs, as determined using the Gold Institute industry standard, by gold ounces sold for all periods presented. The Gold Institute is a non-profit international association of miners, refiners, bullion suppliers and manufacturers of gold products that has developed a uniform format for reporting production costs on a per ounce basis. The standard was first adopted in 1996 and was revised in November 1999. Cash costs, as defined in the Gold Institute standard, include mine production costs, transport and refinery costs, general and administrative costs, costs associated with movements in production inventories and ore stockpiles, costs associated with transfers to deferred stripping and costs associated with royalties. Cash costs have been calculated on a consistent basis for all periods presented. Changes in cash costs per ounce are affected by operational performance, as well as changes in the currency exchange rate between the Rand and the U.S. dollar. Cash costs per ounce is not a U.S. GAAP measure. Cash costs per ounce should not be considered by investors in isolation or as an alternative to net income, income before tax, operating cash flows or any other measure of financial performance presented. While the Gold Institute has provided a definition for the calculation of cash costs per ounce, the calculation of cash costs per ounce may vary from company to company and may not be comparable to other similarly titled measures of other companies. However, Harmony believes that cash costs per ounce is a useful indicator to investors and management of a mining company’s performance as it provides (1) an indication of a company’s profitability and efficiency, (2) the trends in costs as the company’s operations mature, (3) a measure of a company’s gross margin per ounce, by comparison of cash costs per ounce to the spot price of gold and (4) an internal benchmark of performance to allow for comparison against other companies. |
At June 30, | |||||||||
20021 | 20012 | 20003 | 19994 | 1998 | |||||
(in $ thousands) | |||||||||
Balance sheet data | |||||||||
Cash and cash equivalents | 90,223 | 144,096 | 77,942 | 45,318 | 8,518 | ||||
Short-term investments | — | — | — | 10,744 | 15,618 | ||||
Other current assets | 109,397 | 136,794 | 59,582 | 32,071 | 21,252 | ||||
Property, plant and equipment - net | 812,753 | 667,113 | 557,725 | 347,036 | 251,461 | ||||
Restricted cash | — | — | 7,310 | — | — | ||||
Investments in associates5 | 42,791 | — | — | — | — | ||||
Investment in joint venture6 | 102,578 | — | — | — | — | ||||
Other long-term assets7 | 137,399 | 81,822 | 69,629 | 9,244 | 4,995 | ||||
Total assets | 1,295,141 | 1,029,825 | 772,188 | 444,413 | 301,844 | ||||
Current liabilities | 138,677 | 152,886 | 150,148 | 70,583 | 43,055 | ||||
Provision for environmental rehabilitation | 63,125 | 53,136 | 52,525 | 33,811 | 21,779 | ||||
Deferred income and mining taxes | 99,789 | 47,050 | 48,686 | 28,442 | 22,445 | ||||
Provision for post-retirement benefits | 737 | 1,002 | 3,709 | 5,793 | 3,756 | ||||
Deferred financial liability | 87,226 | 49,374 | 40,174 | — | — | ||||
Long-term loans | 152,461 | 151,466 | 46,635 | 14,024 | 8,546 | ||||
Preference shares | — | 681 | — | — | — | ||||
Minority interest | — | 331 | — | — | — | ||||
Shareholders’ equity | 753,126 | 573,899 | 430,311 | 291,760 | 202,263 | ||||
Total liabilities and shareholders’ equity | 1,295,141 | 1,029,825 | 772,188 | 444,413 | 301,844 | ||||
1 | Includes the financial position of Hill 50 acquired during the year. |
2 | Includes the financial position of Elandskraal and New Hampton acquired during the year. |
3 | Includes the financial position of Randfontein and Kalgold acquired during the year. |
4 | Includes the financial position of Evander acquired during the year. |
5 | Reflects Harmony’s equity-accounted share of the net assets of Bendigo and Highland Gold as at June 30, 2002. |
6 | Reflects Harmony’s equity-accounted share of the net assets of the Free Gold Company as at June 30, 2002. |
7 | Includes mineral subscription and participation rights relating to Harmony’s exploration activities and slimes dams and bond issue costs, which are included in Other Assets in note 12 to the consolidated financial statements. |
3
Unaudited Pro Forma Condensed Income Statement
4
• | the issuance of 8,500,000 ordinary shares by means of a international private placement on April 29, 2002; | |
• | the purchase of a 31.8% equity interest in Bendigo during December 2001; | |
• | the purchase of a 32.5% equity interest in Highland Gold during May and June 2002; and | |
• | the repurchase of the 10% participation rights in the Elandskraal Venture with effect from April 1, 2002. |
5
Dollars in thousands, except per share data | Harmony for the fiscal year ended June 30, 2002 | Hill 50 for the nine months ended March 31, 2002 | Free Gold assets for the ten months ended April 30, 2002 | Adjustments | Pro forma | |||||||||||||||||||||
REVENUES | ||||||||||||||||||||||||||
Product sales | 675,287 | 52,051 | 131,205 | (131,205 | ) | (a) | 727,338 | |||||||||||||||||||
Interest and dividends | 12,403 | — | — | — | 12,403 | |||||||||||||||||||||
Other income - net | 9,150 | (1,151 | ) | (317 | ) | 317 | (a) | 7,999 | ||||||||||||||||||
696,840 | 50,900 | 130,888 | (130,888 | ) | 747,740 | |||||||||||||||||||||
COSTS AND EXPENSES | ||||||||||||||||||||||||||
Production costs | 469,398 | 41,415 | 97,196 | (97,196 | ) | (a) | 510,813 | |||||||||||||||||||
Deferred stripping costs | (486 | ) | — | — | — | (486 | ) | |||||||||||||||||||
Depreciation and amortization | 30,183 | — | 14,189 | (14,189 | ) | (a) | 43,241 | |||||||||||||||||||
13,058 | (d) | |||||||||||||||||||||||||
Employment termination costs | 8,775 | — | 1,324 | (1,324 | ) | (a) | 8,775 | |||||||||||||||||||
Provision for rehabilitation cost | 15,192 | — | — | — | 15,192 | |||||||||||||||||||||
Corporate expenditure | 7,641 | 1,263 | 1 | (1 | ) | (a) | 8,904 | |||||||||||||||||||
Exploration expenditure | 7,065 | 2,126 | — | — | 9,191 | |||||||||||||||||||||
Marketing and new business expenditure | 8,741 | — | — | — | 8,741 | |||||||||||||||||||||
(Gain)/loss on financial instruments | (8,939 | ) | 19,984 | (8,956 | ) | 8,956 | (a) | 11,045 | ||||||||||||||||||
Stock-based compensation | 9,434 | — | — | — | 9,434 | |||||||||||||||||||||
Profit on sale of other assets and listed investments | (4,524 | ) | — | — | — | (4,524 | ) | |||||||||||||||||||
Equity income of joint venture | (13,176 | ) | — | — | (16,025 | ) | (a) | (25,261 | ) | |||||||||||||||||
3,940 | (b) | |||||||||||||||||||||||||
Loss from associate companies | 473 | — | — | 942 | (e) | 1,415 | ||||||||||||||||||||
Impairment of assets | 44,284 | — | — | — | 44,284 | |||||||||||||||||||||
Interest paid | 19,077 | 221 | 2,760 | (2,760 | ) | (a) | 23,605 | |||||||||||||||||||
4,307 | (c) | |||||||||||||||||||||||||
Provision for former employees’ post retirement benefits | 43 | — | — | — | 43 | |||||||||||||||||||||
593,181 | 65,009 | 106,514 | (100,292 | ) | 664,412 | |||||||||||||||||||||
INCOME/(LOSS) BEFORE TAX | 103,659 | (14,109 | ) | 24,374 | (30,596 | ) | 83,328 | |||||||||||||||||||
INCOME AND MINING TAX (EXPENSE)/BENEFIT | (14,368 | ) | 4,220 | (9,226 | ) | 9,226 | (a) | (4,960 | ) | |||||||||||||||||
3,917 | (f) | |||||||||||||||||||||||||
1,271 | (g) | |||||||||||||||||||||||||
NET INCOME/(LOSS) BEFORE MINORITY INTERESTS | 89,291 | (9,889 | ) | 15,148 | (16,182 | ) | 78,368 | |||||||||||||||||||
MINORITY INTERESTS | (1,575 | ) | — | — | — | (1,575 | ) | |||||||||||||||||||
NET INCOME/(LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE | 87,716 | (9,889 | ) | 15,148 | (16,182 | ) | 76,793 | |||||||||||||||||||
BASIC EARNINGS PER SHARE (CENTS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE | 57.1 | — | — | — | 50.0 | |||||||||||||||||||||
WEIGHTED AVERAGE NUMBER OF SHARES USED IN THE COMPUTATION OF BASIC EARNINGS/(LOSS) PER SHARE | 153,509,862 | — | — | — | 153,509,862 |
See notes to the unaudited pro forma condensed income statement.
6
Notes to Unaudited Pro Forma Condensed Income Statement
Adjustments
a. | Reflects the elimination of the results of operations of the Free Gold assets acquired and liabilities assumed, which are accounted for as a single line item, “equity income of joint venture.” | ||
b. | The adjustment of “equity income of joint venture” to reflect the depreciation and amortization expense of the Free Gold assets (net of tax) to reflect the excess arising on acquisition allocated to property, plant and equipment. | ||
c. | Interest expense of $4.3 million on the term loan facility draw down of $45 million (Rand 500 million at an exchange rate of R11.10 per $1.00). A one-eighth increase/decrease in the applicable interest rate would increase/decrease interest expense by $0.6 million, respectively. | ||
d. | Reflects the adjustment of depreciation and amortization expense of Hill 50 to reflect the excess arising on acquisition allocated to property, plant and equipment. | ||
e. | Reversal of Harmony’s equity interest in the profit of Hill 50 for the month of March 2002. | ||
f. | Reflects the tax effects of the Hill 50 adjustments at an effective Australian corporate tax rate of 30%. | ||
g. | Reflects the tax effects of the term loan facility interest adjustment at an effective South African tax rate of 29.5%. |
7
EXCHANGE RATES
Fiscal year ended June 30, | Average1 | Period End | |
1998 | 4.96 | 5.92 | |
1999 | 6.04 | 6.04 | |
2000 | 6.35 | 6.79 | |
2001 | 7.61 | 8.04 | |
2002 | 10.20 | 10.39 | |
Month of | High | Low | |
June 2002 | 10.62 | 9.70 | |
July 2002 | 10.35 | 9.95 | |
August 2002 | 10.90 | 10.24 | |
September 2002 | 10.74 | 10.48 | |
October 2002 | 10.53 | 10.00 | |
November 2002 | 9.98 | 9.25 | |
December 2002 (through December 13, 2002) | 9.28 | 8.74 | |
1 | The average of the noon buying rates on the last day of each full month during the relevant period. |
CAPITALIZATION AND INDEBTEDNESS
REASONS FOR THE OFFER AND USE OF PROCEEDS
8
RISK FACTORS
The profitability of Harmony’s operations, and the cash flows generated by those operations, are affected by changes in the market price for gold, which in the past has fluctuated widely.
• | the demand for gold for industrial uses and for use in jewelry; | |
• | international or regional political and economic trends; | |
• | the strength of the U.S. dollar (the currency in which gold prices generally are quoted) and of other currencies; | |
• | financial market expectations regarding the rate of inflation; | |
• | interest rates; | |
• | speculative activities; | |
• | actual or expected purchases and sales of gold bullion holdings by central banks or other large gold bullion holders or dealers; | |
• | forward sales by gold producers; and | |
• | the production and cost levels for gold in major gold-producing nations, such as South Africa. |
9
Price per Ounce | ||||||
Year | High | Low | Average | |||
($) | ||||||
1992 | 360 | 330 | 344 | |||
1993 | 406 | 326 | 360 | |||
1994 | 396 | 370 | 384 | |||
1995 | 396 | 372 | 384 | |||
1996 | 415 | 367 | 388 | |||
1997 | 367 | 283 | 331 | |||
1998 | 313 | 273 | 294 | |||
1999 | 326 | 253 | 279 | |||
2000 | 313 | 264 | 282 | |||
2001 | 293 | 256 | 271 | |||
2002 (through December 13, 2002) | 332 | 278 | 309 | |||
Source: Bloomberg |
Actual or expected sales of gold by central banks have had a significant impact on the price of gold.
10
reserves that are not subject to the agreement. Any future sales or publicly announced proposed sales by central banks of their gold reserves are likely to result in a decrease in the price of gold.
Because Harmony does not use commodity or derivative instruments to protect against low gold prices with respect to most of its production, Harmony is exposed to the impact of any significant drop in the gold price.
Harmony’s gold reserve figures are estimates based on a number of assumptions, including assumptions as to mining and recovery factors, future production costs and the price of gold, and may yield less gold under actual production conditions than Harmony currently estimates.
• | the results of exploratory drilling and an ongoing sampling of the orebodies; | |
• | past experience with mining properties; and | |
• | the experience of the person making the reserve estimates. |
11
Harmony’s strategy depends on its ability to make additional acquisitions.
• | Harmony will be able to identify appropriate acquisition candidates or negotiate acquisitions on favorable terms; | |
• | Harmony will be able to obtain the financing necessary to complete future acquisitions; or | |
• | the issuance of Harmony’s ordinary shares or other securities in connection with any future acquisition will not result in a substantial dilution in ownership interests of holders of Harmony’s ordinary shares. |
12
Harmony may experience problems in managing new acquisitions and integrating them with its existing operations.
• | difficulties in assimilating the operations of the acquired business; | |
• | difficulties in maintaining the financial and strategic focus of Harmony while integrating the acquired business; | |
• | problems in implementing uniform standards, controls, procedures and policies; | |
• | increasing pressures on existing management to oversee a rapidly expanding company; and | |
• | to the extent Harmony acquires mining operations outside South Africa, encountering difficulties relating to operating in countries in which Harmony has not previously operated. |
Any difficulties or time delays in achieving successful integration of new acquisitions could have a material adverse effect on Harmony’s business, operating results, financial condition and stock price. For example, following the acquisition of New Hampton, Harmony has encountered higher than expected costs and disappointing results from the Big Bell operations. See “Item 4. Information on the Company—Business—Harmony’s Mining Operations—Australian Operations.” Harmony may encounter similar difficulties or other problems in integrating other acquisitions.
To maintain gold production beyond the expected lives of Harmony’s existing mines or to increase production materially above projected levels, Harmony will need to access additional reserves through development or discovery.
• | locating orebodies; | |
• | identifying the metallurgical properties of orebodies; | |
• | estimating the economic feasibility of mining orebodies; | |
• | developing appropriate metallurgical processes; | |
• | obtaining necessary governmental permits; and | |
• | constructing mining and processing facilities at any site chosen for mining. |
13
• | future gold and other metal prices; | |
• | anticipated tonnage, grades and metallurgical characteristics of ore to be mined and processed; | |
• | anticipated recovery rates of gold and other metals from the ore; and | |
• | anticipated total costs of the project, including capital expenditure and cash operating costs. |
• | the availability and timing of necessary environmental and other governmental permits; | |
• | the timing and cost necessary to construct mining and processing facilities, which can be considerable; | |
• | the availability and cost of skilled labor, power, water and other materials; | |
• | the accessibility of transportation and other infrastructure, particularly in remote locations; | |
• | the availability and cost of smelting and refining arrangements; and | |
• | the availability of funds to finance construction and development activities. |
14
Due to the nature of mining and the type of gold mines it operates, Harmony faces a material risk of liability, delays and increased production costs from environmental and industrial accidents and pollution.
• | rock bursts; | |
• | seismic events; | |
• | underground fires; | |
• | cave-ins or falls of ground; | |
• | discharges of gases and toxic chemicals; | |
• | release of radioactive hazards; | |
• | flooding; | |
• | accidents; and | |
• | other conditions resulting from drilling, blasting and removing and processing material from a deep level mine. |
Hazards associated with open cast mining (also known as open pit mining) include:
• | flooding of the open pit; | |
• | collapse of the open pit walls; | |
• | accidents associated with the operation of large open pit mining and rock transportation equipment; and | |
• | accidents associated with the preparation and ignition of large scale open pit blasting operations. |
Hazards associated with waste rock mining include:
• | accidents associated with operating a waste dump and rock transportation; and | |
• | production disruptions due to weather. |
15
Harmony’s insurance coverage may prove inadequate to satisfy future claims against it.
Because most of Harmony’s production costs are in Rand, while gold is generally sold in U.S. dollars, Harmony’s financial condition could be materially harmed by an appreciation in the value of the Rand.
16
Political or economic instability in South Africa or regionally may have an adverse effect on Harmony’s operations and profits.
The results of Harmony’s South African operations may be negatively impacted by inflation.
17
Harmony’s financial flexibility could be materially constrained by South African currency restrictions.
• | is generally not permitted to export capital from South Africa or to hold foreign currency without the approval of the South African exchange control authorities; | |
• | is generally required to repatriate to South Africa profits of foreign operations; and | |
• | is limited in its ability to utilize profits of one foreign business to finance operations of a different foreign business. |
Since Harmony’s South African labor force has substantial trade union participation, Harmony faces the risk of disruption from labor disputes and new South African labor laws.
18
costs or alter Harmony’s relationship with its employees. There may continue to be significant changes in labor law in South Africa over the next several years. For example, amendments to South African labor law have recently been proposed that would, with effect from August 1, 2002, require mandatory consultation with labor in the event of retrenchments, transfers of businesses or insolvency.
AIDS poses risks to Harmony in terms of productivity and costs.
Harmony’s operations are subject to extensive government regulations.
19
• | To recognize the internationally accepted right of the state of South Africa to exercise full and permanent sovereignty over all the mineral and petroleum resources within South Africa; | |
• | To give effect to the principle of the State’s custodianship of the nation’s mineral and petroleum resources; | |
• | To promote equitable access to South Africa’s mineral and petroleum resources to all the people of South Africa and redress the impact of past discrimination; | |
• | To substantially and meaningfully expand opportunities for historically disadvantaged persons, including women, to enter the mineral and petroleum industry and to benefit from the exploitation of South Africa’s mineral and petroleum resources; | |
• | To promote economic growth and mineral and petroleum resources development in South Africa; | |
• | To promote employment and advance the social and economic welfare of all South Africans; | |
• | To provide security of tenure in respect of prospecting, exploration, mining and production operations; | |
• | To give effect to Section 24 of the South African Constitution by ensuring that South Africa’s mineral and petroleum resources are developed in an orderly and ecologically sustainable manner while promoting justifiable social and economic development; | |
• | To follow the principle that mining companies keep and use their mineral rights, with no expropriation and with guaranteed compensation for mineral rights; and | |
• | To ensure that holders of mining and production rights contribute towards socioeconomic development of the areas in which they are operating. |
20
specified in a broad-based socioeconomic empowerment charter for the South African mining industry, or the Mining Charter.
21
including all reserves that are currently being mined, and Bendigo has an approved mining license for its current development area. If New Hampton, Hill 50 or Bendigo desired to expand operations into additional areas under exploration, these operations would need to convert the relevant exploration licenses prior to commencing mining, and that process could require native title approval. There can be no assurance that any approval would be received.
22
must make provisions for mining rehabilitation whenever mining is commenced at a new site in Australia. While Harmony believes that its current provision for compliance with such requirements is reasonable, any future changes and development in Australian environmental laws and regulations may adversely affect these Australian operations.
Harmony’s subscription agreement with Simane Investments (Proprietary) Limited, or Simane, has resulted in Simane acquiring a significant number of Harmony’s shares and related influence.
Because the principal non-United States trading market for Harmony’s ordinary shares is the JSE Securities Exchange South Africa, investors face liquidity risk in the market for Harmony’s ordinary shares.
Harmony may not pay cash dividends to its shareholders in the future.
23
available depends on a variety of factors, including the amount of cash available and Harmony’s capital expenditures and other cash requirements existing at the time. Under South African law, cash dividends may only be paid out of the profits of Harmony. No assurance can be given that cash dividends will be paid in the future.
Harmony’s non-South African shareholders face additional investment risk from currency exchange rate fluctuations since any dividends will be paid in Rand.
Because Harmony has a significant number of outstanding options and warrants, its ordinary shares are subject to dilution.
24
25
Item 4.Information on the Company
BUSINESS
Introduction
26
open cast mine at Kalgold in the North West Province, and two production shaft units at Elandskraal in the North West and Gauteng provinces consisting of six shafts (two of which are sub-vertical shafts). The Free Gold Company (in which Harmony has a 50% interest) has eleven operating shafts in the Free State Province. Harmony’s Australian operations include three operations in Western Australia: Big Bell (acquired in the New Hampton transaction), Mt. Magnet (acquired in the Hill 50 transaction) and South Kalgoorlie (including Jubilee, acquired in the New Hampton transaction, and New Celebration, acquired in the Hill 50 acquisition). Underground and surface mining is conducted at each of these Australian operations, with underground access through one decline at Big Bell, two declines at Mt. Magnet and one decline at South Kalgoorlie and surface access principally through open pits.
History
27
agreement with the mine pursuant to which the mining house would carry out certain managerial, administrative and technical functions pursuant to long-term contracts. Fees were generally charged based on revenues, working costs or capital expenditures, or a combination of all three, without regard to the cost or the level of services provided.
28
Randfontein warrants held or Rand 2.48 per warrant, or a combination of cash and ordinary shares. Harmony increased the offer price on January 14, 2000 to either 34 Harmony shares for every 100 Randfontein shares or Rand 12.25 per Randfontein share, or a combination of shares and cash. In addition, Harmony increased the offer price for all the outstanding warrants of Randfontein to a purchase price of either 8 Harmony ordinary shares for every 100 Randfontein warrants held or Rand 2.76 per warrant, or a combination of cash and ordinary shares. Harmony obtained management control of Randfontein in January 2000 and by June 30, 2000 had acquired 100% of Randfontein’s outstanding ordinary share capital and 96.5% of the warrants to purchase ordinary shares of Randfontein. See “Item 4. Information on the Company—Business—Harmony’s Mining Operations—Randfontein Operations.”
29
Gold Company assumed management control of the Free Gold assets from January 1, 2002, and completed the acquisition on April 23, 2002 (the date on which all conditions precedent to the transaction were fulfilled). For purposes of U.S. GAAP, Harmony equity accounted for its interest in the Free Gold Company with effect from May 1, 2002 and the purchase price of the Free Gold assets was determined to be Rand 2,213 million ($208.2 million at an exchange rate of 10.64 per $1.00). See “Item 5. Operating and Financial Review and Prospects—Overview.”
30
May 3, 2002, at which time shareholders holding 98.57% of Hill 50’s shares and 98.76% of Hill 50’s listed options had accepted Harmony’s offer and this offer had become unconditional. Harmony subsequently completed a compulsory acquisition of the remaining shares and options under the rules of the Australian Stock Exchange. See “Item 4. Information on the Company—Business—Harmony’s Mining Operations—Australian Operations.” Harmony financed the Hill 50 offer from existing cash resources and borrowings, including a syndicated loan facility entered into on February 28, 2002, with Citibank, N.A., as lead arranger. See “Item 5. Operating and Financial Review and Prospects—Credit Facilities and Other Borrowings.” In an effort to increase efficiency and reduce corporate expenditures, in the quarter ended June 30, 2002 Harmony integrated New Hampton’s Jubilee operations with Hill 50’s New Celebration operations to form the South Kalgoorlie operations and combined the corporate offices of New Hampton and Hill 50 in Perth. With effect from April 1, 2002, Harmony reports the New Hampton and Hill 50 operating results together within an “Australian Operations” segment.
31
• | a 53% fully-diluted equity interest in OJSC Buryatzoloto, the fifth largest gold producer in Russia, which has two operating mines and has reported total production of approximately 150,000 ounces of gold per year; | |
• | an agreement to acquire 100% ownership of a project to exploit the Berezitovoye deposit in Siberia, which is reported to be amenable to open pit mining; | |
• | an 50% ownership interest in the New Britannia gold mine in Manitoba, Canada, which has reported total production of approximately 110,000 ounces of gold per year; and | |
• | an ownership interest in the Taparko gold development project in Burkina Faso. |
Strategy
32
lower, more competitive cost structures. This consolidation enables gold producers to be more competitive in pursuing new business opportunities and creates the critical mass (measured by market capitalization) necessary to attract the attention of international gold investment institutions. Harmony’s current strategy is predominantly influenced by these investment trends, which have already resulted in significant restructuring and rationalization in the South African, Australian and North American gold mining industries. Harmony believes these trends will continue to lead to significant realignments in the international gold production business. Harmony intends to continue to participate in the South African and international restructuring activity to continue to achieve its growth objectives.
33
• | Empowered management teams. At each mining site Harmony has established small, multi-disciplinary, focused management teams responsible for planning and implementing the mining operations at the site. Each of these teams is accountable for the results at its particular site and reports directly to Harmony’s executive committee. | |
• | Active strategic management by the Board. Annual operational goals and targets, including cost, volume and grade targets are established in consultation with the Harmony’s executive committee for each mining site. Each management team develops an operational plan to implement the goals and targets for its mine site. Harmony’s executive committee reviews and measures the results at each mining site on a regular basis throughout the year. | |
• | Increased productivity. Gold mining in South Africa is very labor intensive with labor accounting for approximately 50% of Harmony’s costs. To control these costs, Harmony structures its operations to achieve maximum productivity with the goal of having 60% of Harmony’s workforce directly engaged in stoping, or underground excavation, and development rock breaking activities. In addition, Harmony has implemented productivity-based bonuses designed to maximize productivity. | |
• | A no-frills, low cost ethic. Harmony has an obsession about lowering its cost base and to this end Harmony extensively benchmarks its costing parameters both internally between operations within Harmony and externally against other gold producers. | |
34
• | Systems. Harmony has implemented sophisticated cost accounting systems and strict ore accounting and ore reserve management systems to measure and track costs and ore reserve depletion accurately, so as to enable it to be proactive in its decision making. |
• | to make acquisitions in addition to pursuing greenfield and brownfield developments when it is economical to do so; | |
• | to acquire mature assets with turnaround potential; | |
• | to acquire assets that fit Harmony’s management model; and | |
• | to acquire assets that enhance Harmony’s overall resource base. |
35
Hampton. These types of mining are more typical outside of South Africa. Harmony believes that these skills should position it to be able to pursue a broad range of acquisition opportunities. Harmony continues to explore new business opportunities both inside and outside of South Africa, particularly in Australia and Russia. Harmony may in the future pursue additional suitable potential acquisitions in South Africa or internationally.
Hedge Policy
36
Board approval is required when hedging arrangements are to be entered into to secure loan facilities. Any change to this policy requires ratification by the Board. Currently, Harmony’s hedge book is managed by a risk and treasury management services company, that is a wholly-owned subsidiary of a major South African bank. Hedge activity is monitored weekly and all hedge transactions must be approved by the Harmony Chief Financial Officer after consultation with the Board.
37
Description of Mining Business
Exploration
Mining
• | Access to the orebody. In Harmony’s underground mines, access to the orebody is by means of shafts sunk from the surface to the lowest economically and practically mineable level. Horizontal development at various intervals of a shaft (known as levels) extends access to the horizon of the reef to be mined. On-reef development then provides specific mining access. In Harmony’s open pit mines, access to the orebody is provided by overburden stripping, which removes the covering layers of topsoil or rock, through a combination of drilling, blasting, loading and hauling, as required. | |
• | Mining the orebody. The process of ore removal starts with drilling and blasting the accessible ore. The blasted faces are then cleaned and the ore is transferred to the transport system. In open pit mines, gold-bearing material may require drilling and blasting and is usually collected by bulldozers or shovels to transfer it to the ore transport system. In Harmony’s underground mines, once ore has been broken, train systems collect ore from the faces and transfer it to a series of ore passes that gravity feed the ore to hoisting levels at the bottom of the shaft. The ore is then hoisted to the surface in dedicated conveyances and transported either by conveyor belts directly or via surface railway systems or roads to the treatment plants. In addition to ore, waste rock broken to access reef horizons must similarly be hoisted and then placed on waste rock dumps. In open pit mines, ore is transported to treatment facilities in large capacity vehicles. |
38
Processing
• | Comminution. Comminution is the process of breaking up the ore to expose and liberate the gold and make it available for treatment. Conventionally, this process occurs in multi-stage crushing and milling circuits, which include the use of jaw and gyratory crushers and rod and tube and ball mills. Harmony’s more modern milling circuits include semi or fully autogenous milling where the ore itself is used as the grinding medium. Typically, ore must be ground to a minimum size before proceeding to the next stage of treatment. | |
• | Treatment. In most of Harmony’s metallurgical plants, including the plants within the Free Gold assets and at Hill 50, gold is extracted into a leach solution from the host ore by leaching in agitated tanks. Gold is then extracted onto activated carbon from the solution using the CIL, CIP or CIS process. In addition, each of Harmony and the Free Gold Company has one metallurgical plant that uses the zinc precipitation filter process to recover gold in solution. Harmony’s Saaiplaas plant also used the zinc precipitation filter process prior to fiscal 2002, but it was converted to the CIS process during fiscal 2002. Harmony expects to convert the Saaiplaas plant to the CIL process in the quarter ending June 30, 2003, in an effort to lower cost and improve extraction efficiency. Harmony will consider a similar conversion for the remaining Harmony zinc precipitation plant depending on the properties of the materials to be processed. Gold in solution from the filter plants is recovered using zinc precipitation. Recovery of the gold from the loaded carbon takes place by elution and electro-winning. Because cathode sludge produced from electro-winning is now sent directly to Harmony’s refinery, most of the plants no longer use smelting to produce rough gold bars (doré). Harmony’s zinc precipitation plant, however, and the zinc precipitation plant used by the Free Gold Company continue to smelt precipitate to produce rough gold bars. These bars are then transported to Harmony’s refinery, which is responsible for refining the bars to a minimum of good delivery status. Harmony also had one heap leach operation, active use of which was |
39
discontinued in July 2001. In the heap leach process, ore is stacked on impervious leach pads and a leaching solution is sprayed on the pile, which dissolves the gold from the host ore. Gold is then extracted from the leach solution using the CIS process. Although Harmony has discontinued the active use of its heap leach operation, over time small amounts of gold normally can be recovered from ore remaining on the leach pads. Harmony expects to apply leaching solution occasionally in the future to recover any available gold. |
Services and Supplies
40
ventilation (sustaining operable mining conditions underground), provision of supplies and materials, and other logistical support. In addition, engineering services are required to ensure equipment operates effectively. Unlike many other South African gold producers, Harmony generally provides only those services directly related to mining. In some cases, other services are provided by outside contractors. Harmony provides medical services to employees at its Free State, Evander and Randfontein hospitals. The Free Gold assets include a hospital facility, and Harmony is considering options to achieve synergies between this facility and the existing Free State facility.
Harmony’s Management Structure
41
coach. This initiative, which Harmony has implemented at its South African operations, re-aligns features of Harmony’s operational-level organization. The principal features of this initiative are to allow coaches to focus on safety promotion by transferring line supervision duties to the mine overseers (whose technical expertise will be available to blasting crews) and changing the compensation structure so that coaches will not receive incentive compensation based on production levels. In addition, coaches spend the entire eight-hour working shift underground with the mining team, in contrast with the four hours shift bosses typically spent with the mining team. Harmony believes that this initiative will promote a safe production environment for the blasting crew and enhance career development for previously disadvantaged individuals; however, because this is a new initiative, no assurance can be given that it will succeed in meeting these goals.
Exploration
42
ground magnetics, geochemical, regolith and geotechnical techniques to identify broad systems of anomalous gold and associated rock alteration within which gold mineralization typically occurs. Thereafter, promising targets are drilled to test geological structures and establish the presence of gold mineralization. Should this process be successful in discovering ore, the deposits are then drilled and sampled systematically to determine ore reserves and metallurgical characteristics.
43
occurs in seven separate bodies with strike lengths ranging between 500 meters and 1,000 meters and additional discoveries are likely. Exploration activities to date have revealed mineralized widths that range from 15 meters to 45 meters with average grades of platinum plus palladium running at between 1.3 and 2.5 g/t. Higher grade zones with approximate widths of 2 to 5 meters and with grades of up to 4 to 6 g/t occur within some of these mineralized bodies. Harmony estimates the ratio of platinum to palladium is about 1 to 1. Drilling on two of the four deposits has been completed on sectioned lines spaced 50 meters apart with reef intersection at depths ranging from 4 meters to 180 meters below surface. Wider drill spacing of between 100 to 200 meters has been completed on the other two deposits. As of December 13, 2002, boreholes included 465 rotary airblast boreholes, 402 reverse circulation percussion boreholes and 52 diamond core boreholes representing a combined total of 36,600 meters of drilling. Metallurgical test work to date has indicated poor flotation recoveries (60–64%) for the lower grade (1.0–2.0 g/t) mineralization, but higher recoveries (75–80%) for the higher grade (2.5–5.0 g/t) mineralization using a two-stage mill-float circuit in combination with magnetic separation. The pre-feasibility study, which was completed in August 2002, concluded that the economic viability of the project depends on selectively mining the higher grade reef zones (of 2 to 3 g/t of total precious metals) using open pit methods, sustained platinum and palladium markets and platinum and palladium recoveries being higher than 70%. During the first quarter of fiscal 2003, the Board approved Rand 25 million ($2.9 million) for an advanced feasibility study, which Harmony has commenced. The feasibility study includes collecting a 550 ton bulk sample for pilot plant scale metallurgical testing. The ore sample is being collected at a depth of approximately 45 meters below surface with sampling of the various reefs under different weathering conditions as the box cut advances. Harmony estimates that the pilot plant test results will be available by the end of March 2003.
44
Capital Expenditures
Description of Property
45
46
Geology
Harmony’s Australian production is obtained from open pit and underground mines operating on gold lodes, which are typical of gold bearing greenstone belts found in Canada and Australia.
Reserves
48
parameters, is maximized and, therefore, optimizes exploitation of the orebody. The use of a cut-off grade attempts to account for all the ore tons that make a marginal contribution to the profitability of the mine.
49
Ore reserve statement as at June 30, 2002 | ||||||||||||||||||||||||||||||||||||||||
Gold sales | ||||||||||||||||||||||||||||||||||||||||
in the fiscal | ||||||||||||||||||||||||||||||||||||||||
year ended | ||||||||||||||||||||||||||||||||||||||||
Operations | Proven Reserves | Probable Reserves | Total Reserves | June 30, 20021 | ||||||||||||||||||||||||||||||||||||
Tons | Grade | Gold oz2 | Tons | Grade | Gold oz2 | Tons | Grade | Gold oz2 | ||||||||||||||||||||||||||||||||
(million) | (oz/ton) | (million) | (million) | (oz/ton) | (million) | (million) | (oz/ton) | (million) | (oz) | |||||||||||||||||||||||||||||||
S.A. Underground | ||||||||||||||||||||||||||||||||||||||||
Elandskraal | 23.18 | 0.205 | 4.75 | 36.60 | 0.204 | 7.47 | 59.78 | 0.204 | 12.22 | 442,715 | ||||||||||||||||||||||||||||||
Free State | 35.04 | 0.136 | 4.75 | 20.06 | 0.128 | 2.56 | 55.10 | 0.133 | 7.32 | 598,635 | ||||||||||||||||||||||||||||||
Randfontein | 19.02 | 0.163 | 3.10 | 9.01 | 0.167 | 1.51 | 28.03 | 0.164 | 4.61 | 531,588 | ||||||||||||||||||||||||||||||
Evander | 10.75 | 0.183 | 1.97 | 58.07 | 0.223 | 12.92 | 68.82 | 0.216 | 14.89 | 415,382 | ||||||||||||||||||||||||||||||
Free Gold assets3 | 10.78 | 0.204 | 2.20 | 19.47 | 0.222 | 4.33 | 30.26 | 0.216 | 6.53 | 90,487 | ||||||||||||||||||||||||||||||
Total S.A. Underground | 98.77 | 0.178 | 16.77 | 143.22 | 0.189 | 28.80 | 241.99 | 0.187 | 45.57 | 2,078,807 | ||||||||||||||||||||||||||||||
S.A. Surface | ||||||||||||||||||||||||||||||||||||||||
Elandskraal | — | — | — | 2.43 | 0.018 | 0.04 | 2.43 | 0.018 | 0.04 | 33,344 | ||||||||||||||||||||||||||||||
Free State | 5.21 | 0.026 | 0.13 | 4.33 | 0.018 | 0.08 | 9.54 | 0.022 | 0.21 | 13,309 | ||||||||||||||||||||||||||||||
Randfontein | 1.69 | 0.023 | 0.04 | 2.03 | 0.034 | 0.07 | 3.72 | 0.029 | 0.11 | 30,050 | ||||||||||||||||||||||||||||||
Kalgold (open cast) | 7.72 | 0.061 | 0.47 | 2.10 | 0.061 | 0.13 | 9.82 | 0.061 | 0.60 | 62,179 | ||||||||||||||||||||||||||||||
Free Gold assets3 | 9.72 | 0.022 | 0.21 | — | — | — | 9.72 | 0.022 | 0.21 | 13,518 | ||||||||||||||||||||||||||||||
Total S.A. Surface | 24.33 | 0.026 | 0.86 | 10.89 | 0.026 | 0.32 | 35.23 | 0.030 | 1.17 | 152,400 | ||||||||||||||||||||||||||||||
Australian Operations4 | ||||||||||||||||||||||||||||||||||||||||
Big Bell | 1.86 | 0.090 | 0.17 | 2.90 | 0.081 | 0.24 | 4.77 | 0.085 | 0.40 | 132,389 | ||||||||||||||||||||||||||||||
Mt. Magnet | 3.77 | 0.055 | 0.21 | 7.18 | 0.160 | 1.15 | 10.95 | 0.124 | 1.36 | 44,255 | 5 | |||||||||||||||||||||||||||||
South Kalgoorlie6 | 3.96 | 0.053 | 0.21 | 4.36 | 0.085 | 0.37 | 8.32 | 0.070 | 0.58 | 76,348 | 7 | |||||||||||||||||||||||||||||
Total Australian Operations | 9.59 | 0.066 | 0.58 | 14.45 | 0.109 | 1.76 | 24.04 | 0.093 | 2.34 | 252,992 | ||||||||||||||||||||||||||||||
TOTAL | 132.69 | 0.137 | 18.21 | 168.56 | 0.183 | 30.87 | 301.25 | 0.163 | 49.08 | 2,484,239 |
1 | Includes sales from Hill 50 for three months from April 1, 2002 and sales attributable to Harmony’s interest in the Free Gold assets for two months from May 1, 2002. Excludes sales at Bissett in fiscal 2002. | |
2 | “Gold oz” figures are fully inclusive of all mining dilutions and gold losses, and are reported as mill delivered tons and head grades. Metallurgical recovery factors have not been applied to the reserve figures. Approximate metallurgical recovery factors are set forth below. | |
3 | Includes 50% of the reserves from the Free Gold assets, representing Harmony’s equity interest in the Free Gold Company. | |
4 | Includes reserves from underground and surface mining at each of the Australian operations. | |
5 | Includes sales from the Mt. Magnet operations for the period from March 1, 2002, during which the Mt. Magnet operations were operated for the account of Harmony. | |
6 | The South Kalgoorlie operations include Jubilee, acquired in the New Hampton transaction, and New Celebration, acquired in the Hill 50 transaction. | |
7 | Includes sales from Jubilee for all of fiscal 2002 and sales from New Celebration for the period from March 1, 2002, during which New Celebration was operated for the account of Harmony. |
50
Rand 95,000 (A$16,879 at an exchange rate of R5.63 per A$1.00) per kilogram was applied in calculating the ore reserve figures. The gold price on December 13, 2002 was approximately Rand 93,454 per kilogram. Harmony’s standard for sampling with respect to both proven and probable reserve calculations for underground mining operations at Elandskraal, Free State, Evander, Randfontein and the Free Gold assets is applied on a 6 meter by 6 meter grid. Average sample spacing on development ends is at 2 meter intervals in development areas. Harmony’s standard for sampling with respect to both proven and probable reserves at its Australian underground operations include sampling development drives and crosscuts at intervals of up to 4 meters, drilling fans of diamond drill boreholes with a maximum spacing of 20 meters in any orientation within the ore bodies, and assaying core at 1 meter intervals. The Kalgold open cast operations are sampled on diamond drill and reverse circulation drill spacing of no more than 25 meters on average. Surface mining at South African operations other than Kalgold involves recovering gold from areas previously involved in mining and processing, such as metallurgical plants, waste rock dumps and tailings dams (slimes and sand) for which random sampling is used. Australian surface operations are sampled on diamond drill and reverse circulation drill spacing of no more than 20 meters on average. Bissett operations have not been included in the table above because given the recovery factor identified above and cut-off grade calculated as described below, there were no proven and probable reserves at Bissett as at June 30, 2002. Production at Bissett was suspended in the quarter ended September 30, 2001 due to mining operations being uneconomical at then-current gold prices. See “Item 4. Information on the Company—Business—Harmony’s Mining Operations—Bissett Operations.”
Harmony’s Mining Operations
51
sand). Harmony has also conducted open cast mining at Randfontein, but these open cast operations were downscaled and discontinued in the six months ended December 31, 2001 because the open cast mine had reached the end of its useful life.
South African Underground Operations
Fiscal year ended June 30, | ||||||
20021 | 20012 | 20003 | ||||
Production | ||||||
Tons (‘000) | 13,368 | 13,603 | 10,324 | |||
Recovered grade (ounces/ton) | 0.149 | 0.140 | 0.148 | |||
Gold sold (ounces) | 1,988,320 | 1,903,766 | 1,530,180 | |||
Results of operations ($) | ||||||
Product sales (‘000) | 567,006 | 521,523 | 444,418 | |||
Cash cost (‘000) | 384,434 | 441,400 | 377,047 | |||
Cash profit (‘000) | 182,607 | 80,123 | 67,371 | |||
Cash costs | ||||||
Per ounce of gold ($) | 193 | 232 | 246 |
1 | Excludes Harmony’s interest in gold sales by the Free Gold Company. |
2 | Includes Elandskraal’s gold sales for three months from April 1, 2001. |
3 | Includes Randfontein’s gold sales for four months from March 1, 2000. |
52
South African Surface Operations
The following chart details the operating and production results from Harmony’s surface operations in South Africa for the past three fiscal years (with historic figures adjusted to reflect the segmentation of the Elandskraal operations described above):
Fiscal year ended June 30, | ||||||
20021 | 20012 | 20003 | ||||
Production | ||||||
Tons (‘000) | 4,198 | 3,732 | 2,773 | |||
Recovered grade (ounces/ton) | 0.033 | 0.037 | 0.035 | |||
Gold sold (ounces) | 138,882 | 136,319 | 95,745 | |||
Results of operations ($) | ||||||
Product sales (‘000) | 40,034 | 36,987 | 27,700 | |||
Cash cost (‘000) | 24,037 | 32,355 | 22,100 | |||
Cash profit (‘000) | 16,003 | 4,632 | 5,600 | |||
Cash costs | ||||||
Per ounce of gold ($) | 173 | 237 | 231 |
1 | Excludes Harmony’s interest in gold sales by the Free Gold Company. | |
2 | Includes Elandskraal’s gold sales for three months from April 1, 2001. | |
3 | Includes Randfontein’s gold sales for four months from March 1, 2000 and Kalgold’s gold sales for nine months from October 1, 1999. |
53
of surface operations at Elandskraal and increased production at Kalgold, which more than offset a decrease in tons milled and ounces sold from Randfontein’s surface operations in connection with the closure of Randfontein’s open cast mine. Recovered grade from surface operations in South Africa was 0.033 in fiscal 2002, compared with 0.037 in fiscal 2001 as a result of lower grade surface sources being treated at Randfontein and the closure of the Randfontein open pit.
Australian Operations
Fiscal year ended June 30, | ||||||||
20021 | 20012 | |||||||
Production | ||||||||
Tons (‘000) | 5,273 | 1,200 | ||||||
Recovered grade (ounces/ton) | 0.048 | 0.048 | ||||||
Gold sold (ounces) | 252,993 | 55,653 | ||||||
Results of operations | ||||||||
Product sales (‘000) | 66,402 | 18,057 | ||||||
Cash cost (‘000) | 59,537 | 17,779 | ||||||
Cash profit (‘000) | 6,865 | 278 | ||||||
Cash costs | ||||||||
Per ounce of gold ($) | 235 | 319 |
1 | Includes gold sales from Hill 50 (including Mt. Magnet and the New Celebration portion of the South Kalgoorlie operations) for three months from April 1, 2002. |
2 | Includes gold sales from New Hampton (including Big Bell and the Jubilee portion of the South Kalgoorlie operations) for three months from April 1, 2001. |
54
2001. This decrease was attributable primarily to reduction of high cost production at the New Hampton operations, the implementation of the “Harmony Way” at the New Hampton operations and the inclusion of relatively lower-cost production from Hill 50 for three months.
Elandskraal Operations
55
Rand 210 million ($18.5 million at an exchange rate of R11.35 per $1.00). This aggregate consideration included the cancellation of the remaining Rand 91 million ($8.0 million at an exchange rate of R11.35 per $1.00) due to Randfontein under its loan of April 24, 2001 to Open Solutions.
56
working costs, increasing mining flexibility, controlling capital expenditure and the timely completion of the SSDP. Harmony expects that the SSDP will be completed by the end of fiscal 2005.
57
Fiscal Year | ||||||||||
ended | Calendar Year ended | |||||||||
June 30, | December 31, | |||||||||
2002 | 2001 | 2000 | 1999 | |||||||
Production | ||||||||||
Tons (‘000) | 2,420 | 2,427 | 2,487 | 3,109 | ||||||
Recovered grade (ounces/ton) | 0.183 | 0.189 | 0.212 | 0.202 | ||||||
Gold sold (ounces) | 442,715 | 459,626 | 528,083 | 628,281 | ||||||
Results of operations ($) | ||||||||||
Cash cost (‘000) | 88,425 | 111,867 | 150,900 | 167,500 | ||||||
Cash profit (‘000) | 35,683 | 13,510 | 2,300 | 31,400 | ||||||
Cash costs | ||||||||||
Per ounce of gold ($) | 200 | 243 | 286 | 267 |
Shaft | Hoisting Capacity | |||
(tons/month) | ||||
Elandsrand No. 2 shaft and sub-vertical shaft | 331,000 | |||
Deelkraal No. 1 shaft and sub-vertical shaft | 187,000 |
58
Fiscal Year | Fiscal Year | |||||||
ended | ended | |||||||
June 30, | June 30, | |||||||
2002 | 20011 | |||||||
Production | ||||||||
Tons (‘000) | 1,197 | 141 | ||||||
Recovered grade (ounces/ton) | 0.028 | 0.028 | ||||||
Gold sold (ounces) | 33,344 | 3,987 | ||||||
Results of operations ($) | ||||||||
Cash cost (‘000) | 4,744 | 530 | ||||||
Cash profit/(loss) (‘000) | 4,984 | 601 | ||||||
Cash costs | ||||||||
Per ounce of gold ($) | 142 | 133 |
1 | Includes gold sales from surface mining at Elandskraal mines for three months from April 1, 2001. |
59
Average milled | ||||||||||
Processing | for fiscal year ended | |||||||||
Plant | Capacity | June 30, 2002 | ||||||||
(tons/month) | (tons/month) | |||||||||
Elandsrand Plant | 190,000 | 174,000 | ||||||||
Deelkraal Plant | 135,000 | 99,000 |
60
Elandskraal operations in fiscal 2003, primarily for the SSDP and secondarily to develop level 35 of the Deelkraal shaft and improve underground conditions of the Elandsrand shaft.
Randfontein Operations
61
Due to the shallow to moderate depths of the operations, seismicity and pressure related problems are infrequent. There is a risk of subterranean water and/or gas intersections in some areas of the mine. However, this risk is mitigated by active and continuous management and monitoring, which includes the drilling of boreholes in advance of faces. Where water and/or gas is indicated in the drilling, appropriate preventative action is taken.
62
Fiscal year ended June 30, | ||||||
2002 | 2001 | 2000 | ||||
Production | ||||||
Tons (‘000) | 3,606 | 4,397 | 4,675 | |||
Recovered grade (ounces/ton) | 0.147 | 0.145 | 0.161 | |||
Gold sold (ounces) | 531,588 | 640,408 | 754,853 | |||
Results of operations ($) | ||||||
Cash cost (‘000) | 93,324 | 139,781 | 190,110 | |||
Cash profit (‘000) | 57,781 | 31,822 | 29,154 | |||
Cash costs | ||||||
Per ounce of gold ($) | 176 | 218 | 252 |
Hoisting Capacity | ||||||
Shaft | (tons/month) | |||||
Cooke 11 | 176,400 | |||||
Cooke 2 | 187,400 | |||||
Cooke 3 | 264,600 | |||||
Shaft 42 | 148,800 | |||||
Doornkop | 49,600 |
1 | Currently operating at a rate of 50,000 tons per month in connection with the extraction of the shaft pillar. | |
2 | This shaft, which is currently closed, was mined at a reduced rate by third party firms on a royalty basis from July 2001 until the completion of their contract in April 2002. |
63
well as any unforeseen events affecting production levels, could have a material effect on the expected period of future operations. See “Item 3. Key Information—Risk Factors—Harmony’s gold reserve figures are estimates based on a number of assumptions, including assumptions as to mining and recovery factors, future production costs and the price of gold, and may yield less gold under actual production conditions than Harmony currently estimates.”
Fiscal year ended June 30, | ||||||||||||
20021 | 2001 | 2000 | ||||||||||
Production | ||||||||||||
Tons (‘000) | 1,687 | 2,533 | 3,496 | |||||||||
Recovered grade (ounces/ton) | 0.018 | 0.032 | 0.031 | |||||||||
Gold sold (ounces) | 30,050 | 83,013 | 109,485 | |||||||||
Results of operations ($) | ||||||||||||
Cash cost (‘000) | 5,952 | 19,203 | 29,347 | |||||||||
Cash profit/(loss) (‘000) | 2,568 | 3,557 | 2,606 | |||||||||
Cash costs | ||||||||||||
Per ounce of gold ($) | 198 | 231 | 267 |
1 | Open cast operations were downscaled and discontinued in the six months ended December 31, 2002 and current surface operations exploit waste rock dumps and tailings dams (slimes and sand). |
64
maintain surface production until approximately the end of fiscal 2004. Future changes to the assumptions upon which the reserves are based, as well as any unforeseen events affecting production levels, could have a material effect on the expected period of future operations. See “Item 3. Key Information—Risk Factors—Harmony’s gold reserve figures are estimates based on a number of assumptions, including assumptions as to mining and recovery factors, future production costs and the price of gold, and may yield less gold under actual production conditions than Harmony currently estimates.”
Average milled for the fiscal year ended | ||||||||
Plant | Processing Capacity | June 30, 2002 | ||||||
(tons/month) | (tons/month) | |||||||
Cooke | 280,000 | 231,000 | ||||||
Doornkop | 220,000 | 168,000 |
65
production during the development period) would be needed to complete this project. Harmony currently estimates that these net capital expenditures would total approximately Rand 500 million. Harmony is currently conducting a feasibility study to determine the viability of extending the shaft from 1,340 meters, where the project was stopped, to 2,033 meters below surface. Harmony’s Board has approved the project in principle, subject to finalizing the project plan and identifying a suitable economic empowerment partner, within the meaning of the Mining Charter.
Free State Operations
66
inflexibility of some of the older shafts, it is becoming increasingly difficult to achieve the originally expected grades and tonnages.
Fiscal year ended June 30, | ||||||
2002 | 2001 | 2000 | ||||
Production | ||||||
Tons (‘000) | 4,748 | 5,831 | 6,268 | |||
Recovered grade (ounces/ton) | 0.126 | 0.118 | 0.137 | |||
Gold sold (ounces) | 598,635 | 686,223 | 856,816 | |||
Results of operations ($) | ||||||
Cash cost (‘000) | 131,817 | 181,239 | 213,793 | |||
Cash profit (‘000) | 43,238 | 6,862 | 29,755 | |||
Cash costs | ||||||
Per ounce of gold ($) | 220 | 264 | 250 |
67
Shaft | Hoisting Capacity (tons/month) | |
Harmony shaft 2 | 227,000 | |
Harmony shaft 31 | 90,000 | |
Harmony shaft 42 | 146,000 | |
Merriespruit shaft 1 | 129,000 | |
Merriespruit shaft 3 | 197,000 | |
Virginia shaft 23 | 103,000 | |
Unisel | 137,000 | |
Saaiplaas 34 | 176,000 | |
Brand shaft 25 | 120,000 | |
Brand shaft 3 | 120,000 | |
Brand shaft 5 | 151,000 | |
Masimong shaft complex6 | 149,000 |
1 | Integrated with Harmony shaft 2 during fiscal 2002 and currently operating as a service shaft. |
2 | Closed in the quarter ended June 30, 2002 and currently operating as a service shaft. |
3 | Closed in the quarter ended December 31, 2001 and currently operating as a service shaft. |
4 | Previously operated as a service shaft. Limited extraction of the shaft pillar commenced in the quarter ended September 30, 2002. |
5 | Production suspended in the quarter ending March 31, 2002 pending consideration of this shaft’s future. |
6 | Includes the Masimong 4 and 5 shafts. |
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it is expected that some sections will decrease production earlier than others and it is currently envisaged that a decrease of production in certain sections will commence in the near term. In addition, any future changes to the assumptions upon which the reserves are based, as well as any unforeseen events affecting production levels, could have a material effect on the expected period of future operations. See “Item 3. Key Information—Risk Factors—Harmony’s gold reserve figures are estimates based on a number of assumptions, including assumptions as to mining and recovery factors, future production costs and the price of gold, and may yield less gold under actual production conditions than Harmony currently estimates.”
Six months ended June 30, 2002 | ||
Production | ||
Tons (’000) | 255 | |
Recovered grade (ounces/ton) | 0.052 | |
Gold sold (ounces) | 13,309 | |
Results of operations ($) | ||
Cash cost (’000) | 613 | |
Cash profit (’000) | 3,673 | |
Cash costs | ||
Per ounce of gold ($)1 | 46 |
1 | Includes 8,808 ounces of low-cost production from clean-up of the plant and refinery. |
69
Plant | Processing Capacity | Average milled for the fiscal year ended June 30, 2002 |
(tons/month) | (tons/month) | |
Central | 204,000 | 174,000 |
Virginia 1 | 204,000 | 150,000 |
Saaiplaas | 140,000 | 123,000 |
1 | In connection with the closure of the Virginia 2 shaft in the quarter ended December 31, 2001, certain leach tanks were taken off-line, reducing processing capacity to approximately 150,000 tons per month. |
Evander Operations
70
Fiscal year ended June 30, | |||||||||||
2002 | 2001 | 2000 | |||||||||
Production | |||||||||||
Tons (’000) | 2,594 | 2,738 | 2,651 | ||||||||
Recovered grade (ounces/ton) | 0.160 | 0.167 | 0.148 | ||||||||
Gold sold (ounces) | 415,382 | 458,212 | 393,235 | ||||||||
Results of operations ($) | |||||||||||
Cash cost (’000) | 70,867 | 91,053 | 93,840 | ||||||||
Cash profit (’000) | 45,905 | 34,089 | 20,349 | ||||||||
Cash costs | |||||||||||
Per ounce of gold ($) | 171 | 199 | 239 |
71
was due to a return to mining at the average grade of the orebody following higher than expected grade in fiscal 2001.
Shaft | Hoisting Capacity | |
(tons/month) | ||
Evander No. 2 shaft | 68,800 | |
Evander No. 3 shaft1 | 19,800 | |
Evander No. 5 shaft | 93,700 | |
Evander No. 7 shaft | 105,800 | |
Evander No. 8 shaft | 146,600 | |
Evander No. 9 shaft2 | 82,700 |
1 | Limited production recommenced in the quarter ended December 31, 2001. | |
2 | Downscaled beginning in the quarter ended September 30, 2002 and currently operating as a service shaft. |
72
period of future operations. See “Item 3. Key Information—Risk Factors—Harmony’s gold reserve figures are estimates based on a number of assumptions, including assumptions as to mining and recovery factors, future production costs and the price of gold, and may yield less gold under actual production conditions than Harmony currently estimates.”
Plant | Processing Capacity | Average milled for the fiscal year ended June 30, 2002 |
(tons/month) | (tons/month) | |
Kinross | 198,000 | 140,000 |
Winkelhaak | 72,000 | 59,000 |
73
Kalgold Operations
74
and safety at Harmony’s South African operations. See “Item 6. Directors, Senior Management and Employees—Directors and Senior Management—Board Practices.”
Fiscal year ended June 30, | |||||||||||
2002 | 2001 | 2000 | |||||||||
Production | |||||||||||
Tons (‘000) | 1,060 | 1,057 | 1,676 | ||||||||
Recovered grade (ounces/ton) | 0.059 | 0.047 | 0.041 | ||||||||
Gold sold (ounces) | 62,179 | 49,351 | 68,738 | ||||||||
Results of operations ($) | |||||||||||
Cash cost (‘000) | 12,727 | 12,834 | 17,896 | ||||||||
Cash profit (‘000) | 4,778 | 673 | 1,446 | ||||||||
Cash costs | |||||||||||
Per ounce of gold ($) | 205 | 260 | 260 |
75
normally can be recovered from ore remaining on the leach pads. Harmony expects to apply leaching solution occasionally in the future to recover any available gold. In fiscal 2002, Kalgold processed and milled 88,333 tons of ore per month at an average recovered grade of 0.059 ounces per ton.
Plant | Processing Capacity | Average milled for the fiscal year ended June 30, 2002 |
(tons/month) | (tons/month) | |
CIL | 99,200 | 88,000 |
Heap Leach | 66,100 | * |
* | Active use of heap leaching was discontinued in July 2001; however, Harmony expects to apply leaching solution occasionally in the future to recover any available gold. |
Free Gold Operations
76
AngloGold. The Free Gold Company has estimated that this amount will be approximately Rand 632 million ($59.4 million at an exchange rate of R10.64 per $1.00) and will be payable in March 2003. The Free Gold Company expects that approximately 80% of this amount will provide the Free Gold Company with a capital expense deduction against its taxable income from the Free Gold assets. For purposes of U.S. GAAP, Harmony equity accounted for its interest in the Free Gold Company with effect from May 1, 2002 and the purchase price of the Free Gold assets was determined to be Rand 2,213 million ($208.2 million at an exchange rate of 10.64 per $1.00). See “Item 5. Operating and Financial Review and Prospects—Overview.”
77
78
The Free Gold Company estimates the cost of the project to be Rand 260 million ($29.7 million). The Free Gold Company estimates that full production at the two additional operating levels will commence by December 2005 and will add 150,000 ounces of gold per year to current production.
Six months ended June 30, 2002 | Calendar year ended December 31, | ||||||||||||||
2002 | 2001 | 2000 | 1999 | ||||||||||||
Production | |||||||||||||||
Tons (‘000) | 2,179 | 5,454 | 6,791 | 6,882 | |||||||||||
Recovered grade (ounces/ton) | 0.228 | 0.204 | 0.197 | 0.208 | |||||||||||
Gold sold (‘000 ounces) | 497,080 | 1,110,000 | 1,339,000 | 1,429,000 | |||||||||||
Results of operations ($) | |||||||||||||||
Cash cost (‘000) | 77,108 | 251,200 | 361,300 | 383,3000 | |||||||||||
Cash profit (‘000) | 83,380 | 66,000 | 47,900 | 66,300 | |||||||||||
Cash costs | |||||||||||||||
Per ounce of gold ($) | 155 | 226 | 270 | 268 |
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assumptions as to mining and recovery factors, future production costs and the price of gold, and may yield less gold under actual production conditions than Harmony currently estimates.”
Shaft | Hoisting Capacity | |
(tons/month) | ||
Tshepong North shaft1 | 165,000 | |
Bambanani East shaft | 200,000 | |
Bambanani West shaft | 60,000 | |
Joel South shaft2 | 160,000 | |
Matjhabeng – Eland shaft | 60,000 | |
Matjhabeng – Sable and Kudu shafts | 70,000 | |
Matjhabeng – Nyala shaft | 100,000 | |
St. Helena – No. 2 shaft3 | 75,000 | |
St. Helena – No. 4 shaft4 | 80,000 | |
St. Helena – No. 8 shaft5 | 80,000 | |
St. Helena – No. 10 shaft6 | 100,000 |
1 | Currently operating at a rate of 136,000 tons per month while upgrades in the shaft to facilitate increased production are in progress. |
2 | Currently operating at a rate of 40,000 tons per month, in line with the shaft’s current mining plan. |
3 | Currently operations at a rate of 20,000 tons per month due to the reduction of mining operations by GoldFields prior to the sale of St. Helena to the Free Gold Company. |
4 | Currently operating at a rate of 15,000 tons per month due to the reduction of mining operations by GoldFields prior to the sale of St. Helena to the Free Gold Company. |
5 | Currently operating at a rate of 36,000 tons per month due to the reduction of mining operations by GoldFields prior to the sale of St. Helena to the Free Gold Company. |
6 | Currently closed due to the reduction of mining operations by GoldFields prior to the sale of St. Helena to the Free Gold Company. |
Six months ended June 30, 2002 | Calendar year ended December 31, | ||||||||||||||
2002 | 2001 | 2000 | 1999 | ||||||||||||
Production | |||||||||||||||
Tons (‘000) | 2,641 | 4,049 | 3,100 | 3,738 | |||||||||||
Recovered grade (ounces/ton) | 0.023 | 0.022 | 0.027 | 0.026 | |||||||||||
Gold sold (ounces) | 61,086 | 89,000 | 83,000 | 98,000 | |||||||||||
Results of operations ($) | |||||||||||||||
Cash cost (‘000) | 7,526 | 11,000 | 11,600 | 24,300 | |||||||||||
Cash profit (‘000) | 11,980 | 13,500 | 12,500 | 6,500 | |||||||||||
Cash costs | |||||||||||||||
Per ounce of gold ($) | 123 | 167 | 227 | 246 |
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gold reserve figures are estimates based on a number of assumptions, including assumptions as to mining and recovery factors, future production costs and the price of gold, and may yield less gold under actual production conditions than Harmony currently estimates.”
Plant | Processing Capacity | Average milled for the six months ended June 30, 2002 | Average milled for the calendar year ended December 31, 2001 | |||
(tons/month) | (tons/month) | (tons/month) | ||||
FS 1 | 420,000 | 374,000 | 382,000 | |||
FS 2 | 300,000 | 290,000 | 287,000 | |||
Joel | 160,000 | 113,000 | 93,000 | |||
St. Helena1 | 77,000 | 73,610 | 58,000 |
1 | Not currently used due to other shafts at the Free Gold assets operating in an efficient manner. The Free Gold Company expects to use the St. Helena plant to treat surface sources in the future. |
81
Australian Operations
82
83
approximately 17 kilometers and 27 kilometers from the Big Bell underground mine, respectively, occur in a sequence of porphyry-intruded metamorphosed mafic and ultamafic rocks of the Meekatharra-Widgee greenstone belt.
84
Year ended June 30, | ||||||||||||
2002 | 2001 | 2000 | ||||||||||
Production | ||||||||||||
Tons (‘000) | 2,900 | 2,763 | 2,650 | |||||||||
Recovered grade (ounces/ton) | 0.046 | 0.059 | 0.086 | |||||||||
Gold sold (ounces) | 132,389 | 164,315 | 226,948 | |||||||||
Results of operations ($) | ||||||||||||
Cash cost (‘000) | 38,288 | 62,106 | 56,699 | |||||||||
Cash profit/(loss) (‘000) | (2,265 | ) | 22,033 | 11,909 | ||||||||
Cash costs | ||||||||||||
Per ounce of gold ($) | 289 | 256 | 268 |
85
28 kilometers from Cue in the Murchison region. Ore extracted from the Big Bell underground mine is transported by diesel powered mining equipment up the decline and to the crusher pad. Road trains deliver ore from the open pits. The plant underwent significant capital refurbishments during fiscal 2001 to ensure that planned throughput is achieved, but due to the age and layout of this plant, unit costs are higher than at other plants in Harmony’s Australian operations.
Plant | Processing Capacity | Average milled for the fiscal year ended June 30, 2002 |
(tons/month) | (tons/month) | |
Big Bell | 275,000 | 242,000 |
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and waste rock mining risks detailed in the Risk Factors section. Harmony intends to revisit its mining strategy and management procedures at these operations on a regular basis in connection with its effort to minimize mining risks.
Year ended June 30, | ||||||||||||
2002 | 2001 | 2000 | ||||||||||
Production | ||||||||||||
Tons (‘000) | 3,022 | 3,132 | 2,431 | |||||||||
Recovered grade (ounces/ton) | 0.063 | 0.065 | 0.061 | |||||||||
Gold sold (ounces) | 189,689 | 203,575 | 148,659 | |||||||||
Results of operations ($) | ||||||||||||
Cash cost (‘000) | 34,495 | 37,130 | 33,591 | |||||||||
Cash profit/(loss) (‘000) | 17,504 | 18,097 | 16,377 | |||||||||
Cash costs | ||||||||||||
Per ounce of gold ($) | 182 | 182 | 226 |
87
Plant | Processing Capacity | Average milled for the fiscal year ended June 30, 2002 |
(tons/month) | (tons/month) | |
Mt. Magnet | 220,000 | 227,000 |
88
acquired the New Celebration operations, including the Mt. Marion underground mine, in the Hill 50 transaction.
89
exposed to other risks typical of mechanized mines, including geotechnical issues, mine dilution and unpredictable remedial ground support after mine blasting.
Year ended June 30, | |||||||||||||
2002 | 2001 | 2000 | |||||||||||
Production | |||||||||||||
Tons (’000) | 1,973 | 2,038 | 2,048 | ||||||||||
Recovered grade (ounces/ton) | 0.069 | 0.081 | 0.079 | ||||||||||
Gold sold (ounces) | 135,366 | 164,553 | 160,869 | ||||||||||
Results of operations ($) | |||||||||||||
Cash cost (’000) | 31,604 | 38,572 | 39,083 | ||||||||||
Cash profit/(loss) (’000) | 5,881 | 2,932 | 6,541 | ||||||||||
Cash costs | |||||||||||||
Per ounce of gold ($) | 233 | 234 | 243 |
90
the Jubilee and New Celebration operations to form the South Kalgoorlie operations. The restructuring related to these steps included combining the New Hampton and Hill 50 corporate offices in Perth, which led to the retrenchment of a small number of administrative employees of New Hampton.
Plant | Processing Capacity | Average milled for the fiscal year ended June 30, 2002 |
(tons/month) | (tons/month) | |
Jubilee | 110,000 | 100,000 |
New Celebration | 138,000 | 59,000 |
Bissett Operations
91
production during clean up of the plant during the transition to the care and maintenance program in the quarter ended September 30, 2002.
92
Fiscal year ended June 30, 20021 | Fiscal year ended June 30, 2001 | Nine months ended June 30, 2000 | |||||||||
Production | |||||||||||
Tons (’000) | 40 | 293 | 189 | ||||||||
Recovered grade (ounces/ton) | 0.207 | 0.151 | 0.14 | ||||||||
Gold sold (ounces) | 8,263 | 44,303 | 26,943 | ||||||||
Results of operations ($) | |||||||||||
Cash cost (‘000) | 905 | 14,636 | 9,589 | ||||||||
Cash profit/(loss) (‘000) | 899 | (391 | ) | (1,351 | ) | ||||||
Cash costs | |||||||||||
Per ounce of gold ($) | 109 | 330 | 356 |
1 | Production from clean up of the plant during the transition to care and maintenance in the quarter ended September 30, 2001. |
Plant | Processing Capacity | Average milled for the fiscal year ended June 30, 2002 |
(tons/month) | (tons/month) | |
Bissett | 33,000 | 29,000 1 |
1 | Average monthly production for months of July and August 2001, during the transition to care and maintenance. |
Aurion Gold and Placer Dome
93
diluted to approximately 9.8%. In February 2002, Goldfields (Australia) changed its name to AurionGold Limited.
REGULATION
Mineral Rights
• | To recognize the internationally accepted right of the state of South Africa to exercise full and permanent sovereignty over all the mineral and petroleum resources within South Africa; | |
• | To give effect to the principle of the State’s custodianship of the nation’s mineral and petroleum resources; |
94
• | To promote equitable access to South Africa’s mineral and petroleum resources to all the people of South Africa and redress the impact of past discrimination; | |
• | To substantially and meaningfully expand opportunities for historically disadvantaged persons, including women, to enter the mineral and petroleum industry and to benefit from the exploitation of South Africa’s mineral and petroleum resources; | |
• | To promote economic growth and mineral and petroleum resources development in South Africa; | |
• | To promote employment and advance the social and economic welfare of all South Africans; | |
• | To provide security of tenure in respect of prospecting, exploration, mining and production operations; | |
• | To give effect to Section 24 of the South African Constitution by ensuring that South Africa’s mineral and petroleum resources are developed in an orderly and ecologically sustainable manner while promoting justifiable social and economic development; | |
• | To follow the principle that mining companies keep and use their mineral rights, with no expropriation and with guaranteed compensation for mineral rights; and | |
• | To ensure that holders of mining and production rights contribute towards socioeconomic development of the areas in which they are operating. |
95
the Mining Charter addresses other socioeconomic issues are addressed, such as migrant labor, housing and living conditions.
96
Environmental Matters
97
Australia. While Harmony believes that its current provision for compliance with such requirements is reasonable, any future changes and development in Australian environmental laws and regulations may adversely affect these Australian operations.
98
well as Harmony’s proportionate interest of rehabilitation costs at the Free Gold assets. There can be no assurance, however, that this estimate reflects or approximates actual costs to be incurred.
Health and Safety Matters
• | to protect the health and safety of persons at mines; | |
• | to require employers and employees to identify hazards and eliminate, control and minimize the risks relating to health and safety at mines; | |
• | to give effect to the public international law obligations of South Africa that concern health and safety at mines; | |
• | to provide for employee participation in matters of health and safety through health and safety representatives and the health and safety committees at mines; | |
• | to provide for effective monitoring of health and safety conditions at mines; | |
• | to provide for enforcement of health and safety measures at mines; | |
• | to provide for investigations and inquiries to improve health and safety at mines; and | |
• | to promote |
– | a culture of health and safety in the mining industry; |
99
– | training in health and safety in the mining industry; and | |
– | co-operation and consultation on health and safety between the State, employers, employees and their representatives. |
100
Item 5.Operating and Financial Review and Prospects
OVERVIEW
101
transaction were fulfilled). See “Item 4. Information on the Company—Business—History and “Item 4. Information on the Company—Business—Harmony’s Mining Operations.” During Harmony’s fiscal 2002, sales from the Free Gold assets amounted to 1,143,243 ounces of gold and Harmony’s interest in two months of these sales (reflecting the period from May 1, 2002 to June 30, 2002) totaled 104,005 attributable ounces. Because Harmony equity accounts for its 50% interest in the Free Gold Company, sales from the Free Gold assets are not included in Harmony’s sales figures in this annual report. For more information on Harmony’s consolidation policy, see note 2(b) to the consolidated financial statements.
102
CRITICAL ACCOUNTING POLICIES
103
104
and, therefore, may materially influence the values assigned to the hedging and financial derivatives, which may result in a charge to or an increase in Harmony’s earnings at the maturity dates of the hedging and financial derivatives.
105
Revenues
106
closing New Hampton hedge positions in fiscal 2002. There was also no cost to Harmony involved in closing out Randfontein or New Hampton hedge positions in fiscal 2001. In fiscal 2000, the cost of closing out Randfontein hedge positions was approximately $10 million.
Harmony’s realized gold price
Fiscal year ended June 30, | ||||||
2002 | 2001 | 2000 | ||||
($/oz) | ||||||
Average | 289 | 266 | 280 | |||
High | 327 | 291 | 319 | |||
Low | 265 | 256 | 269 | |||
Harmony’s average sales price1 | 283 | 276 | 290 |
1 | Harmony’s average sales price differs from the average gold price due to the timing of its sales of gold within each year and due to the effect of delivering under the commodity hedge contracts acquired in the New Hampton and Hill 50 transactions. |
Costs
107
amortization. Harmony’s cash costs consist primarily of production costs. Production costs are incurred on labor, stores and utilities. Labor costs are the largest component and typically comprise approximately 50% of Harmony’s production costs. Harmony has reduced its overall cash costs from approximately $305 per ounce in fiscal 1998 to approximately $196 per ounce in fiscal 2002.
108
acquires. Harmony has been able to reduce total costs by implementing a management structure and philosophy that is focused on reducing management and administrative costs, implementing an ore reserve management system that allows for greater grade control and acquiring higher grade reserves. See “Item 4. Information on the Company—Business—Strategy.” Harmony has reduced its costs by flattening the management structure at its operating units by removing excess layers of management. Harmony’s ore reserve management system relies on a detailed geological understanding of the orebody backed up by closely-spaced sampling and an emphasis on grade control. The acquisition of higher grade reserves and the effect of the implementation of the ore reserve management system have increased the underground recovery grade from Harmony’s South African operations (excluding the Free Gold Company) from 0.123 ounces per ton in fiscal 1998 to 0.187 ounces per ton in fiscal 2002.
Exchange Rates
109
in U.S. dollars, Harmony’s financial condition could be materially harmed by an appreciation in the value of the Rand.”
Inflation
South African Economic and Political Environment
Impairment of Assets
110
RESULTS OF OPERATIONS
Years ended June 30, 2002 and 2001
111
Year ended June 30, 20021 | Year ended June 30, 20012 | % decrease in cash costs | |||||||||||
(oz) | ($/oz) | (oz) | ($/oz) | ||||||||||
Elandskraal | 476,059 | 196 | 122,880 | 209 | 6 | ||||||||
Randfontein | 561,638 | 177 | 723,421 | 220 | 20 | ||||||||
Free State | 611,944 | 216 | 686,223 | 264 | 18 | ||||||||
Evander | 415,382 | 171 | 458,212 | 199 | 14 | ||||||||
Bissett3 | 8,263 | 109 | 44,303 | 330 | 67 | ||||||||
Kalgold | 62,179 | 205 | 49,351 | 260 | 21 | ||||||||
New Hampton | 191,521 | 242 | 55,653 | 319 | 24 | ||||||||
Hill 50 | 61,472 | 213 | — | — | — | ||||||||
Total | 2,388,458 | 2,140,043 | |||||||||||
Weighted average | 196 | 234 | 16 | ||||||||||
1 | Includes three months of production from Hill 50. |
2 | Includes three months of production at Elandskraal and New Hampton. |
3 | Represents production from clean-up of the plant and mill during the transition to care and maintenance. |
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113
114
2002. The loss in fiscal 2001 related primarily to the sale of the Western Areas Limited shares held by Harmony at June 30, 2000.
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bearing debt outstanding for the period, in particular, Harmony’s Rand-denominated senior unsecured fixed rate bonds issued on June 24, 2001.
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Fiscal year ended June 30, | ||||
Income and mining tax | 2002 | 2001 | ||
Effective tax rate expense | 13.9% | 49.1% |
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participation interest in the Elandskraal Venture that Open Solutions acquired with effect from April 31, 2001. With effect from April 1, 2002, Open Solutions sold this interest back to Harmony. See “Item 4. Information on the Company—Business—Harmony’s Mining Operations—Elandskraal Operations.”
Years ended June 30, 2001 and 2000
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inclusion of Elandskraal and New Hampton in the results for three months in fiscal 2001 and the inclusion of Kalgold and Randfontein for a full year in fiscal 2001. Harmony’s gold sales increased 514,118 ounces, or 31.6%, from 1,625,925 ounces in fiscal 2000 to 2,140,043 ounces in fiscal 2001. Harmony’s average sales price of gold per ounce was $276 in fiscal 2001, as compared with $290 in fiscal 2000, which was due primarily to the declining market price for gold.
Year ended June 30, 20011 | Year ended June 30, 20002 | % (decrease) increase in cash costs | |||||||||
(oz) | ($/oz) | (oz) | ($/oz) | ||||||||
Elandskraal | 122,880 | 209 | — | — | — | ||||||
Randfontein | 723,421 | 220 | 300,448 | 229 | (0.4 | %) | |||||
Free State | 686,223 | 264 | 856,816 | 250 | 5.6 | % | |||||
Evander | 458,212 | 199 | 393,235 | 239 | (16.7 | %) | |||||
Bissett | 44,303 | 330 | 26,943 | 356 | (7.3 | %) | |||||
Kalgold | 49,351 | 260 | 48,483 | 270 | (3.7 | %) | |||||
New Hampton | 55,653 | 319 | — | — | — | ||||||
Total | 2,140,043 | 1,625,925 | |||||||||
Weighted average | 234 | 245 | (4.5 | %) | |||||||
1 | Includes three months of production at Elandskraal and New Hampton. |
2 | Includes nine months of production at Kalgold and Bissett and four months of production at Randfontein. |
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Western Areas Limited shares held by Harmony at June 30, 2000. The profit in fiscal 2000 related primarily to the sale of certain mineral rights.
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Fiscal year ended June 30, | ||||
Income and mining tax | 2002 | 2001 | ||
Effective tax rate expense | 49.1% | 18.4% |
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LIQUIDITY AND CAPITAL RESOURCES
Cash Resources
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expenditures of $26.1 million due to the inclusion of Randfontein for a full year and Elandskraal and New Hampton from April 1, 2001.
Credit Facilities and Other Borrowings
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loan is repayable in full on April 23, 2006, and eight equal semi-annual installments are due beginning October 23, 2002. Harmony repaid the first semi-annual installment of Rand 62.5 million ($6.1 million at an exchange rate of R10.22 per $1.00) on October 23, 2002. The loan bears interest at a rate equal to JIBAR plus 1.5% plus specified costs, which is accrued daily from the drawdown date and is payable quarterly in arrears commencing July 23, 2002. Pursuant to the terms of this facility, Harmony is required to maintain specified ratios of earnings to debt service and borrowings, as well as a specified level of consolidated tangible net worth. In addition, pursuant to this facility, Harmony is subject to specified limits on its ability to (i) permit encumbrances over pledged revenues or assets, (ii) make loans or incur specified types of indebtedness, (iii) dispose of more than 25% of its assets or (iv) make distributions to its shareholders if a default or event of default under this term loan facility has occurred and is continuing. If Harmony fails to meet these requirements, the loan may be accelerated and become due and payable in full. As of December 13, 2002, Harmony was in compliance in all material respects with the terms of this facility.
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Harmony was able to draw down this facility until April 30, 2000. Harmony drew down approximately Rand 400 million under this facility. The facility became repayable quarterly beginning on April 30, 2000 and would have matured on April 30, 2002. The interest rate of the facility was the three month bank bill rate quoted by the South Africa Futures Exchange plus 1.25% on amounts drawn down of less than Rand 250 million and 1.5% on amounts drawn down in excess of Rand 250 million. This facility was repaid in full in April 2001 following the closing of the syndicated loan facility.
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50.1% of Hill 50’s shares and listed options. Following its receipt of funds under the $80 million syndicated loan facility described below, Harmony repaid this interim loan facility in full.
Sales of Equity Securities
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Contractual Obligations and Commercial Commitments
Contractual Obligations on the Balance Sheet
The following table summarizes Harmony’s contractual obligations as of June 30, 2002:
Payments Due by Period | ||||||||||||||||||||
Dollars in thousands | Total | Less than 12 months July 1, 2002 to June 30, 2003 | 12-36 Months July 1, 2003 to June 30, 2005 | 36-60 Months July 1, 2005 to June 30, 2007 | After 60 Months Subesequent to June 30, 2007 | |||||||||||||||
Senior unsecured fixed-rate bonds1 | 115,496 | — | — | 115,496 | — | |||||||||||||||
BoE Bank Limited loan facility1 | 48,123 | 12,031 | 24,061 | 12,031 | — | |||||||||||||||
BAE Systems plc loan facility1 | 3,501 | — | 3,501 | — | — | |||||||||||||||
Post retirement health care2 | 737 | 100 | 200 | 200 | 237 | |||||||||||||||
Environmental obligations3 | 63,125 | 7,063 | 5,000 | 4,000 | 47,062 | |||||||||||||||
Total contractual obligations | 230,982 | 19,194 | 32,762 | 131,727 | 47,299 | |||||||||||||||
1 | See “Item 5. Operating and Financial Review and Prospects-Liquidity and Capital Resources-Credit Facilities and Other Borrowings-Outstanding Credit Facilities and Other Borrowings.” |
2 | This liability relates to post-retirement medical benefits of former employees who retired prior to December 31, 1996 and is based on actuarial valuations conducted during fiscal 2002. |
3 | Harmony makes provision for environmental rehabilitation costs and related liabilities based on management’s interpretations of current environmental and regulatory requirements. See “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies.” |
Contractual Obligations off the Balance Sheet
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Payments Due by Period | |||||||||||||||||||
Dollars in thousands | Total | Less than 12 months July 1, 2002 to June 30, 2003 | 12-36 Months July 1, 2003 to June 30, 2005 | 36-60 Months July 1, 2005 to June 30, 2007 | After 60 Months Subesequent to June 30, 2007 | ||||||||||||||
AngloGold - taxes payable1 | 60,827 | 60,827 | — | — | — | ||||||||||||||
AngloGold - loan2 | 26,599 | — | 26,599 | — | — | ||||||||||||||
Total contractual obligations | 87,426 | 60,827 | 26,599 | — | — | ||||||||||||||
1 | Reflects the estimated taxes payable by AngloGold during March 2003 on the sale of the Free Gold assets, for which the Free Gold Company has agreed to reimburse AngloGold. See “Item 4. Information on the Company—Business—Overview.” |
2 | Reflects the fair value of the Rand 400 million interest-free loan which is payable to AngloGold by the Free Gold Company on January 1, 2005, as part of the consideration for the Free Gold assets. See “Item 4. Information on the Company—Business—Overview.” |
Commercial Commitments on the Balance Sheet
Amount of Commitments Expiring by Period | |||||||||||||||||||
Dollars in thousands | Total | Less than 12 months July 1, 2002 to June 30, 2003 | 12-36 Months July 1, 2003 to June 30, 2005 | 36-60 Months July 1, 2005 to June 30, 2007 | After 60 Months Subesequent to June 30, 2007 | ||||||||||||||
Guarantees1 | 7,892 | — | — | — | 7,892 | ||||||||||||||
Capital commitments2 | 3,055 | 3,055 | — | — | — | ||||||||||||||
Total commitments expiring by period | 10,947 | 3,055 | — | — | 7,892 | ||||||||||||||
1 | Reflects guarantees for environmental rehabilitation expenses, principally environmental performance bonds required for Harmony’s Australian operations. See “Item 4. Information on the Company—Business—Regulatory and Environmental Matters—Environmental Matters.” |
2 | Capital commitments consist only of amounts committed to external suppliers, although a total of $29 million has been approved by the Board for capital expenditures. |
Trend Information
Working Capital and Anticipated Financing Needs
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Harmony’s planned capital expenditures, see “—Capital Expenditures” above and “Item 4. Information on the Company—Business—Harmony’s Mining Operations.” Harmony may, in the future, explore debt and/or equity financing in connection with its acquisition strategy and/or major capital projects. See “Item 3. Key Information—Risk Factors—Harmony’s strategy depends on its ability to make additional acquisitions.” Harmony’s Board believes that Harmony will have access to adequate financing on reasonable terms given Harmony’s cash-based operations and modest leverage. Harmony’s ability to generate cash from operations could, however, be materially adversely effected by increases in cash costs, decreases in production, decreases in the price of gold and appreciation of the Rand against the U.S. dollar. In addition, Harmony’s ability to obtain additional financing could be limited by covenants in the term loan facility of April 18, 2002 between Harmony and BoE Bank Limited, which imposes debt to earnings ratios and minimum net worth requirements and prevents Harmony from pledging, selling or creating encumbrances over pledged assets including Harmony’s shares of the Free Gold Company. Access to financing could also be limited by provisions of Harmony’s corporate bonds, under which Harmony may not permit encumbrances on its present or future assets or revenues to secure indebtedness for borrowed money, without securing the outstanding bonds equally and ratably with such indebtedness, except for certain specified permitted encumbrances. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Credit Facilities and Other Borrowings—Outstanding Credit Facilities and Other Borrowings.” Future financing arrangements would also be subject to the limits on the Board’s borrowing powers described in “Item 10. Description of Ordinary Shares—Memorandum and Articles of Association—Directors—Borrowing Powers.” In addition, South African companies are subject to significant exchange control limitations, which may impair Harmony’s ability to fund overseas operations or guarantee credit facilities entered into by overseas subsidiaries. See “Item 10. Additional Information—Exchange Controls and Other Limitations Affecting Security Holders.”
Item 6.Directors, Senior Management and Employees
DIRECTORS AND SENIOR MANAGEMENT
Executive Directors
Zacharias Bernardus Swanepoel (41), BSc (Mining Engineering), B Com (Hons), Chief Executive Officer and a Director. Mr. Swanepoel has been a Director of Harmony and its Chief Executive Officer since February 1995. Mr. Swanepoel has approximately 20 years’ experience in the mining industry. Prior to joining Harmony he was General Manager of the Beatrix Mine within the Gengold Group.
Frank Abbott (47), BCom, CA (SA), MBL, Chief Financial Officer and a Director. Mr. Abbott has been a Director of Harmony since 1994 and Chief Financial Officer since October 1997. Mr. Abbott has approximately 22 years’ experience in financial management. Prior to joining Harmony he was Financial Director of Randgold & Exploration Company from 1994 to 1997.
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Ferdinand Dippenaar (41), BCom, BProc, MBA, Marketing Director. Mr. Dippenaar has been a Director of Harmony since June 1997. Mr. Dippenaar has approximately 16 years’ commercial and financial experience. He was Managing Director of The Grootvlei Proprietary Mines Limited and East Rand Proprietary Mines Limited from 1996 to 1997. Prior to 1996, Mr. Dippenaar served as Project Leader for the East Rand companies of Randgold & Exploration Company in 1995 and Financial Manager of Beatrix Gold Mines Limited in 1994.
Thaddeus Steven Anthony Grobicki (53), BSc (Hons) (Geology) MSc (Minerals Exploration), Executive Officer for offshore operations and a Director. Mr. Grobicki has been a Director of Harmony since 1994 and an Executive Director since October 1999. Mr. Grobicki has approximately 25 years’ experience in the mining industry. He was a Chief Executive Officer of West Rand Consolidated Mines Limited and Kalgold until July 1999. In March 2002, he was appointed Chairman of the Board of Directors of Hill 50.
Non-Executive Directors
Adam Richard Fleming (54), Non-executive Chairman of the Board and an independent director. Mr. Fleming has been a Director and the Chairman of Harmony since October 14, 1999. His current term will expire at Harmony’s next annual general shareholders’ meeting, currently scheduled for November 14, 2003, at which time he will be eligible for re-election. Mr. Fleming was the non-executive chairman of West Rand Consolidated Mines Limited and of Kalgold before the acquisition of these companies by Harmony.
Michael Frank Pleming (67), Pr Eng, FIMM, Non-executive Director and an independent director. Mr. Pleming has been a Director of Harmony since September 1998. Mr. Pleming has approximately 30 years mining and approximately 14 years’ mining investment experience. He is also a director of Impala Platinum Holdings Limited.
Lord Renwick of Clifton (64), KCMG, Non-executive Director and an independent director. Lord Renwick has been a Director of Harmony since October 1999. Lord Renwick was in the diplomatic service,inter alia as British ambassador to Pretoria and Washington, until his retirement in 1997. He is currently chairman of Fluor Limited and is a director of several public companies, including British Airways Plc., Compagnie Financiere Richemont AG, BHP Billiton, Fluor Corporation, SABMiller plc and Fleming Family and Partners.
Audrey Mokhobo (46), MA (Political Science), Non-executive Director. Ms. Mokhobo has been a Director of Harmony since January 2002. She currently is a director of Simane, Capital Alliance Holdings, Barnard Jacobs Mellet, Women’s Development Bank, Investment Holdings, Rotek Industries, M-Net Phuthuma Trust and Khoetsa Technologies and is a general manager at Eskom (Pty) Ltd. Prior to her appointment, she held various senior positions, including at the Development Bank of South Africa, and as special adviser to the Ministry for Public Enterprises.
John Smithies (57), BSc (Mining Engineering), (Chemistry), Non-Executive Director and an independent director. Mr. Smithies has been a Director of Harmony since April 2002. Mr. Smithies has approximately 29 years of experience in the mining industry. From 1973-1976 he worked in the gold division of Union Corporation. From 1976-2001, he held various positions at
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Impala Platinum Holdings Limited, including consulting engineer from 1996-1999, Operations Director from 1999-2000, and Chief Executive Officer from 2000-2001.
Nolitha Fakude (38) BA (Hons) (Psychology, Education and English), Non-Executive Director and an independent director. Ms. Fakude has been a Director of Harmony since September 2002. She has completed executive training programs at the Harvard Business School and Carl Duisberg Gesellschaft, and been the Managing Director of the Black Management Forum, or BMF, since 2001. Her role as Managing Director of the BMF involves stakeholder and relationship management with BMF members, corporate members, government and other organizations.
Simo Lushaba (36) BSc (Advanced Biochemistry), MBA, Non-Executive Director and an independent director. Mr. Lushaba has been a Director of Harmony since October 2002. He is Chief Executive Officer of Rand Water and has completed courses in industrial marketing, strategic capability, executive development and corporate governance.
Secretary
Frederick W. Baker, who served as Secretary of Harmony since 1997, retired from his position on November 29, 2002. Harmony is currently conducting a search for a new Secretary.
Senior Management
Neville Vaughan Armstrong (48), BSc (Hons), PhD. Dr. Armstrong has served on the executive committee, responsible for Harmony’s exploration activities, since October 1999. Dr. Armstrong has more than 20 years’ experience of all facets of minerals exploration, evaluation and development of minerals projects. He was a director of West Rand Consolidated Mines Limited and Kalgold prior to joining Harmony.
Robert Alex Llewellyn Atkinson (50), NHD (Metalliferous Mining). Mr. Atkinson has 30 years’ experience in the mining industry. He joined Harmony as production manager in 1986. Mr. Atkinson is responsible for mining operations on the executive committee.
Graham Paul Briggs (49), BSc (Hons) (Geology). Mr. Briggs has approximately 29 years’ experience in the mining industry. He joined Harmony in 1995 as manager of new business. Mr. Briggs is responsible for ore reserve management, organic growth and capital projects on the executive committee.
John Sembie Danana (45), B. Journalism, B.A. (Hons), MBA. Mr. Sembie Danana has served on the executive committee, responsible for health and safety transformation since May 2002. He has served in various positions at LTA Construction, including General Manager: Investments, General Manager: Fastfloor Systems, General Manager: New Business Development and Commercial Manager for the N3 Toll Concession. He is the Chairman of Pretoria Technikon Council and a Divisional Board Member of Petronet.
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Mogamat Yusuf Jardien (39), ICSA, PMD (UCT). Mr. Jardien has served on the executive committee, responsible for Business Process and Information Technology, since August 2002. He has 20 years of information technology experience and has served as an executive at 3M South Africa and Unibank, responsible for information technology and logistics.
Tracey Jonkheid (32), B.A. Communication (Hons) (cum laude), MBA. Ms. Jonkheid has served as Harmony’s internal strategist on a full-time basis since May 2002, in which capacity she advises the executive committee on implementing and integrating initiatives for internal change. She fulfilled this role as an external consultant on a part-time basis for 18 months prior to May 2002. Her background is in the advertising industry where she has worked as a strategist at four of South Africa’s largest advertising agencies.
Philip Kotze (42), GDE, NHD (Metalliferous Mining). Mr. Kotze joined Harmony in 1999 from Kalgold, where he was the operations director. He has approximately 19 years’ experience of metalliferous mining and is responsible for mining operations.
Mohamed Madhi (38), BSc (Electrical and Electronic Engineering), MBA, MSc (Engineering). Mr. Madhi has served as Harmony’s corporate strategist since August 2001. He has been a director and Operational Board member of the CSIR, head of Eskom’s Capital Investment Programme, head of South Africa’s Presidential Year 2000 Task Team, Chief Executive of Cell Point Systems and has served as an adviser to several large corporations and governments of developing countries. Mr. Madhi was formerly the African Commissioner on the Global Information Insfrastructure where he advised on telecommunications and information technology policy.
Jackie Mathebula (33), B.Admin (Hons), Diploma in Labor Law. Mr. Mathebula joined Harmony in September 2002 as an employee relations and industrial relations executive. Prior to joining Harmony was a general human resources manager for Gensec Bank, a human resources manager for the Gold Fields Limited Group and occupied various positions within the then Iscor Group. Mr. Mathebula also worked for the South African government in the Gazankulu Public Service Commission.
Khetiwe McClain (38), BA (Fine Arts). Ms. McClain joined Harmony in 2002 and is responsible for social plans and beneficiation strategies required by the Mining Charter. Prior to joining Harmony, Ms. McClain served as a liaison for transformation of the mining industry and a manager of the beneficiation project at the South African Ministry of Minerals and Energy. She has also worked at the Italian embassy in South Africa.
Peter McKenna (51), BSc (Hons), PrSciNat. Mr. McKenna joined Harmony in 1999 from West Rand Consolidated Mines Limited, where he was the new business director. He has approximately 29 years of experience in the gold mining industry in the fields of exploration, mine geology, corporate finance and new business development. Mr. McKenna is responsible for Harmony’s international new business activities.
Dawie Mostert (33), PDM, PCM, MDP, Diploma in Labor Relations (DPLR) (Advanced Labor Law). Mr. Mostert joined Harmony in 1997 following the acquisition of Grootvlei, where he
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was the human resources manager. He has approximately 15 years’ experience in the mining industry and is responsible for training and human resource development.
Khosi Ndlovu (43), BA, Social Development. Ms. Ndlovu joined Harmony in 2002 and is responsible for social development programs. She has experience in community development, government relations, and economic empowerment programs.
Petrus Cornelius Pienaar (38), BCom, BCompt (Hons), CA (SA). Mr. Pienaar joined the Harmony in 1997 following the acquisition of Grootvlei, where he was the financial director. Mr. Pienaar has approximately 13 years’ experience in the financial and mining industries and is responsible for Harmony’s South African new business activities.
Fleur Plimmer (33), BA (Hons). Prior to joining Harmony, Ms. Plimmer was the Health and Safety Coordinator for the NUM. At the NUM, Ms. Plimmer was involved in drafting the Mine Health and Safety Act. Following her service at the NUM, Ms. Plimmer joined Ingwe Coal Corporation, where she was a manager responsible for safety and, thereafter, corporate communication programs. Ms. Plimmer joined Harmony in September 2002, and is responsible for the business transformation portfolio.
Frank Robert Sullivan (46), MCom, BPL (Hons). Mr. Sullivan has approximately 21 years’ experience in human resources management in the gold mining industry. He joined Harmony in 1996 as human resources manager and is responsible for human resources development.
Matheus Johannes Swanepoel (41), BCompt (Hons), CA(SA). Mr. Swanepoel joined Harmony in 1995 as financial manager from Beatrix Mines. Mr. Swanepoel has approximately 20 years’ financial services experience, mostly in the mining industry. He was appointed to the executive committee in November 2000 and is responsible for the development of Harmony’s shaft financial managers and the financial control environment.
Abraham Joseph van Vuuren (41) BCom, MDP, DPLR. Mr. van Vuuren joined Harmony in 1997 from Grootvlei, where he was human resources manager. He was appointed to the executive committee in November 2000 and is responsible for human resource processes and systems and remuneration. He has approximately 20 years’ experience in the mining industry.
BOARD PRACTICES
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Z. B. Swanepoel | Chairman | |||
F. Abbott | Finance | |||
N. V. Armstrong | Exploration | |||
R. A. L. Atkinson | Mining operations | |||
G. P. Briggs | Ore reserves and organic growth | |||
J.S. Danana | Safety transformation | |||
F. Dippenaar | Investor relations | |||
T. S. A. Grobicki | Offshore operations | |||
M. Y. Jardien | Information technology | |||
T. Jonkheid | Internal Strategy | |||
P. Kotze | Mining operations | |||
M. Madhi | External Strategy | |||
J. Mathebula | Industrial relations | |||
K. McClain | Beneficiation and the social plan | |||
P. McKenna | New business-international | |||
D. Mostert | Training and development | |||
K. Ndlovu | Corporate affairs | |||
P. C. Pienaar | New business (South Africa) | |||
F. Plimmer | Transformation management | |||
M. J. Swanepoel | Financial services | |||
F. R. Sullivan | Human resources – development and HIV/AIDS policy | |||
A. J. van Vuuren | Human resources – processes and systems |
• | Mr. Danana, who leads initiatives to improve workplace health and safety at Harmony’s South African operations; | |
• | Mr. Jardien, who leads initiatives to develop information technology at Harmony’s South African operations; |
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• | Ms. Jonkheid, who is in charge of Harmony’s internal strategy; | |
• | Mr. Madhi, who is in charge of Harmony’s external strategy; | |
• | Mr. Mathebula, who is in charge of Harmony’s industrial relations; | |
• | Ms. McClain, who leads beneficiation initiatives required by the Mining Charter; | |
• | Mr. Mostert, who is in charge of internal training and development at Harmony’s South African operations; | |
• | Ms. Ndlovu, who is in charge of Harmony’s corporate affairs; and | |
• | Ms. Plimmer, who is in charge of transformation management. |
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required. The members of the Health, Safety and Environmental Audit Committee are the following independent directors:
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
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Name | Number of options exercised | Average option exercise price (Rand) | |||||
Z. B. Swanepoel | 113,300 | 26.41 | |||||
F. Abbott | 80,000 | 24.75 | |||||
F. Dippenaar | 80,000 | 24.75 | |||||
T.S.A. Grobicki | 20,000 | 35.40 |
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Name | Options to purchase ordinary shares | Average exercise price per share (Rand) | Expiration dates | ||||||||
Z. B. Swanepoel | 155,500 | 47.16 | Between 1/31/10 and 11/20/11 | ||||||||
F. Abbott | 93,400 | 46.56 | Between 1/31/10 and 11/20/11 | ||||||||
F. Dippenaar | 93,400 | 46.56 | Between 1/31/10 and 11/20/11 | ||||||||
T. S. A. Grobicki | 269,000 | 37.76 | Between 1/31/10 and 11/20/11 | ||||||||
R. A. L. Atkinson | 93,400 | 46.56 | Between 1/31/10 and 11/20/11 | ||||||||
N. V. Armstrong | 120,500 | 45.56 | Between 1/31/10 and 11/20/11 | ||||||||
P. McKenna | 99,900 | 46.76 | Between 1/31/10 and 11/20/11 | ||||||||
G. P. Briggs | 82,200 | 46.15 | Between 1/31/10 and 11/20/11 | ||||||||
P. C. Pienaar | 82,200 | 46.15 | Between 1/31/10 and 11/20/11 | ||||||||
P. Kotze | 120,100 | 47.23 | Between 1/31/10 and 11/20/11 | ||||||||
F. R. Sullivan | 93,400 | 46.56 | Between 1/31/10 and 11/20/11 | ||||||||
M. J. Swanepoel | 71,100 | 37.00 | 11/20/11 | ||||||||
A. J. van Vuuren | 90,000 | 39.64 | 11/20/11 | ||||||||
A. Mokhobo | — | — | — | ||||||||
J. Smithies | — | — | — | ||||||||
N. Fakude | — | — | — | ||||||||
S. Lushaba | — | — | — | ||||||||
J. S. Danana | — | — | — | ||||||||
M.Y. Jardien | — | — | — | ||||||||
T. Jonkheid | — | — | — | ||||||||
M. Madhi | — | — | — | ||||||||
J. Mathebula | — | — | — | ||||||||
K. McClain | — | — | — | ||||||||
D. Mostert | 21,000 | 49.60 | 11/20/11 | ||||||||
K. Ndlovu | — | — | — | ||||||||
F. Plimmer | — | — | — | ||||||||
TOTAL | 1,485,100 | 44.95 | |||||||||
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SHARE OWNERSHIP
Holder | Ordinary Shares | Warrants | |||||||||||||
Number | Percentage (%) | Number | Percentage (%) | ||||||||||||
Directors | |||||||||||||||
A. R. Fleming | 5,213,868 | 2.99 | 120,000 | 2.84 | |||||||||||
Z. B. Swanepoel | — | — | — | — | |||||||||||
F. Abbott | — | — | — | — | |||||||||||
F. Dippenaar | — | — | — | — | |||||||||||
T. S. A. Grobicki | 40,000 | * | — | — | |||||||||||
M. F. Pleming | — | — | — | — | |||||||||||
Lord Renwick of Clifton | 11,705 | * | — | — | |||||||||||
A. Mokhobo | — | — | — | — | |||||||||||
J. Smithies | — | — | — | — | |||||||||||
S. Lushaba | — | — | — | — | |||||||||||
N. Fakude | — | — | — | — | |||||||||||
Total Directors (11 persons) | 5,265,573 | 3.02 | 120,000 | 2.84 | |||||||||||
Senior Management | |||||||||||||||
N. V. Armstrong | — | — | — | — | |||||||||||
R. A. L. Atkinson | — | — | — | — | |||||||||||
G. P. Briggs | — | — | — | — | |||||||||||
J. S. Danana | — | — | — | — | |||||||||||
M. Y. Jardien | — | — | — | — | |||||||||||
T. Jonkheid | — | — | — | — | |||||||||||
P. Kotze | — | — | — | — | |||||||||||
J. Mathebula | — | — | — | — | |||||||||||
M. Madhi | — | — | — | — | |||||||||||
K. McClain | — | — | — | — | |||||||||||
P. McKenna | — | — | — | — | |||||||||||
D. Mostert | 100 | * | — | — | |||||||||||
P. C. Pienaar | — | — | — | — | |||||||||||
F. Plimmer | — | — | — | — | |||||||||||
K. Ndlovu | — | — | — | — | |||||||||||
M. J. Swaenepoel | — | — | — | — | |||||||||||
F. R. Sullivan | — | — | — | — | |||||||||||
A. J. van Vuuren | — | — | — | — | |||||||||||
Total Senior Management (18 persons) | 100 | * | — | — | |||||||||||
Total Directors and Senior Management (29 persons) | 5,265,673 | 3.02 | 120,000 | 2.84 | |||||||||||
* Indicates beneficial ownership of less than 1% of the relevant class of securities.
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EMPLOYEES
General
Harmony Employees | Outside Contractors | ||||||||||||||||||||||
At June 30, | At June 30, | ||||||||||||||||||||||
2002 | 2001 | 2000 | 2002 | 2001 | 2000 | ||||||||||||||||||
South Africa | |||||||||||||||||||||||
Elandskraal | 7,559 | 7,200 | — | 210 | 500 | — | |||||||||||||||||
Free State | 12,644 | 14,671 | 15,234 | 713 | 1,820 | 2,483 | |||||||||||||||||
Evander | 7,384 | 6,909 | 8,162 | 1,257 | 17 | 8 | |||||||||||||||||
Randfontein | 7,455 | 9,700 | 8,231 | 740 | 1,439 | 4,068 | |||||||||||||||||
Kalgold | 222 | 250 | 389 | 250 | 227 | 209 | |||||||||||||||||
Exploration | 20 | 13 | 14 | — | — | — | |||||||||||||||||
Australia | |||||||||||||||||||||||
Big Bell | 94 | 142 | — | 208 | 230 | — | |||||||||||||||||
Mt. Magnet | 104 | — | — | 316 | — | — | |||||||||||||||||
South Kalgoorlie1 | 111 | 52 | — | 135 | 57 | — | |||||||||||||||||
Canada | |||||||||||||||||||||||
Bissett | 6 | 208 | 220 | 0 | |||||||||||||||||||
TOTAL2 | 35,599 | 39,099 | 32,250 | 3,829 | 4,273 | 6,678 | |||||||||||||||||
Unionized Labor
• | confirm the right of employees to belong to trade unions and the right of unions to have access to the workplace; | |
• | guarantee employees the right to strike, the right to picket and the right to participate in secondary strikes in certain prescribed circumstances; | |
• | provide for mandatory compensation in the event of termination of employment for operational reasons; | |
• | reduce the maximum ordinary hours of work; |
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• | increase the rate of pay for overtime; | |
• | require large employers, such as Harmony, to implement affirmative action policies to benefit historically disadvantaged groups and impose significant monetary penalties for non-compliance with the administrative and reporting requirements of the legislation; and | |
• | provide for the financing of training programs by means of a levy grant system and a national skills fund. |
Harmony is currently in compliance with applicable labor laws.
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Share Option Scheme
143
may only be amended through approval in a general meeting), provided that no such amendment shall operate to alter adversely the terms and conditions of any option granted to a participant prior thereto, without the written consent of that participant and provided that the prior approval of the JSE has been obtained.
Share Purchase Scheme
Item 7.Major Shareholders and Related Party Transactions
MAJOR SHAREHOLDERS
144
limit and Harmony receiving satisfactory confirmation that Jipangu had sufficient available funds for the subscription. Jipangu acknowledged that the issuance of these additional shares would have required the approval of Harmony’s shareholders in a general meeting. The agreement, which was never executed, lapsed on May 31, 2001.
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the United States and elsewhere. The ordinary shares were offered at a price of $5.32 or R43.00 per ordinary share, or $5.32 per ADS. Investors received one warrant for every three ordinary shares (or ADSs) they purchased. The net proceeds of the offering to Harmony were approximately $137.6 million, after deducting underwriting discounts, commissions and offering expenses. Harmony used these net proceeds for retiring certain indebtedness, financing future acquisitions, making capital expenditures and funding working capital. As of December 13, 2002, Harmony had issued 4,807,858 of the ordinary shares upon exercise of the warrants.
Holder | Ordinary Shares | Warrants | |||||||||||||
Percentage | Percentage | ||||||||||||||
Number | (%) | Number | (%) | ||||||||||||
The Bank of New York1 | 65,106,387 | 37.30 | 1,168,879 | 27.71 | |||||||||||
JP Morgan Chase Bank2 | 12,145,767 | 6.96 | 323,616 | 7.67 | |||||||||||
Simane3 | 10,958,982 | 6.30 | — | — | |||||||||||
Brown Brothers Harriman & Co.4 | 7,087,087 | 4.96 | 46,133 | 1.09 | |||||||||||
All directors and senior management as a group | 5,265,673 | 3.02 | 120,000 | 2.84 |
1 | Depositary with respect to the ADRs and nominee with respect to warrants held on the U.S. warrant register. |
2 | Depositary with respect to Harmony’s International Depositary Shares. |
3 | In January and February 2002, the IDC transferred 10,736,682 ordinary shares to Simane under the terms of their subscription agreements with Harmony, as described below. |
4 | Nominee for a portion of ordinary shares held on Paris Bourse. |
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RELATED PARTY TRANSACTIONS
INTERESTS OF EXPERTS AND COUNSEL
Item 8.Financial Information
CONSOLIDATED STATEMENTS
OTHER FINANCIAL INFORMATION
Export Sales
147
Legal Proceedings
Dividends and Dividend Policy
148
Fiscal year ended June 30, | |||||||||||||||
20031 | 2002 | 2001 | 2000 | ||||||||||||
($) | (R) | ($) | (R) | ($) | (R) | ($) | (R) | ||||||||
Interim dividend | — | — | 0.08 | 0.75 | 0.07 | 0.50 | 0.08 | 0.50 | |||||||
Current year final dividend | — | — | — | — | 0.09 | 0.70 | 0.11 | 0.70 | |||||||
Prior year final dividend | 0.41 | 4.25 | — | — | — | — | — | — | |||||||
Total dividend | 0.41 | 4.25 | 0.08 | 0.75 | 0.16 | 1.20 | 0.19 | 1.20 | |||||||
SIGNIFICANT CHANGES
Item 9.The Offer and Listing
MARKETS
149
OFFERING AND LISTING DETAILS
Harmony ordinary shares | Harmony warrants | ||||||||||||||
(Rand per ordinary share) | (Rand per warrant) | ||||||||||||||
High | Low | High | Low | ||||||||||||
Fiscal year ended June 30, 1998 | 25.40 | 23.40 | — | — | |||||||||||
Fiscal year ended June 30, 1999 | 28.50 | 28.40 | — | — | |||||||||||
Fiscal year ended June 30, 2000 | 46.10 | 21.00 | — | — | |||||||||||
Fiscal year ended June 30, 2001 | |||||||||||||||
First Quarter | 39.00 | 33.00 | — | — | |||||||||||
Second Quarter | 37.00 | 26.00 | — | — | |||||||||||
Third Quarter | 47.00 | 30.80 | — | — | |||||||||||
Fourth Quarter | 51.00 | 36.15 | 14.75 | 12.00 | |||||||||||
Full Year | 51.00 | 26.00 | 14.75 | 12.00 | |||||||||||
Fiscal year ended June 30, 2002 | |||||||||||||||
First Quarter | 49.00 | 38.70 | 14.75 | 11.00 | |||||||||||
Second Quarter | 97.00 | 48.80 | 49.00 | 13.30 | |||||||||||
Third Quarter | 129.00 | 72.00 | 89.00 | 29.90 | |||||||||||
Fourth Quarter | 187.30 | 110.00 | 140.00 | 73.00 | |||||||||||
Full Year | 187.30 | 38.70 | 140.00 | 11.00 | |||||||||||
Month of | |||||||||||||||
June 2002 | 174.00 | 120.00 | 130.00 | 78.80 | |||||||||||
July 2002 | 171.00 | 103.50 | 115.00 | 85.00 | |||||||||||
August 2002 | 152.00 | 104.00 | 108.00 | 68.10 | |||||||||||
September 2002 | 181.50 | 144.00 | 135.00 | 108.00 | |||||||||||
October 2002 | 165.20 | 119.10 | 124.00 | 111.00 | |||||||||||
November 2002 | 156.00 | 115.50 | 111.00 | 80.00 | |||||||||||
December 2002 (through December 13, 2002) | 149.50 | 115.60 | 100.00 | 76.00 |
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Harmony ADRs | Harmony warrants | ||||||
($ per ADR) | ($ per warrant) | ||||||
High | Low | High | Low | ||||
Fiscal year ended June 30, 1998 | 6.88 | 1.81 | — | — | |||
Fiscal year ended June 30, 1999 | 6.25 | 3.00 | — | — | |||
Fiscal year ended June 30, 2000 | 7.50 | 3.69 | — | — | |||
Fiscal year ended June 30, 2001 | |||||||
First Quarter | 5.69 | 4.50 | — | — | |||
Second Quarter | 5.16 | 3.47 | — | — | |||
Third Quarter | 5.66 | 3.88 | — | — | |||
Fourth Quarter | 6.50 | 4.50 | 1.90 | 1.65 | |||
Full Year | 6.50 | 3.47 | 1.90 | 1.65 | |||
Fiscal year ended June 30, 2002 | |||||||
First Quarter | 5.54 | 4.50 | 1.91 | 1.36 | |||
Second Quarter | 6.92 | 5.01 | 3.10 | 1.33 | |||
Third Quarter | 11.85 | 6.31 | 8.25 | 3.02 | |||
Fourth Quarter | 19.00 | 10.18 | 14.53 | 6.20 | |||
Full Year | 19.00 | 4.50 | 14.53 | 1.33 | |||
Month of | |||||||
June 2002 | 17.33 | 12.15 | 13.99 | 7.61 | |||
July 2002 | 26.99 | 21.90 | 12.48 | 5.49 | |||
August 2002 | 28.50 | 23.04 | 9.87 | 6.36 | |||
September 2002 | 27.05 | 23.72 | 13.40 | 9.44 | |||
October 2002 | 15.63 | 11.62 | 10.85 | 7.60 | |||
November 20021 | 16.13 | 12.00 | 11.65 | 8.15 | |||
December 2002 (through December 13, 2002) | 17.20 | 12.43 | 12.40 | 8.55 |
1 As reported by The Nasdaq Stock Market through November 26, 2002 and by the New York Stock Exchange since that date.
THE JSE SECURITIES EXCHANGE SOUTH AFRICA
151
the JSE, as envisaged by the Stock Exchanges Control Amendment Act No. 54 of 1995, were promulgated during 1996 to permit members of the JSE to trade either as agents or as principals in any transaction in equities and to allow members to negotiate freely the brokerage commissions payable on agency transactions in equities. With effect from June 7, 1996, screen trading commenced on the JSE.
152
PLAN OF DISTRIBUTION
SELLING SHAREHOLDERS
DILUTION
EXPENSES OF THE ISSUE
153
Item 10. Additional Information
SHARE CAPITAL
MEMORANDUM AND ARTICLES OF ASSOCIATION
General
Objects and Purposes
• | to acquire by purchase, cession, grant, lease, exchange or otherwise any movable or immovable property, mines, mineral property, claims, mineral rights, mining rights, mining leases, mining titles, mynpachts, lands, farms, buildings, water rights, concessions, grants, rights, powers, privileges, surface rights of every description, servitudes or other limited rights or interests in land and mineral contracts of every description; and any interest therein and rights over the same; and to enter into any contract, option or prospecting contract in respect thereof, and generally to enter into any arrangement that may seem conducive to Harmony’s objects or any of them; | |
• | to carry out all forms of exploration work and in particular to search for, prospect, examine, explore and obtain information in regard to mines, mineral properties, claims, mineral rights, mining rights, mining leases, mining titles, mynpachts, mining districts or locations and ground and soil supposed to contain or containing precious stones, minerals or metals of every description; |
154
• | to open, work, develop and maintain gold, silver, diamond, copper, coal, iron and other mines, mineral and other rights, properties and works, and to carry on and conduct the business of raising, crushing, washing, smelting, reducing and amalgamating ores, metals, minerals and precious stones, and to render the same merchantable and fit for use and to carry on all or any of the businesses of miners, mineralogists, metallurgists, amalgamators, geophysicists, smelters, quarry owners, quarrymen and brickmakers; | |
• | to buy, sell, refine and deal in bullion, specie, coin and precious and base metals, and also precious stones and other products of mining; and | |
• | to employ and pay mining experts, agents and other persons, partnerships, companies or corporations, and to organize, equip and dispatch expeditions for prospecting, exploring, reporting on, surveying, working and developing lands, farms, districts, territories and properties in any part of the world, whether the same are the property of Harmony or otherwise. |
Directors
• | any arrangement for giving the director a security or indemnity in respect of money lent, or an obligation undertaken, by such director for the benefit of Harmony; | |
• | any arrangement by which Harmony gives any security to a third party in respect of a debt or obligation of Harmony for which the director himself or herself has assumed responsibility, in whole or in part, whether under a guarantee or indemnity or by the deposit of a security; | |
• | any contract by the director to subscribe for or underwrite shares or debentures of Harmony; | |
• | any contract or arrangement with a company other than Harmony, in which the director holds or controls, directly or indirectly, no more than one percent of shares representing either (i) any class of the equity share capital of that company or (ii) the overall voting rights of that company; or | |
• | any retirement scheme or fund which relates to both directors and to employees (or a class of employees) and does not accord to any director, as such, any privilege or advantage not generally accorded to the employees to which such scheme or fund relates. |
155
generally or in respect of particular circumstances, by the holders of 75% Harmony’s ordinary shares who are present and voting in a general meeting.
156
directors resigning pursuant to the aforementioned rotation principles, or in addition thereto. At the next general meeting of shareholders, A. R. Fleming will retire by rotation, along with two other directors chosen prior to the meeting or selected by lot at the meeting. Retiring directors are eligible for re-election.
Share Capital
157
solvent and liquid. Cash dividends, however, may only be paid out of the profits of the company. Cash dividends paid by Harmony will not bear any interest payable by Harmony. Dividends may be declared either free of, or subject to, the deduction of income tax and any other tax or duty which may be chargeable. There is currently no tax payable in South Africa by the recipients of dividends who are outside South Africa.
158
hands have one vote, irrespective of the number of ordinary shares he holds or represents. Every holder of ordinary shares shall, on a poll, have one vote for every ordinary share held by him. A shareholder is entitled to appoint a proxy to attend and speak and vote at any meeting on his or her behalf. The proxy need not be a shareholder. On a poll, a shareholder entitled to more than one vote (or his representative, proxy or agent) need not, if he votes, use all of his votes or cast all of his votes in the same way.
159
pursuant to its Articles of Association to make payments in cash or in specie to any class of its shareholders.
• | pursuant to an employee share incentive scheme the terms of which have been approved by the holders of the relevant class of shares in a general meeting; | |
• | for the acquisition of an asset, provided that if the issue is more than 30% of the company’s issued share capital, a simple majority of holders of ordinary shares present and voting, must vote in favor of the acquisition; | |
• | to raise cash by way of a general issue in the discretion of the directors (but not to related parties) of up to 15% of the issued share capital in any one fiscal year at an issue price with a discount not exceeding 10% of the 30-day weighted average trading price prior to the determination date, provided that the holders of ordinary shares, present and voting at a general meeting, must approve the granting of such authority to the directors by a 75% vote; or | |
• | to raise cash by way of a specific issue of a specified number or a maximum number of shares for cash provided that the holders of ordinary shares, other than controlling shareholders, present and voting, vote in favor of the resolution to issue the shares at a general meeting by a 75% vote. In terms of JSE listings requirements, the circular to be sent to all shareholders informing them of the general meeting must include,inter alia: |
i. | details of the persons to whom the shares are to be issued if such persons fall into the following categories or other categories identified by the JSE: directors of the company or its subsidiaries or their associates; trustees of employee or directors’ share scheme or pension funds; any person having the right to nominate directors of the company; and certain shareholders holding more than 10% of the issued share capital; |
160
ii. | if the persons to whom the shares are to be issued are related parties, an independent expert’s opinion that the issue price is fair and reasonable; and | |
iii. | should the maximum size of the issue equal or exceed 30% of the company’s issued share capital, full listing particulars, which include,inter alia, a reporting accountant’s report and, in the case of a mining company, a competent person’s report setting out technical details of the company’s operations and assets. |
161
162
163
destroyed, Harmony may dispense with the requirement to surrender the certificates upon exercise. If a certificate has been defaced, lost or destroyed, it may be replaced on such terms, if any, as Harmony’s directors deem appropriate, including terms regarding any evidence and indemnities required to be delivered by the warrantholder.
• | after 5:00 p.m. (Johannesburg time) on the expiration date; and | |
• | at any time between the date on which Harmony declares a dividend on its ordinary shares and the date on which Harmony’s shareholders must be registered to receive that dividend. |
164
case of warrantholders in the United States, applicable securities laws of any State of the United States.
165
• | give its shareholders a right to subscribe for new ordinary shares or other new securities by way of a rights issue, rights offer or otherwise; or | |
• | allot any ordinary shares which are credited as fully paid by way of capitalization of profits or reserves, but not paid up out of distributable reserves, and issued in lieu of a cash dividend, to shareholders. |
166
entitled to be paid out of the assets of Harmony available for distribution on the same terms as other the ordinary shareholders of Harmony.
• | the consent in writing of the registered warrantholders entitled to subscribe for at least three-fourths in nominal amount of the ordinary shares attributable to the then unexercised and outstanding warrants; or | |
• | the prior approval of a resolution passed at a separate meeting of the holders of the warrants, |
except that the directors of Harmony may make modifications to the terms and conditions of the warrants which are of a formal, minor or technical nature, or made to correct a manifest error.
Variation of Rights
167
shall be a share of a different class from another share if the two shares do not rankpari passu in every respect.
Changes in Capital or Objects and Powers of Harmony
• | increase its authorized or paid-up share capital; | |
• | consolidate and divide all or any part of its shares into shares of a larger amount; | |
• | increase the number of its no par value shares without an increase of its stated capital; | |
• | sub-divide all or any part of its shares having a par value; | |
• | convert all of its ordinary or preference share capital consisting of shares having a par value into stated capital constituted by shares of no par value and vice versa; | |
• | convert its stated capital constituted by ordinary or preference shares of no par value into share capital consisting of shares having a par value; | |
• | vary the rights attached to any shares whether issued or not yet issued; | |
• | convert any of its issued or unissued shares into shares of another class; | |
• | convert any of its paid-up shares into stock, and reconvert any stock into any number of paid-up shares of any denomination; | |
• | convert any of its issued shares into preference shares which can be redeemed; | |
• | cancel shares which, at the date of passing of the resolution, have not been taken or agreed to be taken by any person, and diminish the amount of the authorized share capital by the amount of the shares so cancelled; or | |
• | reduce the authorized share capital. |
Harmony may by ordinary resolution:
• | reduce its issued share capital; | |
• | reduce its stated capital; or | |
• | reduce its capital redemption reserve fund and share premium account. |
168
Meetings of Shareholders
• | to every member of Harmony except any member who has not supplied to Harmony a registered address for the giving of notices; | |
• | to every person entitled to a share in consequence of the death or insolvency of a member; | |
• | to the directors and auditor for the time being of Harmony; and | |
• | by advertisement to the holders of share warrants to bearer. |
• | the consideration of the annual financial statements and report of the auditors; | |
• | the election of directors; | |
• | the appointment of auditors; and | |
• | any business arising from the annual financial statements considered at the meeting. |
169
Title to Shares
• | That the registered holder or holders hold such shares upon trust for, or as the nominee of, any other person; or | |
• | That any person, other than the registered holder or holders, holds any contingent, future or partial interest in such shares or any interest in any fractional part of any of such shares. |
Non-South African Shareholders
170
Disclosure of Interest in Shares
Changes in Control
Register of Members
• | the names and address of the members; | |
• | the shares held by each member, distinguishing each share by its denoting number, if any, by its class or kind, and by the amount paid or deemed to be paid thereon; |
171
• | the date on which the name of any person was entered in the register as a member; and | |
• | the date on which any person ceased to be a member. |
Annual Report and Accounts
MATERIAL CONTRACTS
EXCHANGE CONTROLS
Introduction
172
policy, the detrimental effects on inward foreign investment and the large administrative costs, the South African Finance Minister has indicated that all remaining exchange controls are likely to be dismantled as soon as circumstances are favorable. Exchange controls were partially relaxed in 1996 and further relaxations occurred in 1997, 1998 and 1999 and were announced in the budget speech of the South African Finance Minister on February 24, 2000. The gradual approach to the abolition of exchange controls adopted by the South African Government is designed to allow the economy to adjust more smoothly to the removal of controls that have been in place for a considerable period of time. The stated objective of the authorities is to reach a point where there is equality of treatment between residents and non-residents in relation to inflows and outflows of capital. Unlimited outward transfers of capital are not permitted at this stage, but the emphasis of regulation is expected to be increasingly on the positive aspects of prudential financial supervision.
Government Regulatory Considerations
Sale of Shares
173
residents of the Common Monetary Area. In addition, the proceeds from the sale of ordinary shares on the JSE on behalf of those holders of ordinary shares who are not residents of the Common Monetary Area are freely remittable to those holders. Share certificates and warrant certificates held by non-residents will be endorsed with the words“non-resident.”
Dividends
Interest
Voting Rights
CERTAIN SOUTH AFRICAN TAX CONSIDERATIONS
174
Dividends
Capital Gains Tax
Stamp Duty on the Shares and Warrants
175
Capitalization Shares
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
ADSs
176
Taxation of Dividends
Exercise of Warrants
Capital Gains
177
Non-U.S. Holders
U.S. Information Reporting and Backup Withholding Rules
DIVIDENDS AND PAYING AGENTS
STATEMENTS BY EXPERTS
DOCUMENTS ON DISPLAY
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
178
SUBSIDIARY INFORMATION
179
Item 11.Quantitative and Qualitative Disclosures About Market Risk
General
• | both the hedged item and the hedging instrument are specifically identified and documented; | |||
• | management documents the nature of the hedging risk and identifies how the effectiveness of the hedge will be assessed; | |||
• | the effectiveness of the hedge is tested regularly throughout the life of the hedge, and a hedging instrument is identified as highly effective if it is able to offset changes in the fair value of cash flows from the hedged item by between 80% and 125% of the price at which it was fixed; | |||
• | any ineffectiveness of hedged instruments is recognized immediately in the income statement; and | |||
• | in the case of a hedge of an anticipated future transaction, there is a high probability that the transaction will occur. |
Foreign Currency Sensitivity
180
activity is to protect these revenues against the risk of the Rand strengthening against the U.S. dollar, as the gold price is U.S. dollar denominated and the costs of the Free State operations are generally Rand-denominated. This measure, however, is not expected to fully protect Harmony from sustained fluctuations in the value of the Rand relative to the U.S. dollar since it covers only a limited amount, it expires on December 31, 2002 and Harmony does not expect to renew or repeat it.
Fiscal Year of Expiration 2003 | Total | Fair Value | |||
($ millions) | |||||
Forward Contracts | |||||
Volume ($ millions) as of June 30, 2002 | 90 | 90 | 4,458 | ||
R/$1.00 exchange rate at June 30, 2002 | 11.21 | 11.21 | |||
Volume ($ millions) as of November 30, 2002 | 15 | 15 | 2,604 | ||
R/$1.00 exchange rate at November 30, 2002 | 11.31 | 11.31 |
R/$ exchange rates at June 30, 2002 | |||||||||||||||||||
Sensitivity to R/$ exchange rates as of June 30, 2002 | R1.5 | R1.0 | R0.5 | $1.00=R10.42 | (R0.5 | ) | (R1.0 | ) | (R1.5 | ) | |||||||||
Mark-to-market ($ millions) | (11.3 | ) | (6.5 | ) | (1.3 | ) | 4.5 | 10.8 | 17.9 | 25.9 | |||||||||
R/$ exchange rates at November 30, 2002 | |||||||||||||||||||
Sensitivity to R/$ exchange rates as of November 30, 2002 | R1.5 | R1.0 | R0.5 | $1.00=R9.30 | (R0.5 | ) | (R1.0 | ) | (R1.5 | ) | |||||||||
Mark-to-market ($ millions) | 0.5 | 1.1 | 1.8 | 2.6 | 3.5 | 4.5 | 5.6 |
181
Harmony’s operating costs are incurred in Rand. Appreciation of the Rand against the U.S. dollar increases working costs at Harmony’s South African operations when those costs are translated into U.S. dollars, which serves to reduce operating margins and net income from Harmony’s South African operations. Depreciation of the Rand against the U.S. dollar reduces these costs when they are translated into U.S. dollars, which serves to increase operating margins and net income from Harmony’s South African operations. See “Item 3. Key Information—Exchange Rates” and “Item 3. Key Information—Risk Factors—Because most of Harmony’s production costs are in Rand, while gold is generally sold in U.S. dollars, Harmony’s financial condition could be materially harmed by an appreciation in the value of the Rand.”
Commodity Price Sensitivity
182
Hill 50). All of these hedge positions are now commodity sales agreements, under which Harmony must deliver a specified quantity of gold at a future date subject to the agreed-upon prices. For accounting purposes, these commodity sales agreements qualify for the normal purchase, normal sales exception. These commodity sales agreements covered, as of September 30, 2002, approximately 1,689,705 ounces over a seven-year period at an average strike price of A$532 per ounce ($287 at an exchange rate of $0.54 per A$1.00). Harmony intends to reduce the remaining hedge positions of the Australian operations gradually by delivering gold pursuant to the relevant agreements.
Maturity - Scheduled for Delivery in Fiscal Year | ||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | Total | Mark-to- market | ||||||||||
$000 | ||||||||||||||||||
Forward sales agreements1 | ||||||||||||||||||
Ounces | 425,792 | 229,000 | 205,000 | 187,500 | 125,000 | 100,000 | 100,000 | 1,372,292 | (69,667 | ) | ||||||||
A$/ounce | 514 | 522 | 524 | 523 | 514 | 518 | 518 | 519 | ||||||||||
Variable price sales agreementss with caps 2 | ||||||||||||||||||
Ounces | 62,425 | 175,500 | 130,000 | 40,000 | — | — | — | 407,925 | (18,247 | ) | ||||||||
A$/ounce | 545 | 544 | 512 | 552 | — | — | — | 535 | ||||||||||
Variable price sales agreements with floors3 | ||||||||||||||||||
Ounces | 33,000 | — | — | — | — | — | — | 33,000 | 53 | |||||||||
A$/ounce | 500 | — | — | — | — | — | — | 500 | ||||||||||
Total | 521,217 | 404,500 | 335,000 | 227,500 | 125,000 | 100,000 | 100,000 | 1,813,217 | (87,861 | ) | ||||||||
1 | Harmony must deliver ounces of gold at the prices indicated. |
2 | Harmony must deliver ounces of gold subject to the maximum price indicated. |
3 | Harmony must deliver ounces of gold subject to the minimum price indicated. |
183
Maturity - Scheduled for Delivery In Fiscal Year | ||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | Total | Mark-to- market | ||||||||||
$000 | ||||||||||||||||||
Forward sales agreements1 | ||||||||||||||||||
Ounces | 265,619 | 229,000 | 225,000 | 145,500 | 147,000 | 100,000 | 100,000 | 1,212,119 | (62,921 | ) | ||||||||
A$/ounce | 517 | 522 | 523 | 525 | 515 | 518 | 518 | 520 | ||||||||||
Variable price sales agreements with caps2 | ||||||||||||||||||
Ounces | 69,386 | 175,500 | 130,000 | 40,000 | — | — | — | 414,886 | (17,072 | ) | ||||||||
A$/ounce | 566 | 544 | 512 | 552 | — | — | — | 538 | ||||||||||
Variable price sales agreements with floors3 | ||||||||||||||||||
Ounces | 22,000 | — | — | — | — | — | — | 22,000 | 11 | |||||||||
A$/ounce | 500 | — | — | — | — | — | — | 500 | ||||||||||
Total | 357,005 | 404,500 | 355,000 | 185,500 | 147,000 | 100,000 | 100,000 | 1,649,005 | (79,982 | ) | ||||||||
1 | Harmony must deliver ounces of gold at the prices indicated. |
2 | Harmony must deliver ounces of gold subject to the maximum price indicated. |
3 | Harmony must deliver ounces of gold subject to the minimum price indicated |
184
Gold spot price at June 30, 2002 | |||||||||||||||||||||||||||
Sensitivity to $ gold spot price | $ | 30 | $ | 20 | $ | 10 | 316 | ($10 | ) | ($20 | ) | ($30 | ) | ||||||||||||||
Mark-to-market ($ millions) | (164 | ) | (122 | ) | (105 | ) | (88 | ) | (71 | ) | (55 | ) | (39 | ) | |||||||||||||
Weighted average interest rate at June 30, 2002 | |||||||||||||||||||||||||||
Sensitivity to U.S. dollar and Australian dollar interest rates | 1.5% | 1.0% | 0.5% | 6.15 | (0.5% | ) | (1.0% | ) | (1.5% | ) | |||||||||||||||||
Mark-to-market ($ millions) | (102 | ) | (97 | ) | (93 | ) | (88 | ) | (83 | ) | (78 | ) | (73 | ) | |||||||||||||
$/A$ exchange rates at June 30, 2002 | |||||||||||||||||||||||||||
Sensitivity to $/A$ exchange rates | A$0.15 | A$0.10 | A$0.05 | $ | 1.00=A$1.75 | (A$0.05 | ) | (A$0.10 | ) | (A$0.15 | ) | ||||||||||||||||
Mark-to-market ($ millions) | (152 | ) | (129 | ) | (108 | ) | (88 | ) | (70 | ) | (53 | ) | (38 | ) |
Gold spot price at November 30, 2002 | |||||||||||||||||||||||||||
Sensitivity to $ gold spot price | $ | 30 | $ | 20 | $ | 10 | 318 | ($10 | ) | ($20 | ) | ($30 | ) | ||||||||||||||
Mark-to-market ($ millions) | (125 | ) | (110 | ) | (95 | ) | (80 | ) | (65 | ) | (51 | ) | (37 | ) | |||||||||||||
Weighted average interest rate at November 30, 2002 | |||||||||||||||||||||||||||
Sensitivity to U.S. dollar and Australian dollar interest rates | 1.5% | 1.0% | 0.5% | 4.07 | (0.5% | ) | (1.0% | ) | (1.5% | ) | |||||||||||||||||
Mark-to-market ($ millions) | (92 | ) | (88 | ) | (84 | ) | (80 | ) | (76 | ) | (72 | ) | (68 | ) | |||||||||||||
$/A$ Exchange rates at November 30, 2002 | |||||||||||||||||||||||||||
Sensitivity to $/A$ exchange rates | A$0.15 | A$0.10 | A$0.05 | $ | 1.00=A$1.78 | (A$0.05 | (A$0.10 | ) | (A$0.15 | ) | |||||||||||||||||
Mark-to-market ($ millions) | (137 | ) | (116 | ) | (97 | ) | (80 | ) | (64 | ) | (50 | ) | (83 | ) |
185
These put options permitted Harmony to take advantage of increased gold spot prices by allowing the put options to expire without exercise, and merely provided Harmony with downside protection. Harmony closed out these put options during July 2001 and received Rand 3 million ($0.3 million). The gain on financial instruments of $7.6 million in fiscal 2001 related primarily to the change in mark-to-market of derivative financial instruments held by Randfontein between July 1, 2000 and June 30, 2001 and New Hampton between April 1, 2001 and June 30, 2001.
186
ounce. At a gold price of $250 per ounce, product sales would have amounted to approximately $597 million for fiscal 2002, a reduction of approximately $77 million in product sales. These figures exclude sales by the Free Gold Company.
Interest Rate Sensitivity
187
Gold Lease Rate Swaps Outstanding as of June 30, | Mark-to-Market | |||||||||||||||||||||||||||
as of | ||||||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | June 30, 2002 | ||||||||||||||||||||
$’000 | ||||||||||||||||||||||||||||
Gold lease rates (receive interest at fixed rate indicated and pay at floating rate) | ||||||||||||||||||||||||||||
Ounces | 1,906,500 | 1,879,000 | 1,170,000 | 1,170,000 | 900,000 | 675,000 | 675,000 | — | (8.1 | ) | ||||||||||||||||||
Lease rate receivable | 1.0 | % | 1.0 | % | 1.2 | % | 1.2 | % | 1.0 | % | 1.1 | % | 1.1 | % | — |
Gold Lease Rate Swaps Outstanding as of November 30, | ||||||||||||||||||||||
Mark-to-Market as of | ||||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | November 30, 2002 | |||||||||||||||
$’000 | ||||||||||||||||||||||
Gold lease rates (receive interest at fixed rate indicated and pay at floating rate) | ||||||||||||||||||||||
Ounces | 1,424,000 | 940,000 | 940,000 | 825,000 | 625,000 | 625,000 | — | (3.9 | ) | |||||||||||||
Lease rate receivable | 0.9 | % | 1.0 | % | 1.0 | % | 1.0 | % | 1.1 | % | 1.1 | % | — |
Gold interest rate at June 30, 2002 | |||||||||||||||||
Sensitivity to the gold interest rate as of June 30, 2002 1 | 1.5% | 1.0% | 0.5% | (0.5% | ) | (1.0% | ) | (1.5% | ) | ||||||||
Mark-to-market ($ millions) | (26.9 | ) | (20.8 | ) | (14.5 | ) | (8.1 | ) | (1.5 | ) | 5.3 | 12.2 | |||||
Gold Interest rate at November 30, 2002 | |||||||||||||||||
Sensitivity to the gold interest rate as of November 30, 2002 | 1.5% | 1.0% | 0.5% | (0.5% | ) | (1.0% | ) | (1.5% | ) | ||||||||
Mark-to-market ($ millions) | (17.9 | ) | (13.3 | ) | (8.7 | ) | (3.9 | ) | 1.0 | 6.1 | 11.3 |
1 | Gold interest rate is the interest cost of borrowing gold from a central bank, payable in ounces of gold in arrears. |
188
Weighted average SAR interest rate at June 30, 2002 | ||||||||||||||
Sensitivity to South African Rand | ||||||||||||||
Interest Rates | 3.0% | 2.0% | 1.0% | SAR = 12.40 | (1.0% | ) | (2.0% | ) | (3.0% | ) | ||||
Mark-to-market ($ millions) | (6.2 | ) | (4.9 | ) | (3.4 | ) | (1.9) | (0.4 | ) | 1.3 | 3.0 | |||
Weighted average SAR interest rate at November 30, 2002 | ||||||||||||||
Sensitivity to South African Rand | ||||||||||||||
Interest Rates | 3.0% | 2.0% | 1.0% | SAR = 11.19 | (1.0% | ) | (2.0% | ) | (3.0% | ) | ||||
Mark-to-market ($ millions) | (4.0 | ) | (2.4 | ) | (0.8 | ) | 0.9 | 2.7 | 4.5 | 6.4 |
189
Item 12. Description of Securities Other than Equity Securities
190
GLOSSARY OF MINING TERMS
191
192
193
Metric unit | U.S. equivalent | |
1 tonne | = l t | = 1.10231 short tons |
1 gram | = 1g | = 0.03215 ounces |
1 gram per tonne | = 1 g/t | = 0.02917 ounces per short ton |
1 kilogram per tonne | = l kg/t | = 29.16642 ounces per short ton |
1 kilometer | = 1 km | = 0.621371 miles |
1 meter | = 1 m | = 3.28084 feet |
1 centimeter | = 1 cm | = 0.3937 inches |
1 millimeter | = 1 mm | = 0.03937 inches |
1 hectare | = 1 ha | = 2.47105 acres |
194
• | development of additional reserves; | |
• | depletion of existing reserves through production; | |
• | actual mining experience; and | |
• | price forecasts. |
195
196
197
198
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
199
preference shares into ordinary shares, Harmony’s authorized share capital of Rand 130,479,452 is divided into 260,958,904 ordinary shares and no preference shares are authorized.
USE OF PROCEEDS
Item 15. Controls and Procedures
20–F.
Item 16. [Reserved]
200
PART III
Item 17. Financial Statements
Item 18. Financial Statements
Index to Financial Statements and Schedules
�� | Page | |||
Harmony Gold Mining Company Limited | ||||
Report of the Independent Accountants | F-1 | |||
Consolidated Income Statements for the years ended June 30, 2002, 2001 and 2000 | F-2 | |||
Consolidated Balance Sheets at June 30, 2002 and 2001 | F-3 | |||
Consolidated Statements of Changes in Shareholders’ Equity for the years ended June 30, 2002, 2001 and 2000 | F-4 | |||
Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001 and 2000 | F-6 | |||
Consolidated Statements of Comprehensive Income for the years ended June 30, 2002, 2001 and 2000 | F-7 | |||
Notes to the Consolidated Financial Statements | F-8 | |||
Hill 50 Limited | ||||
Report of the Independent Accountants | F-47 | |||
Consolidated Statement of Financial Performance for the year ended June 30, 2001 | F-48 | |||
Consolidated Statement of Financial Position as at June 30, 2001 | F-49 | |||
Consolidated Statement of Cash Flows for the year ended June 30, 2001 | F-50 | |||
Notes to and Forming Part of the Financial Statements | F-51 | |||
Condensed Consolidated Statement of Financial Performance for the half-year ended December 31, 2001 | F-76 | |||
Condensed Consolidated Statement of Financial Position as at December 31, 2001 | F-77 | |||
Condensed Consolidated Statement of Cash Flows for the half-year ended 31 December 2001 | F-78 | |||
Notes to the Half-Year Statements | F-79 |
201
AngloGold Limited — FreeGold | ||||
Report of the Independent Auditors | F-84 | |||
Statement of Income for the year ended December 31, 2001 | F-85 | |||
Balance Sheet at December 31, 2001 | F-86 | |||
Statement of Cash Flows for the year ended December 31, 2001 | F-87 | |||
Statement of Parent Company’s Contribution for the year ended December 31, 2001 | F-88 | |||
Notes to the Financial Statements for the year ended December 31, 2001. | F-89 |
202
Item 19. Exhibits
1.1 | Memorandum of Association of Harmony, as amended (incorporated by reference to Harmony’s Registration Statement (file no. 333-13516) on Form F-3 filed on June 21, 2001). | ||
1.2 | Articles of Association of Harmony, as amended (incorporated by reference to Harmony’s Registration Statement on Form 8-A filed on November 18, 2002). | ||
2.1 | Memorandum of Association of Harmony, as amended (see Exhibit 1.1). | ||
2.2 | Articles of Association of Harmony, as amended (see Exhibit 1.2). | ||
2.3 | Deposit Agreement among Harmony, The Bank of New York, as Depositary, and owners and holders of American Depositary Receipts, dated as of August 12, 1996, as amended and restated as of October 2, 1996, as further amended and restated as of September 15, 1998 (incorporated by reference to Post-Effective Amendment No. 1 to Harmony’s Registration Statement (file no. 333-5410) on Form F-6 filed on May 17, 2001). | ||
2.4 | Form of ADR (included in Exhibit 2.3). | ||
2.5 | Forms of warrant (incorporated by reference to Harmony’s Annual Report on Form 20-F for the fiscal year ended June 30, 2001 filed on September 26, 2001). | ||
2.6 | Warrant Agency Agreement between Harmony and The Bank of New York, as U.S. Warrant Agent, dated as of June 29, 2001 (incorporated by reference to Harmony’s Annual Report on Form 20-F for the fiscal year ended June 30, 2001 filed on September 26, 2001). | ||
2.7 | Excerpts of relevant provisions of the South African Companies Act (incorporated by reference to Harmony’s Registration Statement (file no. 0-28798) on Form 20-F filed on September 20, 1996). | ||
2.8 | Excerpts of relevant provisions of the JSE Securities Exchange South Africa listing requirements (incorporated by reference to Harmony’s Registration Statement (file no. 0-28798) on Form 20-F filed on September 20, 1996). | ||
2.9 | AB Facilities Agreement, C Facilities Agreement and Common Terms Agreement relating to AB Facilities and C Facility, each among Harmony, Chase Manhattan International Limited, ABSA Bank Limited, J.P. Morgan plc, Citibank, N.A., ANZ Investment Bank and BoE Bank Limited, dated March 22, 2001 (incorporated by reference to Harmony’s Registration Statement (file no. 333-13516) on Form F-3 filed on June 21, 2001). | ||
2.10 | Form of Harmony’s senior unsecured 13% bonds due June 14, 2006 (incorporated by reference to Harmony’s Annual Report on Form 20-F for the fiscal year ended June 30, 2001 filed on September 26, 2001). | ||
2.11 | Loan Note Facility Agreement among Harmony Gold W.A. Pty Limited, Harmony, Randfontein, Evander, Kalgold and Lydex, Australia and New Zealand Banking Group Limited, Societe Generale, N.M. Rothschild & Sons Limited, ABSA Asia Limited, RMB International (Dublin) Limited, Standard Finance (Isle |
203
of Man) Limited, Citibank, N.A. and Citibank International plc, dated February 28, 2002. | |||
4.1 | Harmony Share Option Scheme (incorporated by reference to Harmony’s Registration Statement (file no. 0-28798) on Form 20-F filed on September 20, 1996). | ||
4.2 | Circular dated April 25, 1997 relating to amendments to the Harmony Share Option Scheme (incorporated by reference to Harmony’s Annual Report on Form 20-F for the fiscal year ended June 30, 1997 filed on December 30, 1997). | ||
4.3 | Agreement between Harmony, Western Areas Limited, Consolidated African Mines Limited, JCI Gold Limited and Roger Brett Kebble, dated January 14, 2000 (incorporated by reference to Harmony’s Annual Report on Form 20-F/A for the fiscal year ended June 30, 2000 filed on June 21, 2001). | ||
4.4 | Agreement between Harmony and Castillo Investments (Proprietary) Limited, dated January 14, 2000 (incorporated by reference to Harmony’s Annual Report on Form 20-F/A for the fiscal year ended June 30, 2000 filed on June 21, 2001). | ||
4.5 | Agreement between Harmony and Durban Roodepoort Deep, Limited, dated January 14, 2000 (incorporated by reference to Harmony’s Annual Report on Form 20-F/A for the fiscal year ended June 30, 2000 filed on June 21, 2001). | ||
4.6 | Agreement between Harmony and Durban Roodepoort Deep, Limited, dated January 14, 2000 (incorporated by reference to Harmony’s Annual Report on Form 20-F/A for the fiscal year ended June 30, 2000 filed on June 21, 2001). | ||
4.7 | Agreement between Harmony and Randgold & Exploration Company Limited, dated January 14, 2000 (incorporated by reference to Harmony’s Annual Report on Form 20-F/A for the fiscal year ended June 30, 2000 filed on June 21, 2001). | ||
4.8 | Agreement between Harmony and Randgold & Exploration Company Limited, dated January 14, 2000 (incorporated by reference to Harmony’s Annual Report on Form 20-F/A for the fiscal year ended June 30, 2000 filed on June 21, 2001). | ||
4.9 | Agreement between Harmony, Randfontein Estates Limited and AngloGold Limited dated January 31, 2001 (incorporated by reference to Harmony’s Registration Statement (file no. 333-13516) on Form F-3 filed on June 21, 2001). | ||
4.10 | AB Facilities Agreement, C Facilities Agreement and Common Terms Agreement relating to AB Facilities and C Facility, each among Harmony, Chase Manhattan International Limited, ABSA Bank Limited, J.P. Morgan plc, Citibank, N.A., ANZ Investment Bank and BoE Bank Limited, dated March 22, 2001 (see Exhibit 2.9). | ||
4.11 | Agreement between Harmony and Komanani Mining (Proprietary) Limited and Industrial Development Corporation of South Africa, Limited dated April 3, 2001 (incorporated by reference to Harmony’s Registration Statement (file no. 333-13516) on Form F-3 filed on June 21, 2001). | ||
4.12 | Agreement between Harmony, Randfontein and Open Solutions (Proprietary) Limited, dated April 24, 2001 (incorporated by reference to Harmony’s Registration Statement (file no. 333-13516) on Form F-3 filed on June 21, 2001). | ||
4.13 | Form of Harmony’s senior unsecured 13% bonds due June 14, 2006 (see Exhibit |
204
2.10). | |||
4.14 | Agreement between Harmony and Simane Investments (Proprietary) Limited and Industrial Development Corporation of South Africa, Limited dated September 7, 2001 (incorporated by reference to Harmony’s Annual Report on Form 20-F for the fiscal year ended June 30, 2001 filed on September 26, 2001). | ||
4.15 | Share and Option Subscription Agreement between Bendigo Mining N.L. and Harmony, dated October 22, 2001. | ||
4.16 | Notice to Shareholders relating to amendments to the Harmony Share Option Scheme approved on November 16, 2001. | ||
4.17 | Sale of Business Agreement between AngloGold Limited, Clidet No. 383 (Proprietary) Limited, Harmony and ARM Gold, dated December 24, 2001. | ||
4.18 | Joint Venture Agreement between ARM Gold, Harmony and Clidet 383 (Proprietary) Limited, dated April 5, 2002. | ||
4.19 | Loan Note Facility Agreement among Harmony Gold W.A. Pty Limited, Harmony, Randfontein, Evander, Kalgold and Lydex, Australia and New Zealand Banking Group Limited, Societe Generale, N.M. Rothschild & Sons Limited, ABSA Asia Limited, RMB International (Dublin) Limited, Standard Finance (Isle of Man) Limited, Citibank, N.A. and Citibank International plc, dated February 28, 2002 (see Exhibit 2.11). | ||
8.1 | Significant subsidiaries of Harmony Gold Mining Company Limited. |
205
SIGNATURES
HARMONY GOLD MINING COMPANY LIMITED
By: | /s/ Frank Abbott | By: | /s/ Zachiarias Bernardus Swanepoel | |||
F. Abbott | Z. B. Swanepoel | |||||
Financial Director | Chief Executive Officer | |||||
Date: December 23, 2002 |
206
CERTIFICATION
I, Zacharias Bernardus Swanepoel, certify that: | ||
1. | I have reviewed this annual report on Form 20-F of Harmony Gold Mining Company Limited; | |
2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and | |
3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. |
Date: December 23, 2002 | |||||||
/s/ Zacharias Bernardus Swanepoel | |||||||
Zacharias Bernardus Swanepoel | |||||||
Chief Executive Officer |
207
CERTIFICATION
I, Frank Abbott, certify that: | ||
1. | I have reviewed this annual report on Form 20-F of Harmony Gold Mining Company Limited; | |
2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and | |
3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. |
Date: December 23, 2002 | |||||||
/s/ Frank Abbott | |||||||
Frank Abbott | |||||||
Chief Financial Officer |
208
REPORT OF THE INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Harmony Gold Mining Company Limited
We have audited the accompanying consolidated balance sheets of Harmony Gold Mining Company Limited and its subsidiaries as of June 30, 2002 and 2001, and the related consolidated statements of income, comprehensive income, cash flows and changes in shareholders’ equity for each of the three years in the period ended June 30, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Harmony Gold Mining Company Limited and its subsidiaries at June 30, 2002 and 2001, and the results of their operations, their cash flows and changes in shareholders’ equity for each of the three years in the period ended June 30, 2002, in conformity with generally accepted accounting principles in the United States.
As discussed in note 2(t) and note 2(j) to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation during the 2002 fiscal year and its method of accounting for derivative financial instruments during the 2001 fiscal year, respectively.
PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants & Auditors
Johannesburg, Republic of South Africa
December 6, 2002
F-1
Harmony Gold Mining Company Limited
Consolidated Income Statements
For the years ended June 30
2002 | 2001 | 2000 | ||||||||||
$'000 | $'000 | $'000 | ||||||||||
REVENUES | ||||||||||||
Product sales | 675,287 | 590,634 | 472,118 | |||||||||
Interest and dividends | 12,403 | 5,890 | 9,993 | |||||||||
Other income – net | 9,150 | 10,696 | 8,540 | |||||||||
696,840 | 607,220 | 490,651 | ||||||||||
COSTS AND EXPENSES | ||||||||||||
Production costs | 469,398 | 504,907 | 398,796 | |||||||||
Deferred stripping costs | (486 | ) | (2,697 | ) | 351 | |||||||
Depreciation and amortization | 30,183 | 31,417 | 21,797 | |||||||||
Employment termination costs | 8,775 | 4,729 | 222 | |||||||||
Provision/(reversal of provision) for rehabilitation costs | 15,192 | (6,817 | ) | — | ||||||||
Corporate expenditure | 7,641 | 2,616 | 1,952 | |||||||||
Exploration expenditure | 7,065 | 3,505 | 2,502 | |||||||||
Marketing and new business expenditure | 8,741 | 4,971 | 1,886 | |||||||||
Gain on financial instruments | (8,939 | ) | (7,640 | ) | (8,565 | ) | ||||||
(Profit)/loss on sale of other assets and listed investments | (4,524 | ) | 1,393 | (2,482 | ) | |||||||
Stock-based compensation | 9,434 | — | — | |||||||||
Equity income of joint venture | (13,176 | ) | — | — | ||||||||
Equity loss of associate companies | 473 | — | 1,401 | |||||||||
Impairment of assets | 44,284 | 28,266 | — | |||||||||
Interest paid | 19,077 | 15,007 | 3,202 | |||||||||
Provision/(reversal of provision) for former employees’ post retirement benefits | 43 | (2,241 | ) | (3,900 | ) | |||||||
593,181 | 577,416 | 417,162 | ||||||||||
INCOME BEFORE TAX | 103,659 | 29,804 | 73,489 | |||||||||
INCOME AND MINING TAX EXPENSE | (14,368 | ) | (14,625 | ) | (13,549 | ) | ||||||
INCOME BEFORE MINORITY INTERESTS | 89,291 | 15,179 | 59,940 | |||||||||
MINORITY INTERESTS | (1,575 | ) | (349 | ) | (2,910 | ) | ||||||
INCOME – BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE | 87,716 | 14,830 | 57,030 | |||||||||
Cumulative effect of change in accounting principle for derivatives and hedging activities, (FAS 133), net of tax | — | (5,822 | ) | — | ||||||||
NET INCOME | 87,716 | 9,008 | 57,030 | |||||||||
BASIC EARNINGS PER SHARE (CENTS) – BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE | 57.1 | 14.5 | 68.2 | |||||||||
FULLY DILUTED EARNINGS PER SHARE (CENTS) – BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE | 53.1 | 14.1 | 66.6 | |||||||||
BASIC EARNINGS PER SHARE (CENTS) | 57.1 | 8.8 | 68.2 | |||||||||
FULLY DILUTED EARNINGS PER SHARE (CENTS) | 53.1 | 8.5 | 66.6 | |||||||||
WEIGHTED AVERAGE NUMBER OF SHARES USED IN THE COMPUTATION OF BASIC EARNINGS PER SHARE | 153,509,862 | 102,156,205 | 83,593,424 | |||||||||
WEIGHTED AVERAGE NUMBER OF SHARES USED IN THE COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE | 165,217,088 | 105,504,328 | 85,590,876 | |||||||||
DIVIDEND PER SHARE (CENTS) | 6.6 | 15.8 | 18.9 |
See notes to the consolidated financial statements
F-2
Harmony Gold Mining Company Limited
Consolidated Balance Sheets
At June 30
2002 | 2001 | ||||||||
$'000 | $'000 | ||||||||
ASSETS | |||||||||
CURRENT ASSETS | |||||||||
Cash and cash equivalents | 90,223 | 144,096 | |||||||
Receivables | 67,020 | 99,316 | |||||||
Inventories | 42,377 | 37,478 | |||||||
Total current assets | 199,620 | 280,890 | |||||||
PROPERTY, PLANT AND EQUIPMENT | |||||||||
Cost | 1,274,083 | 1,107,627 | |||||||
Accumulated depreciation and amortization | (461,330 | ) | (440,514 | ) | |||||
Net property, plant and equipment | 812,753 | 667,113 | |||||||
OTHER ASSETS | 14,056 | 13,611 | |||||||
INVESTMENTS | 123,343 | 68,211 | |||||||
INVESTMENTS IN ASSOCIATES | 42,791 | — | |||||||
INVESTMENT IN JOINT VENTURE | 102,578 | — | |||||||
TOTAL ASSETS | 1,295,141 | 1,029,825 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
CURRENT LIABILITIES | |||||||||
Accounts payable and accrued liabilities | 116,704 | 133,380 | |||||||
Income and mining taxes | 21,535 | 6,247 | |||||||
Shareholders for dividends | 438 | 13,259 | |||||||
Total current liabilities | 138,677 | 152,886 | |||||||
LONG-TERM LOANS | 152,461 | 151,466 | |||||||
PREFERENCE SHARES | — | 681 | |||||||
DEFERRED INCOME AND MINING TAXES | 99,789 | 47,050 | |||||||
DEFERRED FINANCIAL LIABILITY | 87,226 | 49,374 | |||||||
PROVISION FOR ENVIRONMENTAL REHABILITATION | 63,125 | 53,136 | |||||||
PROVISION FOR POST RETIREMENT BENEFITS | 737 | 1,002 | |||||||
MINORITY INTEREST | — | 331 | |||||||
SHAREHOLDERS’ EQUITY | |||||||||
Share capital – 260,958,904 (2001: 250,000,000) authorized ordinary shares of 50 South African cents each. Shares issued 169,929,849 (2001: 145,235,791) | 14,852 | 13,751 | |||||||
Additional paid-in capital | 814,491 | 624,857 | |||||||
Warrants issued | — | 15,094 | |||||||
Retained earnings | 206,544 | 129,251 | |||||||
Deferred stock-based compensation | (6,652 | ) | — | ||||||
Accumulated other comprehensive loss | (276,109 | ) | (209,054 | ) | |||||
Total shareholders’ equity | 753,126 | 573,899 | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 1,295,141 | 1,029,825 | |||||||
See notes to the consolidated financial statements
F-3
Harmony Gold Mining Company Limited
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended June 30
Accumulated | |||||||||||||||||||||||||||||||||||||
other | |||||||||||||||||||||||||||||||||||||
Additional | comprehensive | Deferred | |||||||||||||||||||||||||||||||||||
Number of | Number of | paid-in | Retained | (loss)/ | stock–based | ||||||||||||||||||||||||||||||||
ordinary | warrants | Share capital | capital | Warrants | earnings | income | compensation | Total | |||||||||||||||||||||||||||||
shares issued | issued | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |||||||||||||||||||||||||||||
BALANCE – JUNE 30, 1999 | 69,460,286 | 7,579,900 | 8,846 | 282,315 | 15,094 | 98,715 | (113,210 | ) | — | 291,760 | |||||||||||||||||||||||||||
Net income | — | — | — | — | — | 57,030 | — | — | 57,030 | ||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | (16,518 | ) | — | — | (16,518 | ) | ||||||||||||||||||||||||||
Purchase of West Rand Consolidated Mines Limited and Kalahari Goldridge Mining Company Limited shares | 10,869,018 | — | 802 | 45,591 | — | — | — | — | 46,393 | ||||||||||||||||||||||||||||
Purchase of Randfontein Estates Limited shares | 14,909,631 | — | 1,100 | 81,742 | — | — | — | — | 82,842 | ||||||||||||||||||||||||||||
Exercise of employee share options | 2,071,500 | — | 153 | 5,853 | — | — | — | — | 6,006 | ||||||||||||||||||||||||||||
Mark-to-market of listed investments | — | — | — | — | — | — | (2,802 | ) | — | (2,802 | ) | ||||||||||||||||||||||||||
Foreign exchange translation adjustment | — | — | — | — | — | — | (34,400 | ) | — | (34,400 | ) | ||||||||||||||||||||||||||
BALANCE – JUNE 30, 2000 | 97,310,435 | 7,579,900 | 10,901 | 415,501 | 15,094 | 139,227 | (150,412 | ) | — | 430,311 | |||||||||||||||||||||||||||
Net income | — | — | — | — | — | 9,008 | — | — | 9,008 | ||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | (18,983 | ) | — | — | (18,983 | ) | ||||||||||||||||||||||||||
Issue of shares - - Public offerings | 31,784,200 | — | 1,971 | 164,664 | — | — | — | — | 166,635 | ||||||||||||||||||||||||||||
- IDC/Simane offering | 10,736,682 | — | 668 | 47,407 | — | — | — | — | 48,075 | ||||||||||||||||||||||||||||
- Private offering – Jipangu | 568,774 | — | 35 | 2,794 | — | — | — | — | 2,829 | ||||||||||||||||||||||||||||
- Employee share options | 4,835,700 | — | 176 | 7,913 | — | — | — | — | 8,089 | ||||||||||||||||||||||||||||
Share issue expenses | — | — | — | (13,423 | ) | — | — | — | — | (13,423 | ) | ||||||||||||||||||||||||||
Issue of warrants | — | 9,027,500 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Reversal of mark-to-market due to sale of Western Areas Limited shares | — | — | — | — | — | — | 3,756 | — | 3,756 | ||||||||||||||||||||||||||||
Mark-to-market of listed and other investments | — | — | — | — | — | — | 9,908 | — | 9,908 | ||||||||||||||||||||||||||||
Mark-to-market of hedging instruments | — | — | — | — | — | — | (1,047 | ) | — | (1,047 | ) | ||||||||||||||||||||||||||
Foreign exchange translation adjustment | — | — | — | — | — | — | (71,259 | ) | — | (71,259 | ) | ||||||||||||||||||||||||||
BALANCE – JUNE 30, 2001 | 145,235,791 | 16,607,400 | 13,751 | 624,856 | 15,094 | 129,252 | (209,054 | ) | — | 573,899 | |||||||||||||||||||||||||||
Net income | — | — | — | — | — | 87,716 | — | — | 87,716 | ||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | (10,424 | ) | — | — | (10,424 | ) | ||||||||||||||||||||||||||
Issue of shares - - Simane offering | 222,300 | — | 13 | 954 | — | — | — | — | 967 | ||||||||||||||||||||||||||||
- International private placement | 8,500,000 | — | 409 | 109,523 | — | — | — | — | 109,932 | ||||||||||||||||||||||||||||
Exercise of employee share options | 3,998,800 | — | 161 | 9,009 | — | — | — | — | 9,170 | ||||||||||||||||||||||||||||
Conversion of preference shares | 10,958,904 | — | 469 | 38,917 | — | — | — | — | 39,386 | ||||||||||||||||||||||||||||
Share issue expenses | — | — | — | (4,102 | ) | — | — | — | — | (4,102 | ) | ||||||||||||||||||||||||||
Conversion of warrants | 1,014,054 | (1,014,054 | ) | 49 | 4,154 | — | — | — | — | 4,203 | |||||||||||||||||||||||||||
Expiration of listed warrants | (7,579,900 | ) | 15,094 | (15,094 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Deferred stock-based compensation | — | — | — | 8,724 | — | — | — | (8,724 | ) | — | |||||||||||||||||||||||||||
Amortization of deferred stock-based compensation | — | — | — | — | — | — | — | 2,072 | 2,072 | ||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | 7,362 | — | — | — | — | 7,362 | ||||||||||||||||||||||||||||
Mark-to-market of listed and other investments | — | — | — | — | — | — | 48,909 | — | 48,909 | ||||||||||||||||||||||||||||
Mark-to-market of cash flow hedging instruments | — | — | — | — | — | — | 6,189 | — | 6,189 | ||||||||||||||||||||||||||||
Foreign exchange translation adjustment - | — | — | — | — | — | — | (122,153 | ) | — | (122,153 | ) | ||||||||||||||||||||||||||
BALANCE – JUNE 30, 2002 | 169,929,849 | 8,013,446 | 14,852 | 814,491 | — | 206,544 | (276,109 | ) | (6,652 | ) | 753,126 | ||||||||||||||||||||||||||
See notes to the consolidated financial statements
F-4
Harmony Gold Mining Company Limited
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended June 30
The following is a reconciliation of the components of accumulated other comprehensive loss for the periods presented:
Mark-to-market of | Mark-to-market of | Foreign exchange | Accumulated other | |||||||||||||
cash flow hedging | listed and other | translation | comprehensive | |||||||||||||
instruments | investments | adjustment | (loss)/income | |||||||||||||
$'000 | $'000 | $'000 | $ '000 | |||||||||||||
BALANCE – JUNE 30, 1999 | — | — | (113,210 | ) | (113,210 | ) | ||||||||||
Mark-to-market of listed and other investments | — | (2,802 | ) | — | (2,802 | ) | ||||||||||
Foreign exchange translation adjustment | — | — | (34,400 | ) | (34,400 | ) | ||||||||||
BALANCE – JUNE 30, 2000 | — | (2,802 | ) | (147,610 | ) | (150,412 | ) | |||||||||
Mark-to-market of listed and other investments | — | 9,908 | — | 9,908 | ||||||||||||
Mark-to-market of cash flow hedging instruments | (1,047 | ) | — | — | (1,047 | ) | ||||||||||
Reversal of mark-to-market due to sale of Western Areas Limited | — | 3,756 | — | 3,756 | ||||||||||||
Foreign exchange translation adjustment | — | — | (71,259 | ) | (71,259 | ) | ||||||||||
BALANCE – JUNE 30, 2001 | (1,047 | ) | 10,862 | (218,869 | ) | (209,054 | ) | |||||||||
Mark-to-market of cash flow hedging instruments | 6,189 | — | — | 6,189 | ||||||||||||
Mark-to-market of AurionGold Limited shares | — | 48,909 | — | 48,909 | ||||||||||||
Foreign exchange translation adjustment | — | — | (122,153 | ) | (122,153 | ) | ||||||||||
BALANCE – JUNE 30, 2002 | 5,142 | 59,771 | (341,022 | ) | (276,109 | ) | ||||||||||
See notes to the consolidated financial statements
F-5
Harmony Gold Mining Company Limited
Consolidated Statements of Cash Flows
For the years ended June 30
2002 | 2001 | 2000 | ||||||||||
$'000 | $'000 | $'000 | ||||||||||
CASH FLOWS FROM OPERATIONS | ||||||||||||
Sources of cash | ||||||||||||
Cash received from customers | 675,287 | 590,634 | 472,118 | |||||||||
Interest and dividends received | 12,403 | 5,890 | 9,993 | |||||||||
Cash provided by operating activities | 687,690 | 596,524 | 482,111 | |||||||||
Uses of cash | ||||||||||||
Cash paid to suppliers and employees | 497,618 | 528,485 | 439,207 | |||||||||
Interest paid | 19,077 | 15,007 | 3,202 | |||||||||
Income and mining taxes paid | 8,590 | 3,998 | 1,214 | |||||||||
Cash used in operating activities | 525,285 | 547,490 | 443,623 | |||||||||
NET CASH PROVIDED BY OPERATIONS | 162,405 | 49,034 | 38,488 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Net increase in amounts invested in environmental trusts | (5,547 | ) | (781 | ) | (775 | ) | ||||||
Decrease in short-term investments | — | — | 9,574 | |||||||||
Restricted cash | — | 6,505 | (7,310 | ) | ||||||||
Cash held by subsidiaries on acquisition | 14,485 | — | 9,479 | |||||||||
Cash paid for Randfontein Mines | — | — | (51,892 | ) | ||||||||
Cash paid for West Rand Cons and Kalgold Mines | — | — | (949 | ) | ||||||||
Cash paid for New Hampton Mines | — | (28,532 | ) | — | ||||||||
Cash paid for Elandskraal Mines | (18,453 | ) | (130,909 | ) | — | |||||||
Cash paid for joint venture investment and loan advanced to Free Gold Company | (84,586 | ) | — | — | ||||||||
Cash paid for Hill 50 Mines | (124,774 | ) | — | — | ||||||||
Investment in Bendigo NL | (22,814 | ) | — | — | ||||||||
Investment in Highland Gold | (18,104 | ) | — | — | ||||||||
Loan repaid by minority interest party | 7,951 | — | — | |||||||||
Proceeds on disposal of other assets and listed investments | 16,115 | 13,772 | 3,276 | |||||||||
(Increase)/decrease in other non-current investments | (20,749 | ) | (8,394 | ) | 324 | |||||||
Proceeds on disposal of mining assets | 3,212 | 11,540 | 10,332 | |||||||||
(Increase)/decrease in deferred stripping assets | (486 | ) | (2,697 | ) | 351 | |||||||
Additions to property, plant and equipment | (58,967 | ) | (49,840 | ) | (23,731 | ) | ||||||
NET CASH UTILIZED IN INVESTING ACTIVITIES | (312,717 | ) | (189,336 | ) | (51,321 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Long-term loans raised – net | 29,472 | 61,479 | 61,590 | |||||||||
Preference shares issued | — | 681 | — | |||||||||
Ordinary shares issued – net of expenses | 159,556 | 178,535 | 6,006 | |||||||||
Dividends paid | (22,571 | ) | (15,706 | ) | (11,927 | ) | ||||||
NET CASH GENERATED BY FINANCING ACTIVITIES | 166,457 | 224,989 | 55,669 | |||||||||
EFFECTS OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS | (70,018 | ) | (18,533 | ) | (10,212 | ) | ||||||
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS | (53,873 | ) | 66,154 | 32,624 | ||||||||
CASH AND CASH EQUIVALENTS – JULY 1 | 144,096 | 77,942 | 45,318 | |||||||||
CASH AND CASH EQUIVALENTS – JUNE 30 | 90,223 | 144,096 | 77,942 | |||||||||
See notes to the consolidated financial statements
F-6
Harmony Gold Mining Company Limited
Consolidated Statements of Comprehensive Income
For the years ended June 30
2002 | 2001 | 2000 | ||||||||||
$'000 | $'000 | $'000 | ||||||||||
Income – before cumulative effect of change in accounting principle | 87,716 | 14,830 | 57,030 | |||||||||
Cumulative effective of change in accounting principle for derivatives and hedging activities (FAS 133), net of tax | — | (5,822 | ) | — | ||||||||
Net income | 87,716 | 9,008 | 57,030 | |||||||||
Other comprehensive (loss)/income | ||||||||||||
Mark-to-market of listed and other investments | 48,909 | 9,908 | (2,802 | ) | ||||||||
Mark-to-market of cash flow hedging instruments | 6,189 | (1,047 | ) | — | ||||||||
Foreign exchange translation adjustment | (122,153 | ) | (71,259 | ) | (34,400 | ) | ||||||
Reversal of mark-to-market due to sale of Western Areas Limited shares | — | 3,756 | — | |||||||||
Other comprehensive losses | (67,055 | ) | (58,642 | ) | (37,202 | ) | ||||||
Comprehensive income/(loss) | 20,661 | (49,634 | ) | 19,828 | ||||||||
See notes to the consolidated financial statements
F-7
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
1. | NATURE OF OPERATIONS | |
Harmony Gold Mining Company Limited (the “Company”) or (the “Group”) is engaged in gold mining and related activities, including exploration, extraction, processing, smelting and refining. Gold bullion, the Company’s principal product, is currently produced at its operations in South Africa and Australia and sold in South Africa and internationally. | ||
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | USE OF ESTIMATES:The preparation of the financial statements in conformity with United States generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | ||
The following are accounting policies used by the Company which, except as noted in 2(j) and 2(t), have been consistently applied: | |||
(b) | CONSOLIDATION: |
(i) | Consolidated entities:The Group consolidated financial statements include the financial statements of the Company, its subsidiaries and its investments in joint ventures and associates. A company in which the Group has, directly or indirectly through subsidiary undertakings, a controlling interest is classified as a subsidiary undertaking. The results of any subsidiary acquired or disposed of during the year are consolidated from the effective date of acquisition and up to the effective date of disposal. Following adoption of FAS 141 by the Group on July 1, 2001, all acquisitions by the Group subsequent to that date have been accounted for as purchases. |
Any excess or deficit of the purchase price, when compared to the net book value of the subsidiary acquired at the date of acquisition, is attributed to mineral property interests and amortized over the useful lives of the applicable underlying assets in terms of the Group accounting policies, unless a permanent diminution in the values of the assets occurs, in which case it is written off. | |
Intercompany profits, transactions and balances have been eliminated. | |
(ii) | Investments in associates:An associate is an entity, other than a subsidiary, in which the Group has a material long-term interest and in respect of which the Group exercises significant influence over operational and financial policies, normally owning between 20% and 50% of the voting equity. |
Investments in associates are accounted for by using the equity method of accounting based on the most recent audited financial statements. Equity accounting involves recognizing in the income statement the Group’s share of the associate’s profit or loss for the period. The Group’s investment in each associate is carried in the balance sheet at an amount that reflects the cost of the investment, the Group’s share of post acquisition earnings and other movement in reserves. The carrying value of an associate is reviewed on a regular basis and, if an impairment in the carrying value has occurred, it is written off in the period in which such permanent impairment is identified. |
F-8
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
(iii) | Investment in joint ventures:A joint venture is an entity in which the group holds a long-term interest and which is jointly controlled by the Group and one or more joint venture partners under a contractual arrangement. The Group’s investment in jointly controlled entities is accounted for under the equity method as described in note 2(b)(ii) above. |
(c) | FOREIGN CURRENCIES: |
(i) | Foreign entities:For self-sustaining foreign entities, assets and liabilities are translated using the closing rates at year-end, and income statements are translated at average rates. Differences arising on translation are taken directly to shareholders’ equity, until the foreign entity is sold or disposed of, when the translation differences are recognized in the income statement as part of the gain or loss on sale. |
Fair value adjustments arising on the acquisition of the foreign entities are treated as assets and liabilities of the foreign entity and translated at the closing rate. |
(ii) | Foreign currency transactions:Transactions in foreign currencies are converted at the rates of exchange ruling at the date of these transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Gains, losses and costs associated with foreign currency transactions are recognized in the income statement in the period to which they relate. These transactions are included in the determination of other income — net. |
(iii) | Functional currency:The functional currency of the Group is the South African Rand. The translation differences arising as a result of converting to US dollars using the current exchange rate method are included as a separate component of shareholders’ equity. |
(d) | FINANCIAL INSTRUMENTSare initially measured at cost. Subsequent to initial recognition these instruments are measured as set out below in terms of the applicable accounting policy. Financial instruments carried on the balance sheet include cash and cash equivalents, money market instruments, investments, receivables, accounts payable and long-term loans. | ||
(e) | CASH AND CASH EQUIVALENTSare defined as cash on hand, deposits held on call with banks and short-term highly liquid investments with insignificant interest rate risk and original maturities of three months or less. Cash and cash equivalents are measured at fair value. | ||
(f) | NON-CURRENT INVESTMENTScomprise of the following: |
(i) | Listed investments:Investments in listed companies, other than investments in subsidiaries, joint ventures and associates, are carried at fair value. These investments are classified as available-for-sale investments. Changes in the carrying amount of available-for-sale investments, are excluded from earnings and included as a separate component of shareholders’ equity. On disposal of available-for-sale investments, amounts previously included as a separate component of shareholders equity are transferred to retained earnings and included in the determination of the gain/(loss) on disposal of available-for-sale securities. Unrealized losses are recognized in the determination of net income/(loss) when it is determined that a significant decline in the value of the investment, other than temporary, has occurred. |
(ii) | Unlisted investmentsare reflected at fair value, or, where fair value cannot reliably be measured, at cost. If the directors are of the opinion that there has been a permanent |
F-9
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
diminution in the value of these investments they are written down and recognized as an expense in the period in which the diminution is determined to have taken place. |
(g) | INVENTORIES,which include gold in process and supplies, are stated at the lower of cost or net realizable value. Bullion on hand and gold in process represent production on hand after the smelting process for the Group’s underground operations, predominantly located in South Africa. Due to the different nature of the Group’s open pit operations, predominantly located in Australia, gold in process for open pit operations represents either production in broken ore form or production from the time of placement on heap leach pads. | ||
Cost is determined on the following basis: | |||
- Consumable stores are valued at average cost, after appropriate provision for redundant and slow moving items. | |||
- Gold on hand and gold-in-process are valued using the weighted average cost method. Cost includes production, amortization and related administration costs. | |||
The Company assesses the gold content of broken ore or ore placed on the heap leach pads by reference to the historical recovery factor obtained for the type of broken ore and ore added to the heap leach pad. The net realizable value of the gold from broken ore and gold on the heap leach pads is determined by reference to the current spot gold price less production costs, overheads and amortization to be incurred to bring the gold in the broken ore and gold on the heap leach pads to finished product. In the event the net realizable value of the gold from broken ore or ore on the heap leach pads is less than its carrying value, the gold from broken ore or ore on the heap leach pads is written down to its realizable value. | |||
(h) | RECEIVABLES:Accounts receivable are stated at the gross invoice value adjusted for payments received and an allowance for doubtful debt, where appropriate, to reflect the fair value of the anticipated realizable value. Bad debts are written off during the period in which they are identified. | ||
(i) | ACCOUNTS PAYABLEare stated at cost adjusted for payments made to reflect the value of the anticipated economic outflow of resources. | ||
(j) | HEDGING:Statement of Financial Accounting Standards 133 (“FAS 133”), Accounting for Derivative Instruments and Hedging Activities was adopted by the Company with effect from July 1, 2000. | ||
Previously, gains and losses on derivative instruments which effectively established minimum prices for designated future production were recognized in revenue when the planned production was delivered. Previously, if an instrument regarded as a hedge was sold, extinguished or terminated prior to delivery of the planned production, losses were recognized at the time of sale or closure, and any gains were deferred until the original designated delivery date. Derivatives which were not designated to future production were accounted for on a mark-to-market basis and the associated gains and losses were recognized in earnings. Accordingly, forward gold contracts were accounted for as hedging transactions. All other instruments were accounted for on a mark-to-market basis. | |||
Under FAS 133, all derivatives are recognized on the balance sheet at their fair value, unless they meet the criteria for normal purchase, normal sales exemption. |
F-10
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
On the date a derivative contract is entered into, the Group designates for accounting purposes as either: | |||
(a) a hedge of the fair value of a recognized asset or liability (fair value hedge); | |||
(b) a hedge of a forecasted transaction (cash flow hedge); | |||
(c) a hedge of a net investment in a foreign entity; or | |||
(d) a derivative to be marked-to-market. | |||
Certain derivative transactions, however, while providing effective economic hedges under the Group’s risk management policies, do not qualify for hedge accounting. The Group does not currently hold or issue derivative financial instruments for trading or speculative purposes. | |||
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair value hedge are recorded in the income statement, along with the change in the fair value of the hedged asset or liability that is attributable to the hedged risk. | |||
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge, are recognized directly as a separate component of shareholders’ equity. Amounts deferred as a component of shareholders’ equity are included in the income statement in the same periods during which the hedged firm commitment or forecasted transaction affects net profit or loss. | |||
Hedges of net investment in foreign entities are accounted for similarly to cash flow hedges. | |||
Recognition of derivatives which meet the criteria for the normal purchase, normal sales exemption under FAS 133 are deferred until settlement. Under these contracts the Group must physically deliver a specified quantity of gold at a future date at a specified price to the contracted counterparty. | |||
Changes in the fair value of derivatives which are not designated as hedges and do not qualify for hedge accounting are recognized in the income statement. | |||
The Group formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking derivatives designed as hedges to specific assets and liabilities or to specific firm commitments or forecasted transactions. The Group also formally assesses, both at the hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. | |||
With the adoption of FAS 133, none of the Company’s derivatives at that date qualified for hedge accounting as they did not meet the new hedging requirements of FAS 133 and were thus marked-to-market, resulting in a cumulative effect of change in accounting principles adjustment of $5.8 million, net of tax. The cumulative effect adjustment was required to record the fair value of those derivative instruments on the balance sheet, which previously qualified for hedge accounting and were not recorded on the balance sheet. | |||
(k) | EXPLORATION COSTSare expensed as incurred prior to the completion of a final feasibility study to establish proven and probable reserves. |
F-11
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
(l) | PROPERTY, PLANT AND EQUIPMENT |
(i) | Mining assetsincluding mine development costs and mine plant facilities are recorded at cost. |
Once an economically feasible orebody with proven and probable reserves has been established, expenditure incurred to further develop the orebody and to establish or expand productive capacity is capitalized until commercial levels of production are achieved, at which time the costs are amortized as set out below. Development of orebodies includes the development of shaft systems and waste rock removal. These costs are capitalized until the reef horizons are intersected and commercial levels of production can be obtained on a sustainable basis. Mine development costs in the ordinary course to maintain production are expensed as incurred. Access to the individual orebodies exploited by the Company is limited to the time span of the Company’s respective mining leases. |
Interest on borrowings incurred in respect of assets requiring a substantial period of time to prepare for their intended use are capitalized to the date on which the assets are substantially completed and ready for their intended use. |
(ii) | Mining operations placed on care and maintenance: The net assets of operations placed on care and maintenance are written down to net realizable value. Expenditure on the care and maintenance of these operations is charged against income, as incurred. |
(iii) | Non mining fixed assets:Land is shown at cost and not depreciated. Buildings and other non-mining fixed assets are shown at cost less accumulated depreciation. |
(iv) | Mineral and surface rightsare recorded at cost of acquisition. When there is little likelihood of mineral rights being exploited, or the value of the mineral rights has diminished below cost, a write-down is effected against income during the period that such a determination is made. |
(v) | Deferred stripping costs:The costs of overburden stripping in excess of the expected pit life average stripping ratio are deferred and charged to production when the actual ratio is below the expected average ratio. The expected pit life average stripping ratio is calculated as the ratio of future anticipated overburden tons to be mined to anticipated future ore tons to be mined. This ratio is recalculated annually in light of additional knowledge and changes in estimates. The expected pit life ratio is then compared to overburden associated with ore mined during the period so as to calculate the deferred stripping costs to be deferred or released for the period. |
(vi) | Depreciation and amortizationof mineral property interests, mineral and surface rights, mine development costs and mine plant facilities are computed principally by the units of production method based on estimated proven and probable reserves. Proven and probable ore reserves reflect estimated quantities of economically recoverable reserves which can be recovered in future from known mineral deposits. Amortization related to development projects is first recognized from the date on which the development project reaches commercial production quantities. Other non-mining fixed assets are depreciated by straight line over estimated useful lives of two to five years. |
(vii) | Impairment:The recoverability of the carrying value of the long-term assets of the Group, which include development costs, are compared to the net book value of the assets annually or whenever events or changes in circumstances indicate that the net book value may not be recoverable. To determine whether a long-term asset may be impaired, |
F-12
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
the estimate of future undiscounted cash flows, calculated on an area of interest basis, is compared to its carrying value. An area of interest is defined by Company as its lowest identifiable levels of cash flows, generally an individual operating mine, including mines which are included in a larger mine complex. The costs attributable to individual shafts of a mine are written off if the shaft is closed. | |
Management used the following estimates and assumptions when reviewing the long-lived assets for impairments as at June 30, 2002 and 2001 respectively: |
June 30, 2002: | |
- A gold price of $295 per ounce at an exchange rate of A$1.79 per $1.00. | |
- The extraction of proven and probable reserves as per the approved mine plan. | |
- Working costs and capital expenditures as per the approved mine plan. | |
June 30, 2001: | |
- A gold price of $262 per ounce at an exchange rate of R8.00 per $1.00. | |
- The extraction of proven and probable reserves as per the approved mine plan. | |
- Working costs and capital expenditures as per the approved mine plan. |
If an impairment exists on this basis the reductions in the carrying value of the long-lived asset are recorded to the extent the remaining investment exceeds the estimate of future discounted cash flows calculated on an area of interest basis. The expected future discounted cash flows from the use of a long lived asset is determined by applying a discount rate to the anticipated pre tax future cashflows. The discount rate used is commensurate with the risks involved and was determined with reference to the Group’s weighted average cost of capital as determined by the capital asset pricing model. The revised carrying amounts are amortized in line with Group accounting policies. |
The estimates of future discounted cash flows are subject to risks and uncertainties including the future gold price and exchange rates. It is therefore reasonably possible that changes could occur which may affect the recoverability of mining assets. |
(m) | ENVIRONMENTAL OBLIGATIONS:Estimated long-term environmental obligations, comprising pollution control, rehabilitation and mine closure, are based on the Group’s environmental management plans in compliance with current technological, environmental and regulatory requirements. These costs are accrued and expensed over the operating lives of the mines, principally by the units of production method based on estimated proven and probable reserves. | ||
Based on current environmental regulations and known rehabilitation requirements, management has included its best estimate of these obligations, on an undiscounted basis, in its rehabilitation accrual. However, it is reasonably possible that the Company’s estimates of its ultimate rehabilitation liabilities could change as a result of changes in regulations or cost estimates. Environmental liabilities, other than rehabilitation costs which relate to liabilities from specific events, are expensed when they are known, probable and can be reasonably estimated. See note 2(w) “Recent Accounting Pronouncements” as to what the impact will be on the Company when it changes its accounting policy in accounting for environmental rehabilitation. |
F-13
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
(n) | ENVIRONMENTAL TRUST FUNDS:Contributions are made to the Group’s trust funds, created in accordance with statutory requirements, to fund the estimated cost of pollution control, rehabilitation and mine closure at the end of the life of the Group’s mines. Contributions are determined on the basis of the estimated environmental obligation over the life of the mine. Income earned on monies paid to environmental trust funds is accounted for as investment income. The funds contributed to the trusts plus growth in the trust funds are included under investments on the balance sheet. | ||
(o) | PROVISIONSare recognized when information is available prior to the issuance of financial statements which indicates that it is probable that an asset has been impaired or a liability has been incurred as at the date of the financial statements and can be reasonably estimated. | ||
(p) | DEFERRED TAXATION:The Group follows the comprehensive liability method of accounting for deferred tax using the balance sheet approach. Under this method deferred income and mining taxes are recognized for the tax consequences of temporary differences by applying estimated tax rates to the differences between the tax base of certain assets or liabilities and their balance sheet carrying amounts. The effect on deferred tax of any changes in tax rates is recognized in the income statement during the period in which the change in tax rate occurs. | ||
The principal temporary differences arise from amortization and depreciation on property, plant and equipment, provisions, deferred financial liability and unredeemed capital expenditure. A valuation allowance is recorded to reduce the carrying value of deferred tax assets unless it is more likely than not that such assets will be realized. | |||
(q) | PENSION PLANS AND OTHER EMPLOYEE BENEFITS: |
(i) | Pension plansare funded through annual contributions. The Group’s contributions to the defined contribution pension plans are charged to the income statement in the year to which they relate. The Group’s liability is limited to its annually determined contributions. |
(ii) | Medical plans:The Group provides medical cover to current employees and certain retirees through a defined benefit plan fund. The medical accounting costs for the defined benefit plan are assessed using the projected unit credit method. The health care obligation is measured as the present value of the estimated future cash outflows using market yields consistent with the term and risks of the obligation. Actuarial gains and losses as a result of these valuations are recognized in the income statement. No contributions are made for employees retiring after June 30, 1996. A liability for retirees and their dependants prior to this date is accrued in full based on regular actuarial valuations. |
(r) | REVENUE RECOGNITION |
(i) | Revenuearising from gold sales is recognized when the risks and rewards of ownership and title have passed to the buyer under the terms of the applicable agreement and the pricing is fixed and determinable. Sales revenue excludes value-added tax but includes the net profits and losses arising from hedging transactions from matched gold sales contracts, which are designated as normal sales contracts. |
(ii) | Interest income:Interest is recognized on a time proportion basis, taking into account the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. |
F-14
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
(iii) | Dividend incomeis recognized when the shareholders’ right to receive payment is established, recognized at the last date of registration. |
(s) | DIVIDENDS DECLARED:Dividends proposed are recognized only when the board of directors declares the dividends. Dividends are payable in South African Rand. Dividends declared which are payable to foreign shareholders are subject to approval by the South African Reserve Bank in terms of South African foreign exchange control regulations. In practice, dividends are freely transferable to foreign shareholders. | ||
(t) | STOCK-BASED COMPENSATION:Effective July 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”) for all stock option grants subsequent to that date. Accordingly, the Company fair values all stock options granted subsequent to July 1, 2001, at the date of the option grant. The total fair value of the options granted is recorded as deferred stock-based compensation as a separate component of shareholders’ equity with a corresponding amount recorded as additional paid-in capital. The deferred stock-based compensation is amortized as stock compensation expense in the income statement over the vesting period of the respective option grant. Prior to July 1, 2001, the Company applied Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and its related interpretations in accounting for its employee stock option plans. See note 25 for a summary of the pro forma effects on reported net income and earnings per share for fiscal 2002, 2001 and 2000 based on the fair value of options granted prior to July 1, 2001, as prescribed by FAS 123. | ||
(u) | EARNINGS PER SHARE:Earnings per share is based on net income divided by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is presented when the inclusion of potential ordinary shares has a dilutive effect on earnings per share. | ||
(v) | COMPARATIVES:Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current fiscal year. In particular, the Group changed the manner in which it prepares its cash flow statement from the indirect method to the direct method and, accordingly, all periods for which cash flow statements have been presented have been prepared in accordance with the direct method. | ||
(w) | RECENT ACCOUNTING PRONOUNCEMENTS: | ||
In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). Under FAS 142, goodwill and intangible assets with indefinite lives are no longer amortized, but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). | |||
The provisions of FAS 142 apply immediately to goodwill and intangible assets acquired after June 30, 2001. For all other goodwill and intangible assets, the Company has adopted FAS 142 effective July 1, 2002. The Company has evaluated the effect that the adoption of the provisions of FAS 142 will have on its results of operations and financial position. The Company has determined that the adoption of FAS 142 will not have a material impact on its results of operations and financial position. | |||
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 143, “Accounting for Obligations Associated with the Retirement of Long-lived Assets” (“FAS 143”). FAS 143 established accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. The Company adopted FAS 143 effective July 1, 2002. The Company has determined that the adoption of FAS 143 will |
F-15
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
result in a debit cumulative effect of change in accounting principle adjustment of $14.2 million in its income statement on July 1, 2002. | |||
In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” (“FAS 144”). FAS 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. FAS 144 supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of” (“FAS 121”). However, FAS 144 retains the fundamental provision of FAS 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. The Company adopted FAS 144 effective July 1, 2002. The Company has determined that the adoption of FAS 144 will not have a material impact on its results of operations and financial position. | |||
In April 2002, the FASB issued Statement of Accounting Standards No. 145, “Rescission of FAS Nos. 4, 44 and 64, Amendment of FAS 13, and Technical Corrections as of April 2002” (“FAS 145”). FAS 145 rescinds FAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” FAS No. 44, “Accounting for Intangible Assets of Motor Carriers,” and FAS 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.” As a result, gains and losses from extinguishment of debt will no longer be classified as extraordinary items unless they meet the criteria of unusual or infrequent as described in Accounting Principles Board’s Opinion 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” In addition, FAS 145 amends FAS 13, “Accounting for Leases”, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. FAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. FAS 145 is effective for fiscal years beginning after May 15, 2002. The Company is currently evaluating the impact that the adoption of FAS 145 will have on its results of operations and financial position. However, the Company does not believe that adoption of FAS 145 will have a material impact on its results of operations and financial position. | |||
In June 2002, the FASB issued Statement of Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). FAS 146 eliminates the definition and requirements for recognition of exit costs in EIFT 94-3. FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EIFT 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. FAS 146 also concluded that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. FAS 146 also establishes that fair value is the objective for initial measurement of the liability. FAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company is currently evaluating the impact that the adoption of FAS 146 will have on its results of operations and financial position. However, the Company does not believe that the adoption of FAS 146 will have a material impact on its results of operations and financial position. |
F-16
3. | ACQUISITION AND DISPOSAL OF BUSINESSES |
(a) | Randfontein Estates Limited (“Randfontein”) | ||
On January 14, 2000, the Company made a revised offer to the shareholders of Randfontein to acquire the entire issued share capital and listed warrants of Randfontein. As at this date, the Company effectively held 33% of Randfontein’s issued share capital. Randfontein is a gold producer operating on the West Rand approximately 50 kilometers from Johannesburg. | |||
For accounting purposes the Company has equity accounted its interest in Randfontein up to February 29, 2000, the date upon which its investment in the issued share capital exceeded 50%. During this period the Company exercised significant influence over the financial and operating policies of Randfontein. Between March 2000 and June 2000, the Company acquired the entire remaining issued share capital and accounted for Randfontein as a subsidiary from March 1, 2000. | |||
The total consideration for the share capital and warrants of Randfontein amounted to approximately $134.7 million and comprised of 14,909,631 ordinary shares of the Company and approximately $51.9 million in cash. The acquisition of Randfontein was accounted for as a purchase and accordingly the purchase price was allocated to the net assets acquired based upon their estimated fair market value. The excess of the purchase price compared to the book value of the net assets acquired amounted to $66 million which has been allocated to undeveloped properties included in property, plant and equipment. | |||
(b) | Acquisition of Interest in AurionGold Limited (“AurionGold”) (formerly Goldfields Limited (Australia) (“Goldfields”) | ||
On February 4, 2000, the Company purchased a 19.95% equity interest in Goldfields for a cash consideration of R143 million (A$41 million). Due to a subsequent share issue by Goldfields, the Company’s interest was diluted to 17.3%. On October 5, 2000, the Company concluded the purchase from Hanson Plc of 10.58 million Goldfields shares financed through the issue for cash of 2,189,700 Harmony ordinary shares for $10.2 million. This transaction resulted in the Company’s interest in Goldfields increasing to approximately 22.96%. The Goldfields investment was accounted for as an available-for-sale investment as the Company had no board representation or other significant influence over the financial and operating policies of Goldfields. | |||
During September 2001, Goldfields announced that it was to merge with Delta Gold Limited (“Delta”) and that shareholders in Delta would receive 187 Goldfields shares for every 200 Delta shares held as part of the merger. The merger was consummated on December 31, 2001, and Goldfields was renamed AurionGold. As a result of the merger, the Company’s interest in AurionGold was diluted to 8.8%. | |||
(c) | Acquisition of New Hampton (Australia) | ||
On December 19, 2000, the Company announced that it had agreed to purchase 19.99% of New Hampton ordinary shares from Normandy Mining, subject to regulatory approval. On the same date, the Company also announced an offer for all the outstanding ordinary share capital of New Hampton for a cash consideration of A$0.265 for each ordinary share. On March 1, 2001, the Company announced a revised offer to the shareholders of New Hampton, increasing its cash offer for each outstanding ordinary share to A$0.275. The total cash bid valued New Hampton at approximately Rand 229.4 million ($28.5 million). On March 22, 2001, the Company announced that Normandy Mining accepted the Company’s offer for Normandy Mining’s remaining 13.2% shareholding in New Hampton, and that the New Hampton board of directors recommended that New Hampton shareholders accept the Company’s offer and indicated their intention to accept the Company’s offer for their individual holdings. As at June 30, 2001, shareholders holding |
F-17
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
approximately 95.84% of New Hampton’s shares had surrendered their shares to the Company in acceptance of the the Company offer and this offer had become unconditional. | |||
For accounting purposes the Company accounted for New Hampton as a subsidiary from April 1, 2001, the date on which it gained control of New Hampton. No minority interests were accounted for from this date until June 30, 2001 as New Hampton was in a net deficit position. The difference between the purchase price compared to the net book value of the net assets acquired amounted to $12.7 million which has been allocated to undeveloped properties included in property, plant and equipment. | |||
(d) | Acquisition of certain assets and liabilities of the Elandsrand and Deelkraal mines (“Elandskraal”) from AngloGold | ||
On January 31, 2001, the Company entered into an agreement to purchase Elandskraal, subject to the fulfillment of certain conditions precedent, for approximately Rand 1 billion ($130.9 million) in cash. The Company and AngloGold jointly managed Elandskraal between February 1, 2001 and April 1, 2001 and the Company completed the purchase on April 9, 2001. The results of Elandskraal have been accounted for in the books of the Company from April 1, 2001. The deficit of the purchase price compared to the net book value of the net assets acquired amounted to $30.7 million, which has been allocated to property, plant and equipment. | |||
(e) | Agreement with Open Solutions (Proprietary) Limited (“Open Solutions”) | ||
On April 24, 2001, the Group entered into an agreement with Open Solutions (25% of which is owned by Khuma Bathong Holdings (Proprietary) Limited, pursuant to which the parties agreed to associate together in a joint venture related to the business of the Elandskraal, or the Elandskraal Venture. Open Solutions, an empowerment group, undertook to purchase a 10% participation interest in the Elandskraal Venture for a cash consideration equal to 10% of the historical acquisition costs (including all transaction costs but excluding loan financing costs) of the Elandskraal mine, in an amount estimated to be approximately Rand 113.7 million ($14.1 million). No gain or loss was recorded in the financial statements of the Group as a result of this transaction. Randfontein has retained the remaining 90% participation interest in the Elandskraal Venture (but must consult with Open Solutions prior to effecting a sale or disposal of the material portion of the assets of the Elandsrand or Deelkraal mines). Under the agreement, the Company also undertook to loan the purchase price to Open Solutions at an interest rate equal to the prime rate less 1%, which will be repaid by Open Solutions from the benefits accruing to Open Solutions attributable to its 10% participation interest. As security for the repayment of this loan, Open Solutions ceded and assigned to Randfontein all its right, title and interest in and to its participation interest (other than the right to appoint three representatives) until the loan is repaid in full. | |||
With effect from April 1, 2002, the Company reacquired the 10% participation interest in the Elandskraal Venture from Open Solutions. The aggregate consideration paid by the Company to Open Solutions was $18.5 million. The aggregate consideration included cancellation of the remaining $8 million due to the Company under the original loan of April 24, 2001 to Open Solutions. This 10% participation interest in Elandskraal had been separately accounted for as a minority interest subsequent to its disposal in fiscal 2001. | |||
(f) | Acquisition of Interest in Bendigo NL (“Bendigo”) | ||
On September 25, 2001, the Company announced that it had reached an agreement in principle with Bendigo, to acquire 294 million shares of Bendigo for a total purchase price of approximately A$50 million ($22.8 million). On December 13, 2001, shareholders of Bendigo approved this subscription and the Company acquired ordinary shares representing approximately 31.8% of the outstanding share capital of Bendigo. On that date, the Company was also granted options to |
F-18
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
acquire 360 million additional shares of Bendigo at any time before December 31, 2003, at a price of A$0.30 per share for a maximum consideration of A$108 million. If the Company exercises these options, the Company would own approximately 50.1% of the diluted capital of Bendigo. Bendigo is a single project Australian gold mining development company whose ordinary shares are listed on the Australian Stock Exchange. Bendigo controls the New Bendigo Gold Project in the historic Bendigo goldfields, which includes all of the mining and exploration rights beneath and in the vicinity of the city of Bendigo in Victoria. | |||
(g) | Acquisition of Hill 50 Limited (“Hill 50”) | ||
On December 11, 2001, the Company commenced a conditional cash offer for all of the outstanding ordinary shares and listed options of Hill 50. The offer closed on May 3, 2002, at which time shareholders holding 98.57% of Hill 50’s shares and 98.76% of Hill 50’s listed options had accepted the Company’s offer and this offer had become unconditional. The Company subsequently completed a compulsory acquisition of the remaining shares and options under the rules of the Australian Stock Exchange. The Company financed the Hill 50 offer from existing cash resources and borrowings, including a syndicated loan facility entered into on February 28, 2002, with Citibank, N.A., as lead arranger. Hill 50 is an Australian gold mining company with operations mainly in Western Australia, whose ordinary shares and warrants were traded on the Australian Stock Exchange, prior to the completion of the acquisition by the Company. | |||
For accounting purposes, the Company equity accounted for Hill 50 during the month of March, as it exercised significant influence over the financial and operating policies of Hill 50 during that period. Between April 2002 and June 2002, the Company acquired the remaining outstanding share capital of Hill 50 and the Company accounted for Hill 50 as a subsidiary from April 1, 2002. | |||
The total bid valued Hill 50 at approximately A$233 million ($124.8 million) and was settled in cash by the Company. The acquisition of Hill 50 was accounted for as a purchase with the difference between the purchase price and the historical book value of the net assets acquired of $182.5 million allocated to undeveloped properties, property, plant and equipment. With effect from April 1, 2002, the Company reports the New Hampton and Hill 50 operating results together within an “Australian Operations” segment. | |||
(h) | Acquisition of Certain Assets and Liabilities of the Free Gold and Joel Mines (“Free Gold Assets”) from AngloGold | ||
On November 21, 2001, the Company and African Rainbow Minerals Gold Limited (“ARMGold”) reached an agreement in principle with AngloGold to purchase the Free Gold assets, subject to specified conditions. The Company and ARMGold subsequently formed the ARMGold/Harmony Freegold Joint Venture Company (Pty) Limited (the “Free Gold Company”) on December 11, 2001, to purchase the Free Gold assets. The Company and ARMGold each own 50% of the outstanding share capital of the Free Gold Company. The Free Gold assets are located in the Free State Province of South Africa, approximately 250 kilometers southwest of Johannesburg. The Free Gold Company was capitalized by means of capital contributions and loans in equal amounts from the Company and ARMGold. | |||
Pursuant to the subsequently executed definitive agreements, the FreeGold assets were purchased by the Free Gold Company for R2,200 million ($207 million), plus an estimated amount of R632 million ($59 million) equal to any liability for taxes payable by AngloGold in connection with the sale. R1,800 million ($169 million) of the purchase price, plus accrued interest, was paid by the Free Gold Company in April 2002 following fulfillment of all conditions precedent and R400 million ($38 million) is payable by the Free Gold Company under an interest-free loan on January 1, 2005. The additional amount relating to taxes is payable by the Free Gold Company as and when the tax liability becomes payable by AngloGold. The Free Gold Company has |
F-19
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
estimated that this tax liability will be approximately R632 million ($59 million) and will be payable in March 2003. The Free Gold Company assumed management control of the Free Gold assets from January 1, 2002 and completed the acquisition on April 23, 2002, the date on which all conditions precedent to the transaction were fulfilled, with the profits and cash flows generated by the Free Gold assets up to that date being for the account of the Free Gold Company. | |||
The Company has equity accounted for its interest in the Free Gold Company with effect from May 1, 2002 and the purchase price of the Free Gold assets was determined to be R2,213 million ($208 million). This figure is the sum of the cash payment of R1,800 million ($169 million), the fair value of the interest free loan of R270 million ($25 million) and the estimated tax payable to AngloGold of R632 million ($59 million), offset by the cash flows generated by the Free Gold assets during the period that the Free Gold Company and AngloGold jointly managed the Free Gold assets of R489 million ($45 million) as these cash flows were for the account of the Free Gold Company and its shareholders. | |||
(i) | Acquisition of Interest in Highland Gold Limited (“Highland Gold”) | ||
On May 31, 2002, the Company acquired ordinary shares representing approximately 25% of the outstanding share capital of Highland Gold for a purchase price of $18.9 million. On June 28, 2002, Highland Gold issued 750,000 additional shares to the Company for a purchase price of £7,500 ($11,925 at an exchange rate of $1.59 per £1.00), which increased the Company’s aggregate interest to approximately 32.5% of Highland Gold’s outstanding share capital. Highland Gold is a privately held company organized under the laws of Jersey, Channel Islands. Highland Gold holds Russian gold mining assets and mineral rights, including an operating mine and development projects. | |||
(j) | Pro-forma information relating to Elandskraal (including the sale to and buy back from Open Solutions), New Hampton and Hill 50 | ||
The consolidated income statements reflect the operating results of Elandskraal (including the sale to and buy-back from Open Solutions), New Hampton and Hill 50 since the effective dates of acquisition. | |||
The following pro-forma unaudited summarized financial information assumes that the above acquisitions had occurred on July 1 of each of the fiscal years in which they occurred. |
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
Revenues | 747,740 | 699,715 | ||||||
Net income | 78,459 | 1,092 | ||||||
Basic earnings per share – cents | 51.1 | 1.1 | ||||||
Average shares used in the computation | 153,509,862 | 102,156,205 | ||||||
F-20
These pro-forma amounts have been prepared for comparative purposes only and they do not purport to be indicative of the results of operations which actually would have resulted had the business combinations been effected on July 1, 2000 and 2001 or of future results of operations of the consolidated entities. |
4. | PRODUCTION COSTS |
Cash operating costs include mine production, transport and refinery costs, general and administrative costs, movement in inventories and ore stockpiles as well as transfers to and from deferred stripping. These costs, analyzed by nature, consist of the following:
2002 | 2001 | 2000 | ||||||||||
$'000 | $'000 | $'000 | ||||||||||
Labor costs, including contractors | 265,497 | 313,649 | 247,733 | |||||||||
Stores and materials | 114,785 | 119,835 | 94,650 | |||||||||
Water and electricity | 53,436 | 60,080 | 47,454 | |||||||||
Changes in inventory | (1,659 | ) | (8,915 | ) | (7,042 | ) | ||||||
Other | 37,339 | 20,258 | 16,001 | |||||||||
469,398 | 504,907 | 398,796 | ||||||||||
5. | OTHER INCOME—NET |
2002 | 2001 | 2000 | ||||||||||
$'000 | $'000 | $'000 | ||||||||||
Profit on sale of property, plant and equipment | 1,965 | 10,528 | 6,308 | |||||||||
Foreign exchange gains | 9,673 | 1,202 | — | |||||||||
Other (expenditure)/income – net | (2,488 | ) | (1,034 | ) | 2,232 | |||||||
9,150 | 10,696 | 8,540 | ||||||||||
6. | EMPLOYMENT TERMINATION AND RESTRUCTURING COSTS |
2002 | 2001 | 2000 | ||||||||||
$'000 | $'000 | $'000 | ||||||||||
Free State | 1,611 | — | — | |||||||||
Randfontein and Elandskraal | 3,549 | 4,521 | — | |||||||||
Evander | 159 | 136 | 222 | |||||||||
Kalgold | — | 72 | — | |||||||||
Australian operations | 3,163 | — | — | |||||||||
Bissett mine | 293 | — | — | |||||||||
8,775 | 4,729 | 222 | ||||||||||
During the year ended June 30, 2002, the closure of the Virginia 2 shaft and Harmony 4 shaft in the Free State resulted in certain excess labor, which could not be accommodated on other shafts, becoming surplus to requirements and being made redundant. Elandskraal continued the process of restructuring, which was started in the previous fiscal year, which led to certain positions becoming redundant. Following the acquisition of Hill 50 in Australia, the Company combined the New Hampton and Hill 50 operations, which led to certain restructuring and employment termination costs being incurred. At the end of fiscal 2001, the Company decided to place the Bissett mine on care and maintenance due to the mining operations being uneconomical at gold prices at that time. During fiscal 2002, the restructuring process associated with the transition to care and maintenance was completed and additional restructuring costs were incurred.
F-21
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
During the year ended June 30, 2001, due to the closure of No 4 shaft at Randfontein and the restructuring of Elandskraal, certain restructuring costs were incurred which included the termination of service of certain production employees.
During the year ended June 30, 2000, in order to achieve strategic objectives, the services of certain non-production employees at Evander were terminated at a cost of $0.2 million.
7. | PROFIT/(LOSS) ON SALE OF OTHER ASSETS AND LISTED INVESTMENTS |
2002 | 2001 | 2000 | ||||||||||
$ '000 | $ '000 | $ '000 | ||||||||||
Profit/(loss) on sale of listed investments | 4,524 | (1,393 | ) | 2,482 | ||||||||
As part of the initial public offering of ARMGold during fiscal 2002, the Company subscribed for 2,860,000 shares at R38.67 ($3.83) per share. These shares were subsequently disposed of for a profit of $4.5 million.
With the acquisition of Randfontein, the Company acquired 4,944,948 shares in Western Areas Limited. These shares were disposed of at a loss of $1.3 million in the 2001 fiscal year.
The profit in the 2000 fiscal year related to the sale of certain mineral rights.
8. | IMPAIRMENT OF ASSETS |
2002 | 2001 | 2000 | ||||||||||
$'000 | $'000 | $'000 | ||||||||||
Free State operations | — | 5,624 | — | |||||||||
Randfontein operations | — | 1,524 | — | |||||||||
Evander operations | — | 1,493 | — | |||||||||
Bissett operations | — | 19,625 | — | |||||||||
Australian operations | 44,284 | — | — | |||||||||
44,284 | 28,266 | — | ||||||||||
The Company completed the redevelopment program at New Hampton’s Big Bell underground mine during fiscal 2002. Production achieved to date however indicated that the grade of the Big Bell underground mine is significantly lower than expected. This resulted in a reassessment of the Big Bell ore reserve estimate, which indicated that the life of mine plans should be revised to take account of a lower gold content in the Big Bell ore body. Utilizing the revised mine plans, and a gold price of $295 per ounce, the life of mine plans did not support the carrying value of the Big Bell assets on an undiscounted cash flow basis. Accordingly an asset impairment of $44.3 million was charged against income, utilizing a discount rate of 10%, which reduced the carrying value of the Big Bell assets to $8.8 million.
Due to the depletion of economically mineable reserves, certain shafts at Randfontein, Evander and Free State were closed and the remaining net book value written off during fiscal 2001.
At the end of fiscal 2001, the Company decided to place the Bissett mine on care and maintenance due to the mining operations being uneconomical at gold prices at that time. The write-down reflected the excess of book value of long-term and other assets over the estimated salvage values of those assets.
F-22
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
9. | INCOME AND MINING TAXES |
2002 | 2001 | 2000 | ||||||||||
$'000 | $'000 | $'000 | ||||||||||
Current income and mining taxes | 25,604 | 8,277 | 3,477 | |||||||||
Deferred income and mining taxes | (11,236 | ) | 6,348 | 10,072 | ||||||||
Total income and mining tax expense | 14,368 | 14,625 | 13,549 | |||||||||
Mining tax on South African mining income is determined on a formula basis, which takes into account the profit and revenue from mining operations during the year. South African non-mining income is taxed at a standard rate. Mining and non-mining income of the Australian operations is taxed at a standard tax rate. Deferred tax is provided at the estimated expected future mining tax rate for temporary differences. Major items causing the Company’s income tax provision to differ from the estimated effective mining rate of 29% (2001: 20.5%) were:
2002 | 2001 | 2000 | ||||||||||
$'000 | $'000 | $'000 | ||||||||||
Tax on net income at estimated mining statutory rate | (19,116 | ) | (3,430 | ) | (15,047 | ) | ||||||
Valuation allowance released/(raised) against deferred tax assets | 5,226 | (9,816 | ) | (1,504 | ) | |||||||
Non-taxable income/additional deductions | (4,973 | ) | (512 | ) | 6,473 | |||||||
Difference between non-mining tax rate and estimated mining statutory rate on non-mining income | (1,555 | ) | (867 | ) | (971 | ) | ||||||
Company’s share of tax on joint venture not reflected in tax expense | 6,050 | — | — | |||||||||
Other | — | — | (2,500 | ) | ||||||||
Income and mining tax expense | (14,368 | ) | (14,625 | ) | (13,549 | ) | ||||||
Deferred income and mining tax liabilities and assets on the balance sheet as of June 30, 2002 and June 30, 2001 relate to the following:
2002 | 2001 | ||||||||
$'000 | $'000 | ||||||||
Deferred income and mining tax liabilities | |||||||||
Mining assets | 146,775 | 81,195 | |||||||
Product inventory not taxed | 3,045 | 4,303 | |||||||
Other | — | 3,731 | |||||||
Gross deferred income and mining tax liability | 149,820 | 89,229 | |||||||
Net deferred income and mining tax assets | (51,714 | ) | (43,508 | ) | |||||
Deferred financial liability | (22,897 | ) | (6,791 | ) | |||||
Unredeemed capital expenditure | (18,570 | ) | (31,119 | ) | |||||
Provisions, including rehabilitation accruals | (7,454 | ) | (12,152 | ) | |||||
Tax losses | (2,793 | ) | (1,953 | ) | |||||
Valuation allowance | — | 8,507 | |||||||
98,106 | 45,721 | ||||||||
Less: Short term portion of deferred income and mining tax included in accounts payable | 1,683 | 1,329 | |||||||
Net deferred income and mining tax liabilities | 99,789 | 47,050 | |||||||
The classification of deferred income and mining taxes is based on the related asset and liability creating the deferred tax. Deferred taxes not related to a specific asset or liability are classified based on the estimated period of reversal.
As at June 30, 2002 the Group has unredeemed capital expenditure of $81.2 million (2001: $130.2 million) and tax losses carried forward of $9.1 million (2001: $6.5 million) available for deduction against future South African
F-23
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
mining income. These future deductions are utilizable against mining income generated only from the Group’s current mining operations in South Africa and do not expire unless the Group ceases to trade for a period longer than one year.
10. | EARNINGS PER SHARE |
For the year ended June 30, 2002 | ||||||||||||
Income | ||||||||||||
(Numerator) | Shares | |||||||||||
$000 | (Denominator) | Per share amount | ||||||||||
Basic earnings per share | ||||||||||||
Shares outstanding July 1, 2001 | – | 145,235,791 | – | |||||||||
Weighted average number of ordinary shares issued during the year | – | 8,274,071 | – | |||||||||
Income available to common stockholders | 87,716 | 153,509,862 | 57.1 | |||||||||
Effect of dilutive securities | ||||||||||||
Share options issued to employees | – | 7,346,070 | – | |||||||||
Warrants issued | – | 4,361,156 | – | |||||||||
Diluted earnings per share | 87,716 | 165,217,088 | 53.1 | |||||||||
For the year ended June 30, 2002 | ||||||||||||
Income | ||||||||||||
(Numerator) | Shares | |||||||||||
$000 | (Denominator) | Per share amount | ||||||||||
Basic earnings per share before cumulative effect of change in accounting policy | ||||||||||||
Shares outstanding July 1, 2000 | – | 97,310,435 | – | |||||||||
Weighted average number of ordinary shares issued during the year | – | 4,845,770 | – | |||||||||
Income available to common stockholders | 14,830 | 102,156,205 | 14.5 | |||||||||
Effect of dilutive securities | ||||||||||||
Share options issued to employees | – | 3,348,123 | ||||||||||
Diluted earnings per share | 14,830 | 105,504,328 | 14.1 | |||||||||
Basic earnings per share after cumulative effect of change in accounting policy | ||||||||||||
Shares outstanding July 1, 2000 | – | 97,310,435 | – | |||||||||
Weighted average number of ordinary shares issued during the year | – | 4,845,770 | – | |||||||||
Income available to common stockholders | 9,008 | 102,156,205 | 8.8 | |||||||||
Effect of dilutive securities | ||||||||||||
Share options issued to employees | – | 3,348,123 | – | |||||||||
Diluted earnings per share | 9,008 | 105,504,328 | 8.5 | |||||||||
F-24
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
For the year ended June 30, 2000 | ||||||||||||
Income | ||||||||||||
(Numerator) | Shares | |||||||||||
$000 | (Denominator) | Per share amount | ||||||||||
Basic earnings per share | ||||||||||||
Shares outstanding July 1, 1999 | – | 69,460,286 | – | |||||||||
Weighted average number of ordinary shares issued during the year | – | 14,133,138 | – | |||||||||
Income available to common stockholders | 57,030 | 83,593,424 | 68.2 | |||||||||
Effect of dilutive securities | ||||||||||||
Share options issued to employees | – | 1,997,452 | – | |||||||||
Diluted earnings per share | 57,030 | 85,590,876 | 66.6 | |||||||||
11. | PROPERTY, PLANT AND EQUIPMENT |
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
Mining properties, mine development costs and mine plant facilities | 800,984 | 654,244 | ||||||
Other non-mining assets | 11,769 | 12,869 | ||||||
812,753 | 667,113 | |||||||
Other non-mining assets consist of freehold land, computer equipment and motor vehicles.
12. | OTHER ASSETS |
2002 | 2001 | |||||||||
$'000 | $'000 | |||||||||
Mining subscriptions, participation rights and slimes dams | 4,546 | 5,874 | ||||||||
Deferred stripping | 8,182 | 5,871 | ||||||||
Bond issue costs, net of amortization | 1,328 | 1,866 | ||||||||
14,056 | 13,611 | |||||||||
Deferred stripping costs are made up as follows: | ||||||||||
Opening balance | 5,871 | 3,940 | ||||||||
Additions during the period | 2,311 | 1,931 | ||||||||
Closing balance | 8,182 | 5,871 | ||||||||
The deferred stripping balances at the end of fiscal 2002 pertain to Kalgold and Hill 50 operations. The fiscal 2001 balance pertains only to Kalgold operations. In terms of the life of mine plan, pre-stripping is performed in the early years. This results in the cost associated with overburden stripped at a rate higher than the expected pit life average stripping ratio, being deferred to those years. These costs will be released in the period where the actual stripping ratio decreases to below such expected pit life ratio. The expected pit life average stripping ratios used to calculate the deferred stripping were 4.60 in 2002 and 4.00 in 2001, in respect of the Kalgold operations. These stripping ratios were calculated taking into account the actual strip ratios achieved of 6.60 in 2002 and 6.04 in 2001. The expected pit life average stripping ratio used to calculate the deferred stripping was 10.1 in respect of Hill 50 for the 2002 fiscal year.
F-25
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
13. | NON-CURRENT INVESTMENTS |
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
Listed investments | ||||||||
Investments in listed shares (a) | 95,058 | 39,784 | ||||||
Other investments | ||||||||
Unlisted investments and loans (b) | 2,534 | 2,829 | ||||||
Amounts contributed to environmental trust funds (c) | 24,757 | 24,027 | ||||||
Other | 994 | 1,571 | ||||||
28,285 | 28,427 | |||||||
Total non-current investments | 123,343 | 68,211 | ||||||
(a) | Listed investments consist of 43,350,992 shares in AurionGold (previously Goldfields) valued at $2.19 (A$3.93) per share. The shares are listed on the Australian Stock Exchange. The fair value of these shares at the close of business on June 30, 2002, by reference to stock exchange quoted prices and closing exchange rates was $95 million (2001: $40 million). Subsequent to year-end this investment was disposed off to Placer Dome in exchange for Placer Dome ordinary shares (see note 30). Dividends received during the 2002 fiscal year from AurionGold amounted to $1.1 million (2001: $1.6 million, 2000: $0.0 million). | |
(b) | Unlisted investments consist of various industry related investments and loans, which have been valued at book value by the directors. The directors of the Company perform independent valuations of the investments on an annual basis to ensure that no permanent diminution in the value of the investments has occurred. Dividends received from these investments amounted to $0.2 million in the 2002 fiscal year (2001: $0.2 million, 2000: $0.2 million). | |
(c) | The environmental trust funds are irrevocable trusts under the Group’s control. The monies in the trusts are invested primarily in interest bearing short-term and other investments and approximate their fair value. |
14. | INVESTMENTS IN ASSOCIATES |
Investments in associates consist of the following:
Market Value | ||||||||
Investment | Description of Business | Ownership % | $'000 | |||||
Bendigo Mining NL Highland Gold Limited | Gold exploration Gold mining and exploration | 31.8% 32.5% | 48,400 – |
The investments in both associates were made during fiscal 2002. (See note 3 for more details regarding the respective acquisitions). The market value of the Company’s investment in Highland Gold is not readily determinable. The Company did not receive any dividends from either Bendigo or Highland Gold during 2002 fiscal year.
The following table summarizes the change in value of the Group’s investments in associates since their acquisitions:
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
Shares at cost | 77,382 | – | ||||||
Net share of results of associates | (473 | ) | – | |||||
Associate now consolidated | (39,048 | ) | – | |||||
Foreign currency translation differences | 4,930 | – | ||||||
Closing carrying amount | 42,791 | – | ||||||
F-26
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
The Company acquired an equity interest in Hill 50 of 30.5% during March 2002. During April 2002, the Company increased its investment in Hill 50 above 50% and consolidated its investment in Hill 50 from that date. During March 2002, Hill 50 was equity accounted by the Company as it exercised significant influence over the financial and operational policies of Hill 50 (See note 3(g) for more details regarding the Hill 50 acquisition).
15. | INVESTMENT IN JOINT VENTURE |
The Group has a 50% interest in a joint venture with ARMGold Limited, the ARMGold/Harmony Freegold Joint Venture Company (Pty) Ltd (the “Free Gold Company”), which operates as a gold mining company in the Welkom area of the Free State goldfields. The Company and ARMGold each own 50% of the outstanding share capital of the Free Gold Company. The Free Gold Company was capitalized by means of capital contributions and loans in equal amounts from the joint venture partners. (See note 3(h) for more details regarding the joint venture formation and the acquisition of the Free Gold assets).
The following table summarizes the change in value of the Group’s investment in the Free Gold Company joint venture since its formation:
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
Shares at cost | 1,583 | – | ||||||
Loan to joint venture | 84,586 | – | ||||||
Accrued interest on loan to joint venture | 1,367 | |||||||
Net share of joint venture results | 13,176 | – | ||||||
Foreign currency translation differences | 1,866 | – | ||||||
Closing carrying amount | 102,578 | – | ||||||
The following is a summarized balance sheet and income statement prepared in accordance with U.S. GAAP for the Free Gold Company joint venture:
2002 | 2001 | ||||||||||||
$'000 | $'000 | ||||||||||||
Current assets | 109,839 | – | |||||||||||
Investments | 44,143 | – | |||||||||||
Property, plant and equipment | 218,933 | – | |||||||||||
Total assets | 372,915 | – | |||||||||||
Current liabilities | 32,619 | – | |||||||||||
Non-current interest-bearing borrowings | 87,426 | – | |||||||||||
Non-current borrowings from shareholders | 173,244 | – | |||||||||||
Deferred income and mining taxes | 15,418 | – | |||||||||||
Provision for environmental rehabilitation | 38,122 | – | |||||||||||
Provision for post-retirement benefits | 214 | – | |||||||||||
Total liabilities | 347,043 | – | |||||||||||
Shareholders’ equity | 25,872 | – | |||||||||||
Total liabilities and shareholders’ equity | 372,915 | – | |||||||||||
Revenue | 68,952 | – | |||||||||||
Costs and expenses | (30,500 | ) | – | ||||||||||
Income before tax | 38,452 | – | |||||||||||
Tax | (12,100 | ) | – | ||||||||||
Net income after tax | 26,352 | – | |||||||||||
F-27
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
16. | INVENTORIES |
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
Gold in-process | 26,933 | 24,309 | ||||||
Supplies | 15,444 | 13,169 | ||||||
42,377 | 37,478 | |||||||
17. | RECEIVABLES |
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
Value added tax | 6,833 | 12,753 | ||||||
Trade receivables | 9,188 | 8,660 | ||||||
Amount owing relating to share issue | – | 36,276 | ||||||
Metals on consignment | 18,672 | – | ||||||
Prepayments | 6,914 | 1,632 | ||||||
Interest and other | 25,413 | 39,995 | ||||||
67,020 | 99,316 | |||||||
18. | HARMONY WARRANTS |
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
For the acquisition of Vermeulenskraal Noord, 1,125,000 warrants were issued at a fair value of South African Rand 10 per warrant on December 3, 1996 | – | 2,480 | ||||||
For the acquisition of Lydex, 6,418,855 warrants were issued at a fair value of South African Rand 8.89 per warrant during the period January through March 1997 | – | 12,582 | ||||||
For obtaining the credit facility from NM Rothschild 36,045 warrants were issued at fair value of South African Rand 5.70 per warrant on June 6, 1998 | – | 32 | ||||||
– | 15,094 | |||||||
The warrants in the foregoing table were exercisable at a price of South African Rand 60.00, at which time they could have been converted into ordinary shares of the Company on or before July 31, 2001. None of the warrants were exercised and they lapsed on July 31, 2001.
In terms of a transaction dated June 29, 2001, 27,082,500 ordinary shares and 9,027,500 warrants to purchase 9,027,500 additional ordinary shares were issued. Ordinary shares were purchased in integral multiples of three and investors received one warrant for every three shares purchased. Each warrant will entitle its holder to purchase, on any business day on or before June 28, 2003, one ordinary share at South African Rand 43.00, or the U.S. dollar equivalent thereof. No value was separately attributed to the warrants on the date of issue. As at June 30, 2002, 1,013,554 warrants were exercised, leaving a balance of 8,013,946 warrants still to be exercised. These warrants are traded on the JSE Securities Exchange and New York Stock Exchange. Prior to the Company being listed on the New York Stock Exchange, the warrants were traded on the The Nasdaq Stock Market.
F-28
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
19. | LONG-TERM LOANS |
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
Uncollateralized | ||||||||
Senior uncollateralized fixed rate bonds (a) | 115,496 | 149,947 | ||||||
Fair value adjustment of cash flow hedge | (2,002 | ) | 1,163 | |||||
Less amortized discount | (626 | ) | (3,145 | ) | ||||
Total uncollateralized long-term loans | 112,868 | 147,965 | ||||||
Collateralized | ||||||||
BAE Systems Plc (b) | 3,501 | 3,501 | ||||||
BOE loan (c) | 48,123 | – | ||||||
Less: short-term portion | (12,031 | ) | – | |||||
Total collateralized long-term loans | 39,593 | 3,501 | ||||||
Total long-term loans | 152,461 | 151,466 | ||||||
(a) | On June 16, 2001, the Company launched and priced an issue of South African Rand denominated senior uncollateralized fixed rate bonds in an aggregate principal amount of R1 200 million ($115.5 million), with semi-annual interest payable at a rate of 13% per annum. These bonds will be repayable on June 14, 2006, subject to early redemption at the Company’s option. The bonds are listed on the Bond Exchange of South Africa. The bonds were issued to settle existing debt and fund the purchase of Elandskraal and New Hampton. As long as the bonds are outstanding, the Company will not permit encumbrances on its present or future assets or revenues to secure indebtedness for borrowed money, without securing the outstanding bonds equally and ratably with such indebtedness, except for certain specified permitted encumbrances. Issuance costs of $1.9 million were incurred and capitalized and are being amortized over the life of the bonds. Included in the amortization charge in the income statement is $0.5 million for amortization of the bond issue costs. | |
(b) | The loan from BAE Systems Plc is a US dollar denominated term loan of $3.5 million for financing the design, development and construction of a facility for the manufacture and sale of value added gold products at the Company’s premises in the Free State. The loan is collateralized by a notarial covering bond over certain gold proceeds and other assets from this facility and is repayable in full on April 30, 2004. The loan bears interest at LIBOR plus 2%, which is accrued daily from the drawdown date and interest is repayable on a quarterly basis. | |
(c) | On April 18, 2002 the Company entered into a South African Rand denominated term loan facility of R500 million ($48.1 million) with BOE Bank Limited for the purpose of partially funding the Company’s acquisition of shares in the Free Gold Company and loans made by the Company to the Free Gold Company in connection with the acquisition of the Free Gold assets. The facility is collateralized by a pledge of the Company’s shares in the Free Gold Joint Venture Company and is guaranteed by Randfontein, Evander, Kalgold and Lydex. The loan is repayable in full on April 23, 2006 by way of eight equal semi-annual capital installments which are due beginning October 23, 2002. The loan bears interest at a rate equal to the Johannesburg Interbank Agreed Rate (“JIBAR”) for deposits in Rand plus 1.5% plus specified costs, which is accrued daily from the drawdown date and is payable quarterly in arrears commencing July 23, 2002. Pursuant to the terms of this loan facility, the Company must comply with the following restrictive covenants: |
(i) | Consolidated net worth must be more than R4 600 million ($422.7 million); | ||
(ii) | The total debt to earnings before interest, tax, depreciation and amortization (EBITDA) ratio must not exceed 1.5; and | ||
(iii) | The EBITDA to total debt service ratio must not be less than 3.5. |
F-29
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
In addition, pursuant to this facility, the Company is subject to specified limits on its ability to (i) permit encumbrances over pledged revenues or assets, (ii) make loans or incur specified types of indebtedness, (iii) dispose of more than 25% of its assets or (iv) make distributions to its shareholders if a default or event of default under this facility has occurred and is continuing. If the Company fails to meet these requirements, the loan may be accelerated and become due and payable in full. | ||
20. | PREFERENCE SHARES |
The Company entered into an agreement with Simane Investments (Pty) Ltd (“Simane”), a South African empowerment group, and the Industrial Development Corporation of South Africa Limited (“IDC”) on behalf of Simane, pursuant to which, subject to the fulfillment of certain specified conditions, Simane and the IDC subscribed for 222,222 Harmony ordinary shares and 10,736,682 Harmony ordinary shares, respectively, at R46.00 ($4.47) per share. The IDC was issued 10,736,682 Harmony ordinary shares during June 2001 and Simane was issued 222,300 Harmony ordinary shares during September 2001.
Under the agreement, the IDC also subscribed for 10,958,904 redeemable convertible preference shares at a price equal to their par value of R0.50 each. The shares were issued on June 8, 2001. The preference shares could be converted into ordinary Harmony shares for a period of 5 years from their issue at the payment of an additional R41.50 per preference share. During January and February 2002, all of the preference shares were converted into ordinary shares, leaving Simane with a stake of 6.4% in the Company as at that date.
21. | DEFERRED FINANCIAL LIABILITY |
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
Mark-to-market of speculative financial instruments at year end | 8,115 | 48,451 | ||||||
Amount owing on close out of derivatives | – | 2,747 | ||||||
Mark-to-market of Bendigo options | (6,260 | ) | – | |||||
Mark-to-market of hedging financial instruments at year end | 85,371 | (1,824 | ) | |||||
87,226 | 49,374 | |||||||
The Randfontein hedge book was closed during fiscal 2002 at a cost of $13 million after tax. The balance currently provided relates to the Hill 50 hedge book, acquired with the acquisition of Hill 50, as well as the remaining portion of the New Hampton hedge book. These hedge books have been restructured as normal sales. The deferred financial liability will be recognized in the income statement as gold production, underlining the hedging instrument, is delivered into the respective contracts. See note 26 for more details regarding the financial instruments outstanding.
22. | PROVISION FOR ENVIRONMENTAL REHABILITATION |
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
Accrued rehabilitation costs | 63,125 | 53,136 | ||||||
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, the Group has estimated that, based on current environmental and regulatory requirements, the total cost for the mines, in current monetary terms, will be R816 million ($78.5 million) (2001: R689 million ($85.7million)).
F-30
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
The Group intends to finance the ultimate rehabilitation costs from the money invested with, and ongoing contributions to, the environmental trust funds, as well as the proceeds on sale of assets and gold from plant clean-up at the time of mine closure.
23. | PROVISION FOR POST-RETIREMENT BENEFITS |
The provision for former employees’ post retirement benefits comprises medical benefits for former employees who retired prior to December 31, 1996. The amounts were based on an actuarial valuation conducted during the current fiscal year.
2002 | 2001 | |||||||
$'000 | $'000 | |||||||
The amounts recognized in the balance sheet are as follows: | ||||||||
Accrued post-retirement health care costs | 737 | 1,002 | ||||||
The following table sets forth the funded status of the post-retirement health care costs: | ||||||||
Actuarial present value | 737 | 1,002 | ||||||
Plan assets at fair value | – | – | ||||||
Accumulated benefit obligation in excess of plan assets | 737 | 1,002 | ||||||
Prior service costs | – | – | ||||||
Unrecognized net (gain)/loss | – | – | ||||||
Post-retirement health care liability | 737 | 1,002 | ||||||
The amounts recognized in the income statement are as follows: | ||||||||
Interest cost | 176 | 394 | ||||||
Additional liability raised for Elandskraal employees converting to Minemed | 108 | – | ||||||
Benefits paid | 294 | 4,474 | ||||||
Net actuarial gains | (621 | ) | (2,627 | ) | ||||
(43 | ) | 2,241 | ||||||
The movement in the liability recognized in the balance sheet is as follows: | ||||||||
At the beginning of the year | 1,002 | 3,709 | ||||||
Total expenses as above | (43 | ) | 2,241 | |||||
Foreign currency translation adjustments | (222 | ) | (4,948 | ) | ||||
At the end of the year | 737 | 1,002 | ||||||
The obligation has been valued using the projected unit credit funding method on past service liabilities. The valuation assumes a health care cost inflation rate of 7% per annum (2001: 0%) and a discount rate of 12% per annum (2001: 12%).
F-31
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
24. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
2002 | 2001 | |||||||||||
$ '000 | $'000 | |||||||||||
Trade payables | 25,275 | 27,294 | ||||||||||
Deferred income and mining taxes | (1,683 | ) | (1,329 | ) | ||||||||
Short term portion of long-term loans | 12,031 | – | ||||||||||
Short term borrowings | 3,442 | 9,640 | ||||||||||
Payroll and leave liabilities | 32,834 | 31,478 | ||||||||||
Revenue received in advance | 5,153 | – | ||||||||||
Unpresented checks | 6,684 | 4,143 | ||||||||||
Other (including accrued liabilities) | 32,968 | 62,154 | ||||||||||
116,704 | 133,380 | |||||||||||
25. | EMPLOYEE BENEFIT PLANS |
PENSION AND PROVIDENT FUNDS:The Group contributes to several pension and provident funds governed by the Pension Funds Act, 1946 for the employees of its South African subsidiaries. The pension funds are multi-employer industry plans. The Group’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.
The Australian subsidiaries make contributions to each employee’s Superannuation (pension) funds in accordance with the Superannuation Guarantee Scheme (SGS). The SGS is a Federal Government initiative enforced by law which compels employers to make regular payments to regulated funds providing for each employee on their retirement. The Superannuation Guarantee Contributions were set at a minimum of 8% of gross salary and wages for the 2002 year.
Substantially all the Group’s employees are covered by the above mentioned retirement benefit plans. Funds contributed by the Group for fiscal 2002 amounted to $18.7 million (2001: $16.1 million and 2000: $12.1 million).
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS:Skilled workers in South Africa participate in the Minemed medical scheme, as well as other medical schemes. The Group contributes to these schemes on behalf of current employees and retired employees who retired prior to December 31, 1996 (the “Minemed scheme”). The Group’s contributions to these schemes on behalf of retired and current employees amounted to $3.0 million, $4.1 million and $1.9 million for 2002, 2001 and 2000 respectively.
No post-retirement benefits are available to other workers. No liability exists for employees who were members of these schemes who retired after the date noted above. The medical schemes pay certain medical expenses for both current and retired employees and their dependents. Current and retired employees pay an annual fixed contribution to these schemes.
The regularly-scheduled updated actuarial valuation was carried out during the current fiscal year on the Minemed medical scheme following the last actuarial valuation in fiscal 2000. Assumptions used to determine the liability relating to the Minemed medical scheme included, investment returns of 12%, no increases in employer subsidies (in terms of the agreement) and mortality rates according to the SA “a mf” tables and a medical inflation rate of 0% to 7.0%. Randfontein had a liability to certain retirees and their dependants who retired prior to September 30, 1991 in terms of the JCI medical scheme. During fiscal 2001, an agreement was reached with these retirees whereby they were transferred to the Minemed medical scheme and the provision was therefore reversed in June 2001.
SHARE OPTION SCHEME:The Company currently has two employee share option schemes, being the Harmony (1994) Share Option Scheme (“HSOS 1994 Scheme”) and the Harmony (2001) Share Option Scheme (“HSOS 2001 Scheme”). Pursuant to the rules of the HSOS 1994 Scheme and the HSOS 2001 Scheme certain qualifying employees may be granted options to purchase shares in the Company’s authorized but unissued ordinary shares. The HSOS 2001 Scheme was established following approval by the Company’s shareholders during fiscal 2002. The HSOS 2001 Scheme came into effect on November 16, 2001; however, options previously issued under
F-32
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
the HSOS 1994 Scheme remain in force. The terms of the HSOS 2001 Scheme are substantially equivalent to the terms of the HSOS 1994 Scheme, except that the maximum number of share options that may be granted under the HSOS 2001 Scheme is a fixed amount (8,000,000) rather than a percentage of share capital. Options granted under the HSOS 1994 Scheme that remain outstanding are not counted against this maximum. Of the total of 8,000,000 ordinary shares under the specific authority of the directors in terms of the HSOS 2001 Scheme, 6,130,100 shares have been offered to participants leaving a balance of 1,869,900 to be offered to eligible employees. Upon the date of adoption of the HSOS 2001 Scheme, 3,108,800 shares were still outstanding under the HSOS 1994 Scheme. Following the adoption of the HSOS 2001 Scheme, no further option grants have been made under the HSOS 1994 Scheme. In terms of the rules of both the HSOS 1994 Scheme and the HSOS 2001 Scheme, the exercise price of the options granted is equal to fair market value of the shares at the date of the grant.
On November 29, 1999, the Company adopted a share purchase scheme (the “Share Purchase Scheme”), in which eligible employees may participate. The Share Purchase Scheme provides for a share purchase trust controlled by the Company. The share purchase trust provides recourse loans to enable employees to acquire shares or exercise their options under the HSOS 1994 Scheme. To date, the Share Purchase Scheme has only been used for the purpose of making recourse loans to employees to enable them to exercise their options under the HSOS 1994 Scheme. The shares acquired by an employee pursuant to the exercise of the option are then pledged by that employee to the share purchase trust to secure repayment of the recourse loan granted by the share purchase trust, plus any interest thereon. The share purchase trust is funded by a loan from the Company, which it repays once it receives repayment of the loans granted to employees. Three non-executive directors of the Company serve as trustees of the share purchase trust. The trustees are not eligible to receive loans from the trust.
Options currently expire no later than 10 years from the grant date. Pursuant to the HSOS 1994 Scheme rules, annually upon anniversary of the grant date, a third of the total options granted are exercisable. Pursuant to the HSOS 2001 Scheme rules, annually upon anniversary of the grant date, a third or a fifth of the total options granted are exercisable, depending on the vesting terms of the respective grant. Proceeds received by the Company from the exercise are credited to share capital and additional paid-in capital.
Details of the activity in the HSOS 1994 Scheme and the HSOS 2001 Scheme were as follows (for convenience of the reader, the Rand amounts have been converted to US dollars at the balance sheet date for the respective fiscal years):
Average exercise | Average exercise | |||||||||||||||
Number of share | price per share | price per share | ||||||||||||||
Available for grant | options granted | SA Rand | US Dollar | |||||||||||||
Balance as at June 30, 1999 | 2,569,728 | 4,376,300 | – | – | ||||||||||||
Share options granted during the year | (4,804,500 | ) | 4,804,500 | – | – | |||||||||||
Share options exercised during the year | – | (2,071,500 | ) | 26.06 | 3.85 | |||||||||||
Share options forfeited during the year | 210,300 | (210,300 | ) | – | – | |||||||||||
Share options reserved during the year | 4,856,515 | – | – | – | ||||||||||||
Balance as at June 30, 2000 | 2,832,043 | 6,899,000 | – | – | ||||||||||||
Share options granted during the year | (1,728,400 | ) | 1,728,400 | – | – | |||||||||||
Share options exercised during the year | – | (2,835,700 | ) | 20.89 | 2.60 | |||||||||||
Share options reserved during the year | 8,463,985 | – | – | – | ||||||||||||
Balance as at June 30, 2001 | 9,567,628 | 5,791,700 | – | – | ||||||||||||
Share options granted during the year | (6,130,100 | ) | 6,130,100 | – | – | |||||||||||
Share options exercised during the year | (2,682,900 | ) | 26.88 | 2.59 | ||||||||||||
Share options reserved during the year | 1,541,172 | – | – | – | ||||||||||||
Balance as at June 30, 2002 | 4,978,700 | 9,238,900 | – | – | ||||||||||||
The options exercisable on June 30, 2002 and 2001 were 97,200 and 1,570,433 respectively.
F-33
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
The range of exercise prices for options outstanding at June 30, 2002 was R11.70 to R49.60. The range of exercise prices for options is wide primarily due to the fluctuation of the prices of the Company’s stock over the period of the grants.
The following tables summarize information relating to the options outstanding at June 30, 2002 (tables are denominated in South African Rand and US$ where applicable):
Outstanding options | ||||||||||||||||||||
weighted average | ||||||||||||||||||||
Contractual | ||||||||||||||||||||
Range of prices | Number of | life | Exercise price | Exercise price | ||||||||||||||||
SA Rand | US$ | shares | (years) | (SA Rand) | (US $) | |||||||||||||||
11.70 – 17.40 | 1.13 – 1.67 | 18,500 | 5.50 | 11.70 | 1.13 | |||||||||||||||
19.50 – 27.20 | 1.88 – 2.62 | 1,876,300 | 7.63 | 24.42 | 2.35 | |||||||||||||||
35.00 – 49.60 | 3.37 – 4.77 | 7,344,100 | 9.19 | 47.48 | 4.57 | |||||||||||||||
Total | 9,238,900 | 8.89 | 42.99 | 4.14 | ||||||||||||||||
Exercisable options | ||||||||||||||||
Weighted | Weighted | |||||||||||||||
average | average | |||||||||||||||
exercise price | exercise price | |||||||||||||||
SA Rand | US$ | Number of shares | (SA Rand) | (US$) | ||||||||||||
11.70 – 17.40 | 1.13 – 1.67 | 18,500 | 11.70 | 1.13 | ||||||||||||
19.50 – 27.20 | 1.88 – 2.62 | 71,200 | 24.02 | 2.31 | ||||||||||||
35.00 – 49.60 | 3.37 – 4.77 | 7,500 | 35.40 | 3.41 | ||||||||||||
Total | 97,200 | 22.55 | 2.17 | |||||||||||||
These options will expire if not exercised at specific dates ranging from December 2007 to November 2011. Market prices for options exercised during the three fiscal periods ended June 30, 2002 ranged from R23.00 to R117.00.
In connection with the share purchase scheme described above, the Company follows the provisions of EITF 00-23 “Issues Related to the Accounting for Stock Compensation under APB 25 and FASB Interpretation No. 44” for all options granted subsequent to January 18, 2001 and prior to the adoption of FAS 123 on July 1, 2002. Pursuant to the guidance in EITF 00-23, the Company applies variable accounting for the 700,000 options granted on April 24, 2001 until the date such options are exercised. The Company recognized stock-based compensation expense of $7.4 million related to this option grant during fiscal 2002.
On July 1, 2001, the Company changed its accounting policy and adopted FAS 123. FAS 123 requires that all stock options granted following the date of adoption, be fair valued and that the fair value be recognized as stock compensation expense over the option vesting period. Accordingly the Company fair valued the 6,130,100 options granted on November 20, 2001 and recorded deferred stock-based compensation of $8.7 million based on a fair value of R13.88 per option granted. $2.1 million was recognized as stock-based compensation expense during fiscal 2002, which reduced net income by the same amount. The Company used the following assumptions in valuing the option grant:
2002 | ||||
Expected life (in years) | 3.5 | |||
Risk free interest rate | 11.50 | % | ||
Volatility | 40.00 | % | ||
Dividend yield | 4.00 | % |
The Company used the binomial model in determining the fair value of the options granted.
F-34
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
Pro-forma information
Prior to July 1, 2001, the Company had elected to follow APB 25. Previously under APB 25, because the exercise price of the Company’s stock options equaled the market price of the underlying stock on the date of the grant, no compensation expense was recognized in the Company’s financial statements.
Pro-forma information regarding net income and earnings per share is required by SFAS No. 123. This information is required to be determined as if the Company had accounted for its employee stock options, granted subsequent to December 31, 1995, under the fair value method of that statement. The fair value of options granted in 2001 and 2000 reported below has been estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
2001 | 2000 | |||||||
Expected life (in years) | 6.0 | 6.0 | ||||||
Risk free interest rate | 11.19 | % | 13.58 | % | ||||
Volatility | 53.81 | % | 65.00 | % | ||||
Dividend yield | 3.33 | % | 3.20 | % |
The Black Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models required the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. The weighted average estimated fair value of employee stock options granted during the fiscal 2001 and 2000 under HSOS 1994 Scheme was R18.90 and R18.80 per share, respectively. | ||
For purposes of pro-forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. The Company’s pro-forma information follows (in thousands of U.S. dollars except for earnings per share information): |
2002 | 2001 | 2000 | ||||||||||
Pro-forma net income | 82,654 | 3,808 | 52,284 | |||||||||
Pro-forma basic earnings per share | 53.8 | 3.7 | 62.5 | |||||||||
Pro-forma fully diluted earnings per share | 50.0 | 3.6 | 61.1 |
The impact on pro-forma net income and earnings per share in the table above, which shows the effect for both schemes, may not be indicative of the effect in future years. The Company continues to grant stock options to new employees. This policy may or may not continue.
26. | DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE AND CREDIT RISK OF FINANCIAL INSTRUMENTS |
The Company is exposed to market risks, including credit risk, foreign currency, commodity price, interest rate and liquidity risk associated with underlying assets, liabilities and anticipated transactions. Following periodic evaluation of these exposures, the Company may enter into derivative financial instruments to manage these exposures. The Company does not hold or issue derivative financial instruments for trading or speculative purposes.
Commodity price sensitivity
As a general rule, the Company sells its gold production at market prices. The Company generally does not enter into forward sales, derivatives or other hedging arrangements to establish a price in advance for the sale of its future gold production. In order to secure loan facilities, there have been instances where the Company has made use of commodity contracts to ensure revenue streams (all of which have subsequently expired). In addition, a significant proportion of Randfontein Estate’s, New Hampton and Hill 50’s production was already hedged when acquired by the Company. The inherited Randfontein hedge which had previously been treated as speculative was closed out
F-35
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
during the year at a cost of $22.0 million before tax ($13 million after tax). The Group’s remaining commodity contracts relate to a portion of both New Hampton’s and Hill 50’s production. These contracts were restructured towards the end of the year to normal purchase, normal sale agreements where the Group will physically deliver a specified quantity of gold at a future date, subject to the pricing arrangements described below.
The Group’s commodity contracts by type as at June 30, 2002 are set out below:
Maturity - scheduled for delivery in fiscal | |||||||||||||||||||||||||||||||||||||
Mark- | |||||||||||||||||||||||||||||||||||||
to- | |||||||||||||||||||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | Total | market | |||||||||||||||||||||||||||||
$'000 | |||||||||||||||||||||||||||||||||||||
Normal sales contracts | |||||||||||||||||||||||||||||||||||||
Forward Sales Agreements | |||||||||||||||||||||||||||||||||||||
Ounces (1) | 425,792 | 229,000 | 205,000 | 187,500 | 125,000 | 100,000 | 100,000 | 1,372,292 | (69,667 | ) | |||||||||||||||||||||||||||
A$/ ounce | 514 | 522 | 524 | 523 | 514 | 518 | 518 | 519 | |||||||||||||||||||||||||||||
Variable price sales agreements | |||||||||||||||||||||||||||||||||||||
(with “caps”) | |||||||||||||||||||||||||||||||||||||
Ounces (2) | 62,425 | 175,500 | 130,000 | 40,000 | – | – | – | 407,925 | (18,247 | ) | |||||||||||||||||||||||||||
A$/ ounce | 545 | 544 | 512 | 552 | – | – | – | 535 | |||||||||||||||||||||||||||||
Variable price sales agreements(3) | |||||||||||||||||||||||||||||||||||||
(with “floors”) Ounces | 33,000 | – | – | – | – | – | – | 33,000 | 53 | ||||||||||||||||||||||||||||
A$/ ounce | 500 | – | – | – | – | – | – | 500 | 53 | ||||||||||||||||||||||||||||
521,217 | 404,500 | 335,000 | 227,500 | 125,000 | 100,000 | 100,000 | 1,813,217 | (87,861 | ) | ||||||||||||||||||||||||||||
(1) | The Group must deliver into these agreements at the prices indicated (2) The Group must deliver its production into these agreements subject to the capped price indicated in the table above (3) The Group must deliver its production into these agreements subject to the floor price indicated in the table above | |
(2) | The Group must deliver its production into these agreements subject to the capped price indicated in the table above | |
(3) | The Group must deliver its production into these agreements subject to the floor price indicated in the table above |
The contracts are treated as normal purchase, normal sales contracts. The mark-to-market of these contracts was a negative US$88 million as at June 30, 2002 based on independent valuations provided by an independent risk and treasury management services company, using present value methods or standard option value methods with assumptions about commodity prices based on those observed in the gold market. The value was based on a gold price of US$316 per ounce, an exchange rate of Rand 10.39 per US$1.00 and prevailing market interest rates and volatilities at the time. These values are estimates that involve uncertainties and cannot be determined with precision.
The Group’s commodity contracts by type as at June 30, 2001 are set out below:
Maturity - scheduled for delivery in fiscal | |||||||||||||||||||||||||||||
Mark-to- | |||||||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | Total | market | |||||||||||||||||||||||
$'000 | |||||||||||||||||||||||||||||
South Africa — Randfontein | |||||||||||||||||||||||||||||
Forward sales | |||||||||||||||||||||||||||||
Ounces | – | – | 2,500 | 37,500 | – | 50,000 | (644 | ) | |||||||||||||||||||||
$/oz | – | – | 284 | 284 | – | 284 | |||||||||||||||||||||||
Put purchases | |||||||||||||||||||||||||||||
Ounces | 750,000 | – | – | – | – | 750,000 | 644 | ||||||||||||||||||||||
$/oz | 1,990 | – | – | – | – | 1,990 | |||||||||||||||||||||||
Forward purchases | |||||||||||||||||||||||||||||
Ounces | (350,000 | ) | – | – | – | – | (350,000 | ) | (13,481 | ) | |||||||||||||||||||
$/oz | 309 | – | – | – | – | 309 | |||||||||||||||||||||||
Calls sold | |||||||||||||||||||||||||||||
Ounces | – | 27,006 | 163,526 | 200,079 | 59,714 | 450,325 | (11,618 | ) | |||||||||||||||||||||
$/oz | 279 | 196 | 299 | 300 | 297 | ||||||||||||||||||||||||
Total | 400,000 | 27,006 | 176,026 | 237,579 | 59,714 | 900,325 | (25,099 | ) | |||||||||||||||||||||
F-36
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
Maturity - scheduled for delivery in fiscal | |||||||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | Total | Mark-to- market | |||||||||||||||||||||||
$'000 | |||||||||||||||||||||||||||||
Australia — New Hampton | |||||||||||||||||||||||||||||
Forward sales | |||||||||||||||||||||||||||||
Ounces | 177,304 | 206,000 | 9,000 | – | – | 392,304 | (7,739 | ) | |||||||||||||||||||||
A$/oz | 498 | 514 | 539 | – | – | 507 | |||||||||||||||||||||||
Puts purchases | |||||||||||||||||||||||||||||
Ounces | – | 25,500 | 227,500 | 220,000 | 90,000 | 563,000 | 4,752 | ||||||||||||||||||||||
A$/oz | – | 523 | 500 | 498 | 500 | 500 | |||||||||||||||||||||||
Calls sold | |||||||||||||||||||||||||||||
Ounces | 245,000 | 97,206 | 175,500 | – | – | 517,706 | (12,989 | ) | |||||||||||||||||||||
A$/oz | 500 | 523 | 526 | – | – | 513 | |||||||||||||||||||||||
Calls purchased | |||||||||||||||||||||||||||||
Ounces | (100,000 | – | – | – | – | (100,000 | ) | 2,038 | |||||||||||||||||||||
$/oz | 500 | – | – | – | – | 500 | |||||||||||||||||||||||
Total | 322,304 | 328,706 | 412,000 | 220,000 | 90,000 | 1,373,010 | (13,938 | ) | |||||||||||||||||||||
Grand total | 722,304 | 355,712 | 588,026 | 457,579 | 149,714 | 2,273,335 | (39,037 | ) | |||||||||||||||||||||
All the above contracts were accounted for as speculative. The mark-to-market of the above contracts was a negative $39 million as at June 30, 2001, based on independent valuations provided by a risk treasury management services company.
Foreign currency sensitivity
In the ordinary course of business, the Company enters into transactions denominated in foreign currencies (primarily US and Australian dollars). In addition, the Group has investments and liabilities denominated in Canadian, Australian and US dollars. As a result, the Company is subject to transaction and translation exposure from fluctuations in foreign currency exchange rates. The Company does not generally hedge its exposure to foreign currency exchange rates, however during the year, it entered into monthly dollar forward sales agreements totaling US$ 90 million, at an average exchange rate of R11.76 per $1.00 maturing over the period July to December 2002. These contracts were entered into to preserve the revenue streams for the Free State operations.
These contracts are accounted for as cash flow hedges and changes in fair value are recorded as a component of shareholders’ equity as at the balance sheet date and subsequently reclassified to the income statement upon the contract expiration date.
The mark-to-market value of the transactions making up the positions was a positive US$4.5 million as at June 30, 2002. This valuation was based on an exchange rate of R10.42 per $1.00 and the prevailing interest rates and volatilities at the time.
Concentration of credit risk
Financial instruments, which subject the Company to significant concentrations of credit risk, consist principally of cash and equivalents, short-term investments and various derivative financial instruments. The Group’s financial instruments do not represent a concentration of credit risk because the Group transacts with and maintains cash and cash equivalents, short-term investments and derivative financial instruments with a variety of well established financial institutions of high quality and credit standing. The credit exposure to any one counter party is managed by setting exposure limits, which are reviewed regularly. The Group’s receivables and loans are regularly monitored and assessed, and an adequate level of provision is maintained.
Interest rates and liquidity risk
Fluctuations in interest rates and gold lease rates impact on the value of short-term cash and financing activities.
F-37
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
The Company generally does not undertake any specific actions to cover its exposure to gold lease rates in respect of its lease rate swaps. Through its acquisitions of New Hampton and Hill 50, the Company holds gold lease rate swaps amounting to 1,906,500 ounces at a weighted average lease rate of 1.0% at June 30, 2002, the balance of which will decline in each fiscal year as set forth below:
Gold lease rate swaps outstanding at the beginning of fiscal year | ||||||||||||||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||
Ounces | 1,906,500 | 1,879,000 | 1,170,000 | 1,170,000 | 900,000 | 675,000 | 675,000 | — | ||||||||||||||||||||||||
Lease rate received | 1.0 | % | 1.0 | % | 1.2 | % | 1.2 | % | 1.0 | % | 1.1 | % | 1.1 | % | — | |||||||||||||||||
The above instruments are all treated as speculative financial instruments and accordingly do not qualify for hedge accounting. The mark-to-market of the above contracts was a negative US$8.1 million as at June 30, 2002, based on valuations provided by independent treasury and risk management experts.
On June 14, 2001, the Group issued senior uncollateralized fixed rate bonds in an aggregate principal amount of Rand 1,200 million ($116 million), with semi-annual interest payable at a rate of 13% per annum. These bonds are repayable on June 14, 2006, subject to early redemption at the Group’s option. In connection with these bonds, the Group entered into an interest rate swap of Rand 600 million ($58 million). The interest rate swap consists of two tranches: (i) a Rand 400 million ($38 million) tranche which receives a fixed rate of 13% and pays a floating rate of JIBAR (reset quarterly) plus 1.8% and (ii) a Rand 200 million ($19 million) tranche which receives a fixed rate of 13% and pays a floating rate at JIBAR (reset quarterly) plus 2.2%. The interest rate swaps are designated as fair value hedges. The mark-to-market value of the transactions was a negative R21 million (US$2 million) as at June 30, 2002.
In the ordinary course of business, the Group receives cash from its operations and is required to fund its working capital and capital expenditure requirements. The cash is managed to ensure that surplus funds are invested to provide sufficient liquidity at the minimum risk.
Fair value
The fair value of the financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The carrying amount of the receivables, all accounts payable and cash and cash equivalents are a reasonable estimate of their fair values because of the short-term maturity of such instruments. The investments in the environmental trust funds approximate fair values as the funds are invested in short-term maturity investments. Listed investments (including those in the environmental trust fund) are carried at market value. Long-term loans, other than the bonds, approximate fair value as they are subject to market based floating rates. The carrying value of the bond approximates its fair value as at June 30, 2002.
F-38
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
27. | NET CASH PROVIDED BY OPERATIONS |
2002 | 2001 | 2000 | ||||||||||
$'000 | $'000 | $'000 | ||||||||||
Reconciliation of profit before taxation to net cash provided by operations: | ||||||||||||
Income before taxation | 103,659 | 29,804 | 73,489 | |||||||||
Adjustments for: | ||||||||||||
Minority interest | – | – | (2,910 | ) | ||||||||
Loss/(profit) on sale of other assets and listed investments | (4,524 | ) | 907 | (2,482 | ) | |||||||
Profit on sale of mining assets | (1,965 | ) | (10,568 | ) | (6,308 | ) | ||||||
Depreciation and amortization | 30,183 | 31,417 | 21,797 | |||||||||
Impairment of assets | 44,284 | 28,266 | – | |||||||||
Gain on financial instruments | (8,939 | ) | (18,433 | ) | (7,078 | ) | ||||||
Net (decrease)/increase in provision for environmental rehabilitation | 15,192 | (6,817 | ) | 802 | ||||||||
Net decrease/(increase) in provision for former employees’ post retirement benefits | 43 | (2,241 | ) | (4,048 | ) | |||||||
Other non cash transactions | 81 | (283 | ) | (125 | ) | |||||||
Income and mining taxes paid | (8,590 | ) | (3,998 | ) | (1,214 | ) | ||||||
Cash cost to close out Randfontein hedges | (21,951 | ) | – | – | ||||||||
Stock-based compensation | 9,434 | – | – | |||||||||
Effect of changes in operating working capital items: | ||||||||||||
Receivables | 11,347 | (35,963 | ) | (7,079 | ) | |||||||
Inventories | (8,329 | ) | (10,744 | ) | (3,000 | ) | ||||||
Accounts payable and accrued liabilities | 2,480 | 47,687 | (23,356 | ) | ||||||||
Net cash provided by operations | 162,405 | 49,034 | 38,488 | |||||||||
28. | ADDITIONAL CASH FLOW INFORMATION |
The income and mining taxes paid in the statement of cash flow represents actual cash paid.
(a) | Non cash-items | |||||
Excluded from the statements of consolidated cash flows are the following: | ||||||
(i) | For the year ended June 30, 2002 | |||||
- | The minorities’ share in the profits of Elandskraal. | |||||
- | The $48.9 million mark-to-market of listed and other investments. | |||||
- | The $6.1 million mark-to-market of derivatives qualifying as hedges. | |||||
(ii) | For the year ended June 30, 2001 | |||||
- | The minorities’ share in the profits of Elandskraal. | |||||
- | The $9.9 million mark-to-market of listed and other investments. | |||||
- | The $1.0 million mark-to-market of derivatives qualifying as hedges. | |||||
(iii) | For the year ended June 30, 2000 | |||||
- | The $6.6 million loan obtained from NM Rothschilds to directly finance the development costs at the Bissett mine. | |||||
- | The $18.1 million loan obtained from Robert Fleming to finance the investment in Goldfields Australia. |
F-39
- | The $2.8 million mark-to-market of listed investments. |
(b) | Acquisitions of Subsidiaries / Businesses | |||||
(i) | For the year ended June 30, 2002 | |||||
(a) | With effect from April 1, 2002, the Company acquired the remaining 10% interest in the Elandskraal Venture from Open Solutions. The fair value of assets acquired were as follows: |
2002 | ||||
$ '000 | ||||
Property, plant and equipment | 9,640 | |||
Net minority interest in Elandskraal | 8,813 | |||
Total purchase price | 18,453 | |||
Paid for by cash | (18,453 | ) | ||
(b) | With effect from April 1, 2002, the Company acquired the entire share capital of Hill 50 and its subsidiaries. The aggregate fair value of the assets acquired and the liabilities assumed were as follows: |
2002 | ||||
$'000 | ||||
Inventories | 4,756 | |||
Accounts receivable | 2,585 | |||
Property, plant and equipment | 242,136 | |||
Accounts payable and accrued liabilities | (12,736 | ) | ||
Long-term liabilities | (4,580 | ) | ||
Deferred financial liability | (83,007 | ) | ||
Deferred tax | (38,875 | ) | ||
Total purchase price | 110,288 | |||
Paid for by cash | (124,774 | ) | ||
Cash and cash equivalents at acquisition | (14,485 | ) | ||
(ii) | For the year ended June 30, 2001 | |||||
(a) | With effect from April 9, 2001, the Company acquired Elandskraal (the Elandsrand and Deelkraal mines) from Anglogold. The aggregate fair value of the assets acquired and liabilities assumed were as follows: |
2001 | ||||
$'000 | ||||
Property, plant and equipment | 130,909 | |||
Investments | 6,789 | |||
Long-term liabilities | (6,789 | ) | ||
Total purchase price | 130,909 | |||
Paid for by cash | (130,909 | ) | ||
F-40
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
(b) | With effect from April 1, 2001, the Company had acquired a majority shareholding in New Hampton and during the period to June 30, 2001 increased its shareholding such that as at June 30, 2001, the Company had acquired 95.84% of the issued share capital of New Hampton. The aggregate fair value of the assets acquired and liabilities assumed were: |
2001 | ||||
$ '000 | ||||
Inventories | 5,455 | |||
Accounts receivable | 2,272 | |||
Investments | 3,260 | |||
Property, plant and equipment | 75,898 | |||
Accounts payable and accrued liabilities | (18,545 | ) | ||
Long-term liabilities | (39,808 | ) | ||
Total purchase price | 28,532 | |||
Paid for by cash | (28,532 | ) | ||
(iii) | For the year ended June 30, 2000 | |||||
(a) | With effect from March 1, 2000, the Company had acquired a majority shareholding in Randfontein and during the period up to June 30, 2000 the Company increased its shareholding that as at June 30, 2000, the Company had acquired the entire issued share capital and 96.5% of the outstanding warrants of Randfontein. The aggregate fair value of the assets acquired and the liabilities assumed were as follows: |
2000 | ||||
$ '000 | ||||
Inventories | 8,192 | |||
Accounts receivable | 10,268 | |||
Investments | 33,760 | |||
Property, plant and equipment | 210,695 | |||
Accounts payable and accrued liabilities | (97,809 | ) | ||
Long-term liabilities | (24,661 | ) | ||
Deferred tax | (14,460 | ) | ||
Total purchase price | 125,985 | |||
Paid for by the issue of share capital | (82,842 | ) | ||
Paid for by cash | (51,892 | ) | ||
Cash and cash equivalents at acquisition | (8,749 | ) | ||
F-41
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
(b) | With effect from October 1, 1999, the Company acquired the entire issued share capital of West Rand Consolidated Mines Limited and its subsidiary Kalahari Goldridge Mining Company Limited. The aggregate fair value of the assets acquired and the liabilities assumed were as follows: |
2000 | ||||
$ '000 | ||||
Inventories | 1,068 | |||
Accounts receivable | 1,395 | |||
Investments | 5,904 | |||
Property, plant and equipment | 41,545 | |||
Accounts payable and accrued liabilities | (2,540 | ) | ||
Long-term liabilities | (501 | ) | ||
Deferred tax | (259 | ) | ||
Total purchase price | 46,612 | |||
Paid for by the issue of share capital | (46,393 | ) | ||
Paid for by cash | (949 | ) | ||
Cash and cash equivalents at acquisition | (730 | ) | ||
(c) | Disposal of Subsidiaries/Businesses | |||||
(i) | For the year ended June 30, 2001 | |||||
(a) | With effect from April 24, 2001, the Company disposed of a 10% interest in the Elandskraal Venture to Open Solutions. The book value of assets and liabilities disposed of were as follows: |
2001 | ||||
$ '000 | ||||
Property, plant and equipment | 13,271 | |||
Stores | 871 | |||
Total sales price | 14,142 | |||
Paid for by way of receivables | (14,142 | ) | ||
29. | COMMITMENTS AND CONTINGENCIES |
2002 | 2001 | |||||||
$ '000 | $'000 | |||||||
Capital expenditure commitments | ||||||||
Contracts for capital expenditure | 3,055 | 15,299 | ||||||
Authorized by the directors but not contracted for | 24,535 | 26,137 | ||||||
27,590 | 41,436 | |||||||
These expenditures will be financed from existing cash resources.
Contingent liabilities | ||||
Guarantees and suretyships | 481 | |||
Environmental guarantees | 7,892 | |||
8,373 | ||||
F-42
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
30. | SUBSEQUENT EVENTS |
(a) | On May 25, 2002, the Company and Placer Dome entered into an agreement under which the Company accepted Placer Dome’s offer to acquire all of the Company’s interest in AurionGold subject to specified conditions. Pursuant to the offer, the Company would receive 17.5 newly-issued Placer Dome ordinary shares for every 100 AurionGold ordinary shares tendered. On July 29, 2002, the Company announced that Placer Dome had increased its offer by adding a cash payment of A$0.35 per AurionGold ordinary share. The Company accepted this revised offer, which had become unconditional as of July 29, 2002. The transaction was completed on August 6, 2002. As a result, the Company received a 1.9% interest in Placer Dome. | ||
(b) | The Free Gold Company completed the acquisition from Gold Fields Limited of the assets of St. Helena gold mine on October 30, 2002. The consideration for the sale totaled Rand 120 million ($11.9 million), plus a royalty equal to one percent of revenue for a period of 48 months beginning on the effective date of the sale. St. Helena Gold Mines Limited and the Free Gold Company concluded a formal agreement of sale on July 1, 2002. | ||
(c) | On November 22, 2002, the Company purchased approximately 21.0% of the outstanding share capital of High River Gold Mines Limited for a purchase price of $14.5 million. High River Gold Mines Limited is a company organized under the laws of Ontario, Canada, that is listed on the Toronto Stock Exchange and holds gold mining assets in Russia, Canada and West Africa, including an interest in two operating mines in Russia, an agreement to acquire ownership of a development project in Russia, an ownership interest in an operating mine in Canada and an ownership interest in a development project in Burkina Faso. This investment was acquired at a discount of approximately 16% ($0.85 cents per share) from the 30 day weighted average share price for the 30 day period prior to the execution of the agreement with Jipangu, a Japanese investment house. |
31. | GEOGRAPHICAL AND SEGMENT INFORMATION |
The Company is primarily engaged in gold mining and related activities, including exploration, extraction, processing, smelting and refining. Activities are conducted and investments held both inside and outside of South Africa.
The results of the Free Gold Company have been included from January 3, 2002 and Hill 50 from April 1, 2002 as these are the dates from which the Company’s chief operating decision maker received discrete financial information related to each of these acquisitions during the 2002 fiscal year. The segment results have been presented in S.A. GAAP and reconciled to U.S. GAAP as S.A. GAAP financial information is what the Company’s chief operating decision maker reviews in allocating company resources and in making investment decisions.
Segmental information includes the results of operations of Randfontein, Elandskraal and New Hampton from date of acquisition with effect from March 1, 2000 and April 1, 2001 respectively. Gold operations are internally reported based on the following geographic areas: Free State, Evander, Kalgold, Randfontein, Elandskraal, Free Gold and the Australian operations. The Free State, Randfontein, Kalgold, Evander and Elandskraal operations are located in specific gold producing regions within South Africa. The Australian operations include New Hampton and Hill 50, which have been aggregated and reported as one segment with effect from April 1, 2002 (following the acquisition of Hill 50). The Australian operations are located primarily in Western Australia. The Bissett mine, which is reflected in “Other” for fiscal 2002, is located in Canada. The Company also has exploration interests in Southern Africa and Australia which are included in Other, Selling, administrative, general charges and corporate costs are allocated between segments based on the size of activities based on production results.
F-43
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
The segmental split on a geographical basis is:
Year ended June 30, 2002
Reconciliation | |||||||||||||||||||||||||||||||||||||||||||||
of segment | |||||||||||||||||||||||||||||||||||||||||||||
Free | FreeGold | data to the | |||||||||||||||||||||||||||||||||||||||||||
State | Evander | Kalgold | Randfontein | Elandskraal | Company | Australian | consolidated | ||||||||||||||||||||||||||||||||||||||
(South | (South | (South | (South | (South | (South | Operations | financial | ||||||||||||||||||||||||||||||||||||||
Africa) | Africa) | African) | Africa) | Africa) | Africa) | (Australia) | Other* | statements | Total | ||||||||||||||||||||||||||||||||||||
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'0000 | $'000 | $'000 | Notes | $'000 | |||||||||||||||||||||||||||||||||||
Profit and loss | |||||||||||||||||||||||||||||||||||||||||||||
Product sales | 179,341 | 116,772 | 17,505 | 159,629 | 133,834 | 89,998 | 66,402 | 1,804 | (89,998 | ) | (a | ) | 675,287 | ||||||||||||||||||||||||||||||||
Production costs | (132,430 | ) | (70,867 | ) | (12,727 | ) | (99,279 | ) | (93,167 | ) | (42,317 | ) | (59,536 | ) | (906 | ) | 42,317 | (a | ) | (468,912 | ) | ||||||||||||||||||||||||
Cash operating profit | 46,911 | 45,905 | 4,778 | 60,350 | 40,667 | 47,681 | 6,866 | 898 | (47,681 | ) | 206,375 | ||||||||||||||||||||||||||||||||||
Other revenues | 6,633 | 1,631 | 9 | 2,489 | 356 | 1,950 | 5,858 | 4,577 | (1,950 | ) | (a | ) | 21,553 | ||||||||||||||||||||||||||||||||
(a | )(e)(f) | ||||||||||||||||||||||||||||||||||||||||||||
Other income (costs) | (3,212 | ) | (4,350 | ) | (1,276 | ) | (28,001 | ) | (12,493 | ) | (8,248 | ) | 5,210 | (1,745 | ) | (70,154 | ) | (g | )(h)(i) | (124,269 | ) | ||||||||||||||||||||||||
Including: | |||||||||||||||||||||||||||||||||||||||||||||
Interest expense | (18,303 | ) | (3 | ) | (2 | ) | (1 | ) | — | (3,476 | ) | (1,157 | ) | 388 | 3,476 | (a | ) | (19,077 | ) | ||||||||||||||||||||||||||
Employment termination cost | (1,611 | ) | (159 | ) | — | (3,046 | ) | (503 | ) | — | (3,163 | ) | (293 | ) | — | (8,775 | ) | ||||||||||||||||||||||||||||
Depreciation and amortization | (8,028 | ) | (2,581 | ) | (1,121 | ) | (5,017 | ) | (3,560 | ) | (2,962 | ) | (6,810 | ) | (110 | ) | 7 | (a | )(j)(k) | (30,183 | ) | ||||||||||||||||||||||||
Impairment | 6,860 | — | — | 1,176 | — | — | (42,856 | ) | — | (9,464 | ) | (d | ) | (44,284 | ) | ||||||||||||||||||||||||||||||
Financial instruments | 971 | — | — | (12,110 | ) | — | — | 15,634 | 4,444 | — | 8,939 | ||||||||||||||||||||||||||||||||||
Operating profit/(loss) before tax | 50,332 | 43,187 | 3,511 | 34,837 | 28,529 | 41,382 | 17,934 | 3,731 | (119,784 | ) | (a | ) | 103,659 | ||||||||||||||||||||||||||||||||
Taxation expense | (7,347 | ) | (14,719 | ) | 4,220 | (13,741 | ) | (1,451 | ) | (13,318 | ) | (490 | ) | (10,311 | ) | 42,789 | (a | )(j)(m) | (14,368 | ) | |||||||||||||||||||||||||
Net profit/(loss) for the period before minority interest | 42,985 | 28,468 | 7,731 | 21,096 | 27,078 | 28,064 | 17,444 | (6,580 | ) | (76,995 | ) | (a | ) | 89,291 | |||||||||||||||||||||||||||||||
Ounces sold ** | 611,944 | 415,382 | 62,179 | 561,638 | 476,059 | 104,005 | 252,993 | 8,263 | (104,005 | ) | (a | ) | 2,388,458 | ||||||||||||||||||||||||||||||||
Tons milled (‘000) ** | 5,003 | 2,595 | 1,060 | 5,293 | 3,617 | 863 | 5,273 | 40 | (863 | ) | 22,881 | ||||||||||||||||||||||||||||||||||
Capital expenditure | 9,336 | 9,596 | 2,419 | 1,483 | 13,725 | 3,137 | 22,862 | (454 | ) | (3,137 | ) | 58,967 | |||||||||||||||||||||||||||||||||
Total assets | 558,343 | 117,618 | 31,934 | 214,898 | 37,815 | 94,446 | 287,190 | 20,902 | (68,006 | ) | (a | ) | 1,295,141 | ||||||||||||||||||||||||||||||||
Total liabilities | 235,096 | 35,778 | (2,198 | ) | 48,556 | 12,782 | 58,496 | 195,276 | 4,541 | (46,309 | ) | (a | ) | 542,015 | |||||||||||||||||||||||||||||||
* | A decision was made to put the Bissett mine in Canada was placed on care and maintenance at the end of fiscal 2001, and clean-up results amounting to $1.8 million revenue and $0.9 million production costs were reflected under “Other” for fiscal 2002. | |
** | Production statistics are unaudited. |
Notes to the reconciliation of segment information to the consolidated financial statements
(a) | Reversal of proportionate consolidation For management reporting purposes, the Free Gold Company, which is a joint venture, is proportionately consolidated. Under U.S. GAAP, the equity method of accounting is applied in accounting for joint ventures. | |
(b) | Free Gold Company — Acquisition date For management reporting purposes, the Free Gold Company results have been included from the date upon which the Company assumed joint operational control of the assets together with the seller. Under U.S. GAAP, the Company accounts for its interest in the Free Gold Company from the date that all the conditions precedent to the transaction were met, and the assets were no longer subject to joint operational control. | |
(c) | Free Gold Company — Purchase price For management reporting purposes, the purchase price was determined as the sum of a cash payment, an interest free loan and the assumed taxes payable on the transaction by the seller. Under U.S. GAAP, the purchase price was determined as the sum of a cash payment, the fair value of the interest free loan, the assumed taxes payable on the transaction payable by the seller, offset by the cash flows generated by the joint venture during the period the assets were subject to joint operational control with the seller, as the cash flows generated during this period were for the account of the joint venture. |
F-44
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
(d) | Reversal of previously recognized impairments For management reporting purposes, certain impairments recognized in prior periods have been reversed. Under U.S. GAAP, the reversal of previously recognized impairments is not permitted. | |
(e) | Investments For management reporting purposes, listed securities are classified as trading securities with any change in fair value of trading security recognized in income. Under U.S. GAAP, listed securities have been classified as available-for-sale with changes in fair value reflected in a separate component of shareholders’ equity. | |
(f) | Stock-based compensation For management purposes, stock-based compensation expense has not been recognized. Under U.S. GAAP, the Company has recognized stock-based compensation expense for options granted subsequent to January 18, 2001. | |
(g) | Exploration costs For management reporting purposes, exploration costs are capitalized. Under U.S. GAAP, exploration costs are capitalized from the date upon which a bankable feasibility study has been completed. | |
(h) | Provision for environmental rehabilitation For management reporting purposes, environmental rehabilitation costs are provided for, based upon the net present value of the expected future obligation. Under U.S. GAAP, environmental rehabilitation costs have been provided for, based on the units of production method based on the expected ultimate rehabilitation amount. | |
(i) | Accounting for the Bendigo options For management reporting purposes, the changes in value of the Company’s option to acquire an additional stake in Bendigo is not accounted for. Under U.S. GAAP, changes in value of the Company’s option to acquire an additional stake in Bendigo are recognized in income. | |
(j) | Business combinations — deferred tax gross up For management reporting purposes, deferred taxes are not recognized on fair value adjustments arising in a business combination. Under U.S. GAAP, deferred taxes are recognized on fair value adjustments arising in a business combination. | |
(k) | Business combinations — traded equity securities issued as consideration For management reporting purposes, traded equity securities issued as consideration in a business combination are valued on the date they are issued. Under U.S. GAAP, traded equity securities issued as consideration in a business combination are valued at the date upon which the terms of the transaction are announced. This gave rise to an additional fair value adjustment which is being amortized under U.S. GAAP. | |
(l) | Business combinations — Loan to share purchase scheme For management reporting purposes, loans to the share purchase scheme to enable the scheme to purchase Company shares are recorded as assets. Under US GAAP, such loans are recorded as a reduction of share capital. | |
(m) | Tax effects of adjustments Reflects the taxation effects of the above described US GAAP adjustments to the management reporting information. |
F-45
Harmony Gold Mining Company Limited
Notes to the Consolidated Financial Statements
Year ended June 30, 2001
Reconciliation | |||||||||||||||||||||||||||||||||||||||||||||
Australian | of segment | ||||||||||||||||||||||||||||||||||||||||||||
Free | Operations | data to the | |||||||||||||||||||||||||||||||||||||||||||
State | Evander | Kalgold | Randfontein | Elandskraal | (New | consolidated | |||||||||||||||||||||||||||||||||||||||
(South | (South | (South | (South | (South | Hampton) | Bissett | financial | ||||||||||||||||||||||||||||||||||||||
Africa) | Africa) | Africa) | Africa) | Africa) | (Australia) | (Canada) | Other | statements | Total | ||||||||||||||||||||||||||||||||||||
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | Notes | $'000 | |||||||||||||||||||||||||||||||||||
Profit and loss Product sales | 188,101 | 125,142 | 13,507 | 194,363 | 37,219 | 18,057 | 14,245 | — | 590,634 | ||||||||||||||||||||||||||||||||||||
Production costs | (181,239 | ) | (91,053 | ) | (12,834 | ) | (158,984 | ) | (25,685 | ) | (17,779 | ) | (14,636 | ) | — | (502,210 | ) | ||||||||||||||||||||||||||||
Cash operating profit | 6,862 | 34,089 | 673 | 35,379 | 11,534 | 278 | (391 | ) | — | 88,424 | |||||||||||||||||||||||||||||||||||
Other revenues | 5,502 | 4,437 | 60 | 4,823 | 30 | 2,274 | 202 | (742 | ) | 16,586 | |||||||||||||||||||||||||||||||||||
Other income (costs) | (29,520 | ) | (2,514 | ) | (2,324 | ) | (13,582 | ) | (2,836 | ) | (2,696 | ) | (24,380 | ) | 2,754 | (108 | ) | (k | ) | (75,206 | ) | ||||||||||||||||||||||||
Including: | |||||||||||||||||||||||||||||||||||||||||||||
Interest expense | (7,274 | ) | (4 | ) | (13 | ) | (3,412 | ) | — | (2,416 | ) | (1,473 | ) | (415 | ) | (15,007 | ) | ||||||||||||||||||||||||||||
Employment termination cost | — | — | (72 | ) | (4,521 | ) | — | — | — | (136 | ) | (4,729 | ) | ||||||||||||||||||||||||||||||||
Depreciation and amortization | (12,130 | ) | (1,912 | ) | (1,940 | ) | (6,904 | ) | (3,386 | ) | (1,343 | ) | (3,282 | ) | 412 | (108 | ) | (k | ) | (31,417 | ) | ||||||||||||||||||||||||
Impairment | (5,624 | ) | (1,493 | ) | — | (1,524 | ) | — | — | (19,625 | ) | — | (28,266 | ) | |||||||||||||||||||||||||||||||
Financial instruments | — | — | — | 5,596 | — | 2,044 | — | — | 7,640 | ||||||||||||||||||||||||||||||||||||
Operating profit/(loss) before tax | (17,156 | ) | 36,012 | (1,591 | ) | 26,620 | 8,728 | (144 | ) | (24,569 | ) | 2,012 | (108 | ) | 29,804 | ||||||||||||||||||||||||||||||
Taxation expense | 1,029 | (10,028 | ) | — | (4,073 | ) | (2,082 | ) | — | — | 529 | (14,625 | ) | ||||||||||||||||||||||||||||||||
Net profit/(loss) for the period before minority interest | (16,127 | ) | 25,984 | (1,591 | ) | 22,547 | 6,646 | (144 | ) | (24,569 | ) | 2,541 | (108 | ) | 15,179 | ||||||||||||||||||||||||||||||
Ounces sold ** | 686,223 | 458,212 | 49,351 | 723,421 | 122,880 | 55,653 | 44,303 | — | 2,140,043 | ||||||||||||||||||||||||||||||||||||
Tons milled (‘000) ** | 5,831 | 2,737 | 1,058 | 6,931 | 778 | 1,200 | 293 | — | 18,828 | ||||||||||||||||||||||||||||||||||||
Capital expenditure | 14,959 | 8,534 | 4,049 | 6,525 | 7,704 | 2,219 | 6,123 | 2,424 | 52,537 | ||||||||||||||||||||||||||||||||||||
Total assets | 282,979 | 106,125 | 21,368 | 270,561 | 151,229 | 128,443 | 8,150 | 60,049 | 921 | 1,029,825 | |||||||||||||||||||||||||||||||||||
Total liabilities | 254,834 | 35,512 | 3,666 | 86,658 | 19,826 | 30,799 | 2,874 | 22,438 | (1,012 | ) | 455,595 | ||||||||||||||||||||||||||||||||||
** | Production statistics are unaudited. |
Year ended June 30, 2000
Reconciliation of | |||||||||||||||||||||||||||||||||||||
segment data to the | |||||||||||||||||||||||||||||||||||||
consolidated | |||||||||||||||||||||||||||||||||||||
Evander (South | Kalgold (South | Randfontein | financial | ||||||||||||||||||||||||||||||||||
Free State (South | Africa) | Africa) | (South Africa) | Bissett | Other | statements | Total | ||||||||||||||||||||||||||||||
Africa) $'000 | $'000 | $'000 | $'000 | (Canada) $'000 | $'000 | $'000 | Notes | $'000 | |||||||||||||||||||||||||||||
Profit and loss Product sales | 243,548 | 114,189 | 14,017 | 91,126 | 8,238 | — | 472,118 | ||||||||||||||||||||||||||||||
Production costs | (213,793 | ) | (93,840 | ) | (13,098 | ) | (68,827 | ) | (9,589 | ) | — | (399,147 | ) | ||||||||||||||||||||||||
Cash operating profit | 29,755 | 20,349 | 919 | 23,299 | (1,351 | ) | — | 72,971 | |||||||||||||||||||||||||||||
Other revenues | 11,814 | 4,529 | 245 | 9,094 | 54 | (7,203 | ) | 18,533 | |||||||||||||||||||||||||||||
Other income (costs) | (15,581 | ) | 1,858 | (3,802 | ) | 1,666 | (3,223 | ) | 1,499 | (332 | ) | (k | ) | (18,015 | ) | ||||||||||||||||||||||
Including: | |||||||||||||||||||||||||||||||||||||
Interest Expense | (1,546 | ) | (38 | ) | (35 | ) | — | (1,033 | ) | (550 | ) | (3,202 | ) | ||||||||||||||||||||||||
Employment termination cost | — | (222 | ) | — | — | — | — | (222 | ) | ||||||||||||||||||||||||||||
Depreciation and amortization | (12,333 | ) | (1,838 | ) | (3,289 | ) | (1,805 | ) | (2,191 | ) | (9 | ) | (332 | ) | (k | ) | (21,797 | ) | |||||||||||||||||||
Reversal of former employees’ post retirement benefits | 1,461 | 2,439 | — | — | — | — | 3,900 | ||||||||||||||||||||||||||||||
Operating profit/(loss) before tax | 25,888 | 26,736 | (2,638 | ) | 34,059 | (4,520 | ) | (5,704 | ) | (332 | ) | 73,489 | |||||||||||||||||||||||||
Taxation expense | (2,477 | ) | (6,028 | ) | (341 | ) | (3,644 | ) | (44 | ) | (1,015 | ) | (13,549 | ) | |||||||||||||||||||||||
Net profit/(loss) for the period before minority interest | 23,411 | 20,708 | (2,979 | ) | 30,415 | (4,564 | ) | (6,719 | ) | (332 | ) | 59,940 | |||||||||||||||||||||||||
Ounces sold ** | 856,816 | 393,235 | 48,483 | 300,448 | 26,943 | — | 1,625,925 | ||||||||||||||||||||||||||||||
Tons milled (‘000) ** | 6,267 | 2,650 | 1,226 | 2,763 | 190 | — | 13,096 | ||||||||||||||||||||||||||||||
Capital expenditure | 9,158 | 10,090 | 1,008 | 2,506 | 7,242 | — | 30,004 | ||||||||||||||||||||||||||||||
Total assets | 252,218 | 141,219 | 48,450 | 266,396 | 17,005 | 40,577 | 6,323 | 772,188 | |||||||||||||||||||||||||||||
Total liabilities | 134,803 | 38,141 | 3,899 | 109,405 | 16,719 | 18,910 | 321,877 | ||||||||||||||||||||||||||||||
** | Production statistics are unaudited. |
F-46
Report of Independent Accountants
To the Board of Directors of Harmony Gold Mining Company Limited
We have audited the accompanying consolidated statement of financial position of Hill 50 Limited (formerly Hill 50 Gold NL) and its subsidiaries as of 30 June 2001, and the related consolidated statement of financial performance and cash flows for the year ended 30 June 2001. These historical financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in Australia and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the historical financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the historical consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hill 50 Limited at 30 June 2001, and the results of their financial performance and their cash flows for the year then ended, in conformity with accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of accounting principles generally accepted in the United States of America would have affected the determination of equity and financial position as at 30 June 2001, and the determination of results of operations for the year ended 30 June 2001, to the extent summarized in Note 34 to the historical consolidated financial statements.
PricewaterhouseCoopers | Perth, Australia | |
Chartered Accountants | 14 June 2002 |
F-47
HILL 50 LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE
FOR THE YEAR ENDED 30 JUNE 2001
(All amounts in A$’000 unless otherwise noted)
2001 | ||||||||
Notes | A$'000 | |||||||
Sales revenue | 2 | 102,654 | ||||||
Cost of goods sold | (82,567 | ) | ||||||
Gross profit | 20,087 | |||||||
Other revenues from ordinary activities | 2 | 1,539 | ||||||
Royalties | (2,500 | ) | ||||||
Borrowing costs expensed | (41 | ) | ||||||
Exploration written off | (1,312 | ) | ||||||
Capital mining costs written off | (1,407 | ) | ||||||
Corporate and head office costs | (2,107 | ) | ||||||
Other expenses from ordinary activities | (66 | ) | ||||||
Profit from ordinary activities before income tax expense | 3 | 14,193 | ||||||
Income tax expense relating to ordinary activities | 4 | (3,788 | ) | |||||
Net profit attributable to members of Hill 50 Gold NL | 10,405 | |||||||
Basic earnings per share (cents per share) | 8.30 | |||||||
Diluted earnings per share (cents per share) | 7.22 | |||||||
Unfranked dividend per share (cents per share) | 5 | 4.5 |
The above consolidated statement of financial performance should be read in conjunction with the accompanying notes.
F-48
HILL 50 LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2001
(All amounts in A$’000 unless otherwise noted)
2001 | ||||||||
Notes | A$'000 | |||||||
Current Assets | ||||||||
Cash assets | 21 | (a) | 17,209 | |||||
Gold bullion | 1,728 | |||||||
Receivables | 6 | 2,792 | ||||||
Inventories | 7 | 9,110 | ||||||
Total Current Assets | 30,839 | |||||||
Non Current Assets | ||||||||
Receivables | 8 | — | ||||||
Other financial assets | 9 | 20 | ||||||
Inventories | 10 | 405 | ||||||
Property, plant and equipment | 11 | 32,320 | ||||||
Mine properties, development and exploration | 12 | 71,677 | ||||||
Other | 13 | 501 | ||||||
Total Non Current Assets | 104,923 | |||||||
Total Assets | 135,762 | |||||||
Current Liabilities | ||||||||
Payables | 14 | 14,992 | ||||||
Other amounts payable | 15 | 7,009 | ||||||
Provisions | 16 | 6,196 | ||||||
Total Current Liabilities | 28,197 | |||||||
Non Current Liabilities | ||||||||
Other amounts payable | 15 | 4,000 | ||||||
Deferred income | 17 | 1,531 | ||||||
Deferred tax liabilities | 11,548 | |||||||
Provisions | 18 | 8,638 | ||||||
Total Non Current Liabilities | 25,717 | |||||||
Total Liabilities | 53,914 | |||||||
Net Assets | 81,848 | |||||||
Equity | ||||||||
Contributed equity | 19 | 47,598 | ||||||
Retained profits | 20 | 34,250 | ||||||
Total Equity | 81,848 | |||||||
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
F-49
HILL 50 LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 June 2001
(All amounts in A$’000 unless otherwise noted)
2001 | ||||||||
Notes | A$ | |||||||
Cash Flows from Operating Activities | ||||||||
Cash receipts from customers | 109,568 | |||||||
Payments to suppliers and employees | (77,558 | ) | ||||||
Management fees received | 205 | |||||||
Interest received | 420 | |||||||
Mining royalties | (2,500 | ) | ||||||
Borrowing costs | (41 | ) | ||||||
Revenue from management of gold contracts | 2,272 | |||||||
Payments for exploration expenditure | (2,446 | ) | ||||||
Goods and services tax paid | (996 | ) | ||||||
Other income | 184 | |||||||
Net cash flows from operating activities | 21 | (b) | 29,108 | |||||
Cash Flows from Investing Activities | ||||||||
Acquisition of property, plant and equipment | (249 | ) | ||||||
Proceeds from sale of non-current assets | 104 | |||||||
Payments for capital expenditure | (22,710 | ) | ||||||
Deposit paid on new project | (1,000 | ) | ||||||
Net cash flows used in investing activities | (23,855 | ) | ||||||
Cash flows from Financing Activities | ||||||||
Proceeds from issue of shares | 675 | |||||||
Net cash flows from financing activities | 675 | |||||||
Net increase in Cash Held | 5,928 | |||||||
Add opening cash brought forward | 11,281 | |||||||
Closing cash carried forward | 21 | (a) | 17,209 | |||||
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
F-50
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of accounting
The financial statements have been prepared in accordance with the historical cost convention, except for bullion, which is measured at the amount realised upon delivery subsequent to the year end, being either the spot gold price or contract price.
The financial report is a general purpose financial report which has been prepared in accordance with the requirements of applicable Accounting Standards and other mandatory professional reporting requirements (Urgent Issues Group Consensus Views).
The accounting policies have been consistently applied from the previous year.
Principles of consolidation
The consolidated financial statements are those of the Group, comprising Hill 50 Gold NL (the parent entity) and all entities which Hill 50 Gold NL controlled from time to time during the year and at balance date.
Information from the financial statements of subsidiaries is included from the date the parent company obtains control until such time as control ceases. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which the parent company had control. Subsidiary acquisitions are accounted for using the purchase method of accounting.
The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist.
All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.
Cash
Cash on hand and in banks and short term deposits are stated at the lower of cost and net realisable value. For the purpose of the statement of cashflows, cash includes cash on hand and in banks and money market investments readily convertible to cash within 2 working days, net of outstanding bank overdrafts.
Receivables
Receivables are recognised and carried at the nominal amount due, less a provision for any uncollectable debts. An estimate of doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. Receivables from related parties are recognised and carried at the nominal amount due.
Inventories
Ore stocks, gold in process and stores Ore stocks, gold in process and stores are valued at the lower of cost and net realisable value using an average cost method and applying absorption costing. Cost includes expenditure incurred in acquiring and bringing the inventories to their existing condition and location.
F-51
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Gold bullion
Gold bullion is valued at the amount realised upon delivery subsequent to the year end, being either the spot gold price or contract price.
Recoverable amount
Non current assets are not revalued to an amount above their recoverable amount and where carrying values exceed this recoverable amount assets are written down. In determining recoverable amounts the expected net cash flows have not been discounted.
Property, plant and equipment
Cost and valuation
Property, plant and equipment are carried at cost, and except where stated and excluding freehold land, are depreciated over their expected useful economic lives using the straight line method, or where appropriate, over the estimated life of the mine.
Major depreciation periods are:
- mine buildings: Life of mine
- - mine specific plant and equipment: Life of mine
- - head office furniture and equipment: 5 years
Leases
Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.
Operating leases
The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight line basis.
Mine properties, development and exploration
Expenditure on acquisition, exploration, evaluation and development costs for an area of interest upon which development has commenced are carried forward separately for each area of interest. Accumulated expenditure is amortised over the life of the area of interest to which such costs relate on a production output basis.
Expenditure on acquisition, exploration and evaluation relating to an undeveloped area of interest is carried forward where rights to tenure of the area of interest are current and;
(i) | it is expected that expenditure will be recouped through successful development and exploitation of the area of interest or alternatively by its sale and/or; | ||
(ii) | exploration and evaluation activities are continuing in an area of interest but at balance date have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. |
F-52
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
At the end of each reporting period the Directors assess the carrying value of the exploration expenditure carried forward in respect of each area of interest and where uncertainty exists as to the future viability of certain areas the value of the area of interest is written down or provided against.
Other non current assets
Investments
Investments are carried at the lower of cost and estimated net realisable value.
Other
Other items of carry forward expenditure having a benefit or relationship to more than one accounting period are amortised or written off over the periods to which such expenditure relates.
Accounts payable
Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group.
Employee entitlements
Provision is made for employee entitlement benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, sick leave and long service leave. Liabilities arising in respect of wages and salaries, annual leave, sick leave and any other employee entitlements expected to be settled within twelve months of the reporting date are measured at their nominal amounts. All other employee entitlement liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the interest rates attaching to government guaranteed securities which have terms to maturity approximating the terms of the related liability are used.
Employee entitlements expenses arising in respect of the following categories:
• | wages and salaries and annual leave; and | |
• | other types of employee entitlements |
are charged against profits in their respective categories.
The value of the employee option plan described in Note 23 is not being charged as an employee entitlement expense.
In respect of the Group’s defined contributions superannuation plans, any contributions made to the superannuation funds by entities within the Group are charged against profits when due.
F-53
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Restoration costs
Restoration costs that are expected to be incurred are provided for as part of the exploration, evaluation, development, construction or production phases that give rise to the need for restoration. Accordingly these costs are recognised gradually over the life of the facility as these phases occur. The costs include obligations relating to reclamation of waste site closure, platform removal and other costs associated with the restoration of the site. These estimates of the restoration obligations are based on anticipated technology and legal requirements and future costs which have not been discounted to their present value. Any changes in the estimates are adjusted on a prospective basis. In determining the restoration obligations the entity has assumed no significant changes will occur in the relevant Federal and State legislation in relation to the restoration of such mines in the future.
Contributed equity
Contributed equity is recognised at the fair value of the consideration received by the company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.
Revenue and gains and losses
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
Gold production
Revenue from gold production is recognised when the gold is despatched to a gold refinery.
Interest
Control of a right to receive consideration for the provision of, or investment in, assets has been attained.
Rendering of services
Revenue is recognised where the contract outcome can be reliably measured:
• | control of a right to be compensated for the services has been attained and the stage of completion can be reliably measured; |
Revenue is recognised where the contract outcome cannot be reliably measured;
• | revenue is only measured to the extent that costs have been incurred. |
Gold hedging and management of forward sales program
Revenues and costs arising from hedges of specific future production are not recognised as gains or losses until the time of settlement of the underlying transaction.
F-54
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
When a hedge transaction is terminated or settled early and the underlying transaction is still expected to occur, the gains or losses arising as a result of the hedge are deferred until settlement of the underlying transaction. When a hedge transaction is terminated or settled early because the underlying transaction is no longer expected to take place, gains or losses arising from the hedge are included in gains and losses in the statement of financial performance for that period. Premiums received or paid upon entering into option contracts which hedge or commit specific future production, together with subsequently realised and unrealised gains or losses, are deferred until delivery of the hedged or committed production.
Non-hedge derivative instruments
Any premiums received and gains or losses incurred in respect of derivative instruments held for other than specifically committed hedge transactions, are deferred and recognised in the statement of financial performance on delivery or expiry of that instrument.
Income tax
Tax effect accounting is applied using the liability method whereby income tax is regarded as an expense and is calculated on the accounting profit after allowing for permanent differences. To the extent timing differences occur between the time items are recognised in the financial statements and when items are taken into account in determining taxable income, the net related taxation benefit or liability, calculated at current rates, is disclosed as a future income tax benefit or a provision for deferred income tax. The net future income tax benefit relating to tax losses and timing differences is not carried forward as an asset unless the benefit is virtually certain of being realised.
The income tax expense for the year is calculated using the 34% tax rate, however the deferred tax balances have been adjusted for the decreased corporate tax rate of 30% for the tax year 2001/02 onwards. The adjustment recognises that reversal of timing differences will occur within the 2001/02 or later income tax year, at which time tax will be attributed at a lower rate. The corresponding adjustment has been credited to income tax expense.
Earnings per share
Basic earnings per share is determined by dividing the profit from ordinary activities after tax by the weighted average number of ordinary shares outstanding during the financial year. Diluted earnings per share is determined by dividing the profit from ordinary activities after tax by the weighted average number of ordinary shares (both issued and potentially dilutive) outstanding during the financial year.
Acquisition of assets
The cost method of accounting is used for all acquisitions of assets regardless of whether shares or other assets are acquired. Cost is determined as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs incidental to the acquisition.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value at the date of the acquisition. The discount rate used is the rate at which similar borrowing could be obtained under comparable terms and conditions.
F-55
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Where the fair value of the identifiable net assets acquired, including any liability for restructuring costs, exceeds the cost of acquisition, the difference, representing a discount on acquisition, is accounted for by reducing proportionately the fair values of the non-monetary assets acquired until the discount is eliminated. Where, after reducing to zero the recorded amounts of the non-monetary assets acquired, a discount balance remains, it is recognised as revenue in the statement of financial performance.
2. REVENUE FROM ORDINARY ACTIVITIES
2001 | |||||
A$'000 | |||||
Revenue from operating activities: | |||||
Sales revenue | 102,654 | ||||
Other revenue from ordinary activities: | |||||
Operating revenues | |||||
Revenue from management of gold and foreign currency contracts | 566 | ||||
Management fees | 180 | ||||
Non-operating revenues | |||||
Sales of non current assets | 206 | ||||
Interest received or due and receivable from other corporations | 420 | ||||
Other income | 167 | ||||
Total | 1,539 | ||||
Total revenue from ordinary activities | 104,193 | ||||
3. EXPENSES AND GAINS
2001 | |||||
A$'000 | |||||
(a) Expenses | |||||
Write down of stockpiles | 97 | ||||
Write off of mine capital development | 1,407 | ||||
Amortisation of non current assets | |||||
Mine properties and development | 11,867 | ||||
Other | 23 | ||||
Total amortisation of non-current assets | 11,890 | ||||
Depreciation of non current assets | |||||
Buildings | 216 | ||||
Plant and equipment | 3,154 | ||||
Total depreciation of non current assets | 3,370 | ||||
Borrowing costs | |||||
Performance bond fees | 41 | ||||
Provision for write down of exploration expenditure | 1,312 | ||||
Government mining royalties | 2,500 | ||||
Rental – operating leases | 136 | ||||
Superannuation contributions | 461 | ||||
Provisions | |||||
Employee entitlements | 75 | ||||
Spares inventory | 59 | ||||
(b) Gains | |||||
Net gain on disposal of non-current assets | (161 | ) |
F-56
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
3. EXPENSES AND GAINS (Continued)
(c) Variation from Appendix 4B and Annual Report to Shareholders
Subsequent to the release of the Hill 50’s Appendix 4B report to the Australian Stock Exchange and distribution of the annual report to shareholders it was noted that an error was made in tax effect accounting for the group during the year ended 30 June 2001. During the preparation of these reaudited financial statements of the Group it was detected that an understatement of the income tax expense and deferred tax liability was recorded in the originally lodged Appendix 4B and annual report. The understatement was a result of overestimating the income tax credit resulting from the change in income tax rates from 36% to 34% and subsequently to 30%.
The understatement relates solely to the financial year ended 30 June 2001 and the impact is as follows:
Revised | Original | |||||||
numbers | numbers | |||||||
A$'000 | A$'000 | |||||||
Statement of financial performance: | ||||||||
Profit from ordinary activities before income tax expense | 14,193 | 14,193 | ||||||
Income tax expense relating to ordinary activities | (3,788 | ) | (2,470 | ) | ||||
Net profit | 10,405 | 11,723 | ||||||
Statement of financial position: | ||||||||
Deferred income tax liability | 11,548 | 10,230 | ||||||
Total Liabilities | 53,914 | 52,596 | ||||||
Net Assets | 81,848 | 83,166 | ||||||
Retained profits | 34,250 | 35,568 | ||||||
Total equity | 81,848 | 83,166 |
4. INCOME TAX
2001 | ||||
A$'000 | ||||
The prima facie tax on operating profit differs from the income tax provided in the financial statements as follows: | ||||
Prima facie tax expense on profit from ordinary activities | 4,826 | |||
Add/(less) tax effect of permanent differences: | ||||
Research and development allowance | (3 | ) | ||
Inter company dividend rebate | — | |||
Other items (net) | 56 | |||
Adjustment relating to previous year | (315 | ) | ||
4,564 | ||||
Net credit attributable to change in income tax rate | (776 | ) | ||
Income tax expense attributable to operating profit | 3,788 | |||
The future income tax benefit attributable to tax losses recognised as a reduction of the provision for deferred income tax is A$4,543,000.
This benefit for tax losses will only be obtained if:
(i) | the Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised, or | ||
(ii) | the losses are transferred to an eligible entity in the Group, and | ||
(iii) | the Group continues to comply with the conditions for deductibility imposed by tax legislation, and no changes in tax legislation adversely affect the Group in realising the benefit from the deductions for the losses. |
F-57
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
5. DIVIDEND PROVIDED FOR ON ORDINARY SHARES
2001 | ||||
A$'000 | ||||
Dividend proposed | ||||
Unfranked dividend (4.5 Australian cents per share) | 5,750 | |||
No franking credits are available at 30 June 2001 |
6. RECEIVABLES (CURRENT)
2001 | ||||
A$'000 | ||||
Receivable from related parties* director-related entity | 27 | |||
27 | ||||
Goods and services tax refund due | 110 | |||
Other debtors | 2,655 | |||
2,792 | ||||
*Related party receivables are payable on normal commercial terms
7. INVENTORIES (CURRENT)
2001 | ||||||||
A$'000 | ||||||||
Ore stockpiles at cost | 4,352 | |||||||
Gold in circuit at cost | 1,540 | |||||||
Stores and spares at cost | 3,218 | |||||||
Total inventories | 9,110 | |||||||
8. RECEIVABLES (NON CURRENT)
2001 | ||||
A$'000 | ||||
Loans to controlled entities | — | |||
Provision for non-recovery | — | |||
— | ||||
9. INVESTMENTS (NON CURRENT)
2001 | ||||
A$'000 | ||||
Shares in controlled entities | — | |||
Shares in unlisted company at cost | 20 | |||
20 | ||||
Details of controlled entities
Percentage ownership held by | |||||||||||
ordinary fully paid shares | |||||||||||
30/6/01 | Country of incorporation | ||||||||||
Vadessa Pty Ltd* | 100 | % | Australia | ||||||||
Mt Magnet Gold NL | 100 | % | Australia | ||||||||
South Kal Mines Pty Ltd* | 100 | % | Australia |
*These entities are not audited as they are small Pty Ltd companies and there is no requirement for them to be audited.
F-58
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
10. INVENTORIES (NON CURRENT)
2001 | ||||
A$'000 | ||||
Spares – at cost | 851 | |||
Provision for obsolescence | (446 | ) | ||
405 | ||||
11. PROPERTY, PLANT AND EQUIPMENT
2001 | ||||||||
A$'000 | ||||||||
Freehold land at cost | 75 | |||||||
Buildings at cost | 9,418 | |||||||
Provision for depreciation | (7,308 | ) | ||||||
2,110 | ||||||||
Plant and equipment at cost | 66,467 | |||||||
Provision for depreciation | (37,201 | ) | ||||||
29,266 | ||||||||
Capital works in progress at cost | 869 | |||||||
Total property plant and equipment – at cost | 76,829 | |||||||
Total provision for depreciation | (44,509 | ) | ||||||
Total written down value | 32,320 | |||||||
(a) Valuations
The directors have assessed the carrying value of freehold land and buildings based on their use in the mining industry. The recoverable amounts based on these assessments supports the value of these assets at 30 June 2001. The Group does not have a set policy for regular revaluation of land and buildings.
(b) Reconciliations
2001 | ||||
A$'000 | ||||
Freehold land | ||||
Carrying amount at beginning | 81 | |||
Disposals | (6 | ) | ||
75 | ||||
Buildings | ||||
Carrying amount at beginning | 2,067 | |||
Additions | 60 | |||
Additions through acquisition of new project | 200 | |||
Disposals | (1 | ) | ||
Depreciation expense | (216 | ) | ||
2,110 | ||||
Plant and equipment | ||||
Carrying amount at beginning | 26,150 | |||
Additions | 1,362 | |||
Disposals | (92 | ) | ||
Additions through acquisition of new project | 5,000 | |||
Depreciation expense | (3,154 | ) | ||
29,266 | ||||
Capital work in progress | ||||
Carrying amount at beginning | 2,042 | |||
Additions | 1,773 | |||
Transfers to buildings | (60 | ) | ||
Transfers to plant and equipment | (1,297 | ) | ||
Transfers to mine properties development and exploration | (1,589 | ) | ||
869 | ||||
F-59
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
12. MINE PROPERTIES, DEVELOPMENT AND EXPLORATION
2001 | ||||
A$'000 | ||||
Mine properties, development, infrastructure and exploration and evaluation costs carried forward in respect of mining areas of interest | ||||
Producing areas – at cost | 93,148 | |||
Accumulated amortisation | (30,570 | ) | ||
62,578 | ||||
Pre-production areas – at cost | ||||
Exploration and evaluation phases | 15,296 | |||
Provision for writedown of area of interest | (6,197 | ) | ||
9,099 | ||||
71,677 | ||||
The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective mining areas. Amortisation of the costs carried forward for the development phase is not being charged pending the commencement of production.
The Group’s activities in the mining industry in Australia are subject to regulations and approvals including mining, heritage, environmental and native title including the implications of the court decisions in the “Mabo”, “Wik” and “Miriuwung and Gajerrong” cases. Approvals, although granted in most cases, are discretionary. The ultimate effects of native title have yet to be determined.
13. NON CURRENT ASSETS – OTHER
2001 | ||||
A$'000 | ||||
Deferred research and development expenditure | 133 | |||
Provision for amortisation | (133 | ) | ||
Other expenditure at cost | 585 | |||
Provision for amortisation | (84 | ) | ||
501 | ||||
14. PAYABLES (CURRENT)
2001 | ||||
A$'000 | ||||
Trade creditors and accruals | 14,992 | |||
14,992 | ||||
F-60
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
15. OTHER AMOUNTS PAYABLE
2001 | |||||
A$'000 | |||||
(See notes 21(c) , 25 and 33) | |||||
Amounts due on acquisition of new project | |||||
Current | 7,009 | ||||
Non-current | 4,000 | ||||
At 30 June 2001, these liabilities were not secured |
16. PROVISIONS (CURRENT)
2001 | ||||
A$'000 | ||||
Provision for dividend on ordinary shares | 5,750 | |||
Provision for employee entitlements | 446 | |||
6,196 | ||||
17. DEFERRED INCOME
2001 | ||||
A$'000 | ||||
Premium received on unexpired call option | 1,531 | |||
18. PROVISIONS (NON CURRENT)
2001 | ||||
A$'000 | ||||
Provision for mine site restoration | 8,638 | |||
19. CONTRIBUTED EQUITY
2001 | ||||
A$'000 | ||||
Issued and paid up capital | ||||
126,445,406 ordinary fully paid shares | 47,598 | |||
Shares issued during the year
(i) During the financial year, 1,663,506 shares were issued upon the exercise of share options. The consideration received was A$675,204.
(ii) 3,500,000 ordinary shares were issued as consideration for the purchase of the Maud Creek Gold Project in June 2001. The value attributed to these shares was A$2,520,000.
Terms and conditions of contributed equity
Ordinary fully paid shares have the right to receive dividends as declared and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of shares held. Each ordinary fully paid share entitles its holder to one vote, either in person or by proxy, at a meeting of the company.
F-61
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
19. CONTRIBUTED EQUITY (Continued)
2001 | |||||
No. | |||||
Options – listed | |||||
Secondary Options exercisable on or before 1 June 2002 at an exercise price of 70 Australian cents per option | |||||
Balance at beginning of year | 21,881,956 | ||||
Exercised during the year | (1,006 | ) | |||
Balance outstanding at end of year | 21,880,950 | ||||
Options – unlisted | |||||
Exercisable at 38 Australian cents at any time on or before 22 October 2001 | |||||
Balance at beginning of year | 1,000,000 | ||||
Balance outstanding at end of year | 1,000,000 | ||||
Employee options exercisable at 36 Australian cents subject to certain conditions on or before 26 January 2001 | |||||
Balance at beginning of year | 1,282,500 | ||||
Lapsed during the year | — | ||||
Exercised during the year | (1,282,500 | ) | |||
Balance outstanding at end of year | — | ||||
Employee options exercisable at Australian 56 cents subject to certain conditions on or before 21 May 2001 | |||||
Balance at beginning of year | 140,000 | ||||
Lapsed during the year | (30,000 | ) | |||
Exercised during the year | (110,000 | ) | |||
Balance outstanding at end of year | — | ||||
Employee options exercisable at 84 Australian cents subject to certain conditions on or before 1 December 2001 | |||||
Balance at beginning of year | 1,000,000 | ||||
Balance outstanding at end of year | 1,000,000 | ||||
Employee options exercisable at 95 Australian cents subject to certain conditions on or before 6 January 2002 | |||||
Balance at beginning of year | 725,000 | ||||
Lapsed during the year | (45,000 | ) | |||
Balance outstanding at end of year | 680,000 | ||||
Employee options exercisable at 95 Australian cents subject to certain conditions on or before 12 October 2003 | |||||
Issued during the year | 1,220,000 | ||||
Balance outstanding at year end | 1,220,000 | ||||
Contractor options exercisable at 56 Australian cents subject to certain conditions on or before 21 May 2001 | |||||
Balance at beginning of year | 270,000 | ||||
Lapsed during the year | — | ||||
Exercised during the year | (270,000 | ) | |||
Balance outstanding at end of year | — | ||||
Contractor options exercisable at 95 Australian cents subject to certain conditions on or before 6 January 2002 | |||||
Balance at beginning of year | 100,000 | ||||
Balance outstanding at end of year | 100,000 | ||||
TOTAL OPTIONS ON ISSUE | 25,880,950 | ||||
F-62
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
20. RETAINED PROFITS/(ACCUMULATED LOSSES)
2001 | ||||
A$'000 | ||||
Balance at beginning of year | 29,595 | |||
Net profit attributable to members of Hill 50 Gold NL | 10,405 | |||
Total available for appropriation | 40,000 | |||
Dividends provided for | (5,750 | ) | ||
Balance at end of year | 34,250 | |||
21. STATEMENT OF CASH FLOWS
2001 | |||||
A$'000 | |||||
(a) Reconciliation of cash | |||||
Cash balance comprises: | |||||
Cash at bank | 13,812 | ||||
Short term deposits | 3,397 | ||||
Closing cash balance | 17,209 | ||||
(b) Reconciliation of the operating profit after tax to the net cash flows from operations | |||||
Operating profit after income tax | 10,405 | ||||
Depreciation and amortisation | |||||
Property, plant and equipment | 3,370 | ||||
Other non-current assets | 13,297 | ||||
Writedown of stockpiles | 97 | ||||
Profit on sale of non-current assets | (161 | ) | |||
Provision for employee entitlements | 75 | ||||
Other provisions | (37 | ) | |||
Exploration written off | 1,312 | ||||
Provision for spares inventory | 59 | ||||
Changes in assets and liabilities: | |||||
Trade and other creditors | 3,697 | ||||
Inventory | (3,427 | ) | |||
Receivables | (2,025 | ) | |||
Gold bullion | 552 | ||||
Deferred income tax liability | 3,788 | ||||
Deferred income | 1,531 | ||||
Exploration and evaluation expenditure | (3,425 | ) | |||
Net cash flows from operating activities | 29,108 | ||||
(c) Financing Facility
The Group has a financing agreement with a bank which provides the following facilities:
(i) | a Working Capital Cash Advance Facility of two tranches for A$10 million and A$15 million respectively. The first tranche is available for working capital needs and terminates on 20 December 2002. The second tranche is available for the acquisition or development of other projects and terminates on 20 December 2004. Both tranches were undrawn at 30 June 2001 (see Note 25). | |
(ii) | a Gold and Currency Hedging Agreement. (See Note 32) | |
(iii) | a Performance Bond Facility of such an amount as agreed by the bank from time to time. The amount drawn in guarantees given by the bank under this facility at 30 June 2001 was A$2,857,500. |
F-63
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
21. STATEMENT OF CASH FLOWS (Continued)
The Financing Facility is secured by guarantees of entities within the Group and fixed and floating charges over the assets of the Group. The interest rate on the facility is 1.5% over the bank bill rate. The Financing Facility continues until terminated by one of the parties.
(d) Non-Cash Financing and Investing Activities
During the year, the Company acquired the Maud Creek Gold Project for the issue of 3,500,000 fully paid ordinary shares in the Company. The value attributed to the share issue was A$2,520,000.
22. EXPENDITURE COMMITMENTS
(a) Mineral tenement leases
The Group has certain obligations with respect to mineral tenements and minimum expenditure requirements on areas as follows:
2001 | ||||
A$'000 | ||||
Within 1 year | 5,138 | |||
1-2 years | 5,395 | |||
2-5 years | 17,857 |
The commitments may vary depending upon additions or relinquishments of tenements.
(b) Operating lease commitments
Lease expenditure commitments in respect of operating leases are payable as follows:
2001 | ||||
A$'000 | ||||
Within 1 year | 195 | |||
1-5 years | 369 | |||
564 | ||||
The operating leases relate to head office premises and freehold land which is used for mining purposes.
23. EMPLOYEE ENTITLEMENTS AND SUPERANNUATION COMMITMENTS
2001 | ||||
A$'000 | ||||
(a) Employee entitlements | ||||
The aggregate employee entitlement liability is comprised of: | ||||
Provisions – current | 446 | |||
(b) Superannuation
All employees may nominate a superannuation fund of their choice (subject to the fund meeting certain criteria) entitling them to varying levels of benefits on retirement, disability or death. The end benefit is determined by factors such as the accumulation of contributions and earnings of the fund and various options within the fund available to each employee.
The Group contributes to the nominated superannuation funds at the rate of 8% of gross salaries and wages. These contributions are legally enforceable in Australia.
F-64
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
23. EMPLOYEE ENTITLEMENTS AND SUPERANNUATION COMMITMENTS
(c) Employee Option Plan
On 28 November 1997 shareholders approved the implementation of the Hill 50 Gold NL Employee Option Plan. Up to the date of this report 6,610,000 employee options had been issued, of which 2,900,000 remained outstanding at 30 June 2001. The options are exercisable at prices ranging from 84 Australian cents to 95 Australian cents per option within 3 years from the date of issue of the option; except that:
• | 50% of the options may be converted to shares after a period of 12 months has elapsed from the date of issue; | |
• | 100% of the options may be converted to shares after a period of 18 months has elapsed from the date of issue. |
At balance date 2,900,000 options were eligible to be exercised.
All employees in the Group are eligible to participate in the plan at the discretion of the directors.
24. CONTINGENT LIABILITIES
(a) The Group has a performance bond facility at 30 June 2001 of A$2,857,500. The facility is secured as part of the financing facility outlined in Note 21(c) above.
(b) In the unlikely event that the Group is forced to cease gold production for the medium to long term due to unforeseen events, it may be required to settle its hedging contracts (See Note 32). The financial effect of such a settlement cannot be quantified as it would be dependent on factors such as spot gold prices and foreign currency exchange rates at that time.
(c) Hill 50 Gold NL has entered into an employment agreement with P G Cook under which termination benefits may become payable.
25. SUBSEQUENT EVENTS
In July 2001, Hill 50 Gold NL drew down A$10 million of the first tranche of its financing facility (see Note 21(c)) replacing part of the working capital used in the Mt Magnet plant expansion in the previous financial year. At the same time, the company settled the purchase of the New Celebration Gold Project by the payment of a further approximately A$11m (through its controlled entity South Kal Mines Pty Ltd).
Of the A$10m drawn down on the financing facility, A$3m has subsequently been repaid and a further A$3m is due to be repaid in June 2002. The remaining A$4m is due for repayment during the 2002/3 financial year.
In November 2001, a placement of 13 million new ordinary shares at an application price of A$1.00 per share was made to client of Southern Cross Equities. In the same month, the Group acquired the Brocks Creek Gold Project in the Northern Territory and the Lake Cowan Gold Project in Western Australia for a cash price of A$3.2m plus a royalty of A$20 per ounce on all gold produced from the Zapopan mine at Brocks Creek and a royalty of A$1 per dry tonne of ore mined and milled from the Lake Cowan Project.
In December 2001, 1,095,284 shares were issued under a Dividend Reinvestment Plan, at a consideration of approximately A$1.2m.
A name change from Hill 50 Gold NL to Hill 50 Limited was announced in January 2002.
F-65
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
25. SUBSEQUENT EVENTS (Continued)
On 13 March 2002, Ted Grobicki was appointed as director and Chairman of Hill 50 Limited.
In April 2002, the Group entered into a joint venture agreement whereby it contributed certain mining assets to earn a 50% interest in the Burnside Joint Venture, an exploration and mining project in the Northern Territory of Australia.
In April 2002, Harmony Gold Australia Pty Ltd successfully completed its take over of Hill 50 Limited, and by June 2002, 100% ownership had been obtained. The Company was suspended from the ASX in May 2002 and delisted during June 2002.
Peter Newton resigned as a director effective from 18 April 2002.
Since balance date, 355,247 listed options were converted to fully paid ordinary shares raising A$229k. In addition, 7,890,000 employee options were converted to fully paid ordinary shares raising A$8.0m, and a further 4,250,000 employee options were granted. Also, 100,000 contractor options were converted to fully paid ordinary shares raising A$95k.
26. EARNINGS PER SHARE
(a) Basic earnings/(loss) per share | 8.30 | Australian cents | ||
(b) Diluted earnings/(loss) per share | 7.22 | Australian cents | ||
The weighted average number of ordinary shares outstanding during the year used in the calculation of basic EPS | 125,431,129 | |||
27. REMUNERATION OF DIRECTORS
2001 | ||||
A$ | ||||
(See also Note 30(b)(ii)) | ||||
Income paid or payable or otherwise made available in respect of the financial year to all directors of each entity in the Group, directly or indirectly by the entities of which they are directors or any related party | 530,325 | |||
The number of directors of Hill 50 Gold NL whose remuneration including superannuation contributions falls within the following bands:
2001 | ||||
A$30,000-A$39,999 | 1 | |||
A$80,000-A$89,999 | 2 | |||
A$320,000-A$329,999 | 1 |
In the opinion of the Directors, remuneration paid to directors is considered reasonable.
F-66
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
28. REMUNERATION OF EXECUTIVES
2001 | ||||
A$ | ||||
Remuneration received or due and receivable by executive officers of the Group whose remuneration is A$100,000 or more from entities in the Group or a related party in connection with the management of the affairs of the entities in the Group whether as an executive officer or otherwise | 320,000 | |||
The number of executives of the Group and the Company whose remuneration falls within the following bands:
2001 | ||||
A$320,000 - A$329,999 | 1 |
29. AUDITORS REMUNERATION
2001 | ||||
A$ | ||||
Amounts received or due and receivable by Ernst & Young, the former auditors of Hill 50 Gold NL for: | ||||
-an audit or review of the financial statements of the entity and any other entity in the Group | 39,814 | |||
-other services in relation to the entity and any other entity in the Group | 62,465 | |||
102,279 | ||||
No audit fees or other services fees were paid to PricewaterhouseCoopers by Hill 50 Gold NL during the year ended 30 June 2001. All fees in connection with the reaudit of Hill 50 Gold NL for the year ended 30 June 2001 by PricewaterhouseCoopers will be paid for by Harmony Gold Mining Company Limited.
30. RELATED PARTY TRANSACTIONS
(a) Directors:
The directors of Hill 50 Gold NL during the year were:
PJ Newton
PG Cook
DM Okeby
PT Cunningham (appointed on 21 May 2001)
(b) The following related party transactions occurred during the financial year:
(i) Transactions between Directors of Hill 50 Gold NL and the Group
Okeby & Co
During the financial year the Group paid legal costs and disbursements on a normal commercial basis totalling A$85,709 to Okeby & Co, a firm in which D M Okeby is the principal. This amount has not been included in Note 27. In addition, Okeby & Co paid Hill 50 Gold NL A$30,740 for office rent as a sub-tenant of the Company’s leased premises.
Ashlea Enterprises Pty Ltd
Since the appointment in May 2001 of P T Cunningham as an executive director, Hill 50 Gold NL paid A$37,525 to Ashlea Enterprises Pty Ltd, a company associated with Mr Cunningham, for consulting fees on a normal commercial basis. This amount has been included in Note 27.
Other Transactions
During the financial year transactions with Directors occurred on normal commercial terms to a total value not exceeding A$2,000 in aggregate. These were either trivial in nature or within a normal employee, customer or supplier relationship on terms no more favourable than those which it is reasonable to expect the entity would have adopted if dealing with the Directors at arms length in the same circumstances and which did not have the potential to adversely affect decisions made by users of this report, or the discharge of accountability of the Directors if disclosed by general description.
F-67
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
30. RELATED PARTY TRANSACTIONS (Continued)
(ii) Transactions with Director related entities
During the year Abelle Pty Ltd and its subsidiary, Bluestone Nominees Pty Ltd, both mining companies in which Mr. P J Newton and Mr D M Okeby are directors, purchased on arms length terms, goods and services from the Company and Mt. Magnet Gold NL aggregating A$379,437. At 30 June 2001, the sum owed by the same companies to Hill 50 Gold NL amounted to A$26,663 which has subsequently been paid.
(b) Equity instruments of directors
Shares and options over shares of Hill 50 Gold NL held directly, indirectly or beneficially by directors or their related entities were:
As at 30 June 2001 | ||||||||||||
Listed Secondary | ||||||||||||
Name | Shares | Options | Unlisted Options | |||||||||
PJ Newton | 2,917,483 | 533,496 | 300,000 | |||||||||
PG Cook | 767,243 | 202,743 | 1,400,000 | |||||||||
DM Okeby | 590,481 | 88,096 | 300,000 | |||||||||
PT Cunningham | 150,000 | — | 100,000 |
During the year Mr Newton exercised 250,000 employee options and Mr Okeby exercised 150,000 employee options all at an exercise price of 36 Australian cents per option. Mr Okeby also sold 40,000 shares on market.
(c) Directors’ benefits – other
No other benefits have been received or are receivable by directors, other than those already disclosed in the notes to the accounts.
31. SEGMENTAL INFORMATION
The Group operates predominantly in one industry in one geographic location. The operations of the Group consist of gold and other mineral exploration, mining and exploitation primarily within Australia.
32. FINANCIAL INSTRUMENTS
(a) Terms, conditions and policies
The Group’s accounting policies, including the terms and conditions of each class of financial asset, financial liability and equity instrument, both recognised and unrecognised at balance date, are as follows:
Recognised | ||||||
financial | ||||||
instruments | Notes | Policies | Terms and conditions | |||
(i) Financial assets | ||||||
Cash and bullion | Cash represents petty cash, cash at bank, investments with financial institutions at call and gold bullion that is readily convertible to cash within 2 working days. Cash is carried at nominal amounts and bullion is carried at the amount realised at subsequent sale, being either the spot or contract price. | Available within 2 business days. | ||||
Receivables | 6, 8 | Receivables are carried at nominal value less any provision for doubtful debts. A provision for doubtful debts is raised if there is doubt as to the recoverability of the debt. | Receivables, other than loans to or from controlled entities, are normally short-term in nature, i.e. settlement within 30 days. |
F-68
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Recognised | ||||||
financial | ||||||
instruments | Notes | Policies | Terms and conditions | |||
Unlisted shares | 9 | Unlisted shares are carried at cost less any provision for diminution in value | Unlisted shares are held for long term benefits. | |||
(ii) Financial liabilities | ||||||
Accounts payable | 14, 15 | Liabilities are recognised for amounts to be paid in the future for goods and services received | Trade accounts are normally settled in accordance with the suppliers’ terms. | |||
(iii) Equity | ||||||
Ordinary shares | 19 | Ordinary share capital is recognised at the fair value of the consideration received by the company | Details of shares issued and the terms and conditions of options outstanding over ordinary shares at balance date are set out in note 19. |
Unrecognised | ||||||
financial | ||||||
instruments | Notes | Policies | Terms and conditions | |||
(iv) Forward commodity contracts and options | The Group enters into commodity forward contracts and option contracts where it agrees to buy or sell gold in the future at predetermined prices. The objective is to hedge a proportion of forecast production in order to enhance and protect future anticipated revenues in the medium term from adverse gold price fluctuations. No contracts are subject to margin calls The Directors have no intention of early closure of its contracts should this result in losses to the company; however in the unlikely event that the Group is forced to cease gold production for the medium to long term due to unforeseen events, it may be required to settle its hedging contracts. The financial effect of such a settlement cannot be quantified as it would be dependent on factors such as spot gold prices and foreign currency exchange rates at that time. At 30 June 2001 the unrecognised unfavourable position based on indicative unwind values of the above contracts was approximately A$115 million (2000: A$ 84 million). For accounting policies regarding the treatment of hedging losses or gains, see note 1 of these financial statements | At balance date the following gold hedge contracts were outstanding: Flat forward contracts (i) 588,657ozs at A$517.75 (with a built-in gold lease rate of 1.05%) in quarterly deliveries of: • 1 x 13,657oz due September 2001; • 15 x 25,000oz each due December 2001 to June 2005; • 16 x 12,500oz each due September 2005 to June 2009. (ii) 2 x 12,500ozs at A$485 with a built in fixed lease rate, expiring quarterly from September 2001. Convertible forwards (i) Flat forward contracts with a built in lease rate of 1.05% which convert to put options if gold trades at a barrier or below any time prior to expiry. Barriers are 4 contracts at A$443, 4 at A$440, 4 at A$437 and 4 at A$434. • 16 x 12,500oz at A$517.75 quarterly from September 2005 to June 2009. (ii) Flat forwards with a fixed lease rate built in, which convert to put options if gold trades at A$500 or below a window period before expiry. • 8 x 5,000oz at A$518 expiring quarterly from December 2002. |
F-69
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Unrecognised | ||||||
financial | ||||||
instruments | Notes | Policies | Terms and conditions | |||
It is the Group’s policy not to recognise forward commodity contracts and options in the financial statements. During the year 203,575 ounces of gold were sold. The average price received was A$504 per ounce compared with the average spot price of A$501. At 30 June 2001 the Group’s gold derivative commitments including forward and spot deferred contracts and options total 1,439,087 ounces which represents approximately 75% of its gold reserves. The Group’s hedging is partially secured by charges etc. over the Group (see note 21(c) above) | (iii) Flat forward contracts, 50% of which convert to A$500 strike put options if gold trades at a barrier at any time prior to expiry. The balance remain as forwards. • 9 x 25,000oz with A$500 strike and barrier at A$500 (for contracts due June 2002 to December 2003) and barrier at A$446 (for contracts due June 2004 to June 2006). Lease rates are variable with 1% built in. Spot deferred contracts • 15,430ozs at approximately A$487 average. Convertible put options • 12 x 12,500oz (150,000oz) with strike prices between A$546.25 and A$567.15, convertible to fixed forward contracts, subject to spot gold prices being above specified conversion levels. The live window runs for 2 years expiring 6 months before settlement date. Built-in gold lease rates are 2% subject to a 50% waiver. The built-in rate escalates at 0.1% per annum to 2.5% whilst the waiver escalates at A$12.75 per ounce per annum from a base of A$476.50. Settlement dates are quarterly from 30 June 2003 to 31 March 2006. At balance date the following non-hedge gold derivative contracts were outstanding: Call options granted • 8 x 5,000ozs at A$518 expiring quarterly from December 2002. • 2 x 10,000ozs at A$510/oz expiring quarterly from 28 September 2001. • 1 x 45,000ozs at A$440 expiring September 2004, with a barrier at A$440 from 31 December 2002 to expiry. • 1 x 40,000oz down and out barrier call at A$560 expiring June 2003 with a A$500 barrier from September 2001 to expiry. 1 x 50,000oz at A$475 expiring 27 December 2001. |
F-70
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Unrecognised | ||||||
financial | ||||||
instruments | Notes | Policies | Terms and conditions | |||
The Group’s commodity hedging facilities are structured so that at any time (subject to the reserve base criteria being satisfactory), at the Company’s option, they are capable of being rolled over or changed into different types of derivatives. The quantities, prices and delivery dates shown above are therefore subject to alteration. The Group had no foreign currency contracts at 30 June 2001. |
(b) Interest rate risk
The Group’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at balance date are as follows:
Total carrying | ||||||||||||||||
amount as per | ||||||||||||||||
statement of | Weighted | |||||||||||||||
Floating | Non-interest | financial | average | |||||||||||||
Financial Instruments | interest rate | bearing | position | interest rate | ||||||||||||
A$'000 | A$'000 | A$'000 | % | |||||||||||||
(i) Financial assets | ||||||||||||||||
Cash | 17,209 | 17,209 | 5.60 | |||||||||||||
Debtors | — | 2,792 | 2,792 | N/a | ||||||||||||
Unlisted shares | — | 20 | 20 | N/a | ||||||||||||
Total financial assets | 17,209 | 2,812 | 20,021 | — | ||||||||||||
(ii) Financial liabilities | ||||||||||||||||
Accounts payable | — | 26,001 | 26,001 | N/a | ||||||||||||
Total financial liabilities | — | 26,001 | 26,001 | — | ||||||||||||
(c) Net fair values
Other than the contracts referred to in note 32(a)(iv) the aggregate net fair value of financial assets and liabilities is represented by their carrying amounts in the Statement of Financial Position.
(d) Risk exposures
(i) Recognised financial assets The Group’s maximum exposures to credit risk at balance date in relation to each class of recognised financial assets is the carrying amount of those assets as indicated in the Statement of Financial Position.
(ii) Commodity price risks
The Group manages commodity price risk as appropriate by hedging a proportion of future anticipated revenues against fluctuations in the prices of the underlying commodity.
F-71
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
The following table sets out the quantity of future gold production committed under gold bullion contracts in place at 30 June 2001, the weighted average contract price and the settlement periods of outstanding contracts:
Deliver gold bullion | Quantity (ozs) | Average contracted price A$ | ||||||
-within one year | 224,087 | 499 | ||||||
-one to two years | 232,500 | 522 | ||||||
-two to three years | 240,000 | 521 | ||||||
-three to four years | 255,000 | 509 | ||||||
-four to five years | 187,500 | 522 | ||||||
-over five years | 300,000 | 518 |
(iii) Foreign exchange risks
The Group has no significant exposure to foreign exchange risks.
(iv) Concentrations of credit risk
The Group’s credit risk is concentrated on one major customer and one refiner. However the Group minimises this risk by dealing with reputable entities.
33. ACQUISITION OF ASSETS AND LIABILITIES
On 29 June 2001, the Group acquired assets and liabilities relating to the New Celebration project. Details of the acquisition are as follows:
2001 | |||||
A$'000 | |||||
Fair value of identifiable net assets acquired: | |||||
Plant and equipment | 5,200 | ||||
Mine properties, development and exploration | 7,470 | ||||
Inventories | 3,339 | ||||
Provisions for rehabilitation | (4,000 | ) | |||
12,009 | |||||
Represented by: | |||||
Deposit paid | 1,000 | ||||
Amount payable (Note 15) | 11,009 | ||||
Total cash consideration | 12,009 | ||||
F-72
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
34. RECONCILIATION TO US GAAP
The financial statements are prepared in accordance with Australian Generally Accepted Accounting Principles (“A GAAP”), which differs in certain significant respects from Generally Accepted Accounting Principles in the United States, (“US GAAP”). The approximate effect of applying US GAAP principles to net profit and equity is set out below:
2001 | ||||
A$'000 | ||||
Net Profit under A GAAP | 10,405 | |||
Revenue recognition | (394 | ) | ||
Exploration expenditure | (1,982 | ) | ||
Loss on financial instruments | (31,339 | ) | ||
Income on sold options | 1,531 | |||
Income tax effect of US GAAP adjustments | 9,655 | |||
Net loss under US GAAP before cumulative effect of change in accounting principle | (12,124 | ) | ||
Cumulative effect of change in accounting principle for derivatives and hedging activities, net of tax | (52,261 | ) | ||
Net loss under US GAAP | (64,385 | ) | ||
Components of comprehensive income/(loss) under US GAAP | — | |||
�� | ||||
Comprehensive loss under US GAAP | (64,385 | ) | ||
Basic loss per share before cumulative effect of change in accounting principle | (9.67 | )c | ||
Basic loss per share | (51.33 | )c | ||
Fully diluted earnings per share before cumulative effect of change in accounting principle | (9.67 | )c | ||
Fully diluted earnings per share | (51.33 | )c | ||
Equity under A GAAP | 81,848 | |||
Revenue recognition | (394 | ) | ||
Exploration expenditure | (5,471 | ) | ||
Loss on financial instruments | (115,319 | ) | ||
Income on sold options | 1,531 | |||
Income tax effect of US GAAP adjustments | 35,896 | |||
Provision for dividend | 5,750 | |||
Equity under US GAAP | 3,841 | |||
F-73
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
34. RECONCILIATION TO US GAAP (continued)
Description of GAAP differences
(a) Revenue recognition and gold bullion inventory
Hill 50 Limited values gold bullion on hand at the amount realized upon delivery subsequent to year end, being either the spot gold price or contract price. Revenue recognition and inventory measurement under US GAAP requires that revenue not be recorded before title to the product has transferred to the purchaser and inventory is recorded at the lower of cost and net realizable value.
(b) Exploration expenditure
Expenditure incurred on the exploration and evaluation of minerals properties may be capitalized and deferred under A GAAP to the extent that such expenditure is expected to be recoverable. Under US GAAP exploration expenditure and costs of carrying and retaining undeveloped properties are charged to expense as incurred.
(c) Financial instruments
Hedges
Accounting for derivatives and hedging under A GAAP is different than under US GAAP. Under A GAAP, designated hedges are accounted for as off balance sheet instruments with any gain or loss only recognized upon close out of the financial instrument. Gains and losses realized on early close out of hedges are deferred and are recognized over the period in which the designated production was to be delivered.
Under US GAAP, none of the instruments held by the Company qualified for hedge accounting under FAS 133 due to the documentation requirements of FAS 133 not being met. FAS 133 requires that all such derivative instruments are recorded on the balance sheet with changes in fair value being recognized in earnings. Upon adoption of FAS 133 on 1 July 2000, the Company recorded a cumulative effect of change in accounting principle adjustment of A$52.3 million, net of tax at 30%. Pre-FAS 133, designated hedges were not recorded on the balance sheet, while speculative instruments were recorded on the balance sheet and marked to market with the resulting gain or loss recognized in earnings.
Non-hedges
Under A GAAP, there is no requirement to mark to market the position of non-hedge instruments at balance date. These instruments are accounted for as off balance sheet instruments with any gain or loss only recognised upon close out of the financial instrument. Under US GAAP, these non-hedge financial instruments are treated as speculative instruments and have been recorded on the balance sheet and marked to market with the resulting gain or loss recognized in earnings.
(d) Income on sold options
Under A GAAP, premiums received on a sold call option have been recorded as deferred income and such income will be amortized over the life of the option. Under US GAAP, the income received on a sold call option has been recorded in income, as movements in the market value of this financial instrument have been recorded in net income as outlined in (c) above.
F-74
HILL 50 LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
34. RECONCILIATION TO US GAAP (continued)
(e) Income tax
Under A GAAP, deferred taxes are provided for using the liability method with recognition and carry forward of future income tax benefits on a similar basis to FAS 109, except for tax assets and liabilities relating to temporary (timing) differences which are all classified as non-current. Consequently, no adjustment has been made to the methodology by which income taxes have been calculated and brought to account. Under US GAAP the future income tax benefits and liabilities would be required to be allocated in the statement of financial position between current and non-current items. This allocation would not have a significant effect on the financial position presentation.
(f) Dividends
Under A GAAP, dividends declared after the end of each financial year are recorded and provided for in the period to which they relate. Under US GAAP, dividends are recorded in the period in which they are declared.
F-75
HILL 50 LIMITED
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE
HALF YEAR ENDED 31 DECEMBER 2001
(All amounts in A$’000 unless otherwise noted)
December 31, 2001 | December 31, 2000 | |||||||||||
A$'000 | A$'000 | |||||||||||
Notes | (unaudited) | (unaudited) | ||||||||||
Sales revenue | 64,056 | 50,706 | ||||||||||
Cost of goods sold | (50,297 | ) | (43,025 | ) | ||||||||
Gross profit | 13,759 | 7,681 | ||||||||||
Other revenues from ordinary activities | 552 | 1,156 | ||||||||||
Royalties | (1,640 | ) | (1,230 | ) | ||||||||
Borrowing costs expensed | (330 | ) | (13 | ) | ||||||||
Corporate and head office costs | (1,675 | ) | (998 | ) | ||||||||
Other expenses from ordinary activities | (707 | ) | (52 | ) | ||||||||
Profit from ordinary activities before income tax expense | 2 | 9,959 | 6,544 | |||||||||
Income tax expense relating to ordinary activities | (3,006 | ) | (1,963 | ) | ||||||||
Net profit attributable to members of Hill 50 Limited | 6,953 | 4,581 | ||||||||||
Basic earnings per share (cents per share) | 5.21 | 3.69 | ||||||||||
Diluted earnings per share (cents per share) | 4.67 | 3.46 |
The above condensed consolidated statement of financial performance
should be read in conjunction with the accompanying notes.
F-76
HILL 50 LIMITED
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(All amounts in A$’000 unless otherwise noted)
December 31, | June 30, | |||||||
2001 | 2001 | |||||||
A$'000 | A$'000 | |||||||
(unaudited) | (audited) | |||||||
Current Assets | ||||||||
Cash assets | 18,832 | 17,209 | ||||||
Gold bullion | 6,399 | 1,728 | ||||||
Receivables | 4,858 | 2,792 | ||||||
Inventories | 8,479 | 9,110 | ||||||
Total Current Assets | 38,568 | 30,839 | ||||||
Non Current Assets | ||||||||
Other financial assets | 420 | 20 | ||||||
Inventories | 953 | 405 | ||||||
Property, plant and equipment | 34,439 | 32,320 | ||||||
Mine properties, development and exploration | 83,398 | 71,677 | ||||||
Other | 21 | 501 | ||||||
Total Non Current Assets | 119,231 | 104,923 | ||||||
Total Assets | 157,799 | 135,762 | ||||||
Current Liabilities | ||||||||
Payables | 20,743 | 22,001 | ||||||
Interest bearing liabilities | 7,000 | — | ||||||
Provisions | 901 | 6,196 | ||||||
Total Current Liabilities | 28,644 | 28,197 | ||||||
Non Current Liabilities | ||||||||
Other amounts payable | — | 4,000 | ||||||
Deferred income | 1,531 | 1,531 | ||||||
Deferred tax liabilities | 14,555 | 11,548 | ||||||
Provisions | 9,138 | 8,638 | ||||||
Total Non Current Liabilities | 25,224 | 25,717 | ||||||
Total Liabilities | 53,868 | 53,914 | ||||||
Net Assets | 103,931 | 81,848 | ||||||
Equity | ||||||||
Contributed equity | 63,363 | 47,598 | ||||||
Retained profits | 40,568 | 34,250 | ||||||
Total Equity | 103,931 | 81,848 | ||||||
The above condensed consolidated statement of financial performance
should be read in conjunction with the accompanying notes.
F-77
HILL 50 LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
HALF YEAR ENDED 31 DECEMBER 2001
(All amounts in A$’000 unless otherwise noted)
December 31, 2001 | December 31, 2000 | |||||||||||
A$'000 | A$'000 | |||||||||||
Notes | (unaudited) | (unuadited) | ||||||||||
Cash Flows from Operating Activities | ||||||||||||
Receipts from sales | 68,202 | 47,739 | ||||||||||
Payments to suppliers and employees | (40,250 | ) | (35,137 | ) | ||||||||
Interest received | 337 | 129 | ||||||||||
Expenditure on exploration | (3,267 | ) | (1,419 | ) | ||||||||
Income on hedging contracts | — | 624 | ||||||||||
Borrowing costs | (255 | ) | — | |||||||||
Royalties | (1,640 | ) | (1,231 | ) | ||||||||
Goods and services tax paid | (319 | ) | — | |||||||||
Other income | 98 | 130 | ||||||||||
Net Cash Flows from Operating Activities | 22,906 | 10,835 | ||||||||||
Cash Flows from Investing Activities | ||||||||||||
Acquisition of property, plant and equipment | (9,788 | ) | (986 | ) | ||||||||
Proceeds from sale of property, plant and equipment | 89 | 29 | ||||||||||
Payments for mine properties and development | (17,563 | ) | (10,771 | ) | ||||||||
Long term cash deposit | (400 | ) | — | |||||||||
Net Cash Flows used in Investing Activities | (27,662 | ) | (11,728 | ) | ||||||||
Cash Flows from Financing Activities | ||||||||||||
Proceeds from issue of shares | 14,791 | 132 | ||||||||||
Costs of capital raising | (260 | ) | — | |||||||||
Loan repayment | (3,000 | ) | — | |||||||||
Dividend paid | (5,152 | ) | — | |||||||||
Net Cash Flows from Financing Activities | 6,379 | 132 | ||||||||||
Net increase/(decrease) in cash held | 1,623 | (761 | ) | |||||||||
Cash at Beginning of Half-Year | 17,209 | 11,281 | ||||||||||
Cash at End of Half-Year | 18,832 | 10,520 | ||||||||||
The above condensed consolidated statement of financial performance
should be read in conjunction with the accompanying notes.
F-78
HILL 50 LIMITED
NOTES TO THE HALF YEAR STATEMENTS
31 DECEMBER 2001
1. | BASIS OF PREPARATION OF THE FINANCIAL REPORT | |
(a) | Basis of preparation |
The condensed consolidated statement of financial position of the Company as at 31 December 2001 and the condensed consolidated statements of financial performance and cash flows for the six months ended 31 December 2001 and 2000 are unaudited. For the purposes of these interim financial statements, certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The 30 June 2001 condensed consolidated statement of financial position was derived from the audited financial statements, but does not include all disclosures required by generally accepted accounting principles. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended 30 June 2001.
In the opinion of the management of the Company, all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation of the financial statements have been included therein. The results of interim periods are not necessarily indicative of the results for the entire year.
(b) | Accounting policies |
The financial statements have been prepared in accordance with and comply with Australian Accounting Standards and the principles of the historical cost convention. The accounting policies applied are consistent with those of the previous year.
The preparation of the financial statements in conformity with Australian Accounting Standards requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial report.
The half-year report should be read in conjunction with the Annual Financial Report of Hill 50 Limited as at 30 June 2001. It is also recommended that the half-year report be considered together with any public announcements made by Hill 50 Limited during the half-year ended 31 December 2001 in accordance with the continuous disclosure obligations arising under the Corporations Act 2001.
2. | OPERATING PROFIT |
Profit from ordinary activities before income tax expense includes the following expense whose disclosure is relevant in explaining the financial performance of the entity:
December 31, | December 31, | |||||||
2001 | 2000 | |||||||
A$'000 | A$'000 | |||||||
(unaudited) | (unaudited) | |||||||
Borrowing costs | 330 | 13 | ||||||
Amortisation and depreciation | 8,849 | 7,707 | ||||||
F-79
HILL 50 LIMITED
NOTES TO THE HALF YEAR STATEMENTS
31 DECEMBER 2001
2. | OPERATING PROFIT (Continued) |
Variation from Appendix 4B and Half Year Report to Shareholders
As noted in the reaudited financial statements for the year ended 30 June 2001, subsequent to the release of the company’s Appendix 4B report to the Australian Stock Exchange and distribution of the annual report to shareholders it was noted that an error was made in tax effect accounting for the group during the year ended 30 June 2001. During the preparation of these reaudited financial statements of the Group it was detected that an understatement of the income tax expense and deferred tax liability was recorded in the originally lodged Appendix 4B
and annual report. The understatement was a result of overestimating the income tax credit resulting from the change in income tax rates from 36% to 34% and subsequently to 30%.
The understatement relates to the financial year ended 30 June 2001, and impacts the deferred tax liability and retained earnings for that period. The impact on the half year is as follows:
Revised | Original | Revised | Original | |||||||||||||
Numbers | numbers | Numbers | numbers | |||||||||||||
31/12/01 | 31/12/01 | 30/06/01 | 30/06/01 | |||||||||||||
A$'000 | A$'000 | A$'000 | A$'000 | |||||||||||||
Statement of financial performance: | ||||||||||||||||
Profit from ordinary activities before income tax expense | 9,959 | 9,959 | 14,193 | 14,193 | ||||||||||||
Income tax expense relating to ordinary activities | (3,006 | ) | (3,006 | ) | (3,788 | ) | (2,470 | ) | ||||||||
Net profit | 6,953 | 6,953 | 10,405 | 11,723 | ||||||||||||
Statement of financial position: | ||||||||||||||||
Deferred income tax liability | 14,555 | 13,237 | 11,548 | 10,230 | ||||||||||||
Total Liabilities | 53,868 | 52,550 | 53,914 | 52,596 | ||||||||||||
Net Assets | 103,931 | 105,249 | 81,848 | 83,166 | ||||||||||||
Retained profits | 40,568 | 41,886 | 34,250 | 35,568 | ||||||||||||
Total equity | 103,931 | 105,249 | 81,848 | 83,166 |
3. | DIVIDENDS PAID OR PROVIDED ON ORDINARY SHARES |
During the half-year an unfranked dividend totalling A$6,385,814 (2000: nil) was paid to holders of ordinary shares, against which A$5,750,000 (2000: nil) had been provided as a final dividend at 30 June 2001.
4. | SEGMENT INFORMATION |
The consolidated entity operates predominantly in one business segment in one geographic location. The operations of the consolidated entity consist of gold and other mineral exploration, mining and exploitation primarily within Australia.
5. | CONTINGENT ASSETS AND LIABILITIES |
Since the last annual reporting date, there has been no material change in any contingent assets or contingent liabilities.
F-80
HILL 50 LIMITED
NOTES TO THE HALF YEAR STATEMENTS
31 DECEMBER 2001
6. | SUBSEQUENT EVENTS |
A name change from Hill 50 Gold NL to Hill 50 Limited was announced in January 2002.
On 13 March 2002, Ted Grobicki was appointed as director and Chairman of Hill 50 Limited.
In April 2002, the Group entered into a joint venture agreement whereby it contributed certain mining assets to acquire a 50% interest in the Burnside Joint Venture, an exploration and mining project in the Northern Territory of Australia.
In April 2002, Harmony Gold Australia Pty Ltd successfully completed its take over of Hill 50 Limited, and by June 2002, 100% ownership had been obtained. The Company was suspended from the ASX in May 2002 and delisted during June 2002.
Peter Newton resigned as a director effective from 18 April 2002.
Since balance date, 32,240 listed options were converted to fully paid ordinary shares raising A$23k. In addition, 5,520,000 employee options were converted to fully paid ordinary shares raising A$6.4m, and 100,000 contractor options were converted to fully paid ordinary shares raising A$95k.
7. | RECONCILIATION TO US GAAP |
The financial statements are prepared in accordance with Australian Generally Accepted Accounting Principles (“A GAAP”), which differs in certain significant respects from Generally Accepted Accounting Principles in the United States, (“US GAAP”). The approximate effect of applying US GAAP principles to net profit and equity is set out below:
December 31, | December 31, | |||||||
2001 | 2000 | |||||||
A$'000 | A$'000 | |||||||
(unaudited) | (unaudited) | |||||||
Net Profit under A GAAP | 6,953 | 4,581 | ||||||
Revenue recognition | (682 | ) | (25 | ) | ||||
Exploration expenditure | (3,209 | ) | (1,399 | ) | ||||
Loss on financial instruments | 205 | 14,905 | ||||||
Income tax effect of US GAAP adjustments | 1,106 | (4,584 | ) | |||||
Net profit/(loss) under US GAAP before cumulative effect of change in accounting principle | 4,373 | 13,478 | ||||||
Cumulative effect of change in accounting principle for derivatives and hedging activities, net of tax | — | (49,275 | ) | |||||
Net profit/(loss) under US GAAP | 4,373 | (35,797 | ) | |||||
Components of comprehensive income/(loss) under US GAAP | — | — | ||||||
Comprehensive profit/(loss) under US GAAP | 4,373 | (35,797 | ) | |||||
Basic earnings/(loss) per share before cumulative effect of change in accounting principle | 3.42c | 10.85c | ||||||
Basic earnings/(loss) per share | 3.42c | (28.84)c | ||||||
Fully diluted earnings/(loss) per share before cumulative effect of change in accounting principle | 2.94c | 9.33c | ||||||
Fully diluted earnings/(loss) per share | 2.94c | (28.84)c |
F-81
HILL 50 LIMITED
NOTES TO THE HALF YEAR STATEMENTS
31 DECEMBER 2001
7. | RECONCILIATION TO US GAAP (Continued) |
June 30, | December 31, | |||||||||||
December 31, 2001 | 2001 | 2000 | ||||||||||
A$'000 | A$'000 | A$'000 | ||||||||||
(unaudited) | (audited) | (unaudited) | ||||||||||
Equity under A GAAP | 103,931 | 81,848 | 78,711 | |||||||||
Revenue recognition | (1,076 | ) | (394 | ) | (25 | ) | ||||||
Exploration expenditure | (8,680 | ) | (5,471 | ) | (4,466 | ) | ||||||
Loss on financial instruments | (115,114 | ) | (115,319 | ) | (69,075 | ) | ||||||
Income on sold options | 1,531 | 1,531 | — | |||||||||
Income tax effect of US GAAP adjustments | 37,002 | 35,896 | 25,012 | |||||||||
Provision for dividends | — | 5,750 | — | |||||||||
Equity under US GAAP | 17,594 | 3,841 | 30,157 | |||||||||
Description of GAAP differences
(a) | Revenue recognition and gold bullion inventory |
Hill 50 Limited values gold bullion on hand at the amount realized upon delivery subsequent to year end, being either the spot gold price or contract price. Revenue recognition and inventory measurement under US GAAP requires that revenue not be recorded before title to the product has transferred to the purchaser and inventory is recorded at the lower of cost and net realizable value.
(b) | Exploration expenditure |
Expenditure incurred on the exploration and evaluation of minerals properties may be capitalized and deferred under A GAAP to the extent that such expenditure is expected to be recoverable. Under US GAAP exploration expenditure and costs of carrying and retaining undeveloped properties are charged to expense as incurred.
(c) | Financial instruments |
Hedges
Accounting for derivatives and hedging under A GAAP is different than under US GAAP. Under A GAAP, designated hedges are accounted for as off balance sheet instruments with any gain or loss only recognized upon close out of the financial instrument. Gains and losses realized on early close out of hedges are deferred and are recognized over the period in which the designated production was to be delivered.
Under US GAAP, none of the instruments held by the Company qualified for hedge accounting under FAS 133 due to the documentation requirements of FAS 133 not being met. FAS 133 requires that all such derivative instruments are recorded on the balance sheet with changes in fair value being recognized in earnings. Upon adoption of FAS 133 on 1 July 2000, the Company recorded a cumulative effect of change in accounting principle adjustment of A$49.3 million, net of tax at 34%. Pre-FAS 133, designated hedges were not recorded on the balance sheet, while speculative instruments were recorded on the balance sheet and marked to market with the resulting gain or loss recognized in earnings.
Non-hedges
Under A GAAP, there is no requirement to mark to market the position of non-hedge instruments at balance date. These instruments are accounted for as off balance sheet instruments with any gain or loss only recognised upon close out of the financial instrument. Under US GAAP, these non-hedge financial instruments are treated as speculative instruments and have been recorded on the balance sheet and marked to market with the resulting gain or loss recognized in earnings.
F-82
HILL 50 LIMITED
NOTES TO THE HALF YEAR STATEMENTS
31 DECEMBER 2001
7. | RECONCILIATION TO US GAAP (Continued) | |
(d) | Income on sold options |
Under A GAAP, premiums received on a sold call option have been recorded as deferred income and such income will be amortized over the life of the option. Under US GAAP, the income received on a sold call option has been recorded in income, as movements in the market value of this financial instrument have been recorded in net income as outlined in (c) above.
(e) | Income tax |
Under A GAAP, deferred taxes are provided for using the liability method with recognition and carry forward of future income tax benefits on a similar basis to FAS 109, except for tax assets and liabilities relating to temporary (timing) differences which are all classified as non-current. Consequently, no adjustment has been made to the methodology by which income taxes have been calculated and brought to account. Under US GAAP the future income tax benefits and liabilities would be required to be allocated in the statement of financial position between current and non-current items. This allocation would not have a significant effect on the financial position presentation.
(f) | Dividends |
Under A GAAP, dividends declared after the end of each financial year are recorded and provided for in the period to which they relate. Under US GAAP, dividends are recorded in the period in which they are declared.
F-83
Report of the independent auditors to the board of directors of AngloGold
Limited
We have audited the accompanying balance sheet of AngloGold Limited — FreeGold, defined under Note 1 “Nature of Operations” as of December 31, 2001 and the related statements of income, cash flows and parent company’s contribution for the year ended December 31, 2001. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in South Africa and in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of AngloGold Limited — FreeGold at December 31, 2001, and the results of its operations and its cash flows for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
As discussed in note 2.9 to the financial statements, during 2001 FreeGold changed its method of accounting for derivative financial instruments.
Ernst & Young
Registered Accountants and Auditors
Chartered Accountants (S.A.)
Johannesburg, Republic of South Africa
July 12, 2002
F-84
ANGLOGOLD LIMITED — FREEGOLD
Statement of Income
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
2001 | ||||||||
Notes | ZAR | |||||||
Sales | 2.933.7 | |||||||
Product sales | 2,933.7 | |||||||
Costs and expenses | 3,110.4 | |||||||
Production costs | 2,407.9 | |||||||
Related party production costs | 4 | 156.5 | ||||||
General and administrative | 102.1 | |||||||
Depreciation, depletion and amortization | 511.1 | |||||||
Employment severance costs | 3 | 132.8 | ||||||
Mark to market gain on financial instruments | (200.0 | ) | ||||||
Loss before income tax provision | (176.7 | ) | ||||||
Deferred income and mining tax benefit | 5 | 6.3 | ||||||
Loss before cumulative effect of accounting change | (170.4 | ) | ||||||
Cumulative effect of accounting change | 2.9 | (8.3 | ) | |||||
Net loss applicable to parent company | (178.7 | ) | ||||||
The accompanying notes are an integral part of these Financial Statements.
F-85
ANGLOGOLD LIMITED — FREEGOLD
Balance sheet
AT DECEMBER 31, 2001
(In millions)
2001 | |||||||||
Notes | ZAR | ||||||||
ASSETS | |||||||||
Current Assets | 846.7 | ||||||||
Cash | 0.5 | ||||||||
Receivables | 744.1 | ||||||||
Trade and other | 30.2 | ||||||||
Financial instruments | 13 | 696.0 | |||||||
Value added taxes | 17.9 | ||||||||
Inventories | 6 | 102.1 | |||||||
Property, plant and equipment | 7 | 2,694.8 | |||||||
Mineral reserves | 8 | 1,351.9 | |||||||
Total assets | 4,893.4 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
Current liabilities | 1,195.6 | ||||||||
Accounts payable and accrued liabilities | 9 | 141.0 | |||||||
Deferred tax current portion | 5 | 40.0 | |||||||
Financial instruments | 13 | 968.0 | |||||||
Income and mining tax payable | 46.6 | ||||||||
Deferred income and mining tax liability | 5 | 53.7 | |||||||
Provision for environmental rehabilitation | 10 | 73.6 | |||||||
Provision for post-retirement medical benefits | 11 | 683.6 | |||||||
Commitments and contingencies | 12 | ||||||||
Parent company’s contribution as per statement | 2,886.9 | ||||||||
Parent company’s contribution | 3,180.7 | ||||||||
Other comprehensive income | (293.8 | ) | |||||||
Total liabilities and parent company’s contribution | 4,893.4 | ||||||||
The accompanying notes are an integral part of these Financial Statements.
F-86
ANGLOGOLD LIMITED — FREEGOLD
Statement of Cash Flows
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
2001 | |||||||||
Notes | ZAR | ||||||||
Net cash provided by operating activities | 265.8 | ||||||||
Income before cumulative effect of accounting change | (170.4 | ) | |||||||
Reconciled to net cash provided by operations: | |||||||||
Depreciation, depletion and amortization | 14 | 511.1 | |||||||
Unrealised mark to market gain on financial | — | ||||||||
instruments | |||||||||
Net increase in provision for Environmental | 141.4 | ||||||||
rehabilitation and Post-retirement medical benefits | |||||||||
Deferred income and mining tax | (181.2 | ) | |||||||
Effect of changes in operating working capital items: | |||||||||
Decrease in receivables | (695.4 | ) | |||||||
Decrease in inventories | 28.9 | ||||||||
Decrease in accounts payable and accrued liabilities | 631.4 | ||||||||
Net cash used in investing activities | |||||||||
Additions to property, plant and equipment | (67.5 | ) | |||||||
Net cash used in financing activities | |||||||||
Net distribution to parent company | (197.8 | ) | |||||||
Net increase in cash and cash equivalents | 0.5 | ||||||||
Cash and cash equivalents — January 1, 2001 | — | ||||||||
Cash and cash equivalents — December 31, 2001 | 0.5 | ||||||||
The accompanying notes are an integral part of these Financial Statements.
F-87
ANGLOGOLD LIMITED — FREEGOLD
Statement of parent company’s contribution
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
Other | ||||||||||||
Parent Company | comprehensive | |||||||||||
contribution | income | Total | ||||||||||
ZAR | ZAR | ZAR | ||||||||||
Balance — January 1, 2001 | 3,557.2 | — | 3,557.2 | |||||||||
Net loss before cumulative effect of accounting change | (170.4 | ) | (170.4 | ) | ||||||||
Effect of adoption of SFAS133, net of tax | (8.3 | ) | 94.8 | 86.5 | ||||||||
Reclassification adjustment for net gains included in net income, net of tax | 17.9 | 17.9 | ||||||||||
Net unrealised losses on revaluation of hedge instruments, net of tax | (406.5 | ) | (406.5 | ) | ||||||||
Comprehensive income | (302.1 | ) | ||||||||||
Net distribution to parent company | (197.8 | ) | (197.8 | ) | ||||||||
Balance — December 31, 2001 | 3,180.7 | (293.8 | ) | 2,886.9 | ||||||||
The accompanying notes are an integral part of these Financial Statements.
F-88
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
1. | NATURE OF OPERATIONS | |
The Free State assets (“FreeGold”) are made up of the operations of Joel, Matjhebeng, Bambanani, Tshepong, the shares in Jeannette Gold Mines Limited and the Ernest Oppenheimer Hospital and the parent company of FreeGold as at December 31, 2001, is AngloGold Limited, (the “parent”) formerly Vaal Reefs Exploration and Mining Company Limited (Vaal Reefs). The parent was incorporated on May 9, 1944 and conducts gold-mining operations in South Africa, Mali, Namibia, Tanzania, North and South America and Australia. FreeGold operations were two standalone statutory entities until June 1998, upon which they formed part of the formation of the parent, through the consolidation of the gold interest of Anglo American plc. FreeGold focuses on the extracting of gold ore reserves and the production of gold as a precious mineral in the Free State Province of South Africa. On January 1, 2002, certain operating assets of the parent were sold to — Clidet 383 — a joint venture between Harmony Gold Mining Company Limited and African Rainbow Minerals Gold Limited. | ||
2. | SIGNIFICANT ACCOUNTING POLICIES | |
Basis of presentation:These financial statements and related notes reflect the carve-out historical results of operations and financial position of FreeGold for the year ended December 31, 2001. FreeGold believes that the methods used in the allocation of revenues and expenses are reasonable and that the statement of operations includes all revenues and costs directly and indirectly attributable to FreeGold. The amounts related to FreeGold have been determined by segregating amounts related to the operations of FreeGold from those related to the operations of other entities comprising the parent. The determination of such amounts was made by reference to individual records for financial statement items specifically relating to FreeGold or by allocation based on ounces sold, ounces produced, tons milled, number of employees, or similar references. Management believes that the allocated amounts are representative of the costs that would have been incurred if FreeGold had operated on a stand-alone basis. | ||
Under the parent’s centralized debtors, creditors and cash management systems, the cash generated or required by FreeGold is distributed to or provided by the parent through the use of intercompany accounts. Accordingly, other than petty cash, FreeGold did not maintain a separate cash balance. Interest expenses of the parent have not been allocated to FreeGold, as these relate to funding activities of the parent’s other operations. | ||
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. FreeGold’s functional currency is South African Rands (ZAR). | ||
Use of estimates: The preparation of the financial statements requires the parent’s management to make assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | ||
2.1 | Cash | |
Cash consists of petty cash. | ||
2.2 | Inventories | |
Inventories, including gold in process, gold on hand and supplies, are stated at the lower of cost or net realizable value. Gold in process is valued at the average production cost at the relevant stage of production. The cost of gold is determined principally by the weighted average cost method using related production costs. | ||
Supplies are valued at the lower of weighted average cost or net realizable value. |
F-89
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
2.3 | Development costs | |
Development costs relating to major programs at existing mines are capitalized. Development costs consist primarily of expenditures to expand the capacity of operating mines. Ordinary mine development costs to maintain production are expensed as incurred. | ||
2.4 | Depreciation, depletion and amortization | |
Depreciation, depletion and amortization of mine development costs are computed principally by the units-of-production method based on estimated proven and probable mineral reserves. Proven and probable mineral reserves reflect estimated quantities of economically recoverable reserves which can be recovered in the future from known mineral deposits. Mine plant facilities are amortized using the lesser of their useful life or units-of-production based on estimated proven and probable mineral reserves. Other fixed assets comprising mine properties, vehicles and computer equipment, are depreciated by the straight-line method over their estimated useful lives. | ||
2.5 | Mining costs | |
In general, mining costs are charged to operations as incurred. However, certain of FreeGold deposits have diverse grades over the mine’s life. Mining costs for these deposits, to the extent that they do not relate to current gold production, are capitalized and then charged to operations when the applicable gold is produced. | ||
2.6 | Asset impairment | |
FreeGold evaluates its long life assets for impairment when events or changes in circumstances indicate that the related carrying amount may not be recoverable. If the sum of estimated future cash flows on an undiscounted basis is less than the carrying amount of the related asset, an asset impairment is considered to exist. The related impairment loss is measured by comparing estimated future cash flows on a discounted basis to the carrying amount of the asset. Changes in significant assumptions underlying future cash flow estimates may have a material effect on FreeGold’s financial position and results of operations. A low gold price market, if sustained for an extended period of time, may result in future asset impairments. In addition an asset impairment is considered to exist where the net selling price of an asset held for sale is below its carrying amount. | ||
2.7 | Rehabilitation costs | |
Rehabilitation costs and related accrued liabilities, which are based on FreeGold’s interpretation of current environmental and regulatory requirements, are expensed or accrued over the operating life of the mine, principally by the units-of-production method based on estimated proven and probable mineral reserves. Interest earned on monies paid to the environmental trust fund is accrued on an annual basis and is recorded as credits to the accrued liability. | ||
Based on current environmental regulations and known rehabilitation requirements, management has included its best estimate of these obligations in its rehabilitation accrual. However, it is reasonably possible that FreeGold’s estimates of its ultimate rehabilitation liabilities could change as a result of changes in regulations or cost estimates. | ||
Environmental liabilities other than rehabilitation costs which relate to liabilities from specific events are expensed when they are known, probable and reasonably estimable. |
F-90
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
2.8 | Product sales | |
Revenue from product sales is recognized to the extent that it is certain that persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. | ||
2.9 | Financial instruments | |
The different types of financial instruments recognized on the balance sheet include investments, loans receivable, trade and other receivables, cash and cash equivalents, borrowings, derivative instruments, and trade and other payables. Financial instruments are initially measured at cost, including transaction costs, when FreeGold becomes a party to their contractual arrangements. The subsequent measurement of financial instruments is dealt with below. | ||
Derivative instruments | ||
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS133”). SFAS133 was amended in June 2000 with the issuance of Statement of Financial Accounting Standards No. 138 “Accounting for Certain Derivative Instruments and Certain Hedging Activities” (“SFAS138”). | ||
SFAS133 requires all contracts which meet the definition of a derivative to be recognized on the balance sheet as either assets or liabilities and recorded at fair value. Gains or losses arising from remeasuring derivatives to fair value each period are to be accounted for either in the income statement or in other comprehensive income, depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion which must be met in order to qualify for hedge accounting, is that the derivative must be highly effective in offsetting the change in the fair value or cash flows of the hedged item. | ||
FreeGold adopted SFAS133 effective January 1, 2001 as follows: | ||
Forward sales and gold pricing contracts are used to reduce FreeGold’s exposure to weakening precious metal prices and FreeGold intends to fulfill its obligations under these contracts by physically delivering the specified quantity of metal from its production at contract maturity. Under SFAS133 as amended by SFAS138 normal purchases and normal sales commodity-based contracts that qualify for exemption would be excluded from the scope of the statement provided that the contracts are settled by physical delivery. As a result the accounting for these contracts will not be impacted by the adoption of SFAS133 and 138. | ||
Contracts that meet the criteria for hedge accounting will be designated as hedging instruments hedging the variability of forecasted cash flows from the sale of FreeGold’s production into the spot market, and are classified as cash flow hedges under SFAS133. Where a derivative qualifies as the hedging instrument in a cash flow hedge under SFAS133, gains and losses on the derivative, to the extent effective, are deferred in other comprehensive income and reclassified to income when the hedged transaction is recorded in income. As of January 1, 2001, these contracts were recorded on the balance sheet at their fair market value of R152.9 million (currently R175.5 million), net of deferred taxation of R58.1 million (currently R80.7 million), deferred in other comprehensive income. | ||
All other contracts not meeting the criteria for the normal purchases and sales on hedge accounting will be recorded at their fair market value, with changes in value at each reporting period being recorded in income. FreeGold recorded a FAS133 transition adjustment representing the cumulative effect of an |
F-91
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
accounting change of R8.3 million loss (net of provision for deferred taxation of R5 million) on January 1, 2001 equal to the difference between the fair market value and carrying value of these contracts at that date. | ||
SFAS133 requires that derivative instruments be accounted for as follows: |
• | Commodity based (“normal purchase or normal sale”) contracts that meet the requirements of SFAS138 are recognized in earnings when they are settled by physical delivery. These contracts do not appear on the balance sheet as they simply represent agreements to sell gold produced at pre-defined quantities and prices. | ||
• | Where the conditions in SFAS133 for special hedge accounting are met the derivative is recognized on the balance sheet as either a financial asset or financial liability, and recorded at fair value. FreeGold enters into cash flow hedges whereby the effective portion of fair value gains or losses are recognized in equity (other comprehensive income) until the underlying transaction occurs, then the gains or losses are recognized in earnings or included in the initial measurement of the asset or liability. The ineffective portion of fair value gains and losses is recorded in earnings in the period to which they relate. | ||
• | All other derivative instruments are measured at their estimated fair value, with the changes in estimated fair value at each reporting date being reported in earnings as realized or unrealized gains or losses on financial instruments in the period to which they relate. |
The estimated fair values of derivative instruments are determined at discrete points in time based on the relevant market information. These estimates are calculated with reference to the prevailing market rates using industry standard valuation techniques. | ||
2.10 | Post-retirement benefits | |
The costs of post-retirement benefits are made up of those obligations which FreeGold has towards current and retired employees. These obligations can be separated into the following categories, and are determined as follows: | ||
Defined contribution plans | ||
Pension and provident funds | ||
Contributions to defined contribution plans in respect of services during a current year are recognized as an expense in that year. | ||
Defined benefit plans | ||
Pension funds | ||
The current service cost in respect of defined benefit plans is recognized as an expense in the current year. Past service costs, experience adjustments, the effect of changes in actuarial assumptions and the effects of plan amendments in respect of existing employees are recognized as an expense or income systematically over the expected remaining service period of those employees. | ||
Post-retirement medical aid obligation | ||
The post-retirement medical aid obligation in respect of existing employees is recognized as an expense systematically over the expected remaining service period of those employees, using the projected unit credit method. The liability in respect of retired employees is recognized immediately as an expense. |
F-92
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
2.11 | Deferred income and mining tax | |
FreeGold follows the liability method of accounting for deferred income and mining tax whereby FreeGold recognizes the tax consequences of temporary differences by applying current statutory tax rates applicable to future years to differences between financial statement amounts and the tax bases of certain assets and liabilities. Changes in deferred tax assets and liabilities include the impact of any tax rate changes enacted during the year. | ||
2.12 | Recent pronouncements | |
In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS140”). SFAS140 requires that after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. FreeGold does not expect the adoption of SFAS140 to have a material impact on its earnings and financial position. | ||
In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS141”) and Statement for Financial Accounting Standards No. 142, “Accounting for Goodwill and Intangible assets” (“SFAS142”). SFAS141 eliminates the pooling method and requires that all business combinations be accounted for under the purchase method. SFAS141 also requires that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS142 requires goodwill to be reviewed for impairment rather than amortized and that intangible assets other than goodwill be amortized over their useful lives. SFAS141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS142 will be effective for fiscal years beginning after December 15, 2001. | ||
FreeGold does not expect the adoption of SFAS141 to have a material impact on its earnings and financial position. FreeGold is reviewing the provisions of SFAS142 and has not yet determined the impact of this statement on the financial statements. | ||
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations (AROs)” (“SFAS143”). | ||
The statement provides accounting and reporting guidance for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction or normal operations of long-lived assets. The standard is effective January 1, 2003. FreeGold is reviewing the provisions of this statement and has not yet determined the impact of the statement on the financial statements. | ||
In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” (“SFAS144”). | ||
SFAS144 addresses significant issues relating to the implementation of Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” (“SFAS121”) and develops a single accounting model, based on the framework established in SFAS121 for long-lived assets to be disposed of by sale, whether such assets are or are not deemed to be a business. SFAS144 also modifies the accounting and disclosure rules for discontinued operations. This standard will be adopted from January 1, 2002. The impact of SFAS144 on FreeGold’s financial statements has not yet been determined. |
F-93
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
3. | COSTS AND EXPENSES | |
Employment Severance Costs | ||
Total employee severance costs amounted to ZAR 132.8 million for 2001 and were due to retrenchments reflecting mainly rationalization of operations, including closure of ageing shafts at Matjhabeng and downsizing at Joel. | ||
4. | RELATED PARTY TRANSACTIONS | |
Anglo American plc (AA plc) and its subsidiaries hold an effective 53.17 percent interest in the parent. FreeGold had the following transactions with related parties during the years ended December 31, 2001: |
2001 | ||||
Purchases from | ||||
related party | ||||
ZAR | ||||
Related party transactions with subsidiaries of AA plc | ||||
Boart Longyear Limited — mining services | 33.7 | |||
Mondi Timber Limited — forestry | 45.8 | |||
Scaw Metals Limited — steel and engineering | 39.9 | |||
Shaft Sinkers (Proprietary) Limited — mining services | 37.1 | |||
156.5 | ||||
5. | DEFERRED INCOME AND MINING TAX |
2001 | ||||
ZAR | ||||
Provision for income taxes attributable to continuing operations is as follows: | ||||
Total current expense | 72.7 | |||
Total deferred benefit | (79.0 | ) | ||
Total income and mining tax benefit | (6.3 | ) | ||
2001 | ||||||||
ZAR | % | |||||||
Reconciliation between corporate income tax and statutory income tax is as follows: | ||||||||
Corporate income tax at statutory rates | (74.2 | ) | 42.0 | |||||
Formula variation in mining and other taxation rates for the current period | 66.3 | (37.6 | ) | |||||
Other, net | 1.6 | (0.9 | ) | |||||
Total income and mining tax benefit | (6.3 | ) | 3.5 | |||||
F-94
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
5. | DEFERRED INCOME AND MINING TAX (continued) |
2001 | ||||
ZAR | ||||
Deferred income and mining tax liabilities and assets on the balance sheet as of December 31, 2001, relate to the following: | ||||
Mining tax liabilities: | ||||
Depreciation, depletion and amortization | 909.5 | |||
Product inventory not taxed | 21.1 | |||
Mining tax assets: | ||||
Unredeemed capital expenditure | 368.5 | |||
Provisions, including rehabilitation accruals | 370.7 | |||
Financial instruments | 97.7 | |||
Net deferred income and mining tax liability | 93.7 | |||
Current portion | (40.0 | ) | ||
53.7 | ||||
The classification of deferred income and mining tax assets is based on the related asset or liability creating the deferred tax. Deferred taxes not related to a specific asset or liability are classified based on the estimated period of reversal. As at December 31, 2001, FreeGold had unredeemed capital expenditure, in South Africa, available for deduction against future taxable mining income. This future deduction was utilizable against taxable mining income generated only from FreeGold’s current mining operations and does not expire unless FreeGold ceases to operate for a period of longer than one year. | ||
The deferred tax on financial instruments including deferred taxation on items that have been classified as other comprehensive income is ZAR180.1 million. |
Temporary differences relating to unredeemed capital expenditure | 801.0 | |||
Tax effect at 46 percent | 368.5 |
6. | INVENTORY |
2001 | ||||
ZAR | ||||
Gold in process | 62.0 | |||
Gold on hand | 0.2 | |||
Supplies | 39.9 | |||
102.1 | ||||
F-95
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
7. | PROPERTY, PLANT AND EQUIPMENT |
2001 | ||||
ZAR | ||||
Mine development | 4,397.2 | |||
Mine infrastructure | 736.4 | |||
Mineral rights | 24.7 | |||
Land | 13.0 | |||
5,171.3 | ||||
Accumulated depreciation, depletion and amortization | (2,476.5 | ) | ||
Net book value December 31 | 2,694.8 | |||
8. | MINERAL RESERVES |
2001 | ||||
ZAR | ||||
Mineral reserves, at cost | 2,184.6 | |||
Accumulated amortization | (832.7 | ) | ||
Net book value December 31 | 1,351.9 | |||
9. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
2001 | ||||
ZAR | ||||
Payroll and related benefits | 99.7 | |||
Accrual for power | 12.7 | |||
Other accrued liabilities | 28.6 | |||
141.0 | ||||
10. | PROVISION FOR ENVIRONMENTAL REHABILITATION |
2001 | ||||
ZAR | ||||
Accrued environmental rehabilitation costs | 73.6 | |||
Gross accrual | 320.2 | |||
Investment in Environmental Rehabilitation Trust Fund | (246.6 | ) | ||
While the ultimate amount of rehabilitation cost to be incurred in the future is uncertain, FreeGold has estimated that the total cost for mine rehabilitation and closure, in current monetary terms, will be ZAR595.9 million. Certain amounts have been contributed to an irrevocable rehabilitation trust under the parent’s control. The monies in the trust are invested primarily in interest bearing debt securities.
F-96
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
FreeGold intends to finance the ultimate rehabilitation costs from the monies invested with the rehabilitation trust fund as well as the proceeds on sale of assets and gold from plant clean-up at the time of mine closure.
11. | PROVISION FOR POST-RETIREMENT MEDICAL BENEFITS |
2001 | ||||||||
ZAR | ||||||||
Accrued liability at December 31 | 683.6 | |||||||
The post-retirement health care liability in respect of certain existing | ||||||||
employees is recognized as an expense systematically over the expected | ||||||||
remaining service period of those employees, using the expected unit credit | ||||||||
method. Changes in the liability in respect of retired employees are | ||||||||
recognized immediately as an expense as and when incurred. FreeGold has | ||||||||
not incurred material expenses related to the plan during 2001 (Refer to | ||||||||
Note 15). The costs of post-retirement benefits are made up of those | ||||||||
obligations, which FreeGold has towards current and retired employees. |
12. | COMMITMENTS AND CONTINGENCIES |
2001 | ||||
ZAR | ||||
Capital expenditure commitments: | ||||
Contracts for capital expenditure | — | |||
Authorized by the parent’s directors but not yet contracted for | 0.4 | |||
There is a potential claim in respect of contamination of the water supply amounting to: | 11.0 | |||
Vulnerability from concentrations | ||
The majority of Freegold’s 13,261 employees are subject to collective bargaining agreements. These agreements are established in negotiations between the Chamber of Mines, the body which represents the gold mining industry in South Africa, and representative groups of labor. The agreements signed on August 9, 2001, have a two year validity period. |
F-97
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
13. | GOLD PRICE RISK MANAGEMENT ACTIVITIES | |
FreeGold does not acquire, hold or issue derivative instruments for economic trading purposes. A number of products, including derivative instruments are used to manage gold price and foreign exchange risks, that arise out of FreeGold’s core business activities. Forward sales contracts and call and put options are used by FreeGold to protect itself from downward fluctuations in the gold price. Certain of these instruments establish a minimum price for future production while maintaining the ability to participate in increases in the gold price. The board of directors of the parent sets limits for the volume of production to be hedged, the nature of instruments utilized and the maximum tenor of hedging structures. | ||
SFAS133 requires that derivative instruments be accounted for as follows: |
• | Commodity based (“normal purchase or normal sale”) contracts that meet the requirements of SFAS 138 are recognized in earnings when they are settled by physical delivery. These contracts do not appear on the balance sheet as they represent agreements to sell gold produced at pre-defined quantities and prices. | ||
• | Where the conditions in SFAS133 for special hedge accounting are met the derivative is recognized on the balance sheet as either a financial asset or financial liability, and recorded at fair value. FreeGold enters into cash flow hedges whereby the effective portion of fair value gains or losses are recognized in equity (other comprehensive income) until the underlying transaction occurs, then the gains or losses are recognized in earnings or included in the initial measurement of the asset or liability. The ineffective portion of fair value gains and losses is recorded in earnings as realized or unrealized gains or losses on financial instruments in the period to which they relate. Of the contracts accounted for as cash flow hedges, contracts with a carrying value, net of tax, of ZAR338.7 million at December 31, 2001 are expected to expire during 2002. | ||
• | All other derivative instruments are measured at their estimated fair value, with the changes in estimated fair value at each reporting date being reported in earnings in the period to which they relate. |
Realized market loss on financial instruments of ZAR16.0 million was included in the current year income statement. Unrealized market gain on financial instruments of ZAR216.0 million was included in the current year income statement. | ||
Gold hedging instruments are denominated in both South African rands and US dollars. The hedging instruments utilized are forward sales contracts, purchased and sold put options and purchased and sold call options. The mix of hedging instruments, the volume of production hedged and the tenor of the hedging book is continuously reviewed in the light of changes in operational forecasts, market conditions and the parent’s hedging policy. The parent’s reserve and financial strength has allowed it to arrange unmargined credit lines of up to ten years with counterparties. |
F-98
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
The following table indicates FreeGold’s gold hedge position at a weighted average settlement price as at December 31, 2001: |
Year | 2002 | 2003 | 2004 | 2005 | Total | |||||||||||||||||||
DOLLAR GOLD | ||||||||||||||||||||||||
Forward Contracts | Amount (kg) | 688 | 688 | |||||||||||||||||||||
$ per oz | $ | 273 | $ | 273 | ||||||||||||||||||||
Put Options Purchased | Amount (kg) | 1,555 | 1,555 | |||||||||||||||||||||
$ per oz | $ | 330 | $ | 330 | ||||||||||||||||||||
*Delta (kg) | 1,555 | 1,555 | ||||||||||||||||||||||
Put Options Sold | Amount (kg) | 933 | 933 | |||||||||||||||||||||
$ per oz | $ | 276 | $ | 276 | ||||||||||||||||||||
*Delta (kg) | 368 | 368 | ||||||||||||||||||||||
Call Options Purchased | Amount (kg) | 4,665 | 4,665 | |||||||||||||||||||||
$ per oz | $ | 310 | $ | 310 | ||||||||||||||||||||
*Delta (kg) | 326 | 326 | ||||||||||||||||||||||
Call Options Sold | Amount (kg) | 3,110 | 622 | 3,110 | ||||||||||||||||||||
$ per oz | $ | 320 | $ | 320 | $ | 320 | ||||||||||||||||||
*Delta (kg) | 25 | 254 | 279 | |||||||||||||||||||||
RAND GOLD | ||||||||||||||||||||||||
Forward Contracts | Amount (kg) | 3,416 | 1,557 | 2,354 | 7,326 | |||||||||||||||||||
Rand per kg | R78,738 | R85,570 | R144,657 | R101,366 | ||||||||||||||||||||
Call Options Purchased | Amount (kg) | 3,454 | 3,454 | |||||||||||||||||||||
Rand per kg | R82,864 | R82,864 | ||||||||||||||||||||||
*Delta (kg) | 3,425 | 3,425 | ||||||||||||||||||||||
Call Options Sold | Amount (kg) | 3,454 | 746 | 4,201 | ||||||||||||||||||||
Rand per kg | R82,864 | R174,258 | R99,106 | |||||||||||||||||||||
*Delta (kg) | 3,425 | 219 | 3,644 | |||||||||||||||||||||
* | The Delta position indicated above reflects the nominal amount of the option multiplied by the mathematical probability of the option being exercised. This is calculated using the Black and Scholes option formula with the ruling market prices, interest rates and volatilities as at December 31, 2001. | |
Forward sales contracts require the future delivery of gold at a specified price. A number of these contracts are intended by FreeGold for delivery against production in a future period. The notional volume of outstanding forward sales type contracts at the end of the year was 8,014kg. | ||
A put option gives the put buyer the right, but not the obligation, to sell gold to the put seller at a predetermined price on a predetermined date. A call option gives the call buyer the right, but not the obligation, to buy gold from the call seller at a predetermined price on a predetermined date. FreeGold’s risk as outlined above in purchasing compound options is limited to the premium paid. Net cash receipts received under the option hedging strategies for the year were ZAR75.2 million. |
F-99
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
Disclosure of the fair value of financial instruments is as follows: | ||
Foreign exchange price risk protection agreements | ||
FreeGold periodically enters into forward exchange and currency option contracts to hedge certain recorded transactions, firm commitments and other anticipated transactions denominated in foreign currencies. The objective of foreign hedging activities is to protect FreeGold from the risk that the eventual cash flows resulting from transactions denominated in US dollars will be adversely affected by changes in exchange rates. | ||
The following table indicates the currency hedge position at December 31, 2001: |
Year | 2002 | 2003 | 2004 | 2005 | Total | |||||||||||||||||||
RAND DOLLAR ('000) | ||||||||||||||||||||||||
Put Options Purchased | Amount ($) | 35,000 | 35,000 | |||||||||||||||||||||
Rand per $ | R8.22 | R8.22 | ||||||||||||||||||||||
*Delta ($) | 444 | 444 | ||||||||||||||||||||||
Call Options Purchased | Amount ($) | 22,500 | 22,500 | |||||||||||||||||||||
Rand per $ | R 9.34 | R 9.34 | ||||||||||||||||||||||
*Delta ($) | 21,170 | 21,170 | ||||||||||||||||||||||
Call Options Sold | Amount ($) | 42,500 | 42,500 | |||||||||||||||||||||
Rand per $ | R 9.26 | R 9.26 | ||||||||||||||||||||||
*Delta ($) | 40,287 | 40,287 |
* | The Delta position indicated above reflects the nominal amount of the option multiplied by the mathematical probability of the option being exercised. This is calculated using the Black and Scholes option formula with the ruling market prices, interest rates and volatilities as at December 31, 2001. | ||
Credit risk | |||
Realization of all these contracts is dependent upon the counterparties performing in accordance with the terms of the contracts. FreeGold does not anticipate non-performance by any counterparties. FreeGold generally does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of counterparties. FreeGold does business predominantly with internationally recognized counterparties and believes that no concentration of credit risk exists. |
F-100
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
Fair value | ||
The estimated fair values of financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair values of FreeGold’s financial instruments, as measured at December 31, 2001, are as follows: |
December 31, 2001 | ||||||||
Carrying | Fair | |||||||
amount | value | |||||||
ZAR | ZAR | |||||||
Cash and cash equivalents | 0.5 | 0.5 | ||||||
Receivables | 48.1 | 48.1 | ||||||
Accounts payable and accrued liabilities | (141.0 | ) | (141.0 | ) | ||||
Financial instruments | (272.0 | ) | (327.9 | ) | ||||
Forward sales type agreements | (219.0 | ) | (274.9 | ) | ||||
Commodity option contracts | 25.5 | 25.5 | ||||||
Foreign exchange contracts | (17.7 | ) | (17.7 | ) | ||||
Foreign exchange option contracts | (63.3 | ) | (63.3 | ) | ||||
Interest rate swaps | 2.5 | 2.5 | ||||||
The following methods and assumptions were used to estimate the fair value of each class of financial instrument: | ||
Receivables, cash and cash equivalents and other current liabilities | ||
The carrying amounts approximate fair value because of the short maturity of these instruments. | ||
Derivative instruments | ||
The fair value of volatility-based instruments are estimated based on market prices, volatilities and interest rates, while the fair value of forward sales and purchases are estimated based on the quoted market price for the contracts at December 31, 2001. The amounts include those contracts accounted for as normal purchases and sales. | ||
14. | ADDITIONAL CASH FLOW INFORMATION |
2001 | |||||
ZAR | |||||
Non-cash items | |||||
Excluded from the statements of cash flows are the following: | |||||
Amortization: | |||||
Mining assets | 209.9 | ||||
Mineral reserves | 301.2 | ||||
511.1 | |||||
F-101
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
15. | EMPLOYEE BENEFIT PLANS | |
Eligible employees are members of either the parent’s defined benefit fund or one of the industry-based defined contribution funds. There is one defined benefit scheme and three defined contribution schemes. The assets of these schemes are held in administered trust funds separated from FreeGold’s assets. Scheme assets primarily consist of listed shares, property trust units and fixed income securities. | ||
Defined Benefit Fund | ||
At the last statutory valuation of the fund as at December 31, 1999, the Pension Fund was certified by the reporting actuaries as being in a sound financial position, subject to the continuation of the current contribution rates. In arriving at their conclusions, the actuaries took into account reasonable long-term estimates of inflation, increases in wages, salaries and pensions as well as returns on investments. Separate calculations for the Pension Fund are carried out on an annual basis and the results of these calculations as at December 31, 2001 are reflected below. | ||
Any deficits in the defined benefit scheme advised by the actuaries are funded either immediately or through increased contributions to ensure the ongoing soundness of the scheme. | ||
Information with respect to the Defined Benefit Fund, which includes benefits for FreeGold’s employees, for the year ended December 31, is set forth in the table below: |
Pension | ||||
benefits | ||||
2001 | ||||
ZAR | ||||
Change in benefit obligation | ||||
Benefit obligation at January 1 | 33.6 | |||
Service cost | 1.8 | |||
Interest cost | 4.2 | |||
Plan participants’ contributions | 0.8 | |||
Acquisition | 5.4 | |||
Plan amendment | — | |||
Actuarial (gain)/loss | 1.0 | |||
Benefits paid | (4.8 | ) | ||
Benefit obligation at December 31 | 42.0 | |||
Change in plan assets | ||||
Fair value of plan assets at January 1 | 34.5 | |||
Actual return on plan assets | 4.6 | |||
Acquisition | 5.4 | |||
Company contributions | 1.8 | |||
Plan participants’ contributions | 0.8 | |||
Benefits paid | (4.8 | ) | ||
Fair value of plan assets at December 31 | 42.3 | |||
Funded status at end of year | 0.3 | |||
Prepaid benefit cost | 0.3 | |||
F-102
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
The assumptions used in calculating the above amounts are: | ||||
Discount rate: retired/all others | 10.5 | % | ||
Rate of compensation increase | 7.5 | % | ||
(plus salary | ||||
scale) | ||||
Pension increase | 6.5 | % | ||
Net periodic pension and post-retirement benefit costs include: | ||||
Service cost | 1.8 | |||
Interest cost | 4.2 | |||
Expected return on assets, actuarial gain and past service costs | 2.4 | |||
Amortization of actuarial loss | — | |||
Net amount recognized | 8.4 | |||
The assumptions used in calculating the above amounts are: | ||||
Discount rate | 10.5 | % | ||
Rate of compensation increase | 7.5 | % | ||
(plus salary | ||||
scale) | ||||
Expected return on plan assets | 10.5 | % |
Defined Contribution Funds | ||
Contributions to the various retirement schemes are fully expensed during the year in which they are funded and the cost of providing retirement benefits for the year amounted to ZAR74.3million. All funds are governed by the Pension Funds Act of 1956. | ||
Post-retirement medical benefits | ||
The provision for post-retirement medical funding represents the provision for health care benefits for employees and retired employees and their registered dependants. | ||
The post-retirement benefit costs are assessed in accordance with the advice of independent professionally qualified actuaries. The actuarial method used is the projected unit credit funding method. This scheme is unfunded. |
F-103
ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
Information with respect to the defined benefit liability, which includes post-retirement medical benefits for FreeGold’s employees, for the year ended December 31, 2001 is set forth in the table below: |
Other benefits | ||||
2001 | ||||
ZAR | ||||
Change in benefit obligation | ||||
Benefit obligation at January 1 | 461.3 | |||
Service cost | 46.6 | |||
Interest cost | 92.6 | |||
Effect on curtailment | — | |||
Benefits paid | (47.3 | ) | ||
Actuarial gains and losses | 130.4 | |||
Benefit obligation at December 31 | 683.6 | |||
Unfunded benefit liability | 683.6 | |||
Net periodic post-retirement medical benefit costs include: | ||||
Service cost | 42.6 | |||
Interest cost | 84.6 | |||
Expected actuarial gain (loss), past service cost, benefits paid and translation | 75.9 | |||
Net amount recognized | 203.1 | |||
Discount rate | 11.0 | % | ||
Expected increase in health care costs | 10.0 | % |
16. | PARENT COMPANY INVESTMENT | |
The parent investment account represents net cash and assets transferred between the parent and FreeGold. The average balance of the parent’s investment for the year ended December 31, 2001 was ZAR 3,767.7 million. | ||
FreeGold has no share capital of its own, as it is an operating division of the parent. |
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ANGLOGOLD LIMITED — FREEGOLD
Notes to the financial statements(continued)
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
17. | MINERALS AND PETROLEUM RESOURCES DEVELOPMENT BILL | |
In December 2000, the Draft Mineral Development Bill was published, and the fundamental principle of this Bill is the recognition that mineral resources are the common heritage of all South Africans and collectively belong to all the people of South Africa. As such, the South African state is the guardian of the mineral rights and has the right to exercise full and permanent sovereignty over mineral resources. Current owners of mineral and mining rights are given a period of time to convert existing rights into rights under the new minerals regime broadly under the “use it and keep it” principle, and the failure to achieve such conversion will result in the loss of the rights by the current owner and access to such rights by third parties who are able to show an ability to exploit them. In terms of this draft, the right to prospect and mine would vest in the state; and detailed legislative proposals would be enacted for the introduction of a new system guaranteeing the continuation of current prospecting and mining operations while implementing a transitional period in which holders of prospecting, mining and mineral rights would be permitted to license those operations as well as obtain any extensions necessary for the continuation of those operations. | ||
This draft legislation only reflects the government’s intentions with regard to the ownership of mineral rights and does not address the issue of fair compensation for existing mineral rights and the right to judicial appeal. | ||
In April 2002, the latest draft of the Minerals and Petroleum Resources Development Bill (formerly the Draft Mineral Development Bill) was published and it does not materially change the views expressed on the Draft Mineral Development Bill, other than that there is now some provision for compensation. This proposal must go through the further process of public and parliamentary debate before being passed as legislation. The government has indicated its intention to introduce legislation to Parliament during the course of 2002. During June 2002, the Parliamentary Portfolio Committee on Minerals and Energy will be hearing and reviewing submissions on this latest draft by interested parties. The parent has submitted its views on this latest draft through the Chamber of Mines. As currently drafted, this draft legislation, if passed into law, could have an adverse effect on those mineral rights currently owned by FreeGold that are not being currently exploited by FreeGold, but with the receptive approach of the Minister of Minerals and Energy, FreeGold is hopeful that an enabling legislative environment may be achieved. |
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