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LON - Lonmin Plc - Final Results Announcement
Lonmin Plc (Incorporated in England and Wales)
(Registered in the Republic of South Africa under registration number
1969/000015/10)
JSE code: LON
Issuer Code: LOLMI & ISIN: GB0031192486 ("Lonmin")
16 November 2009
Lonmin Plc
Final Results Announcement
Lonmin Plc, ("Lonmin" or "the Company"), the world`s third largest Platinum
producer, today announces its Final Results for the year ended 30 September
2009.
HIGHLIGHTS
- Satisfactory performance in 2009, despite significant challenges:
- Sales of 682,955 ounces of platinum - 2% below initial guidance for
Marikana
- Rand gross operating costs lower than guidance
- Mining - consistent underlying performance, with Saffy and Hossy
achieving ramp-up targets
- Process Division - progress made, despite previously reported Number
One furnace incident
- Safety performance continues to improve - Lost Time Injuries fell
8%, LTIF rate improved
- Management actions taken in 2009:
- Non-value adding production eliminated - 75,000 Platinum ounces
removed from market
- Major cost restructuring program completed
- Balance Sheet strengthened
- Operational headquarters and executive management team to relocate
- Key focus areas for 2010 and beyond:
- Continuing the restoration of Lonmin`s operational health
- Delivering organic growth into a recovering market
- Improving our position on the cost curve
- Discussions ongoing regarding the future of Incwala Resources
- Outlook for 2010:
- Industry-wide challenges will continue - Section 54 safety
stoppages, escalating labour & power costs
- PGM markets likely to improve steadily
- Platinum sales guidance of 700,000 Platinum ounces
- Capital expenditure expected to be up to $270 million
- Targeting to manage South African Rand gross operating costs to be
below local inflation
- Medium term outlook:
- Strong PGM markets in 2011 and 2012
- Mined production expected to grow steadily to 850,000 Platinum
ounces
Ian Farmer, Chief Executive Officer, commented:
"2009 saw the first significant steps in restoring Lonmin`s operational
health. Whilst there is still further work to be done, I am confident that the
performance of the business is moving in a positive direction.
"Lonmin is well placed, following the decisive management actions taken in
2009, enabling us to grow into the robust market fundamentals we foresee
developing in 2011 and beyond. Lonmin has high quality, long life assets and
increasing production volume together with vigilant cost control will improve
our position on the cost curve."
FINANCIAL HIGHLIGHTS
Continuing Operations
Year to 30 September 2009 2008
Revenue $m 1,062 2,231
Underlying operating (loss) / profit (i) $m (93) 963
Operating (loss) / profit (ii) $m (142) 764
Underlying (loss) / profit before $m (111) 997
taxation (iii)
(Loss) / profit before taxation $m (272) 779
Underlying (loss) / earnings per share cents (59.2) 335.8
(iii)
(Loss) / earnings per share cents (163.7) 277.7
Net debt (iv) $m 113 303
Gearing (iv) % 2 12
NOTES ON FINANCIAL HIGHLIGHTS
i. Underlying operating (loss) / profit is defined as operating profit
excluding special items (see note (iii))
ii. Operating (loss) / profit is defined as revenue less operating expenses
before impairment of available for sale financial assets, net finance
costs and share of profit of associate and joint venture.
iii. Underlying (loss) / earnings are based on (loss) / profit for the year
excluding one-off restructuring and reorganisation costs, impairment of
available for sale financial assets, foreign exchange on tax balances,
exchange losses on rights issue proceeds and the movement in fair value
of the derivative liability in respect of the rights issue. For prior
years, underlying also excludes profits on disposal of subsidiaries,
impairment of goodwill, intangibles and property, plant and equipment,
takeover bid defence costs, pension scheme payments relating to scheme
settlements and effects of changes in corporate tax rates.
iv. Gearing is calculated on the net debt attributable to the equity
shareholders of the Group divided by the total of the net debt
attributable to the Group and equity shareholders` funds.
ENQUIRIES:
Investors / Analysts:
Rob Gurner +44 (0) 207 201 6050
Head of Investor Relations
Media:
Cardew Group +44 (0) 207 930 0777
Anthony Cardew / Rupert Pittman
Financial Dynamics +27 (0) 11 214 2000
Dani Cohen / Ravin Maharaj
This press release is available on www.lonmin.com. A live webcast of the
Final Results presentation starting at 09.30hrs (London) on 16 November 2009
can be accessed through the Lonmin website. There will also be a web question
facility available during the presentation. An archived version of the
presentation, together with the presentation slides, will be available on the
Lonmin website.
Chairman`s Statement
Overview of the year
2009 has been an eventful and challenging year. Lonmin has operated in an
extremely difficult pricing and currency environment with the average Rand
basket price per PGM ounce sold some 49% lower than last year. As a result,
our revenues declined dramatically by over 50% or $1.2 billion.
The first signs that this revenue collapse was a possibility occurred very
early in the year and management took immediate decisive action through the
closure of unprofitable operations, the reduction of costs and the restriction
of capital expenditure. This was followed by the strengthening of our funding
position and then our balance sheet to position us to weather the storm.
Overall, under Ian Farmer`s leadership, the management team has made good
progress in the drive to restore the operational health of the business. The
strong focus on operational stability and discipline has brought increased
rigour to the setting of targets and the monitoring of performance against
them. It is pleasing to report that in the 2009 financial year we were largely
successful in delivering against our key targets:
- Marikana platinum sales: were only 2% below our target set at the start
of the year;
- Costs: Rand gross operating costs were lower than our original guidance
as well as our updated and more challenging guidance set in May 2009, and
crucially were lower than in the previous financial year;
- Restructuring: we achieved $64 million of cost savings in the second half
of 2009 as a result of the restructuring programme, ahead of our initial
annualised target of $90 million;
- Productivity and production: by the end of the year at our Mining
business, Hossy and Saffy had both achieved their published productivity
and production targets and we made good progress in restoring ore reserve
development. At our Process Division, monthly recoveries improved
materially; and
- Balance sheet: capital expenditure for 2009 and year end net debt were
both within market guidance.
While so much has been achieved in a short time, it was disappointing that
difficulties were again experienced with the Number One furnace, which was
taken out of operation for a period towards the end of the financial year and
subsequently operated at reduced capacity.
There is much to be done before the operational health of Lonmin is fully
restored. This must however be achieved in conjunction with an increase in
safe production and an improvement in our position on the cost curve. All
efforts will be directed towards these achievements in 2010 and beyond in
order to position Lonmin to maximise benefit as the market recovers.
Rights Issue
A successful $458 million Rights Issue was completed in June 2009. As a
result, Lonmin now enjoys greater financial headroom, with enhanced balance
sheet flexibility and an improved ability to withstand potential adverse
movements in the PGM pricing environment and/or the Rand/US dollar exchange
rate. We are grateful to our shareholders for their overwhelming support for
this fund raising.
Lonmin in the South African landscape
Our ability to operate effectively as an investor in South Africa is a
function of our behaviour as a responsible corporate citizen. Lonmin embraces
the tenets of the Mining Charter and seeks in its actions to advance the
transformation agenda prescribed by the South African government. In this
context it is however inescapable that the economic realities imposed by metal
pricing, currency exchange rates and general financial conditions, none of
which the Company can control, can have profound effects on the rate at which
mutual aspirations can be realised.
Relations with our employees are of paramount importance, and we put on record
our appreciation of the constructive behaviour of our employees, the trade
unions, and indeed government, in the extensive and painful restructuring
exercise conducted in the early months of the year. Constructive engagement
also forms the basis of our current wage negotiations: industry settlements to
date have been in excess of inflation despite the harsh revenue environment
and lack of profitability. The long term health of the industry generally, and
Lonmin in particular, depends on an appropriate balance being reached between
increased wage awards, productivity improvements and the imperative of
profitability to enable the business to invest for growth and earn appropriate
shareholder returns.
Lonmin believes that it can, and should, operate as a zero-harm business and
strives in every way to improve continuously its safety performance,
acknowledging that its business is inherently hazardous. It is a matter of the
deepest regret that three employees lost their lives during the year and I
would like to convey our sincerest condolences to their families. The very
considerable improvement in our safety performance achieved over recent years
slowed slightly in 2009, partly due to the disruption to operations caused by
the extensive restructuring exercise, which reduced employment levels by some
20%.
We support fully the attention paid by the Department of Mineral Resources to
enforcing improvement in the design and application of safety standards in the
industry. Our operations have been much affected during the year by this
increased attention, and production stoppages as a result of Section 54 safety
notifications caused the loss of some 30,000 Platinum ounces, or 5% of
underground production, in 2009. This is a high economic cost specifically to
the Company but no less to the nation, due to the reduction in foreign
exchange and tax receipts. There is an argument for the Department of Mineral
Resources to sponsor and lead a co-operative process with PGM producers and
organised labour to agree procedures to achieve a consistent application of
monitoring measures and remedies, without jeopardising the pursuit of improved
safety and reasonable economic returns.
As it currently stands, Lonmin is a UK domiciled company with the vast
majority of its operating assets in South Africa. The Board has therefore
concluded that the location of executive management should reflect this
reality and accordingly has taken the decision to relocate our operational
headquarters and executive management team from London to Johannesburg. We
believe that this will enhance day-to-day management and communications, and
performance improvements will flow from greater efficiencies. The decision
reflects our commitment to South Africa and our willingness to continue to
play a full part in the national transformation process.
The Board`s key functions of management oversight, strategic direction,
decision making and corporate governance will remain in London, where the
majority of Lonmin`s shareholders are located. Lonmin greatly values its UK
domicile and primary listing in London and will continue to maintain a Board
with the blend of backgrounds, skills and experience required to provide
effective leadership appropriate for a FTSE100 company.
Incwala Resources
During the year, discussions commenced regarding the future of Incwala
Resources (Pty) Ltd, (Incwala), our Black Economic Empowerment partner. These
discussions are on-going and involve Lonmin, the Historically Disadvantaged
South African (HDSA) shareholders of Incwala and the HDSAs` providers of
finance. We will update the market on these discussions, once they have been
fully concluded. In pursuing these discussions, our objective is to ensure
that Lonmin has a relationship of mutual trust with its partner and that its
partner has both leadership capacity and financial independence without
further recourse to Lonmin`s balance sheet.
Dividend
Despite our confidence in the future and the measures being taken by
management to improve the health of the business, our profitability and cash
flows remain under pressure. Consequently, given our continuing focus on cash
conservation and balance sheet management, the Board continues to take a
conservative but appropriate stance towards the distribution of dividends. The
Board has therefore taken the decision not to declare a final dividend for the
2009 financial year. This follows the Board`s decision to pass the final
dividend for the 2008 financial year and the interim dividend for the 2009
financial year.
The Board will keep the matter of dividend distributions under constant review
and will resume payments as soon as conditions allow. Our policy remains that
dividend distributions will be based on the reported earnings for the year,
but take into account the projected cash requirements of the business.
Roger Phillimore
Chairman
Chief Executive`s Review
Introduction
Lonmin produced a satisfactory performance in 2009, despite some significant
challenges and the completion of a major restructuring programme during the
year. Production at our core Marikana underground operations was in line with
2008 levels and we achieved our revised 2009 sales guidance by selling 682,955
ounces of Platinum.
Whilst there is still some way to go before we achieve our goal of fully
restoring the operational health of the business, 2009 saw significant steps
in achieving this objective, enabling us to provide guidance for 2010 sales of
700,000 Platinum ounces, implying a slight increase from 2009. Whilst the
increment is only modest, it is a significant turning point. Importantly,
improving the operational health of the business will also ensure that we are
well positioned to capitalise on the investments we have made over recent
years as we look to deliver further growth into the robust market fundamentals
we foresee in 2011 and beyond.
1. Significant management actions taken:
At the end of 2008, we reacted swiftly to the global economic downturn, taking
a number of significant actions.
Non-value adding production eliminated
Firstly, we took an immediate decision to eliminate non-value adding
production. We placed our uneconomic Baobab shaft at Limpopo on to care and
maintenance for the foreseeable future. We also closed our opencast operations
at Marikana, as well as rationalising certain areas of high cost production at
the underground operations there. In total, these actions have removed around
75,000 Platinum ounces from the market place.
Major cost restructuring programme completed
Alongside that exercise, we completed a major restructuring programme across
our operations, with all personnel levels affected and around 20% of our total
workforce leaving the business during the year. This was a significant, but
essential, exercise as we right sized the organisation and reduced costs.
Understandably the restructuring programme impacted employee morale and caused
some disruption to production for a large part of the year.
Balance sheet strengthened
We negotiated with our lending banks the re-financing of a significant portion
of our debt facilities during the year, with the tenure of these facilities
being extended beyond short term horizons. In addition, we then successfully
strengthened our balance sheet by raising $458 million through the completion
of a Rights Issue in June. Furthermore, we successfully negotiated the waiving
of all EBITDA covenants relating to our debt facilities until September 2010.
Operational headquarters and executive management team relocated
In October 2009, we announced plans to relocate our operational headquarters
from London to Johannesburg. This will place executive management in a single
location close to our operations and will therefore enhance day-to-day
management and communications. It will also enable us to engage more
effectively with our South African stakeholders.
2. Industry-wide supply challenges:
The significant factors currently impacting the South African PGM industry are
likely to continue into 2010.
PGM industry continues to be cash constrained
South African mining inflation remains relatively high, putting pressure on
industry margins and capital investment. Recent improvements in US dollar
based PGM pricing have been largely offset by South African Rand strength,
which has resulted in capital shortages and new projects being delayed. Cash
flow management remains a high priority in the industry.
Labour environment remains challenging
The labour environment continues to be a significant influence on the
performance of producers, from both a productivity and cost perspective.
Industry wage settlements for 2010 have once again been above inflation.
Lonmin`s negotiations take place late in the year and, at the time of writing
this report, we remain in discussions with our recognised unions on this
matter. Furthermore, the shortage of key skills remains an issue for the
mining industry in general. With these challenges in mind, Lonmin recognises
the importance of employee engagement strategies.
Section 54 safety stoppages increasing in frequency
We support the Department of Mineral Resources` increased focus on safety.
This focus was evidenced in 2009 by an increase in prevalence and severity of
Section 54 safety stoppages throughout the industry. Lonmin lost over half a
million tonnes of ore production as a result of these stoppages during the
2009 financial year, representing some 30,000 Platinum ounces or 5% of total
underground production. These stoppages are likely to continue in 2010 and
beyond. Our challenge is to improve on our industry leading safety record in
order to reduce the impact of these stoppages on our operational and financial
performance.
Producers who are able to deliver the strongest safety performances should
benefit from fewer interruptions and higher productivity. Our safety
performance remains strong and improved slightly in 2009. However, it was with
regret that we reported the death of three of our employees during the year.
Increasingly difficult and more complex geology
The Bushveld Complex is a mature geological environment and mines in the area
will continue to deepen over time, with many of the easier to access reserves
becoming steadily depleted. This is expected to have a consequent impact on
industry costs, grades and recoveries in the future. Lonmin is in the
fortunate position of having access to relatively shallow reserves and
resources.
Outlook for supply and cost of electricity remains uncertain
Challenges in the supply and cost of electricity in South Africa remain.
Electricity pricing tariffs are expected to increase by over 45% in 2010 and
there will be similar power price increases in the subsequent years. In
addition, there is a possibility that security of supply could again come
under pressure in the medium term, adding to the supply side challenges
outlined above.
3. The possibility of a positive surprise in the PGM pricing:
The Rand PGM basket price throughout 2009 continued to squeeze industry
profitability and cash flow, restricting capital investment. If this
continues, further short term under investment will be the natural
consequence. We therefore anticipate that supply will struggle to keep up with
recovering demand from 2010 onwards and, as demand returns, there should be a
recovery in PGM profit margins.
Short to medium term outlook for Platinum demand
Looking at Platinum specifically over the next few years, we expect demand to
improve gradually in 2010. This will be supported by a steady recovery in the
automotive and industrial sectors with the market being in balance for the
year. The behaviour of investors in the Exchange Traded Funds will continue to
influence short term price movements. In early to mid 2011, we expect to see
the start of a more significant upturn in demand, supported by increasing
momentum in the automotive and industrial sectors followed by a more
pronounced market rebound, with the market moving back into deficit.
Long term outlook for Platinum and PGM demand
In the longer term, the future of PGM market fundamentals remains strong,
primarily as a result of the unique characteristics of PGMs and their
applications in autocatalysts. This is underpinned by the various emissions
legislation being introduced in the coming years to combat global climate
change. In addition, PGMs are expected to be critical in the application of
fuel cell technology, which continues to advance in a number of sectors,
including a growing number of commercial applications for stationary fuel
cells. The Platinum market, in particular, is also expected to be supported by
continuing demand from the Asian jewellery market. As a result of these
factors, we firmly believe that the Platinum and other PGM markets continue to
be structurally compelling over time.
4. Key Focus Areas for 2010 & beyond:
Lonmin needs to be well prepared for the opportunity presented by the prospect
of an improvement in the market environment. As such, our focus in 2010 and
beyond is on completing the restoration of the operational health of the
business, growing our unit throughput and, through this, improving our
position on the cost curve.
a) Restoring operational health:
In our Mining business, we have implemented several productivity improvement
initiatives and cost control programmes, as well as increasing our focus on
employee relations. We reorganised our senior operational management team to
ensure a greater emphasis on long term operational health, with a specific
focus on long term planning. Our Process Division benefited from stability
throughout the value chain, assisted by our increased investment in plant
maintenance. I am confident that we now have a strong management team in place
across the business, supported by improving morale within the business.
Further details on these initiatives can be found in the Operational Review in
this announcement.
b) Delivering organic growth:
We expect to deliver several years of steady growth from our core Marikana
operations through production from our three new shafts, Saffy, Hossy and K4.
The majority of the capital needed to initiate and ramp-up production at these
shafts has already been invested. Capital expenditure is now predominantly
focused on ore body development to support the production ramp-up of these
shafts.
Short to medium term growth in mined production - from Saffy, Hossy and K4
At Saffy shaft, we made good progress during the year in converting our mining
method from fully mechanised to hybrid mining. There is still some work to be
done before this process is completed, but we achieved our target of 80,000
tonnes per month, up from 45,000 tonnes at the end of the 2008 financial year.
In 2010, we expect Saffy to continue to ramp-up towards its production
capacity of 200,000 tonnes per month.
A year ago, we took the decision to continue to run Hossy shaft on a fully
mechanised basis. At that time, we set a productivity target for Hossy for the
end of the 2009 financial year of an average of 1,500 square metres per month
per suite of equipment. I am delighted to say that this target was achieved in
September 2009, with the best performing suites at Hossy reaching productivity
of around 1,800 square metres per suite per month during that month.
Furthermore, the shaft achieved monthly production of over 60,000 tonnes at
that time, from 20,000 tonnes per month in September 2008. Whilst this
performance does not yet make production costs competitive with conventional
mining methods, it is encouraging to see what can be done once the appropriate
degree of focus is applied. Consequently, we have taken the decision to
continue with a fully mechanised mining method at Hossy for the foreseeable
future and we are now targeting to reach 2,200 square metres per suite of
equipment per month by September 2011.
The development of K4 remains on track and we anticipate initial production
will take place in the first half of the 2012 financial year, although
development ounces will be produced in 2011. By the time K4 ramps up to full
production of around 225,000 tonnes per month, we expect these three shafts
will be contributing over 50% of our total underground production at Marikana.
This organic growth from our Mining business will be supplemented by a number
of projects at our Marikana property, from which we expect to deliver further
value. This includes the extraction of chrome from our mined production and
the re-treatment of tailings following the processing of this chrome.
Medium term requirement to increase smelting capacity and reduce risk
It is crucial that the growth in mined production is supported by processing
capacity and reliability, particularly at our Smelting facility.
From a reliability perspective, we experienced a matte run-out at the Number
One furnace in June 2009, following which we acted quickly to mitigate the
impact on production. Our knowledge of the workings of the furnace has
improved as a result of the incident and we have a highly competent team
running it. Smelting will always be a high risk aspect of our industry,
however, we are confident that we will be able to improve further our
management of this unit in the future and therefore improve the vessel`s
reliability.
From a capacity perspective, our Number One and Pyromet furnaces have the
requisite capacity to support current and medium term levels of production.
However, taking into account our longer term growth ambitions, and the need to
mitigate the risk of Smelter disruptions, we anticipate a requirement for
increased Smelter capacity in the coming years. We have therefore started to
investigate options for additional backup capacity.
c) Improving our position on the cost curve
The focus on restoring the operational health of the business and delivering
organic growth is critical to improving our position on the industry cost
curve.
Actions taken to support this included the completion of a major restructuring
programme at our operations, through which we anticipated $90 million of
annualised cost savings. During the second half of 2009 we estimate that we
actually saved $64 million and so we are well on our way to beating this
target. This helped us to report Rand gross operating costs below our initial,
as well as our revised and more challenging, cost guidance target communicated
during the year.
In addition we have implemented a number of productivity improvement
programmes and cost-cutting initiatives across the business to ensure that our
position on the cost curve continues to move in the right direction. Details
on these initiatives are outlined in the Operational Review.
The continued inflationary environment in South Africa, including an
anticipated increase in real wages for the majority of our workforce, means
that strict cost control allied to growth in productivity is paramount next
year. In 2010, we are targeting to manage the increase in South African Rand
gross operating costs to be below local inflation.
5. Outlook
Our Marikana operations remain at the heart of the Lonmin business and our
focus remains on improving safety, reducing costs and growing production,
through delivery of profitable ounces, from what is a high quality, sizeable
ore body. In this regard it is pleasing to see a reported 20% increase in our
resource base at Marikana, more detail on which can be found on pages 12 to 14
in this announcement.
We anticipate Marikana mined production will increase in 2010, more than
offsetting the reduction in opencast tonnes and ounces from Pandora, as these
pits are now closed. This should allow metals in concentrate production to
increase by around 5% and, as a result, we expect to achieve 2010 sales of
around 700,000 Platinum ounces, slightly ahead of 2009.
To support this growth, we anticipate that capital expenditure for the 2010
financial year will be up to $270 million. This will predominantly be focused
on Saffy and Hossy, as well as on declines in our two largest conventional
shafts and the continued development of K4. We will of course continue to
maintain a balance between the investment requirements of the business and the
imperative of maintaining a strong balance sheet.
Beyond 2010, the ramp-up of the three newer shafts will more than offset the
decline in production from some of our smaller shallower shafts which are
expected to come to the end of their lives over the next few years. As a
result, we expect to steadily grow metal in concentrate production from our
Marikana operations and the Pandora joint venture so that by 2013 we expect to
deliver sustained, profitable production of around 850,000 ounces of Platinum
per annum. This will be supported by capital expenditure of between $300
million and $350 million per annum from 2011. This anticipated production
growth and capital investment is of course subject to market conditions, and
our planning in this regard will be regularly reviewed by management, as
market circumstances unfold.
Our growth projects at Akanani and Limpopo give us longer term growth
optionality to supplement the short to medium term growth to be delivered from
our core operations at Marikana.
Achieving this growth, supported by the restoration of the operational health
of the business, is a significant challenge but one which will restore the
market`s view of Lonmin as the quality asset in the sector. In January we will
commence the process of consolidating the executive team in Johannesburg,
thereby enhancing day-to-day management and communication within the business.
Ian Farmer
Chief Executive Officer
Operational Review
MARKET OVERVIEW
PGM prices declined significantly during the first three months of our 2009
financial year, with Platinum falling to a low of $756 per ounce in October
2008 and Rhodium declining to a low of $1,000 per ounce the following month.
The steep decline in these prices was almost entirely as a result of a
dramatic deterioration in automotive demand during the period, exacerbated by
automotive companies de-stocking, the selling of inventories and investor
reaction to the economic downturn.
PGM prices started to improve in the second quarter of the year, stabilising
in the following quarter, on the back of strong jewellery and investment
demand. Tentative signs of automotive recovery became evident during the
fourth quarter of the 2009 financial year, supported by the potentially short
term impact of the various fiscal stimulus and scrappage schemes introduced by
governments around the world. Consequently, further pricing recovery occurred
in that period, with the Platinum price closing at $1,280 per ounce and
Rhodium closing at $1,650 per ounce on 30 September 2009.
However, the strength of the South African Rand largely offset these
improvements in US dollar based PGM prices, and continued to put pressure on
industry margins and cash flows. Furthermore, the South African cost
environment remains challenging, with continued inflation across the mining
sector. Consequently Lonmin management will carefully balance the need to
invest in growth ahead of the upturn whilst at the same time remaining focused
on maintaining strong financial discipline.
SAFETY
Our focus on safety remains undiminished. Our safety performance continued to
improve in 2009, with actual Lost Time Injuries reported down 8% from 2008 and
our Lost Time Injury Frequency Rate improving slightly to 6.21 per million man
hours worked. However, it is with regret that we report the death of three of
our employees during 2009. Our approach to safety is based on a number of key
standards, implemented across our property, including:
- Visible leadership: which is crucial to our success in safety and a
powerful aid in creating an interdependent safety culture;
- Safe behaviour observations: are carried out as a lead indicator to our
safety performance and we conduct continuous risk assessments to minimise
unsafe behaviour or situations;
- Safety training and awareness campaigns: form an important component of
our safety management systems;
- Incident Cause Analysis Method: through which we investigate incidents
and near miss incidents, with the objective of root causes being
identified and preventative actions taken. Findings from these incidents
are critical to our efforts in eliminating fatalities and are
communicated across our operations; and
- Incident reporting: we report safety incidents to the Department of
Minerals and Resources as required by the Mine Health and Safety Act 29
of 1996, which is aligned with the International Labour Organisation`s
Code of Practice on Recording and Notification of Occupational Accidents
and Diseases.
Through the implementation of these standards, we continually strive to
eliminate fatalities, reduce injuries and near miss incidents, encourage
positive behaviour and enhance our safety training and awareness programmes.
MINING
Total tonnes mined during the 2009 financial year were 10.8 million, a 1.6
million decline from 2008. All of this reduction related to our decision to
close production units which were unprofitable. Of the production shortfall,
1.2 million tonnes related to the closure of opencast operations at Marikana
and Pandora whilst 0.4 million tonnes were due to placing of the Baobab shaft
at Limpopo on care and maintenance during the first half of the 2009 financial
year.
During the year, we took the opportunity to restructure our senior operational
management team, in order to create a Technical Services function. This
function is responsible for, amongst other things, the life of mine plan,
based on input from all areas of the business, Group wide capital expenditure
and providing an important check and balance with regard to the technical
health of the business. Chris Sheppard, previously EVP Mining, has taken on
the role of EVP Technical Services, and Mark Munroe, who played a crucial role
in the implementation of the restructuring programme, has been appointed EVP
Mining. Mark is now responsible for safely delivering growth in production and
the necessary productivity improvements from our Marikana mining operations.
A primary area of focus for the Mining management team continues to be ore
reserve development, building on the recent progress made at Marikana. At the
end of September 2009, underground ore reserve development at Marikana reached
2.0 million square metres of immediately available ore reserves. Most of our
shafts at Marikana now have appropriate levels of development, but there
remains scope for improvement at certain shafts, particularly K3. It is likely
to take another twelve to eighteen months before we achieve acceptable levels
of available ore reserves, as higher extraction rates will require even
greater levels of development replacement.
A number of productivity programmes were instigated by the Mining management
team in 2009 which are expected to start to show benefits in 2010. These
include:
- Initial steps to revise incentive programmes for our productive employees
to increase the element of variable pay;
- Labour management improvement programmes, including a number of projects
to tackle absenteeism;
- Initiation of consultations with the recognised unions to increase the
number of shifts worked;
- Removing technical bottlenecks through our Half Level Optimisation
programme and the implementation of operating systems at each shaft; and
- Implementation of several initiatives to assist us in better managing
inspections by the Department of Mineral Resources, including a review of
relevant procedures and the roll-out of a union consultation and
communication plan relating to Section 54 stoppages.
We are continuing to run a number of cost cutting initiatives within the
Mining business and strict cost management is embedded at each of our shafts
at Marikana. One such example is the bill of materials project, introduced in
2009 at every shaft at Marikana. The project tracks and monitors the purchase
and usage of key consumables against what is expected for the proposed level
of production, ensuring greater control of the procurement of these
consumables and a better understanding of purchasing and usage patterns.
Marikana Mining
Total Marikana underground production during the 2009 financial year was the
same as 2008 at 10.2 million tonnes. The ramp-up in production from our
mechanised and hybrid shafts was offset by, amongst other things, an increase
in prevalence and severity of Section 54 safety shutdowns at our Marikana
operations. In 2009, we lost around 0.5 million tonnes as a result of these
shutdowns, compared to around 0.2 million tonnes in 2008.
In 2009 we mined 8.5 million tonnes from our conventional underground Marikana
operations, a decline of 0.6 million tonnes from 2008. Around half of this
decline was due to the increase in Section 54 shutdowns, as outlined above
with 80% of the total tonnes lost due to Section 54 safety shutdowns in 2009
occurring at K3 and Rowland, our two largest shafts. In addition, around 0.1
million tonnes were lost at our Marikana conventional underground operations
following the planned closure of a small uneconomic decline shaft and a
further five half levels at Marikana during the third quarter of 2009. Finally
tonnes were lost during 2009 as a direct result of disruption relating to the
restructuring programme completed in March, when a total of 7,000 full time
employees and contractors left the business.
Production from our mechanised and hybrid shafts increased 49% year-on-year to
1.7 million tonnes. Saffy performed extremely well, despite the multiple
challenges faced by shaft management in converting from fully mechanised to
hybrid mining during the year, with the shaft achieving its year end monthly
hoisting target of 80,000 tonnes in September 2009. It will take a further 18
months for the full transition to hybrid mining, but we are taking the
appropriate action to deliver this project safely, on time and within budget.
To support us in the production ramp-up in 2010, we plan to increase the
number of crews during the first half of the year. At the end of the 2009
financial year, there were 31 stoping crews at Saffy and, by April 2010, we
expect to have 45 crews operating at the shaft. As a result, we expect
production to continue growing towards shaft capacity of around 200,000 tonnes
per month, which we aim to achieve in 2014. By that time, we anticipate
Saffy`s current workforce complement of around 2,300 will have increased to
approximately 4,000.
Hossy also had a good year, achieving average productivity of around 1,500
centares per month per suite of equipment at the end of the 2009 financial
year, in line with our initial targets set in November 2008. During the year,
production at Hossy continued to ramp-up to over 60,000 tonnes per month by
September 2009, from around 20,000 tonnes in October 2008.
The improvement in productivity at Hossy shaft was a result of substantial
management effort and focus to deliver an improved performance during the
year. We made some important upgrades to the way we implement mechanised
mining at the shaft. Firstly, we increased our focus on equipment
availability, with better maintenance and quicker repair times being achieved,
supported by improved mining standards and conditions. Secondly, we made
improvements in the utilisation of the extra low profile equipment, focusing
on improving operator and supervisors` skills, as well as upgrading management
operating systems. Thirdly, we made some significant changes to the shaft`s
mining layout and, as a result, we are starting to see an increase in stoping
panels per fleet and we expect that to continue in 2010. Finally, we upgraded
the shaft`s infrastructure, implementing a new communication network backbone,
installing new strike conveyors and constructing a new maintenance workshop at
the shaft.
Costs for the 2009 financial year at our core underground conventional
operations at Marikana Mining were R466 per tonne, up 16% from 2008. If we
adjust for the additional tonnes lost due to Section 54`s the year on year
increment would be 12%. Costs at our mechanised and hybrid operations at
Marikana for the 2009 financial year were R630 per tonne, up 33% from 2008. It
should be noted in this context that the wage inflation for 2009 was 12.5%.
Capital expenditure during 2009 at our Marikana Mining division was R1,293
million, the majority of which was allocated to Hossy, Saffy and K4.
Pandora joint venture
Our share of production from the Pandora joint venture ground during the year
was 298,000 tonnes mined, a decline of 34% from 2008, as a result of the
planned stoppage of opencast production at the joint venture. The underground
operations at Pandora produced 142,000 tonnes, a 15% increase from 2008.
Lonmin purchases 100% of the ore from the Pandora joint venture and this ore
contributed 46,421 saleable ounces of Platinum in concentrate and 85,168
saleable ounces of total PGMs in concentrate to our production. Pandora joint
venture activities made a loss of $1 million after tax for our account in the
financial year.
We are at the final stages of a feasibility study on the underground extension
of the Pandora Joint Venture, subject to approval by the joint venture
partners, which is planned to come into production in 2013.
PROCESS DIVISION
At the Process Division, management remains focused on plant maintenance,
efficiency, and stability in order to maximise recoveries. In 2009, we made
good progress on a number of fronts at each of the operating units within the
division.
Costs for the year in the Process Division were R1,508 per PGM ounce, up 4%
from 2008, and capital expenditure was R539 million.
Concentrators
The concentrators produced a total of 663,101 saleable ounces of Platinum in
concentrate during the 2009 financial year, a 9% year-on-year decline, mainly
as a result of closing production at the Marikana and Pandora opencast
operations, as well as at Limpopo. Overall Concentrator recoveries improved
during the 2009 financial year to 79.8%, from 79.2% in 2008, partly due to the
milling of less oxidised opencast ore from deeper pits in the 2009 financial
year. Underground recoveries fell to 81.0%, from 81.7% in 2008, mainly as a
result of undertaking extensive maintenance on some of our Marikana
concentrators in the first quarter of the 2009 financial year and due to ore
mix. However, performance against our internal models, which take account of
ore mix issues, showed a significant improvement during the year as a result
of a strong management team, investment in maintenance to improve plant
availability, and our concentrator optimisation project. As evidence of this
improvement in performance, overall recoveries at Marikana improved to 82.3%
for September 2009, compared to 79.5% in October 2008.
Underground milled head grade was 1.7% lower year-on-year at 4.57 grammes per
tonne (5PGE+Au) mainly as a result of an increased proportion of development
ore coming from Hossy and Saffy and a general increase in development ore
throughout the operations. On the UG2 horizon, we mined a larger proportion of
ore from some of the slightly lower grade areas of the Marikana ore body and
there was some unplanned dilution, partially as a result of localised
geological conditions. There is still a lack of flexibility in face
availability on the Merensky reef horizon, and some localised lower grade
areas were encountered, particularly during the first quarter of the year.
Overall milled head grade decreased marginally year-on-year from 4.52 to 4.50
grammes per tonne (5PGE+Au).
We are working on a number of ways to extract value from the treatment of our
tailings. This involves the extraction of chrome for onward sale, leaving the
retreated tailings in a form such that PGMs can be extracted. This will also
enhance recoveries. We also have a number of inventory management initiatives
in place to ensure we optimise the value of stock in the system, which is
important in a cash constrained environment.
Smelter
On 14 June 2009, we shut down our Number One furnace following a matte run
out. From our investigations, we identified a design weakness in the furnace,
around the matte tappe hole area, which, when allied with other factors,
including the level at which the electrodes operate in the furnace, caused
this incident. The furnace was subsequently run at reduced power for most of
the fourth quarter of 2009. Production was supported by the running of our
Pyromet furnaces.
Following a re-design of the matte tappe hole area at the furnace, a re-build
commenced on 10 October 2009. On inspection, we were pleased with the
condition of the interior of the furnace as this is a good indication that the
changes we made to management of electrodes had the desired effect. The
rebuild has been completed, with matte being tapped on 9 November 2009. As a
result of the re-build, refined production during the first quarter of the
2010 financial year will be well below that of the prior year period.
Whilst the Number One furnace has had a number of run outs since it came into
commission in 2002, our analysis shows that it has performed in line with
other smelters in the industry. We mitigated the financial impact of the June
run out and the cost impact in the year was not significant, at around $5
million, given the short term catch up capacity we have in place. Our
knowledge of the workings of the Smelter has improved significantly and we
have an experienced Smelter team.
We have initiated a study to look at increasing Smelter capacity in the longer
term. Additional capacity will also enable us to mitigate further the risk and
impact of future Smelter disruptions as production increases.
Management is also focused on managing the base metal feed through the
Smelter. Lonmin predominantly mines UG2 ore, with around 20% of the ore we
mine being base metal-rich Merensky ore. Following the placing of the Limpopo
operation, with its base metal rich ore, on care and maintenance we require a
moderate increase in the proportion of Merensky material in the short term to
maintain the correct blend composition for feed into the Number One furnace.
To resolve this issue, we plan to re-open one of our Merensky opencast pits in
2010, from which we expect to produce around 25,000 Platinum ounces during the
year. As a result of revised contractor terms, these ounces will be
profitable. In the meantime we are purchasing some low grade Merensky type
concentrate from a third party, a portion of which is expected to remain in
stock at the end of 2010. We expect to achieve the optimal Merensky content in
our feed once K4 shaft, which is relatively high in Merensky ore, commences
production.
Refineries
Our refineries performed consistently throughout the year. At the Base Metal
Refinery (BMR), we were successful in completing a major project to release
locked up metal-in-process at one of the storage tanks at the facility. This
will help lower average stock levels in the refinery. Total refined
production for 2009 was 657,317 ounces of Platinum and 1,244,709 of total
PGMs, down 6% and 7% respectively from the same period in 2008. However,
taking into account the closure of opencast operations at Marikana and Pandora
and the placing of Limpopo operations on care and maintenance, 2009 total
refined production would have been flat compared to 2008. Final metal sales
for 2009, including the sale from the BMR of 25,062 Platinum ounces of metal-
in-process inventory in the fourth quarter of the year, were in line with our
revised sales guidance at 682,955 ounces of Platinum and 1,268,918 of total
PGMs.
Reserves & Resources
During 2009, Lonmin has reviewed its Mineral Resource and Reserves and certain
areas have been re-estimated where necessary. The major changes are as
follows:
- Continued extension drilling of the Marikana Mineral Resource area
provided an additional 10 Moz 3PGE+Au in Resource;
- A 7% increase in the overall Marikana Mineral Resource grade resulted
from extension drilling into high grade Merensky Reef areas and enhanced
Merensky Mineral Resource estimation techniques;
- The Marikana Mineral Reserve grade increased by 2% overall;
Optimisation of planned Resource extraction below the K4 Vertical Shaft
Block has demonstrated that value is enhanced by combining the Sub
Incline Resources with the K5 Resources, rather than with K4. The re-
designation of the Sub Incline area resulted in a reduction of
approximately 5 Moz 3PGE+Au in Probable Mineral Reserves, which remain as
Mineral Resources in the inventory. The Reserves are expected to be re-
instated once the necessary pre-feasibility work has been completed over
the combined K5 and K4 Sub-Incline blocks;
- The total Mineral Resource content increased by 15% and the 3PGE+Au grade
increased by 3%. This was largely realised in the Inferred Resource at
both the Schaapkraal Prospecting Area at Marikana and the Limpopo Baobab
Mine Block;
- Continued diamond drilling at Akanani resulted in a higher proportion of
P2 Indicated Mineral Resources, further increasing the confidence of this
Mineral Resource; and
- The Pandora Plan 4 area has been fully included in the Mineral Reserve
resulting in an additional 0.4 Moz of 3PGE+Au in the Probable Reserve
category attributable to Lonmin.
A summary of the changes in both the Lonmin Mineral Resources and Reserves is
shown in the following tables and should be read in conjunction with the Key
Assumptions outlined below. The complete 2009 Mineral Resources and Reserves
statement can be found on our website: www.lonmin.com.
Mineral Resources (Total Measured, Indicated & Inferred)1,4
Area 30-Sep-2009 30-Sep-2008
Mt5 3PGE+Au Pt Mt5 3PGE+Au Pt
g/t Moz Moz g/t Moz Moz
Marikana 750.7 5.01 120.8 71.1 672.0 4.68 101.1 59.3
Limpopo2 144.7 4.22 19.6 10.0 138.1 4.23 18.8 9.5
Limpopo Baobab 46.1 3.91 5.8 3.0 28.6 4.00 3.7 1.9
shaft
Akanani 176.6 3.96 22.5 9.4 154.4 4.42 21.9 9.3
Pandora JV 54.9 4.29 7.6 4.7 55.5 4.30 7.7 4.7
Loskop JV 10.1 4.04 1.3 0.8 10.1 4.04 1.3 0.8
Total 1,183.1 4.67 177.6 98.9 1,058.8 4.54 154.5 85.6
Mineral Reserves (Total Proved & Probable)1
Area 30-Sep-2009 30-Sep-2008
Mt5 3PGE+Au Pt Mt5 3PGE+Au Pt
g/t Moz Moz g/t Moz Moz
Marikana 297.5 4.11 39.3 23.8 332.6 4.03 43.1 25.9
Limpopo 40.1 3.23 4.2 2.1 40.1 3.23 4.2 2.1
Limpopo Baobab 9.4 3.16 1.0 0.5 9.4 3.16 1.0 0.5
shaft
Pandora JV 3.1 4.25 0.4 0.3 0.5 4.28 0.06 0.04
Total 350.1 3.98 44.8 26.6 382.5 3.93 48.3 28.5
Notes
1) All figures are reported on a Lonmin Plc attribuable basis, the relative
proportions of ownership per project being shown in the Key Assumptions
outlined below.
2) Limpopo2 excludes Baobab shaft.
3) Loskop JV3 excludes Rh, due to insufficient assays, and therefore
2PGE+Au is reported.
4) Resources are reported Inclusive of Reserves.
5) Quantities have been rounded to one decimal place and grades have been
rounded to two decimal places, therefore minor computational errors may
occur.
Key assumptions regarding the 2009 Lonmin Mineral Resource and Reserve
Statement
- Mineral Resources are reported inclusive of Mineral Reserves. Resources
that are converted to Reserves are also included in the Mineral Resource
statement.
- All quoted Resources and Reserves include Lonmin`s attributable portion
only. There have been no changes in the percentage attributable to Lonmin
during the year. The following percentages were applied to the total
Mineral Resource and Reserve for each property:
Marikana Limpopo - Limpopo - Akanani Pandora Loskop
Dwaalkop Baobab,
JV Doornvlei,
Zebediela
Lonmin 82% 41% 82% 74% 34.85% 41%
Attributable
- Incwala Resources, Lonmin`s BEE partner, owns 18% of both Western
Platinum Limited and Eastern Platinum Limited and 26% of Akanani.
- Limpopo includes Dwaalkop JV which is a Lonmin managed JV between
Mvelaphanda Resources (50%) and Western Platinum (50%).
- Pandora JV: Eastern Platinum Limited has an attributable interest of
42.5% in the Pandora Joint Venture together with Anglo Platinum (42.5%),
Mvelaphanda Resources (7.5%) and the Bapo Ba Mogale Mining Company
(7.5%).
- Loskop JV: Western Platinum Limited has an attributable interest of 50%
in the Loskop Joint Venture with Boynton Investments.
- Grades are reported as 3PGE+Au, which is a summation of the Platinum,
Palladium, Rhodium and Gold grades. Available assay information,
obtained from concentrate and drillhole core, indicates that the
proportion of 3PGE+Au contained in 5PGE+Au is approximately as follows:
UG2 Merensky Platreef
Marikana 0.82 0.93 -
Limpopo 0.86 0.93 -
Akanani - - 0.95
Pandora 0.81 - -
- Mineral Resources are reported as "in-situ" tonnes and grade and allow
for geological losses such as faults, dykes, potholes and Iron Rich
Ultramafic Pegmatite (IRUP).
- Mineral Resources are estimated using a minimum true width of at least 90
cm and therefore may include some diluting material.
- Proved and Probable Mineral Reserves are reported as tonnes and grade
expected to be delivered to the mill, are inclusive of diluting materials
and allow for losses that may occur when the material is mined.
- Mine tailings dams are excluded from the above Mineral Resource summary.
- For economic studies and the determination of pay limits, consideration
was made of both short and long term revenue drivers. The following long
term assumptions were used: Pt $1600, Pd $400, Rh $3,000, Ru $150, Ir
$430, Au $700 per ounce and Ni $15,000, Cu $4,000 per tonne, using an
average exchange rate of $1 to R9.
- Unless otherwise stated, the Lonmin Mineral Resources and Reserves
estimates were prepared or supervised by various persons employed by
Lonmin.
Financial Review
Introduction
The 2009 financial year was impacted by four significant factors:
- PGM Pricing: as a result of the global economic downturn, and its impact
on PGM customers, the pricing environment was significantly weaker than
the prior year with the average PGM basket price nearly 50% lower. This
had a major impact on our revenues during 2009, down $1.2 billion or
52.4%. Pricing has, however, improved during 2009 with the PGM basket
increasing by 23% from $699 per ounce in half one to $861 per ounce in
half two;
- Foreign exchange: the average daily exchange rate for the Rand to the US
Dollar weakened from R7.45/$ in 2008 to R9.00/$ in 2009 which has had a
benefit of $179 million on operating profit with the vast majority of the
effect being in the first half. The exchange rate during 2009 has,
however, been far more volatile trading across a range of more than R4/$.
From a closing rate of R8.27/$ at the end of 2008 the Rand quickly
weakened to a rate of around R10/$ where it remained for much of half one
(with a peak of R11.59/$ on 22 October). The second half of 2009 has seen
a substantial strengthening of the Rand with rates falling to as low as
R7.27/$ and an average of around R8/$. This strengthening of the Rand has
effectively offset all the second half US Dollar pricing gains noted
above;
- Restructuring: a major restructuring programme was carried out in the
year which resulted in the closure of unprofitable operations and a
reduction in the cost base for ongoing operations. This restructuring
programme has incurred a one-off cost of $49 million, but is expected to
deliver annualised cost benefits of approximately $90 million. In the
second half cost savings from the above totalled $64 million with foreign
exchange rates enhancing the US Dollar impact. In Rand terms savings were
ahead of the initial expectations. As a result of the actions taken total
South African gross operating costs at R8.8 billion were R0.6 billion
lower than 2008 despite a 12.5% pay award effective throughout the year;
- Balance sheet management: during the year significant steps have been
taken to strengthen the balance sheet. In May the Group undertook a
Rights Issue which was over 96% subscribed and raised $458 million after
costs and foreign exchange charges in line with expectations given in the
prospectus. In addition $575 million of existing credit facilities have
been re-negotiated, extending the debt maturity profile, and agreement
has also been reached with the Group`s bankers to waive all EBITDA
related covenants at 30 September 2009 and 31 March 2010 and the net
debt/EBITDA related covenant at 30 September 2010. The volatility in PGM
prices and the Rand to US Dollar exchange rate mean that our EBITDA
margins could remain low and difficult to predict. Both of these matters
are discussed in further detail below.
Basis of preparation
The financial information presented has been prepared on the same basis and
using the same accounting policies as those used to prepare the financial
statements for the year ended 30 September 2008.
Analysis of results
Income Statement
The underlying operating profit for the year to 30 September 2008 of $963
million has fallen to a loss of $93 million in the year to 30 September 2009.
An analysis of the movement between the years is given below:
$m
Year to 30 September 2008 reported operating profit 764
Year to 30 September 2008 special items 199
Year to 30 September 2008 underlying operating profit 963
PGM price (1,037)
PGM volume (203)
PGM mix 98
Base metals (27)
Cost changes (including foreign exchange impact) 113
Year to 30 September 2009 underlying operating loss (93)
Year to 30 September 2009 special items (49)
Year to 30 September 2009 reported operating loss (142)
Revenue:
The PGM market was generally strong in the 2008 financial year enabling the
Group to achieve a PGM basket price of $1,529 per ounce for this year (with
Platinum at $1,655 per ounce and Rhodium at $7,614 per ounce).
The economic downturn following the credit crunch impacted the last quarter of
financial year 2008 and had a significant effect on financial year 2009 as a
whole. Vehicle manufacturers are the principal customers for PGM metals, in
particular Rhodium, and it has been one of the most affected sectors in the
downturn. The market for PGMs was also significantly impacted by destocking
and some selling of inventories by vehicle manufacturers. In addition there
was a significant reduction in the investment holdings of Exchange Traded
Funds (ETFs) which had fallen from nearly 500,000 Platinum ounces during July
2008 to circa 280,000 Platinum ounces at September 2008.
Between March 2008 and July 2008 Platinum and Rhodium traded consistently
above $2,000 per ounce and $9,000 per ounce respectively. There was then a
sharp decline with Platinum falling to a low point of $782 per ounce on 27
October 2008 and Rhodium falling to a low point of $1,000 per ounce on 25
November 2008. Pricing remained at low levels during the first calendar
quarter of 2009 but subsequently there have been some signs of recovery.
Global light vehicle sales volumes have been increasing since the start of
2009, supported by stimulus measures in a number of countries, and vehicles
stocks are at historically low levels. The ETFs have been restocking
indicating growing confidence in price improvements with holdings recovering
to 560,000 Platinum ounces at the year end and the Chinese jewellery market
has grown significantly. Platinum recovered to $1,280 per ounce by the end of
2009 with an average for the year of $1,079 per ounce. In a similar manner
Rhodium recovered to $1,650 per ounce by the end of 2009 with an average for
the year of $1,478 per ounce. The decline in pricing versus 2008 has led to a
reduction in revenue of just over $1 billion.
The PGM sales volume for the year at 1,268,918 ounces were 132,453 below the
prior year (of which approximately 103,000 ounces can be attributed to closed
operations) resulting in an adverse revenue impact of $203 million (based on
2008 pricing as all price effects are included in the price variance described
above). The mix of metals sold resulted in a favourable impact to revenue of
$98 million due to the mix of Platinum and Rhodium. The contribution from
base metals fell by $27 million, or one-third, with Nickel prices falling by
33.5%.
Cost changes (increase) / decrease:
$m
Marikana conventional underground mining (30)
Hossy and Saffy shafts (35)
Concentrating and processing (18)
Overhead costs 74
Savings from closed operations 76
Operating costs 67
Pandora ore purchases 41
Metal stock movement (176)
Foreign exchange 179
Depreciation 2
Total 113
Marikana conventional underground mining costs in the year increased by only
$30 million or 7.1% over the year to 30 September 2009, despite wage inflation
of 12.5% and increased ore reserve development costs, mainly due to the
restructuring benefits in half two estimated at $33 million.
During 2008 the new shafts, Hossy and Saffy, first become fully operational
and began to incur working costs. In 2009 the shafts were fully operational
during the whole year and production increased by nearly 50%. These factors
gave rise to an increase in costs for these shafts of $35 million or 46.5% as
planned.
Processing and concentrating costs increased by $18 million reflecting
incremental utility costs, costs due to the Smelter rebuild, additional toll
fees, investments in plant maintenance and additional staff to improve plant
stability and recoveries.
Overhead costs are $74 million lower than 2008. Approximately $30 million of
this saving has been generated by lower royalties (which are profit related)
and a decline in share based payments and associated taxes. However, the
remaining $44 million of saving has been created through specific actions. The
scope of exploration activities has been reduced significantly with
expenditure less than half that of the prior year. The London Head Office has
been refocused with a reduction of approximately one-third of the staff and
central costs in South Africa have been reduced. Training and consulting costs
have also been reduced.
Costs have also reduced by $76 million following the cessation of production
at unprofitable operations. Opencast operations ceased on the 31 December 2008
with subsequent costs incurred only with respect to rehabilitation. The
intention to close the Limpopo Baobab shaft was announced in November 2008.
After a 21 day wage related strike in December effective operations, and
therefore production, ceased. From December to March, when the operation was
closed, Limpopo operating costs have been treated as a special item. After
March the ongoing care and maintenance costs have been treated as underlying
costs but are a fraction of the full operating costs.
The cost of ore purchased from the Pandora joint venture is $41 million lower
than the prior year with volume falling due to the cessation of opencast
operations and the fall in metal prices which determine the bought-in price.
Movements on metal stock inventory were very different between 2008 and 2009.
During 2008 stock levels increased by $128 million from a low point at
September 2007, due to escalating costs and an inventory build up. Conversely
in 2009 the metal inventory value has reduced by $48 million with reduced
inventories, despite the Smelter operating at low power levels at the end of
the year. These two movements in aggregate have caused a $176 million adverse
effect.
Foreign exchange has been an extremely positive factor with a $189 million
benefit arising on the translation of costs with the average Rand to US Dollar
rate of exchange for costs weakening by 18%. This was partially offset by a
$10 million adverse movement arising from the translation of working capital.
In summary Rand costs at R8.8 billion are R0.6 billion lower than 2008 despite
a 12.5% wage increase and are below our guidance issued at the half year. This
reflects ongoing benefits of the restructuring programme as well as the
benefit of closed operations. In 2010 the Directors expect Rand gross costs to
increase by less than local inflation, despite anticipated mining volume
increases, due to a full year`s benefit arising from the restructuring and
ongoing cost control measures.
Restructuring programme:
In total the restructuring undertaken in the year resulted in a headcount
reduction in excess of 7,000 as per our guidance at the interims. Around 4,800
employees left the Group, with 3,600 of these leaving as part of the
restructuring programme (of which less than 300 were as a result of compulsory
redundancy) and a net reduction of 1,200 through natural attrition. Nearly
2,300 contractor positions were removed. The programme was substantially
implemented at the end of the first half. In comparison to the anticipated
annualised labour cost benefit of $90 million (R900 million) announced at the
interims the Group has saved $64 million (R525 million) in the second half.
This means that we have outperformed our initial expectations even allowing
for the strengthening of the Rand and also that a payback on the $49 million
one off restructuring cost has already been achieved.
Cost per PGM ounce:
The cost per PGM ounce produced by Marikana operations for the year to 30
September 2009 at R6,590 was 7.4% higher than 2008. Whilst overall Rand costs
were well controlled given the 12.5% pay award, as described above, the
reduction in production volumes impacted unit costs negatively. A key factor
was the frequency and severity of safety related shutdowns in the year which
caused an increase of circa R500 per PGM ounce.
Further details of unit costs analysis can be found in the operating
statistics. It should be noted that with the restructuring of the business the
cost allocation between business units has been changed and therefore whilst
the total is on a like-for-like basis individual line items are not totally
comparable.
Special operating costs:
In FY08 special costs had a significant impact on operating profit with $199
million being charged. This largely related to the impairment of assets
related to Limpopo, together with bid defence costs and a pension settlement.
In 2009 the one-off costs of $49 million related to costs associated with the
reduction in employees together with the abnormal operating costs for Limpopo
operations, subsequent to the announcement of closure, and the cost of the
restructuring programme itself. More details can be found in note 3.
Impairment of available for sale financial assets:
The Group holds listed investments which are marked to market. In financial
year 2008 the market value of certain of these investments fell below the
original acquisition cost and this resulted in a $19 million impairment which
was taken to the income statement. In 2009 further mark to market losses were
incurred resulting in $39 million further charges being recognised at the
interim results. Subsequent to March 2009 the value of these investments have
recovered by $9 million however, under IFRS, these gains are reflected
directly in equity.
Summary of net finance (costs) / income:
Year to 30
September
2009 2008
$m $m
Net bank interest and fees (20) (18)
Capitalised interest payable and fees 23 23
Exchange (24) (2)
Rights Issue impacts (73) -
Other 2 4
Net finance (costs) / income (92) 7
Net interest charges and fees were little changed in 2009 and correspondingly
capitalised interest was also similar. The volatility and significant
weakening of the Rand against the US Dollar at times during the year to 30
September 2009 had a marked impact on Rand cash balances held for operational
and funding purposes resulting in $23 million of exchange losses which was the
main component of the $24 million charge.
The Rights Issue had a major impact on reported net finance costs in the year
with three factors contributing all of which have been treated as special
items in the income statement:
- The Group undertook forward currency hedges to fix the US Dollar value
from Sterling receipts arising from the fully underwritten Rights Issue
and as a result received $458 million net of expenses and exchange
differences in line with the $457 million estimated in the prospectus.
However, Sterling strengthened prior to the Rights Issue proceeds being
received and if no cover had been taken the Group would have received an
additional $33 million. This fair value loss is taken through the income
statement under IFRS with the corresponding offset increasing share
premium.
- Rights Issue proceeds were received over the offer period in Sterling or
Rand and were recognised at spot rates on the date of receipt. The
retranslation of these balances prior to the closing of the offer
resulted in a loss of $4 million recognised in exchange on net debt.
- There is a $36 million loss arising as a result of IAS 32 as adopted by
the EU recognising a derivative liability in respect of the Rights Issue.
This loss does not impact cash and, as it is effectively reversed in
retained earnings, has no overall impact on the balance sheet and
financial position of the group. IAS 32 was amended in October 2009 such
that, once adopted by the EU, the Rights Issue would be treated more
appropriately as an equity transaction. In this case the $36 million loss
would not arise. Note 10 gives more detail in this regard.
The total net finance cost of $92 million for the year was therefore $99
million adverse to the prior year of which $73 million related to special
items arising from the treatment of the Rights Issue (see note 10).
Share of profit of associate and joint venture:
The share of profit has decreased by $26 million in the period reflecting the
reduced profitability of the Pandora joint venture, which has been impacted by
the reduction in metal prices in a similar manner to the Group, and by reduced
income in the Incwala associate as a result of significantly reduced minority
dividends paid by the Group`s operating subsidiaries.
(Loss) / profit before tax and earnings:
Reported losses before tax for the year to 30 September 2009 at $272 million
are $1,051 million worse than the prior year. This has been driven by the $906
million decline in reported operating profit, the $99 million adverse movement
on net finance costs, the decrease of $26 million in the Group`s share of
profit from associates and joint ventures and the further $20 million loss on
available for sale financial assets.
Reported tax for the current year was a charge of $51 million. Current tax in
the year effectively reflects the secondary tax on dividends with negligible
corporate taxation in the year. A net $38 million adverse exchange loss arose
on the retranslation of Rand tax liabilities which is treated as special. In
comparison to the $213 million charge for reported tax in the prior year this
resulted in a $162 million benefit.
Loss for the year attributable to equity shareholders amounted to $285 million
(2008 - profit $455 million) and the loss per share was 163.7 cents compared
with earnings per share of 277.7 cents in 2008. Underlying loss per share,
being earnings excluding special items, amounted to 59.2 cents (2008 -
underlying earnings per share 335.8 cents). The loss and earnings per share
figures have been adjusted to reflect the effect of the Rights Issue.
Balance sheet
A reconciliation of the movement in equity shareholders` funds for the year to
30 September 2009 is given below.
$m
Equity shareholders` funds as at 1 October 2008 2,147
Recognised income and expense (280)
Shares issued 508
Reversal of fair value movements on Rights Issue 36
derivative liability 6
Share based payments and other
Equity shareholders` funds as at 30 September 2009 2,417
Equity shareholders` funds were $2,417 million at 30 September 2009 compared
with $2,147 million at 1 October 2008, an increase of $270 million. This was
due to the recognition of $280 million of attributable losses being more than
offset by the total increase in share capital and share premium of $508
million from the issue of shares, of which $491 million arose on the Rights
Issue (net of costs) and the reversal of the $36 million loss on the Rights
Issue derivative liability loss as described above.
Net debt at $113 million has decreased by $190 million since the 2008 year end
mainly due to the benefit of the Rights Issue.
Gearing, calculated on net borrowings attributable to the Group divided by
those attributable net borrowings and the equity interests outstanding at the
balance sheet date, was 2% at 30 September 2009 and 12% at 30 September 2008.
Cash flow
The following table summarises the main components of the cash flow during the
year:
Year to 30 September
2009 2008
$m $m
Operating (loss) / profit (142) 764
Depreciation and amortisation 94 96
Impairment - 174
Operating profit before (48) 1,034
depreciation, amortisation and
impairment
Change in working capital 110 (84)
Other 1 (3)
Cash flow from operations 63 947
Interest and finance costs (31) (12)
Tax (48) (229)
Trading cash (outflow) / inflow (16) 706
Capital expenditure (234) (378)
Proceeds from disposal of - 1
assets held for sale
Dividends paid to minority (21) (65)
Free cash (outflow) / inflow (271) 264
Disposals / (investment in (5) 3
joint venture)
Financial investments - (17)
Net proceeds from rights shares
issued (before foreign exchange 462 -
loss on advance cash held)
Other shares issued 16 6
Equity dividends received / 3 (186)
(paid)
Cash inflow 205 70
Opening net debt (303) (375)
Foreign exchange (27) 2
Unamortised fees 12 -
Closing net debt (113) (303)
Trading cash (outflow) / inflow (9.2)c 431.0c
(cents per share)
Free cash (outflow) / inflow (155.6)c 161.2c
(cents per share)
Note: Trading cash flow per share and free cash flow per share have been
restated for the effects of the Rights Issue.
Cash flow generated from operations in the year was positive, at $63 million,
despite being impacted by the restructuring programme which caused a cash
outflow of $49 million. Compared to the prior year, cash flow generated from
operations was down by $884 million due to the adverse impact of the fall in
operating profit before depreciation, amortisation and impairment of $1,082
million being offset to a limited extent by the $194 million turnaround in the
working capital position. This change in working capital reflected a
substantial improvement in trade debtors, partly through lower metal prices
but also through the achievement of improved credit terms, together with the
favourable relative movement on the stock position being offset by a reduction
in creditors which was impacted by a Rand translation effect. After interest
and finance costs of $31 million and tax payments of $48 million, trading cash
outflow for the year amounted to $16 million against a $706 million inflow in
the prior year. The cash flow on interest and finance costs increased due to
the payment of arrangement fees on the renegotiation of bank facilities. The
tax payments in 2009 represented the final on account payment in respect of
2008 profits and a limited outflow of secondary taxes in respect of the
dividend. The trading cash outflow per share was 9.2 cents in the year to 30
September 2009 against a 431.0 cents inflow in the year to 30 September 2008
as restated for the Rights Issue.
Capital expenditure cash flow at $234 million was $144 million below the prior
year with the Group reducing expenditure in the current difficult economic
environment. In Mining the expenditure was focused on development of the
operations at Hossy and Saffy, equipping at K4 and investment in sub-declines
at K3 as well as securing some water resources at Akanani. In the Process
Division we invested mainly in the Smelter upgrade and in improvements at the
Concentrators. This expenditure was below our market guidance of $250 million
reflecting strict controls on this area of spend. For 2010 our guidance for
capital expenditure is up to $270 million. This reflects the need to invest
ahead of the expected market upturn in order to deliver more ounces from 2011
onwards which will also assist in improving unit cost performance. We will,
however, always balance the need to invest with the requirement to maintain a
strong balance sheet and will manage spend accordingly.
Dividends paid to minorities in the year at $21 million were $44 million lower
than the prior year. The dividend paid in the year largely related to profits
generated in 2008.
Free cash outflow at $271 million was $535 million adverse to the prior year
with free cash inflow per share of 161.2 cents deteriorating to an outflow of
155.6 cents. As reported at the 2008 final results and 2009 interims the
Directors decided not to declare a dividend. Consequently no dividend cash
outflow occurred in the year.
In the second half, Lonmin Plc undertook a Rights Issue which raised $462
million of equity net of transaction costs and the loss on forward currency
hedges. The transaction also gave rise to a $4 million loss on the exchange on
net borrowings and therefore resulted in a $458 million inflow, in line with
the prospectus. In addition the International Finance Corporation exercised an
option in the year to subscribe for Lonmin share capital and this represented
the majority of the remaining equity issuance.
The overall cash inflow for the year to 30 September was $205 million which
decreased net debt accordingly.
Dividends
The Board`s policy remains that dividends are based upon reported earnings for
the year with due regard for the projected cash requirements of the business.
As a result of our financial results for the year and with 2010 still
potentially challenging for PGM prices and exchange rates the Board has
decided not to declare a dividend in respect of the year to 30 September 2009.
Financial risk management
The main financial risks faced by the Group relate to the availability of
funds to meet business needs (liquidity risk), the risk of default by
counterparties to financial transactions (credit risk), fluctuations in
interest and foreign exchange rates and commodity prices. The Group also has a
number of contingent liabilities.
These factors are the critical ones to take into consideration when addressing
Going Concern. As is clear from the following paragraphs, we are in a strong
position. There are, however, factors which are outside the control of
management, specifically, volatility in the Rand / US Dollar exchange rate and
PGM commodity prices, which can have a significant impact on the business and
sensitivities, are disclosed in this regard.
Liquidity risk
The policy on overall liquidity is to ensure that the Group has sufficient
funds to facilitate all ongoing operations.
As part of the annual budgeting and long term planning process, the Group`s
cash flow forecast is reviewed and approved by the Board. The cash flow
forecast is amended for any material changes identified during the year e.g.
material acquisitions and disposals. Where funding requirements are
identified from the cash flow forecast, appropriate measures are taken to
ensure these requirements can be satisfied. Factors taken into consideration
are:
- the size and nature of the requirement;
- preferred sources of finance applying key criteria of cost, commitment,
availability, security/covenant conditions;
- recommended counterparties, fees and market conditions; and,
- covenants, guarantees and other financial commitments.
In the year Lonmin completed the refinancing of $575 million of existing
committed facilities comprising, in the UK, a $250 million revolving credit
facility and a $150 million amortising term loan (both now maturing in 2012)
and, in South Africa, a $175 million revolving credit facility maturing in
November 2010 (together the ``New Facilities``). This refinancing has
significantly lengthened the tenure of the Company`s banking facilities. In
June 2009, the Company successfully completed a 2 for 9 Rights Issue which
raised net proceeds of $458 million and further strengthened the balance
sheet. Some of these proceeds were used to pay down debt in the UK, the
remainder being held on deposit. In addition the Company agreed with its banks
to waive all EBITDA covenants at September 2009 and March 2010 as well as the
net debt to EBITDA covenants at September 2010. Our relationship banks have
shown clear confidence in our business by agreeing to these New Facilities and
covenant waivers and we fully expect this support to continue.
As at 30 September 2008, Lonmin had net debt of $303 million. At 30 September
2009, Lonmin`s net debt had decreased to $113 million, comprising $407 million
of drawn down facilities net of $282 million of cash and equivalents and $12
million of unamortised bank fees. This represents a decrease in net debt from
30 September 2008 of $190 million.
Lonmin has $875 million of committed facilities in place, with $575 million of
these comprising new facilities. The main elements of the new facilities can
be summarised as follows:
- For the period commencing April 2009, Lonmin has agreed a new $250
million revolving credit facility in the UK, which will expire in
November 2012.
- For the period commencing August 2009, Lonmin has agreed a new $150
million forward-start amortising loan facility in the UK, which will
expire in November 2012. The amortisation of this facility consists of
$20 million payable every six months starting in July 2010, with a final
repayment of $50 million in November 2012.
- The margin on both these facilities is 400 basis points up to 31 March
2011, and will thereafter be determined by reference to net debt / EBITDA
and will be in the range 250bps to 400bps.
- The key covenants in these facilities originally included a maximum net
debt/EBITDA ratio of 4.0 times, to be first tested in March 2010; a
minimum EBITDA/net interest ratio of 4.0 times, to be first tested in
March 2010; and a maximum net debt/tangible net worth ratio of 0.75
times, to be tested in September 2009 and March 2010, and moving to 0.7
times on a semi-annual basis thereafter. We have successfully secured a
covenant waiver for the net debt/EBITDA ratio at 31 March 2010 and 30
September 2010 and the EBITDA/net interest ratio at 31 March 2010.
- In South Africa, Lonmin has secured an extension to the maturity of the
existing $175 million multi-currency revolving credit facility to
November 2010; this facility was previously due to mature in October
2009. The margin is 141bps over JIBAR until 30 September 2009 if drawn in
Rand, with pricing on US Dollar draw downs being negotiated at the time.
The margin from 1 October 2009 will be 350bps over JIBAR.
- Originally, key covenants for this facility, which are to be tested at
the WPL/EPL level in South Africa, included a minimum EBITDA/net interest
ratio of 3.5 times, and a maximum net debt/EBITDA ratio of 2.75 times;
these covenants are to be tested on a rolling 12 month basis every 6
months on 31 March and 30 September. These covenants are consistent with
our $300 million term loan which expires in mid 2013. We have
successfully secured a covenant waiver for the net debt/EBITDA ratio at
30 September 2009, 31 March 2010 and 30 September 2010 and the EBITDA/net
interest ratio at 30 September 2009 and 31 March in both the $175 million
multi-currency revolving credit facility and the $300 million term loan.
As a consequence of this, the margin on the $300 million term loan has
increased from 100bps to 300bps.
- One-off up-front arrangement and lending fees associated with the debt
refinancing amount to $14 million and will be amortised over the life of
the facilities they relate to.
With the commencement of the New Facilities and the re-pricing of the $300
million term loan, interest payable will increase and an effective funding
rate of circa 6% is anticipated.
Credit risk
Banking Counterparties
Banking counterparty credit risk is managed by spreading financial
transactions across an approved list of counterparties of high credit quality.
Banking counterparties are approved by the Board.
Trade Receivables
The Group is exposed to significant trade receivable credit risk through the
sale of PGM metals to a limited group of customers.
This risk is managed as follows:
- aged analysis is performed on trade receivable balances and reviewed on a
monthly basis;
- credit ratings are obtained on any new customers and the credit ratings
of existing customers are monitored on an ongoing basis;
- credit limits are set for customers; and,
- trigger points and escalation procedures are clearly defined.
Interest rate risk
Currently, all outstanding borrowings are in US Dollars and at floating rates
of interest. Given current market rates, this position is not considered to be
high risk at this point in time. This position is kept under constant review
in conjunction with the liquidity policy outlined above and the future funding
requirements of the business.
Foreign currency risk
Most of the Group`s operations are based in South Africa and the majority of
the revenue stream is in US Dollars. However the bulk of the Group`s
operating costs and taxes are paid in Rand. Most of the cash received in South
Africa is in US Dollars and is normally remitted to the UK on a regular basis.
Most of the Group`s funding sources are in US Dollars.
The Group`s reporting currency remains the US Dollar and the share capital of
the Company is based in US Dollars.
Our current policy is not to hedge Rand / US Dollar currency exposures and
therefore fluctuations in the Rand to US Dollar exchange rate can have a
significant impact on the Group`s results. A strengthening of the Rand
against the US Dollar has an adverse effect on profits due to the majority of
operating costs being paid in Rand.
The approximate effect on the Group`s results of a 10% movement in the Rand to
US Dollar 2009 year average exchange rate would be as follows:
EBIT +/- $91m
Profit for the year +/- $53m
EPS (cents) +/- 30.4c
These sensitivities are based on 2009 prices, costs and volumes and assume all
other variables remain constant. They are estimated calculations only.
Commodity price risk
Our policy is not to hedge commodity price exposure on PGM`s and therefore any
change in prices will have a direct effect on the Group`s trading results.
On base metals, which are by-products of PGM production, hedging is undertaken
where the Board determines that it is in the Group`s interest to hedge a
proportion of future cash flows. Policy is to hedge up to a maximum of 75% of
the future cash flows from the sale of Nickel and Copper looking forward over
the next 12 to 24 months. The Group has undertaken a number of hedging
contracts on Nickel and Copper sales using outright forward contracts.
The approximate effects on the Group`s results of a 10% movement in the 2009
financial year average metal prices achieved for Platinum (Pt) ($1,086 per
ounce) and Rhodium (Rh) ($1,571 per ounce) would be as follows:
Pt Rh
EBIT +/- $74m +/- $15m
Profit for the year +/- $44m +/- $9m
EPS (cents) +/- 25.2c +/- 5.1c
The above sensitivities are based on 2009 volumes and assume all other
variables remain constant. They are estimated calculations only.
Fiscal risk
The South African Government originally intended to introduce a new Mining
Royalty in 2009, but this has now been deferred until 1 March 2010. The
Royalty Bill has now been enacted, the Royalty being calculated based on a
percentage of Gross Sales. The percentage is calculated using a formula
depending on whether the Company sells concentrate, ore or refined products.
The Royalty formula is subject to a minimum royalty rate of 0.5%, which will
be applicable if the formula calculation results in a rate of less than 0.5%.
The formula for refined products is:
% of Gross Sales = Adjusted EBIT* x100
Gross Sales x 12.5
* Adjusted EBIT for the purpose of the Royalty calculation is statutory EBIT
adjusted for, amongst other things, depreciation and a capital deduction based
on Mining Tax rules.
Contingent liabilities
At the balance sheet date indemnities given by Lonmin to Impala Platinum
Holdings Limited (Impala) of R618 million ($83 million) were shown as
contingent liabilities. These indemnities were in respect of any non-payment
by any HDSA of the vendor financing amounts arising on the sale of the 9.11%
interest in Western Platinum Limited and Eastern platinum Limited on the
relevant due date. Lonmin has a counter indemnity claim for the full amount
which is secured on the relevant HDSA investor`s shares in Incwala. After the
balance sheet date, R294 million ($39 million) has been called by Impala and
was paid on 7 October 2009 resulting in the recognition of a HDSA receivable
(which is backed by the counter indemnity). A further R147 million ($20
million) is exercisable on 16 December 2009. Of the remaining indemnity, R118
million ($16 million) is enforceable on 30 September 2011 and R59 million ($8
million) is enforceable on 16 December 2011.
Alan Ferguson
Chief Financial Officer
Operating Statistics - 5 Year Review
Uni 2009 2008 2007 2006 2005
ts
Tonnes
mined
Marikana Undergrou 000 8,472 9,076 10,574 10,883 10,241
nd -
conventio
nal
Undergrou 000 1,710 1,150 638 601 680
nd - M&A1
Undergrou 000 10,182 10,226 11,212 11,484 10,921
nd -
total
Opencast 000 234 1,300 1,597 1,583 2,653
Limpopo Undergrou 000 87 523 757 857 212
nd
Opencast 000 - - - 14 -
Pandora Undergrou 000 142 124 128 100 54
attributable2 nd
Opencast 000 156 275 286 176 -
Lonmin Platinum Undergrou 000 10,411 10,875 12,096 12,441 11,187
nd
Opencast 000 389 1,575 1,883 1,772 2,653
Total 000 10,801 12,449 13,979 14,213 13,840
% tonnes mined from % 77.7 73.1 72.0 71.2 74.3
UG2 reef
Tonnes milled3
Marikana Undergrou 000 10,148 10,206 11,216 11,502 10,975
nd
Opencast 000 622 1,163 1,469 1,854 2,444
Limpopo Undergrou 000 92 534 781 887 214
nd
Opencast 000 - - - 14 -
Pandora4 Undergrou 000 335 293 301 236 127
nd
Opencast 000 430 595 649 394 -
Ore Purchases5 Undergrou 000 - - 75 14 -
nd
Opencast 000 - 30 20 18 -
Lonmin Platinum Undergrou 000 10,576 11,033 12,373 12,639 11,316
nd
Opencast 000 1,053 1,788 2,138 2,280 2,444
Total 000 11,628 12,821 14,511 14,919 13,760
Milled head grade
Marikana Undergrou g/t 4.57 4.71 4.98 5.00 4.98
nd
Opencast g/t 2.63 3.06 4.11 4.25 4.88
Limpopo Undergrou g/t 3.66 3.47 3.50 4.09 3.84
nd
Opencast g/t - - - 3.29 -
Pandora Undergrou g/t 4.84 5.11 4.88 5.05 4.54
nd
Opencast g/t 5.23 5.04 5.33 4.92 -
Ore Purchases Undergrou g/t - - 3.92 3.92 -
nd
Opencast g/t - 2.90 5.16 4.14 -
Lonmin Platinum Undergrou g/t 4.57 4.66 4.88 4.94 4.95
nd
Opencast g/t 3.70 3.70 4.39 4.36 4.88
Total g/t 4.50 4.52 4.80 4.85 4.94
Metals in
concentrate
Lonmin Platinum Platinum oz 663,10 732,125 869,83 964,958 908,972
1 2
Palladium oz 308,75 342,081 404,53 447,894 397,546
8 5
Gold oz 15,013 18,932 25,030 31,973 22,269
Rhodium oz 91,920 99,173 114,60 125,379 115,436
1
Ruthenium oz 140,10 152,772 182,32 198,491 187,967
6 6
Iridium oz 30,315 31,562 41,157 41,284 38,465
Total oz 1,249, 1,376,6 1,637, 1,809,9 1,670,6
PGMs 214 45 481 79 55
Nickel6 mt 2,794 3,549 4,636 5,120 4,042
Copper6 mt 1,763 2,216 2,814 3,104 2,498
Uni 2009 2008 2007 2006 2005
ts
Metallurgical
production
Lonmin refined metal
production
Platinum oz 655,291 699,942 695,842 799,070 796,082
Palladium oz 297,415 330,209 318,758 369,859 348,681
Gold oz 18,277 20,257 20,485 20,955 17,059
Rhodium oz 95,596 91,063 88,469 115,453 87,632
Ruthenium oz 146,506 158,424 135,873 174,639 172,610
Iridium oz 23,908 31,599 30,430 40,836 25,110
Total PGMs oz 1,236,992 1,331,49 1,289,85 1,520,81 1,447,17
3 7 2 4
Toll refined metal
production
Platinum oz 2,025 - 93,609 - 46,354
Palladium oz 941 - 43,274 - 21,115
Gold oz 58 - - - 731
Rhodium oz 1,532 - 12,966 - 7,133
Ruthenium oz 2,647 - 20,439 - 11,524
Iridium oz 513 - 4,090 - 2,263
Total PGMs oz 7,717 - 174,378 - 89,120
Total refined PGMs
Platinum oz 657,317 699,942 789,451 799,070 842,436
Palladium oz 298,356 330,209 362,032 369,859 369,796
Gold oz 18,335 20,257 20,485 20,955 17,790
Rhodium oz 97,128 91,063 101,435 115,453 94,765
Ruthenium oz 149,153 158,424 156,312 174,639 184,134
Iridium oz 24,420 31,599 34,520 40,836 27,373
Total PGMs oz 1,244,709 1,331,49 1,464,23 1,520,81 1,536,29
3 5 2 4
Base metals
Nickel7 mt 3,244 3,483 4,522 4,342 4,187
Copper7 mt 1,988 2,009 2,466 2,452 2,547
Capital expenditure8 Rm 2,106 2,816 1,923 1,207 1,180
$m 234 378 276 182 190
Uni 2009 2008 2007 2006 2005
ts
Sales
Refined metal sales
Platinum oz 659,703 706,492 786,552 803,471 838,859
Palladium oz 305,332 329,460 362,077 373,303 364,080
Gold oz 18,910 20,151 24,449 22,133 18,122
Rhodium oz 94,160 93,337 102,916 116,281 93,453
Ruthenium oz 146,009 158,477 162,853 179,557 183,372
Iridium oz 23,522 32,140 37,858 38,092 26,676
Total PGMs oz 1,247,636 1,340,05 1,476,70 1,532,83 1,524,56
7 5 7 2
Concentrate and
other9
Platinum oz 23,253 20,425 7,032 136,183 71,396
Palladium oz (2,848) 11,888 3,232 61,110 37,003
Gold oz 13 117 201 4,641 2,362
Rhodium oz 175 889 1,008 15,965 21,552
Ruthenium oz 303 26,205 1,942 26,137 20,517
Iridium oz 387 1,789 64 5,291 2,548
Total PGMs oz 21,282 61,313 13,479 249,327 155,377
Lonmin Platinum
Platinum oz 682,955 726,918 793,584 939,654 910,255
Palladium oz 302,485 341,348 365,309 434,413 401,083
Gold oz 18,922 20,268 24,650 26,774 20,484
Rhodium oz 94,335 94,227 103,924 132,246 115,005
Ruthenium oz 146,312 184,682 164,795 205,694 203,889
Iridium oz 23,909 33,929 37,922 43,384 29,224
Total PGMs oz 1,268,918 1,401,37 1,490,18 1,782,16 1,679,93
1 4 4 9
Nickel mt 3,318 3,338 5,308 4,604 3,892
Copper mt 2,045 1,978 2,474 2,974 2,481
Average Prices
Platinum $/o 1,086 1,655 1,213 1,091 852
z
Palladium $/o 224 372 339 300 185
z
Gold $/o 912 867 647 571 425
z
Rhodium $/o 1,571 7,614 5,757 3,971 1,684
z
Ruthenium $/o 97 340 404 134 66
z
Iridium $/o 388 414 402 233 153
z
Basket price of PGMs $/o 786 1,529 1,196 972 668
z
Nickel $/M 15,006 22,556 26,461 17,975 12,527
T
Copper $/M 6,291 7,212 6,971 7,882 3,168
T
Uni 2009 2008 2007 2006 2005
ts
Cost per PGM ounce
sold 10
Group:
Mining - Marikana R/o 4,468 3,880 2,306 1,700 1,606
z
Mining - Limpopo R/o 7,404 6,363 4,463 3,740 3,587
z
Mining (weighted R/o 4,490 3,979 2,430 1,827 1,636
average) z
Concentrating - R/o 808 724 470 330 283
Marikana z
Concentrating - R/o 1,820 1,743 1,506 847 814
Limpopo z
Concentrating R/o 815 761 526 361 291
(weighted average) z
Process division R/o 693 686 600 406 269
z
Shared business R/o 632 845 612 463 345
services z
C1 cost per PGM ounce R/o 6,630 6,271 4,168 3,057 2,541
produced z
Stock movement R/o 112 (863) 28 (9) 14
z
C1 cost per PGM ounce
sold R/o 6,742 5,408 4,196 3,048 2,555
before base metal z
credits
Base metal credits R/o (440) (482) (762) (400) (242)
z
C1 cost per PGM ounce
sold R/o 6,302 4,926 3,434 2,648 2,313
after base metal z
credits
Amortisation R/o 516 420 360 272 252
z
Other EBIT items R/o - - - - (28)
z
C2 costs per PGM R/o 6,818 5,346 3,794 2,920 2,537
ounce sold z
Pandora Mining cost:
C1 Pandora mining R/o
cost z 3,371 3,223 2,453 1,795 n/c
(in joint venture)
Pandora JV cost/ounce R/o
to Lonmin (adjusting z 5,956 6,200 4,225 3,110 n/c
Lonmin share of
profit)
Exchange Rates
Average rate for
period
R/$ 9.00 7.45 7.14 6.63 6.28
GBP 0.64 0.51 0.51 0.55 0.54
/$
Closing rate
R/$ 7.47 8.27 6.83 7.77 6.36
GBP 0.62 0.56 0.50 0.53 0.57
/$
Footnotes:
1. M&A comprises ore produced by our fully mechanised shafts and from Saffy
shaft, which is being transitioned to hybrid mining.
2. Pandora attributable tonnes mined includes Lonmin`s share (42.5%) of the
total tonnes mined on the Pandora joint venture.
3. Tonnes milled excludes slag milling.
4. Lonmin purchases 100% of the ore produced by the Pandora joint venture for
onward processing which is included in downstream operating statistics.
5. Relates to the tonnes milled and derived metal in concentrate from third-
party ore purchases.
6. Corresponds to contained base metals in concentrate.
7. Nickel is produced and sold as nickel sulphate crystals or solution and
the volumes shown correspond to contained metal. Copper is produced as
refined product but typically at LME grade C.
8. Capital expenditure is the aggregate of the purchase of property, plant
and equipment and intangible assets as shown in the consolidated cash flow
statement.
9. Concentrate and other sales have been adjusted to a saleable ounces basis
using standard industry recovery rates. During the fourth quarter of 2008
financial year, 25,000 oz of refined Ruthenium and 1,500 oz of refined
iridium were bought and sold to meet contractual commitments. The
metallurgy section of the above table excludes these transactions as they
relate to third-party mined and processed metals but they are included in
the sales section.
10 It should be noted that with the restructuring of the business in 2009 the
. cost allocation between business units has been changed and, therefore,
whilst the total is on a like-for-like basis, individual line items are
not totally comparable.
N/C Not calculated
Consolidated income statement for the year ended 30 September
Specia Specia
2009 l 2009 2008 l 2008
Underly items Total Underly items Total
Continuing Note ing i (note $m ing i (note $m
operations $m 3) $m 3)
$m $m
Revenue 2 1,062 - 1,062 2,231 - 2,231
EBITDA / (LBITDA) 1 (49) (48) 1,059 (25) 1,034
ii
Depreciation, (94) - (94)
amortisation and (96) (174) (270)
impairment
Operating (loss) (93) (49) (142) 963 (199) 764
/ profit iii
Impairment of - (39) (39)
available for - (19) (19)
sale financial
assets
Finance income 4 6 - 6 13 - 13
Finance expenses 4 (25) (73) (98) (6) - (6)
Share of profit 1 - 1
of associate and 27 - 27
joint venture
(Loss) / profit (111) (161) (272) 997 (218) 779
before taxation
Income tax 5 (18) (33) (51) (322) 109 (213)
(expense) /
income iv
(Loss) / profit (129) (194) (323) 675 (109) 566
for the year
Attributable to: (103) (182) (285)
Equity (26) (12) (38) 550 (95) 455
shareholders of 125 (14) 111
Lonmin Plc
Minority interest
(59.2)c (163.7)c
(Loss) / earnings 6 335.8c 277.8c
per share
(restated) v
Diluted (loss) / 6 (59.2)c (163.7)c 334.7c 276.9c
earnings per
share (restated)
v, vi
Dividends paid 7 - 113.6c
per share
(restated)v
Consolidated statement of recognised income and expense for the year ended 30
September
2009 2008
Total Total
Note $m $m
(Loss) / profit for the year (323) 566
Change in fair value of available for sale 9 (127)
financial assets
Net changes in fair value of cash flow hedges 5 16
Gains on settled cash flow hedges released to the (24) (4)
income statement
Foreign exchange on retranslation of associate 6 5
and joint venture
Deferred tax on items taken directly to the
statement of recognised income and expense 6 16
Total recognised (expense) / income for the year (321) 472
Attributable to:
- Equity shareholders of Lonmin Plc 9 (280) 352
- Minority interest 9 (41) 120
9 (321) 472
Footnotes:
i Underlying (loss) / earnings are based on (loss) / profit for the year
excluding one-off restructuring and reorganisation costs, impairment of
available for sale financial assets, foreign exchange on tax balances,
exchange losses on rights issue proceeds and the movement in fair value
of the derivative liability in respect of the rights issue. For prior
years, underlying also excludes profits on disposal of subsidiaries,
impairment of goodwill, intangibles and property, plant and equipment,
takeover bid defence costs, pension scheme payments relating to scheme
settlements and effects of changes in corporate tax rates as disclosed
in note 3.
ii EBITDA / (LBITDA) is operating profit / (loss) before depreciation,
amortisation and impairment of goodwill, intangibles and property,
plant and equipment.
iii Operating (loss) / profit is defined as revenue less operating expenses
before impairment of available for sale financial assets, finance
income and expenses and share of profit of associate and joint venture.
iv The income tax expense substantially relates to overseas taxation and
includes net exchange losses of $32 million (2008 - exchange gains of
$88 million) as disclosed in note 5.
v During the year the Group undertook a rights issue of shares. As a
result the 2009 LPS and diluted LPS and the 2008 EPS and diluted EPS
and dividends per share figures have been adjusted to the date of issue
to reflect the bonus element of the rights issue as disclosed in note
6.
vi Diluted (loss) / earnings per share are based on the weighted average
number of ordinary shares in issue adjusted by dilutive outstanding
share options. For the year ended 30 September 2009 outstanding share
options were anti-dilutive and so have been excluded from diluted loss
per share in accordance with IAS 33 - Earnings Per Share.
Consolidated balance sheet as at 30 September
2009 2008
Note $m $m
Non-current assets
Goodwill 113 113
Intangible assets 964 949
Property, plant and equipment 2,036 1,893
Investment in associate and joint venture 159 163
Available for sale financial assets 68 96
Other receivables 25 19
3,365 3,233
Current assets
Inventories 271 319
Trade and other receivables 287 326
Assets held for sale 6 6
Tax recoverable 1 5
Derivative financial instruments 1 20
Cash and cash equivalents 8 282 226
848 902
Current liabilities
Trade and other payables (337) (346)
Interest bearing loans and borrowings 8 (58) -
Tax payable (10) (55)
(405) (401)
Net current assets 443 501
Non-current liabilities
Employee benefits (11) (21)
Interest bearing loans and borrowings 8 (349) (529)
Deferred tax liabilities (579) (540)
Provisions (67) (50)
(1,006) (1,140)
Net assets 2,802 2,594
Capital and reserves
Share capital 9 193 156
Share premium 9 776 305
Other reserves 9 89 100
Retained earnings 9 1,359 1,586
Attributable to equity shareholders of 9 2,417 2,147
Lonmin Plc
Attributable to minority interest 9 385 447
Total equity 9 2,802 2,594
Consolidated cash flow statement for the year ended 30 September
2009 2008
Note $m $m
(Loss) / profit for the year (323) 566
Taxation 5 51 213
Share of profit after tax of associate and (1) (27)
joint venture
Finance income 4 (6) (13)
Finance expenses 4 98 6
Impairment of available for sale financial 3 39 19
assets
Depreciation and amortisation 94 96
Other impairment 3 - 174
Change in inventories 48 (133)
Change in trade and other receivables 59 12
Change in trade and other payables (9) 37
Change in provisions 12 -
Profit on sale of subsidiary - (2)
Share-based payments (1) 6
Other non cash expenses / (income) 2 (7)
Cash flow from operations 63 947
Interest received 3 11
Interest and bank fees paid (34) (23)
Tax paid (48) (229)
Cash (outflow) / inflow from operating (16) 706
activities
Cash flow from investing activities
Investment in joint venture (5) -
Dividend received from associate 3 -
Proceeds from disposal of subsidiary - 3
Purchase of property, plant and equipment (221) (354)
Purchase of intangible assets (13) (24)
Purchase of available for sale financial - (17)
assets
Proceeds from disposal of assets held for - 1
sale
Cash used in investing activities (236) (391)
Cash flow from financing activities
Equity dividends paid to Lonmin 9 - (186)
shareholders
Dividends paid to minority 9 (21) (65)
Proceeds from current borrowings 8 58 -
Repayment of current borrowings 8 - (237)
Proceeds from non-current borrowings 8 225 170
Repayment of non-current borrowings 8 (405) -
Proceeds from rights issue 10 516 -
Costs of rights issue 9, (21) -
10
Loss on forward exchange contracts in 3, (33) -
respect of the rights issue 10
Issue of other ordindary share capital 9 16 6
Cash from / (used in) financing activities 335 (312)
Increase in cash and cash equivalents 8 83 3
Opening cash and cash equivalents 8 226 221
Effect of exchange rate changes 8 (27) 2
Closing cash and cash equivalents 8 282 226
Notes
1. Basis of preparation
The financial information presented has been prepared on the basis of
International Financial Reporting Standards (IFRSs) as adopted by the EU.
2. Segmental analysis
The Group`s primary operating segment is the mining of Platinum Group Metals.
The majority of the Group`s operations are based in South Africa.
2009
Platinum Corporate Exploratio Total
Analysis by business group ii iii niv $m
$m $m $m
Revenue - external sales 1,062 - - 1,062
Operating loss (81) (50) (11) (142)
Segment total assets 3,262 183 768 4,213
Segment total liabilities (1,216) (24) (171) (1,411)
Capital expenditure i 229 - 29 258
Depreciation and amortisation 94 - - 94
Impairment losses (note 3) 39 - - 39
Share of profit of associate and 1 - - 1
joint venture
Share of net assets of associate 159 - - 159
and joint venture
2008
Platinum Corporate Exploratio Total
Analysis by business group ii iii niv $m
$m $m $m
Revenue - external sales 2,231 - - 2,231
Operating profit / (loss) 892 (101) (27) 764
Segment total assets 3,369 25 741 4,135
Segment total liabilities (1,100) (267) (174) (1,541)
Capital expenditure i 389 - 36 425
Depreciation and amortisation 96 - - 96
Impairment losses (note 3) 193 - - 193
Share of profit of associate and 27 - - 27
joint venture
Share of net assets of associate 163 - - 163
and joint venture
2009
South
Africa UK Other Total
Analysis by geographical $m $m $m $m
location
Revenue - external sales 1,062 - - 1,062
Segment total assets 4,023 164 26 4,213
Capital expenditure i 258 - - 258
2008
South
Africa UK Other Total
Analysis by geographical $m $m $m $m
location
Revenue - external sales 2,231 - - 2,231
Segment total assets 4,091 10 34 4,135
Capital expenditure i 425 - - 425
Footnotes:
i Capital expenditure includes additions to property, plant and
equipment (including capitalised interest), intangible assets and
goodwill in accordance with IAS 14 - Segment Reporting.
ii The platinum segment includes all operational activities together
with direct overheads, plus investments in mining related assets.
ii The corporate segment consists of the London head office and the
i Johannesburg office.
iv The exploration segment comprises the investment in the Akanani
deposit and various exploration sites around the world.
Revenue by destination is analysed by geographical area below:
2009 2008
$m $m
The Americas 227 580
Asia 296 798
Europe 417 349
South Africa 122 496
Zimbabwe - 8
1,062 2,231
3. Special Items
`Special items` are those items of financial performance that the Group
believes should be separately disclosed on the face of the income statement to
assist in the understanding of the financial performance achieved by the Group
and for consistency with prior years.
2009 2008
$m $m
Operating loss: (49) (199)
- Restructuring and reorganisation costs i (49) -
- Profit on disposal of subsidiary ii - 2
- Pensions iii - (9)
- Defence costs iv - (18)
- Impairment loss v - (174)
Impairment of available for sale financial assets vi (39) (19)
Finance costs: (73) -
- Loss on forward exchange contracts in respect of (33) -
rights issue (note 10)
- Exchange difference on holding rights issue (4) -
proceeds received in advance (note 10)
- Movement in fair value of derivative liability in (36) -
respect of rights issue (note 10)
Loss on special items before taxation (161) (218)
Taxation related to special items (note 5) (33) 109
Special loss before minority interest (194) (109)
Minority interest 12 14
Special loss for the year attributable to equity (182) (95)
shareholders of Lonmin Plc
Footnotes:
i During the year the Group incurred $49 million in restructuring and
reorganisation costs (2008 - $nil) primarily comprising employee
exit costs together with abnormal non-productive operating costs at
Limpopo following announcement of its closure.
ii During 2008 the Group disposed of a subsidiary, Southern Era Mining
Exploration South Africa (Pty) Limited, for consideration of $3
million resulting in a profit before tax of $2 million.
iii During 2008 the Group settled the Lonmin Superannuation Scheme (LSS)
and incurred a $9 million charge.
iv In 2008 the Group incurred $18 million of defence costs relating to
a takeover bid that occurred.
v In 2008 impairment charges primarily comprised the write down of
property, plant and equipment of $89 million for the Baobab shaft at
Limpopo together with $73 million of smelting synergies recognised
as goodwill recognised at acquisition and $7 million relating to the
remaining carrying value of the Messina concentrate off-take
contract. This impairment arose as a result of reduced reserves and
weaker short-term pricing anticipated.
vi During the year certain available for sale financial assets were
marked to market and have fallen below original acquisition costs
resulting in $39 million of impairment charges being taken to the
income statement (2008 - $19 million). In the current year $9
million subsequent gain on financial assets has been recognised in
the statement of recognised income and expense (2008 - $127 million
loss).
4. Net finance costs
2009 2008
$m $m
Finance income: 6 13
Interest receivable 3 5
Movement in fair value of other receivables 3 1
Other interest receivable - 7
Finance expenses: (25) (6)
Interest payable on bank loans and overdrafts (15) (22)
Bank fees (8) (1)
Capitalised interest i 23 23
Unwind of discounting on provisions (5) (4)
Exchange differences on other receivables 3 (4)
Exchange differences on net debt ii (23) 2
Special items: (73) -
Loss on forward exchange contracts in respect of rights (33) -
issue (note 3 and 10)
Exchange difference on holding rights issue proceeds (4) -
received in advance (note 3 and 10)
Movement in fair value of derivative liability in respect (36) -
of rights issue (note 3 and 10)
Total finance expenses (98) (6)
Net finance (expense) / income (92) 7
Footnotes:
i Interest expenses incurred have been capitalised on a Group basis to
the extent that there is an appropriate qualifying asset. The
weighted average interest rate used by the Group for capitalisation
is 4.8% (2008 - 4.7%).
ii Net debt is defined by the Group as cash and cash equivalents, bank
overdrafts repayable on demand and interest bearing loans and
borrowings less unamortised bank fees.
5. Taxation
2009 2008
$m $m
United Kingdom:
Current tax expense at 28% (2008 - 28%) 33 126
Less amount of the benefit arising from double tax relief (33) (126)
available
Total UK tax expense - -
Overseas:
Current tax expense at 28% (2008 - 28%) excluding special 11 261
items
Corporate tax expense 1 224
Tax on dividends remitted 10 37
Deferred tax expense: 7 61
Origination and reversal of temporary differences 7 49
Prior year adjustment 12 -
Tax on dividends unremitted (12) 12
Special items - UK and overseas (note 3): 33 (109)
Reversal of utilisation / (utilisation) of losses from 1 (2)
prior years to offset deferred tax liability i
Exchange on current taxation ii (5) (19)
Exchange on deferred taxation ii 43 (69)
Tax on restructuring and reorganisation costs (6) -
Change in South African corporate tax rate from 29% to - (19)
28% iii
Actual tax charge 51 213
18
Tax charge excluding special items (note 3) 322
(19%)
Effective tax rate 27%
(16%)
Effective tax rate excluding special items (note 3) 32%
A reconciliation of the standard tax charge to the actual tax charge was as
follows:
2009 2009 2008 2008
$m $m
Tax (credit) / charge at standard tax rate 28% (76) 28% 218
Special items as defined above (12%) 33 (14% (109
) )
Tax effect of impairment relating to Baobab - - 6% 49
shaft at Limpopo
Tax effect of impairment of available for (4%) 11 1% 5
sale financial assets
Tax effect of temporary differences relating (4%) 10 6% 49
to prior years
Tax effect of losses in respect of rights (7%) 20 - -
issue
Tax effect of unutilised losses (7%) 18 - -
Foreign exchange impacts on taxable profits (13%) 35 - 1
Actual tax charge (19%) 51 27% 213
The Group`s primary operations are based in South Africa. Therefore, the
relevant standard tax rate for the Group is the South African statutory tax
rate of 28% (2008 - 28%). The secondary tax rate on dividends remitted by
South African companies is 10% (2008 - 10%).
Footnotes:
i The Group holds a number of available for sale financial assets which
are marked to market. In the current and prior year most of the
investments decreased in value resulting in the unwind of the
associated deferred tax balances which had accumulated on the
previous increases in fair value of the investments. Losses below
initial carrying value have not created deferred tax assets because
future profits arising in relevant statutory entities are not
considered sufficiently certain. In the prior year one of the
investments increased in value resulting in a deferred tax balance
arising on setting off unutilised tax losses against the gain. In
the current year this investment decreased in value resulting in part
of the previously recognised deferred tax balance reversing and the
reversal of related utilised losses.
ii Overseas tax charges are predominantly calculated based on Rand
financial statements. As the Group`s functional currency is US Dollar
this leads to a variety of foreign exchange impacts being the
retranslation of current and deferred tax balances and monetary
assets, as well as other translation differences. The Rand
denominated deferred tax balance in US Dollars at 30 September 2009
is $416 million (30 September 2008 - $373 million).
iii The corporation tax rate for the year was 28% (2008 - 28%). The
corporation tax rate was changed to 28% in the prior financial year
which resulted in a net release of deferred tax liabilities of $19
million. This tax saving was reported as special.
6. (Loss) / earnings per share
(Loss) / earnings per share have been calculated on the loss attributable to
equity shareholders amounting to $285 million (2008 - profit $455 million)
using a weighted average number of 174,116,102 ordinary shares in issue (2008
- 163,803,041 ordinary shares).
During the year the Group undertook a capital raising by way of a rights
issue. As a result the (LPS) / EPS figures have been adjusted retrospectively
as required by IAS 33 - Earnings Per Share. On 4 June 2009, 35,072,129
ordinary shares were issued with two new ordinary shares issued for every
existing nine ordinary shares held. For the calculation of the (LPS) / EPS,
the number of shares held prior to 4 June 2009 have been increased by a bonus
factor of 1.048 to reflect the bonus element of the rights issue.
Diluted (loss) / earnings per share is based on the weighted average number of
ordinary shares in issue adjusted by dilutive outstanding share options in
accordance with the IAS 33 - Earnings Per Share. In the 12 months to 30
September 2009 outstanding share options were anti-dilutive and so have been
excluded from the diluted loss per share in accordance with the IAS 33 -
Earnings Per Share.
2009 2008 (restated)
Loss Per Profit Per
for Number of share for Number of share
the shares amount the shares amount
year cents year cents
$m $m
Basic (LPS) / (285) 174,116,102 (163.7) 455 163,803,041 277.8
EPS
Share option - - - - 520,181 (0.9)
schemes
Diluted (LPS) (285) 174,116,102 (163.7) 455 164,323,222 276.9
/ EPS
2009 2008 (restated)
Loss Per Profit Per
for Number of share for Number of share
the shares amount the shares amount
year cents year cents
$m $m
Underlying (103) 174,116,102 (59.2) 550 163,803,041 335.8
(LPS) / EPS
Share option - - - - 520,181 (1.1)
schemes
Diluted (103) 174,116,102 (59.2) 550 164,323,222 334.7
underlying
(LPS) / EPS
Underlying (loss) / earnings per share has been presented as the Directors
consider it important to present the underlying results of the business.
Underlying (loss) / earnings per share is based on the (loss) / earnings
attributable to equity shareholders adjusted to exclude special items (as
defined in note 3) as follows:
2009 2008 (restated)
(Loss)
/ Per Profit Per
profit Number of share for Number of share
for shares amount the shares amount
the cents year cents
year $m
$m
Basic (LPS) / (285) 174,116,102 (163.7) 455 163,803,041 277.8
EPS
Special items 182 - 104.5 95 - 58.0
(note 3)
Underlying (103) 174,116,102 (59.2) 550 163,803,041 335.8
(LPS) / EPS
Headline (loss) / earnings and the resultant headline (loss) / earnings per
share are specific disclosures defined and required by the Johannesburg Stock
Exchange. These are calculated as follows:
Year ended Year ended
30 30
September September
2009 2008
$m $m
(Loss) / earnings attributable to ordinary (285) 455
shareholders (IAS 33 earnings)
Less profit on sale of subsidiary (note 3) - (2)
Add back loss on disposal of property, plant 4 -
and equipment
Add back impairment of assets (note 3) 39 193
Tax related to the above items - 1
Headline (loss) / earnings (242) 647
2009 2008 (restated)
Loss Per Profit Per
for Number of share for Number share
the shares amount the of amount
year cents year shares cents
$m $m
Headline (LPS) (242) 174,116,1 (139.0) 647 163,803, 395.0
/ EPS 02 041
Share option - - - - 520,181 (1.3)
schemes
Diluted (242) 174,116,1 (139.0) 647 164,323, 393.7
Headline (LPS) 02 222
/ EPS
7. Dividends
2009 2008 (restated) i
Cents Cents
$m per $m per
share share
Prior year final dividend paid - - 94 57.3
in the year
Interim dividend paid in the - - 92 56.3
year
Total dividend paid in the year - - 186 113.6
Interim dividend paid in the - - 92 56.3
year
Proposed final dividend for the - - - -
year
Total dividend in respect of - - 92 56.3
the year
Footnotes:
i During the year the Group undertook a rights issue. As a result, the
dividend per share figures have been adjusted retrospectively by
applying a factor of 1.048 in order to adjust for the bonus element
of the rights issue.
8. Net debt as defined by the Group
Foreign As at
As at exchange 30
1 October and non September
2008 Cash flow cash 2009
$m $m movements $m
$m
Cash and cash 226 83 (27) 282
equivalents
Current borrowings - (58) - (58)
Non-current borrowings (529) 180 - (349)
Unamortised bank fees - - 12 12
Net debt as defined by (303) 205 (15) (113)
the Group
Foreign
As at exchange As at
1 October and non 30
2007 Cash flow cash September
$m $m movements 2008
$m $m
Cash and cash 222 2 2 226
equivalents
Overdrafts (1) 1 - -
221 3 2 226
Current borrowings (237) 237 - -
Non-current borrowings (359) (170) - (529)
Net debt as defined by (375) 70 2 (303)
the Group
Net debt as defined by the Group comprises cash and cash equivalents, bank
overdrafts repayable on demand and interest bearing loans and borrowings less
unamortised bank fees.
9. Total Equity
Equity shareholders` funds
Called Share
up premiu Other Retain Minori Tota
share m reserve ed Tota ty l
capita accoun siv earnin l intere equi
l t $m gs $m stsv ty
$m $m $m $m $m
At 1 October 2008 156 305 100 1,586 2,14 447 2,59
7 4
Total recognised income - - (11) (269) (280 (41) (321
and expense ) )
Dividends - - - - - (21) (21)
Share-based payments - - - 2 2 - 2
Share capital and share 35 477 - - 512 - 512
premium recognised on
rights issue ii
Rights issue costs charged - (21) - - (21) - (21)
to share premium ii
Exchange gain on shares to - - - 4 4 - 4
be issued ii
Reversal of fair value - - - 36 36 - 36
movements of derivative
liability recognised in
respect of rights issue ii
Shares issued under the 1 15 - - 16 - 16
IFC option agreement iii
Shares issued on exercise 1 - - - 1 - 1
of share options i
At 30 September 2009 193 776 89 1,359 2,41 385 2,80
7 2
At 1 October 2007 156 299 96 1,417 1,96 392 2,36
8 0
Total recognised income - - 4 348 352 120 472
and expense
Dividends - - - (186) (186 (65) (251
) )
Share-based payments - - - 7 7 - 7
Shares issued on exercise - 6 - - 6 - 6
of share options i
At 30 September 2008 156 305 100 1,586 2,14 447 2,59
7 4
Footnotes:
i During the year 426,315 share options were exercised (2008 - 231,338) on
which $1 million of cash was received (2008 - $6 million).
ii During the year the Group undertook a rights issue in which 35,072,129
shares were issued as disclosed in note 10.
iii During the year 1,172,583 shares were issued under the International
Finance Corporation agreement. As the shares were issued at a discount
to market value only $15 million of cash was received.
iv Other reserves represent the capital redemption reserve of $88 million
(2008 - $88 million) and a $1 million hedging reserve net of deferred tax
(2008 - $12 million).
v Minority interests represent an 18% shareholding in Eastern Platinum
Limited, Western Platinum Limited and Messina Limited and a 26%
shareholding in Akanani Mining (Pty) Limited.
10. Rights Issue
(i) Overview of the Rights Issue offer.
On 11 May 2009, Lonmin announced a fully under-written 2 for 9 Rights Issue of
35.1 million new ordinary shares at GBP9.00 per new share for shareholders on
the London Stock Exchange and at R113.04 per new share for shareholders on the
Johannesburg Stock Exchange. The offer period commenced on 15 May 2009 and
closed for acceptance on 4 June 2009.
In the prospectus Lonmin anticipated raising $477 million proceeds in total
which, net of expenses of $20 million, would raise funds of $457 million. The
issue was successful with a take-up of more than 96% of the shares on offer.
The Company actually raised net proceeds of $458 million which was in line
with the expectations given in the prospectus, with 97% of the funds raised in
the UK.
(ii) Accounting for the Rights Issue.
The Rights Issue proceeds were received over the offer period and were
credited to a shares to be issued account at the prevailing spot exchange
rates at the date of receipt resulting in the recognition of a cash inflow of
$516 million before the impact of the hedging arrangements. The retranslation
of these advance receipts at the spot rate on closing resulted in a $4 million
exchange loss recognised through finance costs as a special charge. There was
a corresponding gain recognised directly in equity of $4 million for exchange
movements on the shares to be issued.
Share capital and share premium of $512 million was recognised on the balance
sheet utilising the prevailing spot exchange rates on the issuance date of 4
June 2009, except for the Xstrata proceeds which were received in Dollars on 2
June 2009 (as explained further below). $21 million of issue costs were also
recognised and charged against share premium and resulted in a cash outflow in
the year to give a net increase in share capital and share premium of $491
million.
In order to minimise the risk of the exposure to currency fluctuations on the
net Sterling funds expected, the Group undertook two hedging arrangements in
synchronisation with the Rights Issue process. The net expected proceeds were
hedged because the bulk of the issue costs were in Sterling.
- Net Sterling amounts expected, with the exception of monies due from Xstrata
plc in its capacity as a Lonmin Plc shareholder, were covered by forward
exchange contracts executed over the week prior to the announcement and due
for settlement on 4 June 2009.
- In respect of the Sterling monies due from Xstrata it was agreed that
settlement would be made directly in US Dollars and the amount was set using
forward market rates on the date at announcement and for settlement on 2 June
2009.
As the Dollar weakened considerably over the offer period the Sterling
proceeds received translated into $516 million were higher than due under the
forward exchange contracts. This therefore resulted in the recognition of
foreign exchange losses under the forward hedging arrangements of $33 million.
This $33 million fair value loss cannot be offset against equity (which it was
effectively hedging for economic purposes) as, under IFRS, hedge accounting
can only be applied to cash flows which ultimately affect profit and loss. The
$33 million loss on the forward hedges has therefore been shown as a special
charge in finance costs in the income statement (see note 3) and therefore
reduces retained earnings and distributable reserves. The offset is
effectively in the recognition of a higher credit to the share premium
account. As noted above the actual net proceeds were in line with the
expectations on the announcement of the Rights Issue.
A summary of the above transactions is as shown below:
$m
Cash proceeds received at spot rates 516
Foreign exchange loss on retranslation of advance cash proceeds (4)
Gross increase in share capital and share premium 512
Costs of issue charged to share premium (21)
Net increase in share capital and share premium 491
Loss on settlement of forward exchange contracts (33)
Net proceeds 458
(iii) IAS 32 - Financial Instruments: Presentation as adopted by the EU.
Under IAS 32 - Financial Instruments: Presentation as adopted by the EU, a
Rights Issue can only be classified as an equity instrument if the contract is
settled by exchanging a fixed number of shares for a fixed amount of cash. As
Lonmin is listed on both the LSE and the JSE it has raised equity from the
Rights Issue in both Sterling and Rand. However, as the Company`s functional
currency is US Dollar, this has resulted in a variable amount of cash being
raised for accounting purposes via the Rights Issue. Therefore, in applying
IAS 32 Lonmin recognised a derivative liability of $307 million with a
corresponding charge to retained earnings on announcement of the Rights Issue.
The fair value of the derivative liability increased by $36 million to the
point of exercise with $25 million of this being due to differences in
exchange rates and $11 million due to changes in share price. This loss was
charged to finance costs in the income statement as a special item (see notes
3 and 4). On the exercise of the rights the derivative liability was
extinguished and the cumulative $343 million liability was reversed to
retained earnings creating a net gain of $36 million in reserves (see note 9).
There was, therefore, no overall impact on retained earnings at the end of
financial year 2009 and no net impact on distributable reserves or equity. A
summary of the impact is given in the table below.
Retained Derivati Income
Debit / (credit) earnings ve statemen
liabilit t
y
$m $m $m
Initial recognition of liability for offer 307 (307) -
of rights
Movements in fair value of rights (note 3, - (36) 36
4)
Exercise of rights (343) 343 -
Transfer to retained earnings 36 - (36)
Effect of Rights Issue on retained earnings Nil
The IASB has recognised that the above accounting treatment was not the
intended outcome for equity issues which raise proceeds which are not in the
functional currency. An amendment to IAS 32 was issued in October 2009. Under
IAS 32 as amended, no derivative liability would be recognised in the balance
sheet and no fair value movements on remeasurement would be recognised in the
income statement. The amendment to IAS 32 has, however, not yet been adopted
by the EU. Unendorsed standards cannot be applied by companies under the IAS
Regulation if they conflict with extant endorsed standards and therefore IFRS
as adopted by the EU has to be applied unless a fair presentation override
under IAS 1 - Presentation of Financial Statements is considered appropriate.
The Directors noted that there were divergent practices in the market in
relation to this issue. The Directors decided that, on balance, whilst under a
more principles based approach the Group would account for the transaction
entirely as equity and would not recognise the $36 million loss, a fair
presentation override could not be justified. Nevertheless, the Directors have
provided additional disclosures below to ensure the users of the Accounts have
full information about the transaction as recorded and the impact on the Group
under the alternative equity treatment as summarised below.
The amendment to IAS 32 is expected to be adopted by the EU before 1 February
2010. Therefore, in the 2010 financial statements the Group may restate the
2009 results in respect of the amendment with the effect being as follows.
2009 2009
Income Income
statement statement
(as reported) (if restated)
$m $m
Net finance costs (92) (56)
Loss before tax (272) (236)
Loss after tax (323) (287)
Earnings (285) (249)
Loss per share (cents) (163.7) (143.0)
11. Events after the balance sheet date
During 2009 Lonmin has been engaged in discussions with the Historically
Disadvantaged South African ("HDSA") shareholders of Incwala and the HDSAs`
providers of finance regarding the future ownership of Incwala. These
discussions were in progress at the balance sheet date and are continuing.
Subsequent to the balance sheet date Impala Platinum Holdings Limited called
on Lonmin with respect to the R294 million ($39 million) indemnity which fell
due after 30 September and this amount has been paid. Lonmin has a counter
indemnity secured on the HDSAs` shares in Incwala.
12. Statutory Disclosure
The financial information set out above does not constitute the Company`s
statutory accounts for the years ended 30 September 2009 and 2008 but is
derived from those accounts. Statutory accounts for 2008 have been delivered
to the registrar of companies, and those for 2009 will be delivered in due
course. The auditors have reported on those accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under Section 237 (2) or (3) of the
Companies Act 1985.
Date: 16/11/2009 09:00:01 Supplied by www.sharenet.co.za
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