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LON - Lonmin Plc - Annual Report and 2011 Annual General Meeting

Release Date: 13/12/2010 14:08
Code(s): LON
Wrap Text

LON - Lonmin Plc - Annual Report and 2011 Annual General Meeting 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") 13 December 2010 Lonmin Plc ("Lonmin" or the "Company") Annual Report and 2011 Annual General Meeting On 15 November 2010 Lonmin announced its Final Results for the year ended 30 September 2010. The announcement made on that date included inter alia a condensed set of financial statements and a management report, as required by DTR 4.1. Lonmin has today posted to shareholders and, in accordance with LR 9.6.1 R, has submitted to the National Storage Mechanism, printed copies of the following documents: - Annual Report and Accounts for the year ended 30 September 2010 (the "Annual Report") - Circular relating to the Annual General Meeting to be held on 27 January 2011 - Forms of Proxy for shareholders on the UK and SA registers These documents will shortly be available for inspection on the National Storage Mechanism www.Hemscott.com/nsm.do. As required by DTR 6.3.5 R (3), the Company confirms that the Annual Report and the Circular relating to the Annual General Meeting are now available to view or download in pdf format from the Lonmin website, www.lonmin.com. Pursuant to DTR 6.1.2 R, Lonmin confirms that one of the resolutions to be proposed at the Annual General Meeting is the adoption of a new employee share scheme, the Annual Share Award Plan. In accordance with its obligations under LR 13.8.11 R, Lonmin confirms that a copy of the draft rules will be available on the National Storage Mechanism and are also available from the Company Secretary`s Office, Lonmin Plc, 4 Grosvenor Place, London SW1X 7YL and, on the date of the Annual General Meeting, at the Church House Conference Centre, Dean`s Yard, Westminster, London SW1P 3NZ from at least 15 minutes before the commencement of the meeting until its conclusion. The appendix to this announcement contains additional information which has been extracted from the Annual Report and Accounts for the year ended 30 September 2010 (the "Annual Report and Accounts") for the purposes of compliance with the Disclosure and Transparency Rules and should be read together with the Final Results Announcement, which can be downloaded from the Company`s website at www.lonmin.com. This announcement should be read in conjunction with and is not a substitute for reading the full Annual Report and Accounts. Together these constitute the information required by DTR 6.3.5. which is required to be communicated to media in full unedited text through a Regulatory Information Service. Page and note references in the text below refer to page numbers and notes in the Annual Report and Accounts.: - A statement on internal control and the principal risks and uncertainties - A statement on related party transactions - Certain financial statements APPENDIX INTERNAL CONTROLS AND RISK MANAGEMENT This section explains the Group`s internal control environment, how we assess its effectiveness and how we identify, evaluate and manage risk. There is also a discussion of the principal risks and uncertainties facing the Group, the consequences if these are not managed, and the mitigations currently relied upon by management. Internal controls The Company complied throughout the year under review, and continues to comply with, the provisions of the Combined Code on internal controls and the relevant parts of the Turnbull and Smith guidance. While the Board has overall responsibility for the Company`s system of internal control, management is responsible for implementing agreed Board policies. It is important to recognise that systems of internal control can only be designed to manage, rather than eliminate, the risk of failure to achieve the business objectives and cannot provide absolute assurance against material mis- statement or loss. Key features of the Company`s internal control framework include: - a schedule of matters reserved for the Board`s decision; - detailed terms of reference for the Board Committees; - a Code of Business Ethics and external whistle-blowing hotline; - Human Resources policies which establish a consistent set of values and standards for managing employees and contractors throughout the group; - a document summarising the delegation of authority cascade from the Board to the various levels of Group management; - documented policies and procedures for certain key group wide matters, including treasury, capital investment, risk management, human capital and procurement, supported by local policies and procedures as necessary; - the Group strategy and Life of Business Plan, supported by the mineral resource database and model, and annual technical and financial budgets; - systems including the SAP enterprise resource planning system, a bespoke metallurgical tracking system and a detailed mine planning system; - management reporting against plans, budgets and forecasts; - external audit and other assurance, including a biennial audit of mineral reserves and resources; and - internal audit and other in-house review processes including control self assessments. To ensure the Audit and Risk Committee has full oversight of the work of the internal audit function, the Head of Internal Audit reports to the Chairman of the Audit and Risk Committee, with a joint reporting line with effect from 1 October to the CFO (previously it was to the VP, Treasury and Risk). The Audit and Risk Committee meets regularly with both the internal and external auditors to discuss internal control and other matters arising from the assurance process. The Board is responsible for reviewing the effectiveness of the system of internal control, including financial, operational and compliance controls and systems for the identification and management of risk. This task is carried out on behalf of the Board by the Audit and Risk Committee, which has undertaken a review of the internal control environment following the year end. To do so, the Committee assessed the following: - responses provided by c.90 senior managers in management confirmation letters completed at the end of the financial year and designed to provide assurance on the effectiveness of internal controls and compliance with Group policies and procedures; - a number of external parties providing assurance to different parts of the business on its control environment; - progress made by management in identifying and mitigating the key risks facing the Group; - routine management reporting on business performance and results; and - reports provided to the Audit and Risk Committee by both internal and external auditors and other specialist advisors in relation to the Group`s risk and control environments. Action has been, or is being, taken where necessary to address as far as practicable any significant failings and weaknesses identified in the reviews of effectiveness of internal controls whether they are financial, operational or compliance. Risk management We have an integrated approach to risk management and internal controls to ensure that our review and assessment of risk is used to inform the internal audit process and the design of the internal controls environment. The risk management process, which has been in place throughout the year under review and to the date of approval of the accounts, identifies, evaluates, manages and monitors the significant risks facing the business. The Audit and Risk Committee regularly reviews this process and monitors its effectiveness on behalf of the Board, in line with the guidance appended to the Combined Code. The approach taken is systematic and combines both a "top-down" and a "bottom- up" review and approval process. All senior managers are responsible for managing and monitoring risks in their area of responsibility that could impede the achievement of business objectives and these are recorded in a risk register. It is mandatory for this process to take place at least once a year but in practice, reviews take place more frequently in most business areas. For each risk identified, management assesses the root causes, consequences and mitigating controls in relation to the risk. An assessment is then made of the maximum risk exposure and the effectiveness of the controls in place to mitigate that risk. A numerical scoring matrix is used to derive a risk score and priority after taking account of mitigating controls. Where the risk score and priority remains high after mitigating controls are taken into account, action plans are devised to reduce these risks further and progress against these plans is regularly reviewed. Each of the business areas is supported by an Operational Risk Champion who co- ordinates all risk management activity in that business area and ensures that actions are implemented appropriately. Applying this risk management process across all business activities ensures all risks are measured, monitored and reported on a consistent basis. Due to the nature of our operations, a significant part of our risk register relates to safety, environmental and social matters. To further enhance our focus on such matters, each business area has dedicated personnel responsible for managing environmental and safety matters respectively, including monitoring the progress of action plans recorded in the risk register. In this way, we ensure accountability and responsibility for these matters remains with the operational management team. The principal risks faced by the Company are considered and reviewed regularly by the Board. Risks specifically relating to safety, environmental and social matters are reviewed separately and in more detail by the Safety & Sustainability Committee, which then provides views on the management of these risks to the Board. Lonmin groups risks into strategic, financial, external and operational risks. The key risks faced by Lonmin, based on our current understanding, along with their potential impact and the mitigation strategies developed are detailed on the following pages. There is no implied ranking in the order of disclosure. The Company`s strategy takes into account these known risks, but risks will exist of which we are currently unaware and the severity or probability of the occurrence of known risks may change from time to time. Strategic Risk Impact - Ineffective or poorly executed strategy fails to create shareholder value or fails to meet shareholder expectations. Risk Impact Mitigation Investment and Shareholder value Review of strategy at Board level business decisions not optimised. on an annual basis with monthly fail to deliver monitoring of operational and shareholder value financial performance. Consistent investment appraisal process applied to new capital spend. Opportunities have been taken to
restructure the business to maximise shareholder value. Access to a secure Could impact on Measurement of water usage and supply of water* the ability to run water saving initiatives current operations implemented. Plans aligned with and deliver future long term strategy of the expansion plans. Company. Water supplies secured for key areas of the business and
strategies developed to support expansion plans. Active participation in relevant Industry Bodies.
Access to a secure Could impact on Measurement of energy usage and supply of the ability to run energy saving initiatives electricity* current operations implemented. Load shed and and deliver future contractual agreements in place
expansion plans. with Eskom (SA energy supplier). Continuity planning in place and additional supply for key areas to be secured accordingly e.g.
additional power supply secured for the new K4 mining shaft. Active participation in relevant Industry Bodies.
* see Sustainable Development Review for more detailed disclosure. Financial Risk Impact - Asset performance and / or excessive leverage results in the Group not being able to meet its financial obligations. Risk Impact Mitigation Foreign exchange Significant Current policy is not to hedge risk (specifically fluctuations in this currency pair. There is a US Dollar/SA Rand) exchange rates to long term correlation between US which the Group is Dollar/SA Rand and PGM basket exposed could have price, although this can a material adverse dislocate over the shorter term. effect on the
Group`s financial condition. Commodity price Significant Current policy is not to hedge risk fluctuations in PGM basket prices. commodity prices There is a long term correlation to which the Group between US Dollar/SA Rand and PGM is exposed could basket price, although this can have a material dislocate over the shorter term.
adverse effect on Hedging of base metals and gold the Group`s is undertaken under the remit of financial the Price and Risk Committee. condition.
Uncompetitive Could have a High cost per ounce operations gross and/or unit material adverse put on care and maintenance. Cost costs effect on the base was significantly reduced in Group`s 2009 and we continue to monitor
competitive this closely. Clear understanding position and of our competitive position and future financial significant focus on productivity condition. improvement plans. Balanced
scorecard measures incentivise cost control and productivity. Introduced additional cost controls such as the "Bill of
Materials" which better aligns usage of consumables with production. Access to cost The Group may not All debt matures beyond FY11. Key effective be able to obtain covenants in banking lines funding** cost effective constantly monitored through funding when rolling cash flow forecasts. required which Regular contact with our banking
could impact on group. Financing for the Shanduka the ability of the transaction facilitated by an Group to meet its equity placing. liabilities as
they fall due. ** see Financial Review for more detailed disclosure. External Risk Impact - The political, industry or market environment may negatively impact on the Group`s ability to independently manage and grow its business. Risk Impact Mitigation Changing political The occurrence of Ongoing dialogue with government landscape in any such a change at all relevant levels and other of the countries could have a key stakeholders. Effective in which we material adverse communications programmes with operate negatively effect on the key stakeholders. Many PGM mining impacts the Group`s future companies would face the same business operational issue. performance and financial condition.
PGM supply & Significant Gathering market information from demand volatility changes to customers and other sources. either/both the Monitoring market segments and demand and supply trends in the industry. Continue
side in the PGM to support initiatives to develop industry (e.g. existing and new markets for product PGMs. Longer term volume substitution or contracts with key customers.
supply side constraints) could have a material adverse effect on
the Group`s future operational performance and financial
condition. Operational Risks Impact - Operational event impacting staff, contractors, communities or the environment leading to loss of revenue and / or reputation or increased costs. 1. Losing Licence to Operate Risk Impact Mitigation Failure of safety Could result in a The Safety & Sustainability routines and/or catastrophic loss Committee oversees all safety safety strategy of life, severely matters. Safety standards set and disrupt operations monitored regularly throughout and have a the Company. Clearly defined
material adverse safety protocols including Safe effect on the Behaviour Observations. Plant Group`s financial maintenance programmes supported condition. by critical spares inventory.
Regular safety audits carried out by the company and independent experts as well as inspections by the Department of Mineral
Resources (DMR). Business interruption insurance cover in place. Balanced scorecard measure and other bonus schemes
incentivise appropriate safety behaviour. Impairment to Lonmin`s right to In 2010, Lonmin received Lonmin`s mine may be confirmation from the DMR of its mineral rights compromised in mineral rights including the some measure. right to mine associated minerals. A private challenge may exist in relation to a limited
portion of the estate which Lonmin intends to contest vigorously. Corporate & Social Non-delivery of Social and community programmes Responsibility* our Social and are monitored by the Executive Labour plan Committee and the Safety and could result in Sustainability Committee. KPIs the withdrawal of are set and measured on a regular
our basis. Ongoing dialogue with the Mining Licence. relevant authorities. Balanced scorecard measures incentivise delivery of a selection of
targets. Failure to comply Results in a Engagement with the DMR in South with Black deteriorating Africa and with all other Economic relationship with stakeholders to ensure Empowerment (BEE) the DMR in South compliance. We have transformed codes in relation Africa and puts our BEE vehicle (Incwala) by to mining e.g. mineral rights at focusing on one strong partner failure to achieve risk. (Shanduka) and have financially BEE equity supported the transaction that participation of facilitated this change. 26% by 2014 Theft of Lives are put at Delivery and tracking of explosives risk both explosives is strictly controlled internally and and independently audited. Audit externally e.g. points are closely followed up. where explosives Access points are controlled
are stolen to across the property and perpetrate a identification checks and further criminal employee searches are conducted. act outside of the
business. * see Sustainable Development Review for more detailed disclosure. Operational Risks (continued) 2. Serious Impairment in Production Risk Impact Mitigation Inadequate and/or Significant Bore hole sampling and seismic poor changes to our surveys conducted quality ore assessment of under the supervision of reserves the quality and specialist geologists coupled extent of our ore with independent audits of reserves reserves. Quality in-house could have a technical team with multiple
material adverse internal review effect on the processes. Group`s future operational
performance and financial condition. Lack of long term Shareholder value Independent peer review of Long ore not optimised over Term Plan before reserve depletion the submission to the Board. planning long term. Lack of short term Could severely Technical Services functions ore reserve disrupt operations acting independently of mine development and have a management located at mine shafts planning and material adverse scrutinising flexibility and resultant effect on the working areas. Clear mining shortfalls in Group`s financial management structure with defined mining output condition. accountabilities and responsibilities. Performance measured and reported to the
Board. Balanced scorecard measure incentivises appropriate ore reserve development. Theft of equipment Lives are put at Access points are controlled and materials e.g. risk e.g. across the property and copper cable electronic safety identification checks and equipment no employee searches are conducted. longer functions Constant vigilance required.
effectively where copper cable has been stolen. Metal recoveries Could have a Grade targets set and measured by throughout material adverse assay and sampling in Mining. In operations not effect on the Processing, plant maintenance maximised Group`s financial programmes ensure plant stability condition. to assist in optimising
recoveries. Technical Services functions acting independently of operational management scrutinise management information.
Experienced management teams and clear benchmarks set. Balanced scorecard measure ensures focus on recoveries. Third party audits
and peer reviews conducted. Inadequate Could severely Pyromets provide an element of smelting disrupt operations back-up capacity. Spare capacity performance & back-and have a in Number One furnace currently up capacity material adverse gives ability to catch up. Number effect on the One furnace includes improved Group`s financial monitoring and fault detection condition. technology. The Board has
approved the necessary investment to increase smelting capacity by the construction of an additional furnace and for ongoing
improvements to the Number One furnace. Major fault on key Could severely Plant maintenance programmes piece of equipment disrupt operations coupled with an on-site stock of e.g. smelter and have a critical spares. material adverse effect on the Group`s financial
condition. Deteriorating Could result in an Full engagement strategy with the industrial unstable workforce unions and employees. This relations and/or that severely strategy is supported by our union disruption disrupts other external relationships, operations and has community projects and regular a material adverse communication with our employees. effect on the New union meeting structure in
Group`s financial place. condition. 3. Major Financial Fraud or Theft Risk Impact Mitigation Fraud and/or theft Could have a Fraud awareness training and of PGM product material adverse security reviews supported by a effect on the code of ethics and a whistle Group`s financial blowing programme. Security and
condition. Investigations department operations carried out in key areas of the business. New management structure for Security
has been implemented to improve line accountability and to provide a better check and balance within the security
function. Failure of Could severely Clear organisational structure internal controls disrupt operations with appropriate segregation of and have a duties which is independently
material adverse monitored on an ongoing basis. effect on the Significant focus on tracking the Group`s financial ounces through the production condition. process. Independent internal and
external audits with follow up of outstanding action points. Aligning the Risk Management framework to the Internal Audit
framework to provide further assurance that key controls effectively mitigate key risks. 4. Catastrophic Environmental Event Risk Impact Mitigation Catastrophic Could lead to loss Flood barriers in place at mine environmental of life, health shafts. Safety and monitoring event results in concerns in local procedures in place on return contamination communities, water and tailings dams. Surface and/or emissions withdrawal of and ground water contamination that impact on the relevant licences levels monitored. Emissions surrounding and potential monitored by regular sampling and environment and litigation. scrubber systems in place. communities* Business interruption insurance cover in place. * see Sustainable Development Review for more detailed disclosure. Transactions with Related Parties In March 2010 the Company announced that it had entered into long-term contracts with two parties to supply low-grade PGM but chrome-rich tailings to those counterparties, who would construct chrome recovery plants to treat the tailings and return a chrome-depleted concentrate to Lonmin for further reprocessing. One of the counterparties is the Xstrata-Merafe Chrome Venture, which involves a subsidiary of Xstrata Plc, which owns a significant shareholding in the Company. The UK Listing Authority concurred with the Company`s assessment that this transaction was of a revenue nature in the ordinary course of business, and no shareholder approval was required. The transaction with Shanduka Resources referred to above resulted in a financial benefit flowing to the selling shareholders in Incwala Resources (Pty) Ltd. Two of the selling shareholders, being the Thelo Consortium and the Vantage Consortium included certain individuals who had been nominated by Incwala to serve as directors of Lonmin`s operational subsidiaries. As such, Thelo and Vantage were considered to be related parties of the Company. Of the GBP200 million provided to Shanduka by Lonmin, approximately GBP96 million of this was used by Shanduka to purchase Thelo and Vantage`s interests in Incwala. It was these elements of the Shanduka transaction which were therefore technically transactions with related parties for the purposes of the UK Listing Rules. The quantum of these transactions did not require shareholder approval. As detailed above, part of the funding provided to Shanduka by Lonmin was funded by an equity placing. Pursuant to the placing, Xstrata Zinc BV, a subsidiary of Xstrata Plc, subscribed for 2,233,600 new ordinary shares of $1 each at a cost of approximately GBP39.4 million and M&G Investment Management Limited, part of the Prudential plc group of companies, subscribed for 998,377 new ordinary shares of $1 each at a cost of approximately GBP17.6 million. Both Xstrata Plc and the Prudential plc group of companies own significant shareholdings in the Company. The quantum of these transactions did not require shareholder approval. Statement of Directors` responsibility The following responsibility statement is repeated here solely for the purpose of complying with Disclosure and Transparency Rule 6.3.5. This statement relates to and is extracted from page 91 of the Annual Report and Accounts. Responsibility is for the full Annual Report and Accounts not the extracted information presented in this announcement or the Final Results Announcement. "We confirm that to the best of our knowledge: - the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and - the directors` report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Roger Phillimore Alan Ferguson Chairman Chief Financial Officer" end Date: 13/12/2010 14:08:02 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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