Wrap Text
Annual Report and 2013 Annual General Meeting
Lonmin Plc (Incorporated in England and Wales)
(Registered in the Republic of South Africa under registration number
1969/000015/10)
JSE code: LON
Issuer Code: LOLMI & ISIN : GB0031192486 ("Lonmin")
19 December 2012
Lonmin Plc ("Lonmin" or the "Company")
Annual Report and 2013 Annual General Meeting
On 9 November 2012 Lonmin announced its Final Results for the year ended
30 September 2012. The announcement made on that date included inter alia a
condensed set of financial statements and a management report, as required by DTR
4.1.
Lonmin has ton 18 December 2012 posted to shareholders and, in accordance with
LR 9.6.1 R, has submitted to the National Storage Mechanism, printed copies of the
following documents:
• Annual Report and Accounts for the year ended 30 September 2012
• Circular relating to the Annual General Meeting to be held on 31 January 2013
• Forms of Proxy for shareholders on the UK and SA registers
These documents will shortly be available for inspection on the National Storage
Mechanism www.Hemscott.com/nsm.do.
As required by DTR 6.3.5 R (3), the Company confirms that the Annual Report and
the Circular relating to the Annual General Meeting are now available to view or
download in pdf format from the Lonmin website, www.lonmin.com.
The appendix to this announcement contains additional information which has been
extracted from the Annual Report and Accounts for the year ended 30 September
2012 (the "Annual Report and Accounts") for the purposes of compliance with DTR
6.3.5 and should be read together with the Final Results Announcement, which can
be downloaded from the Company's website at www.lonmin.com. This
announcement should be read in conjunction with and is not a substitute for reading
the full Annual Report and Accounts. Together these constitute the information
required by DTR 6.3.5. which is required to be communicated to the media in full
unedited text through a Regulatory Information Service. Page and note references in
the text below refer to page numbers and notes in the Annual Report and Accounts:
• A statement on the principal risks and uncertainties
• A statement on related party transactions
• The Directors’ Responsibility Statement
ENDS
APPENDIX
Lonmin’s Principal Risks and Uncertainties
Lonmin’s top 15 principal risks are detailed below together with their potential impact
and mitigating strategies. These risks have been ranked according to magnitude of
potential impact before mitigating actions. These risks represent a snapshot of the
Company’s risk profile at this time. They are not intended to represent an exhaustive
list of all risks. As the macro environment changes and country and industry
circumstances evolve, new risks may arise or recede or the rankings of these risks
may change according to severity and probability of occurrence.
As Lonmin is acutely aware following the strikes that occurred in August and
September 2012 having a solid risk identification and management system in place,
including internal controls and mitigating strategies to reduce the impact of these
risks, is no guarantee in itself that these risks will not occur. In the 2011 Annual
Report we identified the potential for a breakdown in employee relations as one of
our principal risks and this year we continue to do so, albeit that we have now
elevated this risk to second in our list from 11th previously. Other principal risks to
highlight are the importance of solid relations with local communities and the
importance of a strong balance sheet structure. Both are being actively addressed by
the Board and management. In particular, we are looking to restructure the balance
sheet through an approximately $800m rights issue and an amendment to our bank
debt facilities which removes covenants linked to EBITDA, which can be very volatile.
Additionally, investors should be aware that the Company is a focused producer of
Platinum Group Metals and therefore, while this allows for economies through
specialisation, Lonmin does not benefit from commodity diversification. Further, since
the commodities Lonmin mines are all from one geographic region, its performance is
influenced by the political, social and economic factors that affect South Africa.
This includes significant exposure to the USD / ZAR exchange rate. As such,
volatility in metal prices and exchange rates and changes in the socio-political
environment in South Africa can have a material impact on the financial performance
of the Company, which can be both positive and negative.
Principal Risk Impact Mitigation
1) Failure of safety Could result in a Commitment from the Board and
routines or catastrophic loss of management towards creating a safe
safety strategy life, severely culture throughout the Group. The Safety
disrupt operations & Sustainability Committee monitors the
(either implementation of the safety strategy on
operationally or behalf of the Board. Processes in place
through the for safe production include:
issuance of Section
54 notices) and • Employee engagement strategy and
have a material safety training standards, both of which
adverse effect on are monitored regularly;
the Group’s • Clearly defined safety protocols
financial position including safe behaviour observations in
and if severe could place;
result in Lonmin’s • Regular third party audits and peer
Mining Licence reviews conducted; and
being revoked. • Balanced scorecard measures
incentivise appropriate safety behaviour.
2) Poor employee Could result in an Following the strike in August and
relations unstable workforce September 2012 Lonmin is rebuilding
influenced by that severely relationships with employees. This
internal and disrupts operations includes at Company level a full
external factors (such as through engagement strategy with all unions and
strikes and inter- at an industry level, discussions on
union rivalry) and moving to collective bargaining for the
have a material platinum sector. Rebuilding solid
adverse effect on relationships and trust will take time but
the Group’s is something that the Board and
financial position. management are committed to.
3) Poor Civil unrest could A full engagement strategy with
community severely disrupt community representatives, unions and
relations operations and employees is in place. The Board and
influenced by have a material management are committed to building
external factors adverse effect on solid relationships with local communities
the Group’s to the benefit of all stakeholders.
financial position.
4) Access to cost The Group may not Headroom and key covenants in banking
effective be able to obtain lines are constantly monitored through
funding (strong cost effective rolling cash flow forecasts, as are
balance sheet) funding when treasury related risks such as interest
and treasury required which rate and counter-party risks. As
related risks could impact the announced in October 2012 Lonmin is
ability of the Group looking to restructure its balance sheet
through a rights issue to improve its
to meet its liabilities
as they fall due. financial strength. This includes
amending the current bank debt facilities
to remove EBITDA covenants and
replace these with Tangible Net Worth
and Capex related covenants. These
covenants will more accurately reflect the
solid asset underpin of Lonmin and
remove covenant risk due to market
volatility.
5) Social licence Poor performance Following the strike in August and
to operate and in meeting Social & September 2012 Lonmin’s reputation has
reputational risk Labour plan targets been damaged. We are co-operating fully
(including and a weak with the Farlam Commission to better
Social & Labour reputation could understand the tragic events that
Plan) result in occurred at Marikana so that we can
deteriorating address those issue we are responsible
relationships with for to ensure we never again see a
stakeholders and repeat. We are also engaged with all our
place mineral rights stakeholders including employees,
at risk should unions, communities, suppliers and the
Lonmin’s Mining South African government. For the Social
Licence be & Labour Plan targets are set and
revoked. monitored on a regular basis by the
Executive Committee, the Safety &
Sustainability Committee and the
Transformation Committee. The
Balanced Scorecard incentivises delivery
against these targets.
6) Resource A negative Ongoing dialogue with key stakeholders
nationalism outcome as a and government at all levels to
consequence of understand and address concerns.
resource
nationalism, which
can take many
different forms,
could have a
material adverse
effect on the
Group’s future
operational
performance and
financial position.
7) USD metal Significant changes Lonmin gathers market information from
price and in the supply and a number of sources to monitor market
currency demand of PGMs segments and trends in the industry.
volatility (e.g. if there is Longer term volume contracts with key
(specifically US product substitution customers mitigate off-take risk.
Dollar / SA or supply side Historically there has been a long-term
Rand) constraints) can correlation between USD / SA Rand and
create volatility in PGM basket price, although this can
PGM prices dislocate over short periods. Current
making long-term policy is not to hedge.
planning difficult.
Likewise,
significant
fluctuations in
exchange rates to
which the Group is
exposed can also
make planning
difficult and have a
significant effect on
the Group’s
financial position.
8) Uncompetitive Could have a Lonmin has a clear understanding of its
gross or unit material adverse competitive position and required
costs effect on the productivity improvement plans.
Group’s Balanced Scorecard targets incentivise
competitive cost control.
position.
9) Access to Could impact on Measurement of energy usage and
secure energy, the ability to run energy saving initiatives implemented.
electricity and current operations Load shedding and contractual
water and deliver future agreements with Eskom (SA energy
expansion plans. supplier). Measurement of water usage
and water saving initiatives implemented.
Plans aligned with long-term strategy.
Electricity and water supplies secured for
key areas of the business. Active
participation in relevant industry bodies.
10) Skills Lack of appropriate Processes for individual development
shortages skills could programmes, succession planning and
negatively impact scarce skills allowances are in place.
upon safety, There is a focus on bursaries, graduate
production and the development and mentorship.
ability to deliver
against targets.
11) Theft of Could result in a Continuous security vulnerability
explosives, catastrophic loss of assessments, a code of ethics, whistle
copper cable life, severely blowing procedures and compliance
and product disrupt operations audits are in place. We work closely with
and have a relevant government agencies as well as
material adverse with key stakeholders at all levels to
effect on the minimise.
Group’s financial
position.
12) Failure to Shareholder We have a strong capital projects
deliver on optimised over the department to manage and implement
long-term long-term. long-term capital plans. Borehole drilling,
capital plans magnetic surveys and 3D seismic
and failure to surveys are done to ensure full
deliver understanding of the geology on Lonmin
shareholder properties. Independent peer reviews of
value the long-term plan. Balanced Scorecard
incentivises appropriate reserve
development.
13) Failure in Could severely Lonmin has a clear organisational
internal disrupt operations structure with appropriate segregation of
controls or and have a duties and independent internal and
accounting material adverse external audits with follow up. The
processes effect on the Internal Audit work plan is closely aligned
Group’s financial to the risk management framework and
position. risk profile of the Group.
From an inventory evaluation
perspective, grade targets are set and
reported against. Samples are analysed
at the assay laboratory. Stock counts
carried out every six months, with the
oversight of external and internal
auditors. Metals are tracked
electronically
14) Ineffective Could lead to a There is a contractor hub, management
contractor loss of life, health procedures and basic terms and
management concerns in local conditions of service for all service
communities, providers in place. There is also an
stoppage of established Steercom Committee as well
operations and the as internal and external audits.
possibility of the
withdrawal of
relevant licences
and potential
litigation.
15) Bad ground Significant changes Bore hole sampling and seismic surveys
conditions – to our assessment are conducted under the supervision of
Loss of of the quality and specialist geologists coupled with
reserves extent of our ore independent audits of reserves. Quality
reserves could in-house technical internal review
have a material processes.
adverse effect on
the Group’s future
operational
performance and
financial condition.
TRANSACTIONS WITH RELATED PARTIES
There was one transaction with a related party during the year, other than those of a
revenue nature in the ordinary course of business. This involved the loan of R120
million to Incwala Platinum (Pty) Limited, the Company’s BEE partner on
30 September 2012.
Note 27 Related parties
The Group has a related party relationship with its Directors and key management
(as disclosed in the Remuneration Report and in note 5) and its equity accounted
investments (note 13). The Group’s related party transactions and balances are
summarised below:
2012 2011
$m $m
Purchases from joint venture – Pandora 44 46
Amounts due from joint venture –
Pandora 6 1
Amounts due from associate – Incwala 2 2
Dividends to minorities – Incwalai 14 10
Interest accrued from HDSA investors in
Incwala 16 15
Subscription paid to the Platinum
Jewellery Development Associationii 14 14
Purchases made from Xstrataiii 1 1
Sales to Xstrataiii 27 15
Amounts due to Xstrataiii 1 3
Amounts due from HDSA investors in
Incwala 381 351
All related party transactions are priced on an arm’s length basis.
Footnotes:
i A Group company has made a series of non-interest bearing loans to Incwala
Platinum (Pty) Limited (“IP”). IP is a substantial shareholder in the Company’s
principal operating subsidiaries. Advanced dividends in the sums of R25m,
R79m, R79m, R80m and R120m were made to IP on 28 September 2009,
29 March 2010, 29 September 2010, 30 September 2011 and 30 September
2012 respectively. IP has authorised the relevant Group company to recover
these amounts by reducing future dividends that would otherwise be payable to
all shareholders.
ii The subscription paid by Lonmin is material to the Platinum Jewellery
Development Association of which Lonmin is a member.
iii Xstrata Zinc BV has a 24.9% shareholding in Lonmin Plc.
STATEMENT OF DIRECTORS’ RESPONSIBILITY
The following responsibility statement is repeated here solely for the purpose of
complying with DTR 6.3.5. This statement relates to and is extracted from page 103
of the Annual Report and Accounts. Responsibility is for the full Annual Report and
Accounts and not the extracted information presented in this announcement or the
Final Results Announcement.
"We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
• the Directors' Report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
Roger Phillimore
Chairman
Simon Scott
Chief Financial Officer"
Sponsor: J.P. Morgan Equities South Africa Proprietary Limited
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