Harmony Gold Mining (HMY) Risk Analysis

The World Gold Council (" WGC ") published industry guidance in June 2013 on the calculation of "all-in sustaining costs" and "all-in cost" non-GAAP measures, developed to create a better understanding of the overall costs associated with producing gold. Although Harmony is not a member of the WGC, we started disclosing all-in sustaining costs in fiscal 2014. The all-in sustaining cost measure is an extension of the existing cash cost measure (referenced below) and incorporates costs related to sustaining production. All-in sustaining costs include mine production costs, transport and refinery costs, applicable general and administrative costs, costs associated with movements in production inventories, ore stockpiles, as well as ongoing environmental rehabilitation costs, transfers for stripping activities and costs associated with royalties. Employee termination costs are included, however employee termination costs associated with major restructuring and shaft closures are excluded. The following costs are also included: local economic development (" LED ") expenditure for continuing operations, corporate costs, sustaining exploration costs and sustaining capital expenditure including ongoing capital development (" OCD ") expenditure and rehabilitation accretion and amortization for continuing operations. Gold ounces/kilograms sold are used as the denominator in the all-in sustaining costs per ounce/kilogram calculation. Our cash costs consist primarily of production costs and are expensed as incurred. The cash costs are incurred to access ore to produce current mined reserves. Cash costs do not include capital development costs, which are incurred to allow access to the orebody for future mining operations and are capitalized and amortized when the relevant reserves are mined. Total cash costs include mine production costs, transport and refinery costs, applicable general and administrative costs, ore stockpiles, as well as ongoing environmental rehabilitation costs as well as transfers for stripping activities and costs associated with royalties. Employee termination costs are included, however employee termination costs associated with major restructuring and shaft closures are excluded. The costs associated with movements in production inventories are excluded from total cash costs. Gold ounces/kilograms produced are used as the denominator in the total cash costs per ounce/kilogram calculation. Changes in all-in sustaining costs per ounce/kilogram and cash costs per ounce/kilogram are affected by operational performance. In US dollar terms, these measures are also affected by the changes in the currency exchange rate between the Rand and the US dollar and, in the case of the PNG operations, the Kina. All-in sustaining costs, all-in sustaining costs per ounce/kilogram, total cash costs and total cash costs per ounce/kilogram are non-GAAP measures. These measures should not be considered by investors in isolation or as an alternative to production costs, cost of sales, or any other measure of financial performance calculated in accordance with IFRS. In addition, the calculation of these measures may vary from company to company and may not be comparable to other similarly titled measures of other companies. However, we believe that all-in sustaining costs per ounce/kilogram and cash costs per ounce/kilogram are useful indicators to investors and management of a mining company's performance as they provide (i) an indication of the cash generating capacities of our mining operations, (ii) the trends in all-in sustaining costs and cash costs as the Company's operations mature, (iii) a measure of a company's performance, by comparison of cash costs per ounce/kilogram to the spot price of gold and (iv) an internal benchmark of performance to allow for comparison against other companies. While recognizing the importance of reducing all-in sustaining costs and cash costs, our chief focus is on controlling and, where possible, reducing total costs, including overhead costs. We aim to control total unit costs per ounce/kilogram produced by maintaining our low total cost structure at our existing operations. We have been able to reduce total costs by implementing a management structure and philosophy that is focused on reducing management and administrative costs. The following is a reconciliation of total all-in sustaining costs, as a non-GAAP measure, to the nearest comparable GAAP measure, cost of sales under IFRS: Fiscal year ended June 30,20212020(in R millions, except for ounce/kilogram amounts)Total cost of sales - under IFRS35,489 25,908 Depreciation and amortization expense(3,875)(3,508)Rehabilitation costs(135)(47)Care and maintenance costs of restructured shafts(144)(146)Employment termination and restructuring costs(332)(40)Share-based payments(114)(130)Impairment(1,124)- By-products credits(1,035)(938)Other183 157 Capitalized stripping1,047 675 LED expenditure120 136 Corporate, administration and other expenditure costs724 529 Capital expenditure (OCD)2,376 1,709 Capital expenditure (Exploration, abnormal expenditure and shaft capital)1,059 760  Total all-in sustaining costs34,239 25,065 Per kilogram calculation:Kilogram sold47,353 38,481 Total all-in sustaining costs per kilogram723,054 651,356 Total all-in sustaining costs (US$ million)2,223 1,600 Per ounce calculation: Ounces sold1,522,431 1,237,187 Total all-in sustaining costs per ounce1,460 1,293 The following is a reconciliation of total cash costs, as a non-GAAP measure, to the nearest comparable GAAP measure, cost of sales under IFRS: Fiscal year ended June 30,20212020(in R millions, except for ounce/kilogram amounts)Total cost of sales - under IFRS35,489 25,908 Depreciation and amortization expense(3,875)(3,508)Rehabilitation costs(135)(47)Care and maintenance costs of restructured shafts(144)(146)Employment termination and restructuring costs(332)(40)Share-based payments(114)(130)Impairment(1,124)- By-product revenue(1,035)(938)Other8 - Gold and uranium inventory movement(57)(151)Total cash costs28,681 20,948 Per kilogram calculation:Kilograms produced47,755 37,863 Total cash costs per kilogram600,592 553,513 Total cash costs (US$)1,862 1,338 Per ounce calculation:Ounces produced1,535,352 1,217,323 Total cash costs per ounce1,213 1,099 Within this report, our discussion and analysis is focused on the all-in sustaining costs and total cash costs measure. Exchange Rates Our revenues are very sensitive to the exchange rate of the Rand and other non-US currencies to the US dollar. Currently, the majority of our earnings are generated in South Africa. Since gold is generally sold in US dollars, most of our revenues are received in US dollars. The average gold price received by us during fiscal 2021 before including the effect of the cash flow hedges increased by R158,200 per kilogram to R893,769 per kilogram from R735,569 per kilogram during fiscal 2020. Appreciation of the Rand against the US dollar decreases our revenues, which serves to reduce operating margins and net income from our South African operations. Depreciation of the Rand against the US dollar increases the revenue, which serves to increase operating margins and net income from our South African operations. Accordingly, strengthening of the Rand generally results in poorer earnings for us if there is not a similar increase in the gold price. The exchange rates obtained when converting US dollars to Rand are determined by foreign exchange markets, over which we have no control. The spot rate as at June 30, 2021 was R14.27 per US$1.00, compared with R17.32 per US$1.00 as at June 30, 2020, reflecting an appreciation of 18% of the Rand against the US dollar. The average exchange rate for fiscal 2021 was R15.40 per US$1.00, reflecting an appreciation of 2% of the Rand against the US dollar when compared with fiscal 2020. Harmony has entered into foreign exchange derivative contracts in the form of zero cost collars, which establish a minimum (floor) and maximum (cap) Rand/US dollar exchange rate at which to convert US dollars to Rand. The Group also uses forward exchange contracts to manage the risks. At June 30, 2021, the nominal amount of the derivative contracts was US$116 million and is over a 24-month period with a weighted average cap price of US$1=R18.54 and weighted average floor price of US$1=R16.93. Additionally, at June 30, 2021 Harmony had open forward exchange forward contracts which had a nominal amount of US$26 million spread over a 24-month period at an average exchange rate of US$1 = R18.43. Due to the impact of the Covid-19 pandemic, the Rand had weakened significantly in fiscal 2020. In fiscal 2021, the Rand strengthened against the US and Australian dollar and closed at R14.27/US$1.00 and R10.72/A$1 respectively. 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 loss of R1.2 billion. The majority of our working costs are incurred in Rand and, as a result of this, any appreciation of the Rand against the US dollar would increase our working costs when translated into US dollars. Depreciation of the Rand against the US dollar would cause a decrease in our costs in US dollar terms. Similarly, at our international operations, appreciation of the Australia dollar or Kina against the US dollar would cause an increase in our costs in US dollar terms. See Item 3: " Key Information - Risk Factors - Strategic and market risks - Foreign exchange fluctuations could have a material adverse effect on our operational results and financial condition We have several credit facilities and loans denominated in US dollars. This exposes us to the changes in the Rand and Kina against the US dollar, which would affect the borrowing amount as well as the interest recognized. This will also affect the cash flows when the borrowings are raised and repaid as well as at the time of the payments of the interest. The Bank of Papua New Guinea has been systematically allowed the Kina to weaken against the US dollar over several years. In fiscal 2020, the Kina weakened by 2.6% and in fiscal 2021 weakened further by 1.4%. Since the introduction of a 150 basis point trading band in June 2014 the Kina weakened by 44.46% against the US dollar as at June 30, 2021. Should the trading band continue and depending on the level the exchange rate is set at, it could have a negative impact on the results of the Hidden Valley operation, as well as the cost of development at Wafi-Golpu and other PNG exploration sites. Inflation Our operations have been materially affected by inflation. Inflation in South Africa was 4.9% at the end of fiscal 2021, up from 2.2% at the end of fiscal 2020. The increase in fiscal 2021 is off a lower base in fiscal 2020 mainly due to the lower fuel price and lower consumer demand brought on by the Covid-19 national lockdown at the end of fiscal 2020. Working costs have increased considerably over the past several years resulting in significant cost pressures for the mining industry. In addition, the effect on inflation of the increase in electricity tariffs of 15.6% in fiscal 2021 and 9.4% in fiscal 2020, together with an increase that is yet to be determined by Eskom in fiscal 2022, will have a negative effect on the profitability of our operations. The inflation rate in PNG ended fiscal 2020 at 4.7%, while the annualized inflation stood at 3.3% at the end of fiscal 2021. Our profits and financial condition could be adversely affected if the cost inflation is not offset by a concurrent devaluation of the Rand and other non-US currencies and/or an increase in the price of gold. See Item 3: " Key Information - Risk Factors - Strategic and market risks - Our operations may be negatively impacted by inflation South African Socio-Economic Environment We are domiciled and listed in South Africa and the majority of our operations are in South Africa. As a result, we are subject to various economic, fiscal, monetary and political policies and factors that affect South African companies generally. See Item 3: " Key Information - Risk Factors - Risks related to our industry - The socio-economic framework in the regions in which we operate may have an adverse effect on our operations and profits South African companies are subject to exchange control limitations. While exchange controls have been relaxed in recent years, South African companies remain subject to restrictions on their ability to deploy capital outside of the Southern African Common Monetary Area. See Item 10: " Additional Information - D. Exchange Controls SLPs have been developed for each of our South African operations. These SLPs are prepared in line with legislation governing the participation of HDSAs in mining assets. We have been granted all of our mining licenses under the MPRDA. We have therefore already started to incur expenses relating to HDSA participation. We believe the biggest challenge will lie in maintaining these licenses, as we will have a responsibility in respect of human resource development, procurement and local economic development. We are however unable to provide a specific amount of what the estimated cost of compliance will be but we will continue to monitor these costs on an ongoing basis. See Item 4: "Regulation - Mineral Rights - South Africa – The Mining Charter. " Electricity in South Africa The South African state utility, Eskom, generates approximately 90% of the electricity used in South Africa and approximately 40% of the electricity used in Africa. Eskom generates, transmits and distributes electricity to industrial, mining, commercial, agricultural and residential customers and redistributors. During fiscal 2021, the electricity supply in South Africa saw more pressure than the previous years, with increased power interruptions (also referred to as load shedding). Especially in our third quarter of fiscal 2021, there were periods where load shedding lasted for multiple consecutive days, due principally to lack of availability from Eskom's generating plant. In early June 2021, Harmony contributed to a few hours of voluntary load reduction which exempted the company from reducing load for the rest of the South African winter. The supply and demand for electricity is still very tight especially during the evening peak periods between 5:00 p.m. and 8:00 p.m. Harmony has signed up four sites, which provide pumping and/or ventilation services, to participate in a pilot from Eskom called Critical Peak Pricing. For a limited number of hours, when the electrical network is under pressure, Eskom notifies the operation that tariffs will be increased significantly. For the rest of the time there is a saving on energy tariffs compared to non-participating shafts. In addition to this, Harmony has renewed its contract agreement with an Energy Service Company (" ESCO ") to ensure that various energy saving projects are implemented and sustained. Although Eskom has proposed to reduce the ratio between different Time-of-Use periods, these changes were not approved by NERSA. The South African government remains committed to ensuring energy security for the country, through the roll-out of the independent power producer program as an integral part of the energy mix. It remains committed to ensuring the provision of reliable and sustainable electricity supply, as part of mitigating the risk of carbon emissions. See Item 3: " Key Information - Risk Factors - Risks related to our operations and business - Disruptions to the supply of electricity and increases in the cost of power may adversely affect our results of operations and financial condition

Net cash utilized by investing activities increased from R3.6 billion in fiscal 2020 to R8.5 billion in fiscal 2021. The increase principally relates to the Mponeng Acquisition (R3.4 billion). The increase was further supplemented by the additions in property, plant and equipment of R5.1 billion compared to R3.6 billion spent in fiscal 2020. The last condition precedent for the Mponeng Acquisition was fulfilled during September 2020, resulting in an acquisition date of October 1, 2020. See note 14 " Acquisitions and Business Combinations " of our consolidated financial statements and See Item 10.C "Material Contracts - Sale Agreement"for further details.

Derivatives are initially recognized 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 recognized as a day-one gain or loss. The day-one gain or loss is amortized over the derivative contract period and recognized 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. Cash flow hedge The Group designates, as cash flow hedges, certain derivatives as hedges of a particular risk associated with the cash flows of highly probable forecast transactions. The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in cash flows of hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognized 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 gold forward sales contracts is recognized 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 recognized when the forecast transaction that was hedged is ultimately recognized 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. 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 recognized immediately in profit or loss and are included in gains/losses on derivatives.

On September 26, 2019, Harmony and a syndicate of local and international lenders, which was jointly arranged by Nedbank Limited and ABSA Bank Limited, concluded a US$400 million syndicated term loan and revolving credit facility. The initial term of three years was extended by one year in July 2020. US$300 million (R4,541 million) was drawn down on the syndicated term loan and revolving credit facility in October 2019 and a further US$50 million (R900 million) was drawn down in April 2020. During fiscal 2021, US$150 million (R2.3 billion) was repaid on the loan. US$200 million (R2.8 billion) remained outstanding as at June 30, 2021. The key terms of the US$400 million syndicated term loan and revolving credit facility are: Term facility: $200 million Margin on term facility: 3.1% over 3 month LIBOR Revolving facility: $200 million Margin on revolving facility: 2.9% over 3 month LIBOR Maturity: Three years, extendable by 1 year Security: Certain shares and claims On July 9, 2018, we entered into a four-year loan with Westpac - Bank - PNG - Limited for the amount of US$24 million (R322 million) to finance the acquisition of fleet equipment for the Group's Papua New Guinea operations. The US$24 million four-year loan is repayable in quarterly installments. During fiscal 2020, US$6 million (R96 million) was repaid on the loan. During fiscal 2021, US$6 million (R96 million) was repaid on the loan and US$7.6 million (R109 million) remained outstanding at June 30, 2021. The key terms of the US$24 million four-year loan are: Facility:            $24 million Margin on term facility:    3.2% over 3 month LIBOR Maturity:            Four years Security:            Certain vehicles and machinery On November 8, 2018, Harmony concluded a four-year R2 billion syndicated facility with Nedbank and ABSA which consists of a R600 million term facility and a R1.4 billion revolving credit facility to replace the R1 billion revolving credit facility. During fiscal 2021, R1.1 billion was repaid. As at June 30, 2021, R453 million remained outstanding and R1,400 million was available on the revolving credit facility and Rnil was available on the term facility. The key terms of the R2 billion four-year syndicated term loan and revolving credit facility are: Term facility:         R600 million Margin on term facility:     2.9% over 3 month JIBAR Revolving facility:         R1.4 billion Margin on revolving facility: 2.8% over 3 month JIBAR Maturity             Four years from close Security             Certain shares and claims We need to comply with certain debt covenants for the US$400 million syndicated term loan and revolving credit facility and the R2 billion four-year syndicated term loan and revolving credit facility. The debt covenant tests are as follows: The Group's interest cover ratio shall not be less than five (EBITDA /Total interest paid). Tangible net worth to total net debt ratio shall not be less than 4 times or 6 times when dividends are paid. Leverage shall not be more than 2.5 times. EBITDA as defined in the agreement excludes unusual items such as impairment and restructuring cost. Tangible net worth is defined as total equity less intangible assets. Leverage is defined as total net debt to EBITDA. In June 2020, lenders agreed to relax the tangible net worth to total net debt covenant from four times to two times until December 2020, in order to provide flexibility to Harmony following the disruptions from the Covid-19 pandemic. From January 1, 2021, the original covenants were reinstated. No breaches of the covenants were identified during the tests in the 2020 and 2021 fiscal years.

On June 16, 2020, we entered into a US$200 million bridge loan facility with a syndicate of lenders in order to fund the acquisition of assets from AngloGold Ashanti Limited. No draw-down was made on the facility as at June 30, 2020 and the facility was subsequently canceled on July 6, 2020. On July 28, 2017, we entered into a syndicated term loan and revolving credit facilities agreement in the amount of up to US$350 million, with Nedbank Limited, Absa Bank Limited, JP Morgan Chase Bank N.A, Caterpillar Financial Services Corporation, HSBC Bank Plc, State Bank of India, The Bank of China and Citibank N.A, with Nedbank Limited and Absa Bank Limited acting as arrangers, and Nedbank Limited acting as facility agent. The facility agreement allowed the lenders to transfer their facility commitments. Margin on the US$175 million revolving credit facility was 3% over a 3 month LIBOR and 3.15% over a 3 month LIBOR for the US$175 million term loan. R4.4 billion was subsequently repaid in October 2019 from drawings under the US$400 million syndicated term loan and revolving credit facility, thereby settling the loan.

Total budgeted capital expenditures for fiscal 2022 are R8,029 million. See Item 4: "