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Our business context

We understand that, as a business, we operate in a complex and ever-changing external environment that encompasses social, economic and environmental change, and indeed perceptions about change, in the short and medium term.

At the same time, the climate and context within our company is both dynamic and complex and, in many respects, affected by the external environment. We need to understand both the external environment and internal environment, and the relationships between the two to understand how we position Harmony for success, now and in the future.

Identifying and understanding the factors that drive our internal and external business context requires regular and consistent engagement with our stakeholders (See stakeholder engagement). This section should be read in conjunction with the section on identifying and managing risk.


The mining environment in South Africa has been challenging in recent years. Most notable has been the public debate on mining’s contribution to society and, since 2012, the nature of the labour relations environment. The industry and, in many cases, stakeholders, have sought to minimise negative impacts as far as possible.

Our context is a period which saw a gold price in decline for the first time since 2001, and rising prices of the most important inputs in real terms. Whether this is seen as the beginning of a new bear market for gold, or a correction to be followed by a resumption of an upward trend, depends on expectations of global economic prospects.

Over the past year, the average US$/oz gold price decreased by 19.2%, while the average R/kg gold price decreased by 4.9% due to the average R/US$ exchange rate for the year, weakening by 17.4%. The US$/oz price for the year ranged between US$1,188 – US$1,418 per ounce. The year was characterised by outflows from global gold exchange traded funds as a result of the US Federal Reserve’s decision to reduce the pace of its bond repurchase programme (quantitative easing). However, these were largely absorbed by the strong physical demand from China and initially India, as ounces moved from west to east in response to lower gold prices in the first half of 2013. From August 2013 to the end of the financial year, consumer demand from India has been weaker due to government-imposed import restrictions.

However, soft physical demand in India and China, combined with a low inflation environment globally, suggests limited potential for higher gold prices in the short term. Currently, Indian gold demand remains constrained by import restrictions. Chinese demand has high price elasticity and has seen a significant reduction in demand since March 2014, when the gold price rose over $US1 300/oz for the first time since November 2013. Continued geopolitical risk, amongst others, as a result of the Ukraine/Russia conflict, a relaxation of the Indian import restrictions and a stronger-than-expected pick-up in global inflation, could be catalysts for higher gold prices in the near term. Physically-backed gold exchange traded funds do not appear to have as large an impact on the gold market today as they have had in recent years, especially in setting a price floor. Scrap supply is seen as a leading indicator of price and, as gold prices fall below US$1 300/oz, scrap supply diminishes, contributing to the setting of a price floor.

The current annual global gold production of 97 Moz is rapidly depleting the world’s orebodies and needs to be replaced. Over the past few years the discovery of new profitable and competitive orebodies has decreased significantly. A slower pace of gold mine growth in calendar years 2014 and 2015 is likely, as lower prices delay new projects and reduced sustaining capital expenditure. Long-term fundamentals remain in place for continued growth in commodity demand. Unlike other precious metals, such as platinum, gold is not an industrial metal; its attraction lies in its historic role as a store of value, as a currency or as adornment. Since the financial crash of 2008, increased investment demand, particularly from Exchange Traded Funds, Central Banks, India and China, has been among the gold market’s principal drivers. While demand for all other metals is subject to changing technologies and economic developments, there is always a market for every ounce of the world’s newly-mined gold.

Harmony remains bullish about gold in the long run. Gold has a long history as an investment tool and a store of value. It remains a fairly secure investment. And, while the price may fluctuate, gold is always in demand in some form.

Our external environment is also important as it influences the way in which shareholders perceive investing in South Africa and Papua New Guinea, in gold and, ultimately, in Harmony. While investors are generally bearish about the outlook for gold, some feel there are opportunities to trade stocks at certain levels. Over the past year investor confidence in South Africa has been muted. While most appreciate that there are assets worth investing in, they have raised concerns about production losses due to industrial action. Closely linked to this is the concern that higher wage demands will exacerbate the cost challenges most South African mining companies are already facing. Many investors are also apprehensive about the potential changes to legislation in both South Africa and Papua New Guinea, which could leave mining companies in an unstable regulatory environment. We, at Harmony, have earmarked these as some of our material risks and address these concerns under identifying and managing risk.

On the policy and regulatory side, the ruling African National Congress (ANC) has repeatedly ruled out nationalisation as a policy option. However, the Economic Freedom Fighters (EFF) has shown itself to be a strong proponent of nationalisation. The EFF won 6.3% of the vote in the May 2014 election which is likely to entrench it as a vocal but small minority party over the next five years. The emergence of a possible workerist party, announced by the largest union in the country – the National Union of Metalworkers of South Africa (NUMSA), reflects an interesting development of a re-engagement of the working class with politics. The growth in support for the Association of Mineworkers and Construction Union (AMCU) has been a portent of this shift and will also have an impact on labour relations in South Africa.

A more material challenge arose in amendments proposed to the Mineral and Petroleum Resources Development Act, particularly a proposal that would empower the Minister of Mineral Resources to declare a mineral to be strategic and determine local prices for these. There was never a suggestion that gold might be targeted, but such a law would have had a dampening effect on mining industry sentiment generally. A period of constructive discussion between the industry, led by the Chamber of Mines, and the Minister, led to a mutually satisfactory outcome. The amendments have not yet been promulgated though, as incoming Minister of Minerals, Minister Ngoako Ramathlodi, has suspended its passing into law pending further review. Of importance going forward is the planned review of the Mining Charter and, in particular, the question of ownership and other proposed amendments that might make the administrative and cost burden on the industry even more onerous than it already is.

On the labour relations front, following the labour upheavals experienced in the gold mining sector in 2012 due to strike action by the then new union Association of Mineworkers and Construction Union, there were signs of a more stable environment in the period under review, though by no means unchallenging.

A gold sector wage settlement was reached with the National Union of Mineworkers and two smaller unions, being UASA and Solidarity, after a four-day strike. Notably, Association of Mineworkers and Construction Union, which represented 17% of the workforce in the bargaining units represented in the central level negotiations at that time, did not sign the agreement. The question of whether its members, as members of a minority union, are permitted to strike was contested in the Labour Court with the producers winning a final interdict to prevent Association of Mineworkers and Construction Union members from embarking on a protected strike. Association of Mineworkers and Construction Union’s counterapplication regarding the constitutionality of these outcomes was rejected by the Labour Court on 23 June 2014, preventing Association of Mineworkers and Construction Union from striking in the gold industry. The union has since sought leave to appeal.

The second year increase in respect of the 2013 wage agreement in the gold sector came into effect on 1 July 2014, and negotiations for the next agreement period will begin again in 2015 (See labour relations in the employees section). The experience of the Association of Mineworkers and Construction Union-led platinum sector’s five-month lengthy wage strike in the first half of 2014 suggests that there is no room for complacency.

While the platinum strike was marred by high levels of intimidation and some violence, the violence experienced in the gold sector in 2012 was not repeated in the year under review. While Association of Mineworkers and Construction Union has still not signed the peace and stability agreement developed under the auspices of the then Deputy President of the country, there has been a greater degree of respect for the law. Both mining companies and the authorities have put in place improved measures for monitoring and mitigating workplace and public acts of violence, and indeed the communication between the two.

The appointment of Advocate Ramatlhodi as Minister of Mineral Resources in May 2014 was widely welcomed. Advocate Ramatlhodi is a former premier of Limpopo and played a strong leadership role in the resolution of the platinum sector strike. It remains the responsibility of all role players in the industry to work with the minister in creating an industry that will attract investment and we, at Harmony, are fully committed to provide our support.

A further feature of the external environment are the increasing expectations and indeed demands of external parties – communities, local governments, non-governmental organisations and others – on the mining sector. As a company, we recognise that Harmony has an important role to play as a corporate citizen. As a result, our relationships with all of our stakeholders are important – we engage and listen, before agreeing on mutually beneficial actions for us to take. We have sponsored a number of youth development programmes, created job opportunities, built housing for local communities and provided bursaries, to name just a few of our community investment projects. See communities for more details.


The most important aspects of our internal environment remain the safety and well-being of our employees, and the integrity and sustainability of our assets. Our internal environment is therefore shaped largely by factors which have an impact on our employees or on which our employees have an impact. The environment and processes of mining, combined with the behaviour of people, brings with them certain risks to our employees, which we aim to avoid, mitigate or manage. While we have seen significant improvements in recent years, we remain committed to further improvement, which is why keeping our employees safe and healthy is highlighted in our risks and is one of our material issues. See material issues and identifying and managing risk.

Occupational health risks are not the only health risks we work to mitigate – in South Africa our employees are at risk of contracting human immunodeficiency virus and tuberculosis, both of which are highly prevalent in our society, and we have put in place various initiatives to treat and prevent these illnesses. For more on this see health.

In both South Africa and in Papua New Guinea, the level of skills amongst employees and prospective employees remains of great concern. High levels of illiteracy, often combined with relatively low levels of skills, limits the opportunity for growth and development amongst employees and their progression within the company. At Harmony we believe that our employees should be able to improve their lives through their work. As a result we offer extensive training and development programmes, including adult basic education training, portable skills training and on-the-job training. In addition, we invest in community education programmes to ensure that quality education is available at a young age and that promising students are given the tools to thrive. For more on these initiatives see communities.

We acknowledge the imbalance caused by historical systems in South Africa and work to this through a recruitment policy that focuses on employing historically disadvantaged South Africans at all levels of the company, from the board through to entry-level employees. We understand the need to transform our workforce, and the impact this has on our human resources. Harmony is committed to black economic empowerment in South Africa through both direct equity ownership and our employee share ownership scheme, which allows employees to share in the success of the company. We have also put considerable time and effort into developing a successful women-in-mining project, which has seen many women find fulfilment in their underground roles. For more on this see employees.

By understanding what we need to do to help our employees feel safe and satisfied at work and implementing various initiatives to achieve this and maintain open communication with them, we manage many of the factors that have an impact on our internal environment. Our emphasis on open communication also allows us to understand any emerging issues that may influence our efforts and gives us time to deal with them before they escalate.

Important note

For printing purposes only, Harmony’s annual financial statements are presented in a seperate document, the Financial Report 2014. This document is also available in the download manager.