Wrap Text
Annual report
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 : GB00BYSRJ698 ("Lonmin")
22 December 2015
Lonmin Plc ("Lonmin" or the "Company")
Annual Report and 2016 Annual General Meeting
On 9 November 2015 Lonmin announced its Final Results for the year ended 30 September
2015 (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 2015 (the "Annual
Report and Accounts")
• Circular relating to the Annual General Meeting to be held on 28 January 2016
• 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 of occurrence 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.
1. FAILURE TO COMPLETE THE RIGHTS ISSUE AND REFINANCING
Description
The five month strike action in 2014 reduced the Company's sales of metal below levels
previously expected, such that significant fixed costs could not be recovered as production
effectively stopped for the duration of the strike. The impact of the 2014 strike was
exacerbated by weakness in the PGM pricing environment, which further deteriorated during
the year ended 30 September 2015. As a result, the Group has experienced operating
losses in each of the last two financial years, which has resulted in a deterioration in the
Group's net debt position.
Impact
The Directors believe that the Group's operating cash position is such that, unless the
resolutions have been passed at the General Meeting convened by the Circular dated 2
November 2015, Lonmin's proposed rights issue has been completed and the amended
facilities agreements have come into effect, thereby removing restrictions on the transfer of
cash from the Company to its operating subsidiaries, Lonmin is unlikely to have sufficient
funds to meet its obligations and commitments as they fall due.
Mitigation
Lonmin has published a circular and prospectus proposing a rights issue to raise
approximately US$407 million in gross proceeds (“Rights Issue”) and has signed an
amended facilities agreements with its existing lenders providing for a total of US$370 million
(“Amended Facilities”).The Amended Facilities will only come into effect if a resolution
approving the planned Rights Issue to be held at a General Meeting on 19 November 2015
is passed by the Company's shareholders and at least $350 million of net cash proceeds are
received.
Change
This represents a risk not present in the Company's risk profile as at the date of the previous
report.
2. FAILURE TO IMPLEMENT ITS BUSINESS PLAN
Description
In response to prolonged weakness in PGM prices and the losses sustained as a result of
the 2014 strike action, the Company has begun implementing a business plan which aims to
reduce fixed cost expenses, remove high-cost PGM production ounces and reduce capital
expenditure, whilst preserving the ability of the Group to increase its production as and when
PGM prices improve (the “Business Plan”).
Certain factors may affect the implementation of the Business Plan, for example, the
planned reduction in the workforce may not run to schedule or there may be an adverse
reaction from various stakeholders, higher costs than expected may be incurred in
connection with the implementation of the Business Plan, the reduction in production over
the next two financial years as part of the Business Plan may lower the Company's revenues
and reduced capital expenditure may result in more limited growth opportunities for the
Company in the short to medium term. The Company derives a substantial portion of its
revenue from sales to three key customers, the loss of any one of which could affect the
Company's financial position and its ability to implement the Business Plan.
Impact
Any failure by the Company to successfully implement the Business Plan or to achieve the
expected savings may affect the Company's business and financial condition. To the extent
a failure to implement the Business Plan means Lonmin has insufficient funds available to
meet the needs of its business, it may affect the Company's ability to continue as a going
concern. The failure to address operational difficulties could prevent Lonmin from reaching
its production and sales targets, reduce cash flows, increase unit costs and result in the
incurrence of further consequential losses, any of which could affect the Group's business
and financial condition.
Mitigation
The Company's business plan has been developed in detail by the Company's management
and reviewed by external experts. The Company has an experienced management team,
most recently augmented by the appointment of a COO. Detailed plans are in place for the
immediate future which are stretching and which will be incentivised through the Company's
remuneration arrangements. The Company also has established and long-standing
relationships with its customers with multi-year contracts in place or under negotiation.
Additional metal sales are made in the spot market.
Change
The failure to implement the Business Plan or more general operational plans is an existing
risk, however, due to the potential impact on the business and financial condition, the
relative ranking of this risk has increased compared to the prior year.
3. IMPACT OF METAL PRICES AND RAND/US DOLLAR EXCHANGE RATE
Description
The Company derives its revenues and a significant proportion of its operating cash flow
from the production, processing and sale of PGMs, particularly platinum, palladium and
rhodium and, to a much lesser extent, from the sale of other PGMs, including gold,
ruthenium and iridium. The majority of the Company's sales of PGMs are made under multi-
year contracts at prices related to certain average market reference prices for the month in
which the sale occurs, such that the Company is a price-taker rather than a price-maker. The
remainder of the Company's sales of PGMs are made in the spot market at prevailing
market prices. Accordingly, the Company's revenues are dependent on the prevailing market
prices for PGMs, which are outside its control. As a result, the Company's financial
performance has been and is expected to continue to be significantly affected by the market
prices of the PGMs that it sells, particularly the prices of platinum, palladium and rhodium.
The market prices of PGMs historically have tended to fluctuate widely from the impact of
normal demand and supply factors.
In addition, the Company's profits are sensitive to the Rand/US dollar exchange rate
because the majority of its revenues derive from sales denominated in US dollars whilst the
majority of its operating costs, capital expenditures and taxes are incurred in Rand. The
Company presents its accounts in US dollars. Appreciation of the Rand against the US dollar
therefore increases the Company's operating costs when they are translated into US dollars,
resulting in lower profit and operating margins.
Impact
For the year ended 30 September 2015, the Company had an operating loss of US$2,018
million (including a special impairment charge of US$1,811 million related to the Company's
Marikana, Akanani and Limpopo assets largely driven by a decline in long-term PGM price
assumptions and changes in assumptions regarding production levels and other factors
under the Business Plan). Due to limited forward visibility, any changes in the levels of
production and/or sales by the Company in response to present or projected PGM prices
could be based on inaccurate estimates as to future market prices. In addition, US dollar
PGM market prices have not adjusted in recent periods, and may not adjust in future
periods, to reflect the costs of production in the PGM industry and as such have not
provided, and may not provide, the Company protection from movements in the Rand US
dollar exchange rate and increases in Rand production costs. Persistent PGM price
weakness has had an adverse effect on, and may continue to adversely affect, the
Company's business and financial condition.
Mitigation
The Company does not, in general, hedge either metal prices or currencies, but notes that
over long periods these two risks tend to offset each other, although there can be no
certainty that this is true over the short to medium term.
Change
Risk in this area remains unchanged from 2014 as metal and currency markets continue to
remain volatile accompanied by the significant decline in the platinum price.
4. EMPLOYEE AND UNION RELATIONS
Description
The industrial relations environment has stabilised over the last 12 months, evidenced by the
Voluntary Separation Programme (“VSP”) currently underway. The Company has also
undertaken two parallel consultation processes under the Section 189 framework in
connection with its planned workforce reductions. While the environment has remained
stable, the potential for volatility remains and could result in disruptions to operations and
have a material adverse effect on the Group's financial position, business and results of
operations.
In the wake of the unlawful work stoppage and related violence, unrest and tragic deaths at
Marikana in 2012 (the “Events at Marikana”), a commission of inquiry under the
chairmanship of retired Judge Farlam (the “Marikana Commission”) was established to
investigate the Events at Marikana and contributing factors. The report of the Marikana
Commission (the “Marikana Commission Report”) was released on 25 June 2015 and
included a number of findings in relation to the tragic Events at Marikana. In relation to
Lonmin, the Marikana Commission Report concluded that:
• the Company failed to adequately protect its workers during the Events at
Marikana and failed to inform employees of the dangers of attending work and
withdraw their call to work during the strike;
• the Company failed to comply with housing obligations under the social and
labour plans submitted to and approved by the DMR in connection with the
Company's applications to convert to New Order Rights, which created a climate
conducive to unrest amongst the workforce; and
• the Company did not use its best endeavours to resolve the disputes arising
between itself and its striking workers and did not respond appropriately to the threat
and outbreak of violence.
Impact
A substantial majority of the Group's workforce is represented by AMCU. There are also
several minority unions, two of which have limited organisational rights. Relations amongst
the unions have been characterised by a high degree of rivalry and volatility and a
substantial number of workers have on occasion switched allegiance between unions.
Recruitment drives by rival unions can sometimes be accompanied by coercion and
intimidation of the workforce and other unions not currently recognised by the Group have
also actively sought to recruit members within the Group's workforce. Once a new union has
gained an initial level of membership, it may seek formal recognition by the Group and may
also request collective bargaining rights. To demonstrate its power base, a new or
expanded union may also instruct its members to commence certain forms of industrial
action, such as working-to-rule and a refusal to work overtime. Furthermore, the risk of
labour disruptions may be increased by the difficulties inherent in counting union
membership, disputes between unions in relation to changes in their membership levels and
any renegotiations of union recognition agreements arising from such changes, resulting in
further union membership recruitment drives and labour unrest.
A continuation of weak PGM prices or a further deterioration in economic conditions may
necessitate further reductions in the Group's workforce. Workforce reductions may result in
strikes, industrial relations disputes and other related disruptions to production that could
adversely affect the Group's business, financial condition, results of operations and
prospects.
Work slowdowns, stoppages, high levels of absenteeism, disputes and rivalries with, within
or between employee unions or other labour-related developments or disputes have
contributed, and may continue to contribute, to a significant decrease in the Group's
production levels and adverse publicity. The Company has also experienced and is subject
to the risk of violent and protracted labour disputes, which could result in employee injuries
and fatalities, cause significant disruption to its production and harm to its assets and its
relationship with its employees. In addition, many of the contractors who provide services to
the Company, such as shaft sinking and ore reserve development activities, are also
unionised, and the Group's operations may be adversely affected by labour disputes
between these contractors and their employers.
In relation to the Marikana Commission's findings, the Company cannot predict the outcome
of any legal, governmental or regulatory proceedings which may follow or the precise impact
these may have on its business. Adverse legal, regulatory and governmental proceedings or
judgements could, however, result in restrictions or limitations on the Company's operations,
significant economic costs and a material adverse effect on the Group's reputation and
financial condition. On 20 October 2015, Lonmin was served with a summons from the High
Court of South Africa issued on behalf of 329 persons who were allegedly injured and/or
arrested during or in the aftermath of the police activities in respect of the Events at
Marikana. The summons demands that Lonmin pay damages of approximately ZAR1. 14
billion ($82.6 million equivalent based on a Rand/US dollar exchange rate of ZAR13.83 to
$1.00). In addition, Lonmin has received eight other civil claims relating to the events at
Marikana which, in aggregate, seek damages of approximately ZAR30 million.
Mitigation
Since the Events at Marikana in 2012, the Company has made progress toward a more
constructive relationship with its collective bargaining partners and employees. A relationship
building programme and charter to govern relations between unions and the company have
been established. In order to increase employee ownership in the Company an Employee
Share Ownership Programme has been launched and to improve transparent dialogue
appropriate structures have been established to enable effective union engagement. These
structures include consultation on the VSP as well as Section 189 processes.
The Company denies the allegations made against it by the 329 claimants on the basis that
the allegations are legally and factually unfounded and unsustainable and therefore intends
to defend itself in these court proceedings.
Lonmin is fully committed to participating in any meaningful reconciliation process with
respect to those who were injured or arrested during the Events at Marikana.
In addition, through the Sixteen-Eight Memorial Trust, the Company is supporting the
primary, secondary and tertiary education needs of the children of the families that tragically
lost loved ones in the Events at Marikana.
5. SAFETY
Description
Our belief is that Zero Harm is possible to our employees and contractors and our aim is to
provide a safe working environment for our employees, our contractors and the communities
we operate in. By the nature of our mining activities we have inherent risks that can cause
fatalities or injuries.
Impact
Poor safety performance has direct impacts on the life of employees, contractors and their
families and risks such as fall-of-ground, tramming, working at heights, scraping and rigging
incidents, exposure to gases, fire, molten metal, electrocution and many other hazards have
to be controlled to reduce and eliminate fatalities and injuries.
A failure in safety processes could result in injury or loss of life, which would have tragic
implications for employees, their families and the local communities. Stoppages may be
mandated by regulatory authorities, imposed on the Company through the actions of
organised labour or voluntarily entered into by management or any combination of those
factors. Safety-related suspensions of operations, whether voluntary or mandated by
regulators, contribute to disruption of production reduced revenues and increased unit costs,
which could have a material adverse effect on its business, financial condition, results of
operations and prospects.
Mitigation
Safety Improvement Plans are being implemented with an enhanced focus on accident
analysis and pro-active preventive measures. As part of improving relations with the
regulator and ensuring appropriate accountability, the Operational General Managers
interact directly with the Chief Inspector of the DMR. In order to improve and enhance
employee productivity a wellness and health improvement plan has also been established.
Lonmin focuses on continuously improving its operational safety processes and as part of
enabling this, a revision of all risk assessments, standards & operating procedures headed
by the Operational General Managers was undertaken. A clearly defined employee safety
engagement strategy has been established with safety protocols and standards which are
monitored and managed by various operational committees and ultimately the Executive
Committee.
Change
The relative ranking in this risk has reduced as a result of a change in the rankings of other
risks and does not reflect a change in the Company's perception of the importance of safe
production. The safety environment has deteriorated as demonstrated by the LTIFR which
increased in 2015 to 5.41 per million man hours worked from 3.34 in 2014 and the number of
Section 54 stoppages also increased during the year. Regrettably, we suffered 3 fatalities
during the year and another fatality following the conclusion of the financial year but prior to
the publication of this report. We continue to engage and build relationships at various levels
of management with the DMR and always strive to upkeep a safety mindset.
6. COMMUNITY RELATIONS
Description
In line with a number of mining companies operating in South Africa, the Company has also
experienced high levels of community unrest in the areas adjacent to its operations. These
could persist or worsen in scale, intensity and duration. Mining is conducted in areas where
communities are present and the communities have various expectations of the mines such
as employment opportunities, socio-infrastructure support and business opportunities. When
these expectations are not met it may result in conflict and unrest.
Impact
Deteriorating relationships with the local communities as a result of poor services and high
unemployment can result in civil unrest which could severely disrupt our operations. As
many of our employees live locally, any disruptions within the communities and poor living
conditions can have a direct impact upon production. The failure to deliver social upliftment
projects, triggering protests or violence, and corporate reputational damage can result if the
relationships with these stakeholders are not managed effectively. The environmental, health
and social impacts of mining can be felt by those communities who live and work in close
proximity to the operations. Even though the Group engages regularly with representatives
of the local communities, there can be no certainty that unrest will cease or moderate.
Community unrest has resulted, and may in the future result, in employee injuries,
disruptions to mining and processing operations and harm to the Group's assets. In addition,
certain procurement opportunities granted to the Bapo Community under the Bapo
Transaction may be a source of tension between the Bapo Community and other community
parties interested in the same opportunities.
A minority group within the larger Bapo Community launched an application in the High
Court of South Africa (Gauteng, Johannesburg) on 4 June 2015 to have the Bapo
Transaction invalidated, principally on the basis that the Bapo Traditional Council was not
properly constituted and did not follow Bapo customary law in obtaining the Bapo
Community's approval of the Bapo Transaction. If the Bapo Transaction is ultimately
invalidated, the Group, may have to conclude a further transaction with an HDSA group in
order to reinstate its 26 per cent. HDSA equity ownership. The applicants have taken no
legal steps to progress the application since 4 June 2015.
Mitigation
As part of enhancing relations with communities, the Company has reviewed its engagement
process and implemented a revised stakeholder management process. In order to improve
governance and project execution of community related investments, a procurement
framework with appropriate project management office capabilities has been established.
Other aspects of community investment included the establishment of a Cadette Training
programme as part of the company enhancing its potential future employment capacity.
Formal engagement structures have also been established in the form of bilateral forums
with the Bapo and Madibeng Rustenburg communities. The engagement meetings address
employment, economic development, community infrastructure programmes and the SLP
status. Lonmin also entered into mediation proceedings with the Bapo community to improve
relations. The Bapo Transaction and Lonmin's other BEE transactions announced in
November 2014 resulted in the establishment of two community development trusts, each
receiving a minimum of R5 million per annum, and an undertaking by the Company to
provide the Bapo with R200 million of procurement opportunities.
Change
The Company's relationships with the local communities that surround our operations has
been adversely affected in recent months due, in part, to a stakeholder engagement process
that was not well received by the local communities.
7. ACCESS TO SECURE ENERGY AND WATER
Description
Recent increases in electricity tariffs, the Company's inability to reduce this cost any further,
its reliance on sole state-owned suppliers along with unreliable electricity supply have
severely compromised Lonmin's operations and margins. Rolling power outages, voltage
imbalances or reductions in availability may restrict production or could require Lonmin to
shut down production. A more stable electricity environment, in terms of both pricing and
supply is therefore critical. Water utilization has also been challenging; both from an
infrastructure point of view as well as availability. Lonmin's smelting, mining and refining
activities require significant amounts of water and shifting rainfall patterns and increasing
demands on the local water supply have and will in the future caused water shortages.
Impact
Supply constraints in respect of energy or water could impact upon our ability to operate
effectively and meet our production targets. Furthermore, cost increases in respect of these
utilities impact our margins. Water availability is becoming a critical component of any
business to survive and still remains a basic human need. Government must find the
balance between authorizing water uses and also supply water and deliver services as
required by communities: however this is very challenging, especially due to informal
settlements and pressures from development.
Mitigation
The Company recognises that the national power utility is experiencing challenges in terms
of supplying energy in terms of required national demand. As part of ensuring optimal
electricity usage, Lonmin is a member of the Eskom energy intensive user groups, as well as
conducts Monthly and Daily electricity consumption and reporting. Additional initiatives to
ensure optimal usage is the Electricity conservation programme and loadshedding
contractual agreements to manage supply side constraints. As part of ensuring appropriate
continuity during an outage the Company has implemented risk based scenario planning
based on available ESKOM capacity. From a water optimisation perspective the company
has implemented and monitors water conservation and demand management initiatives.
Change
Any further increases in electricity prices, which may be at similarly high levels, will
contribute to higher operating costs for Lonmin, leading to lower operating profits and cash
flows, as well as hampering growth and development of new projects and affecting their
financial viability. Any cuts and interruptions in the supply of electricity could also lead to
disruptions to production and have a material adverse effect on the Group's business,
financial condition, results of operations, ability to meet our production targets and
prospects. Risk in this area has increased due to aging power stations, resulting in an
increased amount of unplanned outages.
8. CHANGES TO THE POLITICAL, LEGAL, SOCIAL AND ECONOMIC
ENVIRONMENT INCLUDING RESOURCE NATIONALISM
Description
The Company is subject to the risks associated with conducting business in South Africa
including but not limited to changes to the country's laws and policies in connection with
taxation, royalties, divestment, currency, labour standards, historic and cultural preservation,
repatriation of capital and resource nationalism. Resource nationalism is a broad term that
describes the situation where a government attempts to assert increased authority, control
and ownership over the natural resources located in its jurisdiction (with or without
compensation). It is a global phenomenon, not limited to a single country. In South Africa,
the threat of nationalisation has previously been rejected, however, debate continues
regarding future policies relating to South Africa's natural resources.
Lonmin is also heavily regulated by a vast array of regulatory requirements including the
Mineral and Petroleum Resources Development Act (“MPRDA”). This legislation is critical as
it impacts Lonmin's operating license and prospecting and mining rights. Alongside these
legal and regulatory obligations and, equally critical, are the Company's social responsibility
obligations by which we earn our social licence to operate in the communities that host our
operations.
Impact
A wide range of stakeholders have proposed ways in which the state could extract greater
economic value from the South African mining industry. The Company cannot predict the
outcome or timing of any amendments or modifications to policy or applicable regulations or
the interpretation thereof, the implementation of new policies or regulations and the impact
these may have on Lonmin's business. The ongoing debates in respect of resource
nationalism have created policy uncertainty and this has led to a decline in investor appetite
for South African investment risk. If some of the issues under consideration are implemented
this could have a material adverse effect on the Group's future operational performance and
financial position. For example, profits could be negatively impacted by the imposition of
additional taxes and revenues could be impacted by the sale of metals at discounted
developmental prices. Any implementation of an obligation to sell one or more PGMs locally
could impact long-term supply agreements with our customers and give rise to concerns
about security of supply from South Africa. The costs associated with compliance with
existing laws and regulations are already substantial: possible future changes to laws may
cause us to incur additional expense, capital expenditure or operational restrictions or
delays.
Lonmin's New Order Mining Rights are conditional upon the performance of obligations set
out in the social & labour plans agreed with the Department of Mineral Resources (“DMR”)
and which detail the Group's responsibilities under the Mining Charter. Failure to meet these
obligations can impact Lonmin's operating licence and could ultimately lead to the
suspension or cancellation of its mining rights and the suspension or disposal of some or all
of its operations in South Africa. A failure by Lonmin to meet its obligations could also result
in deteriorating relationships with our stakeholders, reputational damage, regulatory fines
and other punitive measures. Although the Directors believe that Lonmin has achieved the
26 per cent. HDSA equity participation target required under the Mining Charter, it has not
received formal confirmation from the DMR that the target has been met and there can be no
assurance that the methodology used by the Company for measuring HDSA ownership
could not be subject to challenge by the DMR, HDSA investors or BEE partners.
The Group provided funding to Shanduka Resources (Pty) Limited in 2010 to enable
Shanduka to acquire, through a number of intermediary companies, an 18% interest in the
Group's principal operating subsidiaries, WPL and EPL. The principal source of income to
fund the settlement of this loan is dividend flow from WPL and EPL. There is a risk that, with
no obligation on the wider Shanduka Group, the Shanduka subsidiary may not repay the
loan when it falls due.
Mitigation
As part of ensuring ongoing proactive compliance to required regulatory requirements,
regular engagement occurs between the company and its various regulators. Appropriate
governance structures in the form of EXCO and the Board have been established to ensure
monthly reporting of progress against agreed Social and Labour Plan targets. Lonmin and
other mining companies are continuing to engage with the South African government and
the broader community in order to raise awareness of the risks associated with resource
nationalism. In addition, issues of concern to stakeholders are being addressed in the
government- driven Project Phakisa. Project Phakisa for the mining industry is scheduled to
commence during November 2015 and is aimed at creating win-win solutions for all industry
stakeholders Lonmin is also endeavouring to engage with representatives of local
communities, but it has no certainty that community unrest will cease or moderate.
Change
The risk and associated costs in this area have increased due to uncertainty regarding
certain policy decisions, for example in regard to Black Economic Empowerment
requirements and the possible designation of one or more PGMs as strategic minerals. In
the DMR's 2014 Mining Charter compliance feedback, an 88% compliance level was
achieved based on an initial electronic assessment, however, formal confirmation of the
Group's compliance has as yet not been received from the DMR.
9. LACK OF GEOGRAPHICAL DIVERSIFICATION
Description
Lonmin's mining operations are concentrated in one location and one sector, which
increases the level of risk in the event of operational disruptions or, more broadly, in the
event of uncertainty in the macro environment. PGM mining at Marikana accounted for
approximately 98 per cent. of our total tonnes mined in the year ended 30 September 2015.
In addition, our PGM processing plants, other than the precious metals refinery are also
located nearby.
Impact
The Group's financial performance is significantly dependent upon production at its Marikana
operations and any interruption could have an adverse effect on Lonmin's business and
financial condition.
Mitigation Plans
Lonmin has developed a Business Plan that drives cost savings and efficiency improvement
to enable the Group to endure the low price environment, while also retaining development
and diversification options in the longer term.
Change
The risk remains unchanged due to the concentration of Lonmin's operations at Marikana.
10. LOSS OF CRITICAL SKILLS
Description
Increased global investment in mining over the past few years, particularly in other African
states, has driven demand for skilled workers around the world. The current shortage of
skilled and experienced personnel in the mining industry in South Africa is likely to continue
in the future. The competition for skilled and experienced employees is exacerbated by the
fact that mining companies operating in South Africa are legally obliged to recruit and retain
HDSAs and women with the relevant skills and experience.
Impact
The loss of critical skills could negatively impact safety, production, the ability to deliver
against targets and Lonmin's ability to do so at a commercially viable cost. Failure to meet
our HDSA targets in regard to skilled positions could also negatively impact Lonmin's mining
rights.
Mitigation
As part of ensuring the development and retention of critical skills Individual Development
Programmes (IDPs), succession planning and retention strategies for scarce skills have
been established. Monitoring the remuneration practices of Lonmin's peers is ongoing.
Graduate development, mentorship programmes & internship programmes have also been
established to ensure development of existing and future human resources capacity. In order
to retain our skilled labour, we continuously review market related remuneration packages as
compared to the incentive and retention schemes offered by Lonmin. This continuous
monitoring of remuneration practices and matching the packages offered by our peers in
order to attract and retain employees of a suitable calibre can result in increased costs.
Change
The risk remains unchanged. Although the mining sector is currently shedding jobs and
more skills are becoming available in the market, developing mines in other African
jurisdictions are attracting those skills from South Africa.
TRANSACTIONS WITH 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:
2015 2014
$m $m
Transactions:
Purchases from joint venture – Pandora 15 30
Amounts due from joint venture – Pandora 5 8
Amounts due from associate – Incwala 1 1
Dividends to minorities – Incwalai 19 37
Interest accrued from HDSA investors in 20 18
Incwala
Subscription paid to the Platinum Jewellery 10 9
Development Associationii
Balances:
Amounts due from HDSA investors in Incwalaiii 409 417
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.
ii The subscription paid by Lonmin is material to the Platinum Jewellery Development
Association of which Lonmin is a member.
iii Refer to note 14 for details regarding the amounts due from HDSA investors in Incwala.
This amount is before deducting the accumulated
impairment charge of $307 million.
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