EX-99.1 13 exhibit991groupfin30june20.htm EXHIBIT 99.1 Exhibit
Index to Financial Statements
Harmony Gold Mining Company Limited Page
Page
 
 
Report of the Independent Registered Public Accounting Firm
Group Income Statement for the years ended 30 June 2020, 2019 and 2018
Group Statement of Comprehensive Income for the years ended 30 June 2020, 2019 and 2018
Group Balance Sheet at 30 June 2020 and 2019
Group Statement of Changes in Shareholders’ Equity for the years ended 30 June 2020, 2019 and 2018
Group Cash Flow Statement for the years ended 30 June 2020, 2019 and 2018
Notes to the Group Financial Statements


F-1



Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders of Harmony Gold Mining Company Limited


Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying group balance sheets of Harmony Gold Mining Company Limited and its subsidiaries (the “Company”) as of 30 June 2020 and 30 June 2019, and the related group income statements, statements of comprehensive income, statements of changes in shareholders’ equity, and cash flow statements for each of the three years in the period ended 30 June 2020 including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of 30 June 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of 30 June 2020 and 30 June 2019, and the results of its operations and its cash flows for each of the three years in the period ended 30 June 2020 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of 30 June 2020 based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As described in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2020.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting appearing under Item 15B. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also

F-2


included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment of goodwill and mining assets

As described in Notes 2.5, 4, 6, 13 and 14 to the consolidated financial statements, goodwill has a carrying value of R520 million and mining assets, which include mine development costs and mine plant facilities, have a carrying value of R22,147 million. No impairment was recorded in relation to goodwill or mining assets, and no reversal of impairment on mining assets was recorded for the year ended 30 June 2020. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Management conducts an impairment test for other non-financial assets whenever events or changes in circumstances indicate that the carrying amount for each cash generating unit (“CGU”) exceeds its recoverable amount. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible indicators of reversal of impairment when there is objective evidence to indicate that the asset is no longer impaired. The recoverable amount of CGU’s, including allocated goodwill and mining assets, is determined utilising real discounted future cash flows or resource multiples in the case of undeveloped properties and certain resource bases. Management’s future cash flows included significant judgements

F-3


and assumptions for the calculations of the CGU’s recoverable amounts relating to the commodity prices, resource values, marketable discount rates, exchange rates and annual life-of mine plans. In determining the commodity prices and resource values to be used, management assesses the long-term views of several institutions on commodity prices and based on this, derives the commodity prices and resource values. Gold mineral reserves and resources are estimates of the amount of ounces that can be economically and legally extracted from the group’s properties. The life-of-mine plans are based on proved and probable reserves as included in the Reserve Declaration, which are determined in terms of the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (SAMREC), as well as resources where management has high confidence in the orebody and economical recovery of gold, based on historic and similar geological experience. Due to the volatilities experienced in the markets and the uncertainty in forecasting future cash flows due to the impact of the COVID-19 pandemic, management used various probability scenarios in determining the recoverable amounts for the CGUs. Key assumptions applied in the various probability scenarios include, infection rates and the timing of expected peaks in the provinces in which management’s operations are situated, based on models prepared by the South African government; expected disruptions to production together with mitigation strategies management has in place; potential duration of the impact of the virus and related restrictions in operations; and potential changes to the timing of various cash flows due to the shortened production breaks.

The principal considerations for our determination that performing procedures relating to the impairment of goodwill and mining assets is a critical audit matter are (i) the significant judgment applied by management in determining the recoverable amount for each CGU; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s future cash flows and significant assumptions, including commodity prices, resource values, market discount rates, exchange rates, the annual life-of-mine plans as well as management's probability scenarios used in determining the recoverable amount for each CGU as a result of the impact of the COVID-19 pandemic; and (iii) the audit effort involved the use of professionals with specialised skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's impairment calculations, including controls over management’s process for developing their estimate of the recoverable amount for each CGU and controls over significant assumptions in the calculation. These procedures also included, among others, testing management’s process for developing the recoverable amount for each CGU, evaluating the appropriateness of the discounted cash flows and resource values per CGU, testing the completeness, accuracy and relevance of the underlying data used in the discounted cash flows and resource values, and evaluating the significant assumptions used by management. These significant assumptions included commodity prices, market discount rates, exchange rates, annual life-of-mine plans, management’s probability scenarios and resource values. Evaluating management’s significant assumptions related to life-of-mine plans and resource values involved (i) evaluating the reasonableness of the cash flow forecasts used in the life-of-mine plans and resource values by comparing the cash flow forecasts to current and historical operational results, the reserves and resources declaration, and final approved budgets, (ii) evaluating the consistency of the prior period forecast to the current year’s forecast, (iii) evaluating the reasonableness of the allocation of the resource values by comparing the resources incorporated in the current year plan to what is included as part of the Reserves Declaration, as well as resources where management has high confidence in the orebody and economical recovery of gold, based on historic and similar geological experience, (iv) evaluating the reasonableness of management’s commodity price, market discount rates, exchange rates against external market and third party data, and (v) evaluating the reasonableness of judgements made in determining the potential impact of COVID-19 on production, the duration of the disruption period and direct costs relating to the pandemic. Professionals with specialised skill and knowledge were used to assist in the evaluation of management’s

F-4


impairment calculation and certain significant assumptions including commodity prices, exchange rates, marketable discount rates, management’s probability scenarios and resource values.

Deferred taxes

As described in Note 10 to the consolidated financial statements, a deferred tax asset of R531 million was recorded for the year ended 30 June 2020, arising within two companies (Harmony Company and Randfontein Estates). Due to the significant expected increase in the short-term Rand gold price used in the estimation of future taxable profits for the mining operations when compared to prior years, management considered it probable that sufficient future taxable profits will be available against which the tax loss and current deductible temporary differences existing at 30 June 2020 can be utilised. The future profitability of each mine is determined by reference to the life-of-mine plan for that operation and is influenced by factors as described in note 13 in the consolidated financial statements, which includes the significant judgements and assumptions. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. When different tax rates apply to different levels of taxable profit, deferred tax assets and liabilities are measured using the average tax rates that are expected to apply to the taxable profit (or tax loss) of the periods in which the temporary differences are expected to reverse. Following the completion of the annual life-of-mine plans, management revised the weighted average deferred tax rates for all the South African operations.

The principal considerations for our determination that performing procedures relating to deferred taxes is a critical audit matter are (i) the significant judgment applied by management when determining future taxable profits to assess the recoverability of the deferred tax assets and determining the deferred tax rates; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s forecasted cash flows used to determine future taxable profits which are impacted by significant assumptions, including commodity prices, exchange rates, annual life-of-mine plans as well as management's probability scenarios used to determine forecasted cash flows as a result of the impact of the COVID-19 pandemic; and (iii) the audit effort involved the use of professionals with specialised skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's deferred tax calculations, including management’s recoverability assessment on deferred tax assets and, in turn, controls over management’s process for determining the life-of-mine plans. These procedures also included, among others, testing management’s process for developing forecasted cash flows to determine future taxable profits, testing the completeness, accuracy and relevance of the underlying data used in the forecasted cash flows, and evaluating the significant assumptions used by management. These significant assumptions included commodity prices, exchange rates, and annual life-of-mine plans. Evaluating management’s significant assumptions related to life-of-mine plans involved (i) evaluating the reasonableness of the cash flow forecasts used in the life-of-mine plans by comparing the cash flow forecasts to current and historical operational results, the reserves and resources declaration, and final approved budgets, (ii) evaluating the consistency of the prior period forecast to the current year’s forecast, (iii) evaluating the accuracy and completeness of the life-of-mine cash flows included in the determination of the taxable income and the appropriateness of the deferred tax rates,(iv) evaluating the reasonableness of management’s forecasted commodity price and exchange rates against external market and third party data, and (v) evaluating the reasonableness of judgements made in determining the potential impact of COVID-19 on production, the duration of the disruption period and direct costs relating to the pandemic. Professionals with specialised skill and knowledge were used to assist in the evaluation of management’s deferred tax calculations, to assess the viability of management’s deductions applied against taxable income and whether or not these were

F-5


permitted by taxation legislation and certain significant assumptions including commodity prices, exchange rates and management’s probability scenarios used in determining forecasted cash flows.



/s/ PricewaterhouseCoopers Inc.

Johannesburg, Republic of South Africa
29 October 2020

We have served as the Company's auditor since 1950.



F-6




GROUP INCOME STATEMENT
for the year ended 30 June 2020

 
 
SA Rand
Figures in million
Notes
2020

2019

2018

 
 
 
 
 
Revenue
5
29 245

26 912

20 452

Cost of sales
6
(25 908
)
(28 869
)
(23 596
)
 
 
 
 
 
Production costs
 
(22 048
)
(20 324
)
(15 084
)
Amortisation and depreciation
 
(3 508
)
(4 054
)
(2 570
)
Impairment of assets
 

(3 898
)
(5 336
)
Other items
 
(352
)
(593
)
(606
)
 
 
 
 
 
Gross profit/(loss)
 
3 337

(1 957
)
(3 144
)
Corporate, administration and other expenditure
 
(611
)
(731
)
(813
)
Exploration expenditure
 
(205
)
(148
)
(135
)
Gains/(losses) on derivatives
18
(1 678
)
484

99

Other operating expenses
7
(1 201
)
(186
)
(667
)
 
 
 
 
 
Operating loss
 
(358
)
(2 538
)
(4 660
)
Share of profits from associate
20
94

59

38

Acquisition-related costs
12
(45
)

(98
)
Investment income
8
375

308

343

Finance costs
9
(661
)
(575
)
(330
)
 
 
 
 
 
Loss before taxation
 
(595
)
(2 746
)
(4 707
)
Taxation
10
(255
)
139

234

 
 
 
 
 
Net loss for the year
 
(850
)
(2 607
)
(4 473
)
 
 
 
 
 
Attributable to:
 
 
 
 
Non-controlling interest
 
28



Owners of the parent
 
(878
)
(2 607
)
(4 473
)
 
 
 
 
 
Loss per ordinary share (cents)
 
 
 
 
Total loss
11
(164
)
(498
)
(1 003
)
 
 
 
 
 
Diluted loss per ordinary share (cents)
 
 
 
 
Total diluted loss
11
(166
)
(500
)
(1 004
)

The accompanying notes are an integral part of these consolidated financial statements.

F-7




GROUP STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2020

 
 
SA Rand
Figures in million
Notes
2020

2019

2018

 
 
 
 
 
Net loss for the year
 
(850
)
(2 607
)
(4 473
)
Other comprehensive income for the year, net of income tax
 
(1 958
)
(684
)
(660
)
 
 
 
 
 
Items that may be reclassified subsequently to profit or loss
24
(1 998
)
(677
)
(647
)
 
 
 
 
 
Foreign exchange translation gain/(loss)
 
1 199

(50
)
83

Remeasurement of gold hedging contracts
 
(3 197
)
(627
)
(730
)
 
 
 
 
 
Items that will not be reclassified to profit or loss:
24
40

(7
)
(13
)
Gain on assets measured at fair value through other comprehensive income
 
25



Remeasurement of retirement benefit obligation
 
 
 
 
Actuarial gain/(loss) recognised during the year
 
17

(7
)
(11
)
Deferred taxation thereon
 
(2
)

(2
)
 
 
 
 
 
Total comprehensive income for the year
 
(2 808
)
(3 291
)
(5 133
)
 
 
 
 
 
Attributable to:
 
 
 
 
Non-controlling interest
 
12



Owners of the parent
 
(2 820
)
(3 291
)
(5 133
)

The accompanying notes are an integral part of these consolidated financial statements.

F-8




GROUP BALANCE SHEET

 
 
SA Rand
Figures in million
Notes
At 30 June
2020

At 30 June
2019

 
 
 
 
ASSETS
 
 
 
 
 
 
 
Non-current assets
 
 
 
 
 
 
 
Property, plant and equipment
13
29 186

27 749

Intangible assets
14
536

533

Restricted cash
15
107

92

Restricted investments
16
3 535

3 301

Investments in associates
20
146

110

Inventories
22
47

43

Deferred tax assets
10
531

1

Other non-current assets
17
388

333

Derivative financial assets
18
50

197

 
 
 
 
Total non-current assets
 
34 526

32 359

 
 
 
 
Current assets
 
 
 
 
 
 
 
Inventories
22
2 421

1 967

Restricted cash
15
62

44

Trade and other receivables
19
1 308

1 064

Derivative financial assets
18
18

309

Cash and cash equivalents
 
6 357

993

 
 
 
 
Total current assets
 
10 166

4 377

Total assets
 
44 692

36 736

 
 
 
 
EQUITY AND LIABILITIES
 
 
 
 
 
 
 
Share capital and reserves
 
 
 
 
 
 
 
Attributable to equity holders of the parent company
 
23 371

22 614

Share capital and premium
23
32 937

29 551

Other reserves
24
3 017

4 773

Accumulated loss
 
(12 583
)
(11 710
)
Non-controlling interest
 
4


 
 
 
 
Total equity
 
23 375

22 614

 
 
 
 
Non-current liabilities
 
 
 
 
 
 
 
Deferred tax liabilities
10
996

688

Provision for environmental rehabilitation
25
3 408

3 054

Provision for silicosis settlement
26
717

942

Retirement benefit obligation
27
193

201

Borrowings
30
7 463

5 826

Other non-current liabilities
29
101

5

Derivative financial liabilities
18
879

172

 
 
 
 
Total non-current liabilities
 
13 757

10 888

 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Provision for silicosis settlement
26
175


Borrowings
30
255

89

Trade and other payables
31
3 006

2 875

Derivative financial liabilities
18
4 124

270

 
 
 
 
Total current liabilities
 
7 560

3 234

Total equity and liabilities
 
44 692

36 736


The accompanying notes are an integral part of these consolidated financial statements.

F-9




GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the year ended 30 June 2020

 
Number of ordinary shares issued

Share capital and premium

Accumulated loss

Other reserves

Non controlling interest

Total

 
 
 
 
 
 
 
Notes
23

23

 
24

34

 
 
 
 
 
 
 
 
Figures in million (SA Rand)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance – 30 June 2017
439 957 199

28 336

(4 486
)
5 441


29 291

 
 
 
 
 
 
 
Issue of shares
 
 
 
 
 
 
– Shares issued and fully paid
55 055 050

1 004




1 004

– Exercise of employee share options
5 239 502






Share-based payments



374


374

Net loss for the year


(4 473
)


(4 473
)
Other comprehensive income for the year



(660
)

(660
)
Reclassification from other reserves


10

(10
)


Dividends paid


(154
)


(154
)
 
 
 
 
 
 
 
Balance – 30 June 2018
500 251 751

29 340

(9 103
)
5 145


25 382

 
 
 
 
 
 
 
Impact of adopting IFRS 9



82


82

 
 
 
 
 
 
 
Re-presented opening balance - 1 July 2018
500 251 751

29 340

(9 103
)
5 227


25 464

 
 
 
 
 
 
 
Issue of shares
 
 
 
 
 
 
– Shares issued and fully paid
11 032 623

211




211

– Exercise of employee share options
21 856 821






– Harmony ESOP Trust
6 700 000






Share-based payments



230


230

Net loss for the year


(2 607
)


(2 607
)
Other comprehensive income for the year



(684
)

(684
)
 
 
 
 
 
 
 
Balance – 30 June 2019
539 841 195

29 551

(11 710
)
4 773


22 614

 
 
 
 
 
 
 
Issue of shares
 
 
 
 
 
 
– Shares issued and fully paid
60 278 260

3 386




3 386

– Exercise of employee share options
3 023 251






Share-based payments



186


186

Recognition of non-controlling interest


5


(5
)

Net loss for the year


(878
)

28

(850
)
Other comprehensive income for the year



(1 942
)
(16
)
(1 958
)
Dividends paid




(3
)
(3
)
 
 
 
 
 
 
 
Balance – 30 June 2020
603 142 706

32 937

(12 583
)
3 017

4

23 375


The accompanying notes are an integral part of these consolidated financial statements.

F-10




GROUP CASH FLOW STATEMENT
for the year ended 30 June 2020

 
 
SA Rand
Figures in million
Notes
2020

2019

2018

 
 
 
 
 
CASH FLOW FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
 
 
Cash generated by operations
32
5 031

5 052

4 289

Interest received
 
86

69

82

Interest paid
 
(370
)
(387
)
(180
)
Income and mining taxes paid
 
(24
)
(55
)
(307
)
 
 
 
 
 
Cash generated by operating activities
 
4 723

4 679

3 884

 
 
 
 
 
CASH FLOW FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Increase in restricted cash
 
(21
)
(15
)
(32
)
Decrease in amounts invested in restricted investments
16
5

187


Acquisition of Moab Khotsong
12


(3 474
)
Additions to intangible assets
14
(8
)
(1
)
(9
)
Redemption of preference shares from associates
20
59

32


Capital distributions from investments
17
7

30


Proceeds from disposal of property, plant and equipment
 
2

5

2

Additions to property, plant and equipment
 
(3 602
)
(5 035
)
(4 562
)
 
 
 
 
 
Cash utilised by investing activities
 
(3 558
)
(4 797
)
(8 075
)
 
 
 
 
 
CASH FLOW FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Borrowings raised
30
6 541

1 522

6 937

Borrowings repaid
30
(5 661
)
(1 353
)
(4 063
)
Proceeds from the issue of shares
23
3 466

211

1 003

Dividends paid
11
(3
)

(154
)
Lease payments
28
(38
)


 
 
 
 
 
Cash generated from financing activities
 
4 305

380

3 723

Foreign currency translation adjustments
 
(106
)
25

(72
)
Net increase/(decrease) in cash and cash equivalents
 
5 364

287

(540
)
Cash and cash equivalents - beginning of year
 
993

706

1 246

 
 
 
 
 
Cash and cash equivalents - end of year
 
6 357

993

706


The accompanying notes are an integral part of these consolidated financial statements.

F-11




NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 30 June 2020

1
GENERAL INFORMATION

Harmony Gold Mining Company Limited (the company) and its subsidiaries (collectively Harmony or the group) are engaged in gold mining and related activities, including exploration, extraction and processing. Gold bullion, the group’s principal product, is currently produced at its operations in South Africa and Papua New Guinea (PNG). Uranium and silver are produced as by-products.

The company is a public company, incorporated and domiciled in South Africa. The address of its registered office is Randfontein Office Park, Corner Main Reef Road and Ward Avenue, Randfontein, 1759.

The consolidated financial statements were authorised for issue by the board of directors on 29 October 2020.

2
ACCOUNTING POLICIES

BASIS OF PREPARATION

The principal accounting policies applied in the preparation of the consolidated financial statements have been consistently applied in all years presented except for the changes as described under "Recent accounting developments" below.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) and IFRS Interpretations Committee (IFRIC) Interpretations (collectively IFRS).

The consolidated financial statements have been prepared on a going concern basis.

The consolidated financial statements have been prepared to the nearest million and rounding may cause differences.

RECENT ACCOUNTING DEVELOPMENTS

New standards, amendments to standards and interpretations to existing standards adopted by the group

During the financial year, the following new standards, amendments to standards and interpretations to existing standards were adopted by the group. No other standards and amendments to standards that became effective during the 2020 year had a material impact on the consolidated financial statements.

Impact of the adoption of IFRS 16 Leases

Scope of IFRS 16
IFRS 16 replaces the previous accounting standard on leases, IAS 17 Leases and related Interpretations. The new standard introduces a single lease accounting model and requires a lessee to capitalise most leases with certain exemptions. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

Transition
The group has elected to apply IFRS 16 utilising the modified retrospective approach, under which the cumulative effect of adopting the new standard is recognised as an adjustment to the opening balance of retained earnings at 1 July 2019 with no restatement of comparative information. The cumulative effect of adopting the standard had no impact on opening retained earnings and resulted in the recognition of right-of-use assets, lease liabilities and the resultant deferred tax. The group has reassessed all contracts in determining the lease population. Refer to note 28 for details on the amount of right-of-use assets and lease liabilities recognised as well as the incremental borrowing rates used.

Transition options
The group has elected to recognise the right-of-use assets at an amount equal to the lease liability at 1 July 2019 together with the ability to set off deferred tax assets and liabilities resulting from the leased assets and liabilities. The lease liabilities were measured at the present value of the remaining lease payments at 1 July 2019 and discounted using the relevant incremental borrowing rate; and
The accounting for operating leases with a remaining lease term of less than 12 months as at date of adoption have been classified as short-term leases and have not been recorded on the balance sheet.

F-12




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

2
ACCOUNTING POLICIES continued

RECENT ACCOUNTING DEVELOPMENTS continued

New standards, amendments to standards and interpretations to existing standards adopted by the group continued

Impact of the adoption of IFRS 16 Leases continued

Practical expedients applied
The low value lease exemption - the group has elected to take the low value exemption with a value of R50 000 for the individual leased asset value and also applied its accounting policy on capitalisation of assets based on IAS 1 materiality assessment;
The short-term lease exemption - leases with a duration of less than a year will be expensed in the income statement on a straight-line basis;
Use of hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease where appropriate;
Non-lease components - the group has applied the practical expedient not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component for the classes of underlying asset where it is appropriate to do so; and
Exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application.

Accounting policy
The leases accounting policy is applicable from 1 July 2019. Refer to note 28 for the policy.

IFRS 16 Leases (Amendment)

On 1 June 2020, the IASB issued COVID-19-Related Rent Concessions, which amended IFRS 16 Leases.The amendment permits lessees, as a practical expedient, not to assess whether particular rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications and instead to account for those rent concessions as if they are not lease modifications. The amendment does not affect lessors. To provide the practical expedient when needed most, the IASB enabled immediate application of the amendment in any financial statements—interim or annual—not authorised for issue at the date the amendment was issued. The amendments did not have a material impact on the group.

IAS 19 Employee Benefits (Amendment)

The amendments require an entity to use the updated assumptions from a remeasurement of net defined benefit liability or asset resulting from a plan amendment, curtailment or settlement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. The amendments apply for annual periods beginning on or after 1 January 2019.
The amendments did not have a material impact on the group.

IAS 23 Borrowing Costs (Amendment)

The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings.The amendments apply for annual periods beginning on or after 1 January 2019. The amendments did not have a material impact on the group.

IAS 28 Investments in Associates and Joint Ventures (Amendment)

The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate and joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The amendments apply for annual periods beginning on or after 1 January 2019. The amendments did not have a material impact on the group.

IFRIC 23 Uncertainty over Income Tax Treatments

The interpretation specifies how an entity should reflect the effects of uncertainties in accounting for income taxes and is effective for annual periods beginning on or after 1 January 2019. IFRIC 23 specifically clarifies how to incorporate this uncertainty into the measurement of tax as reported in the consolidated financial statements. The interpretation does not introduce any new disclosures but reinforces the need to comply with existing disclosure requirements about judgements made, assumptions and other estimates used and the potential impact of uncertainties that are not reflected. The interpretation did not have a material impact on the group.


F-13




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

2
ACCOUNTING POLICIES continued

RECENT ACCOUNTING DEVELOPMENTS continued

New standards, amendments to standards and interpretations to existing standards that are not yet effective and have not been early adopted

At the date of authorisation of these financial statements, the standards, amendments to standards and interpretations listed below were in issue but not yet effective. These new standards and interpretations have not been early adopted by the group and the group plans on adopting these standards, amendments to standards and interpretations on the dates when they become effective.

IFRS 3 Business Combinations (Amendment)

These amendments are effective for annual periods beginning on or after 1 January 2020 and make it easier for companies to decide whether activities and assets they acquire are a business or merely a group of assets. The amendments:
Confirm that a business must include inputs and a process, and clarified that: (i) the process must be substantive and (ii) the inputs and process must together significantly contribute to creating outputs;
Narrow the definitions of a business by focusing the definition of outputs on goods and services provided to customers and other income from ordinary activities, rather than on providing dividends or other economic benefits directly to investors or lowering costs; and
Add a test that makes it easier to conclude that a company has acquired a group of assets, rather than a business, if the value of the assets acquired is substantially all concentrated in a single asset or group of similar assets.

All acquisitions going forward will be assessed using these amendments. Refer to note 12. The amendments are not expected to have a material impact on the group.

IFRS 7 Financial Instrument: Disclosures and IFRS 9 Financial Instruments (Amendment)

The IASB issued an amendment to IFRS 9, IAS 39 and IFRS 7 insofar as they are affected by the Interest Rate Benchmark Reform and uncertainty during the reform period. The amendment addresses only the following hedge accounting requirements that are based on a forward-looking analysis:
The highly probable requirement;
Prospective assessments; and
Separately identifiable risk components.

The amendments also require companies to provide additional information to investors about their hedging relationships which are directly affected by these uncertainties. Other than these specific amendments, the hedge accounting requirements would be unchanged. This amendment is effective for annual periods beginning on or after 1 January 2020. The amendments are not expected to have a material impact on the group.

IFRS 7 Financial Instrument: Disclosures and IFRS 9 Financial Instruments (Amendment)

The IASB has published 'Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)' with amendments that address issues that might affect financial reporting during the reform of an interest rate benchmark, including the effects of changes to contractual cash flows or hedging relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate (replacement issues). The amendments are effective for annual periods beginning on or after 1 January 2021, with earlier application permitted. Harmony is still assessing the impact of this amendment. 

IFRS 9 Financial Instruments (Amendment)

The amendment to IFRS 9 clarifies the fees a company includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. This amendment is effective for annual periods beginning on or after 1 January 2022. The amendment is not expected to have a material impact on the group.

IAS 1 Presentation of Financial Statements (Amendment)

The IASB issued amendments to IAS 1 Presentation of Financial Statements to clarify its requirements for the presentation of liabilities in the statement of financial position. The amendments are effective from annual reporting periods beginning on or after 1 January 2023. The amendments are not expected to have a material impact on the group.

IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
(Amendment)

The amendments, effective for annual periods beginning on or after 1 January 2020, clarify and align the definition of "material" and provide guidance to help improve consistency in the application of materiality whenever it is used in IFRS Standards.




F-14




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

2
ACCOUNTING POLICIES continued

RECENT ACCOUNTING DEVELOPMENTS continued

New standards, amendments to standards and interpretations to existing standards that are not yet effective and have not been early adopted continued

IAS 16 Property, Plant and Equipment (Amendment)

The IASB issued Property, Plant and Equipment—Proceeds before Intended Use, which prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in profit or loss. This amendment is effective for annual periods beginning on or after 1 January 2022. Management is currently assessing the impact this would have on the group.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendment)

The IASB issued Onerous Contracts–Cost of Fulfilling a Contract, which specifies which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessing whether the contract is onerous. This amendment is effective for annual periods beginning on or after 1 January 2022. The amendment is not expected to have a material impact on the group.

MEASUREMENT BASIS

The financial statements have been prepared under the historical cost convention except for certain financial assets and financial liabilities which are measured at fair value through profit or loss or other comprehensive income - refer to note 37.

GROUP ACCOUNTING POLICIES

Accounting policies are included in the relevant notes to the consolidated financial statements and have been highlighted between red lines in the notes to the consolidated financial statements. The accounting policies that follow are applied throughout the financial statements.

2.1
Consolidation

The group recognises that control is the single basis for consolidation for all types of entities in accordance with IFRS 10 – Consolidated Financial Statements.

The consolidated financial information includes the financial statements of the company, its subsidiaries, interest in associates and joint arrangements and structured entities. Where the group has no control over an entity, that entity is not consolidated.

Control
The group, regardless of the nature of its involvement with an entity, shall determine whether it is a parent by assessing whether it controls the investee.

The group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.

(i) Subsidiaries
Subsidiaries are entities over which the group has control. Subsidiaries are fully consolidated from the date on which control is transferred to the group up until when that control ceases.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the group.

The group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of an acquiree is the fair value of the assets transferred, liabilities incurred and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interests in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

The excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previously held equity interest in the acquiree over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is recognised directly in the income statement below operating profit or loss.

F-15




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

2
ACCOUNTING POLICIES continued

GROUP ACCOUNTING POLICIES continued

2.1
Consolidation continued

(ii) Associates
Associates are entities in which the group has significant influence, but not control, over operational and financial policies. This may be when there is a shareholding of between 20% and 50% of the voting rights or when significant influence can be otherwise demonstrated, for example where the group has the right of representation on the board of directors, or other governing body, of the entity.

Investments in associates are accounted for by using the equity method of accounting, and are initially recognised at cost. The group’s investment in associates includes goodwill identified on acquisition. Cumulative post-acquisition movements are adjusted against the carrying amount of the investment. The group’s share of the associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post acquisition movement in reserves is recognised in other reserves. When the group’s share of losses in an associate equals or exceeds its interest in the associate, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

The carrying value of an associate is reviewed on a regular basis and, if impairment in the carrying value has occurred, it is written off in the period in which such impairment is identified.

Accounting policies of associates have been reviewed to ensure consistency with the policies adopted by the group.

(iii) Joint arrangements
Joint arrangements are arrangements of which two or more parties have joint control and are contractually bound. The joint arrangement can either be a joint operation or a joint venture. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement and have the right to the assets, and obligations for the liabilities, relating to the arrangement. These parties are called joint operators. A joint venture is a joint arrangement where the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.

For interest in joint operations, the group includes its share of the joint operations' individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the group’s financial statements.

Where an additional interest in a joint operation is acquired, the principles of IFRS 3 are applied to account for the transaction.

The group recognises the portion of gains or losses on the sale of assets by the group to the joint operation that is attributable to the other joint operators. The group does not recognise its share of profits or losses from the joint operation that results from the purchase of assets by the group from the joint operation until it resells the assets to an independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately.

The group recognises its interest in a joint venture as an investment and accounts for it using the equity accounting method.

(iv) Structured entities
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.

The accounting treatment for a structured entity will fall into one of the aforementioned categories (i to iii) depending on whether the group has control over that structured entity.

2.2
Foreign currency translation

(i) Functional and presentation currency
Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in South African Rand, which is the group’s presentation currency.

References to “A$” refers to Australian currency, “R” to South African currency, “$” or “US$” to United States currency and “K” or “kina” to Papua New Guinean currency.

(ii) Transactions and balances
Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation to year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. This includes the gains and losses on the translation of the US$-denominated facilities. Gains and losses recognised in the income statement are included in the determination of other operating expenses.


F-16




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

2
ACCOUNTING POLICIES continued

GROUP ACCOUNTING POLICIES continued

2.2
Foreign currency translation continued

(iii) Group companies
The results and financial position of all group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet while equity items are translated at historic rates;
Income and expenses for each income statement are translated at average exchange rates (the rate on the date of the transaction is used if the average is not a reasonable rate for the translation of the transaction);
All resulting exchange differences are recognised as a separate component of other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income. When a foreign operation is sold or control is otherwise lost, exchange differences that were recorded in other comprehensive income are recognised in profit or loss in the period of the disposal or change in control. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.3
Derivatives and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

The difference between the fair value of the derivative at initial recognition and expected forward transaction price is deferred and recognised as a day one gain or loss. The day one gain or loss is amortised over the derivative contract period and recognised in profit or loss in gains/losses on derivatives.

The full fair value of a derivative is classified as a non-current asset or liability when the remaining maturity is more than 12 months; it is classified as a current asset or liability when the remaining maturity is less than 12 months.

(i) Cash flow hedge
The group designates certain derivatives as hedges of a particular risk associated with the cash flows of highly probable forecast transactions (cash flow hedges). At inception of the hedge relationship, the group documents the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The group documents its risk management objective and strategy for undertaking its hedge transactions.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss within gains/losses on derivatives.

Amounts accumulated in equity are reclassified to profit or loss in the periods when the forecast sale that is hedged takes place and affects profit or loss. The gain or loss relating to the effective portion of the Rand and US$ gold forward sales contracts is recognised in profit or loss within revenue.

When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction that was hedged is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss.

(ii) Derivatives not designated for hedge accounting purposes
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value as well as gains and losses on expiry, disposal or termination of any derivative instrument that does not qualify for hedge accounting are recognised immediately in profit or loss and are included in gains/losses on derivatives.



F-17




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

2
ACCOUNTING POLICIES continued

GROUP ACCOUNTING POLICIES continued

2.4
Exploration expenditure

The group has elected to expense all exploration and evaluation expenditures until it is concluded that the project is technically feasible and commercially viable, and that future economic benefits are therefore probable. The information used to make that determination depends on the level of exploration as well as the degree of confidence in the ore body as set out below.

Exploration and evaluation expenditure on greenfield sites, being those where the group does not have any mineral deposits which are already being mined or developed, is expensed as incurred until the technical and commercial viability of the project has been demonstrated usually through the completion of a final feasibility study. However, in certain instances, the technical and commercial viability of the deposit may be demonstrated at an earlier stage, for example where an extended feasibility study is conducted and the underlying feasibility study in respect of specific components of the mineral deposit has advanced to such a stage that significant commercially viable reserves has been established, and the other criteria for the recognition of an asset have been met. At this point the expenditure is capitalised as mine development cost to the extent that future economic benefits are expected.

Exploration and evaluation expenditure on brownfield sites, being those adjacent to mineral deposits which are already being mined or developed, is expensed as incurred until the group is able to demonstrate that future economic benefits are probable through the completion of a feasibility study, after which the expenditure is capitalised as mine development cost to the extent that future economic benefits are expected. A ‘feasibility study’ consists of a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method has been established, and which, if an effective method of mineral processing has been determined, includes a financial analysis based on reasonable assumptions of technical, engineering, operating economic factors and the evaluation of other relevant factors. The feasibility study, when combined with existing knowledge of the mineral property that is adjacent to mineral deposits that are already being mined or developed, allows the group to conclude that the project is technically feasible and commercially viable.

Exploration and evaluation expenditure relating to extensions of mineral deposits which are already being mined or developed, including expenditure on the definition of mineralisation of such mineral deposits, is capitalised as a mine development cost following the completion of an economic evaluation equivalent to a feasibility study. This economic evaluation is distinguished from a feasibility study in that some of the information that would normally be determined in a feasibility study is instead obtained from the existing mine or development. This information, when combined with existing knowledge of the mineral property already being mined or developed, allows the directors to conclude that the project is technically feasible and commercially viable.

2.5
Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation or depreciation and are tested annually for impairment or when there is an indication of impairment.

Assets that are subject to amortisation are reviewed annually on 30 June for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised in the income statement for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating unit or CGU). Each operating shaft, along with allocated common assets such as plants and administrative offices, is considered to be a cash generating unit as each shaft is largely independent from the cash flows of other shafts and assets belonging to the group.

Fair value less cost to sell is generally determined by using discounted estimated after-tax future cash flows. Future cash flows are estimated based on quantities of recoverable minerals, expected commodity prices (considering current and historical prices, price trends and related factors), production levels and cash costs of production, all based on life-of-mine (LoM) plans. Future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and risk specific to the asset. Refer to note 13 for detail.

The term “recoverable minerals” refers to the estimated amount of gold that will be obtained from reserves and resources and all related exploration stage mineral interests (except for other mine-related exploration potential and greenfields exploration potential discussed separately below) after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from such related exploration stage mineral interests will be risk adjusted based on management’s relative confidence in such materials.

In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of cash flows from other asset groups. With the exception of other mine-related exploration potential and greenfields exploration potential, estimates of future undiscounted cash flows are included on an area of interest basis, which generally represents an individual operating mine, even if the mines are included in a larger mine complex.


F-18




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

2
ACCOUNTING POLICIES continued

GROUP ACCOUNTING POLICIES continued

2.5
Impairment of non-financial assets continued

In the case of mineral interests associated with other mine-related exploration potential and greenfields exploration potential, cash flows and fair values are individually evaluated based primarily on recent exploration results and recent transactions involving sales of similar properties, if any. Assumptions underlying future cash flow estimates are subject to significant risks and uncertainties.

Impairment losses on goodwill are recognised immediately in the income statement and are not reversed. The impairment testing is performed annually on 30 June or when events or changes in circumstances indicate that it may be impaired.

Non-financial assets other than goodwill that suffered an impairment are reviewed annually for possible reversal of the impairment at 30 June. Reversal of impairments is also considered when there is objective evidence to indicate that the asset is no longer impaired. Where an impairment subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but not higher than the carrying value that would have been determined had no impairment been recognised in prior years.

2.6
Operating profit

The group defines operating profit as the profit earned from the normal core mining operations. In reporting operating profit in the income statement, transactions for capital transactions involving subsidiaries, joint arrangements and associates are excluded from operating profit as these are not considered to be part of the mining operations of the Harmony group. Any gains or losses on capital transactions are presented below the operating profit line.

3
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of the financial statements in conformity with IFRS requires the group’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Refer to the specific notes below for further information on the key accounting estimates and assumptions applied.

Estimate of taxation – note 10;
Recognition of deferred tax asset – note 10;
Gold mineral reserves and resources – note 13;
Production start date – note 13;
Stripping activities – note 13;
Impairment of assets – note 13;
Depreciation of property plant and equipment – note 13;
Exploration and evaluation assets – note 13;
Impairment of goodwill – note 14;
Valuation of interest in associate – note 20;
Provision for stock obsolescence - note 22;
Estimate of exposure and liabilities with regard to rehabilitation costs – note 25;
Estimate of provision for silicosis settlement – note 26;
Estimate of employee benefit liabilities – note 27;
Leases - note 28;
Fair value of share-based payments – note 34;
Assessment of contingencies – note 36; and
Valuation of derivative financial instruments – note 37.

4.
COVID-19 IMPACT

SOUTH AFRICA

On 27 March 2020, South Africa was placed under national lockdown, to curb the spread of the Coronavirus (COVID-19) and allow the country time in which to prepare for the demands the pandemic would have on its health care system. All of Harmony’s underground operations were placed on care and maintenance, with the surface operations permitted to continue working at close to full capacity.

Harmony rolled out a risk assessment-based COVID-19 prevention strategy across all of its operations before the lockdown was announced. The objective of the risk assessment was to identify, evaluate and rank the hazards associated with any exposures to COVID-19 and potential infections. It allowed the company to reduce or eliminate the probability of an employee contracting COVID-19 and to limit the severity should an employee be infected.


F-19




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

4.
COVID-19 IMPACT continued

SOUTH AFRICA continued

Harmony has been managing COVID-19 related health risks through the following measures:
a risk awareness campaign through various communication channels;
identification of high-risk employees;
the compulsory use of preventative personal protection equipment, which includes face masks, in designated areas in the workplace, increased hand washing and social distancing;
the sanitation of common areas and surfaces on a regular basis during the day;
placement of hand sanitisers and additional hand washing stations at the surface areas of the mines;
group meetings are avoided and where possible, meetings are conducted virtually in the form of tele-conferences or video-conferences;
implementation of work from home practices for central services and corporate office;
implementation of a comprehensive employee wellness monitoring and support programme, which includes a COVID-19 hotline.

On 1 May 2020, South African underground operations were granted concessions to start producing at a maximum capacity of 50% and as of 1 June 2020, operational restrictions were lifted further to allow the mining industry to operate at 100% of its labour capacity. Harmony’s COVID-19 Standard Operating Procedure (SOP) was adopted and rolled out, ensuring a safe return to work for each of its employees. Harmony’s SOP was informed by guidelines provided by the Department of Mineral Resources and Energy, the National Council for Infectious Diseases and the World Health Organisation.

The SOP included the transport of South African employees from remote labour-sending areas back to the company's mines. All requisite staffing, facilities and equipment were put in place to ensure rigorous screening as employees return to work and when at work, as well as isolate or quarantine employees infected by or exposed to COVID-19, with subsequent testing and treatment. Return to work has progressed smoothly albeit slowly, with the return of foreign nationals to South Africa taking longer than anticipated.

PAPUA NEW GUINEA

Harmony’s Hidden Valley mine in Papua New Guinea has continued to operate at 100% of its labour capacity during the COVID-19 State of Emergency declared in that country. The delivery of essential supplies to the mine has continued, with strict isolation control measures in place. All non-essential staff has been removed from site and certain activities and expenditures have been curtailed to focus on safe, profitable operations during the pandemic. Protocols were adopted to allow the safe movement of personnel to and from site during this period.

FINANCIAL RISK MANAGEMENT

The effects of COVID-19 and other macro developments have increased financial risks such as exchange rate, interest rate and commodity price volatility, while also impacting on liquidity and credit risk. Management has put various measures in place to mitigate and/or manage the risks and continues to monitor the situation closely. Refer to note 37 for additional detail.

Balance sheet protection and liquidity measures

The company committed to several measures to protect its balance sheet in the face of the global pandemic. These included cash preservation, the suspension of exploration and major capital projects and declaration of force majeure on select supplier agreements. Specific measures aimed at ensuring liquidity were undertaken, such as restructuring a portion of the derivatives maturing during April and May 2020 into the first three quarters of the new financial year, as well as drawing down on the Rand and US Dollar facilities.

During June 2020, the company's lenders agreed to relax certain requirements for compliance with debt covenants until December 2020. Refer to note 30 for disclosures on debt covenants.

Market impact

Exchange rates

Due to the impact of the COVID-19 pandemic, the Rand has weakened significantly from the beginning of the 2020 calendar year, which was at levels of around R14.00/US$1, to its weakest level at the beginning of April 2020 of R19.05. The Rand strengthened through May and June and the Rand closed at R17.32 on 30 June 2020. The Rand started weakening against the Australian dollar in April 2020 and closed at R11.96/A$1 on 30 June 2020, a 21% decrease in value. These movements in the currencies expose the group's operations to foreign currency gains and losses on foreign-denominated receivables and liabilities, including derivatives, and also impact the group’s translation of its international operating results and net assets into its Rand presentation currency, which resulted in a foreign exchange translation movement of R1.2 billion in other comprehensive income.

The most significant impact was on the increase in the Rand gold price Harmony received on its gold sales, of which R2.3 billion of the increase in revenue can be attributed to the weakening of the Rand. This was calculated by multiplying actual kilograms sold in the 2020 financial year by the variance in the average exchange rates year on year and 2019's average US$ gold price received.


F-20




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

4.
COVID-19 IMPACT continued

FINANCIAL RISK MANAGEMENT continued

Market impact continued

Commodity prices

Gold prices have rallied to an all-time high following the global economic fallout of COVID-19 and ongoing geopolitical uncertainty supporting its safe haven status with investors. The price of gold in US$ terms increased significantly over the period, closing at US$1 781/oz on 30 June 2020. This is a 26% increase from the closing price of US$1 410/oz on 30 June 2019. The average spot gold price received (that is, excluding the impact of hedging gains or losses) for the 2020 financial year was 21% higher at US$1 529/oz than in 2019 (US$1 263/oz), contributing approximately R5.2 billion to the increase in revenue year on year. This was calculated by multiplying actual kilograms sold in the 2020 financial year by the variance in the average US$ gold price year on year and 2020's average R/US$ exchange rate.

Interest rates

The US Federal Reserve lowered interest rates several times during the year, the majority unrelated to the COVID-19 pandemic. The rate cuts of 25 basis points were made on each of the following dates, 31 July 2019, 18 September 2019, 30 October 2019 and 3 March 2020. At an unscheduled meeting on 15 March 2020, an additional cut of 100 basis points was announced, reducing the rate to a range of between 0% and 0.25% as a benchmark for most interest rates.

The South African Reserve Bank (SARB) announced similar decreases in the repo rate during the year. The adjustment in the repo rate then affects the prime lending rate at which commercial banks lend money. The repo rate was cut by 25 basis points at the July 2019 and January 2020 SARB meetings respectively. Following the interest rate cut by the Federal Reserve in March 2020, the SARB also announced a 100 basis point cut. At a special unscheduled meeting in April 2020, the SARB cut the rate by a further 100 basis points. During the scheduled May 2020 meeting, another 50 basis point cut was decided on, bringing the prime lending rate to 7.25% and the total cuts for the 2020 financial year to 300 basis points.

These decreases have had a favourable impact on the cost of debt, as the debt facilities are linked to variable rates, US LIBOR and JIBAR specifically. However, the finance cost on the US-denominated debt is impacted by the movement in the Rand/US$ exchange rate.

IMPACT ON PRODUCTION

Management has worked with suppliers to ensure that there are minimal disruptions to the supply chain, which would otherwise impact negatively on the ability to continue with production. Stock levels for critical production and safety items were increased to cover an additional four weeks. In South Africa, some issues have been experienced where raw materials are imported as well as where certain manufacturers have been affected by absenteeism due to COVID-19. Supplies to the operations in Papua New Guinea have not been affected as management has been able to find alternative sources where necessary.

CONTRIBUTING TO COMMUNITIES

Harmony’s response to COVID-19 demonstrated once again its ability to respond quickly to challenging issues; in this case, protecting the lives and livelihoods of its employees, ensuring the continued viability of the business, and contributing to the wellbeing of surrounding communities and countries in which the group operates.Notwithstanding the challenges the group faced during the pandemic, Harmony provided emergency help and support in various forms to families most in need in host and neighbouring communities, both in South Africa and Papua New Guinea.

TAXATION

In response to challenges faced by companies during the COVID-19 pandemic, governments have implemented various stimulus packages to provide some relief to companies. In South Africa, various taxes have been delayed, such as carbon tax, where the first payment has been postponed to October 2020. In addition, a tax holiday of the skills development levy was introduced.

IMPACT ON CRITICAL ESTIMATES AND JUDGEMENTS

The uncertainty of the impact of the COVID-19 pandemic on the global economy caused significant volatility in the markets, as discussed above. This impacted on certain assumptions and estimates as at 30 June 2020 that management used in calculations which are revised annually or assessed at each reporting date.

Key assumptions for the calculation of the mining assets' recoverable amounts include commodity prices and exchange rates. The increase in the US$ gold price and the weakening of the Rand against the US$ affected the short- and medium-term views in the forecasts management received from various institutions in order to determine the assumptions for impairment testing. However, management determined its reserves using the long-term price of US$1 350/oz or R630 000/kg and prepared the life-of-mine plans for the 2021 financial year at this price. Refer to note 13 for further details on the assumptions used in the impairment test.

F-21




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020


4.
COVID-19 IMPACT continued

IMPACT ON CRITICAL ESTIMATES AND JUDGEMENTS continued

The valuation of the derivatives was also impacted by the changes in the commodity prices and Rand/US$ exchange rate. Refer to notes 18 and 37 for details of the fair value movements at 30 June 2020.

The changes in the interest rates impacted on discount rates that are based on risk-free rates. These include, but are not limited to, the provisions for environmental rehabilitation, silicosis settlement and post-retirement benefits, the determination of recoverable amounts for testing impairments of non-financial assets as well as in recoverability of financial assets. Where possible and deemed relevant, management used weighted averages over a period of time to determine the estimated rates. In all cases, the discount rate decreased, the quantum of the decrease depending on whether the rate was a short-, medium- or long-term rate.

5
REVENUE
 

ACCOUNTING POLICY

Revenue from metal sales include the sale of gold, silver and uranium. Revenue from metal sales is recognised when the group satisfies its performance obligations under its contract with the customer, by transferring such metals to the customer's control. Transfer of control is generally determined to be when the risk and title to the metals passes to the customer. Revenue is measured based on the consideration specified in the contract with the customer and is driven by the quoted market prices of the metals.

The effective portion of gains or losses on the derivatives designated as cash flow hedging items (forecast sales transactions) are recognised in revenue when the forecast sales transactions occur. See the accounting policy for derivatives and hedging activities in note 2.
 
 
SA Rand
Figures in million
2020

2019

2018

 
 
 
 
Revenue from contracts with customers
30 642

26 459

19 255

  Gold
29 704

25 693

19 162

  Silver1
839

589

74

  Uranium2
99

177

19

Hedging gain/(loss)3
(1 397
)
453

1 197

 
 
 
 
Total revenue4
29 245

26 912

20 452

1 
Derived from the Hidden Valley operation in Papua New Guinea.
2 
Derived from the Moab Khotsong operation.
3 
Relates to the realised effective portion of the hedge-accounted gold derivatives. Refer to note 18 for further information.
4 
A geographical analysis of revenue is provided in the segment report in note 39.

The points of transfer of control are as follows:
• Gold: South Africa
Gold is delivered and certificate of sale is issued.
• Gold and silver: Hidden Valley
For sales up to 13 February 2019: metal is delivered and metal account credited by the customer.
 
Sales from 14 February 2019 onwards: metal is collected from Hidden Valley and a confirmation of collection is sent to and accepted by the customer.
• Uranium
Confirmation of transfer is issued.

The increase in gold and silver revenue for 2020 is mainly due to the higher commodity prices. The increase in gold revenue is offset by the decrease in production of 15% from 44 734kg in the 2019 to 37 863kg in the current year. Silver produced increased by 11% to 97 332 kg from 87 325 kg in the prior year. The decrease in uranium revenue is due to lower sales volumes as a result of the South African nationwide lockdown that took place due to COVID-19.

F-22




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

5
REVENUE continued

Below are the average commodity prices received for the financial years:
 
2020

2019

2018

 
 
 
 
Gold1
 
 
 
– US$ per ounce (US$/oz)
1 461

1 287

1 380

– Rand per kilogram (R/kg)
735 569

586 653

570 709

 
 
 
 
Silver
 
 
 
– US$ per ounce (US$/oz)
16.85

15.00

16.88

– Rand per kilogram (R/kg)
8 485

6 837

6 974

 
 
 
 
Uranium
 
 
 
– US$ per pound (US$/lb)
25.34

26.23

23.71

– Rand per kilogram (R/kg)
875

820

672

 
 
 
 
1 
The gold price includes the realised effective portion of the hedge-accounted gold derivatives.

6
COST OF SALES
 
SA Rand
Figures in million
2020

2019

2018

 
 
 
 
Production costs (a)
22 048

20 324

15 084

Amortisation and depreciation of mining assets (b)
3 409

3 961

2 468

Amortisation and depreciation of assets other than mining assets (b)
99

93

102

Rehabilitation expenditure (c)
47

33

67

Care and maintenance costs of restructured shafts
146

134

128

Employment termination and restructuring costs (d)
40

242

208

Share-based payments (e)
130

155

244

Impairment of assets (f)

3 898

5 336

Other
(11
)
29

(41
)
 
 
 
 
Total cost of sales
25 908

28 869

23 596


(a)
Production costs include mine production and transport and refinery costs, applicable general administrative costs, movement in inventories and ore stockpiles, ongoing environmental rehabilitation costs and transfers for stripping activities. Employee termination costs are included, except for employee termination costs associated with major restructuring and shaft closures, which are separately disclosed.

Production costs increased during the 2020 year mainly in line with expectations, with the South African national lockdown from the end of March 2020 due to COVID-19 impacting on production volumes while the cost base remained mostly unchanged. Contributing to the increase year on year is a decrease of R557 million in the capitalised stripping credit related to the Hidden Valley operation.


F-23




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

6
COST OF SALES continued

(a)
Production costs continued

Production costs, analysed by nature, consist of the following:
 
SA Rand
Figures in million
2020

2019

2018

 
 
 
 
Labour costs, including contractors
13 004

12 715

9 750

Consumables
5 441

5 532

3 418

Water and electricity
3 664

3 398

2 551

Insurance
154

126

86

Transportation
377

354

121

Change in inventory
(70
)
(166
)
(211
)
Capitalisation of mine development costs
(1 485
)
(1 880
)
(1 552
)
Stripping activities
(675
)
(1 197
)
(167
)
Royalty expense
327

193

121

Other
1 311

1 249

967

 
 
 
 
Total production costs
22 048

20 324

15 084


(b)
Lower production volumes during the 2020 year, partially due to the closure of underground mines following the announcement of the South African national lockdown due to COVID-19, impacted on the depreciation recorded and contributed to the decrease year on year. The completion of the mining of Stage 5 at Hidden Valley during the December 2019 quarter also contributed to the decrease. The impairments recognised on certain operations in South Africa during the 2019 year significantly impacted on the base which depreciation is calculated on and the lower carrying values contributed to the lower total compared to the comparative period.

Amortisation and depreciation of assets other than mining assets includes the amortisation of intangible assets.

(c)
For the assumptions used to calculate the rehabilitation costs, refer to note 25. This expense includes the change in estimate for the rehabilitation provision where an asset no longer exists as well as costs related to the rehabilitation process. For 2020, R47 million (2019: R86 million) (2018: R94 million) was spent on rehabilitation in South Africa. Refer to note 25.

(d)
The employment termination and restructuring expenditure for 2020, 2019 and 2018 relates to the voluntary severance program in place to reduce labour costs.

(e)
Refer to note 34 for details on the share-based payment schemes implemented by the group.

(f)
Management performed an assessment for impairment triggers as well as indications of reversal of previously recorded impairment losses at 30 June 2020. Due to the uncertainty of the impact of the COVID-19 pandemic and the South African national lockdown would have on the South African underground operations, as well as the increase in the short-term gold price, the recoverable amounts for these cash-generating units (CGUs) were calculated.

Based on the impairment tests performed, no impairments were recorded for the 2020 year. Where CGUs had previously been impaired, management considered whether the impairment loss (or the contributors to the previously recognised impairment loss) no longer exists or might have decreased. Management considered general and specific factors for each CGU and concluded that although overall the gold price had improved from the time that the impairment losses had been recognised, the specific circumstances that led to the original impairments had not reversed.  Management also considered the level of uncertainty of the impact of COVID-19 on production and therefore on the cash flows. Due to the volatility embedded in the potential upside driven by the higher gold prices in the short to medium term, coupled with the fact that the factors resulting in the previously recognised impairment losses had not reversed, management resolved it to be appropriate for no reversal of previously recognised impairment losses to be recorded for the period under review.

Refer to note 13 for further information.


F-24




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

6
COST OF SALES continued

(f)
Impairment continued

The impairment of assets consists of the following:
 
SA Rand
Figures in million
2020

2019

2018

 
 
 
 
Tshepong Operations

2 254

988

Kusasalethu

690

579

Target 1

312

699

Target 3

318


Joel

198

160

Other mining assets

120

319

Bambanani

6


Doornkop


317

Unisel


487

Masimong


329

Target North


1 458

 
 
 
 
Total impairment of assets

3 898

5 336


There was no reversal of impairment for the 2020, 2019 or 2018 financial years.

The recoverable amounts for these assets have been determined on a fair value less costs to sell basis using the assumptions per note 13 in discounted cash flow models and attributable resource values. These are fair value measurements classified as level 3.

The recoverable amounts of the CGUs where impairments were recognised as at 30 June 2019 are as follows:
 
SA Rand
 
Recoverable amount
Figures in million
Life-of-Mine plan

Resource base

Total

 
 
 
 
Tshepong Operations
 
 
 
The impairment was due to the increased costs to exploit the resource base as well as a lower expected recovered grade. The decrease in the recovery grade is as a result of the change in the dilution factors applied to the outside life of mine resources.
3 811

2 055

5 866

Kusasalethu
 
 
 
The decrease in grade and increased estimated costs in the resource base resulted in a lower recoverable amount. The decrease in the recovery grade is as a result of the change in the dilution factors applied to the outside life of mine resources.
1 297


1 297

Target 1
 
 
 
The recoverable amount decreased as a result of increased costs and decrease in grade in the resource base together with the estimated impact of carbon tax. The increase in discount rate due to increased risk factors also negatively impacted on the recoverable amount.
467

609

1 076

Target 3
 
 
 
The operation remained under care and maintenance. A change in valuation method from discounted cash flow model to resource multiple approach reduced the recoverable amount.
None

182

182

Joel
 
 
 
The increased capital costs in the resource base together with carbon tax negatively impacted the net present value of expected cash flows.
765

87

852

Other mining assets
 
 
 
The updated life-of-mine plans for the CGUs in Freegold and Avgold resulted in the impairment of other mining assets.
335

None

335

Bambanani
 
 
 
The impairment of goodwill reduced the carrying amount of intangible assets. As goodwill is not depreciated, it resulted in an impairment as the life of the operation shortens.
763

None

763

 
 
 
 

F-25




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

6
COST OF SALES continued

(f)
Impairment continued

The recoverable amounts of the CGUs where impairments were recognised as at 30 June 2018 are as follows:
 
SA Rand
 
Recoverable amount
Figures in million
Life-of-Mine plan

Resource base

Total

 
 
 
 
Tshepong Operations
 
 
 
The impairment was mainly driven by sensitivity to fluctuations in the gold price. Furthermore the updated life-of-mine for the Tshepong operations presented a marginal decrease in recovered grade.
4 279

3 147

7 426

Kusasalethu
 
 
 
Kusasalethu's old section of the mine at the operation was excluded in the FY19 life-of-mine plan.
1 019

1 119

2 138

Target 1
 
 
 
Exploration drilling results during the year pointed towards lower grade estimates within certain blocks that have now been excluded from the life-of-mine plans.
471

746

1 217

Joel
 
 
 
The updated life-of-mine for the Joel operation presented a marginal decrease in recovered grade.
540

336

876

Other mining assets
 
 
 
The updated life-of-mine plans for the CGUs in Freegold and Harmony resulted in the impairment of other mining assets.
366

None

366

Doornkop
 
 
 
The impairment of Doornkop is primarily as a result of a decrease in the Kimberley Reef's resource values.
1 552

1 178

2 730

Unisel
 
 
 
Excluded the Leader Reef from the life-of-mine plan to focus on the higher grade Basal Reef. This reduced the life-of-mine from four years to eighteen months.
38

None

38

Masimong
 
 
 
The impairment at Masimong was as a result of the depletion of the higher grade B Reef and subsequent reduced life-of-mine.
58

None

58

Target North
 
 
 
The impairment of Target North was as a result of a decrease in resource values.
None

3 681

3 681

 
 
 
 

7
OTHER OPERATING EXPENSES
 
SA Rand
Figures in million
2020

2019

2018

 
 
 
 
Social investment expenditure
143

155

73

Loss on scrapping of property, plant and equipment (a)
62

21

1

Foreign exchange translation loss (b)
892

86

682

Silicosis settlement provision/(reversal of provision) (c)
36

(62
)
(68
)
Reversal of provision for ARM BBEE Trust loan (d)


(43
)
Loss allowance
63

7

12

Other (income)/expenses - net
5

(21
)
10

 
 
 
 
Total other operating expenses
1 201

186

667


(a)
These losses arise from the derecognition of property, plant and equipment that is no longer in use. No future economic benefits are expected from the use or disposal of these assets. Refer to note 13 for further detail.

(b)
The foreign exchange loss is driven primarily by the prevailing exchange rates at the drawdown and repayment dates of the  US$-denominated loans as well as the exchange rate movements during the year. Refer to note 30 for the details of the foreign exchange translation loss on the US$ borrowings.

(c)
Refer to note 26 for details on the movement in the silicosis settlement provision.


F-26




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

7
OTHER OPERATING EXPENSES continued

(d)
Pursuant to the adoption of IFRS 9 on 1 July 2018, the ARM BBEE Trust loan is carried at fair value through profit or loss with the movement in fair value recognised in net gains on financial instruments (refer to note 8). In 2018, the provision was reversed following an increase in African Rainbow Minerals Limited's share price and dividends paid in the period between July 2017 and June 2018, which form part of the recoverability test at 30 June 2018. Refer to note 17 for further details on the loan.

8
INVESTMENT INCOME
 

ACCOUNTING POLICY

Interest income is recognised on the effective interest method, taking into account the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the group. Dividend income is recognised when the shareholder's right to receive payment is established. This is recognised at the last date of registration.

Cash flows from interest and dividends received are classified under operating activities in the cash flow statement.
 
 
SA Rand
Figures in million
2020

2019

2018

 
 
 
 
Interest income from financial assets at amortised cost
257

244

272

Net gain on financial instruments1
118

64

71

 
 
 
 
Total investment income
375

308

343

1 
Primarily relates to the environmental trust funds and the Social Trust Fund (refer to note 16) and also includes the fair value movement of the ARM BBEE Trust loan (refer to note 17).

9
FINANCE COSTS
 

ACCOUNTING POLICY

Borrowing costs are capitalised to the extent that they are directly attributable to the acquisition and construction of qualifying assets. Qualifying assets are assets that take a substantial time to get ready for their intended use. These costs are capitalised until the asset moves into the production phase. Other borrowing costs are expensed. The foreign exchange translation loss is included in the borrowing cost calculation to the extent that it is considered to be a part of interest.
 
 
SA Rand
Figures in million
2020

2019

2018

 
 
 
 
Financial liabilities
 
 
 
 
 
 
 
Borrowings
424

402

227

Other creditors and liabilities
9

2

1

 
 
 
 
Total finance costs from financial liabilities
433

404

228

 
 
 
 
Non-financial liabilities
 
 
 
 
 
 
 
Post-retirement benefits
19

17

18

Time value of money component of silicosis settlement provision
69

79

76

Time value of money and inflation component of rehabilitation costs
194

208

191

 
 
 
 
Total finance costs from non-financial liabilities
282

304

285

Total finance costs before interest capitalised
715

708

513

Interest capitalised (a)
(54
)
(133
)
(183
)
 
 
 
 
Total finance costs
661

575

330


F-27




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

9
FINANCE COSTS continued

(a)
The capitalisation rate used to determine capitalised borrowing costs is:
 
2020

2019

2018

 
 
 
 
Capitalisation rate
9.4
%
10.4
%
10.5
%
 
 
 
 

The decrease in the borrowing costs capitalised in 2020 is due to Joel's decline project reaching commercial levels of production as well as the cessation of capitalising borrowing costs for Wafi-Golpu. For Joel, the capitalisation of borrowing costs ceased and depreciation commenced as of 1 January 2020. Refer to note 13 for further detail.

10
TAXATION
 

ACCOUNTING POLICY

Taxation is made up of current and deferred taxation. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the group operates and generates taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred taxation is recognised on temporary differences existing at each reporting date between the tax base of all assets and liabilities and their carrying amounts. Substantively enacted tax rates are used to determine future anticipated effective tax rates which in turn are used in the determination of deferred taxation, except to the extent that deferred tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination and does not affect the accounting or taxable profit or loss at the time of the transaction. Deferred tax is charged to profit or loss, except where the tax relates to items recognised in other comprehensive income or directly in equity in which case the tax is also recognised in other comprehensive income or directly in equity. The effect on deferred tax of any changes in tax rates is recognised in the income statement, except to the extent that it relates to items previously charged or credited directly to equity.

The principal temporary differences arise from amortisation and depreciation on property, plant and equipment, provisions, unutilised tax losses, unutilised capital allowances carried forward and unrealised gains and losses on the gold forward sale contracts. Deferred tax assets relating to the carry forward of unutilised tax losses and unutilised capital allowances are recognised to the extent that it is probable that future taxable profit will be available against which the unutilised tax losses and unutilised capital allowances can be utilised. The recoverability of these assets is reviewed at each reporting date and adjusted if recovery is no longer probable.

Deferred income tax is provided on temporary differences arising from investments in subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
 

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The group is subject to income tax in several jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. When different tax rates apply to different levels of taxable income, deferred tax assets and liabilities are measured using the average tax rates that are expected to apply to the taxable profit (tax loss) of the periods in which the temporary differences are expected to reverse. At the group’s South African operations, such average tax rates are directly impacted by the profitability of the relevant mine. The deferred tax rate is therefore based on the current estimate of future profitability of an operation when temporary differences will reverse, based on tax rates and tax laws that have been enacted at the balance sheet date. The future profitability of each mine, in turn, is determined by reference to the life-of-mine (LoM) plan for that operation. The LoM plan is influenced by factors as disclosed in note 13, which may differ from one year to the next and normally result in the deferred tax rate changing from one year to the next.

Management has to exercise judgement with regard to deferred tax assets. Where the possibility exists that no future taxable income may flow against which these assets can be offset, the deferred tax assets are not recognised.
 

F-28




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

10
TAXATION continued

The taxation (expense)/credit for the year is as follows:
 
SA Rand
Figures in million
2020

2019

2018

 
 
 
 
SA taxation
 
 
 
 
 
 
 
Mining tax (a)
(56
)
(19
)
(42
)
 - current year
(61
)
(14
)
(42
)
 - prior year
5

(5
)

 
 
 
 
Non-mining tax (b)
(2
)
(124
)
(163
)
 - current year
(2
)
(121
)
(163
)
 - prior year

(3
)

 
 
 
 
Deferred tax (c)
(197
)
282

439

 - current year
(197
)
282

439

 
 
 
 
Total taxation (expense)/credit
(255
)
139

234


(a)
Mining tax on gold mining taxable income in South Africa is determined according to a formula, based on the taxable income from mining operations. 5% of total revenue is exempt from taxation while the remainder is taxable at a higher rate (34%) than non-mining income (28%) as a result of applying the gold mining formula. Mining and non-mining income of Australian entities and PNG operation are taxed at a standard rate of 30%.

All qualifying mining capital expenditure is deducted from taxable mining income to the extent that it does not result in an assessed loss. Accounting depreciation is eliminated when calculating the South African mining tax income. Excess capital expenditure is carried forward as unredeemed capital to be claimed from future mining taxable income. The group has several tax paying entities in South Africa. In terms of the mining ring-fencing application, each ring-fenced mine is treated separately and deductions can normally only be utilised against mining income generated from the relevant ring-fenced mine.

(b)
Non-mining taxable income of mining companies and the taxable income for non-mining companies are taxed at the statutory corporate rate of 28%.The expense for the 2019 and 2018 years relates to non-mining tax arising from derivative gains (realised and unrealised) recognised on the foreign currency derivatives as well as the realised gains on the commodity forward sale contracts. During 2020, the losses on the derivative contracts resulted in non-mining tax losses. See discussion on deferred tax below. Refer to note 18 for details on the group's derivative gains and losses recorded.

(c)
The deferred tax rate used to calculate deferred tax is based on the current estimate of future profitability when temporary differences will reverse based on tax rates and tax laws that have been enacted at the balance sheet date. Depending on the profitability of the operations, the deferred tax rate can consequently be significantly different from year to year.

Following the completion of the annual life-of-mine plans, management revised the weighted average deferred tax rates for all the South African operations. The higher short-term gold price assumption used resulted in an increase in the estimated profitability and consequently higher rates than in the prior year. Refer to note 13 for the assumptions used. These changes, together with changes in the temporary differences, had the following impacts:
The change in rates on temporary differences at the individual company level, other than hedge accounted derivatives, resulted in an increase in the deferred tax expense and liability to the amount of R493 million.
Unwinding of temporary differences related to unredeemed capital expenditure balance resulted in an increase of R298 million in the deferred tax expense.
The weakening of the Rand against the US$ and the increase in the commodity prices negatively impacted on the valuation of the derivative financial instruments. Refer to notes 18 and 37 for detail. The temporary differences related to the Rand gold derivatives changed from taxable temporary differences (ie resulting in a deferred tax liability) to deductible temporary differences (resulting in a deferred tax asset). Management assessed the rates at which the temporary differences are expected to reverse and as the expected non-mining losses can be set off against the mining profits, the rates have been revised from the non-mining tax rate of 28% to the weighted average deferred tax rate. This accounts for R510 million of the deferred tax credit directly charged to other comprehensive income.

F-29




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

10
TAXATION continued

(c)
Deferred tax continued

The net deferred tax positions for each of the group's entities are assessed separately. Two companies have net deferred tax asset positions and therefore recoverability of these assets was considered. The position at 30 June 2020 was as follows:
 
SA Rand
Figures in million
Harmony Company

Randfontein Estates

 
 
 
Deductible/(taxable) temporary differences
1 079

(155)

Tax losses
574

534

Total
1 653

379

 
 
 
Deferred tax rate
29.8
%
10.1
%
Deferred tax asset
492

39

 
 
 

At 30 June 2020, management considered whether the unrecognised deferred tax asset (DTA) related to the Harmony company should be recognised, partially or in full. A portion of the DTA relates to a tax loss of R574 million, which primarily arose due to the foreign exchange translation losses and losses on derivatives recorded in 2020. The company's operations include the Central Plant Reclamation (CPR), a tailings retreatment facility. As a low cost producer, its profit margins are highly sensitive to fluctuations in the gold price. In addition, the higher short-term gold price also significantly benefits Masimong's profitability, which following the revision of its life-of-mine at 30 June 2020 has two years remaining of its life. Due to the significant expected increase in the short-term Rand gold price used in the estimation of future taxable profits for the mining operations owned by the Harmony company, it is considered probable that sufficient future taxable profits will be available against which the aforementioned tax loss and the current deductible temporary differences existing at the reporting date can be utilised. Consequently, a deferred tax asset of R492 million has been recognised, consisting of R171 million relating to the tax loss and R321 million relating to deductible temporary differences.

Management believes there will be sufficient future taxable income from the operations owned by Randfontein Estates Limited and therefore the entire balance of R39 million was recognised at 30 June 2020.


F-30




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

10
TAXATION continued

INCOME AND MINING TAX RATES

The tax rate remains unchanged for the 2018, 2019 and 2020 years.

Major items causing the group's income tax provision to differ from the South African mining statutory tax rate of 34% were:
 
SA Rand
Figures in million
2020

2019

2018

 
 
 
 
Tax on net loss at the mining statutory tax rate
202

934

1 600

Non-allowable deductions
(221
)
(241
)
(513
)
 
 
 
 
Share-based payments
(62
)
(70
)
(104
)
Impairment of assets

(2
)
(219
)
Loan-related costs
(19
)
(18
)
(24
)
Exploration expenditure
(55
)
(36
)
(74
)
Finance costs
(76
)
(68
)
(54
)
Other
(9
)
(47
)
(38
)
 
 
 
 
Movement in temporary differences related to property, plant and equipment
(355
)
(1 388
)
(1 248
)
Movements in temporary differences related to other assets and liabilities
(452
)
98

55

Difference between effective mining tax rate and statutory mining rate on mining income
10

(175
)
(550
)
Difference between non-mining tax rate and statutory mining rate on non-mining income

19

35

Effect on temporary differences due to changes in effective tax rates1
(469
)
83

675

Prior year adjustment
5

(8
)

Capital allowances2
766

684

604

Deferred tax asset not recognised3
34

133

(424
)
Deferred tax asset previously not recognised now recorded4
225



 
 
 
 
Income and mining taxation
(255
)
139

234

Effective income and mining tax rate (%)
(43
)
5

5

1 
This mainly relates to movements in the deferred tax rate related to Harmony (25.7% to 29.8%) (2019: 10.5% to 25.7%) (2018: 19.4% to 10.5%), Freegold (8.1% to 11.4%) (2019: 8.7% to 8.1%) (2018: 12.5% to 8.7%), Randfontein Estates Limited (Randfontein) (4.5% to 10.1%) (2019: 1.8% to 4.5%) (2018: 3.8% to 1.8%) and Moab (4.7% to 17.3%) (2019: 9.1% to 4.7%) (2018: 9.1%).
2 
This relates to the additional capital allowance that may be deducted from taxable income from mining operations in South Africa. A significant portion relates to Avgold Limited (Avgold) which has a 0% effective tax rate.
3 
This relates to tax losses and deductible temporary differences for which future taxable profits are uncertain and are not considered probable.
4 
Harmony company has sufficient future profits as well as taxable temporary differences which the deductible temporary differences can be reversed against. Therefore the deferred tax asset not recognised in the 2019 year has been recognised.


F-31




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

10
TAXATION continued

DEFERRED TAX

The analysis of deferred tax assets and liabilities is as follows:
 
SA Rand
Figures in million
2020

2019

 
 
 
Deferred tax assets
(1 803
)
(550
)
Deferred tax asset to be recovered after more than 12 months
(1 091
)
(49
)
Deferred tax asset to be recovered within 12 months
(712
)
(501
)
 
 
 
Deferred tax liabilities
2 268

1 237

Deferred tax liability to be recovered after more than 12 months
2 034

1 125

Deferred tax liability to be recovered within 12 months
234

112

 
 
 
Net deferred tax liability
465

687


Deferred tax liabilities and assets on the balance sheet as of 30 June 2020 and 30 June 2019 relate to the following:
 
SA Rand
Figures in million
2020

2019

 
 
 
Gross deferred tax liabilities
2 268

1 237

 
 
 
Amortisation and depreciation
2 211

1 229

Other
57

8

 
 
 
Gross deferred tax assets
(1 803
)
(550
)
 
 
 
Unredeemed capital expenditure1
(4 923
)
(4 044
)
Provisions, including non-current provisions
(1 156
)
(844
)
Derivative financial instruments
(505
)
(88
)
Tax losses2
(1 718
)
(1 209
)
Deferred tax asset not recognised3
6 499

5 635

 
 
 
Net deferred tax liability
465

687

1 
Unredeemed capital expenditure mainly consists of Hidden Valley R4 555 million (2019: R3 745 million).
2 
The majority of the amount relates to Hidden Valley's tax losses of R1 327 million (2019: R1 066 million).
3 
The majority of the deferred tax asset not recognised of R6 499 million relates to Harmony's PNG operations (2019: R5 293 million).

Movement in the net deferred tax liability recognised in the balance sheet is as follows:
 
SA Rand
Figures in million
2020

2019

 
 
 
Balance at beginning of year
687

1 145

Expense/(credit) per income statement
197

(282
)
Tax directly charged to other comprehensive income
(419
)
(177
)
 
 
 
Balance at end of year
465

687

Deferred tax asset per balance sheet
(531
)
(1
)
Deferred tax liability per balance sheet
996

688


F-32




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

10
TAXATION continued

DEFERRED TAX continued
 
SA Rand
Figures in million
2020

2019

 
 
 
As at 30 June, the group had the following potential future tax deductions:
 
 
 
 
 
Unredeemed capital expenditure available for utilisation against future mining taxable income1
43 395

39 725

Tax losses carried forward utilisable against mining taxable income2
7 356

5 494

Capital Gains Tax (CGT) losses available to be utilised against future CGT gains4
570

571

 
 
 
 
 
 
As at 30 June, the group has not recognised the following deferred tax asset amounts relating to the above:
14 618

12 935

 
 
 
The unrecognised temporary differences are:
 
 
Unredeemed capital expenditure3
40 330

35 038

Tax losses2
5 156

5 109

CGT losses4
570

571

 
 
 
1  
Includes Avgold R21 483 million (2019: R19 086 million), Randfontein R2 261 million (2019: R2 134 million), Moab Khotsong R625 million (2019R1 755 million) and Hidden Valley R18 847 million (2019: R16 333 million). These have an unlimited carry-forward period.
2 
Relates mainly to Hidden Valley and the PNG exploration operations. These have an unlimited carry-forward period.
3 
Relates to Avgold and Hidden Valley.
4 
The CGT losses relate to the gross CGT losses available to be utilised against future CGT gains.

DIVIDEND TAX (DT)

The withholding tax on dividends remained unchanged at 20%.

11
EARNINGS/(LOSS) PER SHARE

BASIC EARNINGS/(LOSS) PER SHARE

Basic earnings/(loss) per share is calculated by dividing the net income attributable to shareholders by the weighted number of ordinary shares in issue during the year.
 
2020

2019

2018

 
 
 
 
Ordinary shares in issue ('000)
603 143

539 841

500 252

Adjustment for weighted number of ordinary shares in issue ('000)
(61 306
)
(12 974
)
(54 304
)
 
 
 
 
Weighted number of ordinary shares in issue ('000)
541 837

526 867

445 948

Treasury shares ('000)
(6 501
)
(3 058
)
(52
)
 
 
 
 
Basic weighted average number of ordinary shares in issue ('000)
535 336

523 809

445 896

 
 
 
 
 
SA Rand
 
2020

2019

2018

Total net loss attributable to shareholders (million)
(878
)
(2 607
)
(4 473
)
Total basic loss per share (cents)
(164
)
(498
)
(1 003
)

DILUTED EARNINGS/(LOSS) PER SHARE

For diluted earnings/(loss) per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive ordinary shares as a result of share options granted to employees under the share option schemes in issue. A calculation is performed to determine the number of shares that could have been acquired at fair value, determined as the average annual market share price of the company's shares, based on the monetary value of the subscription rights attached to the outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.


F-33




NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 30 June 2020

11
EARNINGS/(LOSS) PER SHARE continued

DILUTED EARNINGS/(LOSS) PER SHARE continued
 
2020

2019

2018