Wrap Text
Annual Report and 2014 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")
17 December 2013
Lonmin Plc ("Lonmin" or the "Company")
Annual Report and 2014 Annual General Meeting
On 11 November 2013 Lonmin announced its Final Results for the year ended
30 September 2013. The announcement made on that date included inter alia a
condensed set of financial statements, a management report and a directors’
responsibility statement, all as required by DTR 4.1.
Lonmin has yesterday posted to shareholders and has submitted to the National
Storage Mechanism, copies of the following documents:
• Annual Report and Accounts for the year ended 30 September 2013
• Circular relating to the Annual General Meeting to be held on 30 January 2014
• 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
Accounts 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
2013 (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
ENDS
Sponsor: J.P. Morgan Equities South Africa (Pty) Ltd
APPENDIX
Lonmin’s Principal Risks and Uncertainties
These risks have been ranked according to the 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.
Risk tolerance
Risk tolerance is an indication of the amount of risk a company is willing to accept in
order to meet its strategic objectives. This is reflected in a company’s capacity to
sustain losses and in its ability to continue to meet its obligations under different
trading conditions. Lonmin has a matrix scoring system in place in terms of which
risks are rated based on their likelihood and potential severity. This severity can be
measured using financial, health and safety, environmental, stakeholder or legal
criteria. As such, Lonmin measures more than just the potential financial impact of
risks. These scores are then used to escalate risks within the organisation as
appropriate and prompt mitigating actions to be taken.
1) Safety
Description Impact Mitigation Change
At Lonmin we A failure in safety There is a clearly During 2013 there
value our people. could result in defined employee has been an
We try to position injury or a loss of safety engagement improvement in the
ourselves as an life which would strategy, safety safety environment
employer of choice, have tragic protocols and at Lonmin. The
and provide safe implications for standards that are number of Section
jobs for both our employees, their set and monitored 54 stoppages
employees and our families and the regularly by the declared at Lonmin
contractors. local communities. Executive decreased and, as
However, inherent It would also Committee (Exco). a result, so too has
to the mining severely disrupt The Safety & the number of
industry are risks operations. In Sustainability shifts lost as a
due to unsafe certain situations, Committee result of these
events or these failures could oversees all safety stoppages. We
conditions that can result in safety matters. Certain continue to engage
cause fatalities or stoppages targets in the with the DMR at
injuries. These instigated by Balanced various levels of
include falls-of- management or the Scorecard are management and
ground, tramming, Department of designed to our relationship
scraping and Mineral Resources incentivise safe with the DMR
rigging incidents, (DMR) could behaviour, as continues to
exposure to temporarily discussed in more improve as a result
various gases, fire, suspend part or all detail in the of this engagement
molten metal, of the operations Remuneration and the various
electrocution and under the Mine Implementation safety initiatives
many other Health and Safety Report. that have been
hazards. Act (commonly implemented
referred to as a After the strike in during the course
Section 54 2012, as part of the of the year. Lonmin
stoppage). production ramp up has one of the
process, the lowest Lost Time
Company invested Injury Frequency
many hours in Rate (LTIFR) in the
safety training platinum industry in
before re-opening South Africa,
operations in order demonstrating the
to minimise the risk effectiveness of
of any safety these initiatives.
failures, either Further information
underground or in on Lonmin’s safety
the surface works, achievements can
as our main focus be found in the
was on our people. Strategic Report
A safe working and A Deeper
environment is Look.
normally also a
more productive
one.
2) Employee Relations
Description Impact Mitigation Change
There have been A volatile industrial A detailed The industrial
significant changes relations employee relations relations
in the industrial environment strategy has been environment has
relations landscape characterised by developed and is improved in 2013
in the South mistrust and strike being compared to 2012,
African mining action could result implemented. A however, it still
industry in the past in disruptions to recognition remains volatile.
year. With the operations and agreement has Lonmin is working
emergence of the have a material been signed with hard to rebuild trust
Association of adverse effect on the new majority with employees
Mineworkers and the Group’s union, AMCU. and worker
Construction Union financial position Detailed induction representatives as
(AMCU) as a and have a plans are in place well as maintain
significant union in negative impact on for AMCU shop close relationships
the platinum our employees, stewards as the with all unions.
industry and a their families and transition from the This is evident from
realignment in the local National Union of Lonmin being a
employee support communities. This Mineworkers signatory to the
in favour of this was clearly (NUM) to AMCU as Deputy President’s
union, new ways demonstrated by the majority union framework for
need to be found to the strike action takes place. Stability &
engage with which occurred in However, Lonmin Sustainability in the
employees and 2012. also continues to mining industry and
unions to ensure a engage with all Lonmin’s
safe and trade unions participation in the
productive working including the commemoration of
environment in minority unions to the Events at
which all ensure their Marikana in
stakeholders are concerns are August. The Board
winners. heard. has prioritised
Notwithstanding initiatives aimed at
the union improving the
engagement, there quality of life of our
is an increased employees and
focus on rebuildingtheir families and
relations directly the local
with our communities in the
employees. areas surrounding
our operations. At
the beginning of
the year AMCU
became the
majority union at
Lonmin. The rest of
our workforce are
represented by
NUM, Solidarity or
UASA or are not
unionised. Wage
negotiations have
historically resulted
in a volatile period
during which the
Company attempts
to balance the
expectations of
employees and the
economic realities
of an industry
under significant
margin pressure.
3) Changes to the political, legal, social and economic environment, including
resource nationalism
Description Impact Mitigation Change
The Company is The current Bilateral and There has been a
subject to the risks debates in respect industry level slight improvement
associated with of resource discussions with in this risk in 2013
conducting nationalism have the DMR are from 2012. The
business in South created policy ongoing with a move away from
Africa including but uncertainty and this view to balancing the concept of
not limited to has inevitably led the need for the nationalisation in
changes to the to a decline in country to benefit the resource
country’s laws and investor appetite more from its nationalism debate
policies in for South African natural resources has been positive.
connection with investment risk. with the need to However, many of
taxation, royalties, This is reflected in attract and retain the issues as
divestment, decreased offshore mining investment described above
repatriation of investor appetite and jobs. Mining which the South
capital and for both South companies and African government
resource African equity and industry bodies is now trying to
nationalism. The debt exposure. have made implement through
latter is a broad representations the draft MPRDA
term that describes If some of the regarding the Amendment Bill
the situation where issues under content of the draft require further
a government consideration are MPRDA consideration and,
attempts to assert implemented this Amendment Bill if implemented in
increased could have a with a view to their current form,
authority, control material adverse highlighting areas could be negative.
and ownership effect on the of concern and
over the natural Group’s future motivating for
resources located operational amendments to the
in its jurisdiction. performance and Bill.
financial position.
Resource For example,
nationalism is a profits could be
global negatively
phenomenon, not impacted by the
limited to any imposition of
country. In South additional taxes
Africa, the threat of and revenues
nationalisation could be impacted
appears to have by the sale of
dissipated to some metals at
extent, however, discounted
debate continues developmental
regarding future prices. The
policies relating to obligation to sell
South Africa’s locally could impact
natural resources. long-term supply
This includes agreements with
debate regarding our customers and
the identification of give rise to
strategic minerals, concerns about
the extent of security of supply
beneficiation from South Africa,
required, potentially
development of a expediting the
state owned mining growth of the
company and recycling industry.
whether there
should be
increased taxation
of the South
African mining
industry.
The above issues
have all largely
been incorporated
within the Mineral
and Petroleum
Resources
Development Act
(MPRDA)
Amendment Bill
which is currently
the subject of
Parliamentary
debate. In
particular,
beneficiation is a
major
consideration with
the Bill proposing
that the Minister be
granted a
discretion to
declare certain
minerals as
strategic, that the
Minister determine
what percentage of
strategic minerals
are to be made
available locally
and the
developmental
price at which
strategic minerals
are to be sold, as
well as the Minister
being able to
determine the
conditions
applicable to export
permits. In
addition, the Davis
Commission is
currently looking at
the current tax
regime with a view
to determining
whether additional
taxes should be
imposed on mining
companies.
4) Social licence to operate
Description Impact Mitigation Change
There are a Not focusing and Social and There has been an
number of issues delivering community increase in this risk
that can affect appropriately on programmes are for Lonmin in 2013
Lonmin’s social the issues that give implemented by compared to 2012.
licence to operate. us our social our Exco and The Company’s
These include licence to operate monitored by the reputation has
Lonmin’s could result in Transformation undoubtedly been
sustainability deteriorating Committee and the damaged following
performance (such relationships with Board. There is a the Events at
as our impact on our stakeholders stakeholder Marikana in 2012
the environment in and thereby place engagement and this has
terms of water, air our ability to programme in inevitably had a
and soil pollution operate effectively place, including negative impact on
and waste at risk. ongoing dialogue our social licence
production), our Furthermore, to the with the relevant to operate. We are
safety record, the extent that these authorities in South committed to
contribution we issues are covered Africa and all other addressing the
make towards in our SLP, non- stakeholders. underlying issues
South Africa’s delivery against our Furthermore, the that were
transformation targets could Balanced highlighted by last
agenda and the impact our mining Scorecard includes year’s events. This
impact we have on licences. specific metrics is discussed in
our employees, Withdrawal of our which have been more detail in the
communities and mining licences designed to Strategic Report
other stakeholders. would have a incentivise delivery and A Deeper
The Board material adverse against specific Look. In addition
supports the view effect on the targets. During the Farlam
that delivering our Group’s financial 2013, Lonmin Commission of
transformation and position. appointed an Inquiry is still in
social responsibility additional Exco progress and the
obligations are member, findings of this
essential, as are Lerato Molebatsi, commission into
our commitments Executive Vice the Events at
under the Mining President for Marikana in 2012
Charter and our Communications may have an
need to be a good and Public Affairs, impact on Lonmin.
corporate citizen. who, amongst
other
responsibilities,
has specific
responsibility for
Stakeholder
management,
South African
regulatory affairs
and community
development.
Lerato Molebatsi
and another Exco
member, Barnard
Mokwena, who is
responsible for
transformation,
human settlements
and mining charter
compliance are
driving our strategy
in these areas.
5) Community relations
Description Impact Mitigation Change
Due to the fact that Deteriorating The Board has Risk in this area
mining is relationships with prioritised remains
conducted in areas our communities as initiatives aimed at unchanged from
where communities a result of poor improving the 2012. Our focus
are present this services and high quality of life of our during the last year
creates a sense of unemployment can employees, their has been on
ownership amongst result in civil unrest families and their rebuilding trust with
communities which which could communities. our communities
leads to the severely disrupt following the
expectation that our operations. As A number of Events at
they will benefit many of our projects have been Marikana. The
from mining employees also developed as part appointment of the
activities. This live within these of the Employee EVP for
expectation is often communities, Value Proposition Communications
not met and this disruptions within and the Community and Public Affairs
may result in these communities Value Proposition. and the formation
conflict and unrest. and poor living These projects are of the stakeholder
Affected conditions have a being driven engagement forum
communities are direct impact upon through a represent two key
particularly our employees, stakeholder elements in our
vulnerable to which in turn can engagement. strategy to drive
flawed consultation impact employee There are also improvements in
processes and a productivity and many community this area.
lack of access to morale. projects underway,
information. many of which are
particularly focused
The environmental, on increasing
health and social levels of local
impacts of mining recruitment.
are often felt by
those communities
who live and work
in close proximity
to the mine and the
living conditions of
our employees
have a direct
influence on their
general wellbeing
and on their ability
to succeed in their
working
environments.
6) Metal prices and currency volatility
Description Impact Mitigation Change
Commodity price Incorrect metal Lonmin gathers Risk in this area
and currency price and market information remains
volatility increase exchange rate from a number of unchanged from
the risks in assumptions used different sources to 2012. Metal and
managing a mining in long-term better understand currency markets
business. This is planning can lead the supply and continue to remain
especially because to incorrect demand dynamics very volatile. In
mining requires planning decisions for our key particular 2013 has
long planning and have negative products and the seen lower USD
horizons to plan financial factors that could PGM metal prices
new mines and consequences. In affect metal price but these have
make decisions addition, volatile volatility. We do been off-set by a
regarding the metal prices may this to try and weaker South
expansion and also affect the develop more African Rand which
contraction of decisions made by accurate has meant that
existing operations. our customers and assumptions in our cost and capital
These decisions may result in them forecasting. We expenditure
often need to be considering also enter into increases (as
made based on substituting our longer term volume reported in USD)
assumptions products with other contracts with key have been
regarding future alternatives. This customers to contained. This has
metal prices (which could then mitigate off-take helped maintain
drive revenue) and negatively affect risk. margins. However,
exchange rates (in the demand for our the continued
our case primarily products and Although volatility and
the USD/ZAR hence our revenue. historically there uncertainty in
exchange rate as Job losses may has been a degree commodity price
the majority of our also be inevitable of correlation and currency
cost and capital in order to protect between the markets continue
expenditure are the business during USD/ZAR to make longer
incurred in South low metal price exchange rate and term planning and
African Rand). regimes the PGM basket investment
When these price, this does not decisions
assumptions are always hold true challenging.
wrong and this and can dislocate.
then results in cash Such dislocations
flows being less can be both
than anticipated positive and
this can have a negative. Currently
significant negative it is not our policy
financial impact to hedge, partially
upon the business. because the cost of
hedging the metal
prices for the
products which
Lonmin produces
are high and the
forward markets in
these metals are
not very liquid.
7) Uncompetitive costs
Description Impact Mitigation Change
Lonmin measures In a poor metal Lonmin has a clear Risk in this area
its costs based on price environment understating of its has improved from
its cash cost per cost increases can competitive 2012. Lonmin
PGM ounce result in a margin position both at a believes that its
produced. When squeeze which Group level and by relative unit cost
this is compared to would result in operation position when
the equivalent negative financial (including at each compared to its
costs for our peers, consequences. shaft) and the peers is better than
this determines our Because so much productivity in 2012. Already
relative position on of the PGM improvements that before the Events
the cost curve for industry is are required to at Marikana in
the industry. The concentrated in improve this 2012 a number of
PGM mining Southern Africa position. These key operating
industry is highly and therefore most requirements are initiatives had
concentrated in producers are driven through the started to produce
Southern Africa subject to the same budgeting and good productivity
and as a result all cost pressures, this long-term planning improvements
the main producers then makes it process, with within the
face very similar extremely numerous detailed business.
cost pressures. In important to be initiatives in place Following the
particular, labour is competitive in across the Events at Marikana
a significant cost respect of costs business to drive these initiatives
driver for both versus peers. productivity have continued,
Lonmin and the improvements. The together with a
industry generally Balanced focus on cash
due to the large Scorecard conservation and a
amount of labour measures also management
required to mine incentivise cost restructuring
the very narrow control. Ultimately, exercise to reduce
PGM reefs to grow profitability, costs and increase
predominantly productivity must effectiveness in the
found in Southern grow at a rate management
Africa. Other greater than the hierarchy.
important cost rate at which
drivers include the margins might
cost of chemicals, otherwise decline
power, water, as a result of lower
timber, steel and metal prices and
concrete. higher costs.
8) Utilities
Description Impact Mitigation Change
As a result of Supply constraints Lonmin has Risk in this area
historical under in respect of implemented has increased from
investment by energy or water numerous energy 2012. Despite this,
South Africa in could impact upon saving initiatives. 2013 was a
infrastructure our ability to There are also load successful year in
Lonmin faces operate effectively shedding and terms of our energy
potential supply and meet our contractual efficiency journey
constraints in production targets. agreements in with several
respect of utilities Furthermore, cost place with Eskom initiatives
(especially energy increases in to manage any completed and a
and water) together respect of these supply side significant increase
with increased utilities impact our constraints from in general
costs in the margins. This is the grid. Trial awareness evident
consumption of then compounded renewable amongst the
these utilities. by the imminent generation and management
Electricity supply is implementation of additional energy teams across our
likely to be a carbon tax which saving projects are operations was
especially at risk in would place further currently under achieved. Further
the next two years pressure on our investigation or information on our
until Eskom’s new operational costs. implementation. water consumption
power stations, Similarly, with and conservation
which are currently regard to securing measures is
behind schedule, water, an available in the
come on stream. Integrated Water Strategic Report
Water availability is Balance project is and A Deeper
particularly underway and Look.
problematic in forms part of the
provinces such as Water
the North West and Conservation and
Limpopo where the Demand
infrastructural Management Plan
capacity to store for Marikana. The
and transfer water aim of this strategic
is limited and project is to
where long periods optimise water use
of drought are efficiency, minimise
common. fresh water
Furthermore, water consumption and
for mining is improve our long-
increasingly term access to
competing with water.
other priorities,
such as water for
communities,
agriculture and
other industries.
9) Long-term planning
Description Impact Mitigation Change
Difficult geological The result of poor Borehole drilling, Risk in this area
conditions result in long-term planning magnetic surveys remains
increased due to not properly and 3D seismic unchanged from
complexity in the understanding the surveys are 2012. During 2013,
ability to design a geology of a conducted during surface drilling
mine. The mineral property or study work in of 40,000 metres
consequence of poor timing Concept, Pre- continued at
this is to risk the decisions can feasibility and Marikana with the
production profile result in sub Feasibility phases completion of 34
which may optimal capital which are aligned boreholes as
necessitate the allocation, which to a project pipeline part of an infill
acceleration of may result in poor schedule. The programme to
underground ore value extraction for mine extraction improve the
reserve a shaft over its life. strategy for the confidence of the
development to This will then result whole property is mineral resource.
generate sufficient in shareholder then revised In addition,
replacement ore value not being annually to take reprocessing of the
reserves. Further, optimised over the into account new K4 and K5 seismic
as borehole drilling long-term. data. Conceptual surveys has been
is done in a grid scenario planning completed, which
with a spacing of is also conducted resulted in an
800 metres annually driven by improved
between boreholes strategy, structural understanding of
there is uncertainty geology and mining the geology. This
in respect of the shaft hoisting and data will be
actual grades and processing included in the
reef thickness that capacities and long-term planning
will be encountered incorporated into process for the
when mining. This the long-term plan. 2014 plan.
uncertainty is The revised plan is
higher in some then managed As a result of the
reefs than others. weekly to deliver restricted capital
As a result of the against this long- available in the
wide spaced data, term plan. Further, LRP, we are using
grade estimates independent peer current
are often smoothed reviews of the long- infrastructure to the
over large areas, term plan are held maximum in
increasing risk. before submission extending current
to the Board. The shaft boundaries. A
technical service comprehensive
function also acts capital ranking
independently of model was
mine management developed in the
and scrutinises past year to enable
flexibility of working an integrated
areas. Balanced mining and
Scorecard processing ranking
measures also approach that will
incentivise enable better
appropriate reserve decision making in
development terms of capital
planning. allocation and
spend.
10) Skills shortages
Description Impact Mitigation Change
Increased global Lack of appropriate There are Risk in this area
investment in skills could processes in place remains
mining over the negatively impact for individual unchanged from
past few years has safety, production development 2012. At the end of
driven demand for and the ability to programmes, 2013 we had
skilled workers deliver against succession 47.6% HDSAs in
around the world. targets. Failure to planning and management,
In South Africa, this meet our HDSA retention strategies including white
is compounded by targets could also for scarce skills. women, of which
the requirement to negatively impact There is also a 36% HDSAs are in
increase the Lonmin’s mining particular focus on permanent
proportion of rights. In order to bursaries, graduate management
HDSAs retain our skilled development, positions. Women
represented in labour we need to mentorship made up 8% of our
management to continuously look programmes and workforce at the
40% by the end of at market related an Internship end of 2013, with
2014. remuneration programme to 5.1% being in core
packages as assist students mining positions.
compared to the who need to Woman at the mine
incentive and complete their increased by 1.8%.
retention schemes practical work in
offered by Lonmin. order to obtain a More than 50% of
This continuous tertiary the bursaries
monitoring of qualifications. allocated have
remuneration When recruiting, originated from the
practices and preference is given greater Lonmin
matching the to HDSA community. Within
packages offered applicants. Lonmin the mining and
by our peers in is also launching processing
order to attract and an artisans college. divisions the
retain employees For mining there Leadership
of a suitable calibre are portable skills Staircase
can result in development programme that
increased costs. training programs maps the route of
to help drive an employee that is
productivity to be fast tracked
improvements. for management
positions has been
rolled out.
TRANSACTIONS WITH RELATED PARTIES
There was one transaction with a related party during the year, other than those in
the ordinary course of business. On 25 September 2013 a subsidiary company,
Western Platinum Limited made a non-interest bearing loan of R110 million to
Incwala Platinum (Pty) Limited (“Incwala”), the Company’s BEE partner, and
committed to make a further non-interest bearing loan of R160 million by no later
than 31 March 2014. Incwala owns beneficially more than 10% of the share capital of
two material operating subsidiaries, Eastern Platinum Limited and Western Platinum
Limited, and is therefore a related party.
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:
2013 2012
$m $m
Purchases from joint venture – Pandora 46 44
Amounts due from joint venture –
Pandora 9 6
Amounts due from associate – Incwala 2 2
Dividends to minorities – Incwalai 11 14
Interest accrued from HDSA investors in
Incwala 17 16
Subscription paid to the Platinum
Jewellery Development Associationii 7 14
Purchases made from Glencore Xstrata
Plcii 1 1
Sales to Glencore Xstrata Plciii 36 27
Amounts due from Glencore Xstrata Plciii 2 1
Amounts due from HDSA investors in
Incwala 399 381
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 (Proprietary) Limited (IP). IP is a substantial shareholder in the
Company’s principal operating subsidiaries. In 2013 advanced dividends of R110
million (2012 – R120 million) were made to IP bringing the total advance
dividends made between 2009 and 2013 to R493 million. IP has authorised the
relevant Group company to recover these amounts by reducing future dividends
that would otherwise be payable to all shareholders.
In addition, the Group has committed to provide an additional loan facility to IP of
R160 million which they can draw down on to meet their funding obligations in
March 2014.
ii The subscription paid by Lonmin is material to the Platinum Jewellery
Development Association of which Lonmin is a member.
iii Glencore Xstrata Plc has a 24.54% shareholding in Lonmin Plc.
iv Refer to note 14 for details regarding the amounts due from HDSA investors in
Incwala.
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