Company announcements

Harmony reports robust cash operating profit of R950 million on the back of record production

October 21, 2002

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Harmony today reported first quarter results for the 2003 financial year with a robust cash operating profit of R950 million and a record 796 497 ounces produced during the quarter. The company is on track to produce an annualised 3,1 million ounces for the current financial year.

A higher gold price of US$319/oz and a Rand/Dollar exchange rate of R10,39, resulted in the company receiving R106 463/kg during the quarter and which 3% higher than the R103 349 reported for the June 2002 quarter. The higher gold price received however was offset by higher costs due to the 8,2% effective annual wage increases, whilst volume and costs were also negatively affected by the seismic events which occurred on 12 July 2002 at Evander 8 Shaft and Deelkraal mine.

Whilst higher volumes on some operations saw a proportionate increase in cost, the opposite, i.e. cost reduction was not achieved at Elandsrand, where a significant drop in volume occurred.

Kilograms recovered was 2% higher at 24 774 kg due to improved operational performance by the Free State, Randfontein and Kalgold operations and Hill 50 in Australia.

Profit before tax decreased to R632 million. The decrease was mainly due to the lower cash operating profit (R117,5 million) and the reduction in mark-to-market on the Placer Dome shares (R141,9 million). Net profit after tax was 36% lower at R426 million, with earnings per share decreasing to 247 cents quarter on quarter.

The company achieved a US$115 or 36% profit margin with cash costs of US$204/oz. A cash operating profit margin of US$130, or 42%, was achieved during the June 2002 quarter.

The Free State operations, which absorbed the wage increases, reported an 11% decrease in cash operating profits from R214 million to R190 million.

The seismic event (4,1 on the Richter Scale) which took place at No. 8 Shaft at Evander adversely impacted on the performance of these operations. Cash operating profits decreased by 28% to R101 million, the main contributing factor being a 6% decrease in underground tonnage. As 8 Shaft is the highest grade operation at Evander, gold production was lower by 279 kg. This shaft recorded a small loss for the quarter, but is expected to return to its previous level of profitability in the new quarter.

Randfontein continued with an excellent operational performance, returning a cash operating profit of R200 million, up 16% from the R173 million reported for the previous quarter.

The Elandskraal operations experienced one of its toughest quarters since the acquisition thereof some seven quarters ago. Various operational problems at Elandsrand resulted in a 40% decrease in operating profits to R105 million. Deelkraal contributed some R30m of operating profits, despite being significantly affected by the previously reported seismic event which negatively impacted on volume and cost. As indicated before, flexibility on the old Elandsrand mine will remain tight until the new mine is commissioned in two years time. This operation will bounce back in the December quarter. Elandskraal incurred R39,0 million in capital expenditure on the “Shaft Deepening Project” which is progressing well, on budget and on time.

As expected the Free Gold operations reported a 20% decrease in cash operating profit, down to R229 million.

This change was mainly due to a 4% decrease in recovery grade and a 14% increase in working costs. As expected, these operations are now entering the second phase of restructuring and alignment. This involves mining the orebody to its average grade, thereby eliminating high grading and focussing on recapitalising the orebody to allow for more mining flexibility in future. Capital expenditure of R12 million attributable was incurred as part of the recapitalisation phase to increase the operational flexibility of these operations.

“The Free Gold operations will remain an important part of our company’s future, especially in the Free State region and therefore warrants all the operational focus and attention which it is getting. If Free Gold can make R400m per quarter (R200m attributable) during the next few quarters, whilst it re-established flexibility and implements continuous operations, it will still achieve payback quicker than any of our other spectacular acquisitions,” commented Bernard Swanepoel, chief executive.

The Kalgold operations which were affected by a 21 day strike during the previous quarter, reported a pleasing performance with a 114% increase in cash operating profit, up from R12 million to R25 million.

The Australian operations returned a good 14% improvement in cash operating profits, increasing to R100 million.

At Bendigo, the decline reached the orebody position and the first blast in ore was taken in late September 2002. This was well ahead of the original plan to complete the blast in December 2002. Tunnelling on the structure North and South of the intersection shows significant quantities of visible gold. However, a large volume of this nuggety orebody needs to be processed in the bulk sampling plant before grades can be estimated. The presence of coarse gold in the face and the initial grade results are encouraging.

“Our company will continue to deliver value to all our stakeholders under the current gold price environment.

Harmony will always be an unhedged gold mining company with the bulk of its production from South Africa.

Exploring opportunities in other countries or in other commodities like platinum should not be seen as an attempt to diversify, but merely as extending our business model into other value creating opportunities,” concluded Bernard.

For more details contact:

Bernard Swanepoel
+27 83 303 9922

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

Corné Bobbert
Investor Relations Officer
Tel: +27 11 684 0146
Mobile: +27(0)83 380 6614
cbobbert@harmony.co.za