Harmony Gold - 20-F annual report

 

Harmony is at risk of experiencing any and all of these environmental or other industrial hazards. The occurrence of any of these hazards could delay production, increase cash operating costs and result in financial liability to the Company.

Harmony’s privately held land and mineral rights could be subject to land restitution claims under the South African Restitution of Land Rights Act 1994, or the Land Claims Act. Under this Act, any person who was dispossessed of rights to land in South Africa as a result of previous discriminatory laws or practices without payment of just and equitable compensation is granted certain remedies, including the restoration of the land. Under the Land Claims Act, persons entitled to institute a land claim were required to lodge their claims by December 31, 1998. Harmony has not been notified of any land claims, but any claims of which it is notified in the future could have a material adverse effect on Harmony’s right to the properties to which the claims relate and, as a result, on Harmony’s business, operating results and financial condition.

The South African Restitution of Land Rights Amendment Act 2004, or the Amendment Act, became law on February 4, 2004. Under the Land Claims Act, the Minister for Agriculture and Land Affairs, or the Land Minister, may not acquire ownership of land for restitution purposes without a court order unless an agreement has been reached between the affected parties. The Amendment Act, however, entitles the Land Minister to acquire ownership of land by way of expropriation either for, or, in respect of land as to which no claim has been lodged but the acquisition of which is directly related to or affected by a claim, the acquisition of which would promote restitution to those entitled or would encourage alternative relief to those not entitled. Expropriation would be subject to provisions of legislation and the South African Constitution which provides, in general, for just and equitable compensation. It is possible that any of Harmony’s privately held land rights in South Africa could become subject to acquisition by the state without Harmony’s agreement, or that Harmony would not be adequately compensated for the loss of its land rights, which could have a negative impact on Harmony’s South African operations and therefore an adverse effect on its business, operating results and financial condition.

Harmony has third party liability coverage for most potential liabilities, including environmental liabilities. While Harmony believes that its current insurance coverage for the hazards described above is adequate and consistent with industry practice, Harmony may become subject to liability for pollution or other hazards against which it has not insured or cannot insure, including those in respect of past mining activities. Further, Harmony maintains and intends to continue to maintain, property and liability insurance consistent with industry practice, but such insurance contains exclusions and limitations on coverage. In addition, there can be no assurance that insurance

will continue to be available at economically acceptable premiums. As a result, in the future Harmony’s insurance coverage may not cover the extent of claims against it for environmental or industrial accidents or pollution.

Harmony’s operations have been materially affected by inflation in recent years. Even though the inflation rate has decreased over the last three years, working cost and especially wages have increased considerably over the past three years resulting in significant cost pressures on the mining industry. Harmony’s profits and financial condition could be also affected adversely in the absence of a concurrent devaluation of the Rand and an increase in the price of gold.

It remains difficult to predict the future political, social and economic direction of South Africa, Australia, Papua New Guinea, or any other country in which we operate, and the impact government decisions may have on our business. It is also difficult to predict the impact of addressing inequalities on Harmony’s business.

South Africa’s exchange control regulations provide for restrictions on exporting capital from South Africa. As a result, Harmony’s ability to raise and deploy capital outside South Africa is restricted. In particular, Harmony:

These restrictions could hinder Harmony’s normal corporate functioning. While exchange controls have been relaxed in recent years, it is difficult to predict whether or how the South African government will further relax the exchange control regulations in the future.

Despite the history of positive and constructive engagement with the unions, there are periods during which the various stakeholders are unable to agree on dispute resolution processes. Disruptive activities on the part of labor, which normally differ in intensity, then become unavoidable. Due to the high level of union membership among Harmony’s employees, approximately 88%, Harmony is at risk of having, and did experience in fiscal 2005 for example, production stoppages for indefinite periods due to strikes and other labor disputes. Significant labor disruptions have affected our operations and financial condition and we are not able to predict whether we will experience significant labor disputes in the future.

Our production may also be materially affected by labor laws. Since 1995, South African labor laws have changed significantly in ways that affect Harmony’s operations. In particular, laws enacted since then which regulate work time, provide for mandatory compensation in the event of termination of employment for operational reasons, and impose large monetary penalties for non-compliance with administrative and reporting requirements in respect of affirmative action policies, could result in significant costs. In addition, future South African legislation and regulations relating to labor may further increase our cash costs of production or alter our relationship with our employees. Harmony may continue to experience significant changes in labor law in South Africa over the next several years.

The incidence of HIV/AIDS in South Africa, which is forecast to increase over the next decade, poses risks to Harmony in terms of potentially reduced productivity and increased medical and other costs. Harmony expects that significant increases in the incidence of HIV/AIDS infection and HIV/AIDS-related diseases among the workforce over the next several years may have an adverse impact on Harmony’s operations and financial status. This expectation, however, is based on assumptions about, among other things, infection rates and treatment costs

which are subject to material risks and uncertainties beyond Harmony’s control. As a result, actual results may differ from the current estimates.

Occupational healthcare services are available to Harmony’s employees from its existing healthcare facilities. There is a risk that the cost of providing such services could increase in future depending on changes in the nature of underlying legislation and the profile of Harmony’s employees. This increased cost, should it transpire, is currently indeterminate. Harmony has embarked on a number of interventions focused on improving the quality of life of Harmony’s work force, although there can be no guarantee that such initiatives will not be adversely affected by increased costs.

On May 1, 2004, the South African Mineral and Petroleum Resources Development Act 2002, or Minerals Act, became effective. The principal objectives set out in the Act are:

Under the Act, tenure licenses over established operations will be secure for 30 years (and renewable for 30 years thereafter), provided that mining companies obtain new licenses over existing operations within five years of the date of enactment of the Act and fulfill requirements specified in the Broad-Based Socio-Economic Empowerment Charter for the South African mining industry, or the Mining Charter.

The principles contained in the Mining Charter relate to the transfer of 26% of South Africa’s mining assets to historically disadvantaged South Africans, or HDSAs, over a 10-year period, as defined in the Mining Charter. Under the Mining Charter, the South African mining industry has committed to securing financing to fund participation by HDSAs in an amount of R100 billion within the first five years of the Mining Charter’s tenure. The Mining Charter provides for the review of the participation process after five years to determine what further steps, if any, are needed to achieve the 26% target participation. The Mining Charter requires programs for black economic empowerment and the promotion of value-added production, such as jewelry-making and other gold fabrication, in South Africa. The Mining Charter also sets out targets for broad-based black economic empowerment in the areas of human resources, skill development, employment equality, procurement and beneficiation. In addition, the Mining Charter addresses other socio-economic issues, such as migrant labor, housing and living conditions.

Harmony actively carries out mining and exploration activities in all of its material mineral rights areas. Three of Harmony’s operations have been granted their mining licenses and applications have been submitted for the

balance. We will be eligible to apply for new licenses over existing operations, provided that we comply with the Mining Charter. We have taken steps to comply with the expected provisions of the Mining Charter, such as promoting value-added production, exploring black empowerment initiatives and increasing worker participation. We expect more costs involved in compliance with the Mining Charter to lead to increased cash operating costs, which may have an adverse impact on the profits generated by Harmony’s operations in South Africa.

The Act also makes reference to royalties payable to the state in terms of an Act of Parliament, known as the Money Bill, which was made available for public comment. The introduction of the Money Bill will have an adverse impact on the profits generated by Harmony’s operations in South Africa. In terms of the draft regulations, royalties will only be payable from 2009.

In Australia, most mineral rights belong to the government, and mining companies pay royalties to government based on production. There are, however, limited areas where government granted freehold estates without reserving mineral rights. Harmony’s subsidiary, New Hampton, has freehold ownership of its Jubilee mining areas, but the other mineral rights in Harmony’s Australasian operations belong to the Australian and Papua New Guinea governments and are subject to royalty payments. In addition, current Australian law generally requires native title approval to be obtained before a mining license can be granted and mining operations can commence. New Hampton and Hill 50 have approved mining leases for most of their reserves, including all reserves that are currently being mined. Should New Hampton or Hill 50, or any of our initiatives in Papua New Guinea or other exploration areas, desire to expand operations into additional areas under exploration, these operations would need to convert the relevant exploration licenses prior to the start of mining, and that process could require native title approval. There can be no assurance that any approval would be received.

As a gold mining company, Harmony is subject to extensive environmental regulation. Harmony has experienced and expects to continue to experience increased cash operating costs of production arising from compliance with South African environmental laws and regulations. The Minerals Act, certain other environmental legislation and the administrative policies of the South African government regulate the impact of Harmony’s prospecting and mining operations on the environment.

Pursuant to these regulations, upon the suspension, cancellation, termination or lapsing of a prospecting permit or mining authorization in South Africa, Harmony will remain liable for compliance with the provisions of the Minerals Act, including any rehabilitation obligations. This liability will continue until such time as the South African Department of Minerals and Energy certifies that Harmony has complied with such provisions.

In the future, Harmony may incur significant costs associated with complying with more stringent requirements imposed under new legislation and regulations. This may include the need to increase and accelerate expenditure on environmental rehabilitation and alter provisions for this expenditure, which could have a material adverse effect on Harmony’s results and financial condition. Harmony may also face increased environmental costs resulting from other mines in the vicinity of Harmony’s mines failing to meet their obligations with regard to the pumping or treatment of water.

The South African government has reviewed requirements imposed upon mining companies to ensure environmental restitution. For example, following the introduction of an environmental rights clause in South Africa’s constitution, a number of environmental legislative reform processes have been initiated. Legislation passed as a result of these initiatives has tended to be materially more onerous than laws previously applied in South Africa. Examples of such legislation include the Minerals Act, the South African National Nuclear Regulator Act 1999, the South African National Water Act of 1998 and the South African National Environmental Management Act 1998, which include stringent “polluter-pays” provisions. The adoption of these or additional or more comprehensive and stringent requirements, in particular with regard to the management of hazardous wastes, the pollution of ground and ground water systems and the duty to rehabilitate closed mines, may result in additional costs and liabilities.

Harmony’s Australian operations are also subject to various laws and regulations relating to the protection of the environment, which are similar in scope to those of South Africa.

It is the current policy of Harmony’s Board to declare and pay cash dividends if profits and funds are available for that purpose. Whether or not funds are available depends on a variety of factors, including the amount of cash available and on capital expenditures and other cash requirements existing at that time. Under South African law, cash dividends may only be paid out of the retained or current profits of Harmony. We did not declare a cash dividend in fiscal 2005 and we cannot assure you that cash dividends will be paid in the future.

Dividends or distributions with respect to Harmony’s ordinary shares have historically been paid in Rand. The US dollar equivalent of any dividends or distributions with respect to Harmony’s ordinary shares would be adversely affected by potential future decreases in the value of the Rand against the US dollar. In fiscal 2005, the value of the Rand relative to the US dollar decreased by an average of 7.06% based on the closing rate for each financial year.

On June 30, 2005, Harmony had an aggregate of 1,200,000,000 ordinary shares authorized to be issued and, at that date, an aggregate of 393,341,194 ordinary shares were issued and outstanding. Harmony also has employee share option schemes. The employee share option schemes came into effect in 1994, 2001 and 2003 respectively. At June 30, 2005, options to purchase a total of 18,213,084 ordinary shares were outstanding. The exercise prices of these options vary between R22.90 and R93.00. As a result, shareholders’ equity interests in Harmony are subject to dilution to the extent of the future exercises of the options.

Harmony is incorporated in South Africa. All of Harmony’s directors and executive officers (and certain experts named herein) reside outside of the United States. Substantially all of the assets of these persons and substantially all of the assets of Harmony are located outside the United States. As a result, it may not be possible for investors to enforce against these persons or Harmony a judgment obtained in a United States court predicated upon the civil liability provisions of the federal securities or other laws of the Unites States or any state thereof. A foreign judgment is not directly enforceable in South Africa, but constitutes a cause of action which will be enforced by South African courts provided that:

It is the policy of South African courts to award compensation for the loss or damage actually sustained by the person to whom the compensation is awarded. Although the award of punitive damages is generally unknown to the South African legal system, that does not mean that such awards are necessarily contrary to public policy. Whether a judgment was contrary to public policy depends on the facts of each case. Exorbitant, unconscionable, or excessive awards will generally be contrary to public policy. South African courts cannot enter into the merits of a foreign judgment and cannot act as a court of appeal or review over the foreign court. South African courts will usually implement their own procedural laws and, where an action based on an international contract is brought

before a South African court, the capacity of the parties to the contract will usually be determined in accordance with South African law.

It is doubtful whether an original action based on United States federal securities laws may be brought before South African courts. A plaintiff who is not resident in South Africa may be required to provide security for costs in the event of proceedings being initiated in South Africa. Furthermore, the Rules of the High Court of South Africa require that documents executed outside South Africa must be authenticated for the purpose of use in South Africa.

Harmony Gold Mining Company Limited was incorporated and registered as a public company in South Africa on August 25, 1950. Our principal executive offices are located at 4 The High Street, First Floor, Melrose Arch, Melrose North 2196, South Africa and the telephone number at this location is +27-11-684-0140.

We conduct underground and surface gold mining and related activities, including exploration, processing, smelting, refining and beneficiation. We are currently the third largest producer of gold in South Africa, producing some 30% of the annual country’s gold output, and the sixth largest gold producer in the world. As at June 30, 2005, our mining operations reported total proven and probable reserves of approximately 54.1 million ounces. In fiscal 2005, we processed approximately 25.7 million tons of ore and produced 2.97 million ounces of gold, primarily from South African sources. Our principal mining operations are located in South Africa and Australia, with exploration and evaluation programs in Papua New Guinea and Peru.

At the time of our incorporation, Harmony was formed as a Randgold & Exploration Company Limited, or Randgold, managed company to exploit a single Harmony mine lease. In 1995, Harmony was rejuvenated as a separate entity following the demise of Randgold. At that time, Harmony produced 650,312 ounces of gold and employed 16,000 people. Harmony’s operations have grown significantly since 1995, expanding from a lease-bound single mining operation into an independent, world-class gold producer. We acquired additional mineral rights in the Free State, Mpumulanga, Gauteng and North West provinces in South Africa when we acquired Lydex in 1997, Evander in 1998, Kalgold in 1999, Randfontein in 2000, ARMgold in 2003 and Avgold in 2004.

We conduct our mining operations through various subsidiaries. As of June 30, 2005, our principal subsidiaries were Randfontein Estates Limited, Evander Gold Mines Limited, ARMgold/Harmony Freegold Joint Venture Company (Pty) Ltd, ARMgold Limited, Avgold Limited, Kalahari Goldridge Mining Company Limited and Harmony Gold (Australia) (Pty) Limited. All are wholly-owned direct subsidiaries incorporated in South Africa, save for Harmony Gold (Australia) (Pty) Limited, which is a wholly-owned subsidiary incorporated in Australia.

We received regulatory approval in 1997 to market our own gold, a function that was previously the sole preserve of the South African Reserve Bank, or SARB. A refinery was commissioned by Harmony during fiscal 1997 in the Free State Province at South Africa, which is currently treating most of the gold produced by the South African operations. In fiscal 2005, the capacity of the refinery was 110 tons.

In fiscal 2005, approximately 90% of Harmony’s gold production took place in South Africa and 10% in Australia. In fiscal 2005, approximately 88% of Harmony’s gold came from underground mines and 12% came from its surface mines. For more detailed geographical information about Harmony’s activities, see Item 4. “Information on the Company – Business – Harmony’s Mining Operations” and“Geographical and Segment Information” in the notes to the consolidated financial statements included in this annual report.

Throughout fiscal 2005, we implemented a major restructuring program aimed at containing working costs, reducing or closing loss-making operations and increasing cash profits. Our restructuring, driven in part by the low Rand gold price, is nearly complete. We also made a strategic decision during fiscal 2005 to expand our exploration activities. As part of this, regional offices have been set up in Johannesburg, South Africa; Wau, Papua New Guinea; Lima, Peru and Perth, Australia. Our exploration program has two components: on-mine exploration which looks for resources within the economic radius of existing mines, and new mine exploration, which is the global search for promising early to advanced stage projects.

Mining is a highly regulated industry, and we operate under a variety of statutes and regulations. To learn more about these statutes and regulations, see Item 4. “Information on the Company – Regulation” and Item 10. “Additional Information – Memorandum and Articles of Association.”

In South Africa, we have twelve operating shafts in the Free State Province, three operating shafts at Evander in the Mpumalanga Province, four operating shafts at Randfontein in the Gauteng Province, an open cast mine near Mafikeng in the North West Province, one production shaft at Carltonville in the North West Province, and two operating shafts in Orkney in the North West Province.

Ore from the shafts and surface material are treated at eleven metallurgical plants in South Africa (five in the Free State, one in Carltonville, two in Evander, two in Randfontein and one near Mafikeng).

We manage our operations on a shaft-by-shaft basis. During fiscal 2005, we also categorized our South African underground operations as follows:

Harmony believes that the leveraged shafts operations generally require a more short-term, flexible and lean approach, whereas the quality shafts operations require investment over a longer time horizon. Harmony has therefore refined its management structure of its South African operations to more closely align the strategic role of its assets with the different skill sets required to manage them. This has also enabled increased focus on the completion of the growth projects and in turning them into mines.

Harmony’s interests in Australasia consist of two operating centers, consisting of both underground and open pit mines located at 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), in Western Australia, as well as development and exploration prospects in Northern Territory, Australia, and at Hidden Valley and Wafi in Papua New Guinea. Underground and surface mining is conducted at each of our Australian operations, with underground access through two declines at Mt. Magnet and one decline at South Kalgoorlie and surface access principally through open pits.

Ore from the shafts and surface material are treated at two metallurgical plants in Australia (one at Mt. Magnet and one at South Kalgoorlie). The underground operations of Big Bell (acquired in the New Hampton transaction) were closed in fiscal 2004 and are in the process of being rehabilitated. In April 2005, we disposed of our remaining

11.6% stake in Bendigo for A$32 million. Bendigo is a single project Australian gold mining development company in which we acquired a 31.6% stake in fiscal 2002 for A$50 million.

We have concluded several other strategic transactions within and outside South Africa since fiscal 2002. Those transactions are summarized below.

With effect from May 1, 2002, Harmony and ARMgold, through Free Gold (in which Harmony and ARMgold each had a 50% interest) purchased the Free Gold assets for Rand 2.2 billion ($206.8 million at an exchange rate of R10.64 per $1.00), plus an amount equal to any liability for taxes payable by AngloGold in connection with the sale. For purposes of U.S. GAAP, Harmony equity accounted for its interest in Free Gold with effect from May 1, 2002 and the purchase price of the Free Gold assets was determined to be Rand 2.264 billion. See Item 5. “Operating and Financial Review and Prospects – Overview.” In connection with the acquisition of the Free Gold assets, Harmony and ARMgold entered into a formal joint venture and shareholders’ agreement relating to Free Gold. The agreement provided that Harmony and ARMgold were each responsible for 50% of the expenses associated with operating the Free Gold assets. The Free Gold operations are now wholly-owned by Harmony following the merger with ARMgold which was completed on September 22, 2003.

On October 30, 2002, Harmony, ARMgold and Gold Fields, through its subsidiary, St. Helena Gold Mines Limited, completed the sale of the St. Helena gold mining assets to Free Gold for Rand 120 million ($13.7 million), plus a royalty equal to one percent of revenue for a period of 48 months beginning on the effective date of the sale.

On January 21, 2003, Randfontein Estates Limited, or Randfontein, a wholly-owned subsidiary of Harmony, entered into an agreement with Africa Vanguard Resources (Proprietary) Limited, or Africa Vanguard, pursuant to which Randfontein sold 26% of its mineral rights in respect of the Doornkop Mining Area to Africa Vanguard for a purchase price of R250 million plus VAT. Randfontein and Africa Vanguard also entered into a Joint Venture Agreement on the same day, pursuant to which they agreed to jointly conduct a mining operation in respect of the Doornkop Mining Area. The agreements were implemented, and the initial purchase price of $19 million was paid on August 15, 2003. For US GAAP purposes, we did not account for this transaction as a sale, but have consolidated the results of Africa Vanguard and the Doornkop Joint Venture, as both these entities have been determined to be variable interest entities, with Harmony as the primary beneficiary of both variable interest entities.

On May 2, 2003, Harmony and ARMgold announced details of their 50/50 joint acquisition of a 34.5% stake in Anglovaal Mining Limited, previously known as Avmin and renamed African Rainbow Minerals Limited, or ARM Limited, after the Avgold transaction with Harmony was concluded. Based on a value of R43.50 per share, the transaction was valued at Rand 1.687 billion and was paid for in cash, which was funded by a long term loan from Nedcor Bank which has been repaid. ARM Limited is a South African incorporated mining holding company with interests in platinum group metals, manganese, chrome, nickel and gold mining operations and various exploration projects.

During fiscal 2003, Harmony announced a conditional cash offer for all of the outstanding ordinary shares and listed options of Abelle. At the end of fiscal 2003, Harmony’s interest in Abelle was 87% of the shares and 65% of the options. In fiscal 2004, Harmony made an off-market cash offer to acquire all the ordinary shares, listed and unlisted options of Abelle held by minorities for a total price of approximately A$121 million. At June 30, 2004 Abelle became a wholly-owned subsidiary of Harmony.

In fiscal 2003, Harmony also acquired stakes in Highland Gold, a company that held gold mining assets and mineral rights in Russia, and in High River, a company that held gold mining assets in Russia, Canada and West Africa. We sold our interests in Highland Gold and High River during fiscal 2004 for a combined pre-tax gain of approximately R528.2 million.

On July 15, 2003, Harmony acquired 77,540,830 ordinary shares in Avgold Limited, or 11.5% of Avgold’s outstanding share capital from Anglo South Africa (Pty) Limited, or Anglo SA, in exchange for 6,960,964 new Harmony ordinary shares issued to Anglo SA. The agreement with Anglo SA provided that should Harmony make an offer to acquire the other Avgold shareholders’ interest, the consideration payable to Anglo SA would be adjusted to reflect the amounts paid to the other Avgold shareholders. Harmony acquired the remaining stake in Avgold in April/May 2004.

On September 22, 2003, Harmony and ARMgold consummated a merger. Pursuant to the merger agreement, following the respective company shareholder approvals, Harmony issued 2 ordinary shares for every 3 ARMgold ordinary shares acquired. ARMgold also paid its shareholders a special dividend of R6.00 per ordinary share ($0.84) prior to the consummation of the merger. Harmony issued 63,670,000 ordinary shares to ARMgold’s shareholders which resulted in ARMgold becoming a wholly-owned subsidiary of Harmony. For U.S. GAAP

purposes, the merger was accounted for as a purchase by Harmony of ARMgold for a purchase consideration of approximately $697 million. The results of ARMgold have been included in those of Harmony from October 1, 2003.

During fiscal 2004, Harmony’s interest in Free Gold increased from 50% to 100% as a result of the merger with ARMgold on September 22, 2003. Therefore Harmony equity accounted for its interest in Free Gold for the first three months of fiscal 2004, whereafter Harmony consolidated its interest. Because Harmony equity accounted for its 50% interest in Free Gold, sales from the Free Gold assets are not included in Harmony’s sales figures for fiscal 2003.

Following the Harmony merger with ARMgold, on November 13, 2003, Harmony announced that it reached an agreement in principle with ARM and African Rainbow Minerals & Exploration Investments (Pty) Ltd, or ARMI, whereby it would enter into a number of transactions which would restructure ARM. The first transaction involved Harmony acquiring ARM’s 286,305,263 ordinary shares in Avgold, or 42.2% of Avgold’s outstanding share capital, in exchange for 28,630,526 new Harmony ordinary shares to be issued to ARM. The acquisition of ARM’s interest in Avgold became unconditional in April 2004, when Harmony was required to make a mandatory offer to the Avgold minority shareholders on the same terms as which it acquired ARM’s interest in Avgold. At that time, Harmony and ARM had cross shareholdings in each other whereby Harmony owned a 19% interest in ARM, and ARM owned a 19.84% interest in Harmony. In fiscal 2005, we transferred our investment in ARM to a trust. See Item 7. “Major Shareholders and Related Party Transactions” and the consolidated financial statements for a discussion on the treatment of the transaction.

On April 15, 2004, ARM shareholders approved the disposal of their entire shareholding of 286,305,263 ordinary shares in Avgold Limited to Harmony. By way of share exchange, ARM received 1 Harmony share for every 10 Avgold shares held. On May 11, 2004, Harmony announced that its mandatory offer to Avgold minority shareholders was successful and that a total of 62,204,893 Harmony shares were issued to acquire the entire shareholding in Avgold. Avgold owns the Target mine in the Free State. Harmony also disposed of its Kalplats platinum project and associated mineral rights to ARM in exchange for 2 million new ARM ordinary shares issued to Harmony. All of the above described transactions were consummated during May 2004, which resulted in Avgold becoming a wholly-owned subsidiary of Harmony.

On April 28, 2004, we entered into an agreement with Network Healthcare Holdings (Netcare) for the purpose of managing the provision of healthcare services of the Harmony Group. The agreement between Harmony and Netcare forms the first part of a deal that is expected to eventually see the complete outsourcing of the management of Harmony’s healthcare activities.

On May 21, 2004, we raised R1.7 billion by way of an issue of convertible bonds to international investors, which reduced our South African interest payments by approximately R85 million per year. In addition to these cost benefits, it also allowed us to consolidate our short term debt. The convertible bonds are Rand denominated and interest is payable semi-annually in arrears at a rate of 4.875% per annum. The convertible bonds may be converted into ordinary shares at a price, including premium of R121.00 per share, from July 1, 2004, until the seventh day prior to the maturity date, which is expected to be on May 15, 2009.

On October 18, 2004, Harmony announced the terms of a proposed merger between Harmony and Gold Fields Limited offering 1.275 newly issued Harmony shares for each Gold Fields Limited share. The proposed merger was structured on the basis of an Initial Offer and a Subsequent Offer. As at December 1, 2004, Harmony had received valid acceptances of the Initial Offer in respect of a total of 57,993,991 shares representing approximately 11.5% of the entire issued share capital of Gold Fields Limited. Between November 30, 2004 and December 14, 2004 Harmony issued 72,173,265 offer shares as consideration for the Initial Offer. On May 20, 2005, the Witwatersrand Local Division of the High Court of South Africa ruled that Harmony’s Subsequent Offer for Gold Fields had lapsed at midnight on December 18, 2004. Accordingly, the Subsequent Offer was no longer in force and no Gold Fields shares tendered into the Subsequent Offer were accepted. On June 3, 2005, Harmony disposed of 30 million Gold Fields Limited shares to the value of R2.041 billion. The placement was completed at a price of R71.40 (US$10.50) per share. Harmony still owns approximately 5.4%, or 26.6 million Gold Fields Limited shares.

On February 3, 2005, Harmony undertook a secondary placing of 3,703,704 shares of its holding in ARM Limited at a price of R27.00 per share. On March 15, 2005, Harmony placed another 3,418,803 of its ARM Limited shares at a price of R29.25 per share. On April 21, 2005, Harmony disposed of its 14% investment in ARM to The ARM Broad-Based Empowerment Trust (the ARM Empowerment Trust) for a cash consideration of R829,827,460 representing a price of R29.00 per ARM share. The ARM Empowerment Trust has been established for the purpose of holding the ARM shares to further facilitate broad-based empowerment in ARM’s shareholder base. ARM is Harmony’s second largest shareholder and BEE partner holding 16.2% of Harmony. For U.S. GAAP purposes, Harmony did not recognize the transfer of its investment in ARM to the ARM Empowerment Trust as a

sale. See Item 7. “Major Shareholders and Related Party Transactions” and the consolidated financial statements for a discussion on the treatment of the transaction.

Harmony is an independent growth oriented company in the gold production business and is distinguished by focused operational and management philosophies that it employs throughout the organization. Harmony’s growth strategy is focused on building a leading international gold mining company through acquisitions, development of organic growth projects and focused exploration. Harmony is currently expanding its production base in South Africa and Australasia, building on Harmony’s position as a leading cost-effective South African gold company in order to enhance its position as one of the world’s senior gold producers. Harmony made a strategic decision during the year to expand its exploration activities. As part of this, regional offices have been set up in Johannesburg, South Africa, Lima in Peru, Perth in Australia and Wau in Papua New Guinea. Harmony’s exploration programme has two components: on-mine exploration which looks for resources within the economic radius of existing mines; and new mine exploration, which is the global search for promising early to advanced stage projects.

The international and South African gold mining industries have been in the recent past and continue to be affected by structural and investment trends moving toward the consolidation of relatively smaller operations into larger, more efficient gold producers with 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.

Since undergoing a change in management in 1995, Harmony has employed a successful strategy of growth through a series of acquisitions and through the evolution and implementation of a simple set of management systems and philosophies, which Harmony refers to as the “Harmony Way,” and which Harmony believes are unique in the South African gold mining industry. A significant component of the success of Harmony’s strategy to date has been its ability to acquire under-performing mining assets, mainly in South Africa, and in a relatively short time frame to transform these mines into cost-effective production units. The execution of Harmony’s strategy between fiscal 1995 and fiscal 2005 has resulted in the growth of Harmony’s annual gold sales from approximately 650,000 ounces in fiscal 1995 to approximately 2.9 million ounces in fiscal 2005. Despite increased cash operating costs, Harmony has expanded its proven and probable ore reserve base and, as at June 30, 2005, Harmony’s mining operations reported total proven and probable reserves of approximately 54.1 million ounces.

Harmony is managed according to the philosophy that its shareholders have invested in Harmony in order to own a growth stock, which will also participate in movements in the gold price. Accordingly, Harmony has consistently maintained a policy of generally not hedging its future gold production. Harmony’s policy is to eliminate any hedging positions existing within the companies that it acquires as soon as opportunities can be created to do so in sound, commercially advantageous transactions. There may, however, be instances where certain hedge positions in acquired companies need to be kept in place for contractual or other reasons.

The major components of Harmony’s strategy include:

Harmony implements a simple set of management systems and philosophies, which Harmony refers to as the “Harmony Way”, and which it believes are unique to the South African gold mining industry. This “Harmony Way” is underpinned by the following concepts:

Harmony has implemented the “Harmony Way” at its original mining operations and at each mining property Harmony has acquired since 1995, and has implemented the “Harmony Way” at the Australian operations. By implementing this process, Harmony generally has been able to reduce unit costs significantly while increasing production and extending mine life.

Harmony’s acquisition strategy in South Africa has been, and will continue to be, pursuing mature, underperforming gold mining operations in which it believes it can successfully introduce the “Harmony Way” to increase productivity, reduce costs and extend mine life. The advantage to acquiring mature, underperforming operations is that they tend to be cheaper to acquire and, particularly for underground operations, much of the required capital expenditure has already been made. Harmony’s corporate strategy with respect to acquisition targets is as follows:

In South Africa, Harmony continues to explore a number of potential acquisitions. The South African gold mining industry has undergone a significant restructuring since 1990 with the result that a number of gold mining companies owned principally by mining houses have been sold to other gold operators. Harmony believes that this restructuring process has not yet been completed and that there will continue to be opportunities for further acquisitions in South Africa.

Outside of South Africa, Harmony intends to leverage the broad gold mining experience it has gained through acquisitions and existing operations. Through Harmony’s existing operations, Harmony has gained extensive underground mining experience. Harmony has also gained extensive experience in surface mining by open cast methods through its acquisition of Kalgold and the open cast operations of Randfontein, New Hampton and Hill 50 and in mechanized mining of greenstone orebodies through Harmony’s acquisitions of Bissett, New Hampton and Hill 50. 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 including exploration projects gained through its acquisition of Abelle. Harmony may in the future pursue additional suitable potential acquisitions in South Africa or internationally.

As a general rule, we sell our gold production at market prices. Currently, we generally do not enter into forward sales, derivatives or hedging arrangements to establish a price in advance for the sale of our future gold production, although we may do so in the future. As a result of this policy, 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.

Harmony inherited the following forward exchange contracts with the acquisition of Avgold in May 2004:

The contracts do not meet the Company’s accounting policy hedging criteria and the mark-to-market movement is reflected in the income statement. The mark-to-market of these contracts was a negative R 108 million (US$16 million) as at June 30, 2005. These values were based upon a spot price of US$1/R 6.67 and prevailing market interest rates at the time. Independent risk and treasury management experts provided these valuations.

The forward exchange contracts mature on a monthly basis, resulting in cash inflow or outflow, equal to the difference between the strike price of the contracts and the spot price on the particular day. The average strike price of the contracts, are significantly higher than the spot price of US$1/R 6.67, resulting in significant cash outflows.

Currently, our hedge book is managed by a risk and treasury management services company, which is a joint venture between a major South African bank and a black economic empowerment company.

A substantial proportion of the production of both New Hampton and Hill 50 was already hedged when acquired by Harmony. In fiscal 2002, in line with Harmony’s strategy of being generally unhedged, Harmony engaged in a process to reduce the New Hampton and Hill 50 hedge books. In fiscal 2002, Harmony also combined and restructured the overall hedge portfolio of Harmony’s Australian operations (including New Hampton and Hill 50). These hedge positions were classified as normal purchase and sale agreements, under which Harmony had to deliver a specified quantity of gold at a future date subject to the agreed-upon prices. In fiscal 2003, Harmony restructured the overall hedge portfolio of the Australian operations again and closed out a significant portion of the inherited hedge book resulting in the remaining hedge agreements not qualifying for hedge accounting treatment. The mark-to-market movements in these contracts are reflected in the income statement. During fiscal 2004, a further 500,000 ounces of the inherited hedge books of both New Hampton and Hill 50 were closed out at a cost of Rand 105 million (US$14.4 million). As of June 30, 2005, the resulting hedge portfolio covered 495,000 ounces over a five-year period at an average strike price of A$518 per ounce ($395 per ounce at an exchange rate of A$0.762 per $1.00). Harmony has reduced the remaining hedge positions of the Australian operations gradually by delivering gold pursuant to the relevant agreements as well as through the close out of these hedge agreements.

Exploration activities are focused on the extension of existing orebodies and identification of new orebodies both at existing sites and at undeveloped sites. Once a potential orebody has been discovered, exploration is extended and intensified in order to enable clearer definition of the orebody and the potential portions to be mined. Geological techniques are constantly refined to improve the economic viability of prospecting and mining activities.

We conduct exploration activities on our own or with joint venture partners. Our prospecting interests in South Africa measure approximately 100,000 hectares. The area has been reduced from 382,000 hectares, as regional exploration identified focused areas of mineralization, requiring more detailed investigation. Our Australian operations also control prospecting interests, as described below. In addition to ongoing mine site exploration, Harmony has a program of investment in regional exploration. The exploration strategy on these greenstone belts uses geological, geophysical and geochemical techniques to identify broad systems of anomalous gold and associated rock alteration within which gold deposits typically occur as clusters.

Harmony spent approximately $11.7 million, excluding contributions from joint venture partners, on exploration in fiscal 2005 and the bulk of exploration expenditure was allocated to activities in Australia, Papua New Guinea, South Africa and Peru with smaller expenditures in West Africa and Madagascar. In fiscal 2006, Harmony intends to carry out exploration in South Africa, West Africa, East Africa, Australia, Latin America and Papua New Guinea.

Our exploration program has two components:

South Africa: One of the largest exploration ventures within South Africa at the moment relates to exploration being undertaken at our Target mine. This has already added significantly to our resource and reserve base, and work is being undertaken at our Target North and Sun properties.

The geological setting for Target North appears similar to that at Target, with Elsburg, Dreyerskuil and Big Pebble reefs having been identified. There were also intersections of the Maraisdale and Sun reefs, which are thought to be equivalents to the B Reef and Basal Reef respectively. An erratically developed reef has been intersected in some boreholes at the base of the Ventersdorp Conglomerate Formation, and is interpreted to be the Ventersdorp Contact Reef (VCR). The VCR has been mined extensively in the Klerkdorp, West Rand and Far West Rand Goldfields, but has not previously been seen in the Free State Goldfield.

During fiscal year 2005, the project team undertook an extensive exercise to collate and validate data acquired over more than 20 years, to enable a 3D geological model to be constructed and re-interpreted.

A major re-correlation of the Central Rand Group Stratigraphy in boreholes drilled within the project area has been completed. The 3D seismic survey, which was undertaken in 1997/1998, and only partly interpreted, is in the process of being interpreted to the northern limit of the project area. This will assist in validating structure for the 3D geological model. The aim is to produce a robust geological model and resource statement that can be used for further decision-making.

In addition, in order to extend the life of current operations, a number of geological projects have been established on the secondary reef targets. By looking at these reefs on a regional basis, rather than within a specific lease area, new targets for exploration and future mining can be determined in previously unknown areas.

Australasia: Our offshore exploration program in Australasia continues to gain momentum with a number of projects in Australia and Papua New Guinea. Our Australian operations conduct prospecting at various sites within their exploration mineral right areas, which include various types of property rights recognized in Australia covering a total area of approximately 298,355 hectares (737,250 acres). Harmony’s exploration strategy in Australia includes exploration on greenstone belts using aeromagnetics, 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. Exploration of priority targets within Harmony’s holdings, continued to be the focus of regional exploration over the 2005 fiscal year.

Papua New Guinea: Our exploration activities in Papua New Guinea are conducted through Abelle, a wholly-owned subsidiary of Harmony Australia. Abelle owns 100% of the Hidden Valley and Wafi deposits in Papua New Guinea. The Hidden Valley project has an estimated mineral resource of 73.9 million tons at 2.2 grams per ton gold and 30 grams per ton silver for 5.2 million ounces of gold and 71 million ounces of silver. A feasibility study completed by Abelle in December 2003 envisaged construction of a small but profitable mine, which will produce 1.9 million ounces of gold and 25.5 million ounces of silver in phase one. See Item 4. “ Information on the Company — Business – Papua New Guinea Operations – Hidden Valley Project”. The Wafi Gold project is situated 60 kilometers south-west of Lae in the Morobe province and is an advanced exploration project. The project is held under four contiguous exploration licenses totaling 996 square kilometers and comprises two separate ore systems located within close proximity to each other known as the Wafi Gold Project and the Golpu Copper-Gold Project, or Golpu Project, respectively. The Golpu Project is a porphyry copper-gold deposit. The resource estimate for Golpu is 100 million tons at 1.3% copper and 0.6 grams per ton gold for 1.3 million tons of copper and 2.3 million ounces of gold. The Wafi Gold Project is a high sulphidation gold deposit that contains an inferred resource of 53.3 million tons at 2.5 grams per ton for 4.3 million ounces gold. Prior to the acquisition of the project by Harmony, nearly 65,000 meters of drilling had been completed. Since acquisition, we have completed a further 17,000 meters of both reverse circulation and diamond drilling to further define the shallower portions of the resource and to explore for additional oxide resources. A 6,800 meter diamond drill program is planned for fiscal 2006 at the high grade “link zone” of the Wafi gold deposit. See Item 4. “Information on the Company — Business – Papua New Guinea Operations – Wafi Project.”

Additional projects nearby include: the Kesiago project, consisting of rock chip, soil sampling and mapping and the Bawaga area, which is a target for exploration; the Moa Creek Prospect, located in rugged terrain 16 kilometers from our Hidden Valley Project, representing an exciting potential new opportunity for discovery of a new stand-alone gold mining operation in Papua New Guinea; and the Kerimenge deposit, a low-sulphidation, epithermal-mesothermal deposit located on the faulted contact between porphyry-diatreme complex and Jurassic-Cretaceous Kaindi metamorphics, approximately 10 kilometers north-east of the Hidden Valley deposit.

Australia: Following the acquisition of Hill 50, we integrated Hill 50’s exploration program on the properties south of Kalgoorlie with New Hampton’s programs in that area. These programs involve exploration on a combination of freehold title and mineral leases forming an east-west belt extending from Lake Roe to Coolgardie, south of Kalgoorlie. The tenements span a number of geological domains including the Kalgoorlie-Kambalda Belt and the Boulder-Lefroy structure, the Zuleika Shear, the Coolgardie Belt and the Yilgarn-Roe structures. A comprehensive structural-geological and regolith-geochemical review was completed in July 2001 for the Southeast Goldfields

area. This review outlined priority targets within our holdings, which were the focus of regional exploration over the 2002 fiscal year and continued to be the focus of regional exploration during the 2003, 2004 and 2005 fiscal years. Hill 50’s exploration has also continued to focus on brownfield and greenfield opportunities at Mt. Magnet and on regional targets. Six targets with the potential for major discoveries and a number of near mine targets to replenish depleted reserves have all been earmarked for drill testing, and a budget of R25 million has been approved for this area.

Through the Hill 50 transaction, we also acquired two development projects in the Northern Territory of Australia: the Maud Creek project and the Brocks Creek project. Maud Creek was an advanced greenfield project based on a recent discovery located close to the historic Yeuralba gold field in the Pine Creek district. The Maud Creek project faces a metallurgical risk associated with the extraction of gold from the ore. The Maud Creek orebody is partially refractory in nature and specific (yet to be finalized) ore processing routes would be required to liberate the gold. The contemplated processes were expected to result in higher capital and operating costs, but were not expected to involve significant technical risk. Interested parties in the Maud Creek Tenements of the Northern Territory extended an option until May 2005 through payment of an additional fee. On December 2, 2004 Harmony entered into an option agreement with Terra Gold Mining Ltd, or Terra Gold, whereby they proposed to purchase the Maud Creek project from Harmony for an initial purchase payment of A$3 million. Harmony is also entitled to further payments, an additional A$2 million in Terra Gold shares once the plant has been commissioned (or earlier upon the expiry of a twelve month period) and a further A$2 million in cash if Terra Gold takes the decision to mine. Harmony will have a 1% royalty over production of more than 250,000 ounces of gold from the project tenements. Terra Gold paid A$ 400,000 for the option over the project, which they exercised on April 29, 2005. This option payment was offset against the initial purchase payment and the remaining A$2.6 million has been received.

Brocks Creek is an effort to bring mines formerly operated by AngloGold and Dominion Mining back into production. The Brocks Creek area includes shallow open pits located at Rising Tide, and rights to develop the underground Zapopan and Cosmo Deeps sites. Following the second phase of drilling at the Cosmo Deeps Project, the resource was upgraded from 0.7 million to over 1 million ounces of gold. Further drilling also indicated a potential increase in average grade at depth. In fiscal 2005, Harmony had a total expenditure of A$8.877 million in combined levels of exploration at New Hampton and Hill 50.

With the exception of the Burnside Joint Venture, or JV, which Hill 50 and Northern Gold NL formed in March 2002 to develop the Brocks Creek project, Harmony’s exploration and development projects in Australia are wholly-owned. Our JV was consolidated during fiscal 2005, with the acquisition from AngloGold Ashanti of the Union Reefs Gold Project for a sum of A$4 million, half of which was payable by Harmony. Located between the JV’s current Brocks Creek and Pine Creek projects, the acquisition includes the 2.8 million tonne per annum carbon-in-leach (CIL) gold plant and all site-related infrastructure, which is earmarked as the primary treatment facility for the JV. On September 23, 2005, we announced that we had reached agreement with Northern Gold NL on the divestment of our 50% stake in the Burnside Joint Venture for a consideration of A$24 million or R117 million. See Item 8. “Recent Developments.”

In addition, Abelle has a number of exploration projects throughout Australia, inherited from the merger with Aurora, and during fiscal 2005, pursued an active policy to dispose or outsource these projects, as they were considered non core to the development strategy. Most of these interests are managed by third parties. During January 2004, Abelle sold its interest in the Credo project in Western Australia to its joint venture partner, Yilgarn Mining Limited, or Yilgarn, for A$250,000 and A$1.75 million of shares in Yilgarn. The Yilgarn shares were disposed of for A$1.2 million on June 20, 2005.

Peru: During 2005, Harmony continued to evaluate numerous, primarily green field, projects in Peru through the office that was opened in 2003. Harmony Gold Peru was awarded prospecting licenses over two concessions in southern Peru, covering an area of 3,000 hectares. Encouraging sampling results were followed up with detailed sampling programs. Final sampling results obtained during 2004 did not identify any project areas with significant gold mineralization to warrant further exploration work. Eighty projects were reviewed for joint venture potential. Of these, 40 were sampled, but none of these had mineralization potential to warrant exploration work by Harmony. The decision was taken that our office would change its focus to concentrate on opportunities in Latin America rather than just Peru and that the office will be staffed accordingly. A budget of R12 million has been approved for fiscal 2006. The budget excludes any capital expenditure.

The mining process can be divided into two main phases: (i) creating access to the orebody and (ii) mining the orebody. This basic process applies to both underground and surface operations.

In Harmony’s South African 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 the Australian underground mines once ore has been broken it is loaded unto trucks which transports it to the mill. In open pit mines, ore is transported to treatment facilities in large capacity vehicles.

We currently have twelve metallurgical plants in South Africa and three in Australia that treat ore to extract the gold. The principal gold extraction processes we use are carbon in leach, or CIL, carbon in pulp, or CIP, and carbon in solution, or CIS.

The gold plant circuit consists of the following:

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 our refinery, most of the South African plants no longer use smelting to produce rough gold bars (dore). Harmony’s Australian plants and its South African zinc precipitation plants continue to smelt precipitate to produce rough gold bars. These bars are then transported to our refinery or in the case of the Australian plans, to an independent refinery, which is responsible for refining the bars to a minimum of good delivery status.

We operate the only independent gold refinery and fabrication plant in South Africa. In fiscal 2003, approximately 85% of Harmony’s South African gold production was refined at Harmony’s refinery and the remainder was refined at the Rand Refinery, which is owned by a consortium of the major gold producers in South Africa. During fiscal 2004, 83% of Harmony’s South African gold production was refined at Harmony’s Refinery and approximately 83% during fiscal year 2005. The balance was refined at Rand Refinery. The Australian gold production is refined in Australia at an independent refiner, AGR Matthey.

The Harmony Refinery has developed a number of product lines comprising: branded gold bullion, comprising both large and small bars and granules. We are able to sell to markets such as India, the Middle East and East Asia among others; jewelry alloys, including plate, strip, grain and wire manufactured in 9ct — 18ct yellow, white and red gold for casting or bench work, fine silver granules and crystals, low-tarnish sterling silver, solders as paste or blocks in gold, silver and platinum, bangles, wedding rings and coin blanks, semi manufactured and custom made orders; industrial gold and silver, including silver anodes for the electroplating industry and 99.999% gold for high purity applications, gold fuse wire and connectors; dental alloys, including an extensive range of casted and bonding alloys, solders and wire meeting restoration requirements. All of our products comply with South African and international standards and where required, custom engineered products are available. In fiscal 2005, Harmony had refinery capacity of 100 tonnes per year. Harmony spent approximately Rand 6 million ($0.9 million) (compared to Rand 4.8 million ($0.7 million) in fiscal 2004) on capital expenditures at its refinery in fiscal 2005.

The South African government has emphasized that the production of value-added fabricated gold products, such as jewelry, is an important means for creating employment opportunities in South Africa and has made the

promotion of these beneficiation activities a requirement of the Mining Charter described in Item 4. “Information on the Company — Regulation-Mineral Rights.” Harmony’s beneficiation initiatives have benefited from the expansion and improvement of Harmony’s refinery. Harmony supports jewelry ventures in South Africa.

Mining activities require extensive services, located both on the surface and underground. These services include mining-related services such as mining engineering (optimizing mining layouts and safe mining practices), planning (developing short-term and long-term mining plans), ore reserve management (to achieve optimal orebody extraction), 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, we generally provide only those services directly related to mining. In some cases, other services are provided by outside contractors. In Australia, contractors are hired to perform the open pit and underground mining. We provide medical services to employees at our Free State, Evander and Randfontein hospitals and have outsourced the function to another hospital in Orkney. During fiscal 2004, Harmony entered into a joint venture agreement with Netcare Healthcare Holdings to outsource the management of Harmony’s healthcare.

We commenced a Services Transformation Project (STP) in June 2005 which concentrates on re-aligning the services departments as well as our staffing and systems as a way to reduce cash operating costs. The STP has been set up to help us improve the services we provide to our mining operations. We believe there are opportunities in services to transform them into businesses in their own right. Our targets are to reduce costs as well as to improve client satisfaction. The STP plans to address this in a focused and sustainable way. While there is no pre-determined plan, we are following a three phase process of: (i) analyzing or diagnosing the current situation throughout our operations (phase one); (ii) redesigning the services where appropriate (phase two); and (iii) implementing the services, staffing and systems in a sustainable way (phase three).

The Mining Charter described in Item 4. “Information on the Company – Regulation – Mineral Rights”establishes a policy of preferred supplier status according to enterprises controlled by members of historically disadvantaged groups when those enterprises are able to offer goods and services at competitive prices and quality levels. We believe that our procurement policy is consistent with this policy.

As part of the “Harmony Way,” we structure our mining operations in a way that we consider to be unique in the South African gold mining industry. Our operational structure is based on small, empowered management teams at each production site, which may include one or more underground mine shafts or open cast sites. These management teams are fully responsible for planning and executing the mining at the production site and report directly to our three Operations Directors. We have consciously maintained an internal focus, despite the time taken up with the Gold Fields bid process. As part of this, in February 2005, we re-aligned our management structures so as to reposition key managers to oversee the company’s operational and growth strategy. Specifically, Graham Briggs, who was the country manager in Papua New Guinea, has assumed responsibility for the Australasian portfolio, becoming Chief Executive of Harmony Australasia. In South Africa, three senior operational leaders, Philip Kotze, Peter Steenkamp and Bob Atkinson, have been appointed operations directors for the quality assets, leveraged assets and growth assets, respectively. The change in the management structure of our South African operations is part of an initiative to group together assets in line with their strategic roles and the different skill sets required to manage them. While the leveraged operations generally require a more short-term, flexible and lean approach, the quality assets require investment over a longer time horizon. This grouping has also enabled increased focus on the completion of the growth projects and in turning them into mines.

Each management team consists of an ore reserve manager, a mining manager, a financial manager, an engineering manager and a human relations manager. Each member of the management team has an individual area of responsibility: the mining manager is responsible for rock breaking and safety; the ore reserve manager is responsible for geology and ore reserves; the financial manager is responsible for financial management; the engineering manager is responsible for maintaining equipment; and the human relations manager is responsible for manpower issues. One of the managers is appointed as the team captain. Financial incentives are provided for the production team at each site based on the production and efficiency at the site.

Placing management power at the level of the actual production sites has resulted in greater flexibility, innovation and quicker decision-making than the more traditional management structures at South African gold mines. It also means that we operate without multiple levels of management. This contributes to decreased overhead costs, which has a positive impact on the payable portion of our mineral resources. In addition, the reduced management structure is important in facilitating Harmony’s goal of having 60% of its work force being directly involved in actual mining as opposed to the industry standard of 40%. We believe that this initiative has resulted in increased productivity.

With respect to our South African operations, Harmony and the United Association of South Africa have signed an agreement to redefine the traditional role of shift boss to that of a production coach. This initiative, Mining the Harmony Way, re-aligns the organization at the operational level in so far that the principal feature of this initiative is to allow the production coaches to focus on safety promotion rather than pure production efforts. The compensation structure has been changed so that production coaches will not receive incentive compensation based on production levels.

The traditional mine overseer is now termed the legal compliance officer and has a varying number of production coaches appointed below him. Additionally, the legal compliance officer and the production coaches spend the entire eight-hour working shift underground with the mining teams, in contrast with the four hours shift bosses and mine overseers typically spent with the mining teams. This directs the legal compliance officer and the production coaches’ technical expertise to be available to the production crews on the face. It has been proven in Harmony that this methodology promotes a safe production environment for the production teams and enhances career development for previously disadvantaged individuals.

Capital expenditures, including the non-cash portion, incurred for fiscal 2005 totaled approximately $140.8 million, compared with $126.5 million for fiscal 2004 and $209 million for fiscal 2003. The focus of Harmony’s capital expenditures in recent years has been underground development and plant improvement, upgrades and acquisitions, and management currently expects this focus to continue in fiscal 2006. The increase in capital expenditures in fiscal 2005 compared with fiscal 2004 resulted from the commencement of infrastructure establishment in Papua New Guinea and further investment in the Doornkop South Reef Project. The decrease in capital expenditure in fiscal 2004 compared with fiscal 2003 was as a result of downscaling at the Elandskraal and Australian operations as well as the appreciation of the Rand against the US dollar. Harmony has budgeted approximately $236 million for capital expenditures in fiscal 2006. Details regarding the capital expenditures for each operation are found in the individual mine sections under “Business – Harmony’s Mining Operations.” We currently expect that our planned capital expenditures will be financed from operations and existing cash and investments on hand. However, if we decide to expand major projects such as the Poplar Project and the Rolspruit Project at Evander beyond our current plans, we may consider alternative financing sources described below. See Item 4. “Information on the Company – Business – Harmony’s Mining Operations – Evander Operations.”

Harmony’s operational mining areas in South Africa comprise the Free State operations of 55,801 acres, the Evander area of 91,178 acres the Randfontein area of 41,026 acres, the Kalgold area of 5,259 acres, the Elandskraal area of 22,864 acres, the Free Gold area of 35,582 acres and the Target area of 10,469 acres. Harmony’s operational mining areas (granted tenements) in Australia comprise the combined Mt. Magnet – Big Bell area of 252,114 acres, the South Kalgoorlie area of 222,647 acres and active holdings in the Northern Territories (the Burnside Joint Venture) that total 288,083 acres. We sold our interest in the Burnside Joint venture on September 23, 2005. See Item 8 “Recent Developments”. We also own, control or share in additional mineral rights that have not been brought to production.

In line with the rest of the South African mining industry, we have been rationalizing our mineral rights holdings in recent years. Accordingly, over the past three years, we have disposed of our shares and our participation rights in areas in, as well as outside of, South Africa in which we have not actively pursued mining. We may continue to investigate further disposals.

The following pages contain maps of our South African and worldwide operations and interests.

The major portion of our South African gold production is derived from mines located in the Witwatersrand Basin in South Africa. The Witwatersrand Basin is an elongate structure that extends approximately 300 kilometers in a northeast-southwest direction and approximately 100 kilometers in a northwest-southeast direction. It is an Archean sedimentary basin containing a six-kilometers thick stratigraphic sequence consisting mainly of quartzites and shales with minor volcanic units.

Conglomerate layers occur in distinctive depositional cycles or packages within the upper, arenaceous portion of the sequence, known as the Central Rand Group. It is within these predominately conglomeratic units that the gold-bearing alluvial placer deposits, termed reefs, are located.

The differences in the morphology and gold distribution patterns within a single reef, and from one reef to the next, are a reflection of the different sedimentary processes at work at the time of placer deposition on erosional surfaces in fluvial and littoral environments.

Within the various goldfields of the Witwatersrand Basin there are major and minor fault systems, and some of the normal faults have displaced basin-dipping placers upwards in a progressive step-like manner, enabling mining to take place at accessible depths.

The majority of Harmony’s South African gold production is derived from auriferous placer reefs situated at different stratigraphic positions and at varying depths below surface in three of the seven defined goldfields of the Witwatersrand Basin.

Harmony’s production from the Australian operations and South African Kalgold operations are sourced from Archaean greenstone gold deposits. These types of deposits are formed by the interaction of gold-bearing hydrothermal fluids with chemically or rheologically suitable rock types. The hydrothermal fluids are typically focused along conduits termed shear zones. The nature of the shear zone and the host rock determines the style of the mineralization, which may be narrow veins with high gold grades or wide disseminated mineralization with low-medium grades. Frequently the two styles occur together.

At Harmony’s Papua New Guinea operations, the sedimentary/volcaniclastic rocks of the Owen Stanley Formation that surround the Wafi Diatreme host the gold mineralization at the Wafi project. Gold mineralization occurs as extensive high-sulphidation epithermal alteration overprinting porphyry mineralization and epithermal style vein-hosted and replacement gold mineralization with associated wall-rock alteration. The Golpu Copper-Gold project is located about 1kilometer northeast of the Wafi gold orebody. It is a porphyri (Diorite) copper-gold deposit. The host lithology is a diorite that exhibits a typical zoned porphyry copper alteration halo and the mineralized body can be described as a porphyry copper-gold ‘pipe’. Harmony’s Hidden Valley project comprise low sulphidation carbonate-base metal-gold epithermal deposits within the Morobe Goldfield, in the Morobe Province of Papua New Guinea. In the Hidden Valley project area a batholith of Morobe Granodiorite (locally a coarse grained monzogranite) is flanked by fine metasediments of the Owen Stanley Metamorphics. Both are cut by dykes of Pliocene porphyry ranging from hornblende-biotite to feldspar-quartz porphyries. A number of commonly argillic altered and gold anomalous breccias are known, including both hydrothermal and over printing structural breccias. The Hidden Valley deposit area is dominated by a series of post Miocene faults controlling the gold mineralization, including an early north trending set and the main northwest faulting.

Despite mining 3.1 million mill-delivered ounces in fiscal 2005 and the implementation of a wide-ranging restructuring of our South African operations, our ore reserves declined by only 13% during the course of the year. As at June 30, 2005, Harmony reported total proven and probable ore reserves of 54.1 million ounces as set forth in the following table. The gold price used to state our reserves is unchanged at R92,000 per kilogram and continues to be our expectation of the sustainable gold price in real terms. The gold price used is a combination of a US$380 per ounce and an exchange rate of R7.53 per US dollar. In Australia, for ore reserve calculation purposes a gold price of A$540 per ounce was used which equates to US$380 per ounce at an exchange rate of A$1.42 per US dollar.

The year-on-year comparison set forth below reconciles the ore reserves declaration of Harmony at June 30, 2004 to that at June 30, 2005. A significant component of the decrease in our ore reserves arises from the restructuring and downscaling of certain of the South African operations and the consequent downgrade of 3.0 million ounces from ore reserves to mineral resources. Depletion accounts for another 3.1 million ounces. In addition, follow-up work carried out in late 2004 resulted in a restatement of the Rolspruit ore reserves which decreased by 2.4 million ounces and the downgrade of 0.7 million ounces of reserves to inferred resources in life-of-mine at Masimong. On the positive side, exploration and more detailed mine planning for the future resulted in the addition of 1.1 million ounces to ore reserves.

Of the company’s 54.1 million ounces of ore reserves, 44.4 million ounces are classified as current reserves (above infrastructure) while the balance of 9.7 million ounces is classified as below infrastructure, i.e. reserves for which the capital expenditure has yet to be approved. At certain operations in Evander and the Free State, which have aggregate above infrastructure ore reserves totaling 10.1 million ounces, we will have to deliver on our past restructuring plans to drive down the long-term cost structure to levels below current costs in order for those operations to remain profitable at a long-term gold price of R92,000 per kilogram.

The SAMREC Ore Code, which sets out the internationally recognized procedures and standards for reporting of mineral resources and reserves in South Africa, has been used for the declaration of Harmony’s South African ore reserves. This code was developed by the South African Institute of Mining and Metallurgy and is the recommended guideline for reserve and resource reporting for companies listed on the JSE Limited. In reporting of reserves, we have complied with Industry Guide 7 of the United States Securities and Exchange Commission. Harmony’s Australian and Papua New Guinea ore reserves are compliant with the Australian Code for the Reporting of Ore Reserves (JORC code) of the Australian Institute of Mining and Metallurgy. Harmony uses the term ‘ore reserves,’ which has the same meaning as ‘mineral reserves’, as defined in the SAMREC code.

In order to define that portion of a measured and indicated mineral resource that can be converted to a proven and probable ore reserve, Harmony applies the concept of a cut-off grade. This is done by defining the optimal cut-off as the lowest grade at which an orebody can be mined such that the total profits, under a specified set of mining parameters, are maximized. The cut-off grade is determined using the company’s Optimiser computer program which requires the following as input:

Rand per tonne cash operating costs are historically based, but take cognizance of distinct changes in the cost environment such as restructuring, right-sizing, and other cost reduction initiatives, and for below infrastructure ounces, an estimate of capital expenditure.

The ore reserves represent that portion of the measured and indicated resources above cut-off in the life-of-mine plan and have been estimated after consideration of the factors affecting extraction, including mining, metallurgical, economic, marketing, legal, environmental, social, and governmental factors. A range of disciplines which includes geology, survey, planning, mining engineering, rock engineering, metallurgy, financial management, human resources management, and environmental management have been involved at each mine in the life of- mine planning process and the conversion of resources into reserves. The oreflow-related modifying factors used to convert the mineral resources to ore reserves through the life-of-mine planning process are stated for each individual shaft. For these factors, 18 month historical information is used, except if there is a valid reason to do otherwise. Because of depth and rock engineering requirements, some shafts design stope support pillars into their mining layouts which accounts for 7% to 10% discounting. A further 15% discounting is applied as a life-of-mine factor to provide for unpay and off-reef mining. In general, the life-of-mine plan extraction factors do not exceed 85%, and are reflected in the ore reserves.

Harmony’s standard for narrow reef sampling with respect to both proven and probable reserve calculations for underground mining operations at Elandskraal, Free State, Evander, Randfontein, Free Gold, Orkney and Target is applied on a 6 meter by 6 meter grid. Average sample spacing on development ends is at 2 meter intervals in development areas. For the massive mining at the Target operations, the Harmony standard for sampling with respect to both proven and probable reserves are fan drilling with “B” sized diamond drill holes (43mm core) sited at 50 meter spaced sections along twin access drives. 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.

Our mining operations’ reported total proven and probable reserves as at June 30, 2005 are set out in the following table:

The numbers shown in the table above 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 stated above. The approximate metallurgical recovery factors for the table above are as follows: (a) Elandskraal 95.6%; (b) Free State 95%; (c) Randfontein 96.5%; (d) Evander 96.7%; (e) Kalgold 82%; (f) the Free Gold assets 97%; (g) Orkney 93%; (h) Target 97.5%; (i) Big Bell 86%; (j) Northern Territory 94.7%; (k) Mt. Magnet 93%; (l) South Kalgoorlie 92%; (m) Papua New Guinea 92.9%.

In South Africa, we conduct underground mining at seven sites:

We conduct surface mining at five sites:

Surface mining conducted at the 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).

In Australia, we presently conduct mining principally at two sites, the Mt. Magnet operations (which were acquired in the Hill 50 transaction) and the South Kalgoorlie operations (which include the Jubilee operations acquired in the New Hampton transaction and the New Celebration operations acquired in the Hill 50 transaction). Underground and surface mining is conducted at each of the remaining operations, with underground access through two declines at Mt. Magnet and one decline at South Kalgoorlie and surface access principally through open pits. Underground operations at Big Bell ceased in July 2003 as mining there had become uneconomical due to low grade and the Big Bell plant was sold in December 2003. Surface mining will, however, continue in certain areas of the Big Bell tenements, with ore to be processed at the Mt. Magnet plant. Surface mining at South Kalgoorlie will cease in fiscal 2006 and treatment will concentrate on Mt. Marion and lowgrade stockpiles.

The following discussion is a three-part presentation of our operations: (i) an overview of our South African and Australasian operations; (ii) a regional analysis presented for both underground and surface operations; and (iii) a production analysis at the individual shaft or mine level based on the new groupings (quality/leveraged/growth/surface) developed by management.

Introduction. On January 31, 2001, Harmony entered into an agreement to purchase the assets and liabilities of the Elandskraal mines in the North West and Gauteng provinces of South Africa for approximately Rand 1 billion. Harmony and AngloGold jointly managed the Elandskraal mines between February 1, 2001 and April 9, 2001 and Harmony completed the purchase on April 9, 2001. In fiscal 2005, the Elandskraal operations accounted for approximately 7% of Harmony’s total gold sales. The assets and liabilities of the Elandskraal mines include the mineral rights and mining title (excluding a portion of the Carbon Leader Reef horizon, which AngloGold continues to mine), mining equipment, metallurgical facilities, underground and surface infrastructure necessary for the continuation of mining, ore treatment and gold extraction at Elandskraal as a going concern, and contributions to a rehabilitation trust fund equivalent to the current rehabilitation liability of this operation. The addition of Elandskraal to Harmony’s operations increased Harmony’s reserves by approximately 9.9 million ounces.

History. Gold mining began at Elandskraal in 1978 following approval of the project in 1974 by Elandsrand Gold Mining Company for the Elandsrand operations and by Gold Fields of South Africa Ltd. for the Deelkraal operations. Two surface shafts and two adjoining sub-vertical shafts were sunk at Elandsrand and Deelkraal. The sub-vertical shafts at Elandsrand were completed in 1984, which accessed a deeper reef in the lease area. The sub shaft deepening project, or SSDP, the deepening of the sub-vertical shafts to approximately 3,600 meters

below surface, has been completed. Activities are currently focused on accessing and opening up areas of the new mine and on the development and construction of support infrastructure. Harmony believes that the SSDP will enable Elandskraal to produce approximately 450,000 ounces per year over the life of the mines.

Geology. Elandskraal contains three identified main reef groupings, the Ventersdorp Contact Reef, or VCR, the Carbon Leader Reef, or CLR and the Mondeor Reef. Only the VCR is economic to mine and has been mined at depths below surface between 1,600 and 2,800 meters with future production to 3,300 meters below surface at the Elandsrand operations and at depths below surface of 2,750 meters at the Deelkraal operations. The VCR and CLR consist of narrow (20 centimeters to 2 meters) tabular orebodies of quartz pebble conglomerates hosting gold, with extreme lateral continuity.

At the Elandsrand operations, the vertical separation between the VCR and CLR increases east to west from 900 meters to 1,300 meters as a result of the relative angle of the VCR unconformity surface to the regional stratigraphic strike and dip. The CLR strikes west-southwest and dips to the south at 25 degrees. The VCR strikes east-northeast and has a regional dip of 21 degrees to the south-southeast. Local variations in dip are largely due to the terrace-and-slope palaeotopography surface developed during VCR deposition.

The dip of the VCR at the Deelkraal operations is relatively consistent at 24 degrees, although there is some postulation of a slight flattening of dip at depth. The VCR has a limit of deposition running roughly north-south through the center of the lease area. The VCR is not developed to the west of this line. Some stoping has occurred to the west of this limit, but this was to exploit reefs from the Mondeor Conglomerates, stratigraphically underlying the VCR.

Mining Operations. The Elandskraal operations are divided into the Elandsrand and the Deelkraal mines. The Elandsrand mine engaged in both underground and waste rock mining. The Deelkraal mine engaged in underground mining but as a result of the lower gold price in rand terms (taking into account the stronger rand as against the US dollar) the production was stopped in June 2004 and remained closed during fiscal 2005. Vamping and reclamation operations are ongoing at this time. The treatment of waste rock became uneconomical and was discontinued during January 2004. These operations are subject to all of the underground and waste rock mining risks detailed in the Risk Factors section.

Due to the operating depths of the Elandskraal underground operations, seismicity and pressure related problems are a risk. Harmony regularly revisits its mining strategy and management procedures at all of its deeper mining operations in connection with its efforts to mitigate this risk. The primary challenges facing the Elandskraal operations are the lowering of working costs, increasing mining flexibility, controlling capital expenditure and the timely completion of the SSDP.

Following our acquisition of Elandskraal, we implemented the “Harmony Way” at Elandskraal in an effort to cut costs and increase productivity, which resulted in the retrenchment of approximately 1,450 employees. This has improved the overall cost structure, which has enabled us to pursue capital development.

The Elandsrand mine, a mature mine with a declining production profile, has the challenge of a new mine being developed underneath the old mine. The nature of the different activities underway negatively impacted on the performance of the shaft during fiscal 2004. Due to scaling of the waste and reef orepasses, a program to rehabilitate the orepass system was put in place. This resulted in the temporary tipping of waste into the reef orepass system, which typically results in dilution in recovery grade and a distorted cash cost/ton profile. The problem was finally resolved in February 2004, and resulted in an improvement in recovery grade. A fire during the quarter ended September 30, 2003 resulted in the loss of three working shifts. Production was also affected by a blockage in the orepass during the quarter ended June 30, 2004. Seismic events during the quarters ending September 30, 2003 and June 30, 2004 resulted in three fatalities. Development was delayed as a result. Although this had an impact on the development for the period, it did not impact on the longer term production plan.

During August and September 2004, a major restructuring plan was implemented at Elandsrand. Along with the implementation of CONOPS between August 2004 and February 2005, production improved. Even so, it is still hampered by the a lack of flexibility, an issue that will be addressed by the commissioning of the new mine. Capital development on two levels has been completed. Cash operating cost development is taking place in both easterly and westerly directions on these levels. Access development delays on two other levels resulted from slow progress of the access haulages through the Cobra Dyke. All the levels up to 113 Level are now through and developments rates have picked up substantially. Development and construction of support infrastructure has progressed well. Work on the chambers for the refrigeration plants on 100 Level and the pump chamber on 115 Level is proceeding. The project is expected to be completed by the middle of fiscal 2008 and is expected to have a life of mine of 18 years. From the inception of the project through the end of fiscal 2005, R452 million has been expended. A further R158 million has been budgeted to complete the project.

An agreement for the implementation of CONOPS at Deelkraal was reached with the respective unions on December 19, 2003. Due to delays, it was only fully operational by April 2004. Despite this, production at the Deelkraal mine was stopped in June 2004 as a result of the reduction in the Rand-denominated price of gold which made mining at the shaft uneconomical. During fiscal 2005 the Deelkraal mine was only operating as a service shaft.

During fiscal 2005, the safety record at the Elandskraal mine in terms of lost time frequency rate (24.37) compared unfavorably with the group average of 18.38. Significant work was done to address the seismic event described above and the fatality frequency rate (0.19) returned to a favorable comparison with the group average of 0.25 for underground operations. Safety standards from other Harmony operations are being applied at Elandskraal and receive constant and high-level attention. Where problems are identified, steps are being taken to address the situation. The Executive for Sustainable Development is responsible for leading initiatives to improve workplace health and safety at Harmony’s South African operations. See Item 6. “Directors and Senior Management — Board Practices.”

Plants. Commissioned in 1978, the Elandsrand Plant has milling in closed circuit with primary and secondary hydrocyclones, secondary ball milling in closed circuit with hydrocyclones, thickening and cyanide leaching in a CIP pump cell carousel circuit. The CIP was commissioned after an upgrade of the facility in 1999. Following post-acquisition capital improvements, loaded carbon milled at the Elandsrand Plant is transported by road to the Cooke Plant at Randfontein for elution, electro-winning and smelting to produce gold. Residues from the CIP are pumped either to a backfill plant or directly to the tailings facility. Ore from Elandsrand underground operations are delivered to the plant for treatment.

The following table sets forth processing capacity and average tons milled during fiscal 2005 for the plant:

In fiscal 2005, the Elandsrand Plant recovered approximately 97.24% of the gold contained in the ore delivered for processing.

* Processing capacity assumes optimal capacity upon completion of the Elandsand New Mine Project.

Introduction. The Randfontein gold mine is located in the Gauteng Province of South Africa, approximately thirty kilometers west of Johannesburg. The Randfontein mine currently operates under a mining authorization with a total area of 17,753 hectares. The Randfontein mine has both underground and surface mining operations, and has two metallurgical plants. Underground mining is conducted at Randfontein at depths ranging from 500 meters to 2,500 meters. In fiscal 2005, Harmony’s Randfontein operations accounted for approximately 11% of Harmony’s total gold sales.

History. Gold mining began at the Randfontein mine in 1889. 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.

Since acquiring Randfontein, we have implemented the “Harmony Way” at Randfontein. We have reduced the number of senior managers, sold off non-core assets and implemented management teams.

Geology. The Randfontein mine is situated in the West Rand Goldfield of the Witwatersrand Basin, the structure of which is dominated by the Witpoortjie and Panvlakte Horst blocks, which are superimposed over broad folding associated with the southeast plunging West 50 Rand Syncline. The structural geology in the north section of the Randfontein mine is dominated by a series of northeast trending dextral wrench faults.

The Randfontein mine contains six identified main reef groupings: the Black Reef; the Ventersdorp Contact Reef; the Elsburg Formations; the Kimberleys; the Livingstone Reefs; and the South Reef. Within these, several economic reef horizons have been mined at depths below surface between 600 and 1,260 meters.

The reefs comprise fine to coarse grained pyritic mineralization within well developed thick quartz pebble conglomerates or narrow single pebble lags, which in certain instances are replaced by narrow carbon seams.

Mining Operations. The Randfontein operations are engaged in both underground and waste rock mining. These operations are subject to all of the underground and waste rock mining risks detailed in the Risk Factors section, and have historically also been subject to the open pit mining risks. 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.

The Doornkop South Reef Project was announced on January 22, 2003. It is estimated that the South Reef project has an in situ resource of 6.6 million ounces. For project purposes, it is estimated that 93,000 tons or 2.7 million ounces of gold will be recovered from the resource at a recovery grade of 0.191 ounces per ton. The estimated final cost is R959 million, with R225 million spent as of June 30, 2005.

Currently, the Kimberley Reef is mined on the upper levels of the Doornkop Shaft. The South Reef on the lower levels is the target of the proposed shaft-deepening project. A significant development during the year was the re-interpretation of the geological model. The resource is considered to lie flatter than previously thought and this gave rise to re-engineering opportunities. The shaft will be shortened as a result and there will also be a decrease in related in-circle development. The main shaft will therefore be deepened to 1,933 meters, as opposed to a depth of 2,034 meters in the original plan, while the spillage incline shaft will extend to 1,973 meters instead of 2,082 meters. The main shaft is to be commissioned by the end of the 2006 calendar year and production of 135,000 ounces per month is expected by October 2008.

Randfontein entered into an agreement with Africa Vanguard Resources (Doornkop) (Pty) Limited (“Africa Vanguard”) on January 21, 2003, pursuant to which Randfontein sold 26% of its mineral rights in respect of the Doornkop Mining Area to Africa Vanguard for a consideration of Rand 250 million. The consideration comprised cash of Rand 140 million and Rand 110 million in call options on 290,000 ounces of gold, being equal to 16% of the gold produced at Doornkop during the first 10 years of operation. Randfontein and Africa Vanguard also entered into a joint venture agreement on the same day, pursuant to which they agreed to jointly conduct a mining operation in respect of the Doornkop Mining Area. The profits will be shared 84% to Randfontein and 16% to Africa Vanguard. The agreements were subject to the fulfillment of certain conditions precedent, the last of which was fulfilled on August 12, 2003. The agreements were implemented and the purchase price paid on August 15, 2003. For US GAAP purposes, Harmony does not account for this transaction as a sale, but consolidates the results of Africa Vanguard and the Doornkop Joint Venture, as both these entities have been determined to be variable interest entities with Harmony as the primary beneficiary of both variable interest entities.

Mining at the South Reef at Doornkop was temporarily suspended during the fourth calendar quarter of 2003 to allow for the upgrade of the ventilation with respect to increasing both hoisting capacity and ventilation intake. This caused the overall recovery on Doornkop to drop. This situation continued until mining commenced in January 2004.

The safety record at the Randfontein operations during fiscal 2005 in terms of lost time frequency rate (17.11) compared favorably with the group average of 18.38. The fatality frequency rate (0.21) was also lower than the group average of 0.25 for underground operations. Lost time frequency rate at the plants in operation was 0.50, which was slightly higher than the group average of 0.44. On June 11, 2005, Cooke 1 achieved 500,000 fatality free shifts.

Safety at the operations receives constant and high-level attention and where problems are identified steps are taken to address the situation. The Executive for Sustainable Development, is responsible for leading initiatives to improve workplace health and safety at Harmony’s South African operations. See Item 6. “Directors, Senior Management and Employees – Directors and Senior Management – Board Practices.”

Plants. The processing facilities at the Randfontein mine presently comprise two operating plants: the Cooke metallurgical plant and the Doornkop metallurgical plant, both of which are serviced by a surface rail network. The Cooke metallurgical plant, commissioned in 1977, is a hybrid CIP/CIL plant, which processes the underground ore from the Randfontein operations. The Doornkop metallurgical plant, commissioned in 1985, is a conventional CIP plant, which is used to treat waste rock and other surface accumulations.

The following table sets forth processing capacity and average tons milled during fiscal 2005 for the Cooke and Doornkop plants:

In fiscal 2005, the Cooke plant recovery has been approximately 95.86%, while Doornkop plant recovered approximately 81.18% of the gold contained in the ore delivered for processing.

Harmony has budgeted Rand 11.3 million ($1.7 million at the closing rate at balance sheet date) for capital expenditures in fiscal 2006, primarily for upgrading the Doornkop plant.

Introduction. Harmony’s Free State operations are comprised of the original Harmony mines, the Unisel mine, Saaiplaas shaft 3, the Masimong shaft complex (comprised of Masimong shafts 4 and 5), Brand shafts 2, 3 and 5, and the Vermeulenskraal North mineral rights area. Mining is conducted at Harmony’s Free State operations at depths ranging from 500 meters to 2,500 meters. In fiscal 2005, Harmony’s Free State operations accounted for approximately 15% of Harmony’s total gold sales.

History. Harmony’s Free State operations began with the Harmony mine, which is an amalgamation of the Harmony, Virginia and Merriespruit mines. Beginning in 1996, Harmony began purchasing neighboring mine shafts. The Unisel mine was purchased in September 1996, the Saaiplaas mine shafts 2 and 3 were purchased in April 1997, the Brand mine shafts 2, 3 and 5 were purchased in May 1998 and the Masimong complex (formerly known as Saaiplaas shafts 4 and 5) was purchased in September 1998.

Geology. Harmony’s Free State operations are located in the Free State goldfield on the southwestern edge of the Witwatersrand Basin. Within this area, the operations are located on the southwestern and southeastern limb of a synclinal closure, with the Brand, Saaiplaas and Masimong shafts occupying northerly extensions of the same structure. The reefs dip inwardly from their sub-outcrop positions in the east and south of the mine to a position close to the western boundary of the original Harmony mine, where the reefs abut against the DeBron fault. To the west of the De Bron faulted zone, faulting is generally more intense, resulting in structurally more complex mining conditions.

Mining Operations. The Free State operations are engaged in both underground and waste rock mining. These operations are subject to all of the underground and waste rock mining risks detailed in the Risk Factors section. Due to the shallow to moderate depths of the underground operations, seismicity and pressure related problems are relatively infrequent with the exception of the Brand shafts where these problems receive constant attention. Harmony regularly revisits its mining strategy and management procedures in connection with its efforts to mitigate risks of these problems. 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. The principal challenges at the Free State operations of achieving optimal volumes and grades of ore production are addressed by stringent ore reserve management.

In fiscal 2002, Harmony began implementing the Masimong Expansion Project, which includes developing the Basal and B-Reef orebodies in the Masimong shaft area and equipping the shaft. The estimated final cost is R314 million, with R111 million spent as of June 30, 2005. The Project is expected to, at full production in 2010, achieve rates of 261,000 ounces per annum. The scope of the Project was increased with a view to taking the production profile to 135,000 tonnes per month within five years. Project capital expenditure has more than doubled (from R152.6 million to R 314 million), but so has the net present value of the project to R314 million and the IRR to 250%. During the year, the Project was incorporated into the shaft operations.

During fiscal 2005, Masimong was affected by three underground fires (one of which stopped production for seven days in the last quarter), machinery break-downs, a go-slow strike in January 2005 and a regional strike in March 2005. The implementation of CONOPS will be delayed until the second quarter of fiscal 2006 to allow for adequate development in the interim.

In conjunction with the development of the hoisting operations at Masimong 5 shaft, Harmony downscaled the Masimong 4 shaft to a service and small mining shaft in the quarter ended June 30, 2001. In the quarter ended June 30, 2002, however, Harmony determined that additional production at the Masimong 4 shaft had become

uneconomical under then current market conditions. Additional personnel were redeployed as and when additional areas of the Masimong 4 shaft were accessed to permit further production in the future. During fiscal 2005, Masimong 4 was placed on care and maintenance.

The Virginia 2 shaft was closed at the end of 2001, and is currently used only as a service shaft. Harmony also closed the Harmony 4 shaft in the quarter ended September 30, 2002, following the partial extraction of the shaft pillar. Mining personnel from the Harmony 4 shaft were transferred to other shafts. The Harmony 3 shaft is currently used only as a service shaft for pumping, although some of its reserves are mined through the adjacent Harmony 2 shaft.

Under market conditions prevailing in the quarter ended June 30, 2002, Harmony also decided to commence extraction of the shaft pillar at Saaiplaas 3, which previously operated as a service shaft. The shaft was closed during fiscal 2005. Merriespruit 3 is nearing the end of its economical life and has been earmarked for closure. Production is being downscaled and will eventually be discontinued all together.

Harmony also decided to suspend production in the quarter ending March 31, 2002 and placed the Brand 2 shaft on care and maintenance. During the quarter ended September 30, 2003, Harmony decided to put the Brand 5 shaft on care and maintenance. Care and maintenance will remain in place until market conditions are more favorable or more economical parts of the orebody are discovered. All labor has been transferred to other Harmony operations, where they have augmented natural attrition positions or displaced contractor labor.

The safety record at the Free State operations during fiscal 2005 in terms of lost time frequency rate (1.24) was lower than the group average of 18.38. The fatality frequency rate (0.43) compares unfavorably with the group average of 0.25 for underground operations. Lost time frequency rate at the plants in operation was 22.12, which compared unfavorably with the group average of 0.44. During October 2004, Unisel achieved its 1,000,000 fatality free shifts milestone. Brand 3 achieved its 1,000,000 fatality free shift on March 3, 2005.

Safety at the operations receives constant and high-level attention and where problems are identified steps are taken to address the situation. The Executive for Sustainable Development leads initiatives to improve workplace health and safety at Harmony’s South African operations. See Item 6. “Directors, Senior Management and Employees – Directors and Senior Management – Board Practices.”

Plants. There are two metallurgical plants at the Free State operations, namely Central and Saaiplaas plants. A third plant, Virginia plant, only operated for two months in fiscal 2005 before being closed and clean up operations implemented. The Central plant was commissioned in 1986 and employs CIP/CIL hybrid technology. It is currently dedicated to the treatment of underground ore. The Saaiplaas plant, commissioned in the late 1950’s, has been converted from the zinc precipitation filter process to the CIL. It currently processes underground ore.

The following table sets forth processing capacity and average tons milled during fiscal 2005 for each of the plants:

In fiscal 2005, Harmony’s plants at its Free State operations recovered approximately 95.36% of the gold contained in the ore delivered for processing to Central plant and approximately 96.03% at the Saaiplaas plant. Harmony’s refinery is also located at its Free State operations.

Introduction. Harmony’s Evander operations are located in the province of Mpumalanga in South Africa and are comprised of an amalgamation of the former Kinross, Bracken, Leslie and Winkelhaak mines and 26,952 hectares of mineral rights adjacent to these mines. Mining at Harmony’s Evander operations is conducted at depths ranging from 300 meters to 2,100 meters. In fiscal 2005, Harmony’s Evander operations accounted for approximately 13% of Harmony’s total gold sales.

History. Gold mining in the Evander Basin began in 1955. Eventually, four mining operations were established at Evander. In 1996, as a result of depletion of ore reserves, all four mining areas were merged to form Evander. In August 1998, Harmony acquired Evander as a wholly-owned subsidiary. Since then, we have implemented the “Harmony Way” management process at Evander.

Geology. The area covered by Evander’s mining authorization and mineral rights is situated within the Evander basin, a geologically discrete easterly extension of the main Witwatersrand Basin. Only one economic placer unit, the Kimberley Reef, is mined at Evander. In addition to the faulting of the reef horizon, there are numerous dykes and sills that complicate the mining layouts, the most significant of which is an extensively developed dolerite footwall sill that occasionally intersects the Kimberley Reef, causing displacements within it.

Mining Operations. The Evander operations are primarily engaged in underground mining. The Evander operations also process a limited amount of waste rock as and when necessary to allow the plants to operate efficiently. These operations are subject to all of the underground mining risks detailed in the Risk Factors section. Due to the shallow to moderate depths of the Evander underground operations, seismicity and pressure related problems are relatively 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. During the quarter ended March 31, 2004, an agreement was reached with the unions for the implementation of CONOPS at Evander. It has been fully implemented at all shafts at Evander. The implementation resulted in an increase in tons milled and consequently gold production rose. For a description of CONOPS, see Item 6. “Directors, Senior Management and Employees – Unionized Labor”.

During fiscal 2005, the Evander 2 and 5 shafts have been combined and downscaled, while the Evander 9 shaft was closed successfully and placed on care and maintenance. The Evander 9 shaft employees were transferred to other Evander operations. The Evander 7 shaft (Decline No.3, phase 3) project is progressing well.

The safety record at the Evander operations in terms of lost time frequency rate (23.04) during fiscal 2005 is higher than the group average of 18.38. The fatality frequency rate (0.16) during fiscal 2005 is lower than the group average of 0.25 for underground operations. The lost time frequency rate at the plants and surface operations (3.42) is higher than the group average of (0.44). Significant work is being done to address this. Evander 2 achieved 500,000 fatality free shifts on December 6, 2004.

Safety at the operations receives constant and high-level attention and where problems are identified steps are taken to address the situation. Underground falls of ground have historically been the biggest cause of fatal injuries at Evander. Roofbolting has been implemented at Evander in an effort to address this risk. The Executive for Sustainable Development, is responsible for leading initiatives to improve workplace health and safety at Harmony’s South African operations.See Item 6. “Directors, Senior Management and Employees – Directors and Senior Management – Board Practices.”

Plants. Evander has one active processing plant, the Kinross-Winkelhaak plant, which is operated as two geographically distinct sections. The bulk of the mine’s ore production is treated at the Kinross plant, which is a CIP/CIL hybrid plant. The Winkelhaak plant mills all of the ore from shafts 2 and 5, and pumps the slurry to the Kinross plant for further processing.

The following table sets forth processing capacity and average tons milled during fiscal 2005 for each of the operating plants:

In fiscal 2005, the plant at Evander operations recovered approximately 97.22% of the gold contained in the ore delivered for processing.

Introduction. Harmony conducts a surface mining operation at the Kalgold gold mine near Mafikeng in the North West Province of South Africa. Through Kalgold, we also control extensive mineral rights on the Kraaipan Greenstone Belt in the North West Province of South Africa. We purchased Kalgold on July 1, 1999. In fiscal 2005, the Kalgold operations accounted for approximately 4% of Harmony’s total gold sales.

History. Harmony acquired Kalgold on July 1, 1999 and fully incorporated Kalgold into its operations in October 1999. Prior to our acquisition, the Kalgold mine had operated for more than three years.

On November 7, 2003 Harmony announced its intent to sell Kalgold to The Afrikaner Lease Limited (Aflease) for a consideration of R250 million. Although all the other conditions precedent were met, Aflease could not provide appropriate funding and the contract was cancelled on March 15, 2004. Kalgold experienced operational difficulties normally associated with a changeover of management and control and this was reflected in the production figures.

Geology. The Kalgold operations are situated on the Kraaipan granite-greenstone belt, which is a typical gold-bearing greenstone formation. It has undergone intense structural deformation that has led to its dislocation into separate units.

Within the mining lease area, six steeply dipping zones of mineralization have been identified. Several additional zones of mineralization have been located within this area and are being evaluated. The first zone to be exploited by open cast mining has been an area known as the D-Zone. The D-Zone orebody has a strike length of 1,400 meters, varying in width between 40 meters in the south and 15 meters in the north.

Gold mineralization is associated with pyrite and pyrrohotite, which was developed as a replacement mineral within a banded ironstone formation and also within extensional, cross-cutting quartz veins within the ironstone.

Mining Operations. The Kalgold operations are engaged in open pit mining. This operation is subject to all of the open cast mining risks detailed in the Risk Factors section. Small subterranean water intersections in the pit are common and are actively managed and appropriate action is taken when necessary. The primary mining challenges at the Kalgold operations of achieving optimal volumes and grades of ore production are addressed by stringent ore reserve management.

The Kalgold operations had a lost time injury frequency rate of 1.11 per million hours worked in fiscal 2005, and recorded no fatal accidents in fiscal 2005. There is no reliable industry benchmark for safety at South African surface mining operations. During fiscal 2004, refurbishment activities at Kalgold’s CIL plant resulted in some safety related incidents, which contributed to the increased lost time injury frequency rate. Harmony has, however, addressed these issues and does not expect them to have a material impact on long-term production. Safety at the operations receives constant and high-level attention and where problems are identified steps are taken to address the situation. Kalgold achieved 1,000,000 fatal free shifts on July 20, 2003 and no employee has lost his life on the mine since the commissioning of this mine. The Executive for Sustainable Development, is responsible for leading initiatives to improve workplace health and safety at Harmony’s South African operations. See Item 6. “Directors, Senior Management and Employees – Directors and Senior Management – Board Practices.”

Plants. Ore is trucked from the pit and stockpiled according to grade categories. Higher grade ore is processed in the CIL plant. Lower grade ore is dumped on heap leach pads. Following the recent commissioning of the pre-primary crusher, the ore now undergoes a four phase crushing process. An additional ball mill and additional leach tanks have been commissioned, which increased the capacity to 160,000 tons/month.

The following table sets forth processing capacity and average tons milled during fiscal 2005 for each of the plants:

In fiscal 2005, Harmony’s plants at its Kalgold operations recovered approximately 89.90% of the gold contained in the ore delivered for processing.

Introduction. On November 21, 2001, Harmony and ARMgold reached an agreement in principle with AngloGold to purchase the Free Gold assets, subject to specified conditions. Pursuant to the subsequently executed definitive agreements, the Free Gold assets were purchased by the Armgold/Harmony Freegold Joint Venture (Pty) Limited (“Free Gold”) (in which Harmony and ARMgold each had a 50% interest) for Rand 2.2 billion ($206.8 million at an exchange rate of R10.64 per $1.00), plus an amount equal to any liability for taxes payable by AngloGold in connection with the sale. Free Gold assumed management control of the Free Gold assets from January 1, 2002,

and completed the acquisition on April 23, 2002. Rand 1.8 billion ($169.2 million at an exchange rate of R10.64 per $1.00) of the purchase price, plus accrued interest, was paid by Free Gold in April 2002 following the fulfillment of all conditions precedent and Rand 400 million ($37.5 million at an exchange rate of R10.64 per $1.00) was repaid by Free Gold under an interest-free loan due January 1, 2005. The additional amount relating to taxes was paid by Free Gold when the tax liability became payable by AngloGold. The amount of Rand 682 million ($90.8 million at an exchange rate of R7.51 per $1.00) was paid in June 2003. Free Gold expects that approximately 80% of this amount will provide Free Gold with a capital expense deduction against its taxable income from Free Gold assets. For purposes of US GAAP, Harmony accounted for its equity interest in Free Gold with effect from May 1, 2002 and the purchase price of the Free Gold assets was determined to be Rand 2.264 billion ($239.4 million). The outstanding balance of the loan from AngloGold of R400 million ($38 million) was fully repaid on December 30, 2004 at no interest charge.

In connection with the acquisition of the Free Gold assets, on April 5, 2002 Harmony and ARMgold entered into a formal joint venture and shareholders’ agreement relating to Free Gold. The agreement provided that Harmony and ARMgold were each responsible for 50% of the expenses associated with operating the Free Gold assets. Pursuant to the agreement, an interim executive committee composed of an equal number of representatives appointed by Harmony and ARMgold managed Free Gold until the acquisition was completed. Following completion of the acquisition, management of Free Gold was vested in a board, which initially was composed of an equal number of Harmony and ARMgold representatives. Since Harmony acquired ARMgold in September 2003, Free Gold has been accounted for as a wholly owned subsidiary. Therefore Harmony’s interest in Free Gold was equity accounted for the first three months of the year, and then consolidated for the remaining nine months.

On May 24, 2002, Harmony, ARMgold and Gold Fields, through its subsidiary St. Helena Gold Mines Limited, announced that an agreement in principle had been reached under which St. Helena Gold Mines Limited would sell the St. Helena gold mining assets to Free Gold for Rand 120 million ($13.7 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 Free Gold concluded a final agreement of sale on July 1, 2002. The sale was completed on October 30, 2002, and Free Gold assumed management control on that date. Under the terms of the agreement of sale Free Gold agreed to assume specified environmental liabilities relating to the operation of the St. Helena mine.

Free Gold assets consist of the Joel, Tshepong, Matjhabeng, Bambanani and St. Helena mines, associated infrastructure and other mineral rights in the Free State Province of South Africa. Production from the underground mines and adjacent surface sources is processed through three processing facilities (the Free State 1, or FS1, Plant, Joel Plant and the St. Helena Plant). In fiscal 2005, the Free Gold operations accounted for approximately 27% of Harmony’s total gold sales.

History. Exploration, development and production history in the area of the Free Gold assets dates from the early 1900’s, leading to commercial production by 1932. Subsequent consolidation and restructuring led to the formation of Free State Consolidated Gold Mine (Operations) Limited, which became a wholly-owned subsidiary of AngloGold in June 1998. AngloGold also owned the Joel mine, which, although it was not a part of this AngloGold subsidiary, is now included within the Free Gold assets owned by Free Gold. Free Gold also acquired the St. Helena gold mine in October 2002. St. Helena was the first gold mine to be established in the Free State.

Geology. Free Gold’s mines are located in the Free State goldfield, which is on the southwestern edge of the Witwatersrand basin. The Bambanani, Tshepong, Matjhabeng and St. Helena mines are located in and around Welkom, while the Joel mine is approximately 30 kilometers south of Welkom. Mining at Bambanani, Tshepong and Matjhabeng is primarily conducted in the Basal reef, with limited exploitation of secondary reefs. Mining at Joel is primarily conducted in the Beatrix-VS5 Composite Reef. The reefs generally dip towards the east or northeast while most of the major faults strike north-south, with the most intense faulting in evidence at Matjhabeng.

Mining Operations. Free Gold is engaged in both underground and waste rock mining. These operations are subject to all of the underground and waste rock mining risks detailed in the Risk Factors section. Free Gold regularly revisits its mining strategy and management procedures at the Free Gold operations in connection with its effort to minimize risks. Mining depths range from shallow-intermediate at the Joel mine to deep at the Bambanani mine. The primary mining challenges at the Free Gold operations are seismic risks, ventilation and fire avoidance. Both the Bambanani mine and the Matjhabeng mine (consisting of Kudu/Sable, Eland and Nyala shafts) are classified as seismically active operations with seismic monitoring systems installed to do active seismic risk evaluation, generally located in the vicinity of remnant operations and/or geological structures. Seismic systems are managed by external specialists. Current ventilation and refrigeration systems were evaluated and improved at take-over which Harmony believes will improve productivity and safety. Plans to this effect are being implemented by Free Gold. Refrigeration plants are installed at the Bambanani and Tshepong Mines. Following underground fires during the second half of 1999 at the Bambanani mine, mine management reviewed and modified working practices and the efficiency of the overall fire management system.

Mining is conducted at depths ranging from 1,200 and 3,000 meters at Bambanani, at an average depth of approximately 1,925 meters at Tshepong, at an average depth of approximately 1,700 meters at Matjhabeng, at an average depth of approximately 1,000 meters at Joel and at an average depth of 1,489 meters at St. Helena. Production at Matjhabeng, which is a mature mine nearing closure, is currently focused on the extraction of remnant pillars and shaft pillars, specifically at the Eland shaft. Due to the increased operating costs in dollar terms, in fiscal 2005 the loss making shafts Nyala and Eland were placed on care and maintenance, while production at St. Helena was effectively stopped and Kudu/Sable was closed down.

Free Gold is conducting a development program at the Bambanani shaft. Harmony expects this program to allow access to additional mining areas, which would reduce overall grade but increase overall production and life of mine. CONOPS was introduced at the shafts during the quarter ended December 31, 2003. During a significant period of fiscal 2005, CONOPS was stopped due to a dispute between management and the unions. Cash costs were affected by the additional cost involved in the implementation. Four fires in the higher grade sections during the second half of fiscal 2004 had a negative impact on productivity at Bambanani. They were all contained and have been extinguished.

The Tshepong Decline project, which started in April 2003, is proceeding on schedule. This project will add two additional operating levels below the present level of the Tshepong North Shaft. At fiscal 2005 year end, R141 million has been expended. A further R 140 million has been budgeted to complete the project. Free Gold estimates that the project will be completed by February 2008 and will add 135,000 ounces of gold per year to current production. CONOPS was introduced at Tshepong during the quarter ended December 31, 2003. During a significant period of fiscal 2005, CONOPS was stopped. For a description of CONOPS and the reason for CONOPS not being implemented, see Item 6. “Employees-Unionized Labor.”

The Phakisa Shaft Project is also proceeding on schedule. Phakisa shaft, a surface shaft, was sunk to access the ore reserve to a depth of 2,241 meters below surface. It is estimated that the area will yield 18.4 million tons, recovering 136 tons of gold over a project life of 19 years. Project completion requires sinking (75 meters), the sinking of a decline shaft, equipping and commissioning of the shaft with access development and stoping to maximum production build-up at a capital cost of Rand 612.9 million. To date, R 233 million has already been expensed. The project is expected to, at full production in 2010, achieve rates of 250,000 ounces per annum.

Shaft 2 at St. Helena mine was closed during the quarter ended December 31, 2003. This had a positive effect on the production figures for the rest of the shafts at the mine. CONOPS was introduced on November 2003. During a significant period of fiscal 2005, CONOPS was stopped due to a dispute between management and the unions. See Item 6. “Employees-Unionized Labor.”

Nyala shaft was placed on care and maintenance during March 2005. During June 2005, the decision was made to place the remaining shafts at Matjhabeng, being Kudu/Sable and Eland, on care and maintenance.

During fiscal 2005, the lost time frequency rate at the Free Gold operations (17.21) compared favorably with the group average of 18.38 while the fatality frequency rate of 0.25 equalled the group average of 0.25. The lost time frequency rate at the plants and surface operations was 4.19, which is higher than the group average of 3.5 for these types of operations.

Joel and Bambanani Lower Section achieved their 1,000,000 fatality free shifts milestones on June 23, 2005 and June 24, 2005, respectively. Also achieving a significant milestone was Tshepong, reaching the 500,000 fatality free shift milestone on October 5, 2004.

Safety standards receive constant and high-level attention at Free Gold. Where problems are identified, Free Gold takes steps to address the situation. The Executive for Sustainable Development is responsible for leading initiatives to improve workplace health and safety at Harmony’s South African operations. See Item 6. “Directors, Senior Management and Employees – Directors and Senior Management – Board Practices.”

Plants. Free Gold operates three plants: the FS1, Joel and St. Helena plants. The FS1 plant, which processes underground ore, waste rock and various surface accumulations, was commissioned in 1986 and is a conventional CIP plant processing ore that has been milled by fully autogenous grinding. Gold is recovered from the eluate solution using zinc precipitation and a precoat vacuum filter. The precipitate recovered from the filter is calcined and smelted to bullion. The FS2 Plant was largely dedicated to the treatment of surface sources but due to the current low gold price in rand terms the plant became uneconomical and since the Free State plants have extra capacity, it was decided to stop treatment at the plant and to start a total clean up operation. It was commissioned in the early 1950’s and employs conventional crushing and filtration technology. The Joel plant is a hybrid CIP/CIL plant and was commissioned in 1984. During fiscal 2005, it was decided to close the Joel Plant and implement clean up operations. St. Helena operates a conventional zinc precipitation filter plant supported by two mills that treat surface sources.

The following table sets forth processing capacity and average tons milled during the fiscal year ended June 30, 2005 for each of the plants:

The FS 2 Plant is currently undergoing clean-up.

Harmony estimates that in the periods covered by the above chart, FS1 recovery has been approximately 95.98% for reef ore and 86.68% for waste rock and St. Helena’s recovery was 81.46%. Joel recovered approximately 93% during fiscal 2005. Overall recovery is a function of the mix of feed ore, as surface sources tend to have a lower recovery than underground reef.

Introduction. On September 22, 2003, Harmony and ARMgold consummated a merger, the terms of which were announced on May 2, 2003. Pursuant to the merger agreement, following the respective company shareholder approvals, Harmony issued 2 ordinary shares for every 3 ARMgold ordinary shares acquired. ARMgold also paid its shareholders a special dividend of R6.00 per ordinary share ($0.64) prior to the consummation of the merger. Harmony issued 63,670,000 ordinary shares to ARMgold’s shareholders which resulted in ARMgold becoming a wholly-owned subsidiary of Harmony. For US GAAP purposes, the merger is accounted for as a purchase by Harmony of ARMgold for a purchase consideration of $697 million. The results of ARMgold were included from October 1, 2003. In fiscal 2005, the ARMgold operations accounted for approximately 5% of Harmony’s total gold sales.

History. The ARMgold operations consist of the Welkom shafts in the Free State Province and the Orkney shafts in the North West Province. Due to the distance, they are operated as separate business units. Exploration, development and production in the Welkom area dates back to the 1940s leading to production by 1947. Exploration and development at Orkney started from 1886 and following dormant periods, large-scale production commenced during the 1940s with the formation of Vaal Reefs Gold Mining and Exploration Company Limited in 1944.

Geology. The Welkom operations are centrally located within the Free State Goldfield, which lies some 270 kilometers southwest of Johannesburg on the southwest rim of the Witwatersrand Basin, in an area containing several other mature operations. The Basal Reef is the main reef exploited here. It strikes north to north-northwest and generally dips to the east between 20 degrees and 40 degrees. Other reefs that are exploited are the Leader Reef, the Saaiplaas Reef and the Middle Reef. There are a number of faults in this area, Rheedersdam and De Bron to name a couple.

At the Orkney operations, the Vaal Reef is the most significant reef mined. The reef strikes northeast, dipping southeast and is heavily faulted to form a series of graben structures. The dip is generally less than 30 degrees but can vary locally in direction and magnitude to exceed 45 degrees. The VCR is also exploited, as well as the Elsburg Reef. There are several major faults in the lease area, being Nooitgedacht, Buffelsdoorn, Witkop, WK2, No 3 BU, No 5 BU and No 2 BU Fault. These faults typically have throws of tens of meters and further divide the reef into blocks of up to 100 meters in width.

Mining operations. ARMgold is engaged in underground mining at both its operations. These operations are subject to all of the underground mining risks detailed in the Risk Factors section. ARMgold regularly revisits its mining strategy and management procedures at both its operations in connection with its effort to minimize risks. Mining depths range from 1,000 meters to 1,200 meters below the surface at the Welkom operations and from 1,600 meters to 2,000 meters below the surface at the Orkney operations.

Cost control was one of the major challenges faced at the ARMGold operations. Since the merger, management has implemented the “Harmony Way” in an effort to cut costs and increase productivity.

A decision was made during the quarter ended March 31, 2004 to downscale and to eventually close Welkom 1. Where possible, workers were re-trained and redeployed at other operations. Orkney 6 was also earmarked for

closure during the quarter ended March 31, 2004. During fiscal 2005, Welkom 1 and Orkney 6 were placed on care and maintenance.

A seismic event registering a magnitude of 4.1 on the Richter Scale occurred at the Orkney operations during the September 2004 quarter, causing damage to shafts and work areas.

Following a protected strike that lasted from February 12, 2004 to February 16, 2004, Harmony and the National Union of Mineworkers (“NUM”) reached an agreement on annual wage increases. NUM accepted the Company’s proposal and these employees have now been included in the bi-annual wage agreement, which was renegotiated in July 2005.

During fiscal 2005, the safety record at ARMgold mines in terms of lost time frequency rate (24.43) compared unfavorably with the group average of 18.38, as did the fatality frequency rate of 0.26 which was slightly higher than the group average of 0.25. Significant work is being done to address this. Where problems are identified, steps are being taken to address the situation. Since the merger, the executive officer in charge of sustainable development for the South African operations has also been working together with management at ARMgold to improve the workplace. See Item 6. “Directors and Senior Management – Board Practices.”

Plants. ARMgold does not own any plants. Ore from the Orkney operations is treated at Vaal River Operations’ (“VRO”) No. 1 Gold Plant. Various agreements between Harmony and VRO govern the supply and quality of the ore and gold apportionment.

Introduction. Avgold’s operations consist of the Target mine, Target North and Extensions and Oribi Exploration Property situated near the town of Allanridge in the Free State Province, some 270 kilometers southwest of Johannesburg. Located at approximately latitude 28°00’S and longitude 26°30’E on the northern limit of the Welkom Goldfields, the site is accessed via the R30 situated between the towns of Bothaville and Welkom.

On July 15, 2003 Harmony acquired 11.5% in Avgold from Anglo South Africa Capital (Pty) Ltd. On November 13, 2003 Harmony announced that it had reached an agreement regarding the acquisition of ARM’s 42% share in Avgold. In terms of JSE Securities Exchange South Africa regulations, the offer was extended to the remaining Avgold shareholders by way of a scheme of arrangements. Following a scheme meeting held on May 3, 2004, the High Court of South Africa approved the scheme on May 11, 2004. This resulted in Harmony acquiring the minority shareholding and Avgold becoming a wholly-owned subsidiary. In fiscal 2005, Avgold’s operations accounted for approximately 7% of Harmony’s total gold sales.

History. The Target Operations area was initially explored through surface drilling in the late 1980s with further exploration being undertake from a 5.6 kilometers long decline, commenced in 1995, driven from 203L at Lorraine No.1 shaft. A positive feasibility study into the development of a 105 ktpm operation was produced in May 1998 resulting in the decision to develop the Target mine. A detailed mine design was produced in 2000 and the mine officially opened in May 2002. Upon closure of the Lorraine mine in August 1998, the Lorraine No. 1 and No. 2 shafts were transferred to the Target mine, becoming Target No.1 and No. 2 shafts, respectively.

Geology. The gold mineralization currently exploited by Target mine is contained within a succession of Elsburg and Dreyerskuil quartz pebble conglomerate reefs hosted by the Van Heeverrust and Dreyerskuil Members of the Eldorado Formation, respectively. Additional mineral resources have been delineated in the Big Pebble Reefs of the Kimberley Formation but these are not planned to be exploited in the current life of mine plan.

The majority of the mineral reserves at Target mine are contained within the Eldorado fan, a structure with dimensions of some 135 meters vertically, 450 meters down-dip and 500 meters along strike. The Eldorado fan is connected to the subsidiary Zuurbron fan, located between the Target mine and Lorraine, by a thinner and lower grade sequence of Elsburg reefs termed the Interfan area. To the north of the Eldorado fan, a number of fans have been intersected by surface drilling of which the Siberia and Mariasdal fans are the most significant. These fans are subject to ongoing technical studies and do not form part of the current Target mine life of mine mineral reserve.

A number of faults that displace the reefs of the Target mine have been identified of which the most prominent are the north-south trending Eldorado fault and the east-west trending Dam and Blast faults. The Eldorado uplifts the more distal portions of the Elsburg and Dreyerskuil Reefs while the Blast fault forms the northern border of the Target mine.

Target North is sub-divided into the Paradise, Siberia and Mariasdal areas by the east-west trending Siberia and Mariasdal faults. To the north of the Siberia fault, the Eldorado fault continues trending more to the northwest and an additional north-south trending fault, the Twin fault has uplifted the distal portions of the reefs. North of the

Maraisdal fault, the reef horizons are at a depth greater than 2,500 meters below surface. Resources have been delineated on strike up to 15 kilometers north of the Target mine.

Approximately 40 kilometers north of Target mine, surface boreholes have intersected gold bearing reefs in the Oribi area close to the town of Bothaville. Resources have been delineated at Oribi on the VCR and Elsburg at depths of approximately 2,750 meters below surface.

Mining operations. The Avgold operations are engaged in underground and surface mining. These operations are subject to all of the underground mining risks detailed in the Risk Factors section. Mining operations comprise one primary underground mine commissioned in May 2002, making use of information systems and mechanization, combined with process-driven organizational design that relies on a multi-skilled workforce. The majority of the production is derived from mechanized mining; however, conventional stoping is still employed primarily to de-stress areas ahead of the mechanized mining. The Avgold operations have been managed by Harmony since May 2004. The Harmony Way has been successfully implemented resulting in a decrease of cash costs.

During fiscal 2005, Target struggled with flexibility problems and a lack of access points to the orebody, despite a good start to the year. There were also several operational disruptions, including low availability of the mechanized fleet and consequently, low development rates. Critical machines have been replaced with new and refurbished equipment in an attempt to improve the availability of the fleet. CONOPS was also implemented in the conventional mining section which allowed the mine to step up the rate of over-stoping the massives.

The safety record at the Avgold operations during fiscal 2005 in terms of lost time frequency rate (8.16) compared favorably with the group average of 18.38, while the fatality frequency rate (0.51) compared unfavorably with the group average of 0.25 for underground operations.

Target was awarded the “Safety Achievement Flag for 2004” by the Mine Health and Safety Council.

Safety at the operations receives constant and high-level attention and where problems are identified steps are taken to address the situation. The Executive for Sustainable Development, is responsible for leading initiatives to improve workplace health and safety at Harmony’s South African operations. See Item 6. “Directors, Senior Management and Employees – Directors and Senior Management – Board Practices.”

Plants. Target Plant was commissioned towards the end of 2001 and currently treats only underground ore. The process route comprise primary crushing, open circuit primary SAG milling, secondary ball milling closed with hydrocyclones, thickening, cyanide leaching, CIP adsorption, elution, electrowinning, smelting and tailings disposal. The milling circuit incorporates gravity concentration, the concentrates from which are processed via intensive cyanidation and electrowinning. Gold bullion is dispatched to the Harmony’s refinery.

The following table sets forth processing capacity and average tons milled during the year ended June 30, 2005:

In fiscal 2005, the Target Plant recovered approximately 96.47% of the gold contained in the ore delivered for processing.

We manage our operations on a shaft-by-shaft basis. During fiscal 2005, we categorize the South African operations as follows: quality shafts, leveraged shafts and growth shafts. Surface operations are managed separately.

Quality shafts are typically those shafts with a larger reserve base and longer life, which form the core of our production. The quality shafts are Target, Tshepong, Masimong complex, and Evander 2, which was downscaled and combined with Evander 5 during fiscal 2005, Evander 7, Evander 8 and Cooke 1, 2 and 3 shafts.

Leveraged shafts are those shafts that supplement production and provide the upside in the event of a positive swing in the rand gold price. The leveraged operations consist of shafts that are either in the process of being restructured, downscaled in line with available ore reserves or mothballed. These include the currently operating

Bambanani, Joel, West Shaft, Harmony 2, Merriespruit 1 and 3, Unisel, Brand 3 and Orkney 2 and 4 shafts, as well as St. Helena which was scaled down significantly and Brand 5, Welkom 1, Kudu/Sable, Nyala and Eland that were placed on care and maintenance or closed down during fiscal 2005. The following shafts that were closed during fiscal 2004 were also leveraged shafts: Evander 9, Deelkraal, Orkney 1,3,6,7, Saaiplaas 3, Welkom1, 4, 6 and 7, as was Harmony 4 and Virginia, which was closed during fiscal 2003.

Growth shafts comprise the expansion projects established through existing infrastructure, as well as the three new mines being built in South Africa. These operations include the Elandsrand and Doornkop mines and the Phakisa project. The growth shafts represent the future of our South African operations and, once completed, will result in a substantial improvement in the quality of our production profile.

Surface operations comprise the Kalgold opencast mine, all previously mined rock, whether waste or reef and any clean-up operations at plants and other infrastructure. Therefore, the surface operations at Free Gold, the Free State and Randfontein and, for the first time in fiscal 2005, Target’s surface operations are also included under surface operations as well as the surface operations from Elandsrand and Evander, which were discontinued in fiscal 2004.

The charts set out on the pages that follow detail the operating and production results from underground operations for all identified quality shafts for fiscal 2005, 2004 and 2003:

Tons milled from quality shafts decreased to 7,464,000 in fiscal 2005, compared with 7,756,000 in fiscal 2004. Recovered grade increased from 0.173 in fiscal 2004 to 0.185 in fiscal 2005.The increase in ounces sold from 1,343,713 in fiscal 2004 to 1,378,167 is attributable primarily to the increase in the recovered grade.

Gold sales increased to $588,360,000 in fiscal 2005, compared with $523,305,000 in fiscal 2004. Cash costs for the quality shafts were $357 per ounce of gold in fiscal 2005, compared with $319 per ounce of gold in fiscal 2004.

Tons milled from quality shafts increased to 7,756,000 in fiscal 2004, compared with 7,730,000 in fiscal 2003. The recovered grade increased from 0.172 in fiscal 2003 to 0.173 in fiscal 2004. The increase in ounces sold from 1,332,180 in fiscal 2003 to 1,343,713 in fiscal 2004 is attributable primarily to the increase in tons milled and the recovered grade.

Gold sales increased from $438,156,000 in fiscal 2003 to $523,305,000 in fiscal 2004. Cash costs for the quality shafts were $319 per ounce of gold in fiscal 2004, compared with $206 per ounce of gold in fiscal 2003.

Refer to the charts set out on the following pages for detail on the operating and production results of individual quality shafts for fiscal 2005, 2004 and 2003:

Tons milled from the Target shaft increased to 1,178,000 in fiscal 2005, compared with 228,000 in fiscal 2004. The increase in tons milled was primarily due to the comparative period being only two months in fiscal 2004. Ounces sold were 209,847 in fiscal 2005, compared with 53,434 in fiscal 2004. The increase in ounces sold, though influenced negatively by the decrease in the grade, was primarily attributable to the comparative period being for two months only. The recovery grade decreased from 0.234 in fiscal 2004 to 0.178 in fiscal 2005. During fiscal 2005 the grade was diluted due to excessive caving of waste rock into the massive stopes and it was impacted by a lack of access to some of the higher-grade stopes due to backfill constraints.

Cash costs for Target were $57,273,000 in fiscal 2005, compared with $11,514,000 in fiscal 2004. This increase was primarily attributed to the comparative period being only two months in fiscal 2004. Cash costs per ounce were $273 in fiscal 2005, compared with $215 in fiscal 2004. This increase was attributable primarily to the significant reduction in the recovered grade.

The Target shaft’s hoisting capacity is 110,000 tons per month. The average tons milled in fiscal 2005 were 98,167 tons per month.

On a simplistic basis, assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable ore reserves of 20 million tons will be sufficient for the Target shaft to maintain production until approximately 2021. However, 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 the future operations. See Item 3. “Key Information – Risk Factors – Harmony’s gold reserve figures may yield less gold under actual production conditions than Harmony currently estimates.”

Capital expenditure. Harmony incurred approximately Rand 53.8 million in capital expenditure at the Target shaft in fiscal 2005, principally for underground development. Harmony has budgeted Rand 54.8 million ($8.2 million at the closing rate at balance sheet date) for capital expenditure at Target in fiscal 2006, primarily for underground development, maintenance of the ore pass system, dam 286 and the electrical sub station as well as the replacement of the underground vehicles. A further Rand 5 million ($0.75 million at the closing rate at balance sheet date) has been budgeted for North exploration and diamond drilling.

Tons milled from the Tshepong shaft decreased to 1,700,000 in fiscal 2005, compared with 1,814,000 in fiscal 2004. This decrease was attributable primarily due to the stopping of CONOPS, as from January 2005 and the regional strike in March and April 2005. Ounces sold were 380,695 in fiscal 2005, compared with 390,747 in fiscal 2004. Even though the recovered grade increased to 0.224 in fiscal 2005, compared with 0.215 fiscal 2004, ounces sold decreased due to the decrease in tons milled.

Cash costs for the Tshepong shaft was $117,592,000 in fiscal 2005, compared with $103,321,000 in fiscal 2004. This increase was primarily attributed to the appreciation of the Rand against the US dollar. Cash costs per ounce

were $309 in fiscal 2005, compared with $264 in fiscal 2004. This increase was attributable primarily due to the major restructuring and stopping of continuous operations in March 2005 as well as the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars but was offset in part by an increase in recovered grade. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2005, due primarily to increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

Tons milled from the Tshepong shaft were 1,814,000 in fiscal 2004, compared with 1,834,000 in fiscal 2003. The decrease in tons milled was due to lost production hours as a result of late arrangements for the Christmas break. Ounces sold decreased to 390,747 in fiscal 2004, compared with 424,766 in fiscal 2003, primarily due to the decrease in the recovered grade. The recovered grade decreased from 0.232 in fiscal 2003 to 0.215 in fiscal 2004.

Cash costs for the Tshepong shaft was $103,321,000 in fiscal 2004, compared with $67,966,000 in fiscal 2003. This increase was primarily attributed to the appreciation of the Rand against the US dollar. Cash costs per ounce were $264 in fiscal 2004, compared with $160 in fiscal 2003. This increase was attributable primarily to additional labor cost with the implementation of CONOPS in January 2004 and the reduction in the recovered grade as well as the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2004, due primarily to the reduction of the recovered grade and increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

Harmony’s 50% interest in the sale of gold from Free Gold that was excluded as a result of equity accounting amounted to 51,488 ounces in the first quarter of fiscal 2004 and 212,383 ounces for fiscal 2003.

The Tshepong shaft’s rock hoisting capacity is 209,000 tons per month. While upgrades in the shafts are in progress to facilitate increased production, the current rate is 141,667 tons per month. Rock in excess of Tshepong shaft’s hoisting capacity will be trammed to Nyala Mine for hoisting to surface.

On a simplistic basis, assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable ore reserves of 29.2 million tons will be sufficient for Tshepong to maintain underground production until approximately 2019. Any future changes to the assumptions upon which the ore 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 may yield less gold under actual production conditions than Harmony currently estimates.”

Capital Expenditure. Harmony incurred approximately Rand 42.3 million in capital expenditures at the Tshepong shaft in the fiscal year ended June 30, 2005, primarily for the sub 66 level decline. Harmony has budgeted Rand 92 million ($13.8 million at the closing rate at balance sheet date) for capital expenditures in fiscal 2006, primarily for the sub 66 level decline. A further Rand 14.5 million ($2.18 million at the closing rate at balance sheet date) was budgeted for B-reef exploration development and drilling.

Tons milled from the Masimong shaft complex were 1,046,000 in fiscal 2005, compared with 1,378,000 in fiscal 2004, and ounces sold were 159,981 in fiscal 2005, compared with 234,307 in fiscal 2004. The decrease in tons milled is primarily attributable to underground fires, machinery breakdowns, a go-slow strike in January 2005 and a regional strike in March and April 2005. The decrease in ounces sold is primarily due to the decrease in tons milled

and the decrease in the recovered grade. Recovered grade was 0.153 in fiscal 2005, compared with 0.170 in fiscal 2004, mainly as a result of lower grades being mined.

Cash costs were $72,282,000 in fiscal 2005 compared with $76,269,000 in fiscal 2004 with cash costs per ounce at $452 in fiscal 2005 compared with $326 in fiscal 2004. This increase was attributable primarily to higher labor costs while the restructuring at Masimong 4 was delayed, a lower grade mined and the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2005, due primarily to increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

Tons milled from the Masimong shaft complex were 1,378,000 in fiscal 2004, compared with 1,266,000 in fiscal 2003, and ounces sold were 234,307 in fiscal 2004, compared with 179,632 in fiscal 2003. The increase in tons milled and ounces sold is primarily attributable to increased production from the complex and the increase in the recovered grade. Recovered grade was 0.170 in fiscal 2004, compared with 0.142 in fiscal 2003.

Cash costs were $76,269,000 in fiscal 2004 compared with $43,898,000 in fiscal 2003 with cash costs per ounce at $326 in fiscal 2004 compared with $244 in fiscal 2003. This increase was attributable primarily to increased labor and production costs and the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars but was offset in part by an increase in recovered grade. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2004, due primarily to increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

The total shaft hoisting capacity is 134,000 tons per month. The average tons milled in fiscal 2005 were 87,167 tons per month.

On a simplistic basis, assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable ore reserves of 13.6 million tons will be sufficient for the Masimong shaft complex to maintain underground production until approximately fiscal 2016. 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 may yield less gold under actual production conditions than Harmony currently estimates.”

Capital Expenditure. Harmony incurred approximately Rand 23 million in capital expenditures at Masimong in fiscal 2005, principally for the expansion project, which involves the mining of the Basal and B reefs. Harmony has budgeted Rand 30 million ($4.5 million at the closing rate on balance sheet date) for capital expenditures at Masimong in fiscal 2006, primarily for growth development of the Masimong shaft complex.

Tons milled from the Evander 2 shaft were 357,000 in fiscal 2005, compared with 491,000 in fiscal 2004, and ounces sold were 48,764 in fiscal 2005, compared with 86,172 in fiscal 2004. This decrease in tons milled was due to the decision to downscale the operations and combine it with the Evander 5 shaft. The decrease in ounces was due to the lower tons milled and the decrease in the recovery grade. Recovered grade decreased to 0.137 in fiscal 2005, compared with 0.176 in fiscal 2004.

The increase in cash costs from $376 per ounce in fiscal 2004 to $635 per ounce in fiscal 2005 was attributable primarily to lower production outputs and the lower recovered grades as well as the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars. See

Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2005, due primarily to the lower grade in volumes produced, increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

Tons milled from the Evander 2 shaft were 491,000 in fiscal 2004, compared with 522,000 in fiscal 2003, and ounces sold were 86,172 in fiscal 2004, compared with 88,575 in fiscal 2003. This decrease in tons milled was due to the repairing of the shaft’s infrastructure. Even though the recovered grade increased from 0.170 in fiscal 2003 to 0.176 in fiscal 2004, ounces sold decreased due to the lower tons milled.

The increase in cash costs from $230 per ounce in fiscal 2003 to $376 per ounce in fiscal 2004 was attributable primarily to the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2004, due primarily to the significant restructuring initiatives during the last quarter of fiscal 2004, additional costs incurred in repairing the infrastructure of the shaft, increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

The total shaft hoisting capacity for the No.2 shaft is 51,000 tons per month. The average tons milled in fiscal 2005 were 29,750 tons per month.

On a simplistic basis, assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable ore reserves of 2.1 million tons will be sufficient for the Evander 2 shaft to maintain production until approximately fiscal 2016. Due to the recent economic climate, mining operations at shaft 2 and 5 were combined and downscaled during fiscal 2005. Harmony currently expects that production at shafts 2 and 5 will end between 2009 and 2010. Although production increases are planned at other production shafts and total production is expected to remain generally constant in the foreseeable future, some uncertainty about longer-term production exists because infrastructure for the subsequent years has not been planned to the same degree of detail as in the years 2001 through 2010. 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 may yield less gold under actual production conditions than Harmony currently estimates.”

Capital Expenditure. Harmony incurred approximately Rand 0.094 million in capital expenditures at Evander 2 in fiscal 2005, principally for the upgrade of winders. No provision was made for capital expenditures at Evander 2 in fiscal 2006.

Tons milled from the Evander 5 shaft were 245,000 in fiscal 2005, compared with 223,000 in fiscal 2004, and ounces sold were 47,093 in fiscal 2005, compared with 48,103 in fiscal 2004. The increase in tons milled was due to the successful implementation of CONOPS and the combined operations of the No 2 and 5 shafts. The decrease in ounces was due to a significantly lower recovered grade. Recovered grade was 0.192 in fiscal 2005, compared with 0.216 in fiscal 2004.

The increase in cash costs from $335 per ounce in fiscal 2004 to $411 per ounce in fiscal 2005 was attributable primarily to the lower grade being recovered, resulting in lower ounces produced and the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per

ounce would have increased in fiscal 2005, due primarily to increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

Tons milled from the Evander 5 shaft were 223,000 in fiscal 2004, compared with 227,000 in fiscal 2003, and ounces sold were 48,103 in fiscal 2004, compared with 49,769 in fiscal 2003. The decrease in tons was primarily due to the fact that preparation work in the shaft for the removal of the shaft pillar was delayed due to constraints. The decrease in ounces was due to the slightly lower recovered grade and lower tons milled. Recovered grade was 0.216 in fiscal 2004, compared with 0.219 in fiscal 2003.

The increase in cash costs from $228 per ounce in fiscal 2003 to $335 per ounce in fiscal 2004 was attributable primarily to the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2005, due primarily to increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

The total shaft hoisting capacity for the No.5 shaft is 21,000 tons per month. The average tons milled in fiscal 2005 were 20,417 tons per month.

On a simplistic basis, assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable ore reserves of 1.7 million tons will be sufficient for the Evander 5 shaft to maintain production until approximately fiscal 2016. Due to the recent economic climate, mining operations at the No. 2 and 5 shafts were combined and downscaled during fiscal 2005. Harmony currently expects that production at shafts 2 and 5 will end between 2009 and 2010. Although production increases are planned at other production shafts and total production is expected to remain generally constant in the foreseeable future, some uncertainty about longer-term production exists because infrastructure for the subsequent years has not been planned to the same degree of detail as in the years 2001 through 2010. 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 may yield less gold under actual production conditions than Harmony currently estimates.”

Capital Expenditure. Harmony incurred approximately Rand 0.013 million in capital expenditures at the Evander 5 shaft in fiscal 2005, principally for exploration drilling. Harmony has budgeted Rand 24.6 million ($3.7 million at the closing rate at the balance sheet date) for capital expenditures at the Evander 5 shaft in fiscal 2006, primarily for development of the No. 2 deepening decline project. A further Rand 0.2 million ($0.03 million at the closing rate at balance sheet date) was budgeted for exploration of the 23CE Drive.

Tons milled from the Evander 7 shaft were 541,000 in fiscal 2005, compared with 577,000 in fiscal 2004, and ounces sold were 130,009 in fiscal 2005, compared with 92,505 in fiscal 2004. The decrease in tons milled was due to significantly lower production in the upper levels, as planned with a strategic build up phase in order to maintain profitability in this area. The increase in ounces sold is attributable primarily to the significantly improved recovery grade, which increased to 0.240 in fiscal 2005, compared with 0.160 in fiscal 2004. This significant increase was due to the mining moving to the center of the payshoot.

The decrease in cash costs from $356 per ounce in fiscal 2004 to $284 per ounce in fiscal 2005 was attributable primarily to the increase in the recovered grade. Improvements in production efficiencies such as face advances, especially in the main payshoot area, also contributed towards higher gold recovery and thus lower cash cost per ounce.

Tons milled from the Evander 7 shaft were 577,000 in fiscal 2004, compared with 566,000 in fiscal 2003. This increase in tons milled was primarily due to dedicated focus on old gold sweepings. The decrease in ounces sold to 92,505 in fiscal 2004, compared with 106,419 in fiscal 2003 was attributable primarily to the decrease in the recovered grade. The recovered grade decreased to 0.160 in fiscal 2004, compared with 0.188 in fiscal 2003, mainly due to flexibility concerns and lower mining grades.

The increase in cash costs from $212 per ounce in fiscal 2003 to $356 per ounce in fiscal 2004 was attributable primarily to the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2004, due primarily to the significant reduction in the recovered grade, increases in the costs of labor, annual increases and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

The total shaft hoisting capacity for the No. 7 shaft is 53,000 tons per month. The average tons milled in fiscal 2005 were 45,083.

On a simplistic basis, assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable ore reserves of 8.9 million tons will be sufficient for Evander 7 shaft to maintain production until approximately fiscal 2021. Harmony currently expects that production at shaft 7 will end between 2009 and 2010. Although production increases are planned at other production shafts and total production is expected to remain generally constant in the foreseeable future, some uncertainty about longer-term production exists because infrastructure for the subsequent years has not been planned to the same degree of detail as in the years 2001 through 2010. 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 may yield less gold under actual production conditions than Harmony currently estimates.”

Capital Expenditure. Harmony incurred approximately Rand 24 million in capital expenditures at Evander 7 in fiscal 2005, principally for underground declines at shaft 7. Harmony has budgeted Rand 33 million ($5 million at the closing rate at the balance sheet date) for capital expenditures at Evander 7 in fiscal 2006, primarily for development of the No.1 decline connection and the third phase of the No.3 decline.

Tons milled from the Evander 8 shaft were 734,000 in fiscal 2005, compared with 692,000 in fiscal 2004, and ounces sold were 151,936 in fiscal 2005, compared with 109,513 in fiscal 2004. This increase in tons milled was due to an increase in the number of stoping crews and the successful implementation of CONOPS. The increase in ounces was due to the significant higher recovered grade. Recovered grade was 0.207 in fiscal 2005, compared with 0.158 in fiscal 2004, which is the positive result of the mining focus being shifted to achieving mining of the ore body using more structured pillar investigations and increasing the cut-off grade so as to minimize mining below the cut-off.

The decrease in cash costs from $363 per ounce in fiscal 2004 to $304 per ounce in fiscal 2005 was attributable primarily due to the significant increase in the recovery grade and the successful results from the implementation of CONOPS.

Tons milled from the Evander No. 8 shaft were 692,000 in fiscal 2004, compared with 676,000 in fiscal 2003, and ounces sold were 109,513 in fiscal 2004, compared with 94,008 in fiscal 2003. The increase in ounces was due to the higher recovery grade. Recovered grade was 0.158 in fiscal 2004, compared with 0.139 in fiscal 2003.

The increase in cash costs from $290 per ounce in fiscal 2003 to $363 per ounce in fiscal 2004 was attributable primarily to the appreciation of the Rand against the US dollar, which caused a significant increase when these

costs were translated into US dollars but was offset in part by an increase in the recovered grade. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2005, due primarily to increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

The total shaft hoisting capacity for Evander No. 8 shaft is 51,000 tons per month. The average tons milled in fiscal 2005 were 61,167 tons per month, which exceeds the capacity due to the fact that Evander 8 only hoists to a certain level, from which the ore is trammed to Evander 7.

On a simplistic basis, assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable ore reserves of 15.7 million tons will be sufficient for Evander 8 shaft to maintain production until approximately fiscal 2033. 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 may yield less gold under actual production conditions than Harmony currently estimates.”

Capital Expenditure. Harmony incurred approximately Rand 21.5 million in capital expenditures at Evander 8 in fiscal 2005, principally for underground declines at shaft 8. Harmony has budgeted Rand 25.9 million ($3.88 million at the closing rate at the balance sheet date) for capital expenditures at the Evander 8 shaft in fiscal 2006, primarily for development of phase 5 and 6 of the decline and the fire control system.

Tons milled from Cooke 1 were 520,000 in fiscal 2005, compared with 605,000 in fiscal 2004, and ounces sold were 79,101 in fiscal 2005, compared with 104,168 in fiscal 2004. The decrease in tons milled was due to staggered initial implementation of CONOPS and the planned reduction of operations in terms of the restructuring process. The decrease in ounces sold was primarily due to the lower tons milled and the lower recovered grade (0.152 in fiscal 2005, compared 0.172 in fiscal 2004).

Cash costs per ounce of gold were $426 in fiscal 2005, compared with $304 in fiscal 2004.This increase was attributable primarily to the change in mining mix, which constitutes a decrease in conventional mining and an increase in the portion of pillar mining from old remnant areas. This pillar mining is much more costly to undertake and high volumes is also not possible. Cooke 1 also experienced an increase in seismicity in the shaft area, caused mainly by the fact that the shaft pillar was completely mined out by September 2002. Furthermore the appreciation of the Rand against the US dollar caused a significant increase when these costs were, translated into US dollars. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2005, due primarily to the lower grade in volumes produced, as well as increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

Tons milled from Cooke 1 were 605,000 in fiscal 2004, compared with 741,000 in fiscal 2003. . The decrease in tons milled was due to the planned reduction of operations in terms of the restructuring process, as well as the change in mining mix, with pillar mining not allowing high volumes. Ounces sold were 104,168 in fiscal 2004, compared with 120,819 in fiscal 2003. Even though the recovered grade increased from 0.163 in fiscal 2003 to 0.172 in fiscal 2004, ounces sold decreased primarily due to the lower tons milled.

Cash costs per ounce of gold were $304 in fiscal 2004, compared with $191 in fiscal 2003. This increase was expected with the downscaling in underground mining activities, resulting in lower production levels, which was supplemented by the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars. See Item 5. “Operating and Financial Review and Prospects –

Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2004, due primarily to the lower volumes produced, as well as increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

The hoisting capacity of the Cooke 1 shaft is 176,000 tons per month, though currently operating at a rate of 43,333 tons per month in connection with the extraction of the shaft pillar.

On a simplistic basis, assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable underground ore reserves of 1.8 million tons will be sufficient for the Cooke 1 shaft to maintain production until approximately fiscal 2009. 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 may yield less gold under actual production conditions than Harmony currently estimates.”

Capital Expenditure. Harmony incurred approximately Rand 1.6 million in capital expenditures at Cooke 1 shaft in fiscal 2005 for development of Level 106 into the Kimberley Reef. No capital expenditures are expected at Cooke 1 shaft during fiscal 2006.

Tons milled from Cooke 2 were 403,000 in fiscal 2005, compared with 749,000 in fiscal 2004, and ounces sold were 54,441 in fiscal 2005, compared with 90,761 in fiscal 2004.The decrease in tons milled was due to staggered initial implementation of CONOPS and the planned reduction of operations in terms of the restructuring process. Even though the recovered grade increased from 0.121 in fiscal 2004 to 0.135 in fiscal 2005, ounces sold decreased primarily due to the decrease in tons milled.

Cash costs per ounce of gold were $488 in fiscal 2005, compared with $377 in fiscal 2004.This increase was attributable primarily to the initial implementation of CONOPS and the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars, and the lower production volumes. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2005, due primarily to the lower volumes produced, as well as increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

Tons milled from Cooke 2 were 749,000 in fiscal 2004, compared with 790,000 in fiscal 2003. The decrease in tons milled was due the planned reduction of operations in terms of the restructuring process. Ounces sold decreased to 90,761 in fiscal 2004, compared with 116,639 in fiscal 2003, primarily due to decrease in tons milled and a decrease in the recovered grade, to 0.121 during fiscal 2004, compared with 0.148 fiscal 2003.

Cash costs per ounce of gold were $377 in fiscal 2004, compared with $191 in fiscal 2003. This increase was expected with the downscaling in underground mining activities and supplemented by lower recovery grades and lower production levels as well as the appreciation of the Rand against the US dollar, which caused a significant increase when these costs were translated into US dollars. See Item 5. “Operating and Financial Review and Prospects – Exchange Rates.” If expressed in Rand terms, costs per ounce would have increased in fiscal 2004, due primarily to the lower grade in volumes produced, as well as increases in the costs of labor and supplies due to the implementation of collective bargaining agreements and the effect of inflation on supply contracts.

The hoisting capacity of the Cooke 2 shaft is 187,000 tons per month. The average tons milled in fiscal 2005 were 33,583 tons per month.

On a simplistic basis, assuming no additional reserves are identified, at expected production levels, it is foreseen that the reported proven and probable underground ore reserves of 2 million tons will be sufficient for the Cooke 2

shaft to maintain production until approximately fiscal 2010. 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 may yield less gold under actual production conditions than Harmony currently estimates.”

Capital Expenditure. Harmony incurred approximately Rand 0.75 million in capital expenditures at Cooke 2 in fiscal 2005. Harmony has budgeted Rand 1.28 million ($0.19 million at the closing rate at the balance sheet date) in fiscal 2006, primarily for prospecting.