Wrap Text
Update on year end trading, Business Plan and funding strategy
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")
Update on year end trading, Business Plan and funding strategy
REGULATORY RELEASE
21 October 2015
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN
PART, INTO OR WITHIN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN OR ANY OTHER
JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.
THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS.
1. Summary
Lonmin Plc (“Lonmin” or, together with its subsidiaries, the "Group”), a primary platinum producer,
announces a trading update for the year ended 30 September 2015, Lonmin's business plan (the
“Business Plan”) and the Board's funding strategy.
Lonmin is taking action to mitigate the effects of the current low PGM pricing environment. The
Board is pleased to announce that, on an unaudited basis, the unit cost of production of
approximately ZAR10,339 per PGM ounce is expected to be achieved for the year ended 30
September 2015, well within the original guidance of ZAR10,800 per PGM ounce. Capital
expenditure for the year has also been tightly controlled. On an unaudited basis, Lonmin’s capital
expenditure for the year ended 30 September 2015 was US$136 million, compared with its original
guidance of US$250 million. On an unaudited basis, net debt as at 30 September 2015 amounted to
US$185 million, compared to US$282 million as at 31 March 2015.
The Board and executive management have reviewed the Group's business and capital structure and
developed the Business Plan in order to be able to deal effectively with the effects of a continuation
of the current low PGM pricing environment.
The Business Plan will accelerate the implementation of Lonmin’s published strategy to control
costs, reduce capital expenditure and enable decisive measures to be taken. The Business Plan aims
to achieve positive cash flow after capital expenditure in the current low PGM pricing environment
while preserving the ability of the Group to increase its production as and when PGM prices
improve.
The Board intends to raise approximately US$400 million in gross proceeds through a rights issue
(the "Proposed Rights Issue"), and, at the same time, enter into amended debt facilities (the
"Amended Debt Facilities") with its lending banks for a total of US$370 million, maturing in May
2020, conditional on credit committee approvals, on full documentation being agreed, on the Group
raising a further US$400 million in new equity funding and other customary provisions. The
Amended Debt Facilities will replace the existing debt facilities commitments which as at 30
September 2015 were approximately US$543 million and which are maturing in May and June 2016
(the "Existing Debt Facilities").
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Key terms have been agreed in principle commercially with the Group's lending banks to provide the
Amended Debt Facilities of US$370 million maturing in May 2020, conditional on credit committee
approvals, on full documentation being agreed, on the Group raising a further US$400 million in new
equity funding and other customary provisions.
The Board believes that the Proposed Rights Issue and the Amended Debt Facilities taken together
will strengthen the business and provide the Group with sufficient resources for working capital and
capital expenditure to sustain the business in an ongoing low PGM pricing environment.
The Board intends to announce on 9 November 2015 the full terms of the Proposed Rights Issue to
provide the new equity funding required of US$400 million and to publish a prospectus and the
audited results for the Group for the year ended 30 September 2015. The Proposed Rights Issue is
expected to be underwritten on 9 November 2015, inter-conditional with the Amended Debt
Facilities. In order to be able to close the Proposed Rights Issue before the end of the year, the
Board intends to give notice to shareholders on 2 November 2015 of a general meeting expected to
be held on 19 November 2015, at which resolutions will be proposed which, if passed by the
shareholders, will enable the Proposed Rights Issue to proceed.
The Public Investment Corporation, which holds approximately seven per cent. of the issued share
capital of Lonmin, has indicated to the Board its intention to take up its entitlement in full in the
Proposed Rights Issue and, subject to satisfactory investment committee approvals and
documentation, to sub underwrite a material portion of the Proposed Rights Issue in excess of its
entitlement.
Lonmin’s reduced production profile due to the low PGM pricing environment may lead to job losses
in line with the reduced production profile. In this regard, the Public Investment Corporation and
Lonmin will work together and collaborate with government and unions on alternatives to minimise
the impact of job losses at Lonmin by finding alternative economic participation for some of the
retrenched employees, for example through agricultural projects in labour sending areas.
2. Trading update for the year ended 30 September 2015
On an unaudited basis, Lonmin’s sales of platinum exceeded its guidance for the year ended 30
September 2015, achieving sales of 751,560 platinum ounces compared to forecast guidance of
730,000 platinum ounces. The Group achieved mined production of approximately 704,000 platinum
ounces, after taking into account approximately 48,000 platinum ounces of production lost as a
result of section 54 safety stoppages. Total platinum metal in concentrate for the year ended 30
September 2015 was 740,315 saleable platinum ounces.
Lonmin took early decisive action to reduce costs and capital expenditure to preserve cash. As a
result, on an unaudited basis, the unit cost of production of approximately ZAR10,339 per PGM
ounce is expected to be achieved for the year ended 30 September 2015, well within the original
guidance of ZAR10,800 per PGM ounce despite the section 54 safety stoppages. On an unaudited
basis, capital expenditure for the year ended 30 September 2015 was US$136 million, compared to
original guidance of US$250 million. The US$/ZAR exchange rate further benefited the capital
expenditure reduction.
On an unaudited basis, net debt as at 30 September 2015 amounted to US$185 million compared to
US$282 million as at 31 March 2015 and US$29 million as at 30 September 2014.
The restructuring programme started with the freezing of general recruitment and natural attrition
to reduce workforce levels. In addition, over 1,550 employees had left the Group through voluntary
separations and early retirement by 16 October 2015. In total, approximately 6,000 employees,
including contractors, are affected by the right-sizing of the Group and the restructuring programme
is expected to be completed by the end of September 2016. Full provision as a Special cost is
expected to be made in the 2015 accounts for the estimated one-off retrenchment and associated
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restructuring costs of approximately ZAR0.8 billion, on an unaudited basis, in respect of the affected
employees.
Good progress is being made with the section 189 consultation process. In the interest of ensuring
timely consultations, Lonmin is running two concurrent consultation processes; one with the
Association of Mineworkers and Construction Union (AMCU), the majority union, and a second
process with the other unions and non-unionised employees. Both processes are being facilitated by
the Commission for Conciliation, Mediation and Arbitration (CCMA). The consultation period has
been extended by mutual agreement of all relevant stakeholders to enable full exploration of all
alternatives to forced retrenchments.
Lonmin expects to announce its fourth quarter production report on 2 November 2015 and its full
year audited results for the year ended 30 September 2015 on 9 November 2015.
3. The Business Plan
The Board and executive management have undertaken a detailed review of the Group's business
and capital structure and set out the Business Plan to manage the effects of the continuing low PGM
pricing environment and to ensure that Lonmin is prudently structured to withstand the current
weak PGM market and safeguard the long-term interests of the shareholders, employees and other
key stakeholders.
The Business Plan has been developed to reduce fixed cost expenses, remove high-cost PGM
production ounces and reduce capital expenditure to the minimum required for the safe and
efficient running of the Group's operations, while preserving the ability of the Group to increase its
production when PGM prices improve. The Group aims to continue to preserve cash with the
objective of achieving a cash flow positive position after capital expenditure despite the current low
PGM pricing environment. The key elements of the Business Plan are:
- Reducing capital expenditure - Comprehensive assessment of capital projects has been
undertaken with the aim of limiting capital expenditure to levels required to satisfy
regulatory and safety standards and essential sustaining capital expenditure in the
continuing shafts and for a limited number of development projects. Capital portfolio
optimisation tools have been utilised with the aim of ensuring that capital expenditure is
invested only in the most valuable development projects available to the Group. The
Group expects to limit its capital expenditure to approximately US$132 million, US$110
million and US$188 million for the years ending 30 September 2016, 2017 and 2018,
respectively.
- Removing high cost production: Following a shaft-by-shaft analysis, Lonmin decided to
reduce high cost production ounces to improve the Group's profitability and cash
flows. The Group plans to carry out the orderly closure and placement on care and
maintenance of two shafts, Newman and Hossy, by stopping development and capital
work and only mining immediately available ore reserves. The Group also plans to
close and place on care and maintenance the 1B shaft as soon as possible. Following
renegotiation of ore purchase agreements between the Group and contractor
management on more favourable terms, and subject to a favourable outcome of the
section 189 consultation process, mining at E1 and W1 shafts will continue for the year
ending 30 September 2016, and these shafts will not be placed on care and
maintenance as previously announced in July 2015. Lonmin plans to reassess the
viability of continuing to mine these shafts at the end of September 2016. In addition,
the Group is in negotiations with third parties regarding the funding and
commissioning of a bulk tailings treatment project. The K4 shaft will remain on care
and maintenance for the time being. As a result, Lonmin expects that the sales profile
for the Group will be approximately 700,000 platinum ounces for the year ending 30
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September 2016, with approximately 650,000 platinum ounces for each of the years
ending 30 September 2017 and 2018.
- Protecting jobs in the low PGM price environment: Lonmin employed some 38,000
people, including contractors, as at 30 September 2014 and through the Chamber of
Mines is a signatory to the Mining Leadership Declaration agreement to ameliorate job
losses. It is the Board’s objective to protect the majority of those jobs over the long
term by ensuring that the Group can deal effectively with the sustained low PGM
pricing environment. As part of right-sizing the business in line with the reduced
production profile as a consequence of the continuing low pricing environment,
approximately 6,000 employees and contractors are affected. The Group aims to
complete the process by the end of September 2016.
- Reducing overhead and support service structures: New measures identified as part of
the Business Plan for overhead and support services will remove associated overhead
costs, including the decommissioning of a concentrator and the revision of all incentive
schemes to encourage production efficiencies and to ensure that bonus and incentives
schemes are self-funding. Annual bonuses to management level employees for the
year ended 30 September 2015 have been waived. In addition, no salary increases
have been granted to management for the year ending 30 September 2016. Marketing
and promotional expenses, as well as discretionary spending on training, are being
reduced.
The Board believes that the implementation of the Business Plan will result in a cost reduction of
approximately ZAR0.7 billion in financial year 2016 (against the annual cost base for the year ended
30 September 2015, unaudited) and a further cost reduction of approximately ZAR1.6 billion in
financial year 2017 (against the forecast annual cost base for the year ended 30 September 2016).
The Group aims to keep its unit costs per PGM ounce in nominal terms broadly flat in line with the
year ended 30 September 2015, for the years ending 30 September 2016, 2017 and 2018.
4. Funding Strategy
The Board has also reviewed the funding requirements of the Group.
Key terms have been agreed in principle commercially with the Group's lending banks to provide
Amended Debt Facilities of US$370 million maturing in May 2020, conditional on credit committee
approvals, on full documentation being agreed, on the Group raising a further US$400 million in new
equity funding and other customary provisions.
The Board intends to announce full terms of an underwritten Proposed Rights Issue to raise US$400
million and to publish a prospectus in relation to the Proposed Rights Issue at the time of publication
of the Group’s audited results on 9 November 2015. The Proposed Rights Issue will be conditional on
inter alia shareholder approval and other customary provisions. In order to be able to close the
Proposed Rights Issue by the end of 2015, the Board intends to give notice to shareholders on 2
November 2015 of a general meeting expected to be held on 19 November 2015, at which
resolutions will be proposed which, if passed by shareholders, will enable the Proposed Rights Issue
to proceed. The net proceeds of the Proposed Rights Issue will strengthen the Group’s balance sheet
and be deployed towards funding capital expenditure, right-sizing the business to reduce costs and
working capital.
The Board will keep shareholders and the market updated with progress in due course.
- ENDS -
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ENQUIRIES
Investors / Analysts:
Lonmin
Tanya Chikanza (Head of Investor Relations) +44 20 7201 6007
+27 11 218 8358
Media:
Cardew Group
Anthony Cardew / James Clark +44 20 7930 0777
Sue Vey +27 60 523 7953
Sponsor:
J.P. Morgan Equitites South Africa (Pty) Ltd
Notes to editors
Lonmin, which is listed on both the London Stock Exchange and the Johannesburg Stock Exchange, is
one of the world's largest primary producers of PGMs. These metals are essential for many industrial
applications, especially catalytic converters for internal combustion engine emissions, as well as their
widespread use in jewellery.
Lonmin’s operations are situated in the Bushveld Igneous Complex in South Africa, where more than
70% of known global PGM resources are found.
The Company creates value for shareholders through mining, refining and marketing PGMs and has a
vertically integrated operational structure - from mine to market. Lonmin’s mining operations extract
ore from which the processing operations produce refined PGMs for delivery to customers.
Underpinning the operations is the shared services function which provides support and
infrastructure across the operations.
For further information please visit our website: http://www.Lonmin.com
This announcement includes forward-looking statements. All statements other than statements of
historical fact included in this announcement, including without limitation those regarding Lonmin's
plans, objectives and expected performance, are forward-looking statements. Lonmin has based
these forward-looking statements on its current expectations and projections about future events,
including numerous assumptions regarding its present and future business strategies, operations,
and the environment in which it will operate in the future. Forward-looking statements generally can
be identified by the use of forward-looking terminology such as "may", "will", "could", "would",
"expect", "intend", "estimate", "anticipate", "believe", "plan", "aim" or "continue", or, in each case,
their negative, or other variations or comparable terminology. Such forward-looking statements
involve known and unknown risks, uncertainties, assumptions and other factors related to Lonmin,
including, among other factors: (1) material adverse changes in economic conditions generally or in
relevant markets or industries in particular; (2) fluctuations in demand and pricing in the mineral
resource industry and fluctuations in exchange rates; (3) future regulatory and legislative actions and
conditions affecting Lonmin's operating areas; (4) obtaining and retaining skilled workers and key
executives; and (5) acts of war and terrorism. By their nature, forward-looking statements involve
risks, uncertainties and assumptions and many relate to factors which are beyond Lonmin‘s control,
such as future market conditions and the behaviour of other market participants. Actual results may
differ materially from those expressed in forward-looking statements. Given these risks,
uncertainties, and assumptions, you are cautioned not to put undue reliance on any forward-looking
statements. In addition, the inclusion of such forward-looking statements should under no
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circumstances be regarded as a representation by Lonmin that Lonmin will achieve any results set
out in such statements or that the underlying assumptions used will in fact be the case. Other than as
required by applicable law or the applicable rules of any exchange on which Lonmin's securities (the
"Securities") may be listed, Lonmin has no intention or obligation to update or revise any forward-
looking statements included in this announcement after the publication of this announcement.
This announcement is an advertisement and not a prospectus. It does not constitute, or form part of,
an offer to sell or a solicitation of any offer to buy the securities of the Company and investors should
not subscribe for or purchase any shares referred to in this announcement except on the basis of
information in the prospectus to be published by the Company in due course in connection with the
Proposed Rights Issue, and any supplement or amendment thereto (the "Prospectus"). Copies of the
Prospectus will, following publication, be available from the Company's registered office.
This announcement is not an offer to sell or a solicitation of any offer to buy any Securities in the
United States, Australia, Canada, Japan or in any other jurisdiction where such offer or sale would be
unlawful or to any person to whom it would be unlawful to make such offer or solicitation.
The Securities have not been and will not be registered under the US Securities Act of 1933 (the
"Securities Act"), or with any securities regulatory authority of any State or other jurisdiction of the
United States, and may not be offered, sold, resold, pledged, taken up, exercised, renounced or
otherwise delivered, distributed or transferred, directly or indirectly, into or within the United States
except pursuant to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and in compliance with any applicable securities laws of any State
or other jurisdiction of the United States. No public offering of the Securities is being made in the
United States.
This communication is for distribution only to, and directed only at, persons in member states of the
European Economic Area who are "qualified investors" within the meaning of Article 2(1)(e) of the
Prospectus Directive (as amended by Directive 2010/73/EU) ("Qualified Investors"). For the purposes
of this provision, the expression "Prospectus Directive" means Directive 2003/71/EC and includes any
relevant implementing measure in each member state of the European Economic Area which has
implemented the Prospectus Directive. In addition, in the United Kingdom, this communication is for
distribution only to, and is directed only at, Qualified Investors who (i) have professional experience in
matters relating to investments who fall within the definition of "investment professionals" in Article
19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended
(the "Order"), or (ii) are persons falling within Article 49(2)(a) to (d) of the Order, or (iii) are persons
to whom it may otherwise lawfully be communicated (all such persons together being referred to as
"relevant persons"). Any investment or investment activity to which this communication relates is
available only to and will only be engaged in with such persons. This communication must not be
acted on or relied on (i) in the United Kingdom, by persons who are not relevant persons, and (ii) in
any member state of the European Economic Area (including the United Kingdom), by persons who
are not Qualified Investors.
All financial figures for the year ended 30 September 2015 are on an unaudited basis. No statement
in this announcement is intended as a profit forecast or a profit estimate and no statement in this
announcement should be interpreted to mean that earnings per share for the current or future
financial years would necessarily match or exceed the historical published earnings per share. Prices
and values of, and income from, shares may go down as well as up and an investor may not get back
the amount invested. It should be noted that past performance is no guide to future performance.
Persons needing advice should consult an independent financial adviser.
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