Wrap Text
2017 Final Results Announcement
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")
5th Floor
Connaught House
1-3 Mount Street
London W1K 3NB
United Kingdom
T: +44 (0)20 3908 1070
www.lonmin.com
LEI No: 213800FGJZ2WAC6Y2L94
REGULATORY RELEASE
22 January 2018
2017 Final Results Announcement
Lonmin Plc ("Lonmin" or "the Group"), one of the world's largest primary Platinum producers, today publishes its Final
Results for the year ended 30 September 2017.
Key Features
Safety
- Our safety strategy is centred on the belief that Zero Harm is achievable
- Rolling LTIFR to 30 September 2017 improved by 9.1% to 4.52 per million man hours from 4.97 in the prior year
- Regrettably five of our colleagues were fatally injured during the first nine months of the year
- Improved safety - fatality free since July 2017 and reduced Section 54 stoppages
Operational Highlights
- Produced 10.1 million tonnes from mining, broadly flat on the 10.3 million tonnes from the prior year
- Production of 6.9 million tonnes from our three core Generation 2 shafts increased by 7.1% on the prior year
- Mined and refined production of 651,307 and 687,529 Platinum ounces respectively
- Concentrators continue to deliver excellent recoveries of 87%
- Sales of 706,030 Platinum ounces, exceeded the sales guidance of 650,000 to 680,000 Platinum ounces
- Unit costs increased by 8.9% to R11,701, partly impacted by the 8% increase in labour costs
- Average Rand full basket price (including base metals) down 3.4% on prior year, at R11,236 per PGM ounce
Financial Highlights
- Net cash of $103 million at 30 September 2017 ($173 million at 30 September 2016), up from $49 million at the
end of the first quarter
- Revenue up $48 million on the prior year driven by higher PGM prices
- EBITDA of $40 million compared with $115 million in the prior year
- Loss before tax $1,170 million following impairment (2016 - $355 million)
- Impairment of non-financial assets of $1,053 million - driven by change in Business Plan and assumptions
- Covenant waivers agreed with lenders until 28 February 2019 subject to terms and conditions
- Revolving credit facilities of $66 million cancelled and $150 million debt facilities draw-stopped
Strategic Highlight
- Lonmin Board unanimously recommended all-share offer from Sibanye-Stillwater
Guidance
- Platinum sales between 650,000 and 680,000 ounces
- Unit costs expected to be in the range of R12,000 to R12,500 per PGM ounce
- Capital expenditure anticipated to be limited to a range of R1.4 billion to R1.5 billion
Lonmin Chief Executive Officer Ben Magara said:
"Platinum prices continue to be depressed but the operational results achieved this financial year have been pleasing. We
believe Lonmin has an enviable mine-to-market business with great mining assets, projects and process technology and a
resilient workforce. Despite this, Lonmin continues to be hamstrung by its capital structure and liquidity constraints. The
announced combination with Sibanye-Stillwater will provide a stronger platform for Lonmin's shareholders and allow
them and our other stakeholders to benefit from the long-term upside potential of an enlarged and geographically
diversified precious metals group. During the offer period, our strategy continues to focus on operational performance in
particular and cost control, maintaining at least a cash neutral business to preserve cash, as we focus on liquidity."
FINANCIAL HIGHLIGHTS
30 September 2017 30 September 2016
Revenue $1,166m $1,118m
EBITDA(I) $40m $115m
Operating loss(ii) $(1,079)m $(322)m
Impairment to non financial assets $(1,053)m $(335)m
Underlying (loss)/profit iii excluding impairment to non-financial asset(iii) $(26)m $13m
Loss before taxation $(1,170)m $(355)m
Loss per share(vi) (352.7)c (137.0)c
Unit cost of production per PGM ounce R11,701/oz R10,748/oz
Trading cash flow(v) $33m 23.2c
Capital expenditure $100m $(89)m
Free cash flow(vi) $(67)m $(31)m
Cash and cash equivalents $253m $323m
Interest bearing loans and borrowings $(150)m $(150)m
Net cash as defined by the Group(vii) $103m $173m
Footnotes:
The Group measures performance using a number of non-GAAP measures which better allow for understanding of the financial performance and
position of the Group
i EBITDA / (LBITDA) is operating profit / (loss) before depreciation, amortisation and impairment of goodwill, intangibles and
property, plant and equipment.
ii Operating (loss) / profit is defined as revenue less operating expenses, before impairment of available for sale financial assets,
finance income and expenses and before share of (loss) / profit of equity accounted investment.
iii Operating loss excluding impairment - reflects the underlying performance of the business before impairment accounting
charges.
iv The number of shares help prior to 12 December 2015 has been adjusted by a factor of 0.08 to reflect the bonus element of the
Rights Issue.
v Trading cash flow is defined as cash flow from operating activities
vi Free cash flow reflects the cash generation of the Group including the capital requirements of the group's operations and is
defined as trading cash flow less capital expenditure on property, plant and equipment and intangibles, proceeds from disposal
of assets held for sale and dividends paid to non-controlling interests.
vii Net cash as defined by the Group comprises cash and cash equivalents, bank overdrafts repayable on demand and interest
bearing loans and borrowings less unamortised bank fees, unless the unamortised bank fees relate to undrawn facilities in which
case they are treated as other receivables.
ENQUIRIES
Investors / Analysts:
Tanya Chikanza EVP: Corporate Strategy, Investor +27 11 218 8358 / +44 2039081073 /
Relations and Corporate Communications +27 14 571 2070
Andrew Mari (Investor Relations Manager) +27 11 218 8420
Media:
Wendy Tlou +27 83 358 0049
Anthony Cardew / David Roach, Cardew Group +44 207 930 0777
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. Underpinning the operations is the Group Shared Services function which
provides high quality levels of support and infrastructure across the operations.
For further information, please visit our website: http://www.lonmin.com
CONTENTS
This document contains the following sections:
- Chief Executive Officer's Review
- Review of Operations
- Market Review
- Mineral Resources & Mineral Reserves
- Financial Review
- Operating Statistics - 5 Year Review
- Responsibility Statement of the Directors and
- Financial Statements
CHIEF EXECUTIVE OFFICER'S REVIEW
Management's principal focus for the Company in 2017 was to remain at least cash neutral to enable us to deal
effectively with the continued low platinum group metal pricing environment. We had a very challenging first four
months during which time we had a cash outflow of $124 million in the first quarter. Since then we believe we have
succeeded in making good progress in this tough operating environment by improving our production performance as we
continued to remove high cost ounces, reducing capital expenditure to the minimum required whilst ensuring the safe
and efficient running of our operations. At the same time, we maintained our operational and strategic flexibility.
The challenging "lower for much longer" platinum pricing environment is creating long-term damage to an already ailing
industry which has sacrificed at least 26 000 jobs in the last five years and continues to under-invest in its future.
Lonmin's Operational Review focused on determining the best ways of preserving value for shareholders and
safeguarding the long-term interests of employees and all key stakeholders. Post our 30 September 2017 year-end, the
potential transaction outcomes from the Operational Review have been superseded by the recommended offer from
Sibanye-Stillwater to acquire Lonmin.
I support the unanimous recommendation given by our Board to support the all-share offer made by Sibanye-Stillwater
announced on 14 December 2017. I believe this offer is in the best interest of Lonmin, our shareholders and stakeholders.
We believe Lonmin has an enviable mine-to-market business with great mining assets, projects and process technology
and a resilient workforce. Despite this, Lonmin continues to be hamstrung by its capital structure and liquidity concerns.
The combination with Sibanye-Stillwater will provide a stronger platform for Lonmin's Shareholders and other
stakeholders to benefit from the long-term upside potential of an enlarged and geographically diversified precious metals
group.
We expect the transaction to close in the second half of the 2018 calendar year. Some of the key milestones for
transaction closure include competition and regulatory approvals in relevant jurisdictions, approval by Lonmin and
Sibanye-Stillwater shareholders following all regulatory approvals, and UK court approval of the scheme of arrangement
to implement the transaction.
We committed this year to focusing on our Generation 2 shafts, and we believe the operational results we have achieved
over the last 12 months have been the best for five years. The Lonmin team is now focused on maintaining momentum
across the business, and continuing to drive up safe production, whilst preserving cash.
Our achievements during the year included:
- Net cash at year-end was $103 million ($173 million at September 2016), up from $49 million at the end the first
quarter after a first quarter outflow of $124 million.
- We took decisive action to achieve the mining turnaround, including senior management changes and a flatter
management structure
- We increased mining production from our three core Generation 2 shafts (excluding 4B) by 7.1% (increase of 0.4
million tonnes from 6.5 million tonnes to 6.9 million tonnes). All our top three shafts - K3, Saffy and Rowland -
achieved various production records
- We reduced mining production from our Generation 1 shafts by 15.6% (decrease of 0.3 million tonnes), in line
with our strategy to remove high cost production in a low price environment
- Sales of 706,030 Platinum ounces exceeded our sales guidance of between 650,000 and 680,000 Platinum
ounces, having achieved refined production of 687,529 Platinum ounces
- We refined 1,320,802 PGM ounces and sold 1,381,413 PGM ounces on a 6E basis
- Our unit cost increased by 8.9% to R11,701 per PGM ounce, within a tough operating environment, mainly due to
the poor mining production of the first four months. However, we recognize that we have to do more work in
terms of cost containment to reduce the cost of production and drive efficiencies going forward
- The implementation of the Bulk Tailings Retreatment ("BTT") project, which will produce near term cash ounces,
is on schedule and within budgeted scope and cost
With regret, I have to remind you that Messrs Joao Fernando Macamo, Giji Mxesibe, Letlhohonolo Rakotsoane, Simon
Sibitane and Mangi Bunga were fatally injured. Our condolences go to their families and loved ones. I still firmly believe
that Zero Harm is achievable, and Lonmin remains determined to improve its overall safety performance. I am also
encouraged that our overall Lost Time Injury Frequency Rate improved by 9.1%. Lonmin operations have been fatality
free for over six months, since July 2017.
Cash and Liquidity, Profitability, Costs and Capital expenditure
Upon completion of the Rights Issue in December 2015, Lonmin had net cash of $69 million and we have been careful to
maintain this net cash position since then. As at our year-end on 30 September 2017, Lonmin had net cash of $103 million
and gross cash of $253 million. Lonmin's net cash as measured at each quarter since December 2015 has not been lower
than $49 million.
As detailed in the Financial Review section, among other things, changes to the Business Plan and revisions to underlying
assumptions resulted in an impairment charge which took the tangible net worth of the Group (TNW) at 30 September
2017 significantly below our bank facilities' covenant threshold. The lenders have agreed to waive the TNW covenants
until 28 February 2019, the long stop date of the Sibanye-Stillwater acquisition of Lonmin. A condition of the waivers was
that of the undrawn rolling credit facilities, $66 million was cancelled and the remainder left undrawn. The covenant
waiver on the debt facilities is conditional on the completion of the acquisition. The outcome of conditions precedent to
the acquisition and the risk that the Group net cash position could be impacted by a significant economic downturn or
operational factors represents a material uncertainty to the completion of the transaction and going concern
assumptions. Further details can be found in the Financial Review and Financial Statements section.
EBITDA for the year was $40 million (2016 - $115 million) on revenue of $1,166 million (2016 - $1,118 million). The
operating loss for the period was $1,079 million including an impairment of $1,053 million (2016 - a loss of $322 million
including an impairment of $335 million).
Persistent adverse macroeconomic conditions and inflationary cost pressures continue to affect the entire mining
industry in South Africa. Lonmin managed to contain unit cost increases to 8.9% at R11,701 per PGM ounce. The poor
mining production of the first four months negatively impacted unit costs, which were R12,296 per PGM ounce for the
first quarter of 2017. The subsequent improved production in the last eight months of the year assisted in reducing unit
costs for the year to R11,701 per PGM ounce, with unit costs for this period amounting to R11,836 for the second quarter,
R11,278 for the third quarter and R11,524 for the fourth quarter. The fourth quarter included the annual total wage
increase of 7.6%.
Capital expenditure was contained to R1,3 billion, against our revised guidance of R1.4 billion to R1.5 billion. We continue
to use capital expenditure as a cash management lever, benefitting from the ability to tap into our IAOR at our key
Generation 2 shafts. Going forward, this has become increasingly challenging as we have already seen at Rowland shaft
which is performing exceptionally well, but its IAOR is increasingly sub-optimal. We are being innovative in our approach
as we recognize the level of capital required to develop the Merensky and the MK2 UG2 projects at Rowland is not
available.
Our Bulk Tailings Retreatment ("BTT") project is on track and expected to come on-stream within budget in the early
second half of the 2018 financial year.
Pandora
We have successfully negotiated and completed post year-end the acquisition of the Pandora JV, which we announced on
13 December 2017. Lonmin now owns 100% of Pandora, having acquired Anglo American Platinum's 42.5% interest in the
Pandora Joint Venture, as well as Mvelaphanda Resources Proprietary Limited's 7.5% interest. The key benefit of the
completion of the Pandora transaction is that it unlocks significant synergies for Lonmin as it allows Lonmin to extend
mining at its Saffy Shaft without having to spend R2.6 billion of capital expenditure, of which R1.6 billion is deferred
allocated capital on Saffy over the next four years, as we access a portion of the Pandora ore reserves through Saffy. It
also provides significant future opportunities to develop Pandora's potential.
Production Performance
We achieved Platinum sales of 706,030 ounces, exceeding our guidance of between 650,000 and 680,000 Platinum
ounces. This included pipeline metal release and the smelter clean-up project which released 31,682 Platinum ounces.
We still have a lot to do but I am pleased with the way our mining operations have performed throughout the last three
successive quarters to compensate for poor performance in the first quarter. The Marikana mining operations (including
Pandora) produced 10.1 million tonnes during the year, broadly flat on the 10.3 million tonnes produced in the prior year
period, reflecting a strong performance from our core Generation 2 shafts and a planned decrease in production from the
Generation 1 shafts in line with our strategy to reduce high cost production in a low price environment.
Our three core Generation 2 shafts, which represent around 68% of total tonnage production, produced 6.9 million
tonnes, a 7.1% increase on prior year comparable production, driven by a strong turnaround at K3 which was up 5.4%
year-on-year 28% of total production after a slow start, and a 11.2% year-on-year increase from Rowland, 19% of total
production. Saffy 21% of total production continues to perform well and was up 5.8% year-on-year. Excluding the impact
of community disruptions, we are pleased with the result of E3 and Pandora JV which produced 574,370 tonnes, up 7.5%
on the prior year.
In line with the Group's rationalisation of high cost areas, production from our Generation 1 shafts at 1.9 million tonnes
was 15.6% lower than the prior year. As part of the Business Plan, the placing of the Generation 1 shafts on care and
maintenance, together with the operational efficiency improvement programme which commenced in 2015, could
impact approximately 3,700 employees (including approximately 800 contractors) in 2018. This commenced with the
announcement by Lonmin of a section 189 process on 23 October 2017. In total, the implication is that 446 employees in
our non-critical shafts including E2, Newman, E1, 1B, and W1, are impacted by this proposed restructuring, as were 693
contractors at E2 shaft and these contracts were terminated in December 2017 ahead of plan. Some of these shafts are
managed as a coherent unit and are run by contractors, providing better flexibility to retain or stop them, depending on
their profit contribution to the Company.
Despite the poor start to the financial year, in which total tonnes mined for the first quarter decreased by 7.8% from the
prior year, the total tonnes mined for the last nine months to September 2017 of 7.8 million tonnes were in line with the
prior year, partially driven by our strategy to utilise higher than planned labour. Our three core Generation 2 shafts
increased year-on-year production by 10.6% for the same nine month period. This result illustrates how our mining team
regained momentum in the last nine months.
This was achieved as a result of the decisive action taken, including senior management changes, a flatter operational
management structure reporting to me, by-passing the role of Chief Operations Officer and by leveraging our relationship
with the Inspectorate and labour to address the management/union impasse, resulting in a step change in production at
all shafts. The operations General Managers now have a direct line to me which has energised the organisation for better
delivery through accelerated communication and created a more responsive decision making environment, As a result,
we have a cohesive and empowered executive team which is equipped to effectively lead our safety, sustainability,
performance and profitability initiatives. It is worth noting that over the past four years, three layers of management in
the mining operations have been removed, namely Chief Operating officer, Executive Vice President and the Vice
President levels.
The Market
During the year, the PGM pricing environment though recovering from prior year lows, remained weak. In the short-term
we expect markets to remain subdued, however we still believe the long-term market fundamentals are strong. PGMs
have a vital role to play as we move towards a greener global economy.
The role of Platinum, Palladium and Rhodium in reducing harmful emissions remains key. The Palladium market has been
in deficit for the past decade and, as stocks are being drawn down we have seen direct response in the price which has
been trading at a premium to Platinum. The growing deficits and demand growth in the Palladium market may potentially
positively impact platinum prices due to increasing prospects of reverse substitution of Palladium with Platinum.
Developing markets worldwide are increasingly adopting more stringent emissions standards, and the harmonization of
emission standards, including independent real world driving emissions testing, are likely to increase further PGM
demand. The Rhodium price grew by around 50% in the period under review, signifying growing demand-supply tension.
Western Europe remains the key automotive market, supporting current demand, with the emerging industrial
economies in Asia Pacific such as India, providing opportunities for the future. Jewellery demand in the US, Western
Europe and India continued to somewhat offset the slowdown in China.
Global Platinum prices remain subdued, due to negative sentiments, which is likely to persist until the stock levels are
perceived to be depleted.
Marikana and housing our employees
To mark 'The Week That Changed Our Lives', in August 2017, Lonmin unveiled the proposed design for a Marikana
Memorial Park to create a platform for engagement and the buy-in of all stakeholders. This proposal will provide a
platform for all stakeholders to agree on the way forward. An independent institution will consult with employees and all
other stakeholders on the proposed design.
Lonmin launched Phases One and Two of the Infill apartments on the Karee, Wonderkop and Easterns sites, close to the
Company's converted hostel family units, and 403 of the 493 infill apartments are now occupied by employees.
The apartments are being built by local Black Economic Empowerment building contractors and this project is part of the
R500 million committed by Lonmin over a five year period to the accommodation of its employees.
A further 300 units (150 on each of the Wonderkop and Easterns sites) are currently under construction. These form part
of Phase Three, and are expected to be ready for occupancy in January 2018. Phase Four will be completed by the end of
2018, in line with our SLP commitments with residents taking up occupancy at the beginning of 2019.
Our Communities
Lonmin has awarded significant procurement contracts to the Greater Lonmin Community, of which R1.65bn was
preferentially awarded to the Bapo ba Mogale, which far exceeds the procurement undertakings given to the Bapo as
part of the 2014 BEE Transaction.
Lonmin engages with and reports to the Department of Mineral Resources (DMR) on an on-going basis, and engages
directly with other stakeholders, including legitimate NGOs, on the extent of its compliance with its Social and Labour
Plans ("SLPs").
Following the SLP audit conducted in August 2017 by the DMR, Lonmin was requested to submit an action plan to address
the areas identified as requiring improvement for the period 2014-2017. The SLP 2014-17 action plan as prescribed by the
DMR has been submitted on time, with positive feedback from the regulator.
Lonmin engages with recognised and formal stakeholder structures in the Community about SLP and community projects,
as well as about new developments or proposals that impact the Greater Lonmin Community. We also engaged with the
Bapo ba Mogale Community during protest action around increased employment. Lonmin is committed to playing its part
in addressing poverty and unemployment, but successfully addressing what is essentially a national challenge will require
a collaborative multi-stakeholder effort. Lonmin, with the leadership of the DMR, the Madibeng Municipality and the
North West Premier's office has created formal structures to engage with various stakeholders to attend to the issues
raised. We also continue to engage directly with the Bapo Ba Mogale Community, through a process facilitated by the
DMR, to address legacy and current Community issues in a more constructive and open manner.
Outlook and Guidance
The operating environment remains tough, and we are planning on the basis that it will remain so for the foreseeable
future. We expect Platinum sales for financial year 2018 to be between 650,000 and 680,000 ounces, even though the
smelter clean-up will come to an end. However, it will be replaced by the BTT project which we are commissioning this
year, to produce low cost ounces. We remain vigilant in our cost control and expect our overheads and support services
structures to align with our sales profile. Unit costs will remain under pressure. Unit costs will remain under pressure and
are expected to be in the range of R12,000 to R12,500 per PGM ounce.
Capital expenditure will be maintained at the minimum level required for the safe and efficient running of the Group's
operations, as we continue to focus for another year on generating and preserving cash after capital expenditure. We
continue with our strategy of minimizing capital expenditure, but we are ensuring that the IAOR position is maintained at
the level necessary to support planned production at the Generation 2 shafts and minimize the near-term impact on
production. As in previous years, capital expenditure will be weighted towards the second half of the financial year.
Capital expenditure is anticipated to be limited to a range of R1.4 billion to R1.5 billion for year ending 30 September
2018, in the context of low PGM prices.
Board changes
As previously announced, Ben Moolman stepped down from his role as Chief Operating Officer and board member during
the year under review and we would like to thank him for his contribution. During the same period, Jim Sutcliffe retired as
a Non-Executive Director and Senior Independent Director of the Company, having served on our Board for almost ten
years. Jim has made a significant and very valuable contribution to the Board over a difficult period and, on behalf of the
Board, I would like to express our gratitude. We wish both Ben and Jim well in the future.
Jim was replaced as Senior Independent Director by Jonathan Leslie, who has been an independent Non-Executive
Director on Lonmin's Board since 2009. Jonathan also serves as the Chairman of our SHE board committee and I am
confident that Jonathan's wealth of experience and knowledge will be hugely beneficial in his additional role.
During 2017, the Company also welcomed the appointment of Gillian Fairfield as an independent Non-Executive Director.
Gillian is a corporate lawyer with over 20 years' experience in corporate law, cross-border M&A and corporate finance,
and is recognised as a leader in her field is a welcomed addition to the Board. Lonmin constantly review the composition
of the Board to ensure we achieve an acceptable balance of individuals, collective skills and experience for effectiveness.
Conclusion
The actions we have taken are all part of maintaining at least a cash neutral business focusing on liquidity and
safeguarding the welfare of the majority of our employees, all of whom I must thank for their support and hard work.
Notwithstanding this, Lonmin continues to be hamstrung by its capital structure and liquidity constraints. Our corporate
strategy has resulted in the proposed combination with Sibanye-Stillwater, which will provide a stronger platform and
allow our shareholders and all our stakeholders to benefit from the long-term upside potential of an enlarged and
geographically diversified precious metals group.
Yours faithfully,
Ben Magara
Chief Executive Officer
REVIEW OF OPERATIONS
Safety
Despite most safety indicators showing improvement, regrettably five of our colleagues were fatally injured during the
period. Messrs Joao Fernando Macamo, Giji Mxesibe, Letlhohonolo Rakotsoane, Simon Sibitane and Mangi Bunga
succumbed to injuries suffered in separate incidents at E1 (9 November 2016), K3 (17 February 2017), Newman (15 March
2017) and 4B (11 May, 29 June 2017).
We extend our deepest condolences to the families and friends of our colleagues and deeply regret their loss. We remain
determined to better our overall safety performance and we continue to enhance our safety initiatives. Each incident
was thoroughly investigated in collaboration with the DMR and organised labour. Lessons learned from each incident
were implemented into action plans and shared across operations.
Lonmin achieved a number of noteworthy safety awards and milestones during the year, including:
- K3 mine manager UG2 section - 7 million fatality free shifts
- Saffy shaft- 5 million fatality free shifts
- Lonmin Mining - 4 million fall of ground fatality free shifts
- Rowland Shaft - 2 million fatality free shifts
- East 2 - 1.5 million fatality free shifts
- K4 Concentrator - two years LTI free
- PMR - one year LTI free
The Lost Time Injury Frequency Rate (LTIFR) has improved year-on-year by 9.1% to 4.52 from 4.97 as at 30 September
2016 and the Total Injury Frequency Rate has improved by 17% year-on-year to 10.70 from 12.95 as at 30 September
2016. The Total Injury Frequency Rate is a lead indicator of our safety improvement initiatives, and the improvement has
contributed to the reduction in of Section 54 safety stoppages.
We are experiencing a reduction in the duration and frequency of section 54 stoppages and more localised application of
these stoppages. We continue to engage proactively with the DMR to build sound relationships, based on delivering on
our joint aspiration of achieving "Zero harm".
There was a year-on-year increase in the number of management-induced safety stoppages over the period, which
illustrates our non-negotiable stance on safety. Safety is essential for good performance and remains our priority. We
remain determined to continue to improve our overall safety performance and we continue to enhance our safety
improvements. We remain committed to achieving zero harm.
Operations
- Produced 10.1 million tonnes from mining, broadly flat on the 10.3 million tonnes from the prior year. Production
of 6.9 million tonnes from our three core Generation 2 shafts increased by 7.1% on the prior year
- Mined production of 651,307 Platinum ounces
- Refined production of 687,529 Platinum ounces
- Concentrators continue to deliver excellent recoveries of 87%
- Sales of 706,030 Platinum ounces, exceeded the sales guidance of 650,000 to 680,000 Platinum ounces
- Unit costs increased by 8.9% to R11,701, partly impacted by the 8% increase in labour costs
- Average Rand full basket price (including base metals) down 3.4% on prior year, at R11,236 per PGM ounce
Mining
- After a poor first four months of the financial year, the improvement in our production performance since
February 2017 enabled the mining operations to produce total tonnes for the year of 10.1 million tonnes, broadly
flat on the 10.3 million tonnes from the prior year. Our three core Generation 2 shafts (excluding 4B) increased
year-on-year production by 7.1% (increase of 0.4 million tonnes from 6.5 million tonnes to 6.9 million tonnes)
and, in line with our strategy to reduce high cost production in a low price environment, our Generation 1 shafts
reduced production by 15.6% (decrease of 0.3 million tonnes from 2.2 million tonnes to 1.9 million tonnes).
- Total tonnes mined for the last nine months to September 2017 of 7.8 million tonnes was in line with the prior
year period, but our three core Generation 2 shafts increased production by 10.6% on prior year for the same
period, despite the poor start to the financial year, when total tonnes mined for the first quarter decreased by
7.8% from the prior year on prior year for the same period. This result illustrates the extent of the momentum the
mining team has established in the last nine months, following the weak first quarter.
- The turnaround was achieved as a result of the decisive action taken, including senior management changes, a
flatter management structure with the General Managers now reporting directly to the Chief Executive Officer
and by leveraging our relationship with the union to address the management/union impasse, resulting in a step
change in production at all shafts.
- A total of some 276,000 tonnes of production was lost in the year due to Section 54 safety stoppages, equivalent
to 17,000 Platinum ounces lost, compared to 559,000 tonnes lost in the prior year. This was a reduction of 51% in
production tonnes lost.
- We continued to experience a reduction in the duration and frequency of Section 54 stoppages as a result of our
continued interaction with the DMR and the unions and a decrease in serious injuries.
- There was an increase in Management Induced Safety Stoppages (MISS). Production lost due to MISS for the year
increased to 176,000 tonnes from 33,000 tonnes in the prior year period, reflecting our non-negotiable stance on
safety.
Generation 2 Shafts
Our three core Generation 2 shafts, which represent around 68% of total tonnage production, produced 6,9 million
tonnes for the year, a 7.1% increase on prior year comparable production, driven by a strong turnaround at K3 which was
up 5.4% year on year (28% of total production) after a slow start, and a 11.2% year on year increase from Rowland (19%
of total production). Saffy (21% of total production) continues to perform well and was up 5.8% year on year.
2017 vs
2016 2017 2016
Tonnes Tonnes %
Generation 2 Shafts
('000) ('000)
K3 Shaft 2 687 2 831 5.4%
Rowland Shaft 1 731 1 925 11.2%
Saffy Shaft 2 055 2 174 5.8%
Total Core Generation 2 Shafts 6 473 6 930 7.1%
4B Shaft* 1,588 1 320 (16.9)%
Total Generation 2 shafts 8,061 8 250 2.3%
*We continually review each shaft on its merits and in light of 4B shaft's lacklustre performance and its short life of mine
relative to the other Generation 2 shafts, the capital required to improve 4B ranks behind other projects in capital
allocation. As such, while we remain in a capital constrained environment, we are reclassifying 4B as a Generation 1 shaft
for 2018.
Production at 4B (13% of total production) was down 16.9% due to worse than anticipated geological conditions and was
also impacted by safety stoppages and the disruption associated with two fatalities.
Productivity measured as square meters per mining employee at our Generation 2 shafts is slightly down at 5.8 compared
to 5.9 from the prior year.
Generation 1 shafts
Our Generation 1 shafts have shorter life of mine relative to Generation 2 shafts with limited economies of scale and, as
expected, production has declined.
These shafts are managed as a coherent unit and some of them are run by contractors, providing better flexibility to
retain or stop them, depending on their profit contribution to the Company.
In line with the Group's rationalisation of high cost areas, production from our Generation 1 shafts (Hossy, Newman, W1,
E1, E2, E3 and Pandora (100%)) at 1.9 million tonnes was 15.6% lower than the prior year period.
Hossy shaft
Hossy shaft produced 0.7 million tonnes, broadly flat on prior year. Hossy shaft was scheduled to be put on care and
maintenance by the end of the current financial year, but it continues to contribute to the business. Based on the
available IAOR, which stand at 10.5 months and its relative contribution, we will continue to operate Hossy for the
duration of FY 2018.
Pandora E3 Joint Venture
The combined E3 Pandora production of 574,000 tonnes is up 7.5% on the prior year, on the back of progress made
pursuant to our recovery plans. In light of this improved performance and on completion of the Pandora acquisition, E3 is
under consideration to be classified as a Generation 2 shaft.
W1, East 1 and East 2 shafts
W1, East 1 and East 2 are shafts at the end of their lives and together produced 0,6 million tonnes, broadly flat on the
prior year. East 2 shaft was put on care and maintenance, post year end in November 2017. Contractors have continued
to run W1, East 1 and East 2 (we run the engineering for East 2), and are responsible for all the costs associated with such
shafts, and we thus retain the flexibility to cease production if required.
Newman shaft
A thorough technical assessment was conducted at the Newman shaft following the fatality in March 2017. A decision
was taken to stop mining the limited remaining reserves due to safety concerns and, as a result, the shaft is on care and
maintenance.
Immediately Available Ore Reserves
(m(2) '000) months
2016 2017 2016 2017
K3 1,030 844 22.7 18.9
Rowland 504 309 18.0 11.2
Saffy 765 772 26.4 24.5
4B 556 431 20.7 17.9
Generation 2 2,855 2 356 22.1 18.4
Generation 1 751 614 24.1 21.4
K4 188 188
Total 3,794 3 158 22.4 19.0
- We closely monitor our Immediately Available Ore Reserve position, in order to protect our operational flexibility.
- The ore reserve position of the Marikana mining operations at 3.2 million square metres represents an average of
19.0 months production, down from 22.4 from September 2016, but still well above the industry benchmark of
around 15 months.
- As part of our drive to increase mining production, following the poor first quarter production, our healthy ore
reserve position enabled us to move some non-critical development crews to provide additional stoping and
vamping crews in our core Generation 2 shafts. However, following the mining turnaround achieved, the
development crews had returned to their development areas by the end of the financial year.
- The decrease in Rowland available ore reserve to 11.2 months is due to current mining levels reaching the
extremities of Rowland's lease area and remains a concern. We believe that Rowland has sufficient IAOR for the
current financial year.
- The planned decrease in the ore reserve position at the Generation 1 shafts can be largely attributed to the
curtailment of development, as the mineral resource within the shaft boundaries are largely depleted and the
closure of Newman shaft.
Business Improvement Initiatives
The Business Support Office continually facilitates and monitors the implementation of business improvement initiatives
by line management, aimed at increasing productivity and improving performance.
We remain focused on these objectives but recognize that multiple challenges remain. In parallel with the on-going
implementation of the initiatives set out below, additional stoping crews were deployed as part of the mining turnaround,
as our healthy ore reserve position allowed for this.
Initiatives implemented during the year to improve productivity are:
- implementing the Theory of Constraints framework with a particular focus at E3 shaft in the near term
- implementation of a project to identify areas where backlog sweepings exist on the various shafts, developing
action plans to remove these backlogs and monitoring and tracking implementation of these action plans.
Processing
The efforts to improve the performance and reliability of the processing plants over recent years, based on on-going
optimisation and improvement plans across the processing operations, continue to pay off, with the concentrators
achieving levels of PGM recoveries amongst the highest in their history, and with the smelting and refining instantaneous
recovery rate of 99.3% in the current financial year, once again benefitting from the once-off smelter clean-up project.
Concentrating
Concentrating continued to deliver excellent overall recoveries for the year at 87.0%, marginally higher than the 86.6% for
the prior year.
- Total tonnes milled for the year at 10.0 million tonnes were 3.2 % lower than prior year of 10.4 million tonnes, in
line with our strategy to reduce high cost Generation 1 mining production.
- Platinum-in-concentrate production before concentrate purchases) for the year of 644,240 saleable Platinum
ounces was 2.9% down on prior year, due to lower tonnes milled.
- The overall milled head grade at 4.61 grammes per tonnes (5PGE+Au) was broadly in line with the 4.59 grammes
per tonne achieved in the prior year.
The Merensky concentrator will be put on care and maintenance during the first half of 2018.
Smelting and Refining
- The Smelters, Base Metal Refinery (BMR) and Precious Metal Refinery (PMR), on the back of a strong culture of
"excellence in processing" embedded over the years, continue to deliver strong performance.
- Refined production of 687,529 Platinum ounces was achieved, a decrease of 7.3% on the refined production of
741,890 ounces from prior year, in line with our strategy to reduce high cost production and the reduction in
contribution from the smelter clean-up project. Total PGMs produced were 1,320,802 ounces, a decrease of 8.3%
on prior year.
- The smelter clean-up project and permanent release from the smelting and refining plants continued during the
current year and released a total of 31,682 ounces of Platinum during the year, less than the 73,186 ounces in the
prior year as expected. We expect minimal ounces in the 2018 financial year, as the smelter ounces are depleted.
- The production process for the smelter clean-up project involves the re-processing of stock piles of used
refractories and some revert tails generated during the slag plant construction, which contain low grade PGMs.
Both Furnaces Number One and Two maintained stable production during 2017. Post year end, Number One
furnace had a run out on 2 December 2017, necessitating it's planned shutdown scheduled for the end of 2018 to
be brought forward. Overall output is not expected to be affected owing to capacity at other furnaces, as we will be
running the Number Two Furnace and the three pyromets.
We are continuing with various initiatives to fill the pipeline and utilise the excess capacity within our processing facilities.
Our toll treatment contract with Jubilee Platinum Plc commenced in March 2017 and is expected to deliver approximately
1,500 Platinum ounces per month once in full production.
The concentrate purchase agreement with Tharisa Minerals Proprietary Limited commenced in July 2017 and is expected
to deliver 800 Platinum ounces per month.
Bulk Tailings Retreatment
As part of our strategy to focus on increasing production of low cost and near-term cash ounces, we announced on 18
August 2016 that we had secured $50million in external funding for the low-cost Bulk Tailings Retreatment ("BTT")
project. The project is progressing within cost, scope and schedule and is expected to ramp up and reach full production
during 2018. Once at steady-state, the project is expected to deliver the lowest cost ounces in the Lonmin portfolio,
producing about 29,000 ounces of Platinum per year or some 55,000 ounces of PGM. The project is to be operated by a
contractor over a seven-year period.
Other tailings dams are being investigated to extend the life of the tailings treatment.
Capital Expenditure
2016 2017 FY17 FY18
Revised Guidance
Guidance
Actual Actual
Rm Rm Rm Rm
K3 215 170 172 157
Saffy 2 21 7 29
Rowland 25 48 42 61
Rowland MK2 216 178 159 137
Generation 2 shafts 454 417 380 385
K4 4 7 12 2
Hossy 0 1 - 30
Generation 3 & 1 shafts 4 8 12 32
Central & Other Mining 279 93 143 139
Total Mining 737 518 535 556
Concentrators - Excl BTT 164 158 185 159
BTT 102 370 408 59
Smelting & Refining 163 95 110 324
Total Process 428 623 703 542
Infill Apartments 62 151 156 191
Other 40 44 37 40
Total 1 268 1 336 1 430 1 329
In line with our strategy of limiting capital expenditure to levels required to satisfy regulatory and safety standards,
essential sustaining capital expenditure in the continuing shafts and ensuring that Immediately Available Ore Reserve
positions are maintained at an acceptable level to sustain production at our Generation 2 shafts, 80% of the mining
capital (around R417 million) was spent on ore reserve development and critical stay in business (SIB) projects on the
Generation 2 shafts.
Capital expenditure was limited to R1,336 million (around $100 million compared with R1,268 million (around $89
million) in the prior year period. Capital invested in the period included R178 million for the Rowland MK2 project and
R108 million for the K3 26 level project. At the concentrators the bulk of the capital spent was on continuation of the BTT
Project and Rowland Pump Station. The balance of the capital in processing was spent on regulatory compliance capital
and SIB projects.
Phase three of the infill apartments was completed during the year. Total capital spend of R151 million was incurred on
the infill apartments, with an additional 300 completed.
OUR PEOPLE
The Company recognises the labour intensive nature of our operations, and the important role that each of our
employees play in ensuring the achievement of our goals. To mitigate the impact of the challenging environment in
which we operate, and its likely impact on employee motivation and engagement, the Company has continued to invest
on initiatives to improve the effectiveness of its leader's abilities to work effectively and motivate their employees.
Focus has also continued on initiatives to improve the general wellbeing of our employees including housing and living
conditions, financial and employee wellness and employee's assistance programs. Employee development has been
refocused on developing core skills and compliance related requirements in line with revised budget and retention
initiatives implemented for key skills and talent during this period. This will continue to receive attention in the future.
Safety
Lonmin views safety as a proxy for good performance and our commitment to Zero Harm aims to ensure that the
necessary controls and procedures are in place to support the safety and health of our workforce and the environment.
Our safety strategy is built around the belief that we can operate without accidents and maintaining high safety standards
is an integral part of demonstrating operational excellence. Our goal is for every person in the business to have a
personal understanding of, and respect for, the importance of safety in the workplace through entrenching safety
principles in the organisation and increasing visibility on safety matters.
Our safety strategy takes a proactive approach to safety management with a focus on injury prevention and aims to
entrench an operational culture that positively influences safety behaviour. This is entrenched via three objectives:
- Fatality prevention
- Injury prevention
- A safe high-performance operational culture
Health
The services provided by Lonmin's Health Department under Lonmin's safety, health and environmental strategy provide
comprehensive healthcare services and a continuum of care to improve the health status and quality of life of our
employees and their families. Health services are available to employees, their dependants and community members
through three clinics and a hospital at our Marikana operations, and a clinic each at the PMR and Limpopo operations.
Community members are treated on a fee-for-service basis. Community members are assisted in emergency situations
through our emergency care programme. Community health issues are managed through the community development
department.
Union relations
Lonmin respects and supports our employees' rights to freedom of association and representation, as well as the right of
every employee to be heard. Lonmin interacts with unions at different levels within the Company on an ongoing basis.
Engagement takes place through the various union structures and management interactions with union representatives
and critically directly with employees. Monthly and quarterly meetings are held to share information on Lonmin's
performance and evolving situation. The Company also provides training to shop stewards on legislative matters,
business skills and the requirements of their roles, responsibilities and obligations.
The Association of Mineworkers and Construction Union (AMCU) is the majority union, representing 81.8% of full-time
employees as at 30 September 2017.
Black Economic Empowerment (BEE)
Our BEE equity ownership is at least 26% in line with the requirements of the Mining Charter.
Once-Empowered-Always-Empowered principle
The Chamber of Mines and the DMR are currently scheduled to argue the applicability of the Once-Empowered-Always-
Empowered principle by way of a declaratory order application in 2018. There is a possibility that this application may be
incorporated into a wider Charter Review application set down for March 2018.
The New Mining Charter
The 2010 Mining Charter contained targets until 2014. An attempt by the DMR to implement the provisions of a new
Mining Charter gazetted in 2017 was interdicted on an urgent basis by the Chamber of Mines. This led to an unsuccessful
attempt by the DMR to impose a moratorium on new mineral right applications and ultimately to the DMR agreeing not
to impose the provisions of the Reviewed Mining Charter pending the outcome of the Mining Charter review. In the
interim, the targets contained in the 2010 Mining Charter continue to apply.
Transformation
Lonmin embraces transformation as a business imperative and continue to make progress in this regard. We are
committed to playing our part in addressing historic inequalities and creating conditions in which current and future
generations can succeed in creating a shared purpose. The Mining Charter requires a focus on increasing the number of
Historically Disadvantaged South Africans (HDSAs) in management and the number of women in mining.
Transformation is monitored and overseen at Board level by the Social, Ethics and Transformation Committee.
Transformation considerations are incorporated into recruitment, succession, skills development and talent management
functions to develop an internal pipeline of HDSAs, including women. Lonmin's bursary and graduate development
programmes prioritise HDSAs in order to build the future supply of appropriate candidates. Targets relating to
transformation are included in the Corporate Balanced Scorecard that is used to measure performance for the incentive
scheme.
Social Labour Plans (SLPs)
Our commitment to corporate citizenship defines our duty to contribute to the wellbeing and development of the
communities that host, and are affected by, our operations. This duty is formalised in the SLP obligations under the terms
of our mining rights. Investing in the long-term social, economic and infrastructural development of our host communities
translates into an investment in our current and future employee base, and ultimately is a direct investment in the
sustainability of our operations themselves.
Stakeholder engagement
Our business begins and ends with relationships and the quality of those relationships are central to our success and that
of our stakeholders.
We have made significant progress in this area having consolidated departmental structures under a Stakeholder
Engagement and Regulatory Affairs Executive Vice President; segmentalised and prioritised stakeholder groups and
individuals; and formalised engagement policies and procedures for each group allowing for consistent and constructive
engagement to be monitored and tracked.
The objective of having a rigorous stakeholder engagement strategy and process is to:
- Ensure that there is sufficient buy-in for community projects
- Build a partnership model for community projects that ensures sustainability, ownership and exit strategies
- Align with government development goals
- Create jobs and support local business development to align and manage expectations
- Create shared value and purpose
Sustainability
Acknowledging all the social and labour challenges of the past, Lonmin strives to conduct its business in a sustainable,
socially and environmentally responsible manner, openly and transparently going beyond compliance, to address the
spirit of the Mining Charter.
MARKET REVIEW AND OUTLOOK
Market Overview 2017
During the financial year, Rhodium and Palladium prices performed strongly, gaining 72% and 30% respectively. However,
Platinum underperformed with the price declining 11%, which resulted in Palladium trading at a premium to Platinum in
September 2017 for the first time since 2001.
Global Platinum output was essentially flat compared to 2016, while automotive, jewellery and industrial demand
softened leaving the market close to balance this year.
Demand in 2017 (calendar year)
Automotive demand for Platinum contracted slightly in 2017, as increased usage in some regions, Western Europe and
Japan, have lower requirements.
Diesel market share in Western Europe has been declining as the cost to comply with emissions legislation rises and
consumers fear losing access to urban areas. Small and mid-size car segments are more affected than larger cars.
New emissions legislation (Worldwide Harmonised Light Vehicle Test Procedure and Real Driving Emissions) came into
force in September 2017 which should provide greater clarity on how compliance will be measured and this should direct
growth in PGM demand.
Global demand for jewellery forecast dipped slightly in 2017 owing to the ongoing decline in demand in China
outweighing rising demand in other regions.
Industrial demand declined in 2017 owing to reduced requirements in the petroleum industry (refinery closures and
slower capacity growth), and also lower chemical and glass demand.
Investment demand has been positive this year, with modest coin and bar sales and increases in ETF holdings.
Demand
koz 2017 2018(f)
Autocatalyst 3 235 3 200
Jewellery 2 585 2 655
Petroleum 105 190
Chemical 580 600
Electrical 155 155
Glass 170 195
Medical 235 240
Investment 250 250
Other 390 415
Non-road 140 145
Total demand 7 845 8 045
Source: SFA (Oxford) estimates
Supply in 2017 (calendar year)
South African platinum production in 2017 was flat compared to 2016, despite, price induced mine and shaft closures by
some South African producers. However, supply from South Africa is forecast to decrease year on year for the next few
years, due to under investment into replacement and growth projects.
Recycling in 2017 also came in at similar levels to 2016, mostly owing to jewellery recycling returning to a more typical
level after destocking in China boosted it in 2016, while platinum recycled from spent autocatalysts is projected to
continue to increase gradually.
Supply
(koz)
Region 2017 2018(f) Variance
South Africa 4 175 4 065 -2.6%
Zimbabwe 440 450 2.3%
North America 370 375 1.4%
Russia 710 705 -0.7%
Other 255 260 2.0%
Primary Supply 5 945 5 855 -1.5%
Recycling 1 865 1 900 1.9%
Total Supply 7 810 7 755 -0.7%
Source: SFA (Oxford) estimate
Market Outlook 2018
Cuts to production by South African producers initiated in 2017 are expected to result in reduced platinum output next
year, while demand is forecast to recover to 2016 levels leaving the market in a fundamental deficit.
Automotive demand is expected to be marginally lower as diesel's share continues to decline in a modestly growing light
vehicle market. Most automakers continue to develop new light duty diesel powertrains, recognising their role in meeting
tough fleet greenhouse gas targets.
Global demand for jewellery is anticipated to improve as jewellery demand in China is expected to stabilise and growth
continues in most other regions, especially India, given marketing development efforts.
Industrial demand is set to grow again in 2018, as glass and petroleum demand cyclically rebounds, as well as demand
from chemical catalysis in the production of silicones.
Sales Prices
Over FY2017 rhodium staged a strong recovery and was the best performing PGM rising 72% from $685/oz to $1,175/oz.
Palladium also performed well gaining 30% to $935/oz which resulted in palladium trading at a small premium to
platinum, which lost 11% to $920/oz, for the first time since 2001.
The Rand averaged 13.37 against the US dollar during FY2017.
The Rand ended the financial year as it started at 13.55 to the US dollar. After some weakness at the end of 2016 when
the Rand traded down to 14.4, it spent most of 2017 trading closer to 13.0 until September when it weakened to 13.6.
Automotive electrification
Automotive electrification is driven by the need to decarbonize transport to protect the environment; primarily to reduce
global greenhouse gas (CO2) emissions, but also to improve local air quality.
Paris has announced plans to ban combustion engines by 2030, the culmination of short term responses to air pollution.
Diesel has long been seen as a significant step on the path to reduce CO2 emissions, but concerns over urban air quality,
particularly NOx levels, have prompted a move away from combustion engines. Diesel has still made a substantial
contribution to European fleet average CO2 reductions, so many automakers may struggle to meet the 2021 target of 95
g/km CO2 emissions.
Much higher levels of electrification than current, will be needed to meet these global CO2 targets.
Electrification covers a spectrum of architectures, from mild hybrids, through full hybrids and plug-in hybrids, to battery
electric vehicles (BEVs). All the hybrids retain an internal combustion engine (mainly gasoline, though some diesel) and so
will continue to need a PGM-based autocatalyst.
The rate at which automotive electrification proceeds depends on battery technology, on fuelling infrastructure and on
electricity generation. While the technological, legislative and commercial aspects are often prominent, the consumer
aspects of cost and convenience cannot be overlooked either; people will only buy a car at a price they can afford, that
they can drive long distances, and can refuel quickly and easily.
For most automakers, combining electrification with increasingly fuel efficient combustion engines in hybrid vehicles will
enable them to meet emissions targets in a commercially viable way over the medium term. Many automakers are
cutting costs and warning that profits may reduce as they find ways to fund the development of BEVs and their
infrastructure.
The intermittent combustion when operating under hybrid conditions and combustion modified to lower emissions can
both lead to lower exhaust temperatures, which severely test the catalytic after treatment system.
Minimising cold-start emissions has always been one of the challenges in three way catalyst (TWC) design for gasoline
vehicles; increasing the palladium and rhodium loadings would have little effect at low temperatures, so it is likely that
the PGM content of hybrids will be similar to comparable conventional gasoline vehicles. There is scope further to lower
emissions from gasoline and gasoline-hybrid vehicles by optimising the location of the PGMs and improving several
aspects of the catalyst substrate, including moving from conventional TWC architectures to catalytically-coated gasoline
particulate filter architectures.
The average platinum content of diesel after treatment systems increased under Euro 6b legislation as lean NOx traps
(LNT) were added to comply with tighter NOx emissions standards. But as Euro 6d, with Real Driving Emissions (RDE),
takes effect from September 2017, the platinum content is expected to reduce somewhat as automakers move away
from LNT to non-PGM selective catalytic reduction (SCR) for better NOx control, increasingly combined with the
particulate filter on a single PGM-free brick. Some limited NOx trap functionality may return to light duty diesels for Euro
6d final, with some limited platinum loadings upside.
MINERAL RESOURCES AND MINERAL RESERVES
2017 Mineral Resources
Main features of the Lonmin mineral resources as at 30 September 2017:
Attributable mineral resources were 178.3 Moz of 3PGE+Au in 2017, a decrease of 2.3 Moz from 2016.
Revisions to the South African mineral resource estimates were confined to the Marikana and Pandora properties.
- The mineral resources at Marikana (excluding tailings) decreased by 2.3 Moz 3PGE+Au in 2017. This is attributed to
the net effect of a decrease in the Merensky mineral resources (0.9 Moz) and a decrease of the UG2 mineral
resources (1.4 Moz). The Merensky Measured and Indicated mineral resources increased by 0.6 Moz, the net effect
of re-evaluation after consideration of depletions. The Merensky Inferred mineral resources decreased by 1.5 Moz,
due to re-evaluation. The UG2 Measured and Indicated mineral resources decreased by 0.4 Moz mainly due to
depletions. The UG2 Inferred mineral resource decreased by 1.0 Moz as a result of reassessment of mineral
resource confidence.
- The Pandora mineral resource increased by 0.07 Moz of 3PGE+Au, the result of re-evaluation of the orebody which
includes an offset of 0.06 Moz depleted from mining.
The Marikana Tailings, Akanani and Limpopo mineral resources were unchanged during 2017. There was a minor
decrease of the Loskop mineral resources (0.05 Moz 2PGE+Au) due to the revised attributable proportions on the
prospecting rights.
Lonmin is in the process of completing the full ownership of the Pandora JV in which the transaction unlocks significant
synergies. With full ownership of Pandora, Lonmin will have an additional 11.7 Moz of 3PGE+Au in mineral resource.
There were no revisions to the non-South African platinum mineral resources; the Denison 109 Footwall zone in Sudbury
Canada was unchanged in 2017. The mineral resource for the Denison 9400 zone is being assessed and will be considered
for reporting in 2018.
Ore source 30-Sep 2017 30-Sep-2016
3PGE+Au Pt 3PGE+Au Pt
Mt g/t Moz Moz Mt g/t Moz Moz
Marikana 714.7 4.91 112.7 67.8 728.6 4.91 115.0 69.3
Limpopo 128.8 4.07 16.8 8.4 128.8 4.07 16.8 8.4
Limpopo Baobab 46.1 3.91 5.8 3.0 46.1 3.91 5.8 3.0
Akanani 233.1 3.90 29.2 12.0 233.1 3.90 29.2 12.0
Pandora JV 78.1 4.64 11.7 7.0 77.5 4.65 11.6 7.0
Loskop JV 9.7 4.05 1.3 0.8 10.1 4.04 1.3 0.8
Sudbury PGM JV 0.2 5.86 0.04 0.02 0.2 5.86 0.04 0.02
Tailings Dams 22.5 1.10 0.8 0.5 22.5 1.10 0.8 0.5
Total 1 233.1 4.50 178.3 99.5 1 246.8 4.51 180.6 101.0
Notes on Mineral Resources
1) All figures are reported on a Lonmin Plc attributable basis, the relative proportions of ownership per project being
shown in the Key Assumptions section of this report. (Mineral Resources are reported inclusive of Mineral
Reserves).
2) Limpopo excludes Baobab shaft.
3) Loskop and Sudbury PGM JV exclude Rh, due to insufficient assays, and therefore 2PGE+Au are reported.
4) Tailings Dam exclude Au, due to assay values below laboratory detection limit, and therefore are reported as
3PGE.
5) Mineral Resources are reported Inclusive of Mineral Reserves.
6) Quantities and grades have been rounded to one or two decimal places, therefore minor computational errors
may occur.
2017 Mineral Reserves
Main features of the Lonmin mineral reserves as at 30 September 2017:
Attributable mineral reserves were 31.8 Moz of 3PGE+Au in 2017, comprising a decrease of 0.2 Moz from Marikana and
an increase of 0.3 Moz from Pandora with 2016. The Marikana tailings were unchanged.
- The Marikana attributable mineral reserves for 2017 are 29.9 Moz of 3PGE+Au, a decrease of 0.2 Moz with a
corresponding decrease of 3.7 Mt ore material. The change is attributed to mining depletion and closure of the
Newman Generation 1 shaft.
- The Proved mineral reserve for Marikana decreased by 0.2 Moz of 3PGE+Au due to mining depletion and re-
evaluation.
- The Pandora attributable mineral reserve of 1.2 Moz 3PGE+Au increased by 0.4 Moz which is due to the down dip
extension of two levels at the E3 shaft.
- The full ownership of the Pandora JV provides access into the Harties West block along the orebody strike from the
Saffy shaft, and together with the planned East 4 inclined shaft access, this has the potential to add a further 6.5
Moz 3PGE+Au to the attributable mineral reserves.
No Mineral Reserves continue to be declared for Limpopo, and there were no revisions thereof in 2017.
Ore source 30-Sep-2017 30-Sep-2016
3PGE+Au Pt 3PGE+Au Pt
Mt g/t Moz Moz Mt g/t Moz Moz
Marikana 227.2 4.09 29.9 18.1 230.9 4.06 30.1 18.3
Pandora JV 9.0 4.09 1.2 0.7 6.1 4.20 0.8 0.5
Tailings Dams 21.1 1.10 0.7 0.5 21.1 1.10 0.7 0.5
Total 257.3 3.84 31.8 19.3 258.2 3.82 31.7 19.2
Notes on Mineral Reserves
1) All figures are reported on a Lonmin Plc attributable basis, the relative proportions of ownership per project being
shown in the Key Assumptions section of this report.
2) Tailings Dam exclude Au, due to assay values below laboratory detection limit, and therefore are reported as
3PGE.
3) Quantities and grades have been rounded to one or two decimal places, therefore minor computational errors
may occur.
FINANCIAL REVIEW
Liquidity and Funding
Changes to the Business Plan and revisions to underlying assumptions resulted in an impairment charge of $1,053 million
for the year ended 30 September 2017.
The debt facilities available to the Group are subject to financial covenants, which include that the consolidated tangible
net worth (TNW) of the Group will not be at any time less than $1,100 million. Post year end a covenant waiver was
agreed with the lenders conditional on the completion of the acquisition of the Group by Sibanye-Stillwater. The waiver
period runs from 30 September 2017 to 28 February 2019, the long stop date of the acquisition. A condition of the waiver
was that $66 million of the revolving credit facilities was cancelled and that the Group leaves undrawn all remaining
revolving credit facilities during the waiver period. At 30 September 2017 the TNW of the Group was $674 million (2016 -
$1,605 million). See note 16 to the Group Financial Statements for further details. The other debt covenants are well
within thresholds and are not considered to be a significant risk.
As disclosed in note 1 to the financial statements the covenant waiver on the existing debt facilities is conditional on the
completion of the acquisition. The key conditions precedent to the transaction are receipt of relevant clearances from the
competition authorities in South Africa and the UK and approval from Lonmin plc and Sibanye-Stillwater shareholders
who are expected to require Lonmin having a net cash position after repaying the $150 million term loan. We are not in
full control of the approvals and there is a risk that the Group net cash position could be materially impacted by a
substantial economic downturn or operational factors. This introduces material uncertainties that require consideration
in the assessment of going concern.
On, or immediately prior to, completion of the transaction the $150 million term loan is required to be repaid and the
debt facilities cancelled. In the event that the deal does not complete, the waiver will cease to apply and the TNW
covenants will be reinstated. If they are then breached the $150 million loan may be required to be repaid. The covenant
waiver allows for a four week grace period whilst other options are pursued provided that the Company is engaging with
the lenders. During the four week grace period the Group will not be required to repay the loan. During this period, the
feasibility of an asset sale to Sibanye-Stillwater, as contemplated in the 2.7 announcement as well as any other alternative
transactions will be assessed by the Board. If alternative transactions turn out not to provide a feasible alternative
sufficient to repay the Group's borrowings, or the Group having sufficient gross cash itself, then the lenders are likely to
withdraw their facilities and the Group is likely to be unable to meet is liabilities.
The external auditors in their audit report draw attention to the material uncertainty over going concern. Whilst there
exists an inherent uncertainty regarding the liquidity of the Group, the Directors consider that it remains appropriate to
prepare the accounts on a going concern basis. Measures to improve liquidity as part of the Operational Review are in
progress as detailed in the CEO's review.
Overview
Dollar PGM prices in 2017 were on average 6% higher than 2016. Whilst the platinum price was less volatile than the prior
year, on average it was 3% lower. Palladium and Rhodium prices showed upwards trends throughout the year with the
average Palladium price achieved up 37% and the average Rhodium price achieved up 36% on the prior year.
PGM volumes sold were 2% lower than the prior year driven by the planned reduction of high cost production from the
Generation 1 shafts.
Cost increases in Rand terms were contained to 6% which was pleasing given an 8% increase in labour costs but the
increases were above the target set. The Rand was on average 10% stronger against the Dollar when comparing year on
year which resulted in an increase in costs in Dollar terms of 17% or $107 million. The cost of production per PGM ounce
at R11,701 was 9% higher than 2016 driven by cost escalations of 6% and a decrease in mining production of 2%. Further
details on unit costs can be found in the Operating Statistics section of the Report.
The operating loss for the period was $1,079 million including an impairment of $1,053 million (2016 - a loss of
$322 million including an impairment of $335 million). Excluding the impact of impairments the adjusted operating loss realised
in the year was $26 million (2016 - operating profit of $13 million). The depreciation charge was $36 million lower year
on year due to the impact of the impairments on the carrying amount of assets in 2016 and H1 2017. EBITDA for 2017
was $40 million, a decrease of $75 million on 2016 as the increase in metal prices was more than offset by the stronger
Rand and cost escalations.
Net cash at 30 September 2017 of $103 million was $70 million lower than 30 September 2016. The trading cash inflow
for the year was $33 million, a decrease of $25 million on 2016 driven by the decreased profitability. After capital
expenditure of $100 million in 2017, of which $34 million was funded through a metal streaming transaction for the Bulk
Tailing Treatment Project, the free cash outflow for 2017 was $67 million. Net cash at 30 September 2017 was $103
million being gross cash of $253 million offset by the drawn term loan of $150 million.
Income Statement
Year ended 30 September
2017 2016
$m $m
Revenue 1,166 1,118
South African operating costs (1,108) (947)
Other operating costs (18) (56)
EBITDA 40 115
Depreciation (66) (102)
Impairment of Marikana CGU (1,053) (335)
Operating loss (1,079) (322)
Net financing costs (88) (33)
Share of loss of equity accounted investment (3) (5)
Loss before tax (1,170) (355)
Tax 18 (45)
Loss after tax (1,152) (400)
Revenue
Total revenue for 2017 of $1,166 million reflects an increase of $48 million compared to the prior year. The US Dollar
PGM basket price (including by-products) increased by 6% compared to the 2016 average price, resulting in an increase in
revenue of $89 million. It should be noted that whilst the US Dollar basket price increased compared to 2016, in Rand
terms the basket price (including by-products) decreased by 3% driven by the stronger Rand. The average prices achieved
on the key metals sold are shown below:
Year ended 30 September
2017 2016
Platinum $/oz 953 978
Palladium $/oz 808 589
Rhodium $/oz 915 671
6E PGM basket (including by-product revenue) $/oz 844 796
PGMs sales koz 1,381 1,405
Revenue $m 1,166 1,118
Average FX rate for the year ZAR/USD 13.37 14.77
Rand PGM basket (including by-product revenue) R/oz R11,236 R11,637
The PGM sales volume for 2017 was 2% lower compared to 2016, which had a negative impact on revenue of $18 million.
The mix of metals sold decreased revenue by $38 million mainly due to the higher proportion of Ruthenium sold in 2017
as a result of a one-off stock release following a change in the refining process. Base metal revenue increased by
$15 million as a result of an increase in prices compared to 2016.
Costs
In Rand terms South African operating costs for 2017 at R14.8 billion were 6% or R0.7 billion higher than 2016. The impact
of the stronger Rand against the Dollar meant that in Dollar terms costs increased by 17% to $1,108 million. The targeted
cost reduction of R500 million in FY15 money terms was not achieved in 2017 largely driven by higher than planned
labour costs to recover the production losses recorded during the first four months of the financial year. Costs were
broadly flat year on year (up R63 million), excluding two years of CPI to get back to FY15 money terms.
$m Rm
2016 - South African operating costs (947) (13,994)
Cost reductions in 2015 money terms and exchange rate (Rand/USD 12.01):
Underground mining 4 61
Opencast mining - 4
Concentrating - -
Smelting and refining (3) (37)
Ore and concentrate purchases 2 25
Overheads and centralised services:
- Rehabilitation provisions adjustments (12) (178)
- Retrenchment provisions adjustments (7) (99)
- Share base payments 9 136
- Other overheads and centralised services 1 15
(5) (71)
Escalation, assuming South African CPI of 6.5% in 2016 and 5.1% in 2017 (49) (722)
Translation losses on underlying costs due to movement in exchange rate (107)
2017 - South African operating costs (1,108) (14,787)
In FY15 money terms before CPI escalation underground mining costs decreased by R61 million or 1% during the year.
This was lower than planned due to additional labour costs incurred to recover the production losses recorded during the
first four months of the financial year. Opencast mining costs decreased by R4 million. We continued to extract final ore
from the opencast UG2 pit having previously stopped mining from the opencast Merensky pit. Concentrating costs were
flat with volumes down 3%. Smelting and refining costs were R37 million or 3% higher in FY15 money terms despite PGM
production being down 8% year on year as costs are largely fixed. Ore and concentrate purchases decreased by R25
million year on year.
The prior year included a R163 million reduction in rehabilitation provisions compared with a R15 million increase in the
provision in 2017 (both stated in 2015 money terms). 2016 included a reversal of the overprovision for retrenchment
costs that had been estimated in 2015. Share based payment costs have reduced following a reduction in share-based
incentive programmes for management and the prior year included a charge of R74 million as employee share option
schemes were adjusted to reflect the Rights Issue and share consolidation.
Exchange rate impacts
The Rand strengthened by 10% against the US Dollar during the year averaging R13.37/$ in 2017 compared to an average
of R14.77/$ in 2016 resulting in a $107 million negative impact on the underlying operating cost of sales.
Year ended 30 September
2017 2016
R/$ R/$
Average exchange rate 13.37 14.77
Closing exchange rate 13.55 13.71
Year ended 30 September
2017
$m
Period on period Dollar cost increase due to impact of stronger Rand (107)
Reduction in metal stock movement due to impact of stronger Rand 2
Year on year reduction in exchange gains on working capital (4)
Net impact of exchange rate movements on operating profit (109)
Metal stock movement
Excluding the impact of exchange rate movements the decrease in metal stock of $30 million comprised a decrease in
metal stock of $4 million in 2017 and a decrease in metal stock of $34 million in 2016.
EBITDA
The $75 million decrease between the EBITDA of $115 million for the year ended 30 September 2016 and EBITDA of
$40 million for the year ended 30 September 2017 is analysed below:
$m
2016 EBITDA 115
PGM price 89
PGM volume (18)
PGM mix (38)
Base metals 15
Revenue changes 48
South African operating cost increases (FY15 money terms and exchange rate) (5)
Escalation on South African underlying costs at CPI of 5.1% for FY17 and 6.5% for FY16 (49)
South African cost changes (54)
Non-South African one-off items in 2016 - costs incurred to amend the debt facilities 10
Foreign exchange impact on cost, metal stock and working capital (109)
Metal stock movement 30
2017 EBITDA 40
Depreciation and amortisation
Depreciation and amortisation decreased by $36 million year on year mainly due to the impairment of assets in
September 2016 and March 2017. The reduced production also had an impact on the depreciation charge as depreciation
is calculated on a units-of-production basis, spreading costs in relation to proven and probable reserves.
Impairment
At 30 September 2017 the value-in-use of the Marikana operations declined driven by a change in our Business Plan as a
result of the Operational Review. As a result an impairment charge of $1,053 million is reflected in the financial
statements (2016 - $335 million). See note 29 to the financial statements for details.
Net finance costs
Year ended 30 September
2017 2016
$m $m
Net bank interest and fees (12) (11)
Unwinding of discounting on environmental provisions (10) (9)
Foreign exchange gains on net cash/(debt) 3 15
HDSA receivable - accrued interest receivable 26 27
HDSA receivable - exchange gains / (losses) 14 (60)
HDSA receivable - impairment (109) -
Foreign exchange gains on the Rights Issue proceeds and other - 5
Net finance expense (88) (33)
Net finance costs increased by $55 million to $88 million for the year ended 30 September 2017 driven by the impairment
to the HDSA receivable.
Net bank interest and fees incurred in the year at $12 million were $1 million higher year on year and exchange gains on
net cash in 2017 amounted to $3 million (2016 - $15 million).
The Historically Disadvantaged South Africans (HDSA) receivable is the Sterling loan to Phembani Group (Proprietary)
Limited (Phembani). The receivable is disclosed as a current asset as the preference shares are redeemable at any time on
or after 8 July 2015 at Lonmin's request. The receivable is secured on the HSDA's shareholding in Incwala, whose only
asset of value is its underlying investment in WPL, EPL and Akanani. It is not our current intention to request redemption
as Phembani could forfeit the loan and the 50.03% that Phembani holds in Incwala would revert to Lonmin. There is
ongoing engagement with Phembani around this.
The gross loan, excluding prior years impairments of $416 million, drew an exchange gain for the year of $14 million
(2016 - exchange loss of $60 million) due to the strengthening of Sterling against the US Dollar. Prior year impairments
are based in US Dollar, being the Group's functional currency, resulting in no exchange gains on the impairment. Accrued
interest in the year amounted to $26 million (2016 - $27 million). The loan was impaired by $109 million in the year due
to the decline in the valuation of the Marikana operations. The value of the security is driven by the value of WPL, EPL and
Akanani. The balance of the receivable at 30 September 2017 was $nil following the reduction in the value of the
Marikana operations (30 September 2016 - $69 million).
In the prior year period the $5 million foreign exchange gains on the Rights Issue comprise the gains on translation of
advanced cash proceeds received prior to the effective date of the Rights Issue as well as hedging gains on forward
exchange contracts entered into to minimise the risk of the exposure to currency fluctuations on the Rand and Pound
Sterling proceeds.
Taxation
The tax charge for 2017 was a credit of $18 million (2016 - tax charge of $45 million) and comprised a current tax charge
of $15 million (2016 - tax charge of $19 million) offset by a deferred tax credit of $33 million (2016 - tax charge
$26 million).
Cash Generation and Net Cash
The following table summarises the main components of the cash flow during the period:
Year ended 30 September
2017 2016
$m $m
Operating loss (1,079) (322)
Depreciation and amortisation 66 102
Impairment 1,053 335
Changes in working capital and provisions (16) (34)
Deferred revenue received 34 9
Other non-cash movements (5) (8)
Cash flow generated from operations 53 82
Interest and finance costs (12) (14)
Tax paid (8) (10)
Trading cash inflow 33 58
Capital expenditure (100) (89)
Free cash outflow (67) (31)
Contributions to joint venture (2) (3)
Proceeds from sale of joint venture - 5
Transfer to restricted funds for rehabilitation obligation (4) -
Net proceeds from equity issuance - 368
Cash (outflow) / inflow (73) 339
Opening net cash / (debt) 173 (185)
Foreign exchange movements 3 20
Unamortised fees - (1)
Closing net cash 103 173
Trading cash inflow (cents per share) 11.7c 23.2c
Free cash outflow (cents per share) (23.7)c (12.4)c
Cash flow generated by operations in 2017 at $53 million represented a decrease of $29 million compared 2016. The
decrease in profitability in the current year was partially offset by $34 million of third party funding received for the bulk
tailings treatment plant (2016 - $9 million) and working capital movements which at $16 million were $18 million
favourable to the prior year.
The cash outflow on interest and finance costs decreased by $2 million. Tax paid in the year of $8 million was $2m less
than the prior year.
Trading cashflow for the year amounted to $33 million and the trading cashflow per share was 11.7 cents for the year
ended 30 September 2017 (2016 - 23.2 cents).
Capital expenditure at $100 million was $11 million higher than the prior year largely due to the construction of the Bulk
Tailings Treatment plant (BTT) for which we received $34 million third party funding in the year. The implementation of
the BTT project, which will produce near term cash ounces, is on schedule, within budgeted cost and is expected to come
on-stream in the second quarter of the 2018 financial year.
Barrie van der Merwe
Chief Financial Officer
Operating statistics
5 year review
Units 2017 2016 2015 2014 2013
Tonnes Generation 2 K3 shaft kt 2,831 2,687 2,713 1,484 3,101
mined(1) Rowland shaft kt 1,925 1,731 1,872 1,005 1,781
Saffy shaft kt 2,174 2,055 1,758 782 1,150
Core Generation 2 kt 6,930 6,473 6,343 3,271 6,032
4B shaft kt 1,320 1,588 1,409 768 1,559
Total Generation 2 kt 8,250 8,061 7,752 4,039 7,591
Generation 1 1B shaft kt - 6 219 123 286
Hossy shaft kt 655 712 953 609 1,051
Newman shaft kt 51 346 765 428 948
W1 shaft kt 145 162 180 102 170
East 1 shaft kt 168 141 148 104 390
East 2 shaft kt 262 293 390 279 426
East 3 shaft kt 71 63 68 28 94
Pandora (100%)(2) kt 503 471 544 299 571
Generation 1 kt 1,854 2,196 3,267 1,973 3,935
K4 shaft kt - - 49 - 4
Total Underground kt 10,104 10,256 11,067 6,012 11,531
Opencast kt 45 49 230 333 528
Total Underground
& Opencast kt 10,148 10,305 11,297 6,345 12,058
Limpopo(3) Underground kt - - - 6 -
Lonmin 100% Total Tonnes
mined kt 10,148 10,305 11,297 6,351 12,058
% tonnes mined from
UG2 reef (100%) % 73.1% 75.3 75.1 74.1 73.9
Lonmin Underground &
(attributable) Opencast kt 9,897 10,070 11,016 6,180 11,730
Ounces Lonmin excl.
mined(4) Pandora Platinum oz 616,422 627,245 668,319 371,651 717,882
Pandora (100%) Platinum oz 34,886 32,509 36,458 20,327 40,917
Limpopo Platinum oz - - - 255 -
Lonmin Platinum oz 651,307 659,754 704,776 392,233 758,799
Lonmin excl.
Pandora Total PGMs oz 1,182,793 1,200,244 1,280,964 707,913 1,340,678
Pandora (100%) Total PGMs oz 69,362 63,857 71,861 40,044 78,353
Limpopo Total PGMs oz - - - 572 -
Lonmin Total PGMs oz 1,252,155 1,264,101 1,352,825 748,529 1,419,032
Tonnes Marikana Underground kt 9,486 9,806 10,930 5,389 10,854
milled(5) Opencast kt 49 98 318 422 393
Total kt 9,535 9,904 11,248 5,810 11,248
Pandora(6) Underground kt 503 471 562 281 574
Limpopo(7) Underground kt - - - 27 -
Lonmin Underground kt 9,989 10,277 11,491 5,696 11,428
Platinum Opencast kt 49 98 318 422 393
Total kt 10,039 10,375 11,810 6,118 11,822
Milled head Lonmin Underground g/t 4.61 4.60 4.51 4.48 4.60
grade8 Platinum Opencast g/t 4.42 3.59 3.08 3.20 2.92
Total g/t 4.61 4.59 4.47 4.39 4.54
Concentrator Lonmin Underground % 87.1 86.7 86.8 87.0 87.0
recovery rate(9) Platinum Opencast % 68.3 73.6 85.1 84.5 85.3
Total % 87.0 86.6 86.7 86.9 87.0
Operating statistics
5 year review
Units 2017 2016 2015 2014 2013
Metals-in- Marikana Platinum oz 609,354 631,066 696,489 355,926 706,012
concentrate(10) Palladium oz 282,246 292,315 323,177 164,960 323,622
Gold oz 15,171 15,206 16,503 9,879 17,664
Rhodium oz 86,254 90,151 101,435 49,908 95,241
Ruthenium oz 144,996 147,740 165,689 81,693 144,304
Iridium oz 30,303 29,845 32,416 16,143 33,059
Total PGMs oz 1,168,324 1,206,322 1,335,710 678,508 1,319,902
Limpopo Platinum oz - - - 1,121 -
Palladium oz - - - 974 -
Gold oz - - - 93 -
Rhodium oz - - - 114 -
Ruthenium oz - - - 161 -
Iridium oz - - - 44 -
Total PGMs oz - - - 2,508 -
Pandora Platinum oz 34,886 32,509 37,553 18,913 41,117
Palladium oz 16,509 15,231 17,496 8,960 19,190
Gold oz 243 95 131 54 315
Rhodium oz 5,928 5,360 6,383 3,226 6,563
Ruthenium oz 9,750 8,852 10,466 5,168 9,764
Iridium oz 2,047 1,811 1,988 916 1,773
Total PGMs oz 69,362 63,857 74,019 37,237 78,721
Lonmin Platinum oz 644,240 663,575 734,042 375,960 747,129
Platinum Palladium oz 298,756 307,545 340,673 174,894 342,812
before Gold oz 15,414 15,301 16,635 10,026 17,979
Concentrate Rhodium oz 92,182 95,511 107,818 53,248 101,803
purchases Ruthenium oz 154,746 156,591 176,156 87,022 154,067
Iridium oz 32,350 31,655 34,405 17,103 34,832
Total PGMs oz 1,237,686 1,270,179 1,409,729 718,253 1,398,623
Concentrate Platinum oz 4,871 5,129 6,273 4,398 3,813
purchases Palladium oz 1,550 1,555 1,869 1,242 1,132
Gold oz 21 18 18 14 14
Rhodium oz 597 565 816 531 421
Ruthenium oz 935 919 1,079 546 428
Iridium oz 263 242 338 224 172
Total PGMs oz 8,237 8,429 10,394 6,955 5,980
Lonmin Platinum oz 649,111 668,704 740,315 380,359 750,942
Platinum Palladium oz 300,305 309,101 342,542 176,136 343,944
Gold oz 15,435 15,319 16,653 10,040 17,993
Rhodium oz 92,779 96,076 108,634 53,779 102,225
Ruthenium oz 155,680 157,510 177,235 87,567 154,495
Iridium oz 32,614 31,898 34,743 17,327 35,004
Total PGMs oz 1,245,923 1,278,607 1,420,122 725,208 1,404,603
Nickel(11) MT 3,215 3,265 3,669 2,092 3,743
Copper(11) MT 1,998 1,983 2,250 1,314 2,340
Refined Lonmin Platinum oz 685,028 739,315 759,005 431,683 707,665
production refined metal Palladium oz 316,517 334,470 350,040 208,756 319,841
production Gold oz 18,017 19,596 18,232 12,299 18,676
Rhodium oz 100,677 121,149 102,372 76,940 79,124
Ruthenium oz 162,141 177,006 181,803 107,166 171,052
Iridium oz 33,654 44,855 32,180 27,991 28,068
Total PGMs oz 1,316,034 1,436,390 1,443,633 864,835 1,324,426
Operating statistics
5 year review
Units 2017 2016 2015 2014 2013
Refined Toll refined Platinum oz 2,501 2,575 689 4,501 1,364
production metal Palladium oz 789 713 280 1,765 662
production Gold oz 35 30 14 116 289
Rhodium oz 310 207 95 1,546 1,837
Ruthenium oz 926 698 2,093 7,417 6,519
Iridium oz 207 110 560 1,914 1,012
Total PGMs oz 4,768 4,333 3,731 17,259 11,683
Toll refined Platinum oz 687,529 741,890 759,695 436,184 709,029
PGMs Palladium oz 317,306 335,183 350,320 210,521 320,503
Gold oz 18,052 19,626 18,246 12,415 18,965
Rhodium oz 100,987 121,356 102,467 78,486 80,961
Ruthenium oz 163,067 177,704 183,896 114,583 177,571
Iridium oz 33,861 44,965 32,740 29,905 29,081
Total PGMs oz 1,320,802 1,440,724 1,447,364 882,094 1,336,109
Nickel(12) MT 3,502 3,769 3,720 2,387 3,532
Copper(12) MT 2,126 2,227 2,276 1,480 2,168
Sales Refined Platinum oz 706,030 735,747 751,560 441,684 695,803
metal sales Palladium oz 324,273 334,319 347,942 212,500 313,030
Gold oz 16,675 20,735 19,199 13,100 18,423
Rhodium oz 107,742 121,604 92,520 81,120 77,625
Ruthenium oz 193,479 145,306 192,549 121,904 168,266
Iridium oz 33,212 47,392 30,114 29,778 28,828
Total PGMs oz 1,381,413 1,405,103 1,433,883 900,087 1,301,973
Nickel(12) MT 3,770 3,773 3,656 2,251 3,586
Copper(12) MT 1,874 2,265 2,131 1,448 2,130
Chrome(12) MT 1,402,697 1,563,236 1,440,901 747,881 1,388,761
Average Platinum $/oz 953 978 1,095 1,403 1,517
prices Palladium $/oz 808 589 718 775 715
Gold $/oz 1,244 1,425 1,487 1,509 1,508
Rhodium $/oz 915 671 998 1,050 1,097
Basket price of PGMs(13) $/oz 790 753 849 1,013 1,100
Full Basket price of PGMs(14) $/oz 844 796 902 1,072 1,167
Basket price of PGMs(13) R/oz 10,526 11,030 10,207 10,654 10,291
Full Basket price of PGMs(14) R/oz 11,236 11,637 10,829 11,277 10,921
Nickel(12) $/MT 8,274 7,357 10,512 13,053 12,772
Copper(12) $/MT 5,661 4,508 5,584 6,810 7,113
Capital Rm 1,336 1,268 1,641 992 1,500
Expenditure(15) $m 100 89 136 93 159
Employees & as at 30 September # 24,713 25,296 26,968 28,276 28,379
Contractors as at 30 September # 7,831 7,497 8,701 10,016 10,042
Productivity m(2)per mining employee (shaft
(Generation 2) head)
K3 shaft m(2)/person 5.6 5.6 5.5 2.9 6.0
4B/1B shaft(16) m(2)/person 6.2 7.6 6.8 3.7 7.7
Rowland shaft m(2)/person 5.9 5.6 5.9 3.1 5.7
Saffy shaft m(2)/person 5.6 5.5 4.6 2.1 3.8
Generation 2 m(2)/person 5.8 5.9 5.6 2.9 5.8
Operating statistics
5 year review
Units 2017 2016 2015 2014 2013
Productivity m(2)per per stoping, ledging &
(Generation 2) white area crew
K3 shaft m(2)/crew 264 285 285 151 313
4B/1B shaft(16) m(2)/crew 309 388 339 180 371
Rowland shaft m(2)/crew 343 341 335 200 344
Saffy shaft m(2)/crew 291 293 243 122 249
Generation 2 m(2)/crew 295 316 296 161 322
Exchange Average rate for period(17) R/$ 13.37 14.77 12.01 10.55 9.24
rates GBP/$ 0.79 0.70 0.65 0.60 0.64
Closing rate R/$ 13.55 13.71 13.83 11.29 9.99
GBP/$ 0.75 0.77 0.66 0.62 0.62
Cost of sales PGM operations segment
Mining $m (716) (625) (785) (622) (919)
Concentrating $m (129) (114) (145) (107) (159)
Smelting and refining(18) $m (119) (102) (120) (106) (133)
Shared services $m (78) (49) (71) (74) (101)
Management and marketing
services $m (19) (21) (25) (24) (26)
Ore, concentrate and other
purchases $m (37) (34) (48) (38) (64)
Limpopo mining $m (1) (2) (2) (3) (7)
Community trusts donations $m (1) (1) (1) - -
Royalties $m (7) (7) (9) (5) (6)
Shared based payments $m (1) (11) (14) (15) (13)
Other(19) (1) 16 149 (21) (16)
Inventory movement $m (2) (34) (84) (79) 203
FX and Group Charges $m (8) (1) 51 25 44
Total PGM operations segment $m (1,120) (983) (1,104) (1,069) (1,197)
Evaluation - excluding FX $m - - - - 1
Exploration - excluding FX $m (4) (5) (7) (6) (4)
Corporate - excluding FX $m (4) (3) (2) (2) (10)
FX $m (2) (2) (10) (1) (4)
Total cost of sales $m (1,126) (993) (1,123) (1,079) (1,215)
PGM operations segment
Mining Rm (9,548) (9,155) (9,414) (6,556) (8,545)
Concentrating Rm (1,729) (1,650) (1,731) (1,121) (1,469)
Smelting and refining(18) Rm (1,586) (1,470) (1,426) (1,119) (1,235)
Shared services Rm (1,033) (721) (810) (786) (928)
Management and marketing
services Rm (250) (304) (294) (256) (243)
Ore, concentrate and other
purchases Rm (490) (494) (574) (402) (597)
Limpopo mining Rm (12) (23) (25) (31) (61)
Operating statistics
5 year review
Units 2017 2016 2015 2014 2013
Cost of sales Community trusts donations $m (11) (15) (10) - -
K3 Chrome Plant Rm (4) - - - -
Royalties Rm (90) (94) (103) (52) (55)
Shared based payments Rm (14) (158) (164) (148) (121)
Other(19) Rm (18) 235 1,789 (220) (152)
Inventory movement Rm (88) (510) 6 (480) 2,145
FX and Group Charges Rm 80 265 (2,659) (1,117) (1,247)
Rm (14,795) (14,093) (15,414) (12,288) (12,508)
Shaft head unit Rand per tonne
cost - K3 shaft R/T (920) (890) (840) (990) (629)
underground 4B/1B shaft(16) R/T (895) (714) (760) (859) (571)
operations Rowland shaft R/T (929) (936) (825) (992) (694)
excluding K4 Saffy shaft R/T (863) (858) (886) (1,164) (878)
Generation 2 R/T (903) (857) (830) (995) (666)
Hossy shaft (1,017) (915) (927) (1,002) (749)
Newman shaft R/T (2,859) (1,008) (738) (907) (592)
East 1 shaft R/T (874) (1,041) (1,025) (1,162) (611)
East 2 shaft R/T (1,232) (1,033) (824) (831) (657)
East 3 shaft & ore purchases R/T (953) (927) (872) (964) (905)
W1 shaft R/T (808) (920) (902) (987) (934)
Generation 1 R/T (1,049) (957) (858) (956) (720)
Total underground R/T (930) (878) (838) (983) (683)
Rand per PGM oz
K3 shaft R/oz (7,862) (7,409) (7,171) (8,683) (5,314)
4B/1B shaft(16) R/oz (8,379) (6,806) (7,442) (8,231) (5,385)
Rowland shaft R/oz (7,346) (7,359) (6,428) (7,727) (5,292)
Saffy shaft R/oz (6,631) (6,755) (7,143) (9,702) (7,912)
Generation 2 R/oz (7,460) (7,118) (7,023) (8,539) (5,683)
Hossy shaft R/oz (7,610) (6,961) (8,375) (8,472) (6,671)
Newman shaft R/oz (21,183) (7,568) (5,412) (6,741) (4,626)
East 1 shaft R/oz (6,633) (7,949) (7,406) (8,233) (4,805)
East 2 shaft R/oz (8,837) (7,654) (6,163) (6,924) (5,175)
East 3 shaft & ore purchases R/oz (7,042) (6,960) (6,522) (7,201) (6,606)
W1 shaft R/oz (6,415) (7,565) (7,362) (6,969) (7,695)
Generation 1 R/oz (7,810) (7,257) (6,774) (7,487) (5,778)
Total underground R/oz (7,530) (7,150) (6,950) (8,195) (5,714)
Cost of Cost
production Mining Rm (9,548) (9,155) (9,414) (6,556) (8,545)
(PGM operations Concentrating Rm (1,729) (1,650) (1,731) (1,121) (1,469)
segment)(20) Smelting and refining(18) Rm (1,586) (1,470) (1,426) (1,119) (1,235)
Shared services Rm (1,033) (721) (810) (786) (928)
Management and marketing
services Rm (250) (304) (294) (256) (243)
Rm (14,148) (13,299) (13,674) (9,838) (12,420)
Operating statistics
5 year review
Units 2017 2016 2015 2014 2013
Cost of PGM Saleable ounces
Production Mined ounces excluding ore
(PGM operations purchases oz 1,182,793 1,200,244 1,280,964 707,913 1,340,678
segment)(20) Metals-in-concentrate before
concentrate purchases oz 1,237,686 1,270,178 1,409,729 715,746 1,398,623
Refined ounces oz 1,320,802 1,440,724 1,447,364 882,094 1,336,109
Metals-in-concentrate including
concentrate purchases oz 1,245,923 1,278,607 1,420,122 722,701 1,404,603
Cost of production
Mining R/oz (8,073) (7,627) (7,349) (9,261) (6,373)
Concentrating R/oz (1,397) (1,299) (1,228) (1,567) (1,051)
Smelting and refining(18) R/oz (1,201) (1,020) (985) (1,269) (925)
Shared services R/oz (829) (564) (570) (1,087) (661)
Management and marketing
services R/oz (201) (237) (207) (355) (173)
R/oz (11,701) (10,748) (10,339) (13,538) (9,182)
% increase in cost of production
Mining % (5.8) (3.8) 20.6 (45.3) (5.8)
Concentrating % (7.6) (5.8) 21.6 (49.2) 2.1
Smelting and refining(18) % (17.7) (3.6) 22.4 (37.3) (5.4)
Shared services % (47.1) 1.1 47.5 (64.5) (3.3)
Management and marketing
services % 15.3 (14.8) 41.7 (104.9) 24.1
% (8.9) (4.0) 23.6 (47.4) (3.8)
Average Platinum $/oz 953 978 1,095 1,403 1,517
prices Palladium $/oz 808 589 718 775 715
Gold $/oz 1,244 1,425 1,487 1,509 1,508
Rhodium $/oz 915 671 998 1,050 1,097
Basket price of PGMs(13) $/oz 790 753 849 1,013 1,100
Full Basket price of PGMs(14) $/oz 844 796 902 1,072 1,167
Basket price of PGMs(13) R/oz 10,526 11,030 10,207 10,654 10,291
Full Basket price of PGMs(14) R/oz 11,236 11,637 10,829 11,277 10,921
Nickel(12) $/MT 8,274 7,357 10,512 13,053 12,772
Copper(12) $/MT 5,661 4,508 5,584 6,810 7,113
Operating statistics
5 year review
Footnotes:
1 Reporting of shafts are in line with our operating strategy for Generation 1 and Generation 2 shafts.
2 Pandora underground and opencast tonnes mined represents 100% of the total tonnes mined on the Pandora joint venture of
which 42.5% for October and November 2014 and 50% thereafter is attributable to Lonmin.
3 Limpopo underground tonnes mined represents low grade development tonnes mined whilst on care and maintenance.
4 Ounces mined have been calculated at achieved concentrator recoveries and with Lonmin standard downstream processing
recoveries to present produced saleable ounces.
5 Tonnes milled exclude slag milling.
6 Lonmin purchases 100% of the ore produced by the Pandora joint venture for onward processing which is included in downstream
operating statistics.
7 Limpopo tonnes milled represent low grade development tonnes milled.
8 Head grade is the grammes per tonne (5PGE + Au) value contained in the tonnes milled and fed into the concentrator from the
mines (excludes slag milled).
9 Recovery rate in the concentrators is the total content produced divided by the total content milled (excluding slag).
10 Metals-in-concentrate have been calculated at Lonmin standard downstream processing recoveries to present produced saleable ounces.
11 Corresponds to contained base metals in concentrate.
12 Nickel is produced and sold as nickel sulphate crystals or solutions and the volumes shown correspond to contained metal. Copper is
produced as refined product but typically at LME grade C. Chrome is produced in the form of chromite concentrate and volumes shown are
in the form of chromite.
13 Basket price of PGMs is based on the revenue generated in Rand and Dollar from the actual PGMs (5PGE + Au) sold in the period based on
the appropriate Rand / Dollar exchange rate applicable to each sales transaction.
14 As per footnote 13 but including revenue from base metals.
15 Capital expenditure is the aggregate of the purchase of property, plant and equipment and intangible assets (includes capital accruals and
excludes capitalised interest).
16 Includes 1B shaft.
17 Exchange rates are calculated using the market average daily closing rate over the course of the period.
18 Comprises of Smelting and Refining costs as well as direct Process Operations shared costs and group security costs.
19 Other includes costs such as Restructuring and reorganisation costs, Debt refinancing cost and Accelerated vesting of Share Based payment
expenses per IFRS 2. (Previously reported as "Special costs".)
20 It should be noted that with the implementation of the revised operating model, the cost allocation between business units has been changed
and, therefore, whilst the total is on a like-for-like basis, individual line items are not totally comparable.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole; and
- the management report required by DTR 4.1.8R (contained in the Strategic Report and the Directors'
Report) includes a fair review of the development and performance of the business and the position of
the Company and the undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group's position and performance, business model and strategy.
Brian Beamish Barrie van der Merwe
Chairman Chief Financial Officer
21 January 2018
FINANCIAL STATEMENTS
Consolidated income statement
for the year ended 30 September
2017 2016
Total Total
Notes $m $m
Revenue 2 1,166 1,118
EBITDA(i) 40 115
Depreciation and amortisation (66) (102)
Impairment of non-financial assets (1,053) (335)
Operating loss(ii) (1,079) (322)
Profit on disposal of joint venture - 5
Finance income 3 49 55
Finance expenses 3 (137) (88)
Share of loss of equity accounted investment (3) (5)
Loss before taxation (1,170) (355)
Income tax credit / (charge)(iii) 4 18 (45)
Loss for the year (1,152) (400)
Attributable to:
- Equity shareholders of Lonmin Plc (996) (342)
- Non-controlling interests (156) (58)
Basic and diluted loss per share(Iv) 5 (352.7)c (137.0)c
Consolidated statement of comprehensive income
for the year ended 30 September
2017 2016
Total Total
Note $m $m
Loss for the year (1,152) (400)
Items that may be reclassified subsequently to the income statement:
- Change in fair value of available for sale financial assets 7 8 -
- Foreign exchange gain on retranslation of equity accounted investment 1 -
- Deferred tax on items taken directly to the statement of comprehensive income 2 (1)
Total other comprehensive income/(loss) for the year 11 (1)
Total comprehensive loss for the year (1,141) (401)
Attributable to:
- Equity shareholders of Lonmin Plc (985) (343)
- Non-controlling interests (156) (58)
(1,141) (401)
Footnotes:
i EBITDA / (LBITDA) is operating profit / (loss) before depreciation, amortisation and impairment of goodwill, intangibles and
property, plant and equipment.
ii Operating profit / (loss) is defined as revenue less operating expenses before finance income and expenses and share of loss of equity
accounted investment.
iii The income tax credit / (charge) substantially relates to overseas taxation and includes exchange losses of $1 million (2016 - gains of
$5 million) as disclosed in note 4.
iv Diluted (loss) / earnings per share is based on the weighted average number of ordinary shares in issue adjusted by dilutive outstanding
share options.
Consolidated statement of financial position
as at 30 September
2017 2016
Notes $m $m
Non-current assets
Intangible assets 10 11 74
Property, plant and equipment 10 194 1,158
Equity accounted investment 24 24
Royalty prepayment 36 37
Other financial assets 7 34 21
Deferred tax assets 1 -
300 1,314
Current assets
Inventories 245 245
Trade and other receivables 73 67
Other financial assets 7 - 69
Cash and cash equivalents 9 253 323
571 704
Current liabilities
Trade and other payables (178) (193)
Interest bearing loans and borrowings 9 (150) -
Deferred revenue (13) -
Tax payable (7)
(348) (193)
Net current assets 223 511
Non-current liabilities
Interest bearing loans and borrowings 9 - (150)
Deferred tax liabilities - (34)
Deferred royalty payment - (3)
Deferred revenue (27) (9)
Provisions (134) (127)
(161) (323)
Net assets 362 1,502
Capital and reserves
Share capital 586 586
Share premium 1,816 1,816
Other reserves 88 88
Accumulated loss (1,805) (821)
Attributable to equity shareholders of Lonmin Plc 685 1,669
Attributable to non-controlling interests (323) (167)
Total equity 362 1,502
The financial statements of Lonmin Plc, registered number 103002, were approved by the Board of Directors on 21 January 2018
and were signed on its behalf by:
Brian Beamish Chairman
Barrie van der Merwe Chief Financial Officer
Consolidated statement of changes in equity
for the year ended 30 September
Equity interest
Called up Share Accumu- Non-
share premium Other lated controlling Total
capital account reserves(i) loss(ii) Total interests(iii) equity
$m $m $m $m $m $m $m
At 1 October 2016 586 1,816 88 (821) 1,669 (167) 1,502
Loss for the year - - - (996) (996) (156) (1,152)
Total other comprehensive income: - - - 11 11 - 11
- Change in fair value of available for
sale financial assets - - - 8 8 - 8
- Foreign exchange gain on retranslation
of equity accounted investments - - - 1 1 - 1
- Deferred tax on items taken directly to
the statement of comprehensive income - - - 2 2 - 2
Transactions with owners, recognised
directly in equity: - - - 1 1 - 1
- Share-based payments - - - 1 1 - 1
At 30 September 2017 586 1,816 88 (1,805) 685 (323) 362
Equity interest
Called up Share Accumu- Non-
share premium Other lated controlling Total
capital account reserves(i) loss(ii) Total interests(iii) equity
$m $m $m $m $m $m $m
At 1 October 2015 586 1,448 88 (493) 1,629 (109) 1,520
Loss for the year - - - (342) (342) (58) (400)
Total other comprehensive expenses: - - - (1) (1) - (1)
- Deferred tax on items taken directly to
the statement of comprehensive income - - - (1) (1) - (1)
Transactions with owners, recognised
directly in equity: - 368 - 15 383 - 383
- Share-based payments - - - 15 15 - 15
- Share capital and share premium
recognised on equity issuance - 395 - - 395 - 395
- Equity issue costs charged to share
premium - (27) - - (27) - (27)
At 30 September 2016 586 1,816 88 (821) 1,669 (167) 1,502
Footnotes:
i Other reserves at 30 September 2017 represent the capital redemption reserve of $88 million (2016 - $88 million).
ii Accumulated loss include a $8 million of accumulated credit in respect of fair value movements on available for sale financial assets
(2016 - $nil) and $16 million debt of accumulated exchange on retranslation of equity accounted investments (2016 - $17 million debit).
iii Non-controlling interests represent a 13.76% effective shareholding in each of Eastern Platinum Limited, Western Platinum Limited and Messina
Limited and a 19.87% effective shareholding in Akanani Mining (Proprietary) Limited.
iv During the year 34,202 share options were exercised (2016 - 378,978) on which $3 of cash was received (2016 - $38).
Consolidated statement of cash flows
for the year ended 30 September
2017 2016
Notes $m $m
Loss for the year (1,152) (400)
Taxation 4 (18) 45
Share of loss of equity accounted investment 3 5
Finance income 3 (49) (55)
Finance expenses 3 137 88
Profit on disposal of joint venture - (5)
Non-cash movement on deferred revenue (3) (23)
Depreciation and amortisation 66 102
Impairment 10 1,053 335
Change in inventories - 36
Change in trade and other receivables (6) (4)
Change in trade and other payables (15) (15)
Change in provisions 5 (51)
Deferred revenue received 34 9
Share-based payments 1 15
Profit on disposal of property, plant and equipment (1) -
Prepaid royalties (2) -
Cash inflow from operations 53 82
Interest received 6 6
Interest and bank fees paid (18) (20)
Tax paid (8) (10)
Cash inflow from operating activities 33 58
Cash flow from investing activities
Contributions to joint venture (2) (3)
Proceeds on disposal of joint venture - 5
Additions to other financial assets (4) -
Purchase of property, plant and equipment (99) (87)
Purchase of intangible assets (1) (2)
Cash used in investing activities (106) (87)
Cash flow from financing activities
Repayment of current borrowings 9 - (506)
Proceeds from non-current borrowings 9 - 150
Proceeds from equity issuance - 395
Costs of issuing shares - (27)
Profit on forward exchange contracts on equity issuance - 5
Cash inflow from financing activities - 17
Decrease in cash and cash equivalents 9 (73) (12)
Opening cash and cash equivalents 9 323 320
Effect of foreign exchange rate changes 9 3 15
Closing cash and cash equivalents 9 253 323
Notes to the accounts
1. Statement on accounting policies
Basis of preparation
The financial information presented has been prepared on the basis of International Financial Reporting Standards (IFRSs)
as adopted by the EU.
Going concern
In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider
whether the Group can continue in operational existence for the foreseeable future.
Lonmin's business has experienced ongoing financial constraints for a number of years caused by a range of external
factors such as a persistently low PGM pricing environment and the inflationary cost pressures of operating in the South
African PGM industry. These have been further exacerbated by internal factors including operational, social and labour
issues.
In assessing the Group's ability to continue as a going concern, the Directors have prepared cash flow forecasts for a
period in excess of 12 months. The assumptions used in the model are disclosed in note 29. The Directors have also
considered the debt facilities available to the Group which are disclosed in note 16 to the financial statements.
At 30 September 2017 the term loan of $150 million was fully drawn and the Group had gross cash of $253 million.
The Group's loan facility agreements require it to test two covenants related to its tangible net worth (TNW) every six
months. At 30 September 2017 the TNW of the Group, after recognising an impairment charge of $1,053 million to non-
current assets in the year was $674 million some $426 million below the TNW covenant threshold of $1,100 million.
After the year-end Sibanye Gold Limited trading as Sibanye-Stillwater made an offer to buy the Group which was
unanimously recommended by the Board of Lonmin Plc. The Board of Lonmin believes that the offer is in the best
interests of Lonmin shareholders and all other stakeholders of Lonmin and provides Lonmin with a comprehensive and
sustainable solution to the adverse challenges it faces. The combination of Sibanye-Stillwater and Lonmin creates a larger
and more resilient company, with greater geographical and commodity diversification, that is better able to withstand
short-term commodity price and foreign exchange volatility. The long stop date of this acquisition is 28 February 2019.
As a result of the Sibanye-Stillwater offer, the Company's lenders have agreed to a waiver of the Tangible Net Worth
covenants for the period from 30 September 2017 to 28 February 2019 on the condition that the Company cancels
$66 million of its revolving credit facilities and leaves undrawn the remaining revolving credit facilities during the waiver
period. The waiver is conditional on the completion of the acquisition and will lapse if the acquisition does not complete,
lapses or is withdrawn, subject to a four week grace period which will apply if the Company is engaging with the lenders.
The key conditions precedent to the acquisition are receipt of relevant clearances from the competition authorities in
South Africa and the UK and approval from Lonmin Plc and Sibanye-Stillwater shareholders. The Directors anticipate that
Sibanye-Stillwater shareholders would have a strong preference for Lonmin to be in a net cash position after repaying the
$150 million term loan. We are not in full control of the approvals and their receipt is uncertain. Furthermore there is a
risk that the Group net cash position could be materially impacted by a substantial economic downturn or operational
factors.
On or immediately prior to completion of the acquisition the term loan of $150 million is required to be repaid and debt
facilities cancelled. Based on cash flow projections using assumptions that were duly considered by the Board, the
repayment of the facilities at the closing of the deal is considered a reasonable expectation. In addition, based on
discussions with Sibanye-Stillwater to date the Directors consider that there is no indication that Lonmin Plc and its
significant subsidiaries will not continue to operate after the acquisition for a period of at least 12 months.
In the event that the deal does not complete, the waiver will cease to apply and the TNW covenants will be reinstated. If
the TNW covenants are breached, the $150 million may be required to be repaid. The covenant waiver allow for a four
week grace period whilst other options are pursued provided that the Company is engaging with the lenders.
During the four week grace period the Group will not be required to repay the loan. During this period, the feasibility of an
asset sale to Sibanye-Stillwater, as contemplated in the 2.7 announcement as well as any other alternative transactions
will be assessed by the Board. If alternative transactions turn out not to provide a feasible alternative, sufficient to repay
the Group's borrowings, or the Group does not have sufficient cash to repay the borrowings itself, then the lenders are
likely to withdraw their facilities and the Group is likely to be unable to meet its liabilities.
In assessing whether the Group is likely to have cash to repay the term loan of $150 million either on completion of the
acquisition or in the event the acquisition fails and no feasible alternatives are found, the Directors have considered
various scenarios to test the Group's resilience against operational risks including:
- Adverse movements in PGM commodity prices and ZAR/USD exchange rate or a combination thereof;
- Failure to meet forecast production targets.
Under reasonably possible downside scenarios this results in gross cash for the Group falling below $150 million meaning
the Group would be unable to repay the loan or it would fall into a net debt position.
The factors highlighted including the uncertainty around the completion of the Sibanye-Stillwater transaction given the
possible scenarios which may result in the deal falling through, and the uncertainty that the Group will be able to repay
the $150 million loan represent a material uncertainty that may cast significant doubt about the Group's and parent
Company's ability to continue as a going concern such that the Group and parent company may be unable to realise their
assets and discharge their liabilities in the normal course of business. Nevertheless, based on the Group's expectation of
the acquisition completing by the long stop date of 28 February 2019, the Directors believe that the Group will continue
to have adequate financial resources to meet obligations as they fall due. Accordingly, the Directors have formed a
judgement that it is appropriate to prepare the financial statements on a going concern basis. Therefore, these financial
statements do not include any adjustments that would result if the going concern basis of preparation is inappropriate.
New standards and amendments in the year
The following revised IFRSs have been adopted in these financial statements. The application of these IFRSs did not have
any material impact on the amounts reported for the current and prior years:
- Annual Improvements to IFRSs 2012-2014 cycle - amendments to IFRS 5, 7 and IAS 19, 34.
- Joint Arrangements - amendments to IFRS 11
- Presentation of financial statements - amendments to IAS 1
- Property, Plant and Equipment - amendments to IAS 16
- Investment in Associates and Joint Ventures - amendments to IAS 28
- Intangible assets - amendments to IAS 38
2. Segmental analysis
The PGM Operations segment comprises the activities involved in the mining and processing of PGMs, together with
associated base metals, which are carried out entirely in South Africa. These operations are integrated and designed to
support the process for extracting and refining PGMs from underground. PGMs move through each stage of the process
and undergo successive levels of refinement which result in fully refined metals. This segment also includes exploration
and evaluation activities involved in the discovery or identification of new PGM deposits and the evaluation through pre-
feasibility of the economic viability of newly discovered PGM deposits. Currently exploration activities occur on a
worldwide basis and evaluation projects are based in South Africa. The Chief Executive Officer, who performs the role of
Chief Operating Decision Maker (CODM), views the PGM Operations segment as a single whole for the purposes of
financial performance monitoring and assessment and does not make resource allocations based on margin, costs or cash
flows incurred at each separate stage of the process. In addition, the CODM makes his decisions for running the business
on a day to day basis using the physical operating statistics generated by the business as these summarise the operating
performance of the entire segment.
Other covers mainly the results and investment activities of the corporate Head Office. The only intersegment
transactions involve the provision of funding between segments and any associated interest.
No operating segments have been aggregated. Operating segments have consistently adopted the consolidated basis of
accounting and there are no differences in measurement applied.
2017
PGM Inter-
Operations segment
Segment Other Adjustments Total
$m $m $m $m
Revenue (external sales by product):
Platinum 673 - - 673
Palladium 262 - - 262
Gold 21 - - 21
Rhodium 99 - - 99
Ruthenium 9 - - 9
Iridium 28 - - 28
PGMs 1,092 - - 1,092
Nickel 31 - - 31
Copper 11 - - 11
Chrome 32 - - 32
1,166 - - 1,166
EBITDA / (LBITDA)(i) 42 (2) - 40
Depreciation and amortisation (66) - - (66)
Impairment (1,053) - - (1,053)
Operating loss(i) (1,077) (2) - (1,079)
Finance income 14 94 (59) 49
Finance expenses(ii) (74) (122) 59 (137)
Share of loss of equity accounted investment (3) - - (3)
Loss before taxation (1,140) (30) - (1,170)
Income tax credit / (charge) 26 (8) - 18
Loss after taxation (1,114) (38) - (1,152)
Total assets(iii) 912 1,773 (1,814) 871
Total liabilities (2,134) (189) 1,814 (509)
Net assets / (liabilities) (1,222) 1,584 - 362
2017
PGM Inter-
Operations segment
Segment Other Adjustments Total
$m $m $m $m
Share of net assets of equity accounted investment 24 - - 24
Additions to property, plant, equipment and intangibles 93 - - 93
Material non-cash items - share-based payments 1 - - 1
2016
PGM Inter-
Operations segment
Segment Other Adjustments Total
$m $m $m $m
Revenue (external sales by product):
Platinum 720 - - 720
Palladium 197 - - 197
Gold 30 - - 30
Rhodium 82 - - 82
Ruthenium 5 - - 5
Iridium 25 - - 25
PGMs 1,059 - - 1,059
Nickel 28 - - 28
Copper 10 - - 10
Chrome 21 - - 21
1,118 - - 1,118
EBITDA / (LBITDA)(i) 130 (15) - 115
Depreciation and amortisation (102) - - (102)
Impairment (335) - - (335)
Operating loss(i) (307) (15) - (322)
Profit on disposal of joint venture 5 - - 5
Finance income 25 81 (51) 55
Finance expenses(ii) (66) (73) 51 (88)
Share of loss of equity accounted investment (5) - - (5)
Loss profit before taxation (348) (7) - (355)
Income tax charge (45) - - (45)
Loss after taxation (393) (7) - (400)
Total assets(iii) 1,952 1,796 (1,730) 2,018
Total liabilities (2,062) (184) 1,730 (516)
Net assets / (liabilities) (110) 1,612 - 1,502
Share of net assets of equity accounted investment 24 - - 24
Additions to property, plant, equipment and intangibles 98 - - 98
Material non-cash items - share-based payments 15 - - 15
Footnotes:
i EBITDA / (LBITDA) and operating profit / (loss) are the key profit measures used by management.
ii The impairment of the HDSA receivable of $109 million (2016 - $nil) and of non-financial assets of $1,053 million
(2016 - $335 million) are included under finance expenses and impairment respectively. The HDSA receivable forms
part of the "Other" segment. The impairment of non-financial assets is allocated to the PGM Operations segment.
iii The assets under "Other" include the HDSA receivable of $nil (2016 - $69 million) and intercompany receivables of
$1,739 million (2016 - $1,658 million). Available for sale financial assets of $16 million (2016 - $7 million) forms
part of the "Other" segment and the balance of $3 million (2016 - $4 million) forms part of the PGM Operations segment.
Revenue by destination is analysed by geographical area below:
2017 2016
$m $m
The Americas 245 508
Asia 295 215
Europe 355 338
South Africa 271 57
1,166 1,118
The Group's revenue is all derived from the PGM Operations segment. This segment has three major customers who
respectively contributed 38% ($443 million), 21% ($239 million) and 20% ($234 million) of revenue in the 2017 financial
year (2016 - 41% ($455 million), 19% ($211 million) and 19% ($209 million)).
Metal sales prices are based on market prices which are denominated in US Dollars. The majority of sales are also invoiced
in US Dollars with the exception of certain sales in South Africa which are invoiced in South African Rand based on
exchange rates determined in accordance with the contractual arrangements.
Non-current assets (excluding financial instruments and deferred tax assets) of $265 million (2016 - $1,291 million) are all
situated in South Africa.
3. Net finance expenses
2017 2016
$m $m
Finance income: 49 55
- Interest receivable on cash and cash equivalents 6 7
- Foreign exchange gains on net cash / (debt)(ii) 3 15
- Interest accrued from HDSA receivable (note 7) 26 27
- Foreign exchange gain on HDSA receivable (note 7) 14 -
- Gain on retranslation and forward exchange contracts in respect of the Rights Issue - 5
- Dividend received from investment(i) - 1
Finance expenses: (137) (88)
- Interest payable on bank loans and overdrafts (11) (14)
- Bank fees (7) (4)
- Unwinding of discount on environmental provisions (10) (9)
- Foreign exchange loss on HDSA receivable (note 7) - (60)
- Impairment of HDSA receivable (note 7) (109) -
- Unamortised bank fees realised on settlement of loan facility - (1)
- Capitalised interest(iii) - 1
- Other finance expenses - (1)
Net finance expenses (88) (33)
Footnotes:
i Dividends received relate to dividends from investment in Petrozim Line (Private) Limited. The investment in
Petrozim Line (Private) Limited has a carrying value of $nil as it has been fully impaired.
ii Net cash / (debt) as defined by the Group comprises cash and cash equivalents, bank overdrafts repayable on demand
and interest bearing loans and borrowings less unamortised bank fees, unless the unamortised bank fees relate to undrawn
facilities in which case they are treated as other receivables.
iii Interest expenses incurred are capitalised on a Group basis to the extent that there is an appropriate qualifying asset.
No interest has been capitalised for the year to 30 September 2017. The weighted average interest rate used by the Group
for capitalisation was 4% for the year ended 30 September 2016.
4. Taxation
2017 2016
$m $m
Current tax charge:
United Kingdom tax expense 6 -
Current tax expense at 20% (2016 - 21%)(i) 6 -
Less amount of the benefit arising from double tax relief available - -
Overseas current tax expense at 28% (2016 - 28%) 9 19
Corporate tax expense - current year 9 8
Adjustment in respect of prior years - 11
Total current tax charge 15 19
Deferred tax (credit) / charge:
Deferred tax (credit) / charge - UK and overseas (33) 26
Origination and reversal of temporary differences (44) 13
Adjustment in respect of prior years 8 18
Reversal of utilisation of losses from prior years to offset deferred tax liability 2 -
Foreign exchange revaluation on deferred tax(ii) 1 (5)
Total deferred tax (credit) / charge (33) 26
Total tax (credit) /charge (18) 45
Effective tax rate 2% (13)%
A reconciliation of the standard tax credit to the actual tax (credit) / charge was as follows:
2017 2017 2016 2016
% $m % $m
Tax credit on loss at standard tax rate 28 (327) 28 (99)
Tax effect of:
- Transfer of losses - (1) - -
- Unutilised losses(iii) 2 (9) (18) 65
- Foreign exchange impacts on taxable profits(ii) (2) 24 (10) 34
- Adjustment in respect of prior years (1) 8 (8) 29
- Disallowed expenditure (25) 287 (6) 23
- (Income) / expenses not subject to tax - (1) - (2)
Foreign exchange revaluation on deferred tax(ii) - 1 1 (5)
Actual tax (credit) /charge 2 (18) (13) 45
The Group's primary operations are based in South Africa. The South African statutory tax rate is 28% (2016 - 28%).
Lonmin Plc operates a branch in South Africa which is also subject to a tax rate of 28% on branch profits (2016 - 28%).
The aggregated standard tax rate for the Group is 28% (2016 - 28%). The dividend withholding tax rate is 15% (2016 - 15%).
Dividends payable by the South African companies to Lonmin Plc are subject to a 5% withholding tax benefitting from
double taxation agreements.
Footnotes:
i Effective from 1 April 2017 the United Kingdom tax rate changed from 20% to 19% and will change from 19% to 18% from
1 April 2020. This does not materially impact the Group's recognised deferred tax liabilities.
ii Overseas tax charges are predominantly calculated based in Rand as required by the local authorities. As these subsidiaries'
functional currency is US Dollar this leads to a variety of foreign exchange impacts being the retranslation of current and
deferred tax balances and monetary assets, as well as other translation differences. The Rand denominated deferred tax balance
in US Dollars at 30 September 2017 is $1 million (30 September 2016 - $62 million).
iii Unutilised losses reflect losses generated in entities for which no deferred tax asset is provided as it is not thought probable
that future profits can be generated against which a deferred tax asset could be offset or previously unrecognised losses utilised.
5. Loss per share
Loss per share (LPS) has been calculated on the loss attributable to equity shareholders amounting to $996 million (2016
- $342 million) using a weighted average number of 282,428,397 ordinary shares in issue (2016 - 249,656,150 ordinary
shares).
Diluted loss per share is based on the weighted average number of ordinary shares in issue adjusted by dilutive
outstanding share options in accordance with IAS 33 - Earnings Per Share. As at 30 September 2017 outstanding share
options were anti-dilutive and so were excluded from diluted loss per share.
2017 2016
Loss for Per share Loss for Per share
the year Number of amount the year Number of amount
$m shares cents $m shares cents
Basic and diluted LPS (996) 282,428,397 (352.7) (342) 249,656,150 (137.0)
Headline loss and the resultant headline loss per share are specific disclosures defined and required by the Johannesburg
Stock Exchange. These are calculated as follows:
2017 2016
$m $m
Loss attributable to ordinary shareholders (IAS 33 earnings) (996) (342)
Add back profit on disposal of property, plant and equipment (1) -
Add back profit on disposal of joint venture - (5)
Add back impairment of assets (note 10) 1,053 335
Tax related to the above items (16) (64)
Non-controlling interests (143) (37)
Headline loss (103) (113)
2017 2016
Loss for Per share Loss for Per share
the year Number of amount the year Number of amount
$m shares cents $m shares cents
Headline and diluted LPS (103) 282,428,397 (36.5) (113) 249,656,150 (45.3)
6. Dividends
No dividends were declared by Lonmin Plc for the financial years ended 30 September 2017 and 2016.
No advance dividends were made by WPL, a subsidiary of Lonmin Plc, to Incwala Platinum (Proprietary) Limited (IP) during
the year (2016 - $nil (Rnil)). IP is a substantial shareholder in the Company's principal operating subsidiaries. Total
advance dividends made between 2009 and 2015 amount to $135 million (R1,309 million). IP has authorised WPL to recover these
amounts by reducing future dividends that would otherwise be payable to all shareholders.
These advance dividends are adjusted for in the non-controlling interest of the Group.
7. Other financial assets
Restricted cash Available for sale HDSA receivable Total
$m $m $m $m
At 1 October 2016 10 11 69 90
Additions 4 - - 4
Interest accrued 1 - 26 27
Movement in fair value - 8 - 8
Foreign exchange gains - - 14 14
Impairment loss - - (109) (109)
At 30 September 2017 15 19 - 34
Restricted cash Available for sale HDSA receivable Total
$m $m $m $m
At 1 October 2015 8 11 102 121
Interest accrued 2 - 27 29
Foreign exchange losses - - (60) (60)
At 30 September 2016 10 11 69 90
2017 2016
$m $m
Current assets
Other financial assets - 69
Non-current assets
Other financial assets 34 21
Restricted cash deposits are in respect of mine rehabilitation obligations.
Available for sale financial assets include listed investments of $16 million (2016 - $7 million) held at fair value using the
market price on 30 September 2017.
On 8 July 2010, Lonmin entered into an agreement to provide financing of GBP200 million to Lexshell 806 Investments
(Proprietary) Limited, a subsidiary of Phembani Group (Proprietary) Limited, to facilitate the acquisition, at fair value, of
50.03% of shares in Incwala Resources (Proprietary) Limited from the original HDSA shareholders. The terms of the
financing provided by Lonmin Plc to the Phembani subsidiary include the accrual of interest on the HDSA receivable at a
fixed rate based on a principal value of GBP200 million which is repayable on demand, including accrued interest.
The Company holds the HDSA receivable at amortised cost. The receivable is secured on shares in the HDSA borrower,
Lexshell 806 Investments (Proprietary) Limited, whose only asset of value is its holding in Incwala Resources (Proprietary)
Limited (Incwala). Incwala's principal assets are investments in WPL, EPL and Akanani Mining (Proprietary) Limited
(Akanani), all subsidiaries of Lonmin Plc. One of the sources of income to fund the settlement of the receivable is the
dividend flow from these underlying investments. Given the continued subdued PGM pricing environment, there have not
been any substantial dividends declared by these Lonmin subsidiaries in recent years.
The HDSA receivable is disclosed as a current asset as it was redeemable at any time on or after 8 July 2015 at Lonmin's
request. It is not our current intention to request redemption as Phembani could forfeit the loan and the 50.03% that
Phembani hold in Incwala would revert to Lonmin. There is ongoing engagement with Phembani around this.
An impairment review was performed on the balance of the loan at 30 September 2017. This assessment has been made
based on the value of the security, which is primarily driven by the value of Incwala's underlying investments in WPL, EPL
and Akanani. The same valuation model for the Marikana CGU that was prepared to assess impairment of non-financial
assets was used as the basis for determining the value of Incwala's investments. Thus, similar judgements apply around
the determination of key assumptions in those valuation models. Based on the assessment, the value of the HDSA
receivable was determined to be $nil which has resulted in an impairment charge of $109 million as at 30 September 2017
(2016 - impairment of $nil).
8. Deferred revenue
In the prior year Lonmin secured competitive funding of $50 million for the Bulk Tailings Treatment project ("the BTT
project") through a finance metal streaming arrangement. The $50 million will be treated as deferred revenue. Contractual
deliveries will be at a discounted price which will be treated as normal sales. The deferred revenue of $50 million will be
amortised by the discount value of the deliveries. Project funding of $34 million was received for the year ended 30
September 2017 (30 September 2016 - $9 million). Commissioning and ramp up to full production is expected during the
2018 financial year.
In March 2012 Lonmin entered into a pre-paid sale of 75% of its current gold production for the next 54 months. Under this
contract Lonmin delivered 70,700 ounces of gold over the period with delivery of fixed quantities on a quarterly basis and in
return received an upfront payment of $107 million. Proceeds of the pre-paid sale were treated as deferred revenue and
amortised to profit as deliveries occur. All gold deliveries were completed by 30 September 2016.
2017 2016
$m $m
Opening balance 9 23
Deferred revenue received 34 9
Less: Contractual deliveries (3) (23)
Closing balance 40 9
Current liabilities
Deferred revenue 13 -
Non-current liabilities
Deferred revenue 27 9
9. Net cash / (debt) as defined by the Group
Foreign Transfer of
As at exchange and unamortised bank As at
1 October non-cash fees to other 30 September
2016 Cash flow movements receivables 2017
$m $m $m $m $m
Cash and cash equivalents(ii) 323 (73) 3 - 253
Current borrowings(iii) - - (150) - (150)
Non-current borrowings(iii) (150) - 150 - -
Net cash as defined by the Group(i) 173 (73) 3 - 103
Foreign Transfer of
As at exchange and unamortised bank As at
1 October non-cash fees to other 30 September
2015 Cash flow movements receivables 2016
$m $m $m $m $m
Cash and cash equivalents(ii) 320 (12) 15 - 323
Current borrowings (506) 506 - - -
Non-current borrowings - (150) - - (150)
Unamortised bank fees(iv) 1 - - (1) -
Net (debt) / cash as defined by the Group(i) (185) 344 15 (1) 173
Footnotes:
i Net cash / (debt) as defined by the Group comprises cash and cash equivalents, bank overdrafts repayable on demand
and interest bearing loans and borrowings less unamortised bank fees, unless the unamortised bank fees relate to undrawn
facilities in which case they are treated as other receivables.
ii Current cash and cash equivalents to the value of $nil will be treated as restricted cash to be utilised for rehabilitation
obligations (2016 - $6 million).
iii See below for details regarding the reclassification of the non-current borrowings to current borrowings.
iv As at 30 September 2017 unamortised bank fees of $3 million relating to undrawn facilities were included in other receivables
(2016 - $4 million of unamortised bank fees relating to undrawn facilities were included in other receivables).
The debt facilities available to the Group are subject to financial covenants as detailed below. Post year end a covenant
waiver was agreed with the lenders. The waiver period runs from 30 September 2017 to 28 February 2019 which is the
long-stop date for the acquisition of the Group by Sibanye-Stillwater. A condition of the waiver was that $66 million of the
revolving credit facilities were cancelled and that the Group leaves undrawn the remaining revolving credit facilities
during the waiver period. The waiver is conditional on the completion of the acquisition of the Group by Sibanye-
Stillwater. In the event that the deal does not complete the covenant waiver allow for a four week grace period whilst
other options are pursued. During the four week grace period the Group will not be required to repay the loan. On
completion of the acquisition the term loan of $150 million would be repaid and debt facilities cancelled.
The TNW as defined by the debt facilities is net assets less intangible assets, deferred tax assets and non-controlling
interests. Post finalisation of the impairment it was determined that the TNW of the Group at 30 September 2017 was
less than $1,100 million and the debt covenant was in breach as at the reporting date as the waiver was agreed after the
reporting date. Accordingly the drawn term loan of $150 million is shown as short-term rather than long-term.
The Group's debt facilities are summarised as follows:
- Revolving credit facilities (RCF) totalling $25 million and a $150 million term loan, at the Lonmin Plc level, which are
committed until May 2019 (Lonmin can exercise its option to extend the term up until May 2020). The Company has
agreed to leave the RCF undrawn until 28 February 2019 subject to the terms noted above.
- Revolving credit facility totalling R1,709 million, at the Western Platinum Limited level, which are committed until May
2019 (and likewise Lonmin can exercise its option to extend the term up until May 2020). The Company has agreed to
leave these undrawn until 28 February 2019 subject to the terms noted above.
9. Analysis of net cash / (debt) i (continued)
The following financial covenants will apply to these facilities except for during the waiver period of 30 September 2017 to
28 February 2019:
- The TNW of the Group will not be at any time less than $1,100 million. At 30 September 2017 TNW was $674 million
(30 September 2016 - $1,608 million)
- The consolidated debt of the Group will not at any time exceed an amount equal to 35% of TNW of the Group. At
30 September 2017 consolidated debt:TNW was 22% (30 September 2016 - 9%)
- The liquidity of the Group will not, for any week from 1 January 2016, be less than $20 million. Cash and cash
equivalents as at 30 September 2017 was $253 million (30 September 2016 - $323 million)
- The capital expenditure of the Group (excluding any Bulk Tailings Agreement) shall not exceed the limits set out in the
table below. The revised capital guidance of R1.4 billion - R1.5 billion for the financial year ending 30 September 2017 is
less than the capex limits detailed below. The Company shall also have the option to carry forward or back up to 10% of
the limits set out in the table below:
Financial Year Capex Limit
1 October 2015 - 30 September 2016 (inclusive) ZAR 1,338 million
1 October 2016 - 30 September 2017 (inclusive) ZAR 1,242 million
1 October 2017 - 30 September 2018 (inclusive) ZAR 2,511 million
1 October 2018 - 30 September 2019 (inclusive) ZAR 3,194 million
1 October 2019 - 31 May 2020 (inclusive) ZAR 4,049 million
There is also an additional limit on capital expenditure in relation to any Bulk Tailings Agreement as set out below:
Financial Year Bulk Tailings Capex Limit
1 October 2015 - 30 September 2016 (inclusive) ZAR 103 million
1 October 2016 - 30 September 2017 (inclusive) ZAR 414 million
1 October 2017 - 30 September 2018 (inclusive) ZAR 31 million
The limit on capital expenditure in relation to any Bulk Tailings Agreement after 30 September 2018 will be zero.
As at 30 September 2017, Lonmin had net cash of $103 million, comprising of cash and cash equivalents of $253 million
less borrowings of $150 million (30 September 2016 - net cash of $173 million). Undrawn facilities of $151 million were
suspended from 30 September 2017 until 28 February 2019 subject to the terms noted above (2016 - $215 million
undrawn facilities).
10. Impairment of non-financial assets
At each financial reporting date, the Group assesses whether there is any indication that non-financial assets are
impaired. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent
of the impairment (if any). The recoverable amount is the higher of fair value less costs to sell and value in use.
For impairment assessment, the Group's net assets are grouped into CGUs being the Marikana CGU, Akanani CGU,
Limpopo CGU and Other. The Marikana, Limpopo and Akanani CGUs relate to the PGM segment.
The Marikana CGU is located in the Marikana district to the east of the town of Rustenburg in the North West province of
South Africa. It contains a number of producing underground mines, various development properties, concentrators and
tailings storage.
The Akanani CGU is located on the Northern Limb of the Bushveld Igneous Complex in the Limpopo province of South
Africa. A pre-feasibility study was completed in 2012.
The Limpopo CGU is located on the Northern Sector of the Eastern Limb of the Bushveld Igneous Complex in the Limpopo
province of South Africa and comprises two resource blocks (Baobab and Baobab east). The CGU includes mines which
were placed on care and maintenance in 2009 and a concentrator complex.
For the Marikana CGU the recoverable amounts were calculated using a value-in-use valuation. The key assumptions
contained within the business forecast and management's approach to determine appropriate values in use are set out
below:
Key Assumption Management Approach
PGM prices Projections are determined through a combination of the views of the Directors,
market estimates and forecasts and other sector information. The Platinum price is
projected to be in the range of $1,023 to $1,546 per ounce in real terms over the life of
the mine. Palladium and rhodium prices are expected to range between $849 to $1,015
and $1,077 to $1,521 respectively per ounce in real terms over the same period.
Production volume Projections are based on the capacity and expected operational capabilities of the
mines, the grade of the ore and the efficiencies of processing and refining operations.
Production costs Projections are based on current cost adjusted for expected cost changes as well as
giving consideration to specific issues such as the difficulty in mining particular sections
of the reef and the mining method employed.
Capital expenditure Projections are based on the operational plan, which sets out the long-term plan of the
requirements business and is approved by the Board and includes capital expenditure to access
reported reserves from existing mining operations as well as maintenance expenditure.
Foreign currency exchange Spot rates as at the end of the reporting period are applied.
rates
Reserves and resources of the Projections are determined through surveys performed by Competent Persons and the
CGU views of the Directors of the Company.
Discount rate The discount rate is based on a Weighted Average Cost of Capital (WACC) calculation
using the Capital Asset Pricing Model grossed up to a pre-tax rate. The Group uses
external consultants to calculate an appropriate WACC.
For impairment testing, management projects cash flows over the life of the relevant mining operations which is significantly
greater than five years. For the Marikana CGU a life-of-mine spanning until 2070 was applied. Whilst the majority of mining
licences are currently valid until 2037 the Director's expect the licences will be renewed until beyond 2070.
In arriving at the VIU for the Marikana CGU, post-tax cashflows expressed in real terms have been estimated and discounted
using a post-tax discount rate of 14.2% (2016 - 12.0%), giving consideration to the specific amount and timing of future cash
flows as well as the risks specific to the Marikana CGU. This equates to a pre-tax discount rate of 17.5% real (2016 - 15.6% real).
The Akanani asset was fully impaired at 30 September 2015. There have been no significant changes since that date to lead us
to believe that the valuation of this asset is different. Therefore expenditure capitalised since 30 September 2015 has been fully
impaired.
The non-financial assets of the Limpopo CGU were also fully impaired at 30 September 2015.
For the 2017 financial year, the Group's non-financial assets were impaired by $1,053 million (2016 - $335 million) primarily due
to the change in Business Plan and revisions to underlying assumptions. The net impact of the change in these assumptions led
to the value in use declining below the carrying amount of the non-financial assets of the operations.
The impairment charge was allocated as follows:
2017 2016
$m $m $m $m
Marikana Akanani Total Marikana
CGU CGU CGU CGU
Carrying amount pre-impairment:
Intangible assets 70 3 73 91
Property, plant and equipment 1,185 - 1,185 1,473
Equity accounted investment 24 - 24 24
Royalty prepayment 36 - 36 37
Total 1,315 3 1,318 1,625
Recoverable amount:
Intangibles assets 11 - 11 72
Property, plant and equipment 194 - 194 1,157
Equity accounted investment 24 - 24 24
Royalty prepayment 36 - 36 37
Total 265 - 265 1,290
Impairment:
Intangibles assets (59) (3) (62) (19)
Property, plant and equipment (991) - (991) (316)
Equity accounted investment - - - -
Royalty prepayment - - - -
Total (1,050) (3) (1,053) (335)
For the Marikana CGU, the impairment charge was allocated pro-rata to intangibles and property, plant and equipment,
but limited to the assets' recoverable amounts.
In preparing the financial statements, management has considered whether a reasonably possible change in the key
assumptions on which management has based its determination of the recoverable amounts of the CGUs would cause the
units' carrying amounts to exceed their recoverable amounts. A reasonably possible change in any of the assumptions
used to value the Marikana CGU will lead to a reduction or increase in the impairment charge as follows:
Reversal of
Movement in impairment/
Assumption assumption (Further impairment)
Metal prices(i) +/-5% $267m / ($283m)
ZAR:US Dollar exchange rate(ii) -/+5% $217m / ($255m)
Discount rate(ii) -/+100 basis points $58m / ($48m)
Production(i) +/-5% $235m / ($225m)
Footnotes:
i Over the period of the discounted cash flow model.
ii As at the reporting date.
11. Events after the financial reporting period
Pandora acquisition
On 6 December 2017 the Group acquired 50% of the Pandora Joint Venture (Pandora JV) bringing the Group's ownership to
100%. Previously the 50% held as a joint venture had been equity accounted. In accordance with accounting standards, on
acquiring the remaining 50% the original 50% was treated as a disposal and then 100% was acquired. Due to the timing of
the acquisition the determination of the fair values of the net assets acquired is provisional and will be subject to further
review during the 12 months from the acquisition date. The carrying value of the 50% investment in the joint venture was
$24 million at 30 September 2017 resulting in a provisional gain on disposal of the 50% joint venture of $2 million. The
provisional fair values of the net assets acquired and the fair value of the consideration paid were as follows.
Provisional
Fair Value
$m
Property, plant and equipment 53
Trade and other receivables 4
Current liabilities (5)
Rehabilitation provisions (1)
100% of assets acquired 51
Goodwill -
Purchase price for 100% 51
Purchase price for 50% 26
The purchase price for the 50% of Pandora acquired amounted to $26 million comprising cash consideration of $4 million,
deferred consideration with a present value of $19 million, rehabilitation liabilities with a present value of $3 million and
contingent consideration estimated at $nil. The deferred consideration represents the present value of deferred cash
payments of 20% of the distributable free cash flows generated by the Pandora E3 operations on an annual basis for a
period of six years, subject to a minimum deferred consideration of R400 million (in nominal terms). The contingent
consideration represents the scenario where 20% of the distributable free cash flows generated by the Pandora E3
operations on an annual basis for a period of six years amounts to more than R400 million. This is not considered to be likely
and accordingly contingent consideration has been valued at nil. Present values of future cash flows have been determined
using an estimated post-tax cost of debt of 8.2%.
Recommended All-Share Offer for Lonmin Plc by Sibanye-Stillwater
As announced on 14 December 2017 an all-share offer for the entire share capital of Lonmin Plc by Sibanye Gold Limited
trading as Sibanye-Stillwater has been recommended by the Board of Lonmin Plc. It is proposed that the Offer will be
effected by means of a scheme of arrangement between Lonmin and the Lonmin Shareholders under Part 26 of the UK
Companies Act. Full details are available on Lonmin's website.
12. Statutory Disclosure
The financial information set out above does not constitute the Company's statutory accounts for the years ended 30
September 2017 and 2016 but is derived from those accounts. Statutory accounts for 2016 have been delivered to the
Registrar of Companies and those for 2017 will be delivered in due course. The auditor has reported on those accounts.
Their report for 2017 was (i) unmodified, (ii) contains a material uncertainty in respect of going concern and (iii) did not
contain a statement to report exceptions to the Companies Act 2006. Their report for the accounts of 2016 was
unmodified.
JSE Sponsor: J.P. Morgan Equities South Africa (Pty) Ltd
Date: 22/01/2018 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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