Harmony(HMY) - 2021 Q4 - Annual Report

PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS This section is not applicable as per the report - This item is not applicable[21] ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE This section is not applicable as per the report - This item is not applicable[22] ITEM 3. KEY INFORMATION This section presents key financial data for the past five fiscal years and a comprehensive overview of major risks Selected Financial Data The company's financial performance shows significant growth in fiscal 2021, with revenue increasing to R41.7 billion and a net profit of R5.1 billion Selected Historical Consolidated Financial Data (Fiscal Year Ended June 30) | Indicator | 2021 | 2020 | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue (R million) | 41,733 | 29,245 | 26,912 | 20,452 | 19,494 | | Operating Profit/(Loss) (R million) | 6,450 | (358) | (2,538) | (4,660) | (944) | | Net Profit/(Loss) (R million) | 5,124 | (850) | (2,607) | (4,473) | 362 | | Basic EPS (SA cents) | 842 | (164) | (498) | (1,003) | 82 | | Dividends per share (SA cents) | 110 | — | — | 35 | 100 | | Total Assets (R million) | 48,803 | 44,692 | 36,736 | 39,521 | 38,883 | | Borrowings (R million) | 3,361 | 7,718 | 5,915 | 5,614 | 2,133 | Key Cost Metrics (Non-GAAP) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total cash costs per ounce (US$/oz) | 1,213 | 1,099 | | All-in sustaining costs per ounce (US$/oz) | 1,460 | 1,293 | - The acquisition of AngloGold Ashanti Limited's remaining South African assets was effective on October 1, 2020, with results included for nine months ended June 30, 2021[27] Risk Factors The company identifies a wide range of risks across its operations, including industry, operational, corporate, market, and regulatory factors - Industry Risks: Exposure to gold price decreases, impacts from the COVID-19 pandemic on personnel and operations, operational safety hazards, extensive environmental regulations, labor disputes, and challenges related to mineral rights legislation in South Africa and PNG[31][34] - Operational Risks: Challenges include managing water inflows from adjacent closed mines, infrastructure constraints (especially electricity supply from Eskom in South Africa), illegal mining activities, supply chain disruptions, and the inherent uncertainty in mineral reserve estimations[32] - Corporate & Financing Risks: Risks include potential issues with integrating new acquisitions, the ability to service debt, changes to mining taxes and royalties, and potential dilution from employee share schemes[32] - Strategic & Market Risks: The company's profitability is highly sensitive to gold price changes, foreign exchange fluctuations (particularly USD/ZAR), inflation, and global economic conditions, with South Africa's non-investment grade credit rating also posing financing challenges[33] - Regulatory & Legal Risks: Key risks involve breaches of IT security, compliance with changing corporate governance and data protection laws (like POPIA and GDPR), and potential litigation, including ongoing liabilities related to silicosis claims[34] ITEM 4. INFORMATION ON THE COMPANY This section details the company's history, operations, structure, and properties, including COVID-19 response and mineral reserves History and Development of the Company This section provides an overview of the company's development and recent events, including dividend declaration and wage agreement - A final dividend of 27 SA cents per share was declared on August 24, 2021[273] - On September 16, 2021, the company concluded a three-year wage agreement with unions for its South African operations[273] Business Overview This overview covers the company's COVID-19 response, capital expenditure, mineral reserves, and regulatory landscape - The company has established four accredited mass vaccination sites in South Africa and three in Papua New Guinea, aiming to vaccinate 80% of willing employees by October 2021[275] Capital Expenditure Budget for Fiscal 2022 (R million) | Operation/Region | Budgeted Capex | | :--- | :--- | | Tshepong operations | 1,450 | | Moab Khotsong | 1,339 | | Mponeng | 742 | | Mine Waste Solutions | 863 | | Hidden Valley (International) | 1,460 | | Total Operational Capital Expenditure | 8,029 | - As of June 30, 2021, Harmony declared attributable gold equivalent proved and probable reserves of 42.45 million ounces, comprising 24.74 million ounces in South Africa and 17.71 million ounces in PNG[281] - Mineral reserves were calculated using a gold price of US$1,500/oz and an exchange rate of R14.51/US$, resulting in a price of R700,000/kg for South African assets[282] Organizational Structure This section refers to other parts of the integrated report for details on organizational structure and policies - Information regarding the company's organizational structure is incorporated by reference from the Integrated Annual Report and financial statement notes[402] Property, Plant and Equipment This section refers to other parts of the report for detailed information on property, plant, and equipment - Detailed information on Property, Plant and Equipment is incorporated by reference from the Integrated Annual Report and specific notes in the consolidated financial statements[403][404] ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section analyzes fiscal 2021 operating results and financial condition, highlighting revenue growth, production, and liquidity Operating Results Operating results for fiscal 2021 show strong performance with revenue increasing to R41.7 billion and a net profit of R5.1 billion FY2021 vs FY2020 Performance | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Revenue (R million) | 41,733 | 29,245 | | Gold Produced (kg) | 47,755 | 37,863 | | Average Gold Price Received (R/kg) | 851,045 | 735,569 | | Cost of Sales (R million) | 35,489 | 25,908 | | Net Profit/(Loss) (R million) | 5,124 | (850) | - The Mponeng and MWS operations, acquired effective October 1, 2020, contributed 8,948 kg (18.7%) of total gold production in fiscal 2021[515] - An impairment charge of R1.1 billion was recorded in fiscal 2021, primarily related to Tshepong Operations (R759 million), Bambanani (R187 million goodwill), and Target 3 (R178 million)[531][532][533] - A gain on bargain purchase of R303 million arose from the Mponeng Acquisition, as the fair value of net assets acquired (R4.2 billion) exceeded the total consideration (R3.98 billion)[554] Liquidity and Capital Resources The company's liquidity improved significantly in fiscal 2021, with net cash from operations increasing to R9.2 billion Cash Flow Summary (R million) | Cash Flow | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Operating Cash Flows | 9,179 | 4,723 | | Investing Cash Flows | (8,464) | (3,558) | | Financing Cash Flows | (4,299) | 4,305 | - As of June 30, 2021, US$200 million was outstanding on the US$400 million syndicated facility, and R453 million was outstanding on the R2 billion syndicated facility[572][574] - Total budgeted capital expenditures for fiscal 2022 are R8,029 million, which is expected to be financed from operations and borrowings[581] Tabular Disclosure of Contractual Obligations As of June 30, 2021, the company had total contractual obligations of R11.3 billion, primarily bank facilities and environmental Contractual Obligations as of June 30, 2021 (R million) | Obligation | Total | Less Than 12 Months | 12-36 Months | After 36 Months | | :--- | :--- | :--- | :--- | :--- | | Bank facilities | 3,649 | 505 | 3,144 | — | | Environmental obligations | 4,662 | — | — | 4,662 | | Silicosis settlement obligation | 854 | 175 | 350 | 329 | | Streaming contract liability | 1,218 | 464 | 690 | 64 | | Total | 11,278 | 1,144 | 4,220 | 5,836 | ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section provides information on the company's leadership, compensation, board structure, and employees by reference - Information regarding directors, senior management, compensation, board practices, employees, and share ownership is incorporated by reference from the company's Integrated Annual Report for 2021 and its consolidated financial statements[592][593][594] ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS The company is an independent gold producer with no single controlling shareholder, listing major shareholders as of September 23, 2021 Major Shareholders as of September 23, 2021 | Holder | Percentage | | :--- | :--- | | African Rainbow Minerals Limited | 12.12 % | | Van Eck Global Associates Corporation | 9.51 % | | Government Employees Pension Fund (PIC) | 7.86 % | | Fairtree Asset Management (Pty) Ltd | 6.5 % | - The company is not directly or indirectly owned or controlled by another corporation or any foreign government[596] ITEM 8. FINANCIAL INFORMATION This section refers to consolidated financial statements, highlighting the R854 million silicosis settlement provision - The provision for the silicosis and TB class action settlement was R854 million as of June 30, 2021, compared to R892 million at June 30, 2020[605] ITEM 9. THE OFFER AND LISTING The company's ordinary shares are traded on the JSE Limited and American Depositary Shares (ADSs) on the NYSE - The company's primary listing is on the JSE Limited (symbol: HAR), with ADSs listed on the NYSE (symbol: HMY)[608] ITEM 10. ADDITIONAL INFORMATION This section details material contracts, South African exchange controls, and tax considerations for shareholders - A key material contract is the sale agreement dated February 12, 2020, for the acquisition of AngloGold Ashanti's remaining South African assets (the Mponeng Acquisition) for US$200 million cash plus contingent consideration[621] - South Africa's exchange control regulations restrict the export of capital from the Common Monetary Area, which are administered by the South African Reserve Bank (SARB)[631] - South Africa imposes a 20% Dividends Tax, which may be reduced by double taxation treaties (e.g., to 5% or 15% under the US Treaty)[644][645] - A Securities Transfer Tax (STT) of 0.25% is payable on the transfer of any security issued by a South African company, including ADSs[649] ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is exposed to foreign currency, commodity price, and interest rate risks, managed through derivative instruments - The company is exposed to foreign currency risk (primarily USD, AUD, Kina), commodity price risk (gold), and interest rate risk on its variable rate borrowings[681][683][691] - As of June 30, 2021, Harmony had open Rand gold forward sale contracts for 309,000 ounces at an average of R976,000/kg and US$ gold forward contracts for 73,000 ounces at an average of US$1,743/oz[689] - The company uses foreign exchange zero cost collars and forward contracts to manage currency risk, covering a nominal amount of US$142 million at year-end[684] ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES This section details fees associated with the company's American Depositary Shares (ADSs) and Depositary payments - Investors in the company's ADSs are subject to fees for services such as issuance/surrender of ADSs ($5.00 or less per 100 ADSs) and cash distributions ($0.02 or less per ADS)[702] - During fiscal year 2021, Harmony received net payments of R24,117,609 from the Depositary to reimburse expenses related to the ADR facility[705] PART II ITEM 15. CONTROLS AND PROCEDURES Management concluded that disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[708] - Management assessed internal control over financial reporting as effective, based on the COSO framework, excluding the Mponeng operations acquired during the fiscal year[710][712] - No material changes were made to the company's internal control over financial reporting during fiscal 2021[715] ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Ms. Fikile De Buck is designated as the company's audit committee financial expert as defined by SEC rules - Ms. Fikile De Buck is the designated audit committee financial expert[716] ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES The company paid PricewaterhouseCoopers Inc. R56.2 million in fiscal 2021 for audit, audit-related, and other services Principal Accountant Fees (Rand) | Fee Type | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Audit Fees | 49.5 million | 33.7 million | | Audit-Related Fees | 5.8 million | 4.8 million | | Tax Fees | — | 0.4 million | | All Other Fees | 0.9 million | 1.1 million | ITEM 16G. CORPORATE GOVERNANCE This section highlights differences between Harmony's corporate governance practices and NYSE listing standards - Unlike NYSE rules for US companies, Harmony's Nomination Committee includes its non-independent Chairman, Dr Patrice Motsepe[729] - The Remuneration Committee includes one non-independent director, which is permitted under South African governance practices but differs from the full independence required by the NYSE for US domestic companies[730] PART III ITEM 18. FINANCIAL STATEMENTS This section incorporates the company's consolidated financial statements and independent auditor's report by reference - The consolidated financial statements and the independent auditor's report are filed as part of the Form 20-F[756] ITEM 19. EXHIBITS This section lists all exhibits filed with the Form 20-F, including corporate documents, contracts, and certifications - Key exhibits filed include the Amended Memorandum of Incorporation, the sale agreement for the Mponeng acquisition, various credit facility agreements, and Sarbanes-Oxley Act certifications[757][759]