12 December 2011
Lonmin Plc ("Lonmin" or the "Company")
Annual Report and 2012 Annual General Meeting
On 14 November 2011 Lonmin announced its Final Results for the year ended 30 September 2011. The announcement made on that date included inter alia a condensed set of financial statements and a management report, as required by DTR 4.1.
Lonmin has today posted to shareholders and, in accordance with LR 9.6.1 R, has submitted to the National Storage Mechanism, printed copies of the following documents:
? Annual Report and Accounts for the year ended 30 September 2011
? Circular relating to the Annual General Meeting to be held on 26 January 2012
? Forms of Proxy for shareholders on the UK and SA registers
These documents will shortly be available for inspection on the National Storage Mechanism www.Hemscott.com/nsm.do.
As required by DTR 6.3.5 R (3), the Company confirms that the Annual Report and the Circular relating to the Annual General Meeting are now available to view or download in pdf format from the Lonmin website, www.lonmin.com.
The appendix to this announcement contains additional information which has been extracted from the Annual Report and Accounts for the year ended 30 September 2011 (the "Annual Report and Accounts") for the purposes of compliance with DTR 6.3.5 and should be read together with the Final Results Announcement, which can be downloaded from the Company's website at www.lonmin.com. This announcement should be read in conjunction with and is not a substitute for reading the full Annual Report and Accounts. Together these constitute the information required by DTR 6.3.5. which is required to be communicated to the media in full unedited text through a Regulatory Information Service. Page and note references in the text below refer to page numbers and notes in the Annual Report and Accounts:
? A statement on the principal risks and uncertainties
? A statement on related party transactions
? The Directors' Responsibility Statement
ENDS
APPENDIX
Lonmin's Principal Risks and Uncertainties
Lonmin's principal risks are detailed below together with their potential impact and mitigating strategies. These risks have been ranked according to magnitude of potential impact before mitigating actions. These risks represent a snapshot of the Company's risk profile at this time. They are not intended to represent an exhaustive list of all risks. As the macro environment changes and country and industry circumstances evolve, new risks may arise or recede or the rankings of these risks may change according to severity and probability of occurrence.
For investors in Lonmin, the main risk to be aware of is that the Company is a focused producer of PGMs and therefore, while this allows for economies through specialisation, Lonmin does not benefit from commodity diversification. Further, since the commodities Lonmin mines are all from one geographic region, its performance is influenced by the political, social and economic factors that affect South Africa. This includes significant exposure to the US Dollar/Rand exchange rate. As such, volatility in metal prices and exchange rates can have a material impact on the financial performance of the Company, which can be both positive and negative.
|
Principal Risk |
Impact |
Mitigation |
|
Failure of safety
routines or safety
strategy |
Could result in a catastrophic loss of life, severely disrupt operations and have a material adverse effect on the Group's financial position. |
Commitment from Board and senior management towards creating a safe culture throughout the Group. The Safety & Sustainability Committee monitors the implementation of the safety strategy on behalf of the Board. Processes in place for safe production include:
? Employee engagement strategy and safety training standards, both of which are monitored regularly;
? Clearly defined safety protocols including safe behaviour observations in place;
? Regular third party audits and peer reviews conducted; and
? Balanced scorecard measures incentivise appropriate safety behaviour. |
|
Resource Nationalism |
A negative outcome as a consequence of resource nationalism, which can take many different forms, could have a material adverse effect on the Group's future operational performance and financial position. |
Ongoing dialogue with key stakeholders and government at all levels to understand and address concerns. |
|
Skills shortages |
Lack of appropriate skills could negatively impact upon safety, production and the ability to deliver against targets. |
Processes for individual development programmes, succession planning and scarce skills allowances are in place. There is a focus on bursaries, graduate development and mentorship. |
|
Non-delivery of
Transformation |
Could results in deteriorating relationships with stakeholders and place mineral rights at risk. |
We engage with all our stakeholders including the South African government. Targets are set and monitored on a regular basis by the Exco, the Safety & Sustainability Committee and the Transformation Committee. The Balanced Scorecard incentivises delivery against certain targets. |
|
Access to secure energy, electricity
and water |
Could impact on the ability to run current operations and deliver future expansion plans. |
Measurement of energy usage and energy saving initiatives implemented. Load shedding and contractual agreements in place with Eskom (SA energy supplier). Likewise, measurement of water usage and water saving initiatives implemented. Plans aligned with long term strategy. Electricity and water supplies secured for key areas of the business. Active participation in relevant industry bodies. |
|
Failure to deliver on long term capital plans |
Shareholder value may not be optimised over the long term. |
Strong capital projects department built up to implement long term capital plans. Borehole drilling, magnetic surveys and 3D seismic surveys are conducted to ensure full understanding of the geology on Lonmin properties. Independent peer reviews of the long term plan are carried out. Balanced Scorecard incentivises appropriate reserve development. |
|
US Dollar metal price and currency volatility (specifically US Dollar/ SA Rand) |
Significant changes in the supply and demand of PGMs (e.g. if there is product substitution or supply side constraints) can create volatility in PGM prices making long term planning difficult.. Likewise, significant fluctuations in exchange rates to which the Group is exposed can also make planning difficult and have a significant effect on the Group's financial position. |
Lonmin gathers market information from a number of sources to monitor market segments and trends in the industry. Longer term volume contracts with key customers mitigate off-take risk. Historically there has been a long term correlation between US Dollar/ SA Rand and PGM basket price, although this can dislocate over short periods. Current policy is not to hedge. |
|
Access to cost effective funding |
The Group may not be able to obtain cost effective funding when required which could impact the ability of the Group to meet its liabilities as they fall due. |
Headroom and key covenants in banking lines are constantly monitored through rolling cash flow forecasts. The current bank debt facilities were re-negotiated during the year allowing greater flexibility. |
|
Uncompetitive gross or unit costs |
Could have a material adverse effect on the Group's competitive position. |
Lonmin has a clear understanding of its competitive position and required productivity improvement plans are in place. Balanced Scorecard incentivises cost control. |
|
Poor employee relations due to internal and external factors that could result in strike action |
Could result in an unstable workforce that severely disrupts operations and has a material adverse effect on the Group's financial position. |
A full engagement strategy with the unions and employees is in place, which is governed through a clearly defined Industrial Relations structure. Recognition agreements are in place. |
|
Poor community relations due to internal and external factors that could result in civil unrest. |
Civil unrest could severely disrupt operations and have a material adverse effect on the Group's financial position. |
A full engagement strategy with community representatives, unions and employees is in place. |
|
Inadequate smelting performance and back-up capacity |
Could severely disrupt operations and have a material adverse effect on the Group's financial position. |
The Pyromet furnaces provide an element of back-up capacity. Spare capacity in Number One furnace currently gives some ability to catch up. Number One furnace includes improved monitoring and fault detection technology. The Number two furnace is currently under construction and should become operational in May 2012. |
|
Excessive dilution and poorly optimised plant leading to recoveries not in line with plan |
Could have a material adverse effect on the Group's financial position. |
Grade targets set and reported. Technical service function reviews management information and quality control of data capture and measurement. Third party audits and peer reviews conducted to guide grade target levels. Plant maintenance programmes ensure plant stability to assist in optimising recoveries. Further investments made to enhance metallurgical recoveries. Experienced management teams and clear benchmarks set. Balanced Scorecard incentivises maximisation of recoveries. |
|
Lack of short term ore reserve development planning |
Shareholder value not optimised over the long term. |
Performance measured against budget and reported through the Exco to the Board. An on shaft independent technical services function provides support to the mining teams. Balanced Scorecard incentivises reserve development. Internal reviews regularly conducted. |
|
Impact of climate change on the business including the impact of a carbon pricing system |
Climate change is an international problem that could lead to devastating consequences which are as yet not completely understood. Coupled with the proposed introduction of carbon taxation it is likely that climate change will have a financial impact upon the business. |
Lonmin has a comprehensive Response Strategy to Climate Change in place. This includes operational plans to manage and monitor energy, electricity and water efficiencies and includes participation in climate change forums. |
|
Failure in internal controls or accounting processes |
Could severely disrupt operations and have a material adverse effect on the Group's financial position. |
Lonmin has a clear organisational structure with appropriate segregation of duties and independent internal and external audits with follow up. The Internal Audit work plan is closely aligned to the risk management framework and risk profile of the Group. From an inventory evaluation perspective, grade targets are set and reported against. Samples are analysed at the assay laboratory. Stock counts are carried out every six months, with the oversight of external and internal auditors. Metals are tracked electronically. |
TRANSACTIONS WITH RELATED PARTIES
There was one transaction with a related party during the year, other than those of a revenue nature in the ordinary course of business. This involved the loan of R80 million to Incwala Platinum (Pty) Limited, the Company's BEE partner.
Note 26 Related parties
The Group has a related party relationship with its Directors and key management (as disclosed in the Remuneration Report and in note 5) and its equity accounted investments (note 13).
The Group's related party transactions and balances are summarised below:
|
|
2011
$m |
2010
$m |
|
Purchases from joint venture - Pandora |
46 |
42 |
|
Amounts due from joint venture - Pandora |
1 |
1 |
|
Amounts due from associate - Incwala |
2 |
2 |
|
Dividends to minorities - Incwalai |
10 |
22 |
|
Interest accrued from HDSA investors in Incwala |
15 |
9 |
|
Subscription paid to the Platinum Jewellery Development Associationii |
14 |
12 |
|
Purchases made from Xstrataiii |
1 |
2 |
|
Sales to Xstrataiii |
15 |
5 |
|
Amounts due to Xstrataiii |
- |
2 |
|
Amounts due from Xstrataiii |
3 |
4 |
|
Amounts due from HDSA investors in Incwala |
351 |
342 |
All related party transactions are priced on an arm's length basis.
Footnotes:
i A Group company has made a series of non-interest bearing loans to Incwala Platinum (Pty) Limited (IP). IP is a substantial shareholder in the Company's principal operating subsidiaries, and is a subsidiary of Shanduka Group (Pty) Limited, a company controlled by Cyril Ramaphosa, a Director of the Company. Advanced dividends in the sums of R25m, R79m, R79m and R80m were made to IP on 28 September 2009, 29 March 2010, 29 September 2010 and 30 September 2011 respectively. IP has authorised the relevant Group company to recover these amounts by reducing future dividends that would otherwise be payable to all shareholders.
ii The subscription paid by Lonmin is material to the Platinum Jewellery Development Association of which Lonmin is a member.
iii Xstrata Zinc BV has a 24.9% shareholding in Lonmin Plc.
STATEMENT OF DIRECTORS' RESPONSIBILITY
The following responsibility statement is repeated here solely for the purpose of complying with DTR 6.3.5. This statement relates to and is extracted from page 101 of the Annual Report and Accounts. Responsibility is for the full Annual Report and Accounts and not the extracted information presented in this announcement or the Final Results Announcement.
"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 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.
Roger Phillimore
Chairman
Simon Scott
Chief Financial Officer"
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