Wrap Text
Annual Report and 2015 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")
15 December 2014
Lonmin Plc ("Lonmin" or the "Company")
Annual Report and 2015 Annual General Meeting
On 10 November 2014 Lonmin announced its Final Results for the year ended 30 September 2014
(the “Final Results Announcement”). 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 today 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 2014 (the "Annual
Report and Accounts")
• Circular relating to the Annual General Meeting to be held on 29 January 2015
• 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.morningstar.co.uk/uk/nsm.
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 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, 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 on a residual basis according to the magnitude of potential impact,
probability and taking into account the effectiveness of existing controls. The risks represent a
snapshot of the Company’s current risk profile. This is not an exhaustive list of all risks the
Company faces. As the macro environment changes and country and industry circumstances
evolve, new risks may arise or existing risks may recede or the rankings of these risks may change.
Risk tolerance
Risk tolerance is an indication of the amount of risk a company is willing to accept in pursuit of its
strategic objectives. This is reflected in a company’s capacity to sustain losses yet 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 probability of occurrence and potential
severity. These ratings are then used to drive mitigating actions.
1) Safety
Description Impact Mitigation Change KPIs/Performance
metrics
At Lonmin we A failure in safety There is a Allowing for the LTIFR
value our routines could clearly defined impact of the
people. We try result in injury or employee safety strike, there has Number of LTIs
to position loss of life, which engagement been an overall
ourselves as an would have tragic strategy, safety improvement in Number of fatalities
employer of implications for protocols and the safety
choice, and employees, their standards that environment as Severity rate
provide a safe families and the are set, demonstrated by
working local communities. monitored and a year-on-year
environment for It would also managed by improvement in
our employees, severely disrupt various LTIFR of 4.6%.
our contractors operations and operational The number of
and the could result in committees Section 54
communities we safety stoppages. and ultimately stoppages
operate in. These may the Exco. The decreased during
However, the be instigated by SHE Committee the year, as did
mining industry management, or oversees all the number of
has inherent the DMR could safety matters shifts lost as a
risks that can temporarily on behalf of the result of these
cause suspend part or all Board. Certain stoppages.
fatalities or of the operations targets in the Regrettably,
injuries. These under the Mine Balanced however, we
include falls-of- Health and Safety Scorecard are suffered one
ground, Act (commonly designed to fatality during the
tramming, referred to as a incentivise safe year. We continue
working at Section 54 behaviour, as to engage and
heights, stoppage). discussed in build relationships
scraping and more detail in with the DMR at
rigging the various levels of
incidents, Remuneration management.
exposure to Implementation
gases, fire, Report. After
molten metal, this year’s strike,
electrocution as part of the
and many other production ramp
hazards. up process, the
Company
invested many
hours in safety
training and
induction before
re-
commissioning
operations in
order to
minimise the risk
of any safety
failures, either
underground or
on surface, as
our main focus
was on our
people.
2) Employee and union relations
Description Impact Mitigation Change KPIs/Performance
metrics
A volatile The three largest The strike The industrial Tonnes lost due to
industrial South African concluded with a relations industrial action
relations PGM producers, three year wage environment
environment including the agreement deteriorated
characterised by Company, negotiated in during the course
poor experienced tandem with the of FY2014.
communication, significant other two major However, the
mistrust and industrial action PGM producers, settlement
industrial action, during the year which will be agreement and
including strikes, due to a effective until 30 the relationship
exacerbated by breakdown in June 2016. A charter represent
poor wage negotiations relationship a significant step
macroeconomic with the majority charter has also forward in our
and union, AMCU. The been with AMCU and
socioeconomic five month long established with with our
factors, could strike at our AMCU including, employees
result in Marikana importantly, a
disruptions to operations commitment
operations and resulted in the loss from AMCU that
have a material of around 391,000 there would be
adverse effect saleable Pt ounces no further
on the Group’s and an estimated industrial action
financial revenue loss of in respect of the
position. R8.3b. Striking issues covered
employees lost, on by the three
average, 45% of year wage
their earnings and agreement. A
many suffered process of
deterioration in structured
their health and engagement
wellbeing due to with AMCU with
poor nutrition and clear
reduced access to governance
health care and structures and
medication. The capacity
protracted strike development
also severely initiatives has
impacted local been
communities and established. The
businesses, Company
suppliers and, intends to
more broadly, led extend the
to a deterioration charter to its
in investor minority unions.
confidence in the In addition,
sector and in the management
region. has embarked
on a programme
to re-establish
direct
communication
with our
employees,
using a variety
of
communication
channels such
as open forums
(legotlas).
3) Failure to deliver required operational performance
Description Impact Mitigation Change KPIs/Performance
metrics
Failure to deliver Poor operational A clear and The level of risk Productivity
against delivery can lead focussed short increased
production and to a decline in and medium significantly Platinum sales
cost targets can profitability and term operational during FY2014 as
result from a cash generation, strategy has a result of the five Immediately
variety of which would in been developed. month strike. available ore
reasons, turn pose threats The reserves
including poor to our liquidity appointment of a
operational position and Chief Operating PGM
management, impact profitability. Officer to instantaneous
poor oversee both recovery rate
productivity, mining and
safety processing Cost of production
stoppages, operations per PGM ounce
industrial action together with the
and difficult supporting
geological functions has
conditions. improved
operational
alignment
across the
business. The
cost control
programme
implemented in
FY2013
continues to
gain traction and
is delivering cost
savings across
the business.
4) Community relations
Description Impact Mitigation Change KPIs/Performance
metrics
Dysfunctional Deteriorating A number of There has been a Community spend
relationships relationships with initiatives aimed significant step
with local the local at improving the forward in our Number of
communities communities as a quality of life of relations with the bursaries
hinder result of poor our employees, local communities
transformation services and high their families that surround our Number of
and can lead to unemployment can and their operations. An learnerships
operational result in civil communities are agreement has
disruption. unrest which could underway. been reached Sustainability and
severely disrupt These projects with the Bapo ba social agenda
our operations. As are being driven Mogale
many of our through a Traditional
employees live structured Community to
locally, any stakeholder convert their
disruptions within engagement existing
the communities process. There entitlement to
and poor living are also various future royalties
conditions can community and their interest
have a direct projects in the Pandora JV
impact upon our underway, many in to equity
employees. The of which are participation in
failure to deliver particularly Lonmin and a
social upliftment focused on deferred payment
projects (triggering increasing levels paid over five
protests or of local years as well as
violence) and recruitment. the opportunity for
corporate the Bapo to
reputational participate in the
damage can result procurement and
if communication business value
with these chain activities. In
stakeholders is not addition, two
managed community trusts
effectively. The have been
environmental, established for
health and social the Bapo and the
impacts of mining community
can be felt by residing in the
those communities western portion of
who live and work our Marikana
in close proximity operations on
to the operations. land not
belonging to the
Bapo for the
purpose of
funding
community
upliftment
projects.
5) Metal prices and currency volatility
Description Impact Mitigation Change KPIs/Performance
metrics
Commodity Incorrect metal Lonmin gathers Metal and Dollar price per
price and price and market currency markets PGM ounce
currency exchange rate information from continue to
volatility assumptions used a number of remain very Rand Basket price
increase the in long-term different sources volatile. In
risks in planning can lead to better particular 2014 Platinum price
managing a to incorrect understand the has seen lower
mining business. planning decisions supply and USD PGM metal Dollar/Rand
This is and negative demand prices but these exchange
especially financial dynamics for our have been off-set rate
because mining consequences. In key products by a weaker
requires long addition, volatile and the factors South African
planning metal prices may that could affect Rand which has
horizons to plan also affect the metal price meant that cost
new mines and decisions made by volatility. We do and capital
make decisions our customers and this to try and expenditure
regarding the may result in them develop more increases (as
expansion and considering accurate reported in USD)
contraction of substituting our assumptions in have been
existing products with other our forecasting. contained. This
operations. alternatives. This We also enter has helped
These decisions could then into longer term maintain margins.
often need to be negatively affect volume However, the
made based on the demand for our contracts with continued
assumptions products and key customers volatility and
regarding future hence our to mitigate off- uncertainty in
metal prices revenue. take risk. commodity price
(which drive Underachievement Although and currency
revenue) and of projected levels historically there markets continue
exchange rates of profitability and has been a to make longer
(in our case cash flows can degree of term planning and
primarily the impact our ability correlation investment
USD/ZAR to fund and between the decisions
exchange rate undertake projects USD/ZAR challenging.
as the majority and spending exchange rate
of our cost and planned in future and the PGM
capital years. basket price,
expenditure is this does not
incurred in always hold true
South African and can
Rand). Our dislocate. Such
business plans dislocations can
and projections be both positive
have been and negative.
based on mildly Currently it is
increasing PGM not our policy to
prices, which hedge, partially
may not be because the
realised. cost of hedging
metal prices for
the products
which Lonmin
produces are
high and the
forward markets
in these metals
are not very
liquid. Update
business plans
and projections
on an ongoing
basis, and
adjust the same
for continuing
lowered PGM
prices.
6) Inadequate Liquidity Levels – Unavailability of funds to meet business
needs
KPIs/Performance
Description Impact Mitigation Change
metrics
The availability Inadequate The Group’s Exposure to this Free cash flow
of funds to meet liquidity can lead philosophy is to risk increased as
business needs to insufficient maintain an the five month Net debt
can affect the funds to facilitate appropriately long strike
Group’s ability to on-going low level of consumed our net Amount of
continue as a operations, financial gearing cash. available banking
going concern. reduced facility given the facilities
Key factors headroom or a sensitivity of the
affecting the breach of certain business to
Group’s liquidity covenants to fluctuations in
position are which our bank PGM commodity
weak metal facilities are prices and the
prices, a subject. USD/ZAR
stronger exchange rate.
USD/ZAR Mitigation
exchange rate measures
and lower than include cash
planned conservation
production. and prudent
management of
bank debt
facilities. The
Board reviews
and approves
the financial
strategy and the
output from
annual
budgeting, long-
term planning
and cash flow
forecasting are
reviewed by the
Board and
senior
management.
7) Mining Charter obligations, other regulatory requirements and social
licence to operate
KPIs/Performance
Description Impact Mitigation Change
metrics
Lonmin is Lonmin’s New Social and There has been Level of equity
heavily Order Mining community an overall participation
regulated by a Rights are programmes increase in the
vast array of conditional upon have been level of risk in this Level of HDSA%
regulatory the performance of implemented. area. Whilst the representation
requirements obligations set out Progress Group has been
including the in the social & against our successful in Number of hostels
MPRDA. This labour plans commitments is reaching an converted
legislation is agreed with the closely agreement with
critical as it DMR and which monitored by the the local Level of BEE
impacts detail the Group’s Exco, SET communities to procurement
Lonmin’s responsibilities Committee and enable them to
operating under the Mining the Board. achieve equity Level of spend on
licence. Various Charter. Failure to There is a participation in Human
other regulatory meet stakeholder Lonmin and an Resources
requirements these obligations engagement ESOP is expected Development
are also can impact programme in to be
required to be Lonmin’s operating place, including implemented for HDSA receivable
complied with licence and can on-going the benefit of our and
and it is result in dialogue with employees, there recoverability
therefore critical deteriorating the relevant are certain
that they are relationships with authorities in commitments in Level of community
understood and our stakeholders, South Africa and relation to, for spend
appropriate reputational all other example, housing
measures are damage, stakeholders. and employment
implemented to regulatory fines The Balanced equity, which will
achieve and other punitive Scorecard not be satisfied to
compliance. measures. In includes specific the extent and
Alongside these addition, certain of metrics which within the
legal and our BEE partners have been timescales
regulatory are reliant on designed to originally
obligations and, funding provided incentivise envisaged. During
equally critical, by the Company delivery against the year, an
are our social and have specific targets. advance dividend
responsibility significant Lonmin holds was made to
obligations by balances owing to security over Incwala and
which we earn us. shares of certain interest was rolled
our social of its BEE up on the debt
licence to partners or their owed by an entity
operate in the underlying in the Shanduka
communities investment in Group. Overall,
that host our Lonmin Group sums owed to the
operations. companies, Group by its BEE
which could be partners
enforced should increased during
these the year. The
counterparties Farlam
default on their Commission of
obligations to Inquiry is nearing
us. completion with
final arguments
due to be
presented mid
November 2014
and the findings
and
recommendations
are due to be
presented to the
President in
March 2015. The
extent to which
these
proceedings
impact our social
licence to operate
and other
potential impacts
on our business
will only become
clear once the
Commission’s
report is released
by the State
President.
8) Changes to the political, legal, social and economic environment including
resource nationalism
KPIs/Performance
Description Impact Mitigation Change
metrics
The Company is The ongoing Bilateral and There has been -
subject to the debates in respect industry level an improvement
risks associated of resource discussions with in the level of risk.
with conducting nationalism have the DMR and The move away
business in created policy other from the concept
South Africa uncertainty and government of nationalisation
including but not this has inevitably agencies are in the resource
limited to led to a decline in ongoing with a nationalism
changes to the investor appetite view to debate has been
country’s laws for South African balancing the positive.
and policies in investment risk. need for the However, many of
connection with This is reflected in country to the issues as
taxation, decreased benefit more described herein
royalties, offshore investor from its natural could be included
divestment, appetite for both resources with within the MPRDA
repatriation of South African the need to Amendment Act
capital and equity and debt attract and (once signed into
resource exposure. If some retain mining law).
nationalism. The of the issues under investment and
latter is a broad consideration are jobs. Mining
term that implemented this companies and
describes the could have a industry bodies
situation where material adverse have made
a government effect on the representations
attempts to Group’s future regarding the
assert increased operational content of the
authority, control performance and MPRDA
and ownership financial position. Amendment Bill
over the natural For example, with a view to
resources profits could be highlighting
located in its negatively areas of concern
jurisdiction. impacted by the and motivating
Resource imposition of for amendments
nationalism is a additional taxes to the Bill. This
global and revenues appears to have
phenomenon, could be impacted had a positive
not limited to a by the sale of impact given
single country. metals at Presidential
In South Africa, discounted consent of the
the threat of differentiated Bill and industry
nationalisation prices. The engagement.
appears to have obligation to sell Lonmin and
dissipated to locally could other mining
some extent, impact long-term companies are
however, debate supply agreements continuing to
continues with our customers engage with the
regarding future and give rise to South African
policies relating concerns about government and
to South Africa’s security of supply the broader
natural from South Africa, community in
resources. This potentially order to raise
includes debate expediting the awareness of
regarding the growth of the the risks
identification of recycling industry associated with
strategic and increasing resource
minerals, the substitution nationalism
extent of concerns.
beneficiation
required, the
role of the state
owned mining
company,
whether there
should be
increased
taxation of the
South African
mining industry
and whether the
State should be
entitled to a free
carried interest
in certain
petroleum and
gas projects.
The above
issues have all
largely been
incorporated
within the
Mineral and
Petroleum
Resources
Development
Act (MPRDA)
Amendment Bill
which remains
the subject of
governmental
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
differentiated
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 or
whether mining
taxation should
be restructured.
9) Loss of Critical Skills
KPIs/Performance
Description Impact Mitigation Change
metrics
Increased global The loss of critical There are Risk in this area Level of HDSA
investment in skills could processes in increased due to representation at
mining over the negatively impact place for the increasing various
past few years safety, production individual competition for levels
has driven and the ability to development individuals with
demand for deliver against programmes, critical skills, Number of women
skilled workers targets. Failure to succession including HDSAs. in mining
around the meet our HDSA planning and
world. In South targets could also retention Number of women
Africa, this is negatively impact strategies for in core mining
compounded by Lonmin’s mining scarce skills. positions
the requirement rights. In order to There is also a
to increase the retain our skilled particular focus Age profile of
proportion of labour, we on bursaries, RDOs
HDSAs continuously graduate
represented in review market development, Attrition rate
management to related mentorship
40% by the end remuneration programmes Level of HDSA
of 2014. packages as and an bursaries
compared to the internship
incentive and programme to
retention schemes assist students
offered by who need to
continuous complete their
monitoring of practical work in
remuneration order to obtain
practices and tertiary
matching qualifications.
the packages When recruiting,
offered by our preference is
peers in order to given to HDSA
attract and retain applicants. The
employees of a Leadership
suitable calibre Staircase
can result in programme has
increased costs. been rolled out
in mining and
processing. This
programme
maps the
developmental
path for those
employees that
have been
identified for fast
tracking to
management
positions.
10) Access to secure energy and water
KPIs/Performance
Description Impact Mitigation Change
metrics
Lonmin faces Supply constraints Lonmin has Risk in this area Energy efficiency
potential supply in respect of implemented has decreased
constraints in energy or water numerous from 2013. Water efficiency
energy and could impact upon energy saving Despite the actual
water together our ability to initiatives. There energy efficiency Freshwater
with increased operate effectively are also load performance for consumption
costs in the and meet our shedding and 2014 being
consumption of production targets. contractual skewed due to the
these utilities. Furthermore, cost agreements in five month long
Electricity supply increases in place with strike, FY2014
is likely to be respect of these Eskom to was nonetheless
especially at risk utilities impact our manage any successful in
in the next two margins. This is supply side terms of our
years until then compounded constraints from energy efficiency
Eskom’s new by the imminent the grid. Trial journey with
power stations, implementation of renewable several initiatives
which are a carbon tax which generation and completed and a
currently behind would place further additional significant
schedule, come pressure on our energy saving increase in
on stream. In operational costs. projects are general
2013, the currently under awareness
National Energy investigation or evident amongst
Regulator of implementation. the management
South Africa Similarly, with teams across the
granted Eskom regard to operations.
an 8% average securing water,
increase per an Integrated
annum over the Water Balance
next five years. project is
Despite these underway and
tariff increases forms part of the
being lower than Water
those in the Conservation
previous few and Demand
years, they Management
continue to be Plan for
higher than Marikana. The
inflation. Water aim of this
availability is strategic project
particularly is to optimise
problematic in water use
provinces such efficiency,
as the North minimise fresh
West and water
Limpopo where consumption
the and improve our
infrastructural long-term
capacity to store access to water.
and transfer
water is limited
and where long
periods of
drought are
common.
Furthermore,
water for mining
is increasingly
competing with
other priorities,
such as water
for communities,
agriculture and
other industries.
11) Lack of geographical diversification
KPIs/Performance
Description Impact Mitigation Change
metrics
Lonmin’s Excess Whilst delivering There has been -
principal concentration of greater no change in this
operating our business shareholder risk exposure.
subsidiaries are activities makes value from our However, the
concentrated in the Group Marikana likelihood of the
one location and vulnerable to operations risk materialising
one sector, disruptive events, remains a key has increased.
which increases which could priority, we
the level of risk significantly impact actively consider
in the event of the Group’s opportunities in
operational operational and and outside of
disruptions or, financial South Africa,
more broadly, in performance. both organically,
the event of through
uncertainty in acquisition or
the macro through
environment. commercial
arrangements
with other
companies.
Lonmin has an
established
greenfield
growth
opportunity at
Akanani and we
have a modest
PGM resource
in Canada.
Exploration
projects in
Canada and
Northern Ireland
are ongoing.
TRANSACTIONS WITH RELATED PARTIES
The Group has a related party relationship with its Directors and key management (as disclosed in
the Directors’ Remuneration Report and in note 5) and its equity accounted investments (note 13).
The Group’s related party transactions and balances are summarised below :
2014 2013
$m $m
Purchases from joint venture – Pandora 30 46
Amounts due from joint venture –
Pandora 8 9
Amounts due from associate – Incwala 1 2
Dividends to minorities – Incwalai 37 11
Interest accrued from HDSA investors in
Incwala 18 17
Subscription paid to the Platinum
Jewellery Development Associationii 9 7
Purchases made from Glencore Xstrata
Plcii - 1
Sales to Glencore Xstrata Plciii 19 36
Amounts due from Glencore Xstrata Plciii - -
Amounts due from HDSA investors in
Incwalaiv 417 399
All related party transactions are priced on an arm’s length basis.
Footnotes:
i These advance dividend payments were made by a Group company, WPL, to
Incwala Platinum (Proprietary) Limited (IP) as explained in note 9.
In addition, the Group has committed to provide an additional loan facility to IP of
R242 million which they can draw down on to meet their funding obligations.
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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