Wrap Text
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")
14 November 2011
Lonmin Plc
Final Results Announcement
Lonmin Plc, (Lonmin or the Company), the Platinum producer, today announces its
Final Results for the year ended 30 September 2011.
HIGHLIGHTS
* A strong performance across all operations:
* Sales of 721,000 ounces of Platinum - meeting revised guidance
* Cost per ounce increase of 11.2%, normalised at 8.0% - met revised
guidance
* Mining Division - momentum re-established
- available ore reserves up 8.8%
* Process Division - sustained upward trend in concentrator recovery rates
* Safety - unacceptable fatalities, but overall improvement in LTIFR of
19.8%
* Underlying PBT of $315 million - up 32.9%
* Underlying EPS of 111.6 cents - up 59.0%
* Net debt reduced by 37.6% to $234 million
* Capital spend of $410 million - met guidance
* Dividend maintained 15.0 cents per share - in line with policy
* Management actions taken in 2011:
* Reviewed safety culture and policies - improvement initiatives in place
* First full year since successful relocation of senior executive team to
South Africa - positive impact through 2011
* Number One furnace successfully modified - stable performance
* Longer term bank facilities of $945 million - balance sheet stronger,
flexibility for the future
* Contained the impact of the illegal strike at Karee mining operations
* Tailings treatment and chrome plant projects successfully implemented -
will maximise recoveries
* Continued implementation of our transformation programme towards our 2014
Social and Labour Plan targets
* Agreement with Shanduka to explore feasibility to manage and operate
Limpopo operations
* Key focus areas in 2012 and beyond:
* Maintain our focus on safety as we continue our journey to zero harm
* Flexible management of our production profile to deliver profitable
ounces
* Build on momentum established in 2011 to further improve
productivity
* Maintain focus on instantaneous recoveries
* Balance investing for future growth and prudent management of balance
sheet
* Deliver on the capital projects that will secure future growth
* Deliver our transformation and sustainability targets
Ian Farmer, Chief Executive Officer, commented:
"We have worked hard in a difficult market to build robustness into the
business wherever we can, and our solid end of year position reflects this. Our
operational and financial performance have delivered a solid performance,
despite seeing two months of serious disruption, caused by an illegal strike and
by a very sad series of fatalities in the earlier part of the year. In the short
term, markets are somewhat unpredictable, however we will continue to cautiously
invest in capacity to create the operational flexibility to be ready to respond
to more favorable conditions in the medium and longer term. Achieving optimal
capacity of 950,000 Platinum ounces will depend on our rate of investment being
sustained and this will be driven by the market. In 2012, we have a sales target
of 750,000 Platinum ounces."
FINANCIAL HIGHLIGHTS
Year to 30 September 2011 2010
Revenue $m 1,992 1,585
Underlying operating profit $m 311 228
(i), (ii)
Operating profit (ii) $m 307 203
Underlying profit before $m 315 237
taxation (i)
Profit before taxation $m 293 240
Underlying earnings per share cent 111.6 70.2
(i) s
Earnings per share cent 134.8 56.9
s
Net debt (iii) $m 234 375
Gearing (iii) % 7 10
Net debt/ Underlying EBITDA x 0.54 1.07
NOTES ON FINANCIAL HIGHLIGHTS
(i) Underlying results and earnings per share are based on reported results and
earnings per share excluding the effect of special items as defined in Note
3 to the Accounts.
(ii) Operating profit / (loss) is defined as revenue less operating expenses
before impairment of available for sale financial assets, finance income
and expenses and share of profit of equity accounted investments.
(iii)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:
Tanya Chikanza +44 (0) 207 201 6007
Head of Investor Relations
Media:
Cardew Group +44 (0) 207 930 0777
Anthony Cardew/James Clark/Emma Crawshaw
Financial Dynamics +27 (0) 11 214 2000
Sue Vey/Chloe Webb
This press release is available on www.lonmin.com. A live webcast of the Final
Results presentation starting at 09.30hrs (London) on 14 November 2011 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 Letter
Dear Fellow Shareholder,
I am pleased to be able to report that Lonmin has delivered a solid operational
and financial performance for 2011. While production failed to meet our original
expectations, the outturn was nevertheless satisfactory and increased sales of
refined metal allowed your Company to report a worthwhile increase in
profitability. Net earnings attributable to equity shareholders grew from $112
million to $273 million.
Markets, operations and costs
Our 2011 financial year was hallmarked by the instability of world economies.
Lacklustre economic growth, coupled with the increasing burden of undigested
debt, and the devastating earthquake in Japan all contributed to the substantial
volatility and subsequent weakness in Platinum Group Metals (PGMs) prices and in
our core currencies. Against that background, your Board`s adherence to a policy
of prudent balance sheet management was appropriate.
The two major operating challenges for your Company in 2011 were safety and
labour relations. Lonmin and its management remain absolutely committed to
ensuring the safety of our employees which is defined in our stated "Zero Harm"
core value. Very regrettably, during the year we experienced six fatalities at
our mines. We have subsequently reviewed and refocused our safety strategy and
recent safety statistics have shown a significant improvement. Constant
vigilance remains the watchword.
Labour relations also presented challenges during the year with ten production
days lost because of an illegal strike at our Karee operations. This incident
was the result of an internal union leadership dispute, not through any
difference with management. We are determined to maintain a positive and
constructive relationship with our entire workforce. Nevertheless the incident
had severe adverse consequences for a large part of our workforce. Community
relationships have also been challenging and considerable management effort is
going into building a more effective rapport with community leaders.
Cost increases have continued to be an issue, driven by inflationary factors
including wage increases and electricity, to mention just two, and by the costs
of increasing production and development. Managing our cost performance will
remain a key area of focus for both management and Board in 2012.
Industry challenges
The mining industry worldwide has experienced a growing number of external
challenges in recent months. Windfall gains in some commodities from the
explosive growth in China particularly, accompanied in some producing nations
elsewhere by poor standards of living and unemployment, have fanned the
political winds of change in resentment of perceived inequality. Governments are
increasingly being pressured to take action to retain a greater proportion of
the benefit of natural resources for local inhabitants. "Resource nationalism"
is being debated in many countries and some of the South African expressions of
these sentiments I discuss below. Responsible mining companies that operate
according to best international corporate social responsibility standards, as
defined by the International Council on Mining and Metals (ICMM), have a great
deal to offer their host nations. It is imperative that in considering resource
nationalism an appropriate balance is maintained between the distribution of the
wealth that mining companies are able to create and the competitive nature of
the world that that they operate in.
Transformation and growth initiatives
We have consistently demonstrated our full support for the transformation
initiative. The word "transformation" can be read as shorthand for the process
to change the old modus operandi of the South African mining industry to a new
model representative of the non-racial, inclusive, more equitable standards of
the country in a way that favours historically disadvantaged peoples without
destroying the economic competitiveness of the industry and indeed the country.
We completely endorse this objective and process. Determined action to meet
targets established for employment equity, procurement, training and
Historically Disadvantaged South Africans (HDSAs) ownership will progressively
transform our business and do much to address the evils of poverty, unemployment
and inequality. This approach is however clearly not the same as that espoused
by those who claim that nationalisation will achieve these goals more speedily
and effectively. While recognising that this is a matter for the elected
government to decide, we cannot subscribe to this view. It seems to us at best
debatable that South Africa can afford to acquire ownership control of the
mining industry, and - if it did - whether the change of control would provide
more efficient operations, yielding greater benefits for employees and other
stakeholders, while still generating the capital necessary to fund the
investment in maintaining let alone increasing production. It is an inescapable
fact that there is a world shortage of technical and managerial skills in the
mining industry and it must be expected that nationalisation would be seen as a
major disincentive by many incumbents. Similar considerations apply to the
providers of capital, both domestic and foreign. The role played by foreign
investors in the historic development of the South African mining industry
should not be overlooked, especially at a time when one of the present
government`s most significant imperatives - the creation of many tens of
thousands of new jobs - will require substantial private fixed investment if it
is to have any chance of success.
In any event it can be argued that ownership of the country`s mineral wealth is
already vested in the State. In accordance with the Mineral and Petroleum
Resources Development Act (MPRDA), your Company has the right to extract ore and
refine precious and other associated metals. The New Order Mining Rights are
subject to compliance with the detailed terms of the Mining Charter, and it is
to meet these by 2014 that the work of transformation is directed. We pay taxes
and royalties. We employ, directly and through contractors, some 37,000 people
in our mines. Indirectly through our purchases of goods and services we employ
many thousands more. In reality the economic benefits of our business are shared
with South Africa, its citizens and businesses. Over 80% of the revenue we
generated during the year flowed to employees, the South African Government, and
local suppliers. The proportion paid to shareholders as profit was no more than
1%.
Notwithstanding the uncertainty arising from this debate, we remain focused on
building mining capacity to our target of 950,000 ounces. Our key aim will be to
mine safe and profitable ounces while building flexibility to take advantage of
improvements in the market. Given near term market uncertainties, cash flow will
be monitored vigilantly and our rate of production growth will be moderated when
necessary to ensure balance sheet health.
In the year under review we reported capital expenditure of $410 million of
which 56% represents an increase in investment in ore body development and back
up smelting capacity and we plan our capital spend for 2012 to increase by 9.8%
to around $450 million. It is important that our shareholders recognise that
continued substantial investment reflects our confidence both in the long term
prospects for PGMs and in a stable and economically vibrant South Africa. There
is however a caveat relating to the fundamental importance of security of
tenure; we cannot reasonably continue a programme of long term investment if we
cannot enjoy the certainty of access to all the Company`s mineral resources.
In summary, being an effective and supportive corporate citizen in South Africa,
supporting our employees and working in partnership with the Government of South
Africa towards our transformation targets must be and are priorities. As part of
this, the decision to move our top executive team to South Africa has been shown
to be the right one. I think the move has also been, in some part, responsible
for the major growth from 5% to around 19% we have seen in our South African
investor base over the last year. Lonmin however, remains predominantly an
internationally owned Company.
Dividend
Consistent with the dividend policy established a year ago, and recognising the
considerable cash commitment inherent in our capital investment programme, your
Board is recommending a final dividend of 15c per share be declared, unchanged
from last year.
Board changes
Michael Hartnall has served as a Director since May 2003, and has informed me of
his intention not to seek re-election at the AGM in January 2012. We will miss
his wise counsel and calm good nature, as Michael has been an invaluable member
of the Board for nine years during which time he chaired the Audit & Risk
Committee and was a member of the Nomination and Remuneration Committees, as
well as acting as our Senior Independent Director. He will leave with our thanks
and best wishes for the future. Len Konar has already taken over the
chairmanship of the Audit & Risk Committee and Jim Sutcliffe has agreed to take
on appointment as Senior Independent Director from the date of the AGM.
Outlook
We are cautious in the short term as global uncertainties continue to play out,
but we remain confident that industrial fundamentals will begin to reassert
themselves in the medium term. Both automobile and jewellery end users are
holding up remarkably well in the face of gathering recession predictions. In
the longer term the return of less dysfunctional markets, the resumption of
growth and the unique environmentally important properties of these rare PGM
metals, increasingly in new uses such as fuel cells, will underpin higher demand
levels. It is our view that additional supply will be required to meet these
higher needs and moreover that the investment in new capacity, across the
industry, will only be justified by higher Rand prices. Consequently, our
strategy is to continue to invest in capacity building, whilst retaining the
flexibility to moderate the rate of capacity expansion consistent with markets
and balance sheet prudence. Lonmin is well placed in this as production from the
Marikana resource can be considerably expanded before a major new shaft system
is required.
Employees
Once again, I would like to give the warm thanks of the entire Board to all our
employees, who have worked so hard during the year and to all our contractors
who continue to provide their support for our operations.
Roger Phillimore
Chairman
Chief Executive`s Review
1. Introduction
Operationally, 2011 has been an encouraging year for the Company in which we
have reaped the benefits of the operational turnaround we undertook in 2009 and
2010. Lonmin is a fundamentally healthier business, and is moving in the right
direction towards clear goals.
However, against the backdrop of a fast changing South African environment the
year has not been without its difficulties either, and I will address these
later in this report.
There are areas which affect our business which we, like our peers, do not
control - the Rand, the price of platinum and, of course, the global economy in
which an international business like Lonmin operates to name but three. In the
last year the entire Lonmin team, from mine to market, has focused relentlessly
on those things we can control and in taking as much uncertainty out of the
business as possible.
I am, therefore, pleased to be able to report that we achieved our revised
Platinum sales guidance of 720,000 ounces and revised unit cost guidance of
around 11%. Encouragingly, the mines hoisted ore containing 720,000 Platinum
ounces, whilst metals in concentrate was 719,000 Platinum ounces, ahead of
715,000 and 694,000 Platinum ounces delivered last year respectively. These
results are particularly pleasing given the safety issues and illegal strike we
experienced.
For ten of the twelve months of the year our business delivered according to
plan. In the two months where it did not, we saw factors around safety and an
illegal industrial action at Karee affect performance. The operational review
covers these events in more detail. Those ten months of delivery demonstrate
that when these events do not affect us we are a fundamentally sound and
successful operation. Our challenge is to ensure that those events become rare
or are eradicated in future.
2. Safety
After many years of improving safety we lost six colleagues in separate fatal
incidents at Marikana in the first seven months of 2011.
Lonmin, and mining, has been my working life for many years. The shock of losing
colleagues never changes, and the loss of Thomage Kgwatlha, Modisaotsile Edward
Setlhare, Afiado Mazive, Hermanus Potgieter, Rafael Macamo and Alpheus Mogane
Moerane was felt across the entire business.
Whilst our safety performance was unacceptable I believe that our fundamental
approach to safety management has been sound and our commitment to zero harm and
safe production remains undiminished. We carried out a root and branch review of
all of our safety procedures. This review re-affirmed our basic safety strategy,
but we identified five key areas where we must improve: leadership development,
systems development and simplification, safety culture, enabling environment and
contractor safety management.
I am pleased to say that our safety performance following the cluster of
fatalities mid year improved. All employees and management were consequently in
breach of the balanced score card disqualifer of four fatalities and as a
result, no bonus was allocated for this target. Lost Time Injury Frequency Rate
(LTIFR) for 2011 showed a 19.8 % annual improvement. However, the entire
workforce did not meet the balance score card on safety as a result of the
fatalities. In the last five months of the year, at a time when we sought to
increase our throughput, we achieved four million fatality free shifts across
all of the Lonmin operations, an achievement which we last achieved in 2009
during a time when production was contracting as a result of the restructuring
programme. I am also particularly pleased to report that Rowland shaft`s safety
record now leads in the industry having achieved twelve million fall of ground
fatal free shifts over a ten year period.
The journey to zero harm will take time and require the continued commitment and
dedication of both management and employees.
3. Operational Overview
Mining
Our Mining Division`s performance demonstrated continued growth and it is
unfortunate that the excellent momentum established at the beginning of the year
was interrupted by the mid year fatalities and an illegal strike at Karee
operations. Total tonnes mined were 11.7 million, up 3.7% from last year, of
which 10.9 million tonnes were from underground operations at Marikana.
Management continued to place emphasis on quality of mining and improving mining
discipline and the fruits of the processes, procedures, training and work
initiatives are evident in these results. Notably, the lost momentum on all
operations from the disruptions at Karee was quickly restored with excellent
production being recorded from June through to September. The interruptions
however had a detrimental effect on our overall mining figures.
Hossy, our proof-of-concept mechanised mine recorded a good year. However
machine reliability, availability of replacement parts and the difficulty of
attracting and retaining trained artisans have continued to be major barriers to
efficient production. As a result, we are scaling back on the mechanised proof-
of-concept method to introduce an element of hybrid mining to some of the mine
areas to mitigate the risk to production.
Immediately available ore reserves at our Marikana operations were 2.9 million
centares at the end of 2011, a remarkable 8.8% higher than last year. This level
of preparedness allows us to plan our future growth with confidence.
Our overall milled grade was 4.40 grammes per tonne, a reduction of 5.4% against
the prior year. The reduction reflects the slightly higher dilution resulting
from the high levels of development, poor ground conditions experienced at K3,
an overall lower UG2 in situ underground ore grade and the proportionate
increase in the mining of lower grade merensky ore from underground and
opencast. The grade however remains within our acceptable range.
Our unit costs per PGM ounce increased by 11.2% reflecting the continued
inflationary pressures being felt by the industry in general. The unit cost was
also impacted by the production losses arising from the safety stoppages and
illegal strikes. Excluding these two major factors, unit cost was up around 8.0%
on a normalised basis and in line with our original guidance, demonstrating
prudent cost control.
We have made progress with our capital development with a mining capital spend
of $268 million during the year mainly at K4, Hossy and Saffy and at the sub-
decline at K3. This will stand us in good stead with meeting our future
production profile
Processing
The Division delivered solid results. I am delighted to say the upward trend in
concentrator recoveries we saw early in the year continued with high levels
being sustained throughout 2011. The underground concentrator recoveries we
achieved of 85.4% , up another 0.7% from 2010, contributed to the increase in
the instantaneous recovery rate, which was 82.5%, up 3.4 percentage points. We
say more about this key area in the Operational Review below.
The modifications made to the smelter during the re-build at the end of 2010
have been successful, and it operated satisfactorily throughout the year.
Smelter risk will be further reduced in Q3 2012 when the Number Two furnace
comes online.
The tailings treatment project is on schedule with three chrome plants
commissioned by Xstrata-Merafe Chrome Ventures and ChromTech, our partners on
the projects, and the Rowland tailings treatments plant was commissioned in
August this year. The tailings treatment plant at Easterns is due to be
commissioned in early 2012. The projects will improve our recoveries by 2% of
PGMs per year when fully operational at these plants.
4. Financial
We completed the refinancing of our bank debt facilities during the second half
of the year, and replaced $875 million bank debt facilities we had with
approximately $945 million of new facilities on superior terms. As a result we
have extended the maturity profile of our debt to support our growth and
enhanced our ability to maintain a sound and efficient balance sheet with some
flexibility. Our net debt position and balance sheet were strong at year end,
and position us well to manage the prevailing short term global market
uncertainties.
5. Growth Plan
We will continue to focus on maximising the value of the Marikana asset which
has a long life high quality ore body. Our K3, K4, Saffy and Hossy shafts drive
our growth ambitions. There are new sub-declines at K3 that will enable us to
maintain the efficiency of this shaft. K4 is a new generation shaft that comes
online in 2012 and will ramp up production over the next few years. Saffy and
Hossy will continue to ramp up. Combined, these shafts are the platform for us
to reach what we believe to be Marikana`s optimal production level of around 950
000 Platinum ounces. The world events of the last six months demonstrate how the
timetable for delivery of this capacity may be influenced by external factors.
We now expect the platinum market in 2012 to remain broadly in balance with a
bias to small surplus. The recovery in demand we had previously anticipated may
be postponed due to these short term difficult market conditions.
We have the capacity to produce 800,000 ounces of Platinum in 2012. However
given the high risk of business disruption, particularly from Section 54 safety
stoppages, our guidance for next year`s sale is 750,000 Platinum ounces.
The transaction we announced with Shanduka Group Proprietary on Limpopo provides
a potential development roadmap whilst enabling our own management to continue
to focus on delivering the value inherent in our Marikana asset. Akanani is a
longer term prospect and we continue to look at the options that are available
to us whilst completing additional feasibility work particularly on processing
options.
Lonmin is well positioned for the future thanks to our strategy of investing in
ore reserve development. At the time of our interim results in May, we announced
our plan for organic growth beyond 2013 to reach Marikana`s optimal production
level of 950,000 Platinum ounces. We continue to believe that investing to grow
our production capacity is the right thing to do to enable us to take advantage
of the attractive long term fundamentals for PGM markets. However, in light of
current economic uncertainty and short term PGM outlook, together with our
objectives of delivering profitable ounces and maintaining balance sheet
prudence, we will retain flexibility around our capital expenditure plans and we
will moderate the pace of capacity expansion if the environment dictates.
Markets Outlook
As I mentioned above, I believe the outlook for the PGM markets will be
challenging in the short term, influenced by the global uncertainties we have
seen in recent months. However, beyond this horizon the fundamentals remain
sound underpinned by the tightening emission legislation, demand growth arising
from non-road emissions control, anticipated growth in diesel car market share
particularly in the United States and India and growth in gasoline vehicles in
China. The stationary fuel cell market is real and growing, whilst jewellery is
set to remain a price equaliser in times of slack demand. Growth in supply from
the South African PGM producers will however remain constrained.
6. Transformation
The whole management team is clear that issues around transformation are core to
the continued success and growth of this business. It is a fundamental element
of our licence to operate and we strive to do it well both because it is right,
and because it is right for our investors.
Equally, a healthy, profitable and growing Lonmin brings benefits to all of our
stakeholders, be they investors, our employees, the authorities or the
communities in which we operate.
This year we have spent in total, R309 million on community projects, hostel
conversions, healthcare delivery, adult learning schemes, training and provision
of bursaries to university students. Of the 184 students we have sponsored to
date, 157 are HDSAs and 35 are female. Our management payroll, excluding white
women, now includes 32% HDSAs, up from 28% in 2010, all of whom are merit based
appointments.
We strive to achieve good working relationships with our stakeholders and during
the year we continued to build on the collaborative approach that we have
successfully nurtured in the recent past particularly with the unions. We are
also working closely with the Bapo Ba-Mogale Community in developing a roadmap
that can unlock the inherent value of their position for the benefit of the Bapo
community as a whole.
We are exploring initiatives that will enable us to attain the Mining Charter
Phase Two ownership target by 2014 and have shared our concepts to achieve this
with the Department of Mineral Resources (DMR). One such initiative is the
Limpopo transaction as it creates the potential opportunity for Shanduka to
become a Black Economic Empowerment (BEE) PGMs mining and operating company, in
line with the DMR`s empowerment objectives.
Some of the industry transformation targets are challenging, However, I believe
Lonmin`s performance to be ahead of industry average in most areas and we will
be reproducing our reporting audited scorecard performance in our annual report.
2012 will see our transformation initiatives accelerated and we look forward to
making announcements on this progress as the year passes.
Social issues are increasingly coming to the fore in the public consciousness,
in the media and amongst policy makers. I expect this trend to continue and
grow, presenting fresh challenges in the years ahead.
7. Sustainability
We have made some good progress in achieving our environmental targets. Whilst
our total energy consumption increased by 5.1 % in 2011 to 6,533 Terajoules, we
have made considerable progress with our programmes on optimal management of
water resources and atmospheric emissions. Notwithstanding these initiatives,
the PGMs that we produce are a vital component in autocatalytic convertors and
therefore play a significant role in reducing air pollution and contributing
positively to the climate.
8. Guidance
The healthy state of our ore reserves bode well for 2012. We anticipate sales of
around 750,000 Platinum ounces in 2012 with additional ounces coming from the K3
sub-declines, Hossy, and Saffy as they continue to ramp up, and the planned
decline of production from Newman continues.
We expect to improve cost control by driving productivity to mitigate the
increase in our gross costs. We expect to achieve this, even though our
operations face significant inflationary pressures, by maximising our
efficiencies and economies of scale as this will enable us to move down the cost
curve. Given this, we anticipate that unit cost will increase in line with wage
increases which we expect will be in line with those recently achieved by our
two larger competitors.
Our capital spend will mostly be on further developing K3 and Rowland shafts,
ramping up production at Hossy and Saffy and bringing K4 into production. Our
capex guidance for 2012 is around $450 million being R3.7 billion. This is
slightly higher than prior guidance due to escalation, the devaluation of the
Rand and minor scope changes. Most of this spend will be in Rands and will
therefore be subject to Rand strength.
9. Executive Committee Changes
I was delighted to welcome to the Executive Committee (Exco) during the year,
Natascha Viljoen and Thandeka Ncube. Natascha assumed the role of EVP Processing
following Theuns de Bruyn`s departure and was part of the team that worked with
Theuns in enhancing our concentrator recoveries. Thandeka has joined the Exco
representing Shanduka and replacing Rowan Smith and Karishma Sewpersad. Theuns,
Rowan and Karishma leave with our thanks and good wishes.
10. Employee Thank You
The dedication, support and professionalism of our employees remain key to our
success. I am proud of the way we have brought our operations back to good
health and established a platform from which we can grow as a business in the
years ahead.
I would like to end my report this year with a heartfelt "thank you" to each and
every one of them.
Ian Farmer
Chief Executive Officer
Operational Review
Safety
We have historically been proud of the progress we have made in making our
working environment safer and in the leading position in safety that we have
occupied within the industry. The entire team is therefore very disappointed and
saddened by the six fatalities experienced in the 2011 financial year.
The incidents were examined using our standard Incident Cause Analysis
Methodology (ICAM) process and we spent a great deal of time trying to
understand the failures and root causes. Across the six incidents, there are few
if any common factors. While four of those fatally injured were contractors, the
location, nature of the incident and the root causes were different in all six
cases. In fact the only common theme was that the deaths all resulted from known
hazards, for which there are well established protocol and risk mitigation
processes, however, some of these were not adhered to as a result of unsafe
behaviour.
Lonmin mining operations have introduced varied and far reaching remedial
measures following the fatalities that occurred pertaining to Fall of Ground,
Trucks and Tramming, Engulfment, Caught in Between, Scraping and Rigging. In
addition, workplace stoppages were instituted in response to conditions believed
to be unsafe, together with self-initiated mine wide production stoppages
instituted by management on 30 March and 14 April 2011 to reinforce the
importance of safety following two of the fatal accidents.
Our commitment to zero harm and safe production in our work place remains
undiminished and we achieved four million fatality free shifts across all Lonmin
operations at the end of September 2011 (only the second time in Lonmin`s
history that this milestone has been achieved). We believe that our fundamental
approach to safety management remains sound, however, we continue to learn from
the root causes of each incident. The Lost Time Injury Frequency Rate (LTIFR)
for the financial year was 4.71, and over the past three years the LTIFR has
improved by 33%.
Rowland shaft leads in the industry with an achievement of 12 million fall of
ground fatal free shifts. This remarkable achievement took ten years to
accumulate. Another exceptional performance to note was 4B shaft achieving 4.6
million fatality free shifts
The processes and procedures for safe production remain sound and, in
consultation with our union leadership and the DMR, we are reinvigorating our
efforts to re-assert our industry leading position. We believe that, together
with our stakeholders and the working groups that have been established, this
will lead to the entrenchment of sound leadership, an enabling environment,
simple systems, a positive safety culture and improved contractor safety
management.
Mining Division
During the 2011 financial year, the Mining Division demonstrated continued
growth despite the impact of the illegal industrial action encountered at the
Karee operations during May as well as the safety stoppages. Total tonnes mined
during the 2011 financial year were 11.7 million, a 0.4 million tonne increase
from 2010.
This is largely attributable to improvements at K3 shaft and the ramp up in
production from our Merensky opencast operations. Momentum has been re-
established following the strike in May.
Marikana Ore Reserve
FY11 FY10 Chang %
(`000 (`000 e
m2) m2)
Karee 1,437 1,154 283 25%
Middelk 385 354 31 9%
raal
Western 533 702 (169) (24)
s %
Eastern 576 483 93 19%
s
Total 2,931 2,693 238 9%
It is pleasing to note that the ore reserve position has increased by 9% from
the level reported in 2010. The ore reserve increase for Karee of 25%,
Middelkraal of 9% and Easterns of 19% support Lonmin`s growth build up towards
the 950,000 Platinum ounces. The Westerns operations decreased as planned.
Mining grades reduced in comparison to 2010 due to:
* an overall reduction in the in situ grade,
* increased development to support the ramp up in production, poor ground
conditions at K3,
* increased dilution necessitated for safety reasons while mining through
geologically disturbed ground conditions; and
* an increase in the proportion of underground Merensky and of lower grade
opencast Merensky ore.
Grades however remain within the acceptable range.
Initiatives
Progress has been made on a number of initiatives launched over the past years
to ensure improved delivery and increased productivity in the Mining Division.
These include:
* finalisation of incentive programmes for our productive employees including
supervision to increase the element of variable pay;
* improved long and short term planning systems are entrenched and have been
enhanced to enable the evaluation of different production scenarios at short
notice;
* design of fit for purpose cost and management systems have been completed and
are scheduled to be rolled out to all operations during the course of 2012;
* the "Line of Sight" management system to track production on a daily basis has
been embedded in all the operations and is starting to bear fruit in allowing
early identification of technical bottlenecks, lost blast analysis and improved
productivity; and
* relationships with the unions and DMR improved and continue to be enhanced as
a result of various management actions, such as the safety initiatives, that
were driven through the year.
The inflationary cost pressures being experienced by the industry are of great
concern to management and various productivity improvement programmes such as
team effectiveness development, technical up skilling of employees, face advance
and blast frequency improvement projects, have been identified and are scheduled
for implementation in 2012 to mitigate these pressures.
Overview of Marikana Mines
Karee
In 2011 the Karee operations, K3, 1B, 4B and K4, mined 4.4 million tonnes which
represents an increase of 0.3 million tonnes from 2010. This is a result of the
flexibility created by an improvement in ore reserves at K3 resulting in a
better than anticipated ramp up following the industrial action during May of
this year. Going forward management is confident that the improved momentum will
continue and result in the planned increase from the Karee operations. The
mining grade has decreased as a result of increased dilution associated with
split reef and increased stoping widths for safety reasons. Unit cost per tonne
increased by 6.8% to R573 and was negatively impacted on by the high fixed cost
base during the strike.
Westerns
Production from our Westerns operations, Rowland and Newman at 3.4 million
tonnes declined by 0.3 million tonnes on 2010 as expected with the depletion of
Newman shaft. Additional dilution from the roof bolting in the stoping horizon,
necessitated by safety concerns, together with a drop in the in situ grade had a
negative impact on the head grade. The reduced production resulted in the unit
cost per tonne increasing by 14.3% to R542 per tonne.
Middelkraal
The production from our mechanised and hybrid shafts at Middelkraal, Saffy and
Hossy, was largely flat at 1.9 million tonnes per year. Grade was negatively
impacted by the higher ratio of development ore versus stoping production. Unit
cost per tonne increased to R739 per tonne or 17.5% whilst the operations
struggled to meet increased production targets.
Saffy`s production was significantly impacted during 2011 by adverse ground
conditions. The production delays experienced during the year have largely been
addressed by means of changes in layout designs as well as a revision to the
support strategy. The increase in face length availability resulting from the
change in layout and the build up of stoping crews have resulted in this shaft
having the necessary flexibility to achieve planned production increases in
2012.
Good progress was made at Hossy during the year. However, the biggest challenges
that continue to be faced by the mechanised mining team centre around machine
reliability, the availability of replacement parts and the supply of trained
artisans. Whilst we have ongoing programmes to address these issues a decision
has been taken to introduce hybrid mining in some upper quadrants, to reduce the
risk to production.
Easterns
Although this is a small section of our business our Easterns operations, E1,
E2, and E3 performed exceptionally well with production increasing by 8.4% in
comparison to 2010 supported by the healthy position of the ore reserve. The
mining grade from stoping operations improved, however, this was offset by
increased ore from development evident from the improved ore reserve position.
Cost per tonne was contained to increase by only 6.1% to R577 per tonne.
Opencast
The Merensky opencast operation at Marikana included a full year of production
in 2011 compared to around six months of production in 2010. Although the grade
was below expectations during most of the year the change in the mining method
and sequencing introduced in the last quarter have resulted in improved grades
being achieved.
Future growth from our underground operations will be generated from our Karee
and Middelkraal mines as the K4 shaft continues to ramp up over the next few
years.
Pandora Joint Venture
2011 2010 Change
Attributable 168 166 1.2%
production (kt)
Saleable MIC 48,199 49,345 (2.3)%
(koz PGMs)
Profit after $8m $5m 60%
tax
The extension of the current Pandora underground operation which will give
access to two additional levels, extending the life of E3 shaft to 2029 is in
execution phase. The capital project is currently ahead of schedule and has
performed well.
The feasibility study on the 180,000 tonnes per month project has undergone
review of the different components of the study and is ongoing.
Process Division
Safety remains a primary focus across the Process Division and this has been
evident in the 30% year on year improvement in the LTIFR. This is based on a
strategy of proactive measures that includes focusing on the lessons we learn
through incidents that do not lead to injury.
The Process Division refined production of 731,273 ounces of Platinum compared
to 685,365 ounces in 2010. This represents an increase of 6.7% due to improved
availability of our smelting operations. The re-design of the Number One furnace
has resulted in significant operational improvements. Recovery improvements over
the past years have continued across each of our operations. Unit costs were
well controlled with the year on year increase being limited to below
inflationary levels.
Unit costs 2011 2010 Variance
Processing R830/oz R809/oz (2.6)%
Concentrators
Another exceptional performance throughout the year was recorded at the
concentrators with concentrator recovery rates improving to 85.3%, and higher
plant running times.
Plant running times continued to improve during 2011 and the overall
concentrator running time has increased to 91.4% in 2011 from 87.4% in 2010. The
concentrators are targeting a 0.5% uplift in running time per year until the
running times achieved in the period from 2003 to 2005 (93.5% overall for the
concentrators) are realised.
Similar to the mining grade the milled grade was slightly lower than the
previous year but well within the targeted range of 4.40 grammes per tonne to
4.80 grammes per tonne.
Tailing Treatment and Chrome Plants
Achievements during the year include the new chrome extraction plants
commissioned by Xstrata and ChromTech.
* Rowland chrome plant was commissioned by Xstrata in April 2011;
* Rowland tailing treatment plant was commissioned in August 2011;
* K4 chrome plant was commissioned by Xstrata in May 2011;
* Karee B chrome plant was commissioned by ChromTech in July 2011; and
* Easterns tailing treatment plant is due to be commissioned in early 2012.
The chrome plants have resulted in chrome sales of around 730,000 tonnes in 2011
and these are anticipated to increase substantially in 2012 as the plant will be
on line for a full year.
A tailings treatment plant that will re-treat tailings from the chrome plants to
recover additional PGMs is under construction and will be commissioned in early
2012. The recovery of PGMs from these specific plants is anticipated to improve
by up to 2% in 2012.
Smelter
The planned re-build and modification of Number One furnace was well executed
and successfully re-commissioned on schedule in December 2010. Over the past
year the new design and operational discipline of the Number One furnace has
proven to be more robust, with no operational disruption to report. The furnace
has been ramped up to operate consistently at the desired power for operational
requirements. The use of the Number One furnace combined with the Pyromet
furnaces has ensured that the excess stockpiles have been depleted. Tonnes
smelted increased by 15.5% in 2011.
Progress continues with the building of the Number Two furnace on the site of
the old Merensky furnace. We are on schedule for the furnace to be cold
commissioned in March 2012 and fully commissioned and operational by the end of
May 2012.
Refineries
koz 2011 2010 Change
Platinum 731 685 6.7%
PGMs 1,447 1,315 10.0%
Recoveries at our Base Metal and Precious Metal Refineries remain a key focus
and we continue to see sustained improvements in efficiencies for the recovery
of all metals with instantaneous recovery rates at the refineries increasing to
82.5% in 2011, up from 79.1% in 2010.
Refined production of PGMs increased by 10.0% and was greater than the 6.7%
increase in refined production of Platinum. This was as a result of the other
Platinum metals returned from toll refining in the first quarter of 2011 for
which the associated Platinum ounces were returned in September 2010.
Overall, the performance of the Process Division was excellent and we expect
this to continue.
Sales
Platinum 2011 2010 Variance
sales
Refined metal 721koz 681koz 5.8%
Concentrate - 25koz (100.0)%
Total sales 721koz 706koz 2.1%
Final metal sales for 2011 were 720,783 which was in line with our sales
guidance.
Capital Expenditure
Capital expenditure to support the future growth of the business was $410
million in the 2011 financial year. Expenditure in 2012 is planned at around
$450 million to continue developing sufficient ore reserves to attain long term
production of 950,000 ounces of Platinum per year.
Mining division: Capital expenditure during 2011 was $268 million, the majority
of which was spent on developing the ore reserves at K4, Saffy, Hossy and K3.
Process division: Capital expenditure during 2011 was $142 million with the main
areas of spend being the Number Two furnace and the Easterns tailing treatment
plant.
Unit Costs
In line with the industry, Lonmin experienced continued inflationary pressures
with above CPI increases in wage settlements of around 8% and power costs
escalating around 24%.
The production losses associated with the industrial unrests during May together
with the self-regulated mine wide production stoppages instituted by management,
increased open cast production and the lower underground grade resulted in the
C1 unit cost increasing by 11.2%.
Discounting the effect of the two set backs (strike and two day safety
stoppages) the unit cost increase would have been around 8.0% which reflects
Lonmin`s continued focus on rigorous cost controls.
Business Development
Limpopo
There was no production from the Baobab shaft at Limpopo during the year as this
shaft continued on care and maintenance.
At the end of September 2011 we entered into an agreement with Shanduka in
regard to our Limpopo division. In terms of the agreement Shanduka will carry
out a feasibility review to assess the viability of operating and developing the
Limpopo operations. Based on the successful outcome of the feasibility review,
and the fulfilment of certain conditions precedent, including Shanduka raising
and contributing R1.1 billion in funding towards the ramp up and development of
the operations, Shanduka will be entitled to acquire control and operational
management of the operating entity, Messina Platinum Mines Ltd (MPML).
In addition, post completion of the transaction, Lonmin will be entitled to
receive an amount of R400 million from MPML by way of subscription for
preference shares in MPML or other such mechanism as may be agreed.
The transaction further strengthens our partnership with Shanduka and on
completion will transform MPML into a BEE controlled and operated PGMs mining
company. Additionally, we believe that this transaction will contribute to
meeting the Mining Charter Phase Two equity target of 26% by 2014. The provision
of capital by Shanduka, will enable us to retain our balance sheet capacity and
management focus on growth from our Marikana operations.
Akanani
We are enhancing our mining and processing studies on this project and will make
a decision in 2012 on further development.
BEE Equity Ownership
During the year we submitted a Concept Paper to the DMR setting out possible
concepts to achieving compliance with the Phase Two 2014 requirements of the
Mining Charter. Our ideas include inter alia selling down our shareholding in
Incwala Resources (Pty) Limited (Incwala), renewed equity participation of our
employees, further participation of our communities and the Shanduka Limpopo
transaction outlined above.
As part of Shanduka`s acquisition of 50.03% of Incwala, which acquisition was
completed during the 2010 financial year and was dealt with in more detail in
our 2010 Annual Report, Shanduka acquired the Lonmin Employee Masakhane Trust`s
(LEMT), (which Lonmin was instrumental in setting up) shares in Incwala and in
each of the Cornerstone Investors in Incwala. During the course of 2011 the
proceeds of the sale of the LEMT`s shares were released from escrow resulting in
the payment of around R199 million to almost 22,000 qualifying current and
previous Lonmin employees - a triumph for sustainable broad based BEE.
Exploration
International
Joint ventures with Vale S.A. and Wallbridge Mining in Canada to explore for
PGM-
Copper footwall deposits on thirteen properties around the Sudbury Basin are
progressing. On our Vale joint venture (JV) we announced the first PGMs resource
on the Denison property which has a higher Platinum to Palladium ratio than
usual in Sudbury. The JV has appointed Wardrop Tetra Tech to complete a
prefeasibility study for a potential open pit on this mineralisation, which is
due for completion in early 2012. Exploration mapping, geophysical surveys and
drilling were carried out around the Sudbury Basin and generated targets for
follow up in the coming year. Lonmin has options to enter into a further JV with
Wallbridge in 2012 on its North Range properties which are prospective for PGM
mineralisation associated with offset dykes and the footwall style of
mineralisation.
Drilling has recently commenced in Northern Ireland on targets derived from
geophysical and geochemical surveys carried out in the previous year.
South Africa
Western Platinum Limited (WPL) is carrying out exploration activities on
Vlakfontein, near the Pilanesberg Complex and has a JV with Boynton.
Legal
Associated Minerals
Developments in the Keysha matter have been slow and a decision is still awaited
from the Director-General (DG) on the appeal against the award of a prospecting
right to Keysha. After all internal DMR procedures have been exhausted and in
the absence of a decision favourable to Lonmin, the matter would proceed to
court for review. The merits of a compensation claim being lodged by Lonmin on
the basis of expropriation continue to be assessed, as does the merits of
lodging a claim against a former Lonmin director for breach of statutory and
common law duties.
Market Review
Overview
The short term will undoubtedly be challenging, however, medium and long term
fundamentals remain intact and healthy. Tightening emission legislation, growth
in non-road emissions control systems and anticipated growth in the diesel
engine market share, bode well for the demand side while supply particularly
from South Africa remains constrained. The medium term outlook is looking
positive and the longer term view is even better, with stationary fuel cells
promising strong growth potential and ultimately the possibility of the
automotive drive train evolving from internal combustion to fuel cell driven
solutions.
PGM Prices
The gains in the US Dollar basket price during the first quarter of the year
were eroded following the turmoil and volatility that ensued from the Japan
earthquake in the second quarter. Prices since then trended sideways to down
following deepening sovereign debt concerns in Europe, debt default scares,
credit risk downgrades, rumours of Chinese growth slowing and Japan slow to
recover. The Rand basket was under downward pressure in the six month period
from March to July, but Rand weakness in the final quarter brought some relief.
During the first half of the 2011 financial year, platinum prices rose 6% from
$1,679 per ounce to $1,773 per ounce averaging $1,744 per ounce. Platinum prices
averaged $1,778 per ounce in the second half of the financial year, a rise of 2%
on the first half average.
Palladium price growth continued to outperform platinum on the back of firm
supply and demand fundamentals, with palladium dominating the gasoline engine
auto catalyst market in North America and China. Exchange Traded Funds (ETFs)
were another source of demand in the first half of the period whilst rumours
persist that the Russian stockpiles are close to depletion.
Rhodium has traded down with some autocatalyst manufacturers and OEMs well
stocked after having stocks of metal for future requirements. Not even the
launch of a new ETF by Deutsche Bank in May could arrest the price fall.
Demand
Automotive
The increasing need to manage engine emissions will remain the key driver of
demand with more types of engines starting to fall into the legislative net.
Other areas of growth such as fuel cells, both stationary and those used in
vehicles, continue to gather momentum. Electric and hybrid power trains may
increase in market share over coming years but are likely to be transition or
bridge technologies and remain unlikely to become a significant market segment
in terms of vehicle units in the next decade.
Non-road diesel remains a strong new market for platinum, with only Europe and
the US covered by legislation at this stage, accounting for approximately a
fifth of the world`s non-road vehicle fleet. China and India are expected to
follow in 2015/16 and other emerging countries after that. Estimates of on-road
heavy duty diesel vehicles have been upgraded, due to stronger than expected
orders. This is driven by new Tier VI emission legislation coming in 2014 and
some retro fitting.
Diesels in Europe are back above 50% market share. The US also showed growth in
diesel market share and is expected to increase from around 3% currently, to
slightly more than double this figure by 2017.
Jewellery
We have seen sales in China, the world`s largest jewellery market, increase by
more than 10% year on year (800,000 ounces up to September 2011) despite the
Dollar platinum price on average being 13% higher this year compared to 2010.
Record high gold prices and the strong price increase in palladium, used in
competing white gold, contributed to platinum appearing more affordable in
relative terms.
Investment
Growth in the investment market slowed this year. There were some redemptions in
the platinum market in the middle of the year and in the last month of the 2011
financial year, but overall investors have been adding to their Exchange Traded
Funds (ETF) holdings. Overall, platinum ETF holdings increased and are still
close to record levels. Following a strong performance in Lonmin`s first half,
the palladium market has seen consistent redemptions since March, resulting in a
net drawdown for this year. Our long term view for this demand category is that
it will remain a modest net consumer over time.
Outlook
South African supply side challenges remain largely unchanged whilst some
aspects are amplified due to social pressures. Deeper mines, lower grades, skill
shortages and power and water supply challenges all remain.
A further deterrent to investment has been the widely broadcast debate on
nationalisation. Incidents of social and labour unrest place additional strain
in an industry that has to compete for capital to deliver the supply required to
match future demand.
The strength of the Rand and inflationary pressures continue to squeeze
operating margins and cash flows. These factors not only provide an underpin to
metal prices, but may also leave the market in deficit if demand picks up more
strongly than anticipated.
Consequently we will continue to carefully balance the need to invest in growth
capacity ahead of an upturn in demand whilst at the same time remaining focused
on maintaining strong financial discipline.
Our outlook for 2012 has been reviewed with demand for platinum now expected to
be lower than previously estimated. Our previously estimated small deficit has
now changed to a balanced or modestly oversupplied market for the calendar year.
However, we believe that most companies in our end users markets, for example
the auto industry, have strong balance sheets and are financially more robust
than they were in 2009. They will be able to weather the potential slowdown much
better and we also expect the market rebound to be strong when it occurs due to
pent-up demand, with markets expected to recover from 2013 onwards.
Reserves & Resources
* Mineral Resource definition work in South Africa during the year was confined
to the Marikana and Pandora properties. The Limpopo, Akanani and Loskop Mineral
Resources were unchanged during 2011.
* The Mineral Resources at Marikana reduced by 5.7 Moz (3%) of 3PGE+Au in 2011.
Exploration drilling at Marikana in FY11 was focused on infill drilling rather
than Mineral Resource extension and additional data collected during the year
resulted in a 2% increase in resource thickness and a 3% decrease in the
resource grade. Depletion through mining and higher geological losses assigned
to the deeper and Inferred Resource areas accounted for the remainder of the
decrease in the 3PGE+Au Mineral Resource.
* The West Kenya Earn-in and Joint Venture Agreement between Aviva and AfriOre
International (Barbados) Limited, a wholly owned subsidiary of Lonmin Plc
(Lonmin), declared a maiden Inferred Mineral Resource on the Bumbo deposit. The
portion attributable to Lonmin (49%) is 0.82 Mt at a copper equivalent grade of
4%. Details of this copper-zinc-gold-silver resource can be found under the Non-
Platinum Group Elements section of this report.
* Revisions to the Mineral Reserve at Marikana in 2011:
The Marikana Mineral Reserve grade decreased by 3% (0.13 g/t). This was largely
due to the lower resource grade.
The 3PGE+Au content of the Marikana Mineral Reserve was 6% lower (2.5 Moz) as a
result of the lower resource grade, depletion by mining and changes to the mine
design in certain areas resulting in higher pillar and mining loss.
* Other areas of Lonmin`s Mineral Reserve were largely unchanged.
A summary of the changes in the Lonmin Mineral Resources and Mineral Reserves
are shown in the following tables.
PGE Mineral Resources (Total Measured, Indicated & Inferred)1,4
Area 30-Sep-2011 30-Sep-2010
Mt5 3PGE+Au Pt Mt5 3PGE+Au Pt
g/t Moz Moz g/t Moz Moz
Marikana 730.7 4.87 114.4 68.4 740.1 5.05 120.1 71.7
Limpopo2 144.7 4.23 19.7 10.0 144.7 4.23 19.7 10.0
Limpopo Baobab 46.1 3.91 5.8 3.0 46.1 3.91 5.8 3.0
shaft
Akanani 216.0 3.84 26.7 10.9 216.0 3.84 26.7 10.9
Pandora JV 54.8 4.29 7.6 4.6 54.8 4.30 7.6 4.5
Loskop JV3 10.1 4.04 1.3 0.8 10.1 4.04 1.3 0.8
Sudbury PGM 0.35 6.30 0.07 0.04 0.35 6.30 0.07 0.04
JV1,3
Total Resource 1,202 4.54 175.4 97.6 1,212 4.65 181.1 100.9
.6 .0
Notes
1)All figures are reported on a Lonmin attributable basis, the relative
proportions of ownership per project being shown in the Key Assumptions section
of this report.
2)Limpopo2 excludes Baobab shaft.
3)Loskop and Denison JV3 exclude Rhodium, due to insufficient assays, and
therefore 2PGE+Au is reported.
4)Resources are reported Inclusive of Reserves.
5)Quantities and grades have been rounded to one or two decimal places,
therefore minor computational errors may occur.
PGE Mineral Reserves (Total Proved & Probable)
Area 30-Sep-2011 30-Sep-2010
Mt3 3PGE+Au Pt Mt3 3PGE+Au Pt
g/t Moz Moz g/t Moz Moz
Marikana 284.8 4.09 37.4 22.6 293.9 4.22 39.9 24.1
Limpopo2 42.4 3.20 4.4 2.2 42.4 3.20 4.4 2.2
Limpopo Baobab 9.4 3.16 1.0 0.5 9.4 3.16 1.0 0.5
shaft
Pandora JV 5.1 4.14 0.67 0.40 5.2 3.98 0.66 0.39
Total Reserve 341.6 3.95 43.4 25.7 350.8 4.07 45.9 27.1
Notes
1)All figures are reported on a Lonmin attributable basis, the relative
proportions of ownership per project being shown in the Key Assumptions section
of this report.
2)Limpopo2 excludes Baobab shaft.
3)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 pertaining to the 2011 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:
Marika Limpopo - Limpopo Akanan Pandor Losko Sudbur
na Dwaalkop - i a p y PGM
JV Baobab,
Doornvl
ei,
Zebedie
la
Lonmin 82% 41% 82% 74% 34.85% 41% 50%
Attribut
able
* Incwala Resources, Lonmin`s BEE partner, owns 18% of both Western Platinum
Limited (WPL) and Eastern Platinum Limited (EPL), and 26% of Akanani.
* Limpopo includes Dwaalkop JV which is a Lonmin managed JV between Mvelaphanda
Resources (50%) and Western Platinum (50%).
* Pandora JV: EPL has an attributable interest of 42.5% in the Pandora JV
together with Anglo Platinum (42.5%), Mvelaphanda Resources (7.5%) and the Bapo
Ba Mogale Mining Company (7.5%).
* Loskop JV: WPL has an attributable interest of 50% in the Loskop JV with
Boynton Investments.
* Sudbury PGM JV - PGE grades are stated as Pt+Pd+Au (3E). Through the JV,
Lonmin acquires its pro rata share, currently a nominal 50%, of the product from
any PGE deposit developed on the participating properties. The agreement is
that Lonmin will be allocated its pro-rata share in PGE`s and Vale will be
allocated its pro-rata share in Nickel, Copper, Cobalt, Gold and Silver. The
exchange of metals will be governed by prevailing metal prices at the time of
the refined metal production.
* Lonmin has a 49% attributable portion of the Bumbo mineral resource in terms
of The West Kenya Earn-in and Joint Venture Agreement between Aviva Corporation
Limited and AfriOre International (Barbados) Limited a wholly owned subsidiary
of Lonmin.
Where grades are reported as 3PGE+Au these are a summation of the Platinum,
Palladium, Rhodium and Gold grades. Modelling of available assay information,
obtained from drillhole core, indicates that the proportion of 3PGE+Au contained
in 5PGE+Au, which includes Ruthenium and Iridium, is approximately as follows:
UG2 Merensky Platreef
Marikana 0.81 0.92 -
Limpopo 0.86 0.93 -
Akanani - - 0.95
Pandora 0.81 - -
* Where Nickel (Ni) and Copper (Cu) grade estimates are derived from sufficient
reliable information for the various Mineral Resources, they are reported as
average grades in percent. These grades represent acid soluble proportions.
Acid soluble percentages of Ni and Cu are closely correlated to the metals
present as sulphide minerals.
* 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 global
assumptions were used:
Precious Metals (per Troy Ounce): Pt USD1,900, Pd USD850, Rh USD2,500, Ru
USD200, Ir USD600, Au USD1,500.
Base Metals (per metric tonne): Ni USD20,000, Cu USD7,000.
Average exchange rate of US$1 to ZAR8.0.
* Dilutions are quoted as waste tonnes / waste + ore tonnes in percent.
Bumbo Mineral Resources are reported using a cut off grade of 0.7% copper
equivalent.
* The copper equivalent formula for Bumbo was based upon commodity prices at the
close of the market on 25th July 2011, namely:
Copper: USD9,633/tonne ($Cu)
Zinc: USD2,441/tonne ($Zn)
Gold: USD1,614/ounce ($Au)
Silver: USD40/ounce ($Ag)
The copper equivalent (CuEq) is as follows:
CuEq (%) = Cu% + (Zn%*($Zn/100)/($Cu/100)) + (Au g/t*($Au/31.1034768)/($Cu/100))
+(Ag g/t*($Ag/31.1034768)/($Cu/100))
* Unless otherwise stated, the Lonmin Mineral Resources and Reserves estimates
were prepared or supervised by various persons employed by Lonmin.
Financial Review
Earnings per share
Profit for the year ended 30 September 2011 attributable to equity shareholders
amounted to $273 million (2010 - $112 million) and the earnings per share was
134.8 cents compared to 56.9 cents in 2010. Underlying earnings per share, being
earnings excluding special items, amounted to 111.6 cents (2010 - 70.2 cents).
This significant increase in profitability reflects improved PGM and Base metal
prices as well as higher sales volumes, offset somewhat by increased costs and
the impact of the stronger Rand.
Income Statement
The $83 million movement between the underlying operating profit of $311 million
for the year ended 30 September 2011 and that of $228 million for the year ended
30 September 2010 is analysed below.
$m
Year to 30 September 2010 reported operating 203
profit
Year to 30 September 2010 special items 25
Year to 30 September 2010 underlying operating 228
profit
PGM price 290
PGM volume 126
PGM mix (60)
Base metals 51
Revenue changes 407
Cost changes (including foreign exchange impact (324)
of $48m)
Year to 30 September 2011 underlying operating 311
profit
Year to 30 September 2011 special items (4)
Year to 30 September 2011 reported operating 307
profit
Revenue
Total revenue rose by $407 million from 2010 to just below $2 billion for the
year ended 30 September 2011.
The PGM pricing environment during the year improved over the last year and the
impact on the average prices achieved on the key metals sold is shown below:
Year Year
ended ended
30.09.11 30.09.10
$/oz $/oz
Platinum 1,769 1,525
Palladium 752 448
Rhodium 2,145 2,308
PGM basket (excluding by-product 1,299 1,139
revenue)
PGM price improvements contributed $290 million to the overall increase in
revenue. It should be noted that whilst the US Dollar basket price has increased
by 14% over the 2010 comparative period, in Rand terms the basket price
increased by only 9% impacted by the relatively stronger Rand.
PGM sales volume for the year to 30 September 2011 at 1,435,929 ounces was
110,539 ounces or 8% up on the year to 30 September 2010.The improvement in PGM
volumes contributed $126 million. However, the mix of metals sold resulted in an
adverse impact of $60 million mainly due to a lower proportion of Platinum due
to metal-in-process inventory timing differences. Base metal revenue was up $51
million due to a combination of volume and price improvements.
Operating costs
Total underlying costs in US Dollar terms increased by $324 million mainly due
to increased production and the impact of cost escalations. A track of these
changes is shown in the table below:
$m
Year ended 30 September 2010 - underlying 1,357
costs
Increase / (decrease):
Marikana underground mining 92
Marikana opencast mining 31
Limpopo mining 1
Concentrating and processing 13
Overheads 21
Operating costs 158
Pandora and W1 ore purchases 15
Metal stock movement 103
Foreign exchange 48
Depreciation and amortisation -
Cost changes (including foreign exchange 324
impact)
Year ended 30 September 2011 - underlying 1,681
costs
Total Marikana mining costs increased in the year by $123 million or 14%, mainly
as a result of increased production, an 8% wage increase incurred in the period,
and a 24% escalation in electricity costs due to an increase in tariffs. The
ramp up of opencast mining also added $31m to the Marikana mining cost base.
Concentrator and processing costs increased over 2010 by $13 million driven
primarily by increased ore processed, and escalation effects, in particular from
electricity costs as described above.
Ore purchases increased by $15 million driven by a full year of purchases from
W1 in addition to normal Pandora JV purchases.
Overheads increased by $21 million largely due to salary escalation and a full
year of the new State Mining Royalty which added $6 million to the cost base
over the prior year.
The $103 million adverse impact on operating profit, excluding exchange impacts,
of metal stock movements results from the reversal of the stock build up in 2010
due to the run out of the Number One furnace.
The Rand remained strong against the US Dollar during the year under review
averaging ZAR6.95 to USD1 compared to an average of ZAR7.45 to USD1 in 2010
resulting in a $48 million adverse impact on operating costs.
Cost per PGM ounce
The C1 cost per PGM ounce produced for the year to 30 September 2011 was R7,534.
This was an increase of 11.2% compared to 2010. This increase was largely driven
by higher than inflation increases in the wage bill (8%) and electricity tariffs
(24%) as well as a lower grade due to the change in ore mix (increase in
Merensky ore from open cast and underground operations as well as poorer geology
at K3 shaft). These increases were not mitigated by the expected increase in
production in the second half of the year due to the industrial action in May
and management induced safety stoppages in March and April. Had the production
interruptions arising from the safety induced stoppages and the illegal strike
at Karee not occurred, the year on year cost increase per PGM ounce would have
been 8.0%.
Further details of unit costs analysis can be found in the Operating Statistics.
Special operating costs
In 2011 special operating costs of $4 million were charged. The move of the
operational head office from London to South Africa was completed in the first
quarter at a cost of $2 million. In addition a further $2 million impairment
charge was taken on the write down of employee housing in Marikana.
Financing costs
The total net finance costs of $23 million for the year ended 30 September 2011
represent a $52 million adverse movement compared to the total net finance
income of $29 million for the year ended 30 September 2010.
Net bank interest and fees increased from $43 million to $46 million for the
year ended 30 September 2011 largely as a result of the unwinding of previously
capitalised unamortised bank fees relating to the old banking facilities which
were replaced by new facilities during the year. Interest totalling $46 million
was capitalised to assets (2010 - $43 million).
During the year Lonmin entered into an interest rate swap to hedge against its
exposure to a base floating interest rate linked to a six month USD libor. The
swap was entered into prior to drawing down on the loan facility resulting in an
interim fair value loss of $6 million before hedge accounting was applied.
The HDSAs receivable, being the Sterling loan to Shanduka Resources
(Proprietary) Limited (Shanduka), increased by $12 million during the year to 30
September 2011 with $3 million of foreign exchange losses recognised against $15
million of accrued interest. The fair value of the associated HDSA derivative
decreased by $24 million reflecting the significant movement in Lonmin`s share
price since 30 September 2010.
Taxation
Reported tax for the current year was a credit of $28 million after exchange
gains on the translation of Rand denominated tax balances of $82 million and the
tax effects of special items of $2 million. The underlying tax charge is $56
million reflecting an effective rate of 18%. The underlying charge largely
reflects deferred tax charges being recognised on accelerated capital allowances
with an increased level of current tax in the year due to increased
profitability. The dilution in the effective tax rate is driven by exchange
gains on translation of Rand denominated working capital balances at year end
which do not have a tax consequence in US Dollars.
Cash generation and net debt
The following table summarises the main components of the cash flow during the
year:
Year ended 30 September
2011 2010
$m $m
Operating profit 307 203
Depreciation, amortisation and 124 134
impairment
Changes in working capital 245 (218)
Other 6 14
Cash flow generated from 682 133
operations
Interest and finance costs (36) (41)
Tax (16) (12)
Trading cash inflow 630 80
Capital expenditure (410) (261)
Dividends paid to minority (10) (22)
Free cash inflow / (outflow) 210 (203)
Investment in joint venture (2) (3)
Net proceeds from equity - 229
issuance
Additions to financial assets (30) (285)
Issue costs on non current (8) -
borrowings
Dividends paid to equity (30) -
shareholders
Shares issued 1 1
Cash inflow / (outflow) 141 (261)
Opening net debt (375) (113)
Foreign exchange 2 1
Unamortised fees (2) (2)
Closing net debt (234) (375)
Trading cash inflow (cents per 311.2c 40.7c
share)
Free cash inflow / (outflow) 103.7c (103.2)c
(cents per share)
Cash flow generated from operations in the year ended 30 September 2011 at $682
million was significantly higher than the $133 million recorded in 2010. This
was driven off the back of improved operating profits coupled with a much
improved working capital position which saw debtors and inventory decrease by
$260 million and $12 million respectively during the year under review somewhat
offset by a $27 million decrease in creditors.
Trading cash inflow for the year to 30 September 2011 amounted to $630 million
(2010 - $80 million). The cash flow on interest and finance costs decreased by
$5 million. Tax payments increased from $12 million in 2010 to $16 million in
2011 representing provisional corporate tax payments. The trading cash inflow
per share was 311.2 cents for the year ended 30 September 2011 against 40.7
cents for 2010.
Capital expenditure cash flow at $410 million was $149 million above the prior
year and in line with the company`s drive to increase production. In Mining the
expenditure incurred was focused on operating developments at Hossy and Saffy
shafts, equipping and development at K4 and investment in sub-declines at K3. In
the Process Division spend comprised additional furnace capacity and the
Easterns tailings treatment plant.
The proposed final dividend of 15 cents per share for the financial year ended
30 September 2010 was paid during the period under review resulting in a cash
outflow of $30 million.
Net debt at $234 million has decreased significantly by $141 million since 30
September 2010. In the 2010 financial year smelter run-outs led to significant
back end loading of sales resulting in unusually high debtors as well as a stock
build up at year end. This had a significant impact on working capital. The
working capital locked up in receivables at the 2010 year end has subsequently
been realised during the current period under review. Improved profitability on
the back of higher PGM prices and improved volumes has also had a positive
impact on the Group`s net debt position.
As a result 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 7% at 30 September 2011 (30 September
2010 - 10%). The ratio of consolidated net debt to underlying EBITDA decreased
from 1.07 times at 30 September 2010 to 0.54 times at 30 September 2011. As
mentioned later in this report, the reorganisation of the Group`s Bank debt
facilities during the year has resulted in the debt maturity profile being
extended. The quantum of gross bank debt facilities at year end amounted to $945
million, and consequently the Group`s balance sheet has strengthened
considerably over the year.
Principal risks and uncertainties
The Group faces many risks in the operation of its business. The Group`s
strategy takes into account known risks, but risks will exist of which we are
currently unaware. This financial review focuses on financial risk management.
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.
These are the critical factors to consider when addressing the issue of whether
the Group is a Going Concern. As is clear from the following paragraphs, the
Group is in a strong position regarding financial risk. 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.
Liquidity risk
The policy on liquidity is to ensure that the Group has sufficient funds to
facilitate all ongoing operations. The Group funds its operations through a
mixture of equity funding and bank borrowings. The Group`s philosophy is to
maintain an appropriately low level of financial gearing given the exposure of
the business to fluctuations in PGM commodity prices and the Rand / US Dollar
exchange rate.
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, for example
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.
Bank debt facilities were reorganised in July and the existing $875 million in
bank debt facilities were replaced with new facilities totalling approximately
$945 million. The new facilities extend the debt maturity profile, with $823
million of the new facilities being committed for five years and the remaining
facilities being one year rolling facilities. The new facilities consist of a
$700 million syndicated US Dollar facility and three South African Rand
bilateral facilities of R660 million each.
The $700 million syndicated facility which is supported by BNP Paribas S.A.,
Citigroup Global Markets Limited, HSBC Bank Plc, J.P. Morgan Limited, Lloyds TSB
Bank Plc, The Royal Bank of Scotland N.V. and Standard Chartered Bank will be
used to support the longer term capital requirements of the Group. The key
covenants in the US Dollar facilities include a maximum net debt / EBITDA ratio
of 4.0 times and a minimum EBITDA/net interest ratio of 3.5 times.
The three R660 million bilateral facilities are at the WPL level, the operating
company, and will be used for day to day working capital requirements. These
facilities are supported by FirstRand Bank Limited, Investec Bank Limited and
The Standard Bank of South Africa Limited. The key covenants in these facilities
include a maximum net debt / EBITDA ratio of 3.5 times and a minimum EBITDA/net
interest ratio of 3.5 times calculated at a WPL level.
As at 30 September 2011, Lonmin had net debt of $234 million, comprising $310
million of drawn facilities net of $76 million of cash and equivalents and $8
million of unamortised bank fees as well as a further $8 million of external
debt incurred to fund the construction of a chrome treatment plant with an
outside partner.
The effective cost of debt funding was circa 5.9% for the financial period.
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 and consist of the ten banks that have
participated in Lonmin`s new bank debt facilities as described above.
Trade receivables
The Group is exposed to significant trade receivable credit risk through the
sale of PGMs 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.
HDSA receivables
HDSA receivables are secured on the HDSA`s shareholding in Incwala.
Interest rate risk
Currently, the bulk of Lonmin`s outstanding borrowings are in US Dollars and at
floating rates of interest. However, to provide greater certainty, Lonmin
entered into a floating to fixed interest rate swap on the term component of the
US Dollar debt. This fixes the base rate in respect of the $300 million term
facility for the next five years. The interest 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
The Group`s operations are predominantly 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. 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 effects on the Group`s results of a 10% movement in the Rand to
US Dollar 2011 average exchange rate would be as follows:
EBIT +/-
$142m
Profit for the year +/-
$102m
EPS (cents) +/-
50.6c
These sensitivities are based on 2011 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 PGMs, excluding gold, and
therefore any change in prices will have a direct effect on the Group`s trading
results.
For Base Metals and gold, hedging is undertaken where the Board determines that
it is in the Group`s interest to hedge a proportion of future cash flows. The
policy is to hedge up to a maximum of 75% of the future cash flows from the sale
of these products looking forward over the next 12 to 24 months. The Group did
undertake a number of hedging contracts on Nickel, Copper and Gold sales using
forward contracts during the year although no forward contracts were in place at
year end.
The approximate effects on the Group`s results of a 10% movement in the 2011
average metal prices achieved for Platinum (Pt) ($1,769 per ounce) and Rhodium
(Rh) ($2,145 per ounce) would be as follows:
Pt Rh
EBIT +/- $128m +/- $22m
Profit for the year +/- $92m +/- $16m
EPS (cents) +/- 45.4c +/- 7.8c
These sensitivities are based on 2011 costs and volumes and assume all other
variables remain constant. They are estimated calculations only.
Contingent liabilities
On 30 September 2011 Lonmin subscribed for an additional R175.5 million in
preference shares from Lexshell 806 Investments (Pty) Limited, Shanduka`s
investment vehicle in Incwala Resources (Pty) Limited. These funds were then
used by Incwala Resources (WPL`s black empowerment shareholder) to settle its
outstanding liabilities that had previously been guaranteed by Lonmin and as a
result at year end no contingent liabilities in this regard were outstanding.
The Group provided third party guarantees to the Department of Minerals and
Energy in connection with environmental and rehabilitation obligations which the
Group has to fund in order to restore the environment once all mining operations
have ceased. At 30 September 2011 these guarantees amounted to $50 million (2010
- $50 million).
Dividends
In line with the Board`s policy on dividends introduced at the end of 2010, the
Directors propose a final dividend of 15 cents per share for the year.
Simon Scott
Chief Financial Officer
Responsibility Statement of the Directors in respect of the Annual Report and
Accounts
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 Simon Scott
Chairman Chief Financial Officer
11 November 2011
Operating statistics - 5 year review
Uni 2011 2010 2009 2008 2007
ts
Tonnes mined
Marikana Karee 1 kt 4,438 4,115 3,950 3,962 4,609
Westerns kt 3,434 3,694 3,912 4,343 4,931
1
Middelkr kt 1,904 1,918 1,385 884 461
aal 1
Easterns kt 1,174 1,082 935 1,036 1,212
1
Undergro kt 10,949 10,809 10,182 10,226 11,212
und
Opencast kt 601 329 234 1,300 1,597
Limpopo Undergro kt - - 87 523 757
und
Pandora attributable Undergro kt 168 166 142 124 128
2 und
Opencast kt - - 156 275 286
Lonmin Platinum Undergro kt 11,117 10,975 10,411 10,875 12,096
und
Opencast kt 601 329 389 1,575 1,883
Total kt 11,718 11,304 10,801 12,449 13,979
% tonnes mined from % 72.7 75.6 77.7 73.1 72.0
UG2 reef
Tonnes milled3
Marikana Undergro 10,896 10,655 10,148 10,206 11,216
und kt
Opencast kt 748 129 622 1,163 1,469
Limpopo Undergro kt - - 92 534 781
und
Pandora 4 Undergro kt 394 391 335 293 301
und
Opencast kt - - 430 595 649
Ore purchases 5 Undergro kt - - - - 75
und
Opencast kt - - - 30 20
Lonmin Platinum Undergro kt 11,290 11,046 10,576 11,033 12,373
und
Opencast kt 748 129 1,053 1,788 2,138
Total kt 12,037 11,176 11,628 12,821 14,511
Milled head grade 6 Undergro g/t 4.54 4.67 4.57 4.66 4.88
und
Opencast g/t 2.23 2.25 3.70 3.70 4.39
Total g/t 4.40 4.65 4.50 4.52 4.80
Concentrator recovery Undergro % 85.4 84.8 81.0 81.7 80.7
rate 7 und
Opencast % 81.6 63.8 65.1 59.4 55.4
Total % 85.3 84.7 79.8 79.2 77.3
Uni 2011 2010 2009 2008 2007
ts
Metals in
concentrate 8
Marikana Platinum oz 694 149 668,620 612,910 660,429 778,04
9
Palladium oz 324 655 313,590 284,561 303,530 354,03
7
Gold oz 17,471 14,969 14,419 17,221 21,578
Rhodium oz 91,659 93,043 85,008 90,096 102,90
6
Ruthenium oz 144,369 144,913 130,080 139,158 164,82
6
Iridium oz 31,294 31,432 28,389 29,654 37,317
Total oz 1,303,5 1,266,5 1,155,3 1,240,0 1,458,
PGMs 97 66 67 88 713
Limpopo Platinum oz - - 3,770 22,017 35,567
Palladium oz - - 3,331 16,477 24,351
Gold oz - - 243 1,265 2,945
Rhodium oz - - 487 2,660 3,723
Ruthenium oz - - 688 4,128 5,769
Iridium oz - - 159 121 1,245
Total oz - - 8,679 46,667 73,600
PGMs
Pandora Platinum oz 25,241 25,756 46,421 48,743 52,479
Palladium oz 11,847 12,108 20,866 21,282 24,417
Gold oz 179 176 350 371 461
Rhodium oz 3,865 4,036 6,425 6,334 7,439
Ruthenium oz 6,070 6,228 9,338 9,379 10,922
Iridium oz 996 1,041 1,767 1,762 2,415
Total oz 48,199 49,345 85,168 87,872 98,133
PGMs
Ore purchases Platinum oz - - - 937 3,737
Palladium oz - - - 793 1,730
Gold oz - - - 74 46
Rhodium oz - - - 83 533
Ruthenium oz - - - 107 809
Iridium oz - - - 25 180
Total oz - - - 2,019 7,035
PGMs
Lonmin Platinum Platinum oz 719,390 694,376 663,101 732,125 869,83
2
Palladium oz 336,502 325,697 308,758 342,081 404,53
5
Gold oz 17,650 15,144 15,013 18,932 25,030
Rhodium oz 95,524 97,079 91,920 99,173 114,60
1
Ruthenium oz 150,439 151,141 140,106 152,772 182,32
6
Iridium oz 32,290 32,473 30,315 31,562 41,157
Total oz 1,351,7 1,315,9 1,249,2 1,376,6 1,637,
PGMs 96 11 14 45 481
Nickel 9 mt 3,537 2,972 2,794 3,549 4,636
Copper 9 mt 2,223 1,824 1,763 2,216 2,814
Uni 2011 2010 2009 2008 2007
ts
Refined production
Lonmin refined metal
production
Platinum oz 686,877 607,794 655,291 699,942 695,842
Palladium oz 323,907 303,748 297,415 330,209 318,758
Gold oz 18,013 15,284 18,277 20,257 20,485
Rhodium oz 86,702 94,690 95,596 91,063 88,469
Ruthenium oz 164,374 147,854 146,506 158,424 135,873
Iridium oz 26,337 36,073 23,908 31,599 30,430
Total PGMs oz 1,306,210 1,205,44 1,236,99 1,331,49 1,289,85
3 2 3 7
Toll refined metal
production
Platinum oz 44,396 77,571 2,025 - 93,609
Palladium oz 49,119 15,274 941 - 43,274
Gold oz 2,879 1,100 58 - -
Rhodium oz 14,402 5,411 1,532 - 12,966
Ruthenium oz 24,408 8,278 2,647 - 20,439
Iridium oz 5,249 1,695 513 - 4,090
Total PGMs oz 140,453 109,328 7,717 - 174,378
Total refined PGMs
Platinum oz 731,273 685,365 657,317 699,942 789,451
Palladium oz 373,026 319,022 298,356 330,209 362,032
Gold oz 20,892 16,383 18,335 20,257 20,485
Rhodium oz 101,103 100,100 97,128 91,063 101,435
Ruthenium oz 188,782 156,133 149,153 158,424 156,312
Iridium oz 31,586 37,768 24,420 31,599 34,520
Total PGMs oz 1,446,662 1,314,77 1,244,70 1,331,49 1,464,23
2 9 3 5
Base metals
Nickel 10 mt 4,188 3,475 3,244 3,483 4,522
Copper 10 mt 2,454 2,091 1,988 2,009 2,466
Uni 2011 2010 2009 2008 2007
ts
Sales
Refined metal sales
Platinum oz 720,783 681,424 659,703 706,492 786,552
Palladium oz 372,284 315,515 305,332 329,460 362,077
Gold oz 19,417 16,289 18,910 20,151 24,449
Rhodium oz 102,653 98,657 94,160 93,337 102,916
Ruthenium oz 187,189 153,865 146,009 158,477 162,853
Iridium oz 33,603 34,790 23,522 32,140 37,858
Total PGMs oz 1,435,929 1,300,54 1,247,63 1,340,05 1,476,70
0 6 7 5
Concentrate and
other 11
Platinum oz - 24,850 23,253 20,425 7,032
Palladium oz - - (2,848) 11,888 3,232
Gold oz - - 13 117 201
Rhodium oz - - 175 889 1,008
Ruthenium oz - - 303 26,205 1,942
Iridium oz - - 387 1,789 64
Total PGMs oz - 24,850 21,282 61,313 13,479
Lonmin Platinum
Platinum oz 720,783 706,274 682,955 726,918 793,584
Palladium oz 372,284 315,515 302,485 341,348 365,309
Gold oz 19,417 16,289 18,922 20,268 24,650
Rhodium oz 102,653 98,657 94,335 94,227 103,924
Ruthenium oz 187,189 153,865 146,312 184,682 164,795
Iridium oz 33,603 34,790 23,909 33,929 37,922
Total PGMs oz 1,435,929 1,325,39 1,268,91 1,401,37 1,490,18
0 8 1 4
Nickel 10 mt 4,180 3,033 3,318 3,338 5,308
Copper 10 mt 2,448 2,169 2,045 1,978 2,474
Chrome 10 MT 730,278 684,654 708,753 796,100 649,185
Average Prices
Platinum $/o 1,769 1,525 1,086 1,655 1,213
z
Palladium $/o 752 448 224 372 339
z
Gold $/o 1,405 1,153 912 867 647
z
Rhodium $/o 2,145 2,308 1,571 7,614 5,757
z
Ruthenium $/o 168 173 97 340 404
z
Iridium $/o 938 520 388 414 402
z
Basket price of PGMs $/o 1,299 1,139 786 1,529 1,196
12 z
Basket price of PGMs R/o 9,109 8,375 6,873 11,543 8,533
12 z
Basket price of PGMs R/o 9,716 8,790 7,316 11,983 9,298
13 z
Nickel 10 $/M 21,009 18,569 15,006 22,556 26,461
T
Copper 10 $/M 8,612 6,623 6,291 7,212 6,971
T
Chrome 10 $/M 27 5 2 1 1
T
Footnotes:
1 During 2010 the management structure in Mining was revised into four
business units. Karee includes the shafts K3, 1B and 4B and will also
include K4 once production commences. Westerns comprises Rowland, Newman
and ore purchases from W1. Middelkraal represents Hossy and Saffy.
Easterns includes E1, E2 and E3.
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 Tonnes milled and derived metal in concentrate from third-party ore
purchases.
6 Milled head grade is the grammes per tonne (5PGE+Au) value contained in
the tonnes milled and fed into the concentrator from the mines (excluding
slag milled).
7 Recovery rate in the concentrators is the total content produced divided
by the total content milled (excluding slag).
8 Metals in concentrate includes slag and has been calculated using
industry standard downstream processing losses.
9 Corresponds to contained base metals in concentrate.
10 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 the LME grade C. Chrome is produced in
the form of chromite concentrate and volumes shown are in the form of
chromite.
11 Concentrate and other sales have been adjusted to a saleable ounce basis
using industry standard recovery rates.
12 Basket price of PGMs is based on the revenue generated in Rand and Dollar
from the actual PGMs (5PGE + Au) sold in the period based on the
appropriate Rand / Dollar exchange rate applicable for each sales
transaction.
13 As per note 12 but including revenue from base metals.
Uni 2011 2010 2009 2008 2007
ts
Capital expenditure 1 Rm 2,907 1,989 2,106 2,816 1,923
$m 410 267 234 378 276
Cost per PGM ounce
sold 2
Group:
Mining - Marikana R/o 5,292 4,575 4,468 3,880 2,306
z
Mining - Limpopo R/o - - 7,404 6,363 4,463
z
Mining (weighted R/o 5,292 4,575 4,490 3,979 2,430
average) z
Concentrating - R/o 960 862 808 724 470
Marikana z
Concentrating - R/o - - 1,820 1,743 1,506
Limpopo z
Concentrating R/o 960 862 815 761 526
(weighted average) z
Process division R/o 830 809 693 686 600
z
Shared business R/o 452 527 632 845 612
services z
C1 cost per PGM ounce R/o 7,534 6,773 6,630 6,271 4,168
produced z
Stock movement R/o (272) (358) 112 (863) 28
z
C1 cost per PGM ounce 7,262 6,415
sold R/o 6,742 5,408 4,196
before base metal z
credits
Base metal credits R/o (606) (415) (440) (482) (762)
z
C1 cost per PGM ounce 6,656 6,000
sold R/o 6,302 4,926 3,434
after base metal z
credits
Amortisation R/o 617 571 516 420 360
z
C2 cost per PGM ounce R/o 7,273 6,571 6,818 5,346 3,794
sold z
Pandora Mining cost:
C1 Pandora mining R/o 5,020 4,727
cost z 3,371 3,223 2,453
(in joint venture)
Pandora JV cost/ounce R/o 7,228 7,253
to Lonmin (adjusting z 5,956 6,200 4,225
Lonmin share of
profit)
Exchange Rates
Average rate for R/$ 6.95 7.45 9.00 7.45 7.14
period 3
GBP 0.62 0.64 0.64 0.51 0.51
/$
Closing rate R/$ 8.05 6.92 7.47 8.27 6.83
GBP 0.64 0.64 0.62 0.56 0.50
/$
Footnotes:
1 Capital expenditure is the aggregate of the purchase of property, plant and
equipment and intangible assets (includes capital accruals and excludes
capitalised interest).
2 It should be noted that with the restructuring of the business in 2011,
2010 and 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.
3 Exchange rates are calculated using the market average daily closing rate
over the course of the period.
Consolidated income statement
for the year ended 30 September
Specia 2010 Speci
2011 l 2011 Underlyi al 2010
Underlyi items Total ng i items Total
Continuing operations Not ng i (note $m $m (note $m
e $m 3) 3)
$m $m
Revenue 2 1,992 - 1,992 1,585 - 1,585
EBITDA ii 433 (2) 431 350 (13) 337
Depreciation, (122) (2) (124) (122) (12) (134)
amortisation and
impairment
Operating profit iii 311 (4) 307 228 (25) 203
Finance income 4 5 15 20 10 28 38
Finance expenses 4 (10) (33) (43) (9) - (9)
Share of profit of 9 - 9 8 - 8
equity accounted
investments
Profit before taxation 315 (22) 293 237 3 240
Income tax (expense) / 5 (56) 84 28 (80) (38) (118)
credit iv
Profit for the year 259 62 321 157 (35) 122
Attributable to: 226 47 273 138 (26) 112
- Equity shareholders` 33 15 48 19 (9) 10
of Lonmin Plc
- Non-controlling
interests
6 134.8 56.9c
Earnings per share c
Diluted earnings per 6 134.4 56.8c
share v c
Consolidated statement of comprehensive income
for the year ended 30 September
2011 2010
Total Total
Not $m $m
e
Profit for the year 321 122
Other comprehensive income / (expense):
- Change in fair value of available for sale (20) (6)
financial assets (9) -
- Effective portion of changes in fair value of
cash flow hedges
- Net change in fair value of cash flow hedges - 1
reclassified to the income statement
- Changes in settled cash flow hedges released to 1 (3)
the income statement
- Foreign exchange on retranslation of equity (8) 3
accounted investments
- Deferred tax on items taken directly to the (4) 1
statement of comprehensive income
Total comprehensive income for the year 281 118
Attributable to:
- E -Equity shareholders` of Lonmin Plc 235 107
- N -Non-controlling interests 46 11
281 118
Footnotes:
i Underlying results and earnings per share are based on reported results
and earnings per share excluding the effect of special items as defined
in note 3.
i EBITDA is operating profit before depreciation, amortisation and
i impairment of goodwill, intangibles and property, plant and equipment.
i Operating profit is defined as revenue less operating expenses before
i impairment of available for sale financial assets, finance income and
i expenses and share of profit of equity accounted investments.
i The income tax (expense) / credit substantially relates to overseas
v taxation and includes net exchange gains of $82 million (2010 - exchange
losses of $37 million) as disclosed in note 5.
v Diluted earnings per share is based on the weighted average number of
ordinary shares in issue adjusted by dilutive outstanding share options.
Consolidated statement of financial position
as at 30 September
2011 2010
Not $m $m
e
Non-current assets
Goodwill 113 113
Intangible assets 993 978
Property, plant and equipment 2,567 2,199
Equity accounted investments 175 172
Other financial assets 399 404
4,247 3,866
Current assets
Inventories 384 396
Trade and other receivables 154 414
Tax recoverable 1 -
Cash and cash equivalents 8 76 148
615 958
Current liabilities
Trade and other payables (354) (381)
Interest bearing loans and borrowings 8 (10) (66)
Derivative financial instruments (5) (1)
Tax payable (2) (6)
(371) (454)
Net current assets 244 504
Non-current liabilities
Interest bearing loans and borrowings 8 (300) (457)
Derivative financial instruments (9) -
Deferred tax liabilities (716) (751)
Provisions (125) (80)
(1,150) (1,288)
Net assets 3,341 3,082
Capital and reserves
Share capital 203 202
Share premium 997 997
Other reserves 80 88
Retained earnings 1,650 1,422
Attributable to equity shareholders of Lonmin 2,930 2,709
Plc
Attributable to non-controlling interests 411 373
Total equity 3,341 3,082
The financial statements were approved by the Board of Directors on 11 November
2011 and were signed on its behalf by:
Roger Phillimore Chairman
Simon Scott Chief Financial Officer
Consolidated statement of changes in equity
for the year ended 30 September
Equity interest
Calle Share Non-
d up premi Other Retain contro Total
share um reserv ed Total lling equit
capit accou esi earnin $m intere y
al nt $m gsii stsiii $m
$m $m $m $m
At 1 October 2009 193 776 89 1,298 2,356 382 2,738
Profit for the year - - - 112 112 10 122
Total other comprehensive - - (1) (4) (5) 1 (4)
(expense) / income:
- Change in fair value of - - - (6) (6) - (6)
available for sale
financial assets
- Net change in fair value - - 1 - 1 - 1
of cash flow hedges
reclassified to the income
statement
- Changes in settled cash - - (3) - (3) - (3)
flow hedges released to
the income statement
- Foreign exchange on - - - 2 2 1 3
retranslation of equity
accounted investments
- Deferred tax on items - - 1 - 1 - 1
taken directly to the
statement of comprehensive
income
Items recognised directly 9 221 - 16 246 (20) 226
in equity:
- Share-based payments - - - 4 4 1 5
- Transfer from liability - - - 14 14 1 15
for own shares
- Share capital and share 9 224 - - 233 - 233
premium recognised on
equity issuance
- Equity issue costs - (4) - - (4) - (4)
charged to share premium
- Reversal of fair value - - - (2) (2) - (2)
movements on derivative
liability recognised on
equity issuance
- Shares issued on - 1 - - 1 - 1
exercise of share options
- Dividends - - - - - (22) (22)
At 30 September 2010 202 997 88 1,422 2,709 373 3,082
Equity interest
Calle Share Non-
d up premi Other Retain contro Total
share um reserv ed Total lling equit
capit accou esi earnin $m intere y
al nt $m gsii stsiii $m
$m $m $m $m
At 1 October 2010 202 997 88 1,422 2,709 373 3,082
Profit for the year - - - 273 273 48 321
Total other comprehensive - - (8) (30) (38) (2) (40)
(expense) / income:
- Change in fair value of - - - (20) (20) - (20)
available for sale
financial assets
- Effective portion of - - (9) - (9) - (9)
changes in fair value of
cash flow hedges
- Changes in settled cash - - 1 - 1 - 1
flow hedges released to
the income statement
- Foreign exchange on - - - (6) (6) (2) (8)
retranslation of equity
accounted investments
- Deferred tax on items - - - (4) (4) - (4)
taken directly to the
statement of comprehensive
income
Items recognised directly 1 - - (15) (14) (8) (22)
in equity:
- Share-based payments - - - 15 15 2 17
- Shares issued on 1 - - - 1 - 1
exercise of share options
iv
- Dividends - - - (30) (30) (10) (40)
At 30 September 2011 203 997 80 1,650 2,930 411 3,341
Footnotes:
i Other reserves at 30 September 2011 represent the capital redemption
reserve of $88 million (2010 - $88 million) and an $8m hedging loss net of
deferred tax (30 September 2010 - $nil hedging reserve net of deferred
tax). The movement in the current year represents the movement on the
hedging reserve.
i Retained earnings include $13 million of accumulated credits in respect of
i fair value movements on available for sale financial assets (2010 - $33
million accumulated credits) and an $8 million credit of accumulated
exchange on retranslation of equity accounted investments (2010 - $14
million credit).
i Non-controlling interests represent a 18% shareholding in each of Eastern
i Platinum Limited, Western Platinum Limited and Messina Limited and a 26%
i shareholding in Akanani Mining (Pty) Limited.
i During the year 364,924 share options were exercised (2010 - 173,936) on
v which $1 million of cash was received (2010 - $1 million).
Consolidated statement of cash flows
for the year ended 30 September
2011 2010
Not $m $m
e
Profit for the year 321 122
Taxation 5 (28) 118
Share of profit of equity accounted investments (9) (8)
Finance income 4 (20) (38)
Finance expenses 4 43 9
Depreciation, amortisation and impairment 124 134
Change in inventories 12 (125)
Change in trade and other receivables 260 (138)
Change in trade and other payables (27) 40
Change in provisions (13) 5
Share-based payments 17 9
Loss on disposal of property, plant and 2 5
equipment
Cash flow from operations 682 133
Interest received 3 3
Interest and bank fees paid (39) (44)
Tax paid (16) (12)
Cash inflow from operating activities 630 80
Cash flow from investing activities
Investment in joint venture (2) (3)
Additions to other financial assets (30) (285)
Purchase of property, plant and equipment (408) (259)
Purchase of intangible assets (2) (2)
Cash used in investing activities (442) (549)
Cash flow from financing activities
Equity dividends paid to Lonmin shareholders (30) -
Dividends paid to non-controlling interests (10) (22)
Proceeds from current borrowings 8 10 60
Repayment of current borrowings 8 (71) (47)
Proceeds from non-current borrowings 8 300 113
Issue cost on non-current borrowings (8) -
Repayment of non-current borrowings 8 (454) -
Proceeds from equity issuance - 233
Costs of issuing shares - (4)
Issue of other ordinary share capital 1 1
Cash (outflow) / inflow from financing (262) 334
activities
Decrease in cash and cash equivalents 8 (74) (135)
Opening cash and cash equivalents 8 148 282
Effect of exchange rate changes 8 2 1
Closing cash and cash equivalents 8 76 148
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 distinguishes between three reportable operating segments being the
Platinum Group Metals (PGM) Operations segment, the Evaluation segment and the
Exploration segment.
The PGM Operations segment comprises the activities involved in the mining and
processing of PGMs, together with associated base metals, which are carried out
entirely in South Africa. These operations are integrated and designed to
support the process for extracting and refining PGMs from underground. PGMs move
through each stage of the process and undergo successive levels of refinement
which result in fully refined metals. The Chief Executive Officer, who performs
the role of Chief Operating Decision Maker (CODM), views the PGM Operations
segment as a single whole for the purpose of financial performance monitoring
and assessment and does not make resource allocations based on margin, costs or
cash flows incurred at each separate stage of the process. In addition, the CODM
makes his decisions for running the business on a day to day basis using the
physical operating statistics generated by the business as these summarise the
operating performance of the entire segment.
The Evaluation segment covers the evaluation through pre-feasibility of the
economic viability of newly discovered PGM deposits. Currently all of the
evaluation projects are based in South Africa.
The Exploration segment covers the activities involved in the discovery or
identification of new PGM deposits. This activity occurs on a worldwide basis.
No operating segments have been aggregated. Operating segments have consistently
adopted the consolidated basis of accounting and there are no differences in
measurement applied. Other covers mainly the results and investment activities
of the corporate Head Office. The only intersegment transactions involve the
provision of funding between segments and any associated interest.
Year ended 30 September 2011
PGM Inter-
Operati Evaluat Explorat segment
ons ion ion Other Adjustmen Total
Segment Segment Segment $m ts $m
$m $m $m $m
Revenue (external
sales by product):
Platinum 1,275 - - - - 1,275
Palladium 280 - - - - 280
Gold 29 - - - - 29
Rhodium 220 - - - - 220
Ruthenium 32 - - - - 32
Iridium 32 - - - - 32
PGMs 1,868 - - - - 1,868
Nickel 88 - - - - 88
Copper 21 - - - - 21
Chrome 15 - - - - 15
1,992 - - - - 1,992
Year ended 30 September 2011
PGM Inter-
Operatio Evaluat Explorat segment
ns ion ion Other Adjustme Total
Segment Segment Segment $m nts $m
$m $m $m $m
Underlying i:
EBITDA / (LBITDA) ii 425 6 (1) 3 - 433
Depreciation, (122) - - - - (122)
amortisation and
impairment
Operating profit / 303 6 (1) 3 - 311
(loss) ii
Finance income 8 - - 7 (10) 5
Finance expenses (20) - - - 10 (10)
Share of profit of 9 - - - - 9
equity accounted
investments
Profit / (loss) 300 6 (1) 10 - 315
before taxation
Income tax (expense) (60) 4 - - - (56)
/ credit
Underlying profit / 240 10 (1) 10 - 259
(loss) after
taxation
Special items (note 62
3)
Profit after 321
taxation
Total assets iii 3,541 866 1 1,206 (752) 4,862
Total liabilities iv (1,587) (306) (42) (338) 752 (1,521)
Net assets 1,954 560 (41) 868 - 3,341
Share of net assets 48 - - 127 - 175
of equity accounted
investments
Additions to 486 23 - - - 509
property, plant,
equipment and
intangibles
Material non cash 17 - - - - 17
items - share-based
payments
Year ended 30 September 2010
PGM Inter-
Operati Evaluat Explorat segment
ons ion ion Other Adjustme Total
Segment Segment Segment $m nts $m
$m $m $m $m
Revenue (external
sales by product):
Platinum 1,078 - - - - 1,078
Palladium 141 - - - - 141
Gold 19 - - - - 19
Rhodium 229 - - - - 229
Ruthenium 27 - - - - 27
Iridium 18 - - - - 18
PGMs 1,512 - - - - 1,512
Nickel 56 - - - - 56
Copper 14 - - - - 14
Chrome 3 - - - - 3
1,585 - - - - 1,585
Year ended 30 September 2010
PGM Inter-
Operati Evaluat Explorat segment
ons ion ion Other Adjustme Total
Segment Segment Segment $m nts $m
$m $m $m $m
Underlying i:
EBITDA / (LBITDA) ii 359 (3) (6) - - 350
Depreciation, (122) - - - - (122)
amortisation and
impairment
Operating profit / 237 (3) (6) - - 228
(loss) ii
Finance income 3 - - 36 (29) 10
Finance expenses (23) - - (15) 29 (9)
Share of profit of 5 - - 3 - 8
equity accounted
investments
Profit / (loss) before 222 (3) (6) 24 - 237
taxation
Income tax (expense) / (82) (4) - 6 - (80)
credit
Underlying profit / 140 (7) (6) 30 - 157
(loss) after taxation
Special items (note 3) (35)
Profit after taxation 122
Total assets iii 3,537 843 4 963 (523) 4,824
Total liabilities iv (1,888) (294) (46) (37) 523 (1,742)
Net assets 1,649 549 (42) 926 - 3,082
Share of net assets of 47 - - 125 - 172
equity accounted
investments
Additions to property, 293 17 - - - 310
plant, equipment and
intangibles
Material non cash 9 - - - - 9
items - share-based
payments
Revenue by destination is analysed by geographical area below:
Year ended Year ended
30 September 30 September
2011 2010
$m $m
The Americas 414 453
Asia 557 373
Europe 616 529
South Africa 405 230
1,992 1,585
The Group`s revenues are all derived from the PGM Operations segment. This
segment has two major customers who contributed 59% and 27% of revenue in the
year (2010 - 69% and 23%).
Metal sales prices are based on market prices which are denominated in US
Dollars. The majority of sales are also invoiced in US Dollars with the
exception of certain sales in South Africa which are invoiced in South African
Rand based on exchange rates determined in accordance with the contractual
arrangements.
Non-current assets, excluding financial instruments, by geographical area are
shown below:
Year ended Year ended
30 September 30
2011 September
$m 2010
$m
South Africa 3,847 3,461
Europe 1 1
3,848 3,462
Footnotes:
i Underlying results are based on reported results excluding the effect of
special items as defined in note 3.
i EBITDA / (LBITDA) and operating profit / (loss) are the key profit
i measures used by management.
i The assets under "Other" include the HDSA receivable of $351 million
i (2010 - $318 million), the HDSA derivative of $nil million (2010 - $24
i million) and intercompany receivables of $742 million (2010 - $479
million).
i The liabilities under "Other" include non-current borrowings of $300
v million (2010 - $15 million).
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.
2011 2010
$m $m
Operating loss: (4) (25)
- Costs relating to HDSA financing i - (5)
- Impairment of property, plant and equipment ii (2) (12)
- Restructuring and reorganisation costs iii (2) (9)
- Pension refund - 1
Net finance (expenses) / income: (18) 28
- Interest accrued from HDSA receivable i 15 3
- Exchange (loss) / gain on HDSA receivable i (3) 11
- Movement in fair value of HDSA derivative (24) 12
- Net change in fair value of cash flow hedges iv (6) -
- Movement in fair value of derivative liability in - 2
respect of equity issuance
(Loss) / profit on special items before taxation (22) 3
Taxation related to special items (note 5) 84 (38)
Special gain / (loss) before non-controlling interest 62 (35)
Non-controlling interests (15) 9
Special gain / (loss) for the year attributable to 47 (26)
equity shareholders of Lonmin Plc
Footnotes:
i During the year ended 30 September 2010 the Group provided financing to
assist Shanduka to acquire a majority shareholding in Incwala, Lonmin`s
Black Economic Empowerment partner. This financing has given rise to
foreign exchange movements and the accrual of interest in 2011 and 2010.
The Group also incurred fees from advisors in relation to the transaction
in 2010.
i For the years ended 30 September 2011 and 2010 $2 million has been
i written off in respect of houses for sale. During the year ended
September 2010 the Group took a strategic decision to enhance its
smelting capacity by initiating the development of an additional pyromet
furnace. The most cost effective approach was to decommission the
existing Merensky furnace and leverage the existing infrastructure. As
such the Merensky furnace assets could not be reutilised and these were
written off.
i During the year ended 30 September 2011 the Group incurred $2 million
i (2010 - $9 million) in transition costs in relocating corporate functions
i from the London office to South Africa.
i The interest rate swap was entered into prior to draw down of the hedged
v item, resulting in a fair value loss during initial period of mismatch.
4. Net finance (expenses) / income
2011 2010
$m $m
Finance income: 5 10
- Interest receivable on cash and cash equivalents 3 2
- Other interest receivable - 7
- Exchange gains on net debt i 2 1
Finance expenses: (10) (9)
- Interest payable on bank loans and overdrafts (30) (25)
- Bank fees (12) (20)
- Unamortised bank fees realised on settlement of old loan (7) -
facility
- Capitalised interest ii 46 43
- Other finance expenses - (1)
- Unwind of discounting on provisions (7) (6)
Special items (note 3): (18) 28
- Interest on HDSA receivable 15 3
- Exchange (loss) / gain on HDSA receivable (3) 11
- Movement in fair value of HDSA derivative (24) 12
- Net change in fair value of cash flow hedges (6) -
- Movement in fair value of derivative liability in - 2
respect of equity issuance
Net finance (expenses) / income (23) 29
Footnotes:
i 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.
i Interest expenses incurred have been capitalised on a Group basis to
i the extent that there is an appropriate qualifying asset. The weighted
average interest rate used by the Group for capitalisation is 5.9%
(2010 - 5.7%).
5. Taxation
2011 2010
$m $m
Current tax charge (excluding special items):
United Kingdom tax credit - (6)
Current tax credit at 28% (2010 - 28%) - (6)
Less amount of the benefit arising from double tax - -
relief available
Overseas current tax expense at 28% (2010 - 28%) 13 8
Corporate tax expense - current year 18 9
Adjustment in respect of prior years (6) (3)
Tax on dividends remitted 1 2
Deferred tax charge (excluding special items):
Deferred tax expense - UK and overseas 43 78
Origination and reversal of temporary differences 47 79
Adjustment in respect of prior years (4) (1)
Special items - UK and overseas (note 3): (84) 38
Reversal of utilisation of losses from prior years to (2) -
offset deferred tax liability
Exchange on current taxation i (1) 1
Exchange on deferred taxation i (81) 36
Tax on special items impacting profit before tax - 1
Actual tax (credit) / charge (28) 118
56 80
Tax charge excluding special items (note 3)
(9)% 49%
Effective tax rate
18% 34%
Effective tax rate excluding special items (note 3)
A reconciliation of the standard tax charge to the actual tax charge was as
follows:
2011 2011 2010 2010
% $m % $m
Tax charge on profit at standard tax rate 29 85 29 70
Tax effect of:
- Overseas taxes on dividends remitted by - 1 1 2
subsidiary companies
- Unutilised losses ii 1 5 (2) (5)
- Foreign exchange impacts on taxable profits (12) (38) 6 14
- Adjustment in respect of prior years (3) (10) (2) (4)
- Other 4 13 2 4
Special items as defined above (28) (84) 15 37
Actual tax (credit) / charge (9) (28) 49 118
The Group`s primary operations are based in South Africa. The South African
statutory tax rate is 28% (2010 - 28%). Lonmin Plc operates a branch in South
Africa which is subject to a tax rate of 33% on branch profits (2010 - 33%).
After taking into account the tax rate effect of the Lonmin Plc branch, the
aggregated standard tax rate for the Group is 29% (2010 - 29%). The secondary
tax rate on dividends remitted by South African companies is 10% (2010 - 10%).
Footnotes:
i Overseas tax charges are predominantly calculated in Rand as required by
the local authorities. As these subsidiaries` 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 2011 is $569 million (30
September 2010 - $524 million).
i Unutilised losses reflect losses generated in entities for which no
i deferred tax is provided as it is not thought probable that future
profits can be generated against which a deferred tax asset could be
offset or previously unrecognised losses utilised.
6. Earnings per share
Earnings per share (EPS) has been calculated on the earnings attributable to
equity shareholders amounting to $273 million (2010 - $112 million) using a
weighted average number of 202,446,803 ordinary shares in issue (2010 -
196,684,833 ordinary shares).
Diluted earnings per share is based on the weighted average number of ordinary
shares in issue adjusted by dilutive outstanding share options in accordance
with IAS 33 - Earnings Per Share.
2011 2010
Profit Per Profit Per
for Number share for Number share
the of amount the of amount
year shares cents year shares cents
$m $m
Basic EPS 273 202,446, 134.8 112 196,684, 56.9
803 833
Share option - 617,567 (0.4) - 489,302 (0.1)
schemes
Diluted EPS 273 203,064, 134.4 112 197,174, 56.8
370 135
2011 2010
Profit Per Profit Per
for Number share for Number share
the of amount the of amount
year shares cents year shares cents
$m $m
Underlying EPS 226 202,446, 111.6 138 196,684, 70.2
803 833
Share option - 617,567 (0.3) - 489,302 (0.2)
schemes
Diluted Underlying 226 203,064, 111.3 138 197,174, 70.0
EPS 370 135
Underlying earnings per share has been presented as the Directors consider it
important to present the underlying results of the business. Underlying earnings
per share is based on the earnings attributable to equity shareholders adjusted
to exclude special items (as defined in note 3) as follows:
2011 2010
Profit Per Profit Per
for Number share for Number share
the of amount the of amount
year shares cents year shares cents
$m $m
Basic EPS 273 202,446, 134.8 112 196,684, 56.9
803 833
Special items (47) - (23.2) 26 - 13.3
(note 3)
Underlying EPS 226 202,446, 111.6 138 196,684, 70.2
803 833
Headline earnings and the resultant headline 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
2011 2010
$m $m
Earnings attributable to ordinary shareholders 273 112
(IAS 33 earnings)
Add back loss on disposal of property, plant and 2 5
equipment
Add back impairment of assets (note 3) 2 12
Tax related to the above items (1) (5)
Non-controlling interests (1) (2)
Headline earnings 275 122
2011 2010
Profit Per Profit Per
for Number of share for Number share
the shares amount the of amount
year cents year shares cents
$m $m
Headline EPS 275 202,446,8 135.8 122 196,684, 62.0
03 833
Share option - 617,567 (0.4) - 489,302 (0.1)
schemes
Diluted 275 203,064,3 135.4 122 197,174, 61.9
Headline EPS 70 135
7. Dividends
2011 2010
$m Cents per $m Cents per
share share
Prior year final dividend 30 15.0 - -
paid in the year
Interim dividend paid in the - - - -
year
Total dividend paid in the 30 15.0 - -
year
Interim dividend paid in the - - - -
year
Proposed final dividend for 30 15.0 30 15.0
the year
Total dividend in respect of 30 15.0 30 15.0
the year
8. Net debt as defined by the Group
Foreign As at
As at exchange 30
1 October and non September
2010 Cash flow cash 2011
$m $m movements $m
$m
Cash and cash equivalents 148 (74) 2 76
Current borrowings (71) 61 - (10)
Non-current borrowings (462) 154 - (308)
Unamortised bank fees 10 - (2) 8
Net debt as defined by the (375) 141 - (234)
Group
Foreign
As at exchange As at
1 October and non 30
2009 Cash flow cash September
$m $m movements 2010
$m $m
Cash and cash equivalents 282 (135) 1 148
Current borrowings (58) (13) - (71)
Non-current borrowings (349) (113) - (462)
Unamortised bank fees 12 - (2) 10
Net debt as defined by the (113) (261) (1) (375)
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. Statutory Disclosure
The financial information set out above does not constitute the Company`s
statutory accounts for the years ended 30 September 2011 and 2010 but is derived
from those accounts. Statutory accounts for 2010 have been delivered to the
Registrar of Companies, and those for 2011 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 498 (2) or (3) of the Companies Act 2006.
Date: 14/11/2011 09:04:24 Supplied by www.sharenet.co.za
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