Company announcements

Harmony to initiate new restructuring programme in the Free State

May 19, 2005

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Following the impasse with NUM on the restructuring process in the Free State and culminating in the Labour Court ruling against Harmony, the company announced today that the two parties have agreed that the consultation process, in terms of the Labour Relations Act, will continue where new notices of the process will be issued. The restructuring programme will cover Harmony operations in Welkom and Virginia.

“In July last year we reached agreement in principle with unions and associations in the Free State that contained measures to ameliorate the impact of restructuring through transfers, re-skilling or re-training, and alternative working arrangements. However, various delaying tactics prevented us from giving effect to these proposals. Consequently we must review our position and take the necessary steps to build a sustainable business model for some of our marginal assets in this low rand per kilogram gold price environment,” said CE Bernard Swanepoel.

Swanepoel said the company’s first priority is to ensure that as many jobs as possible are saved while at the same time ensuring the long-term profitability of Harmony. “As an industry, we need more flexibility to better manage the change in gold price cycle by being able to act more nimbly. We should not today be mining loss making ounces but rather preserving them for a higher gold price scenario.”

“We will obviously look at all the alternatives to forced retrenchments, like voluntary retrenchment and other measures, particularly as we have had considerable successes in this regard at our Elandskraal, Evander, Orkney and Randfontein operations. But in order to minimise losses and retain the optionality of our reserves, it is possible that as many as 11 780 people, or approximately 45% of our Free State work force, could be affected. The restructuring programme will not affect our Target operations” he said.

Harmony’s long term production outlook will not be significantly affected by the restructuring programme as most of the employees were not conducting rock-breaking activities, but rather have been waiting for the process to be completed before they are transferred, re-trained in terms of the agreed principles, or leave the company’s employment. The company is expected to produce approximately 3,0 million ounces the current financial year, down from 3,3 million ounces for the 2004 financial year. Production levels are expected to stabilize at these levels following the completion of this restructuring programme.

Harmony is the first gold mining company to negotiate and agree on a Social Plan with the National Union of Mineworkers. The Plan contains measure to improve productivity at the mines to ensure long-term employment and where retrenchments are certain to ensure that the affected employees have portable skills that will ensure continue employment in sectors outside the gold mining industry, or to enable affected employees to start their own businesses.

“Given that the gold mining industry has been contracting for some time, the growth in other sectors could absorb some of our redundant workers and the Department of Labour typically assists in this process.”

Historically, explained Swanepoel, many of these Free State mines were targeted for closure by the previous owners. While Harmony has extended the lives of the mines in some cases by several years, “the older shafts in our portfolio at the current gold price have a finite reserve and have come to the end of their economic lives. Where possible, we will retain optionality by putting these shafts onto a care and maintenance programme.”

Harmony, in consultation with unions and associations, will be requesting the appointment a facilitator from the CCMA to ensure that the principles and rationale for the restructuring, and the legal process surrounding the restructuring are properly monitored and adhered to. The principles agreed to last year included the re-skilling, retraining and redeployment of affected employees; alternative working arrangements like continuous operations (CONOPS) to minimise job losses; the transfer of employees to other operations where vacancies exist; focus on growth, steady-state and marginal operations, voluntary retrenchments and replacing contractors not involved in specialised work with Harmony employees.

“We have consistently said that the longer the restructuring takes the more operations on which it will impact. We have done everything in our power to avoid the restructuring, but the restructuring delays in the Free State alongside a 25% decrease in the rand per kilogram price of gold and double digit mining cost inflation has been over riding. Preventing the successful completion of the restructuring we announced last April is costing us in excess of R45 million per month,” Swanepoel added.

As previously was the case, we aim to make the current process as consultative, inclusive, comprehensive and amicable as possible. We understand and appreciate the sensitivity of these processes, as inevitable as they can be, considering the need for job creation in South Africa. We will continue to partner with municipalities around the mine communities to identify alternative work opportunities for poverty alleviation through our social responsibility programmes,” concluded Swanepoel

For more details contact:

Bernard Swanepoel
Chief Executive
+27(0)83 303 9922

Ferdi Dippenaar
Marketing Director
+27(0)82 807 3684

Brenton Saunders
Executive, Investor Relations
+27(0)83 607 4060

Vusi Magadana
Investor Relations Officer
Office: +27 11 684 0149
Mobile: +27(0)72 157 5986
vusi.magandan@harmony.co.za