| Mon 10 May 2010, 8:02 | | LON - Lonmin Plc - 2010 Interim Results Announcement |
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LON
LOLMI
LON - Lonmin Plc - 2010 Interim 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: GB0031192486 ("Lonmin")
10 May 2010
Lonmin Plc
2010 Interim Results Announcement
Lonmin Plc, (Lonmin or the Company), the world`s third largest PGM producer,
today announces its Interim Results for the half year period ending 31 March
2010.
HIGHLIGHTS
- Financial performance much improved:
- Underlying profit before tax of $82 million - $195 million greater
than the prior year period
- Gross operating South African Rand costs fell by 4% to R4.4 billion
from prior year period
- Group cost per PGM ounce produced fell by 6% to R6,535 per PGM ounce
- Management focus on operational delivery:
- Production from underground operations at Marikana effectively in
line with prior year period
- Good improvements in underground concentrator recoveries and grade,
compared to the prior year period
- Underground concentrator recoveries up to 84.6% from 80.8%
- Underground milled head grade up to 4.74 g/t from 4.57 g/t
- Ore reserve development makes steady progress - immediately available
ore reserves increased by 18% to 2.4 million centares from the end of
the 2009 financial year
- Efficiency initiatives, supported by last year`s restructuring
programme, resulted in a good cost performance
- 2010 sales and cost guidance remain unchanged from November 2009
- Safety performance improving, but always more to do:
- LTIFR improved slightly from the end of 2009 to 5.74 per million man
hours worked
- Frequency and impact of Section 54 safety stoppages significantly
reduced from second half of 2009
- Quality of operational performance improving:
- Production ramp-up at Saffy and Hossy continues, but challenges
remain at K3
- Concentrators achieve highest levels of recoveries for nearly 7 years
- Future concentrator recovery benefits expected from Chrome sale
contracts signed during the period
- Limited production impact from matte run out at the Number One
furnace on 30 March 2010
- Meeting capital investment requirements whilst maintaining balance sheet
strength:
- Capital expenditure expected to be in line with guidance of up to
$270 million and is predominantly focused on mine development
- Financial position remains strong, despite net debt increasing to
$250 million, with gearing of 7%
- Net debt expected to reduce in H2 2010
- Lonmin`s Black Economic Empowerment platform secured:
- Long term future and financial stability of Incwala Resources secured
under new leadership of Shanduka Resources
- Lonmin providing significant financing for the transaction
substantially sourced through equity Placing announced today
- Market outlook improving:
- Short term continued gradual improvement anticipated - market to be
tightly balanced during 2010
- Remain optimistic on long term outlook, supported by continued
emission system demand and legislation
Ian Farmer, Chief Executive, commented:
"We are seeing steady quarter on quarter improvements in operational stability
and productivity, supported by the delivery of efficiency initiatives
throughout the business. Highlights include the improvements in grade and
concentrator recoveries and the tight cost control exercised during the period.
This progress has been made without compromising our safety record.
"As a result, we remain on track to meet our 2010 sales guidance of 700,000
ounces of Platinum and we are reiterating our initial cost guidance of managing
the increase in our South African Rand gross operating costs to be below local
inflation. This is despite the 10% wage increase for our workforce granted with
effect from October 2009.
"Our short term view of PGM markets remains cautiously optimistic and we expect
the market to gradually improve through 2010. In the longer term, we are
increasingly optimistic that firming demand for PGMs, combined with continued
supply side constraints, will underpin long term fundamentals."
FINANCIAL HIGHLIGHTS
Continuing Operations
Six Months to 31 March 2010 2009
Revenue $m 661 436
Underlying (i) operating profit / $m 70 (98)
(loss)
Operating profit / (loss) (ii) $m 65 (142)
Underlying (i) profit / (loss) before $m 82 (113)
taxation
Profit / (loss) before taxation $m 77 (196)
Underlying (i) earnings / (loss) per cent 22.8 (47.9)
share (restated) (viii) s
Earnings / (loss) per share (restated) cent 15.5 (67.9)
(viii) s
Trading cash inflow / (outflow) per cent 31.1 (10.3)
share (restated) (iii, viii) s
Free cash outflow per share (restated) cent (43.0) (84.9)
(iv, viii) s
Net debt as defined by the Group (v) $m (250) (449)
Interest cover (times) (vi) x 4.7 44.9
Gearing (vii) % 7 17
NOTES ON FINANCIAL HIGHLIGHTS
i Underlying excludes one-off restructuring and reorganisation costs and
foreign exchange on tax balances. For the 6 month period ending 31
March 2009, in addition to restructuring costs and foreign exchange on
tax balances, underlying also excludes impairment of available for sale
financial assets.
ii Operating profit / (loss) is defined as revenue less operating expenses
before impairment of available for sale financial assets, finance
income and expenses and before share of profit of equity accounted
investments.
iii Trading cash flow is defined as cash flow from operating activities.
iv Free cash flow 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 minority
interests.
v Net 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.
vi Interest cover is calculated for the 12 month periods to 31 March 2010
and 31 March 2009 on the underlying operating profit / (loss) divided
by the underlying net bank interest payable excluding exchange.
vii Gearing is calculated as the net debt attributable to the Group divided
by the total of the net debt attributable to the Group and equity
shareholders` funds.
viii During the prior year the Group undertook a Rights Issue of shares. As
a result the loss per share, trading cash flow per share and free cash
flow per share for the 6 months to 31 March 2009 have been adjusted to
the date of issue to reflect the bonus element of the Rights Issue as
disclosed in note 6.
ENQUIRIES:
Investors / Analysts:
Tanya Chikanza +44 (0) 207 201 6000
Acting Head of Investor Relations
Media:
Cardew Group +44 (0) 207 930 0777
Rupert Pittman / James Milton
Financial Dynamics +27 (0) 21 487 9000
Dani Cohen / Ravin Maharaj
This press release is available on www.lonmin.com. A live webcast of the
Interim Results presentation starting at 09.30hrs (London) on 10 May 2010 can
be accessed through the Lonmin website. There will also be a web question
facility available during the presentation. An archived version of the
presentation, together with the presentation slides, will be available on the
Lonmin website.
Disclaimer
This document does not constitute an offer to sell, or the solicitation of an
offer to buy or subscribe for, securities of Lonmin Plc (the "Company") in the
United States or in any other jurisdiction. The Company`s securities have not
been and will not be registered under the US Securities Act of 1933, as amended
(the "Securities Act"), and may not be offered or sold in the United States
unless registered under the Securities Act or an exemption from such
registration is available. No public offering of any securities of the Company
is being made in the United States. Certain statements made in this
announcement constitute forward-looking statements. Forward-looking statements
can be identified by the use of words such as "may", "will", "expect",
"intend", "estimate", "anticipate", "believe", "plan", "seek", "continue" or
similar expressions. All statements other than statements of historical facts
included in this document, including, without limitation, those regarding the
Group`s financial position, business strategy, dividend policy, estimated cost
savings, production and sales targets, timing of ramp up of shafts, plans and
objectives of management for future operations (including development plans and
objectives relating to the Group`s products, production forecasts and reserve
and resource positions), are forward-looking statements. By their nature, such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, many of which are outside the control of the Group and its
Directors, which may cause the actual results, performance, achievements, cash
flows, dividends of the Group or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. As such, forward-looking statements are no
guarantee of future performance.
Chief Executive`s Review
Introduction
Our performance in the first half of the 2010 financial year showed steady
quarter on quarter improvements in operational stability and productivity,
supported by the delivery of efficiency initiatives throughout the business.
Importantly, we also showed a return to profitability with our underlying
profit before tax for the period of $82 million being $195 million higher than
last year`s loss of $113 million. Profit before tax for the period was $77
million compared to the loss before tax of $196 million recorded for the first
half of 2009.
Management focus on operational delivery
Management focus continues to be on the delivery of operational improvements
throughout the business. Good progress was made in the period, particularly in
the areas of grade, concentrator recoveries and ore reserve development.
We have continued our efforts to implement cost and productivity efficiencies,
with a number of initiatives having been implemented across our operations.
Examples include a number of intensive training programmes on key areas such as
ore type knowledge and advance per blast, as well as various cost-cutting
measures. As a consequence, and as a result of the significant restructuring
programme we completed in 2009, our cost performance during the first half of
2010 was strong, with cost per ounce reducing relative to the prior year
period. This is the first time cost per ounce has fallen, versus a comparative
period, since this metric was introduced in 2005. Gross operating Rand-based
costs during the first six months of 2010 were R4.4 billion compared to R4.6
billion in the prior year period.
On 2 March 2010, we signed contracts to sell Chrome contained in our
concentrator tailings. These agreements will enable us to realise value from
our Chrome by-product revenues and will in addition help us to improve our PGM
concentrator recoveries going forward.
2010 sales and cost guidance remain unchanged from November 2009
Based on our performance to date, we remain confident that we will meet our
sales guidance of 700,000 ounces of Platinum for 2010, despite a matte run-out
at the Number One furnace at the end of the first half of the year. This result
is dependent on how the Number One furnace performs for the remainder of the
year and on a limited amount of toll refining of mainly low grade concentrate.
This production performance will be supported in the second half of 2010 by the
continued ramp-up of Saffy and Hossy shafts, initial production from the re-
opened Merensky opencast pit and through sustaining the improved levels of the
head grade and concentrator recoveries achieved during the first half of the
year.
The cost control initiatives mentioned above together with the major
restructuring programme completed last year will help us to meet our cost
guidance of managing the increase in our South African Rand gross operating
costs below local inflation. This is despite the 10% wage settlement agreed in
December 2009 for the 2010 financial year, power tariff increases, the start-up
of our Merensky opencast operations and the costs associated with the Number
One furnace matte run-out.
Safety performance improved but always more to do
Our employees` safety remains a key priority.
During the first half of 2010, our safety performance remained satisfactory, as
we continued to focus on safe behaviour and visible leadership. Our Lost Time
Injury Frequency rate (LTIFR) improved slightly from the end of the 2009
financial year to 5.74 per million man hours worked but we suffered 2
industrial fatalities, both as a result of fall-of-ground incidents. We extend
our sincere condolences to the families and friends of our late colleagues Mr
Bavuyise Bala and Mr Siyabonga Tomose.
The economic impact of safety-related Section 54 stoppages remains an issue
throughout the industry. At our Marikana operations, the tonnage impact was
similar compared to the prior year period, at around 149,000 tonnes, but it was
significantly better than in the second half of 2009, when around 355,000
tonnes were lost as a result of safety stoppages. We experienced 8 such safety
shutdowns during the first half of the 2010 financial year, compared to 13
during the prior year period, and 22 during the second half of 2009.
This significant reduction in the frequency of safety shutdowns from the second
half of 2009 reflected an emphasis on consistent adherence to safety standards
across our operations, as well as a more pragmatic approach to safety shutdowns
by the Department of Mineral Resources.
Our largest shaft, K3, which contributes around 25% of production at Marikana,
continued to experience a relatively greater proportion of Section 54 safety
shutdowns. This reflects the shaft`s historical safety record and a number of
significant incidents during the first half of the year, in particular a 7 day
safety shutdown following a fatal incident at the shaft on 10 December 2009.
Quality of Mining performance improving
Mining management continues to place a strong emphasis on quality, with a
number of processes and procedures now in place to underpin improvements in
discipline, training and quality of our mining practices. To this end, we
achieved an improvement in the quality of our mining during both quarters of
the first half of 2010, despite a significant reduction in the size of our
workforce following last year`s restructuring programme. This improvement in
mining quality is illustrated by the improvement in head grade during the first
two quarters of 2010. Production statistics for the second quarter of the year
can be found in a separate announcement published today.
We also continued to roll-out a number of Employee Relations programmes
throughout the Mining business, to further support our recent progress in this
area. Our Employee Relations strategy has been designed to promote a
performance driven culture, supported by commitment from all key stakeholders
and improved communication between management and employees. At the same time,
the management team continues to underpin its relationship with union
management, based on a partnership framework.
Grade and development
Underground milled head grade increased to 4.74 grammes per tonne in the first
half of 2010 from 4.57 grammes per tonne in the prior year period. This
improvement was a result of cleaner mining across the property, a better ratio
of stoping to development at Hossy and Saffy as well as an improved ore mix.
This is a significant value driver.
Immediately available ore reserves at Marikana at the end of the first half of
the 2010 financial year stands at 2.4 million centares, an 18% improvement from
2.0 million centares at the end of September 2009, and we aim to further
increase development by the end of this year. The total working cost spent on
development was around $65 million in the half, an increase of 10% in Rand
terms over the prior year period.
Mine Production
Production from our core underground mining operations at Marikana fell
marginally from the prior year period to 5.1 million tonnes. Conventional
underground mining operations at Marikana produced 4.3 million tonnes during
the first half, a decline of 8%, equivalent to around 0.4 million mined tonnes,
from the first half of 2009. This decline was mainly the result of the closure
of two uneconomic decline shafts and a number of half levels at Marikana in
2009, as well as reduced tonnage from K3, partly due to increased disruption to
production relating to the Section 54 safety stoppages.
Saffy and Hossy shafts continued to perform well, delivering a combined
increase in production of 0.3 million mined tonnes, or 43%, from the prior year
period. Saffy continues to be run on a hybrid basis, with conventional stoping
supported by mechanised development. We still face challenges in the
recruitment, transfer, training and stabilisation of new crews at the shaft,
but management has put in place a number of actions to ensure a continued
smooth transition process. We are starting to see the results of these
management actions, with an improved productivity and cost profile at the shaft
in the first half of 2010, and average production of around 80,000 tonnes per
month during the period. We expect Saffy to increase monthly tonnages
moderately from this level through to September 2010, with an anticipated
increase in production towards the end of 2011 with the opening of four new
levels at the shaft. As a result, we are still on track to achieve full shaft
capacity of 200,000 reef tonnes per month in 2012.
At Hossy, we are continuing with the fully mechanised proof-of-concept project,
with the shaft producing an average of around 60,000 tonnes per month during
the first half of 2010. Our average productivity during the first half of 2010
was diluted by two new quadrants coming into production at the shaft during the
period. However, we retain our target of achieving productivity of 2,200 square
metres per month per suite of equipment by the end of the 2011 financial year,
in fully developed quadrants. The main challenges continue to be a shortage of
key skills, the reliability of the equipment and the ability to run an
efficient maintenance programme.
As previously announced, we re-opened a Merensky opencast pit in March 2010,
with a view to supplementing the proportion of Merensky blend composition for
feed into the Number One furnace. We expect to mine around 0.4 million tonnes
from this opencast operation in the second half of 2010. As a result of revised
contractor terms and improved pricing, these ounces will be profitable.
Pandora underground production increased by 8% during the first half of 2010
from the prior year period. Lonmin purchases 100% of the ore from the Pandora
joint venture and this ore contributed 11,261 saleable ounces of Platinum in
concentrate and 21,545 saleable ounces of total PGMs in concentrate to our
production, decreases of 56% and 54% respectively from 2009, due to the closure
of the Pandora opencast operations during 2009. The Pandora joint venture
contributed $3 million of profit after tax for our account in the first half of
the 2010 financial year.
Total tonnes mined declined by 9% from the prior year period to 5.2 million,
following the planned closure of non-value adding production at our Limpopo
operations and the opencast operations at Marikana and the Pandora joint
venture in 2009. Adjusting for these discontinued operations, total tonnes
mined declined by 2% or 0.1 million mined tonnes.
Consistent operational delivery throughout the Process Division
Our Process Division produced an excellent performance during the first half of
2010 with the concentrators, in particular, delivering significant operational
improvements.
Concentrators
Metals in concentrate production from Marikana increased by 1% to 310,603
saleable ounces of Platinum, despite tonnes milled at Marikana for the first
half declining by 7% from the prior year period to 5.0 million tonnes. This was
due to the improvements in grade, outlined above, and to improvements in
concentrator recoveries. Underground concentrator recoveries improved
significantly during the first half to 84.6%, from 80.8% during the prior year
period. The improvement was due in part to the improved head grade but also the
result of continued benefits from our concentrator optimisation programme,
excellent plant availability and a rigorous focus on batch milling the right
ore through the right concentrators. This significant improvement is a major
value driver.
Total metals in concentrate production was 609,142 saleable ounces of PGMs,
which is down by around 30,000 PGM saleable ounces compared to the first half
of 2009. However, during that period, the closed Limpopo and opencast
operations at Marikana and Pandora produced around 51,000 PGM saleable ounces.
As announced on 2 March 2010, we signed contracts with the Xstrata-Merafe
Chrome Venture and ChromTech for the construction of Chrome recovery plants to
treat tailings from UG2 concentrators at our Marikana operations. These plants
are expected to be in full production by the second half of our 2011 financial
year. We anticipate that annualised incremental revenue from these contracts
will be approximately $20 - 30 million per annum from mid-2011. In addition, we
have commenced a design for the construction of PGM recovery plants to recover
PGMs from the Chrome-depleted UG2 tailings returned to us. This project is
expected to cost around $70 - 75 million over the next 3 to 4 years and will
improve concentrator recoveries at our UG2 plants, where these tailings
treatment plants will be installed, by around 2% from 2012 onwards.
Smelter
The Number One furnace had been performing consistently since the completion of
the re-build. However, a matte run-out occurred on 30 March 2010. To mitigate
the impact of the closure of the Number One furnace, we immediately commenced
the running of our Pyromet furnaces.
Following a full inspection and detailed investigation, we discovered that the
cause of the incident was as a result of matte that came into contact with 2
lower waffle coolers after the heat up phase following a mickey block repair.
The repair has been fully completed and the furnace is expected to tap matte
shortly. We expect this incident to have limited impact on production for the
2010 financial year. The total cost of the incident was around $5 million,
including the cost of the re-build and the additional cost of running the
Pyromet furnaces.
A risk mitigation programme at the Number One furnace is under way and we are
reviewing the vessel`s original specification, with a view to making it more
robust. As a result, the furnace will be taken down in the new financial year
when modifications will be made to reduce the risk of further matte run outs.
These modifications include increasing the safety margin, in terms of matte
levels and replacing the lower waffle coolers with refractory bricks and plate
coolers. It is anticipated that further enhancements will be made during
subsequent planned maintenance shutdowns. This will include lifting of the
matte tappe holes to increase campaign life.
Looking at longer term risk mitigation, the Board has approved some $40 million
of additional capital expenditure to build an additional 10 MW Pyromet type
furnace which will provide future back up and growth capacity to our smelting
operations. It will increase our smelting capacity by around 30% and
significantly reduce the impact on our revenues flows of unplanned smelter down
time. Furthermore, we plan to utilise the lower risk technology of plate
coolers at this furnace, as opposed to copper waffle coolers, which are
currently in use at the Number One furnace.
We anticipate commissioning this new furnace in late 2012. This furnace will be
on the site of the old Merensky furnace, thus making use of the existing
infrastructure. The site and design allows for a further 10MW furnace to be
added in a modular fashion at some future time.
Refineries
Our refineries performed well during the period. Total refined production for
the first half of the 2010 financial year was on budget at 291,921 ounces of
Platinum and 587,150 of total PGMs, down 8% and 3% respectively from the same
period in 2009. These decreases were as anticipated, due to the planned 30 day
re-build of the Number One furnace, which was completed on 9 November 2009. The
variance between the decline in refined production of Platinum compared to that
of PGMs was mainly due to differences in the timing of metal-in-process
inventories.
Meeting capital investment requirements whilst maintaining balance sheet
strength
A key management priority has been to maintain an appropriate capital
structure, whilst still enabling the business to have the capacity to develop
in the future.
Balance sheet and capital expenditure
At the end of the period, we had total committed debt facilities of $940
million, with no short term debt re-financing obligations. Net debt at the end
of the first half of 2010 increased by $137 million from the end of 2009 to
$250 million, as a result of cash outflows relating to Incwala Resources during
the period and due to the traditional second half weighting of our production
and sales cycles. Gearing stood at just 7% at the end of the period. We expect
net debt to reduce in the second half of 2010.
The balance sheet therefore remains strong and flexible enough to support the
future growth of the business. Capital expenditure incurred in the first half
of 2010 was $106 million and we continue to expect capital investment for the
year to be up to $270 million.
Dividend
The Board`s policy remains that dividends are based upon reported earnings for
the year with due regard for the projected cash requirements of the business.
Despite the much improved trading conditions in the period market uncertainties
remain. In addition the Group`s debt levels have increased, as described above.
In light of this, the Board has decided not to declare an interim dividend.
The Board is minded to resume prudent dividend payments as soon as
circumstances allow and is optimistic that it will be possible to declare a
final dividend for the 2010 financial year provided current trading conditions
persist.
Lonmin`s Black Economic Empowerment platform secured
In a separate press release, published today, we announced a transaction which
on completion will result in majority ownership of Incwala Resources (Pty)
Limited (Incwala), Lonmin`s black economic empowerment (BEE) partner, by
Shanduka Resources (Pty) Limited (Shanduka).
Shanduka, which the Board believes has a proven track record of investment in
the natural resources sector, has agreed to acquire Incwala shares from a
number of counter-parties, including certain of the original Historically
Disadvantaged South African ("HDSA") shareholders of Incwala, and on completion
will hold interests directly and indirectly representing in aggregate 50.03% of
the shares of Incwala. This transaction will therefore substantially simplify
the ownership structure of Incwala, creating the basis for a long term
relationship with a single majority HDSA shareholder.
The objective of securing a new BEE partner, via a financially robust funding
structure, is critical to the future development of Lonmin. Following an
extensive process in this regard, it has become clear that this objective can
only be achieved with significant funding from Lonmin. In line with the Board`s
policy to maintain an appropriate capital structure, which supports Lonmin`s
financial flexibility and future growth, the financing for this transaction is
being funded by a combination of the net proceeds of an equity Placing with
institutional investors, announced today, and from Lonmin`s own financial
resources. Lonmin intends to issue of up to 9,654,000 new ordinary shares from
this Placing, to be placed with institutional investors, representing up to
approximately 5% of the Company`s current issued share capital immediately
prior to the Placing.
Operating successfully in South Africa today requires a BEE partner that can
actively add value. Meeting South Africa`s transformational aspirations,
addressing productivity challenges in partnership with unions and investing in
growth with assurance of mining right security, all demand that the
relationships with our many stakeholders function effectively. The Board
believes that a partnership with Shanduka will serve Lonmin well in this
regard. Cyril Ramaphosa, Executive Chairman of Shanduka Group (Proprietary)
Limited, Shanduka`s holding company, will join the Lonmin Board following
completion of the transaction.
The South African Minister of Mineral Resources and The Department of Mineral
Resources have acknowledged Lonmin`s support for the transaction and endorse it
in principle as a constructive contribution, which facilitates the long term
financial stability of our BEE structure.
Market outlook positive
PGM prices increased steadily during the first half of the 2010 financial year
Platinum rose steadily in price throughout the period to $1,644 per ounce at
the end of March 2010, from $1,291 per ounce at the start of October 2009.
Rhodium increased to $2,575 per ounce at the end of March 2010, from $1,650 at
the start of the period, whilst Palladium rose to $479 per ounce from $297 per
ounce during that time.
This increase in prices was due to some recovery in the global economy, the
impact of the various automotive incentive schemes introduced by governments
around the world which bolstered new vehicle sales and a significant take-up of
the new US Platinum and Palladium Exchange-Traded Funds (ETFs), launched in
late December 2009.
Automotive demand - gradually improving short term outlook, positive long term
outlook
In the automotive sector, there was a strong recovery in demand towards the end
of 2009 and into the first quarter of 2010, supported by various stimuli and
scrappage schemes. However, recovery in the automotive sector is still at an
early stage, particularly as these schemes are coming to an end. We
nevertheless anticipate a moderate automotive and industrial recovery, which is
likely to gain momentum over the course of the year and we expect this to be
followed by more pronounced demand momentum in 2011 and 2012.
The medium term demand outlook is expected to be further bolstered by
increasingly tighter emissions legislation, particularly for off-road diesel
vehicles which use a greater proportion of Platinum in their autocatalysts.
In the longer term, we are increasingly optimistic about PGM demand in the
automotive sector due to the role they play in a number of technologies that
will compete with the standard combustion engine in the future, such as hybrids
and fuel cells. While PGMs are not utilised in electric vehicles, we expect
this technology to remain niche for the greater part of the next twenty years,
due to technical issues, the cost constraints and charging infrastructure
hurdles relating to battery vehicles.
Jewellery demand - will continue to be influenced by pricing levels
Jewellery demand in 2009 was well ahead of 2008 and provides a refuge at times
of suppressed industrial demand supported by responsible marketing by industry
stakeholders. Chinese jewellery demand growth appears to be slowing down in
2010 as Platinum prices continue to rise. However, overall Chinese imports of
Platinum are still rising strongly, suggesting that strategic investment and/or
other end-uses are more than offsetting the impact of higher prices on
jewellery this year. Elsewhere in the world jewellery demand seems to be
holding steady but higher prices may put a damper on growth.
Investment demand - becoming an increasingly important price driver
The introduction of ETFs in recent years has added a new dynamic to the market,
particularly in 2010 with the addition of the US ETFs. Investment absorbed
excess inventory in late 2009 and so far in 2010, which would otherwise have
placed downward pressure on prices. We therefore expect investment interest to
continue to be an increasingly important driver of PGM prices. Investment in
the first quarter of 2010 has been strongly supported by the US ETFs which
accounted for around 310,000 ounces and 550,000 ounces of Platinum and
Palladium demand respectively, as at 31 March 2010.
PGM market outlook - view remains positive
Despite recent mine resumption and expansion announcements, our view of the PGM
market outlook remains unchanged. Demand is increasing more rapidly than
anticipated while the depressed Rand PGM basket price in late 2008 and 2009
squeezed industry profitability and cash flow, with short term under-investment
being the consequence. We therefore anticipate that supply will struggle to
keep up with recovering demand from this year onwards.
For 2010, we expect investment demand to remain strong, with industrial demand
gradually improving, leaving the market close to balance. In 2011 and 2012, we
expect to see a more significant upturn in industrial demand, and a slower
supply response, thereby shifting the market into deficit.
In the longer term, we anticipate that future PGM demand opportunities will
arise from on-going tightening of emissions legislation, particularly for off-
road vehicles and from stationary fuel cell technology. As a result of all of
these factors, PGM markets are structurally compelling and the long term
fundamentals attractive.
Board changes
On 11 March 2010, we announced the appointment of Dr Len Konar as a non
executive Director of the Company. Len is a highly respected businessman in
South Africa and we look forward to his contribution to the development of
Lonmin in the coming years and in supporting us to address the continuing
challenges of transformation in our South African operations.
It has also been announced today that Mahomed Seedat, currently Chief Operating
Officer, will be appointed to the Board as a non executive Director with
effect from 1 January 2011. He will remain in his executive position until
then. Mahomed has a wealth of experience in the mining industry and operating
in South Africa and we look forward to him joining the Board.
The search for a South African based Chief Financial Officer to replace Alan
Ferguson is well underway and we expect to make an appointment well before the
end of the 2010 financial year. We have also made good progress in planning for
the relocation of our operational headquarters to Johannesburg and this process
is expected to be completed by the end of the 2010 calendar year. As a result
of this transition, we have also taken the opportunity to review the
organisational structure in South Africa in order to enable faster and more
efficient decision-making.
Employees` contribution
Finally, I would like to express my sincere gratitude to all of our employees,
contractors and community members for supporting Lonmin in safely delivering a
steady performance in the first half of 2010.
Ian Farmer
Chief Executive
9 May 2010
Financial Review
Introduction
The first six months of 2010 have been impacted by three significant factors:
- PGM pricing: prices were severely impacted by the global recession in the
first half of 2009 which saw the PGM basket price fall to just $699 per
ounce. As reported at the 2009 year end, the second half of 2009 saw a
recovery in prices with the PGM basket increasing by 23% to $861 per
ounce. This recovery has continued in the first half of 2010 with the
basket price increasing a further 24% from the second half of 2009 to
$1,068 per ounce resulting in a 53% increase, or $227 million of
incremental revenue, over the first half of last year.
- Foreign exchange: the average daily exchange rate for the Rand to the US
Dollar is significantly stronger in the first six months of 2010 with a
rate of R7.48/$ compared to a rate of R9.91/$ in the first six months of
2009. This 25% increase has adversely impacted operating profits by $109
million which has offset some of the pricing benefits. During 2009 the
exchange rate was particularly volatile with the exchange rate in the
first half of R9.91/$ moving to R8.10/$ in the second half.
- Cost control: in the first half of 2009 a major restructuring programme
was carried out which resulted in the closure of unprofitable operations
and a reduction in the cost base for ongoing operations.
- The restructuring of ongoing operations was largely implemented at
the end of March 2009. Hence, in the first six months of 2010 the
cost base has benefited fully from this restructuring with a saving
of $41 million compared to the first half of 2009. The saving from
the reduction in the ongoing cost base has essentially offset the
impact of cost escalation, which was circa 10% for labour.
- In the first half of 2010 we also saved $27 million from closed
operations in comparison to the first half of 2009.
- Total labour cost savings in the last 12 months, as a result of the
restructuring undertaken, amount to at least $110 million which
compares to our forecast at the time of $90 million. Although the
upside was impacted by the strengthening of the Rand we delivered
more than forecast in Rand terms.
- It should be noted that there will be relatively little cost benefit from
the restructuring when comparing the second half of 2010 to the second
half of 2009. In the second half of 2010 Rand costs are expected to
increase from the levels in the first half of 2010 due to: the resumption
of opencast operations at Marikana; utility costs; the smelter rebuild and
higher volumes which will impact on variable costs. Despite these factors
we maintain our guidance that the full year total South African costs in
Rand will increase less than South African inflation.
Basis of preparation
The financial information presented has been prepared on the same basis and
using the same accounting policies as those which will be used to prepare the
financial statements for the year ended 30 September 2010. There have been no
changes in accounting policy or new standards applied which have had an effect
on reported performance in comparison to the prior period.
Analysis of results
Income Statement
The $168 million movement between the underlying operating profit of $70
million in the six months to 31 March 2010 and the underlying operating loss of
$98 million for the six months to 31 March 2009 is given below. This
substantial increase in profitability reflects a high proportion of price
increases flowing through to the bottom line as a result of good cost control
and is despite the significant adverse impact of a stronger Rand.
$m
Year to 31 March 2009 reported operating loss (142)
Year to 31 March 2009 special items 44
Year to 31 March 2009 underlying operating loss (98)
PGM price 227
PGM volume 8
PGM mix (10)
Revenue changes 225
Cost changes (including foreign exchange (57)
impact)
Year to 31 March 2010 underlying operating 70
profit
Year to 31 March 2010 special items (5)
Year to 31 March 2010 reported operating profit 65
Revenue
As noted in the introduction the PGM pricing environment has improved
significantly since this time last year and the impact on the prices achieved
on the key metals sold is shown below.
6 months 6 months 6 months 31.03.10
to to to vs
31.03.10 30.09.09 31.03.09 31.03.09
$/oz $/oz $/oz %
Platinum 1,489 1,202 947 57.2
Palladium 400 252 192 108.3
Rhodium 2,332 1,515 1,650 41.3
PGM basket 1,068 861 699 52.8
This improvement has been driven by new ETFs which were launched in the US for
Platinum and Palladium during the first half of 2010 and by a limited recovery
in vehicle and industrial demand. These significant price increases have given
rise to $227 million additional revenue in the period. It should be noted,
however, that in Rand terms the basket price increased by only 15.7% compared
to the first half of 2009 to R8,077 per PGM ounce due to a 24.5% strengthening
of the Rand.
PGM sales volume for the six months to 31 March 2010 at 593,529 ounces was
9,656 PGM ounces or 1.7% up on the first six months of last year despite the
loss of some 51,000 PGM ounces from the suspension of mining at Limpopo and
from opencast and 17,000 PGM ounces from W1 and B3 shafts at Marikana which
were closed having reached the end of their productive lives. This increase
has been achieved through the ramp-up of activity at Hossy and Saffy and good
improvements in grade and recovery. The net improvement in PGM volumes
contributed $8 million additional revenue in the period. The mix of metals sold
resulted in an adverse impact to revenue of $10 million due to the mix of
Platinum and Rhodium. This mix decrease was mainly due to metal-in-process
inventory timing differences. Total revenue of $661 million is $225 million
higher than in the six months to 31 March 2009.
Cost changes
Total South African Rand gross operating costs in the first half of 2010 at
R4.4 billion are R0.2 billion lower than the comparative period despite a 10%
wage increase. In reported Dollar terms, however, decreases in operating costs
were more than offset by adverse foreign exchange effects due to the strong
Rand in the period as shown in the table below.
$m
6 months to 31 March 2009 - underlying costs 534
Increase / (decrease)
Marikana underground mining 8
Concentrating and processing 7
Overhead costs (14)
Savings from closed operations (Limpopo and Marikana (27)
opencast)
Operating costs (26)
Pandora ore purchases (9)
Metal stock movement (22)
Foreign exchange 109
Depreciation 5
Cost changes (including foreign exchange impact) 57
6 months to 31 March 2010 - underlying costs 591
Marikana underground mining costs increased slightly in the period with the
escalation in labour costs and utilities exceeding the benefits from labour
restructuring of $15 million and savings in consumables and services of $13
million. The costs of Hossy and Saffy shafts increased by $15 million, or
24.5%, with volumes increasing by 43.1%. However, this was partially offset by
a $7 million saving in the conventional shafts which largely arose as a result
of the closure of W1 and B3.
Despite restructuring savings of $5 million, concentrator and processing costs
were adverse by $7 million. This was due to the purchase of base metal rich
concentrate from Anglo Platinum to help maintain an appropriate blend of
material in the smelter and incremental toll treatment costs.
Overhead costs were $14 million lower than the first six months of 2009.
Restructuring has saved approximately $10 million with savings made at the
London and South African offices together with a reduction in Exploration
spend. These have partially been offset by labour escalation, an increase in
share based payment charges and a $1 million charge in relation to the new
Mining Royalty which came into effect on 1 March 2010.
Costs have also reduced by $27 million following the cessation of production at
Marikana opencast and Limpopo. For Limpopo the saving was $9 million due to the
shaft going on care and maintenance effectively from December 2009. Marikana
opencast was closed in December 2009 and the current period costs are $18
million lower. As noted above Marikana opencast operations will resume in the
second half of 2010 and circa R250 million of cost is expected to be incurred
in this period.
The cost of ore purchased from the Pandora joint venture is $9 million lower
than the prior period with the volume reduction from the cessation of opencast
operations more than offsetting the market related increase in pricing.
There was a $22 million favourable impact on operating profit, excluding
exchange impacts, from the movement on metal stocks due to a larger increase in
stock volumes in the first half of 2010.
Foreign exchange has been a very significant factor with a $109 million adverse
impact. This mainly arose from the translation of costs into Dollars with the
effective Rand exchange rate strengthening by 22.1% to give an adverse variance
of $144 million. In addition the translation of Rand monetary working capital
balances gave rise to an adverse impact of $45 million. The strengthening Rand,
however, increased the Dollar value of stocks held generating a favourable $80
million which partially offset the above.
In summary total South African Rand gross operating costs at R4.4 billion are
R0.2 billion lower than the first half 2009 despite a 10% wage increase. This
reflects the final benefits of the March 2009 restructuring programme, the
impact of closed operations and the benefit of a much improved cost control
culture throughout the organisation. We continue to expect that Rand gross
costs will increase by less than local inflation for the full 2010 financial
year.
Cost per PGM ounce
The cost per PGM ounce produced by Marikana operations for the six months to 31
March 2010 at R6,535 fell by 4.9% compared to the six months to 31 March 2009.
This is the first time cost per ounce has fallen versus a comparable period
since this metric was introduced in 2005. This improvement has essentially been
achieved by holding costs flat and increasing production through the
improvements in head grade and recovery. This clearly demonstrates the benefits
of the many programmes initiated in the last 18 months to improve the
operational health of the business.
Further details of unit costs analysis can be found in the Operating
Statistics.
Special operating costs
In the six months to 31 March 2009 $44 million of costs were recognised
relating to the restructuring of the business which was implemented at the end
of the period. These costs reflected charges associated with the reduction of
employees together with the abnormal operating costs for Limpopo operations,
subsequent to the announcement of closure, and the cost of the restructuring
programme itself.
In 2010 special operating costs of $5 million were charged relating to the move
of the operational headquarters from London to South Africa. We are only part
way through this change and this initial charge mainly relates to the expected
cost of reducing the London office staff numbers. The principal objective of
this change is to improve operational effectiveness. This move is expected to
be completed in the last quarter of this calendar year.
Impairment of available for sale financial assets
The Group holds listed investments which are marked to market. In the six
months to 31 March 2009, given the state of the financial markets, the value of
these investments had fallen below original acquisition cost and this resulted
in a $39 million impairment which was taken to the income statement,
effectively rebasing the cost of acquisition. In the second half of 2009 there
was a $9 million recovery in value and this gain was taken directly to equity.
In the six months to March 2010 the value of these investments has increased by
$5 million and this was also recognised directly in equity.
Summary of net finance income / (costs)
Six months to 31
March
2010 2009
$m $m
Net bank interest and fees (22) (8)
Capitalised interest payable and fees 23 10
Exchange 6 (26)
Other 1 0
Net finance income / (costs) 8 (24)
Net bank interest and fees are $14 million higher than the comparative period.
The key reason for the increase was an $10 million increase in bank fees
expensed arising on the refinancing and waiver of covenants agreed at the end
of financial year 2009. Net interest payable also increased by $4 million
reflecting the higher margins charged in the more challenging credit
environment. The volatility and significant weakening of the Rand against the
US Dollar at times during the six months to 31 March 2009 had a marked impact
on Rand cash balances held for operational and funding purposes. This resulted
in $24 million of exchange losses on net debt which was the main component of
the $26 million charge in the prior period. A small exchange gain on net debt
of $3 million occurred in the six months to 31 March 2010 reflecting more
stable conditions together with a $3 million exchange gain on other
receivables. The total net finance income of $8 million for the six months to
31 March 2010 was therefore $32 million favourable to the six months to 31
March 2009.
Share of profit of equity accounted investments
The share of profit from the associate and joint venture has declined by $5
million from $9 million in the six months to 31 March 2009. This was due to the
share of Pandora profits falling by $3 million as a result of lower volumes,
with the ending of opencast operations, and reduced profits from Incwala with
minimal dividends paid.
Profit / (loss) before tax and earnings
Reported profit before tax for the six months to 31 March 2010 at $77 million
is $273 million better than the prior period. This increase comprises a $207
million improvement in reported operating profit, a $39 million favourable
variance on impairment, a $32 million benefit on net finance costs and the $5
million reduction in the Group`s share of profit from the associate and joint
venture.
Reported tax for the current period was a charge of $42 million. This included
exchange losses on the translation of Rand denominated tax balances with
underlying tax of $31 million being charged at an effective rate of 55%. The
underlying charge largely reflects deferred tax being recognised on accelerated
capital allowances with minimal current tax in the period due to losses and
unredeemed capital allowances brought forward. Secondary tax charges were also
immaterial in the period with low dividends paid to minorities.
Profit for the six months to 31 March 2010 attributable to equity shareholders
amounted to $30 million (2009 - loss $112 million) and the earnings per share
was 15.5 cents compared with a loss per share of 67.9 cents in 2009. Underlying
earnings per share, being earnings excluding special items, amounted to 22.8
cents (2009 - underlying loss per share 47.9 cents). The loss per share figures
in the six months to 31 March 2009 has been adjusted to reflect the effect of
the Rights Issue which completed in June 2009.
Balance sheet
A reconciliation of the movement in equity shareholders` funds for the six
months to 31 March 2010 is given below.
$m
Equity shareholders` funds as at 1 October 2009 2,417
Total comprehensive income and expense 32
Transfer to reserve for own shares 14
Share based payments and shares issued 4
Equity shareholders` funds as at 31 March 2010 2,467
Equity shareholders` funds during the period increased by $32 million due to
the recognition of $30 million attributable profit and sundry movements in
comprehensive income. This was further augmented by a transfer of accruals for
share based payments to the reserve for own shares as the directors decided to
settle all award schemes with equity having obtained shareholder consent to
allow formerly cash settled schemes to be settled by equity.
Net debt at $250 million has increased by $137 million since the 2009 year end.
This is a result of payments to Impala of $59 million, under vendor financing
indemnities given on the setting up of Incwala, together with adverse working
capital movements described below. Lonmin expects that net debt at the end of
financial year 2010 will be lower than at the half year as sales are forecast
to be significantly higher in the second half.
Gearing, calculated on net borrowings attributable to the Group divided by
those attributable net borrowings and the equity interests outstanding at the
balance sheet date, was 7% at 31 March 2010 and 17% at 31 March 2009.
Cash flow
The following table summarises the main components of the cash flow during the
year:
Six months to 31
March
2010 2009
$m $m
Operating profit / (loss) 65 (142)
Depreciation and amortisation 52 47
Changes in working capital (46) 146
Other 15 (13)
Cash flow generated from 86 38
operations
Interest and finance costs (24) (7)
Tax (2) (48)
Trading cash inflow / 60 (17)
(outflow)
Capital expenditure (132) (106)
Dividends paid to non- (11) (17)
controlling interests
Free cash outflow (83) (140)
Indemnity payments re Incwala (59) -
Shares issued 1 15
Equity dividends received - 3
Cash outflow (141) (122)
Opening net debt (113) (303)
Foreign exchange 3 (24)
Unamortised fees 1 -
Closing net debt (250) (449)
Trading cash inflow / 31.1c (10.3)c
(outflow) (cents per share)
Free cash outflow (cents per (43.0)c (84.9)c
share)
Note: Trading cash flow per share and free cash flow per share have been
restated for the effects of the Rights Issue.
Cash flow generated from operations in the six months to 31 March 2010 was
positive, at $86 million, despite being impacted by working capital outflows of
$46 million. Working capital was adverse due to inventory balances which
increased by $82 million reflecting a stock build up, compared to a stock
release in the prior period and creditor balances falling by $32 million
although these were partially offset by a reduction of $68 million on debtors.
Compared to the prior period cash flow generated from operations was up $48
million, with the $207 million improvement in profitability was offset by the
$192 million turnaround in the working capital position.
Trading cash inflow for the period amounted to $60 million against a $17
million outflow in the comparative six months. The cash flow on interest and
finance costs increased due to the payment of arrangement fees on the
renegotiation of bank facilities which occurred at the end of the 2009
financial year. The tax payment in 2009 represented the final on account
payment in respect of 2008 profits and a limited outflow of secondary taxes in
respect of the dividend. Following the difficult trading conditions in 2009 tax
payments in 2010 have been de-minimis. The trading cash inflow per share was
31.1 cents in the six months to 31 March 2010 against a 10.3 cents outflow in
the six months to 31 March 2009 as restated for the Rights Issue.
Capital expenditure cash flow at $132 million was $26 million above the prior
period (with capital creditors reducing by $26 million). In Mining the
expenditure incurred was focused on development of the operations at Hossy and
Saffy, equipping and development at K4, investment in sub-declines at K3 and
Rowland and developing Newman opencast. In the Process Division spend was
focused at the concentrators. For the 2010 full year our guidance for capital
expenditure incurred remains at up to $270 million. We continue to monitor the
balance between the need to invest for future production with the requirement
to maintain a strong balance sheet.
Dividends paid to minorities in the period at $11 million were $6 million lower
than the prior six months and reflected the minimum payment required to service
loan facilities in Incwala.
Free cash outflow at $83 million was $57 million favourable to the prior period
with the free cash outflow per share of 43.0 cents improving by 41.9 cents over
the comparative period. As reported at the 2009 final results the Directors
decided not to declare a dividend and consequently no equity dividend cash
outflow occurred in the period.
After the effect of the $59 million paid to Impala, as described above, the
overall cash outflow for the six months to 31 March was $141 million which
increased net debt accordingly.
Events after the balance sheet date
As announced, Shanduka Resources (Proprietary) Limited ("Shanduka") has agreed
to acquire a majority stake in Incwala Resources (Proprietary) Limited,
Lonmin`s Black Economic Empowerment partner. The Board believes Shanduka is a
high-quality empowerment partner and to ensure that our empowerment company
operates on a financially stable footing Lonmin will provide funding of
approximately GBP206 million (at R11.3/GBP), on commercial terms, to Shanduka
to facilitate the transaction. The existing HDSA receivables in respect of
Incwala of $91 million (circa GBP61 million) will form part of this loan. The
loan will be provided through a combination of an equity placement, with the
balance coming from existing financial resources. As the loan also encompasses
participation in potential value gains for Lonmin shareholders it is expected
that a derivative will be recognised which will give rise to volatility in
reported results through a non cash movement in the future. When this
transaction completes certain contingent liabilities to the value of $45
million will fall away.
Financial risk management
The main financial risks faced by the Group relate to the availability of funds
to meet business needs (liquidity risk), the risk of default by counterparties
to financial transactions (credit risk), fluctuations in interest and foreign
exchange rates and commodity prices. The Group also has a number of contingent
liabilities.
These factors are the critical ones to take into consideration when addressing
Going Concern. As is clear from the following paragraphs, we are in a strong
position. There are, however, factors which are outside the control of
management, specifically, volatility in the Rand / US Dollar exchange rate and
PGM commodity prices, which can have a significant impact on the business.
Liquidity risk
The policy on overall liquidity is to ensure that the Group has sufficient
funds to facilitate all ongoing operations.
As part of the annual budgeting and long term planning process, the Group`s
cash flow forecast is reviewed and approved by the Board. The cash flow
forecast is amended for any material changes identified during the year, for
example material acquisitions and disposals. Where funding requirements are
identified from the cash flow forecast, appropriate measures are taken to
ensure these requirements can be satisfied. Factors taken into consideration
are:
- the size and nature of the requirement;
- preferred sources of finance applying key criteria of cost, commitment, --
availability, security/covenant conditions;
- recommended counterparties, fees and market conditions; and
- covenants, guarantees and other financial commitments.
In the half year we extended the R1.75 billion revolving credit facility which
now matures in November 2011(previously this was a multi-currency $175 million
facility which matured in November 2010). In addition, as previously noted, all
EBITDA covenants at March 2010 were waived as well as the net debt to EBITDA
covenants at September 2010. Our relationship banks continue to show clear
confidence in our business and we fully expect this support to continue.
As at 30 September 2009, we had net debt of $113 million. At 31 March 2010, net
debt had increased to $250 million, comprising $355 million of drawn down
facilities net of $92 million of cash and equivalents and $13 million of
unamortised bank fees. This represents an increase in net debt from 30
September 2009 of $137 million, with $59 million of this resulting from some of
the Incwala contingent liabilities crystallising in the period.
Lonmin has $940 million of committed facilities in place. The main elements of
these facilities can be summarised as follows:
- A $250 million revolving credit facility in the UK, which will expire in
November 2012;
- A $150 million amortising loan facility in the UK, which will expire in
November 2012. The amortisation of this facility consists of $20 million
payable every six months starting in July 2010, with a final repayment of
$50 million in November 2012;
- The margin on both these facilities is 400 basis points up to 31 March
2011, and will thereafter be determined by reference to net debt / EBITDA
and will be in the range 250bps to 400bps;
- The key covenants in these facilities include a maximum net debt / EBITDA
ratio of 4.0 times, to be next tested in March 2011; a minimum EBITDA/net
interest ratio of 4.0 times, to be next tested in September 2010; and a
maximum net debt/tangible net worth ratio of 0.75 times, tested in March
2010, and moving to 0.7 times on a semi-annual basis thereafter;
- In South Africa, we have secured an extension to the maturity of the
existing R1.75 billion revolving credit facility to November 2011;
- In addition, in South Africa, we have a $300 million term loan which
expires in mid 2013; and
- Key covenants in both these South African facilities are consistent and
are tested at the WPL / EPL level. These include a minimum EBITDA / net
interest ratio of 3.5 times, and a maximum net debt / EBITDA ratio of 2.75
times; these covenants are to be tested on a rolling 12 month basis every
6 months on 31 March and 30 September. We have successfully secured a
covenant waiver for the net debt / EBITDA ratio at 31 March 2010 and 30
September 2010 and the EBITDA / net interest ratio at 31 March 2010 in
both the R1.75 billion revolving credit facility and the $300 million term
loan.
An effective funding rate of circa 6% is anticipated for the financial year.
Credit risk
Banking counterparties
Banking counterparty credit risk is managed by spreading financial transactions
across an approved list of counterparties of high credit quality. Banking
counterparties are approved by the Board.
Trade receivables
The Group is exposed to significant trade receivable credit risk through the
sale of PGM metals to a limited group of customers.
This risk is managed as follows:
- aged analysis is performed on trade receivable balances and reviewed on a
monthly basis;
- credit ratings are obtained on any new customers and the credit ratings of
existing customers are monitored on an ongoing basis;
- credit limits are set for customers; and
- trigger points and escalation procedures are clearly defined.
Interest rate risk
Currently, the bulk of our outstanding borrowings are in US Dollars and at
floating rates of interest. Given current market rates, this position is not
considered to be high risk at this point in time. This position is kept under
constant review in conjunction with the liquidity policy outlined above and the
future funding requirements of the business.
Foreign currency risk
Most of the Group`s operations are based in South Africa and the majority of
the revenue stream is in US Dollars. However, the bulk of the Group`s
operating costs and taxes are paid in Rand. Most of the cash received in South
Africa is in US Dollars. Excess cash is normally remitted to the UK on a
regular basis. Most of the Group`s funding sources are in US Dollars.
The Group`s reporting currency remains the US Dollar and the share capital of
the Company is based in US Dollars.
Our current policy is not to hedge Rand / US Dollar currency exposures and
therefore fluctuations in the Rand to US Dollar exchange rate can have a
significant impact on the Group`s results. A strengthening of the Rand against
the US Dollar has an adverse effect on profits due to the majority of operating
costs being paid in Rand.
Commodity price risk
Our policy is not to hedge commodity price exposure on PGMs, except gold, and
therefore any change in prices will have a direct effect on the Group`s trading
results.
For base metals and gold hedging is undertaken where the Board determines that
it is in the Group`s interest to hedge a proportion of future cash flows.
Policy is to hedge up to a maximum of 75% of the future cash flows from the
sale of these products looking forward over the next 12 to 24 months. The Group
has undertaken a number of hedging contracts on Nickel, Copper and Gold sales
using forward contracts.
Fiscal risk
The South African Government introduced a new Mining Royalty on 1 March 2010.
The impact on the first half of 2010 has therefore been minimal. The Royalty is
calculated based on a percentage of Gross Sales. The percentage is calculated
using a formula depending on whether the Company sells concentrate, ore or
refined products. The Royalty formula is subject to a minimum royalty rate of
0.5%, which will be applicable if the formula calculation results in a rate of
less than 0.5%.
The formula for refined products is:
% of Gross Sales = ( Adjusted EBIT* x 100) + 0.5
Gross Sales x 12.5
* Adjusted EBIT for the purpose of the Royalty calculation is statutory EBIT
adjusted for, amongst other things, depreciation and a capital deduction based
on Mining Tax rules.
Contingent liabilities
The contingent liabilities of the Group total some $74 million which has fallen
by $57 million from 30 September 2009 mainly due to Impala calling guarantees
worth R442 million ($59 million) in the period. This resulted in the
recognition of an HDSA receivable (which is backed by a counter indemnity).
Full details of the remaining contingent liabilities are disclosed in note 10
to the Interim Financial Statements although it should be noted that on
completion of the Shanduka transaction the contingent liabilities will fall by
$45 million to $29 million with only the Impala indemnities and third party
guarantees, which do not relate to Incwala, remaining.
Principal risks and uncertainties
The Group faces many risks in the operation of its business. The Group`s
strategy takes into account known risks, but risks will exist of which we are
currently unaware. There is an extensive discussion of the principal risks and
uncertainties facing the Company on pages 27 to 29 of the 2009 Annual Report,
available from the Company`s website, www.lonmin.com.
Alan Ferguson
Chief Financial Officer
9 May 2010
Operating Statistics
Uni 6 months 6 months
ts to to
31 March 31 March
2010 2009
Tonnes Marikana Underground - total 000 5,142 5,258
mined
Underground - 000 4,276 4,654
conventional
Underground - Hossy 000 866 605
& Saffy 1
Opencast 000 7 229
Total 000 5,150 5,488
Limpopo Total - Underground 000 - 87
Pandora Underground 000 77 71
attributable 2
Opencast 000 - 110
Total 000 77 181
Lonmin Underground 000 5,220 5,417
Platinum
Opencast 000 7 339
Total 000 5,227 5,756
Tonnes Marikana Underground 000 4,899 5,124
milled 3
Opencast 000 61 194
Total 000 4,961 5,319
Limpopo Total - Underground 000 - 92
Pandora 4 Underground 000 167 168
Opencast 000 - 251
Total 000 167 419
Lonmin Underground 000 5,066 5,384
Platinum
Head grade 5 g/t 4.74 4.57
Recovery rate 6 % 84.6 80.8
Opencast 000 61 445
Head grade 5 g/t 1.96 4.68
Recovery rate 6 % 42.3 70.6
Total 000 5,128 5,829
Head grade 5 g/t 4.71 4.58
Recovery rate 6 % 84.4 80.0
6 months 6 months
to to
31 March 31 March
2010 2009
Metals in Marikana Platinum oz 310,603 308,617
concentrate
7
Palladium oz 145,175 143,110
Gold oz 6,490 7,057
Rhodium oz 43,802 43,000
Ruthenium oz 66,893 66,454
Iridium oz 14,634 14,520
Total PGMs oz 587,598 582,759
Nickel 8 MT 1,276 1,321
Copper 8 MT 794 825
Limpopo Platinum oz - 3,770
Palladium oz - 3,331
Gold oz - 243
Rhodium oz - 487
Ruthenium oz - 688
Iridium oz - 159
Total PGMs oz - 8,679
Nickel 8 MT - 76
Copper 8 MT - 54
Pandora 4 Platinum oz 11,261 25,754
Palladium oz 5,276 11,601
Gold oz 77 202
Rhodium oz 1,782 3,566
Ruthenium oz 2,693 5,216
Iridium oz 455 971
Total PGMs oz 21,545 47,310
Nickel 8 MT 17 25
Copper 8 MT 10 15
Lonmin Platinum Platinum oz 321,864 338,142
Palladium oz 150,451 158,042
Gold oz 6,567 7,503
Rhodium oz 45,584 47,053
Ruthenium oz 69,586 72,358
Iridium oz 15,089 15,649
Total PGMs oz 609,142 638,748
Nickel 8 MT 1,293 1,422
Copper 8 MT 804 894
6 months 6 months
to to
31 March 31 March
2010 2009
Metallurgic Lonmin refined Platinum oz 291,742 317,904
al metal production
12
production Palladium oz 150,292 147,393
Gold oz 7,437 8,647
Rhodium oz 42,945 44,688
Ruthenium oz 72,749 72,952
Iridium oz 20,423 12,479
Total PGMs oz 585,588 604,063
Toll refined Platinum oz 179 315
metal production
Palladium oz 63 -
Gold oz - -
Rhodium oz 809 573
Ruthenium oz 512 1,009
Iridium oz - 184
Total PGMs oz 1,562 2,081
Total refined Platinum oz 291,921 318,219
PGMs
Palladium oz 150,355 147,393
Gold oz 7,437 8,647
Rhodium oz 43,754 45,261
Ruthenium oz 73,261 73,961
Iridium oz 20,423 12,663
Total PGMs oz 587,150 606,145
Base metals Nickel 9 MT 1,550 1,632
Copper 9 MT 904 1,079
Sales Refined metal Platinum oz 291,922 313,671
sales
Palladium oz 150,354 147,184
Gold oz 7,413 9,318
Rhodium oz 47,301 38,739
Ruthenium oz 75,871 67,501
Iridium oz 20,667 12,500
Total PGMs oz 593,529 588,913
Concentrate and Platinum oz - (1,818)
other 10
Palladium oz - (3,222)
Gold oz - -
Rhodium oz - -
Ruthenium oz - -
Iridium oz - -
Total PGMs oz - (5,039)
Lonmin Platinum Platinum oz 291,922 311,853
Palladium oz 150,354 143,962
Gold oz 7,413 9,318
Rhodium oz 47,301 38,739
Ruthenium oz 75,871 67,501
Iridium oz 20,667 12,500
Total PGMs oz 593,529 583,873
Nickel 9 MT 1,386 1,368
Copper 9 MT 1,006 907
6 months 6 months
to to
31 March 31 March
2010 2009
Average Platinum $/o 1,489 947
prices z
Palladium $/o 400 192
z
Gold $/o 1,125 871
z
Rhodium $/o 2,332 1,650
z
Ruthenium $/o 154 124
z
Iridium $/o 421 393
z
Basket price of $/o 1,068 699
PGMs 11 z
Basket price of R/o 8,077 6,984
PGMs 11 z
Nickel 9 $/M 15,844 15,721
T
Copper 9 $/M 6,417 6,062
T
Exchange Average rate for period 13 R/$ 7.48 9.91
Rate
Closing rate R/$ 7.28 9.49
Footnotes:
1 Hossy and Saffy are replacement/growth shafts in ramp up. Hossy is fully
mechanised whilst Saffy has conventional stoping but mechanised
development. In previous production reports this section showed all
M&A/Hybrid mining. All comparatives have been restated.
2 Pandora attributable tonnes mined includes Lonmin`s share (42.5%) of the
total tonnes mined on the Pandora joint venture.
3 Tonnes milled excludes slag milling.
4 Lonmin purchases 100% of the ore produced by the Pandora joint venture
for onward processing which is included in downstream operating
statistics.
5 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).
6 Recovery rate in the concentrators is the total content produced divided
by the total content milled (excluding slag).
7 Metals in concentrate include metal derived from slag processing and
have been calculated at industry standard downstream processing losses
to present produced saleable ounces.
8 Corresponds to contained base metals in concentrate.
9 Nickel is produced and sold as nickel sulphate crystals or solution and
the volumes shown correspond to contained metal. Copper is produced as
refined product but typically at LME grade C.
10 Concentrate and other sales essentially relates to BMR concentrate and
BMR/PMR residues.
11 Basket price of PGMs is based on the revenue generated from the actual
PGMs (5PGE + Au) sold in the period.
12 Lonmin refined metal production and sales include an estimated 5koz
saleable ounces of Platinum produced from toll refining third party
concentrate (2009 - nil).
13 Exchange rates are calculated using the market average daily closing
rate over the course of the period.
6 months 6 months
to to
31 March 31 March
2010 2009
Capital Expenditure 1 Rm 793 1,001
$m 106 101
Group cost per PGM ounce sold 2
Mining - Marikana R/o 4,354 4,712
z
Mining - Limpopo R/o - 7,404
z
Mining - (weighted average) R/o 4,354 4,751
z
Concentrating - Marikana R/o 845 817
z
Concentrating - Limpopo R/o - 1,820
z
Concentrating - (weighted average) R/o 845 831
z
Process division R/o 785 827
z
Shared business services R/o 551 547
z
C1 cost per PGM ounce produced R/o 6,535 6,956
z
Stock movement R/o (432) 103
z
C1 cost per PGM ounce sold before base metal R/o 6,103 7,059
credits z
Base metal credits R/o (373) (508)
z
C1 costs per PGM ounce sold after base metal R/o 5,730 6,551
credits z
Amortisation R/o 550 430
z
C2 costs per PGM ounce sold R/o 6,280 6,981
z
Pandora mining costs:
C1 Pandora mining costs (in joint venture) R/o 4,763 3,004
z
Pandora JV cost/ounce produced to Lonmin R/o 7,021 4,537
(adjusting Lonmin share of profit) z
Footnotes:
1 Capital expenditure is the aggregate of the purchase of property, plant
and equipment and intangible assets (excludes capitalised interest). The
figures previously reported in the prior period reflected the cash flow
amount but these have been restated to reflect expenditure on an accrued
basis excluding capitalised interest.
2 It should be noted that with the restructuring of the business in 2009
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.
Independent Review Report to Lonmin Plc
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
March 2010 which comprises the consolidated income statement, consolidated
statement of comprehensive income, consolidated statement of financial
position, consolidated statement of changes in equity, consolidated statement
of cash flows and the related explanatory notes. We have read the other
information contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material inconsistencies with
the information in the condensed set of financial statements.
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Disclosure
and Transparency Rules ("the DTR") of the UK`s Financial Services Authority
("the UK FSA"). Our review has been undertaken so that we might state to the
company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company for our review work, for
this report, or for the conclusions we have reached.
Directors` responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FSA.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the EU. The condensed set of
financial statements included in this half-yearly financial report has been
prepared in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and consequently does
not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 March 2010 is not prepared, in all
material respects, in accordance with IAS 34 as adopted by the EU and the DTR
of the UK FSA.
Lynton Richmond
for and on behalf of KPMG Audit Plc
Chartered Accountants, London
9 May 2010
Consolidated income statement
for the 6 months to 31 March 2010
6 Spec 6 6 Spec 6 Year Spec Year
month ial months months ial months ended ial ended
s to item to to item to 30 Sep item 30 Sep
31 s 31 31 s 31 2009 s 2009
March March March March
2010 2010 2009 2009
Under (not Total Underly (not Total Underl (not Total
lying e 3) ing i e 3) ying i e 3)
i
Contin Note $m $m $m $m $m $m $m $m $m
uing
operat
ions
Revenu 2 661 - 661 436 - 436 1,062 - 1,062
e
EBITDA 2 122 (5) 117 (51) (44) (95) 1 (49) (48)
/
(LBITD
A) ii
Deprec (52) - (52) (47) - (47) (94) - (94)
iation
,
amorti
sation
and
impair
ment
Operat 2 70 (5) 65 (98) (44) (142) (93) (49) (142)
ing
profit
/
(loss)
iii
Impair - - - - (39) (39) - (39) (39)
ment
of
availa
ble
for
sale
financ
ial
assets
Financ 4 11 - 11 3 - 3 9 - 9
e
income
Financ 4 (3) - (3) (27) - (27) (28) (73) (101)
e
expens
es
Share 4 - 4 9 - 9 1 - 1
of
profit
of
equity
accoun
ted
invest
ments
Profit 82 (5) 77 (113) (83) (196) (111) (161 (272)
/ )
(loss)
before
taxati
on
Income 5 (31) (11) (42) 16 53 69 (18) (33) (51)
tax
(expen
se) /
income
iv
Profit 51 (16) 35 (97) (30) (127) (129) (194 (323)
/ )
(loss)
for
the
period
Attrib
utable
to:
- 44 (14) 30 (79) (33) (112) (103) (182 (285)
Equity )
shareh
olders
of
Lonmin
Plc
-Non- 7 (2) 5 (18) 3 (15) (26) (12) (38)
contro
lling
intere
sts
Earnin 6 22.8c 15.5c (47.9)c (67.9)c (59.2) (163.7
gs / c )c
(loss)
per
share
(resta
ted)
vi
Dilute 6 22.8c 15.5c (47.9)c (67.9)c (59.2) (163.7
d c )c
earnin
gs /
(loss)
per
share
v
(resta
ted)
vi
Footnotes:
i Underlying excludes one-off restructuring and reorganisation costs and
foreign exchange on tax balances. For the 6 month period to 31 March
2009, in addition to restructuring costs and foreign exchange on tax
balances, underlying also excludes impairment of available for sale
financial assets. For the year ended 30 September 2009, underlying also
excludes losses on forward exchange contracts in respect of the Rights
Issue, foreign exchange losses on Rights Issue proceeds and the movement
in fair value of the derivative liability in respect of the Rights
Issue.
ii EBITDA / (LBITDA) is operating profit / (loss) before depreciation,
amortisation and impairment of goodwill, intangibles and property, plant
and equipment.
iii Operating profit / (loss) is defined as revenue less operating expenses
before impairment of available for sale financial assets, finance income
and expenses and before share of profit of equity accounted investments.
iv The income tax (expense) / income relates substantially to overseas
taxation and includes exchange losses of $10 million (6 months to 31
March 2009 - exchange gains of $50 million, year ended 30 September 2009
- exchange losses of $38 million) as disclosed in note 5.
v Diluted earnings / (loss) per share are based on the weighted average
number of ordinary shares in issue adjusted by dilutive outstanding
share options. In the 6 months to 31 March 2009 and the year ended 30
September 2009 outstanding share options were anti-dilutive and so have
been excluded from diluted earnings per share in accordance with IAS 33
- Earnings Per Share.
vi During the prior year the Group undertook a Rights Issue of shares. As
a result the loss per share and diluted loss per share for both the 6
months to 31 March 2009 and the year ended 30 September 2009 have been
adjusted to the date of issue to reflect the bonus element of the Rights
Issue as disclosed in note 6.
Consolidated statement of comprehensive income
for the 6 months to 31 March 2010
6 6 Year
months months ended
to to 30
31 31 September
March March 2009
2010 2009
$m $m $m
Profit / (loss) for the period 35 (127) (323)
Other comprehensive income / (expense):
Change in fair value of available for sale 5 (23) 9
financial assets
Net change in fair value of cash flow (5) 10 5
hedges
Gains on settled cash flow hedges released (1) (14) (24)
to the income statement
Foreign exchange on retranslation of - 5 6
equity accounted investments
Deferred tax on items taken directly to 2 7 6
the statement of comprehensive income
Total comprehensive income / (expense) for 36 (142) (321)
the period
Attributable to:
- Equity shareholders of Lonmin Plc 32 (126) (280)
- Non-controlling interests 4 (16) (41)
36 (142) (321)
Consolidated statement of financial position
as at 31 March 2010
As at As at As at
31 March 31 March 30
2010 2009 September
2009
No $m $m $m
te
Non-current assets
Goodwill 113 113 113
Intangible assets 977 956 964
Property, plant and equipment 2,107 1,950 2,036
Equity accounted investments 163 174 159
Available for sale financial 73 34 68
assets
Other receivables 10 91 18 25
3,524 3,245 3,365
Current assets
Inventories 353 285 271
Trade and other receivables 220 112 287
Assets held for sale - 6 6
Tax recoverable - - 1
Derivative financial instruments - 16 1
Cash and cash equivalents 8 92 82 282
665 501 848
Current liabilities
Overdraft 8 - (6) -
Trade and other payables (277) (239) (337)
Interest bearing loans and 8 (45) - (58)
borrowings
Derivative financial instruments (5) - -
Tax payable (12) (9) (10)
(339) (254) (405)
Net current assets 326 247 443
Non-current liabilities
Employee benefits (1) (11) (11)
Interest bearing loans and 8 (310) (525) (349)
borrowings
Deferred tax liabilities (614) (457) (579)
Provisions (78) (48) (67)
(1,003) (1,041) (1,006)
Net assets 2,847 2,451 2,802
Capital and reserves
Share capital 9 193 157 193
Share premium 9 777 320 776
Other reserves 85 97 89
Retained earnings 1,412 1,463 1,359
Attributable to equity 2,467 2,037 2,417
shareholders of Lonmin Plc
Attributable to non-controlling 380 414 385
interests
Total equity 2,847 2,451 2,802
Consolidated statement of changes in equity
for the 6 months to 31 March 2010
Equity shareholders` funds
Called Share Non-
up premium Other Retained controlling Total
share
capital account reserves earnings Total interests equity
ii iii
$m $m $m $m $m $m $m
At 1 October 156 305 100 1,586 2,147 447 2,594
2008
Loss for the - - - (112) (112) (15) (127)
period
Comprehensive - - (3) (11) (14) (1) (15)
expense
Change in - - - (23) (23) - (23)
fair value of
available for
sale
financial
assets
Net change in - - 8 - 8 2 10
fair value of
cash flow
hedges
Gains on - - (11) - (11) (3) (14)
settled cash
flow hedges
released to
the income
statement
Foreign - - - 5 5 - 5
exchange gain
on
retranslation
of equity
accounted
investments
Deferred tax - - - 7 7 - 7
on items
taken
directly to
the statement
of
comprehensive
income
Items 1 15 - - 16 (17) (1)
recognised
directly in
equity
Dividends - - - - - (17) (17)
Shares issued 1 15 - - 16 - 16
under the IFC
option
agreement i
At 31 March 157 320 97 1,463 2,037 414 2,451
2009
At 1 April 157 320 97 1,463 2,037 414 2,451
2009
Loss for the - - - (173) (173) (23) (196)
period
Comprehensive - - (8) 27 19 (2) 17
(expense) /
income
Change in - - - 32 32 - 32
fair value of
available for
sale
financial
assets
Net change in - - (4) - (4) (1) (5)
fair value of
cash flow
hedges
Gains on - - (9) - (9) (1) (10)
settled cash
flow hedges
released to
the income
statement
Foreign - - - 1 1 - 1
exchange gain
on
retranslation
of equity
accounted
investments
Deferred tax - - 5 (6) (1) - (1)
on items
taken
directly to
the statement
of
comprehensive
income
Items 36 456 - 42 534 (4) 530
recognised
directly in
equity
Share-based - - - 2 2 - 2
payments
Dividends - - - - - (4) (4)
Share capital 35 477 - - 512 - 512
and share
premium
recognised on
Rights Issue
iv
Rights Issue - (21) - - (21) - (21)
costs charged
to share
premium iv
Exchange gain - - - 4 4 - 4
on shares to
be issued iv
Reversal of - - - 36 36 - 36
fair value
movements on
derivative
liability
recognised in
respect of
Rights Issue
iv
Shares issued 1 - - - 1 - 1
on exercise
of share
options
At 30 193 776 89 1,359 2,417 385 2,802
September
2009
Consolidated statement of changes in equity (continued)
for the 6 months to 31 March 2010
Equity shareholders` funds
Called Share Non-
up premium Other Retained controlling Total
share
capital account reserves earnings Total interests equity
ii iii
$m $m $m $m $m $m $m
At 1 October 193 776 89 1,359 2,417 385 2,802
2009
Profit for the - - - 30 30 5 35
period
Comprehensive - - (4) 6 2 (1) 1
(expense) /
income
Change in fair - - - 5 5 - 5
value of
available for
sale financial
assets
Net change in - - (4) - (4) (1) (5)
fair value of
cash flow
hedges
Gain on - - (1) - (1) - (1)
settled cash
flow hedges
released to
the income
statement
Deferred tax - - 1 1 2 - 2
on items taken
directly to
the statement
of
comprehensive
income
Items - 1 - 17 18 (9) 9
recognised
directly in
equity
Share-based - - - 3 3 1 4
payments
Transfer from - - - 14 14 1 15
liability for
own shares V
Shares issued - 1 - - 1 - 1
on exercise of
share options
Dividends - - - - - (11) (11)
At 31 March 193 777 85 1,412 2,467 380 2,847
2010
Footnotes:
i During the prior year 1,172,583 shares were issued under the
International Finance Corporation option agreement. As the shares were
issued at a discount only $15 million of cash was received.
ii Other reserves at 31 March 2010 represent the capital redemption
reserve of $88 million (31 March 2009 and 30 September 2009 - $88
million) and a $3 million debit hedging reserve net of deferred tax (31
March 2009 - $9 million, 30 September 2009 - $1 million credit hedging
reserve net of deferred tax). The movement in the current period
represents the movement on the hedging reserve.
iii Non-controlling interests represent an 18% shareholding in Eastern
Platinum Limited, Western Platinum Limited and Messina Limited and a
26% shareholding in Akanani Mining (Pty) Limited.
iv During the prior year the Group undertook a Rights Issue in which
35,072,129 shares were issued (see note 9).
v During the period the Directors took the decision to settle all award
schemes with equity shares. As a result the balance on the liability
for own shares relating to previously cash settled schemes was
transferred to the reserve for own shares.
Consolidated statement of cash flows
for the 6 months to 31 March 2010
6 months 6 months Year
to to ended
31 March 31 March 30
2010 2009 September
2009
Note $m $m $m
Profit / (loss) for the period 35 (127) (323)
Taxation 5 42 (69) 51
Share of profit after tax of equity (4) (9) (1)
accounted investments
Finance income 4 (11) (3) (9)
Finance expenses 4 3 27 101
Impairment of available for sale 3 - 39 39
financial assets
Depreciation and amortisation 52 47 94
Change in inventories (82) 34 48
Change in trade and other 68 214 59
receivables
Change in trade and other payables (32) (102) (9)
Change in provisions 8 (3) 12
Share-based payments 7 (10) (1)
Other non-cash expenses - - 2
Cash inflow from operations 86 38 63
Interest received 1 2 3
Interest and bank fees paid (25) (9) (34)
Tax paid (2) (48) (48)
Cash inflow / (outflow) from 60 (17) (16)
operating activities
Cash flow from investing activities
Investment in joint venture - - (5)
Payments made under guarantees 10, (59) - -
given in respect of HDSA investors 11
Dividend received from associate - 3 3
Purchase of property, plant and (132) (98) (221)
equipment
Purchase of intangible assets - (8) (13)
Cash used in investing activities (191) (103) (236)
Cash flow from financing activities
Dividends paid to non-controlling (11) (17) (21)
interests
Proceeds from current borrowings 8 - - 58
Repayment of current borrowings 8 (13) - -
Proceeds from non-current 8 - - 225
borrowings
Repayment of non-current borrowings 8 (39) (4) (405)
Proceeds from Rights Issue 9 - - 516
Costs of Rights Issue 9 - - (21)
Loss on forward exchange contracts 9 - - (33)
in respect of Rights Issue
Issue of ordinary share capital 1 15 16
Cash (used) / generated in (62) (6) 335
financing activities
(Decrease) / increase in cash and 8 (193) (126) 83
cash equivalents
Opening cash and cash equivalents 8 282 226 226
Effect of exchange rate changes 8 3 (24) (27)
Closing cash and cash equivalents 8 92 76 282
Notes to the accounts
1 Statement on accounting policies
Basis of preparation
Lonmin Plc (the "Company") is a company domiciled in the United Kingdom.
The condensed consolidated interim financial statements of the Company as
at and for the 6 months to 31 March 2010 comprise the Company and its
subsidiaries (together referred to as the "Group") and the Group`s
interests in equity accounted investments.
These condensed consolidated interim financial statements have been
prepared in accordance with IAS 34 - Interim Financial Reporting, as
adopted by the EU. They do not include all of the information required
for full annual financial statements and should be read in conjunction
with the consolidated financial statements of the Group for the year ended
30 September 2009.
The comparative figures for the financial year ended 30 September 2009 are
not the Group`s full statutory accounts for that financial year. Those
accounts have been reported on by the Group`s auditors and delivered to
the registrar of companies. The report of the auditors was (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report, and (iii) did not contain a statement under section 498 (2) or (3)
of the Companies Act 2006.
The consolidated financial statements of the Group as at and for the year
ended 30 September 2009 are available upon request from the Company`s
registered office at 4 Grosvenor Place, London, SW1X 7YL.
These condensed consolidated interim financial statements were approved by
the Board of Directors on 9 May 2010.
These consolidated interim financial statements apply the accounting
policies and presentation that will be applied in the preparation of the
Group`s published consolidated financial statements for the year ending 30
September 2010.
The Directors have assessed the forecast cash flows of the business and
the available banking facilities and continue to adopt the going concern
basis in preparing the financial statements. Management`s review of the
factors likely to affect its future development, performance and position
of the business and the approach to financial risk management are given in
the Financial Review.
New standards and amendments in the year
A number of new standards, amendments to standards and interpretations to
IFRS as adopted by the EU that are effective for the current period, have
been applied in preparing these consolidated financial statements and have
affected the figures being disclosed. The following are of relevance to
the Group:
IFRS 8 - Operating Segments introduces the management approach to
segment reporting. As a result of adopting IFRS 8 the Group`s
segments have changed from Platinum, Corporate and Exploration to PGM
Operations, Evaluation and Exploration. The use of an "other" column
and a column for intersegment eliminations provides the required
reconciliations back to the consolidated figures.
IAS 1 (amendment) - Presentation of Financial Statements affects the
presentation of owner changes in equity (with the requirement to
present in a statement of changes in equity within the primary
statements for all owner changes in equity) and to present a
statement of comprehensive income. It does not change the
recognition, measurement or disclosure of specific transactions and
other events required by other IFRSs.
IAS 23 (amendment) - Borrowing Costs requires that an entity shall
capitalise borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset as part
of the cost of the asset. This is in line with Lonmin`s existing
policy for capitalising borrowing costs and therefore has no effect
on the Group`s results.
There were no other new standards, interpretations or amendments to
standards issued and effective for the period which materially impacted
the Group.
Notes to the accounts (continued)
1 Statement on accounting policies (continued)
New standards that are relevant to the Group but have not yet been adopted
The following standard, issued by the IASB, has not yet been adopted by
the Group:
IAS 32 (amendment) - Classification of Rights Issue (effective 1
February 2010) allows rights issues which will exchange an entity`s
own equity for a fixed amount of cash in any currency to be treated
as equity if the rights have been offered pro-rata to all existing
equity holders. The Rights Issue undertaken by the Group last year
meets this criteria, however, as the amendment had not been adopted
by the EU at the time of signing the 2009 year end financial
statements the amendment could not be applied by the Group. Since
the net effect on retained earnings is $nil the Directors have
decided not to adopt the amendment early and so not to restate the
2009 comparative figures. This is further explained in note 9 to the
interim accounts.
The Group does not expect the adoption of other new, or revisions to
existing, standards or interpretations issued by the IASB, not listed
above, to have a material impact on the consolidated results or financial
position of the Group.
Notes to the accounts (continued)
2 Segmental analysis
The Group distinguishes between 3 reportable operating segments being the
Platinum Group Metals ("PGM") Operations segment, the Evaluation segment
and the Exploration segment. 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.
The Evaluation segment covers the evaluation through pre-feasibility of
the economic viability of newly discovered PGM deposits. Currently all of
the evaluation projects are based in South Africa. The Exploration
segment covers the activities involved in the discovery or identification
of new PGM deposits. This activity occurs on a worldwide basis. No
operating segments have been aggregated. Operating segments have
consistently adopted the consolidated basis of accounting and there are no
differences in measurement applied. Other covers mainly the results and
investment activities of the corporate head office in London. The only
inter-segment transactions involve the provision of funding between
segments and any associated interest.
6 months to 31 March 2010
PGM Inter-
Operati Evaluat Explora Segment
ons ion tion Other Adjustm Total
Segment Segment Segment $m ents $m
$m $m $m $m
Revenue (external
sales by product)
Platinum 433 - - - - 433
Palladium 60 - - - - 60
Gold 8 - - - - 8
Rhodium 110 - - - - 110
Ruthenium 12 - - - - 12
Iridium 9 - - - - 9
PGMs 632 - - - - 632
Nickel 22 - - - - 22
Copper 7 - - - - 7
661 - - - - 661
Underlying i :
EBITDA / (LBITDA) ii 126 (1) (3) - - 122
Depreciation and (51) - - (1) - (52)
amortisation
Operating profit / 75 (1) (3) (1) - 70
(loss) ii
Finance income 5 - - 9 (3) 11
Finance expenses (6) - - - 3 (3)
Share of profit of 3 - - 1 - 4
equity accounted
investments
Profit / (loss) before 77 (1) (3) 9 - 82
taxation
Income tax expense (31) - - - - (31)
Profit / (loss) after 46 (1) (3) 9 - 51
taxation
Total assets 3,107 850 2 632 (402) 4,189
Total liabilities (1,392) (278) (40) (34) 402 (1,342)
Net assets / 1,715 572 (38) 598 - 2,847
(liabilities)
Share of net assets of 43 - - 120 - 163
equity accounted
investments
Additions to non- 111 19 - - - 130
current assets
Material non-cash 6 - - 1 - 7
items - share-based
payments
Notes to the accounts (continued)
2 Segmental analysis (continued)
6 months to 31 March 2009
PGM Inter-
Operati Evaluat Explora Segment
ons ion tion Other Adjustm Total
Segment Segment Segment $m ents $m
$m $m $m $m
Revenue (external
sales by product)
Platinum 295 - - - - 295
Palladium 28 - - - - 28
Gold 8 - - - - 8
Rhodium 64 - - - - 64
Ruthenium 8 - - - - 8
Iridium 5 - - - - 5
PGMs 408 - - - - 408
Nickel 22 - - - - 22
Copper 6 - - - - 6
436 - - - - 436
Underlying i :
(LBITDA) / EBITDA ii (47) 3 (7) - - (51)
Depreciation and (47) - - - - (47)
amortisation
Operating (loss) / (94) 3 (7) - - (98)
profit ii
Finance income 2 - - 1 - 3
Finance expenses (25) - - (2) - (27)
Share of profit of 6 - - 3 - 9
equity accounted
investments
(Loss) / profit before (111) 3 (7) 2 - (113)
taxation
Income tax credit 16 - - - - 16
(Loss) / profit after (95) 3 (7) 2 - (97)
taxation
Total assets 2,821 819 2 373 (269) 3,746
Total liabilities (1,011) (238) (34) (281) 269 (1,295)
Net assets / 1,810 581 (32) 92 - 2,451
(liabilities)
Share of net assets of 45 - - 129 - 174
equity accounted
investments
Additions to non- 94 17 - - - 111
current assets
Material non-cash 1 - - - - 1
items - share-based
payments
Notes to the accounts (continued)
2 Segmental analysis (continued)
Year ended 30 September 2010
PGM Inter-
Operati Evaluat Explora Segment
ons ion tion Other Adjustm Total
Segment Segment Segment $m ents $m
$m $m $m $m
Revenue (external
sales by product)
Platinum 742 - - - - 742
Palladium 68 - - - - 68
Gold 17 - - - - 17
Rhodium 148 - - - - 148
Ruthenium 14 - - - - 14
Iridium 10 - - - - 10
PGMs 999 - - - - 999
Nickel 50 - - - - 50
Copper 13 - - - - 13
1,062 - - - - 1,062
Underlying i :
EBITDA / (LBITDA) ii 11 (6) (11) 7 - 1
Depreciation and (94) - - - - (94)
amortisation
Operating (loss) / (83) (6) (11) 7 - (93)
profit ii
Finance income 3 - - 9 (3) 9
Finance expenses (31) - - - 3 (28)
Share of (loss) / (1) - - 2 - 1
profit of equity
accounted investments
(Loss) / profit before (112) (6) (11) 18 - (111)
taxation
Income tax expense (18) - - - - (18)
(Loss) / profit after (130) (6) (11) 18 - (129)
taxation
Total assets 3,089 831 - 625 (332) 4,213
Total liabilities (1,419) (257) (35) (32) 332 (1,411)
Net assets / 1,670 574 (35) 593 - 2,802
(liabilities)
Share of net assets of 39 - - 120 - 159
equity accounted
investments
Additions to non- 229 29 - - - 258
current assets
Material non-cash 4 - - - - 4
items -
share-based payments
Notes to the accounts (continued)
2 Segmental analysis (continued)
Revenue by destination is analysed by geographical area below:
6 months to 6 months to Year ended
31 March 2010 31 March 2009 30 September
$m $m 2009
$m
The Americas 149 77 227
Asia 163 141 296
Europe 268 162 417
South Africa 81 56 122
661 436 1,062
The Group`s revenues are all derived from the PGM Operations segment. This
segment has two major customers who contributed 70% and 24% of revenue in the 6
months to 31 March 2010, 64% and 31% in the 6 months to 31 March 2009 and 66%
and 27% in the year ended 30 September 2009.
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
arrangement.
Non-current assets, excluding financial instruments, by geographical area are
shown below:
6 months to 6 months to Year ended
31 March 2010 31 March 2009 30 September
$m $m 2009
$m
South Africa 3,360 3,192 3,271
Europe - 1 1
3,360 3,193 3,272
Footnotes:
i Underlying is defined as per the footnote to the consolidated income
statement.
ii EBITDA / (LBITDA) and operating profit / (loss) are the key profit
measures used by management.
Notes to the accounts (continued)
3 Special items
Special items are those items of financial performance that the Group believes
should be separately disclosed on the face of the consolidated income statement
to assist in the understanding of the financial performance achieved by the
Group and for consistency with prior periods.
6 months to 6 months to Year ended
31 March 31 March 30
2010 2009 September
2009
$m $m $m
Operating loss (5) (44) (49)
- Restructuring and reorganisation (5) (44) (49)
costs i
Impairment of available for sale - (39) (39)
financial assets ii
Finance expenses (note 9): - - (73)
- Loss on forward exchange contracts - - (33)
in respect of Rights Issue
- Exchange difference on holding - - (4)
Rights Issue proceeds received in
advance
- Movement in fair value of derivative - - (36)
liability in respect of Rights Issue
Loss on special items before taxation (5) (83) (161)
Taxation related to special items (11) 53 (33)
(note 5)
Special loss before non-controlling (16) (30) (194)
interests
Non-controlling interests 2 (3) 12
Special loss for the period (14) (33) (182)
attributable to equity shareholders of
Lonmin Plc
Footnotes:
i The amount charged in the 6 months to 31 March 2010 relates to providing
for one-off costs of relocating certain London Head Office functions to
South Africa. In the prior year the Group incurred restructuring and
reorganisation costs primarily comprising employee exit costs together
with abnormal non-productive operating costs at Limpopo following the
announcement of its closure.
ii Available for sale financial assets are marked to market and in the 6
months to 31 March 2009 some fell below original acquisition costs
resulting in $39 million of impairment charges being taken to the income
statement.
Notes to the accounts (continued)
4 Net finance income / (expense)
6 months to 6 months to Year ended
31 March 31 March 30
2010 2009 September
2009
$m $m $m
Finance income: 11 3 9
Interest receivable 1 2 3
Other interest receivable 4 - -
Movement in fair value of other - 1 3
receivables
Exchange gains on other receivables i 3 - 3
Exchange gains on net debt ii 3 - -
Finance expenses: (3) (27) (28)
On bank loans and overdrafts (11) (8) (15)
Bank fees (12) (2) (8)
Capitalised interest iii 23 10 23
Unwind of discounting on provisions (3) (1) (5)
Exchange losses on other receivables i - (2) -
Exchange losses on net debt ii - (24) (23)
Special items (note 3): - - (73)
Loss on forward exchange contracts in - - (33)
respect of Rights Issue
Exchange difference on holding Rights - - (4)
Issue proceeds received in advance
Movement in fair value of derivative - - (36)
liability in respect of Rights Issue
Total finance expenses (3) (27) (101)
Net finance income / (expense) 8 (24) (92)
Footnotes:
i Exchange movements on other receivables have been redefined into
finance income (if gains) and finance expenses (if losses) rather than
showing all movements in finance expenses.
ii Net 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.
iii Interest expenses incurred have been capitalised on a Group basis to
the extent that there is an appropriate qualifying asset. The weighted
average interest rate used by the Group for capitalisation in the
period was 5.5% (6 months to 31 March 2009 - 3.2%, year ended 30
September 2009 - 4.8%).
Notes to the accounts (continued)
5 Taxation
6 months 6 months Year
to to ended
31 March 31 March 30
2010 2009 September
$m $m 2009
$m
United Kingdom:
Current tax expense at 28% (2009 - 28%) - 31 33
Less amount of the benefit arising from - (31) (33)
double tax relief available
Total UK tax expense - - -
Overseas:
Current tax expense at 28% (2009 - 28%) 4 10 11
excluding special items:
Corporate tax expense 3 - 1
Tax on dividends remitted 1 10 10
Deferred tax expense / (income): 27 (26) 7
Origination and reversal of temporary 26 (14) 7
differences
Prior year adjustment 1 - 12
Tax on dividends unremitted - (12) (12)
Special items: UK and overseas (note 3): 11 (53) 33
Deferred tax on restructuring and - (9) (6)
reorganisation costs
Exchange on current taxation i - (3) (5)
Exchange on deferred taxation i 10 (47) 43
Reversal of utilisation of losses from 1 6 1
prior periods to offset deferred tax
liability
Actual tax charge / (credit) 42 (69) 51
31
Tax charge / (credit) excluding special (16) 18
items (note 3)
55%
Effective tax rate 35% (19%)
38%
Effective tax rate excluding special items 14% (16%)
(note 3)
Notes to the accounts (continued)
5 Taxation (continued)
A reconciliation of the standard tax charge to the actual tax charge was as
follows:
6 6 6 6 Year Year
months months months months ended ended
to to to to 30 30
31 31 31 31 Septemb Septemb
March March March March er er
2010 2010 2009 2009 2009 2009
$m $m $m
Tax charge / (credit) on 29% 23 28% (55) 28% (76)
profit / (loss) at standard
tax rate
Tax effect of:
Overseas taxes on dividends 1% 1 1% (2) - -
remitted by subsidiary
companies
Unutilised losses ii 7% 5 (8%) 15 (7%) 18
Foreign exchange impacts on 4% 3 - - (13%) 35
taxable profits
Prior year adjustment 1% 1 - - (4%) 10
Impairment of available for - - (6%) 11 (4%) 11
sale financial assets
Losses in respect of Rights - - - - (7%) 20
Issue
Other (2%) (2) (1%) 3 - -
Special items as defined 15% 11 21% (41) (12%) 33
above
Actual tax charge / (credit) 55% 42 35% (69) (19%) 51
The Group`s primary operations are based in South Africa which has a statutory
tax rate of 28% (2009 - 28%). Lonmin Plc operates a branch in South Africa
which is subject to a tax rate of 33% on branch profits (2009 - 33%). The
secondary tax rate on dividends remitted by South African companies was 10%
(2009 - 10%).
Footnotes:
i Overseas tax charges are predominantly calculated based on Rand financial
statements. As the Group`s 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 31 March 2010 is $452 million (31 March 2009 - $297 million,
30 September 2009 - $412 million).
ii Unutilised losses reflect losses generated in entities for which no
deferred tax is provided due as it is not thought probable that future
profits can be generated against which a deferred tax asset could be
offset.
Notes to the Accounts (continued)
6 Earnings / (loss) per share
Earnings / (loss) per share have been calculated on the earnings for the period
attributable to equity shareholders amounting to $30 million (6 months to 31
March 2009 - loss of $112 million, year ended 30 September 2009 - loss of $285
million) using a weighted average number of 193.1 million ordinary shares in
issue for the 6 months to 31 March 2010 (6 months to 31 March 2009 - 164.9
million ordinary shares, year ended 30 September 2009 - 174.1 million ordinary
shares).
In the prior year the Group undertook a capital raising by way of a Rights
Issue. As a result the EPS / (LPS) figures have been adjusted retrospectively
as required by IAS 33 - Earnings Per Share. On 4 June 2009, 35,072,129 ordinary
shares were issued with 2 new ordinary shares issued for 9 ordinary shares
held. For the calculation of the EPS / (LPS), the number of shares held prior
to 4 June 2009 was increased by a bonus factor of 1.048 to reflect the bonus
element of the Rights Issue.
Diluted earnings / (loss) per share are based on the weighted average number of
ordinary shares in issue adjusted by dilutive outstanding share options. In the
6 months to 31 March 2009 and the year ended 30 September 2009 outstanding
share options were anti-dilutive and so have been excluded from diluted
earnings per share in accordance with IAS 33 - Earnings Per Share.
6 months to 31 6 months to 31 Year ended 30
March 2010 March 2009 September 2009
(restated)
Prof Number Per Loss Numb Per Loss Numb Per
it of share for er shar for er shar
for shares amount the of e the of e
the period shar amou year shar amou
peri es nt es nt
od
$m millio cents $m mill cent $m mill cent
ns ions s ions s
Basic EPS / 30 193.1 15.5 (112) 164. (67. (285) 174. (163
(LPS) 9 9) 1 .7)
Share option - 0.3 - - - - - - -
schemes
Diluted EPS / 30 193.4 15.5 (112) 164. (67. (285) 174. (163
(LPS) 9 9) 1 .7)
6 months to 31 6 months to 31 Year ended 30
March 2010 March 2009 September 2009
(restated)
Prof Number Per Loss Numb Per Loss Numb Per
it of share for er shar for er shar
for shares amount the of e the of e
the period shar amou year shar amou
peri es nt es nt
od
$m millio cents $m mill cent $m mill cent
ns ions s ions s
Underlying EPS 44 193.1 22.8 (79) 164. (47. (103) 174. (59.
/ (LPS) 9 9) 1 2)
Share option - 0.3 - - - - - - -
schemes
Diluted 44 193.4 22.8 (79) 164. (47. (103) 174. (59.
underlying EPS 9 9) 1 2)
/ (LPS)
Underlying earnings / (loss) per share have been presented as the Directors
consider it to give a fairer reflection of the underlying results of the
business. Underlying earnings / (loss) per share are based on the profit /
(loss) attributable to equity shareholders adjusted to exclude special items
(as defined in note 3) as follows:
6 months to 31 March 6 months to 31 Year ended 30
2010 March 2009 September 2009
(restated)
Profit Number Per (Loss) Numb Per (Loss) Numb Per
for of share /profi er shar /profi er shar
the shares amount t of e t of e
period for shar amou for shar amou
the es nt the es nt
period year
$m millio cents $m mill cent $m mill cent
ns ions s ions s
Basic EPS / 30 193.1 15.5 (112) 164. (67. (285) 174. (163
(LPS) 9 9) 1 .7)
Special Items 14 - 7.3 33 - 20.0 182 - 104.
(note 3) 5
Underlying 44 193.1 22.8 (79) 164. (47. (103) 174. (59.
EPS / (LPS) 9 9) 1 2)
Notes to the Accounts (continued)
6 Earnings / (loss) per share (continued)
Headline earnings / (loss) and the resultant headline earnings / (loss) per
share are specific disclosures defined and required by the Johannesburg Stock
Exchange.
These are calculated as follows:
6 months 6 months to Year ended
to 31 March 30
31 March 2009 September
2010 2009
$m $m $m
Earnings / (loss) attributable to 30 (112) (285)
ordinary shareholders (IAS 33 earnings)
Add back loss on disposal of property, - - 4
plant and equipment
Add back impairment of assets (note 3) - 39 39
Headline earnings / (loss) 30 (73) (242)
6 months to 31 March 6 months to 31 Year ended 30
2010 March 2009 September 2009
(restated)
Profit Number Per Loss Numb Per Loss Numb Per
for the of share for er share for er shar
period shares amount the of amount the of e
peri shar year shar amou
od es es nt
$m millio cents $m mill cents $m mill cent
ns ions ions s
Headline EPS 30 193.1 15.5 (73) 164. (44.3) (242 174. (139
/ (LPS) 9 ) 1 .0)
Share option - 0.3 - - - - - - -
schemes
Diluted 30 193.4 15.5 (73) 164. (44.3) (242 174. (139
Headline EPS 9 ) 1 .0)
/ (LPS)
7 Dividends
No dividends were declared or paid in the period (6 months to 31 March 2009 and
year ended 30 September 2009 - $nil).
Notes to the Accounts (continued)
8 Analysis of net debt i
As at Cash flow Foreign As at
1 October exchange 31 March
2009 and non-cash 2009
movements
$m $m $m $m
Cash and cash 282 (193) 3 92
equivalents
Current borrowings (58) 13 - (45)
Non-current borrowings (349) 39 - (310)
Unamortised bank fees 12 - 1 13
Net debt i (113) (141) 4 (250)
As at Cash flow Foreign As at
1 April exchange 30
2009 and non-cash September
movements 2009
$m $m $m $m
Cash and cash 82 203 (3) 282
equivalents
Overdrafts (6) 6 - -
76 209 (3) 282
Current borrowings - (58) - (58)
Non-current borrowings (525) 176 - (349)
Unamortised bank fees - - 12 12
Net debt i (449) 327 9 (113)
As at Cash flow Foreign As at
1 October exchange 31 March
2008 and non-cash 2009
movements
$m $m $m $m
Cash and cash 226 (120) (24) 82
equivalents
Overdrafts - (6) - (6)
226 (126) (24) 76
Non-current borrowings (529) 4 - (525)
Net debt i (303) (122) (24) (449)
Footnote:
i Net 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.
Notes to the Accounts (continued)
Rights Issue in prior year
On 11 May 2009, Lonmin Plc announced a fully under-written 2 for 9 Rights Issue
of 35.1 million new ordinary shares at GBP9.00 per new share for shareholders
on the London Stock Exchange and at R113.04 per new share for shareholders on
the Johannesburg Stock Exchange. The offer period commenced on 15 May 2009 and
closed for acceptance on 4 June 2009. The issue was successful and raised as
planned net proceeds of $458 million.
The transaction comprised cash proceeds of $516 million received at spot rates
and deductions of a $33 million special loss on settlement of forward exchange
contracts used to cover the net Sterling amounts expected, $21 million costs of
issue charged to share premium and $4 million of special foreign exchange
losses on retranslation of advance cash proceeds.
Lonmin Plc raised equity from the issue in both Sterling and Rand. The
functional currency of the Company is US Dollar. This resulted in a variable
amount of cash being raised. IAS 32 - Financial Instruments: Presentation, as
adopted by the EU at the time of publication, required the recognition of a
derivative liability of $307 million. The fair value of this liability
increased by $36 million to the point of exercise due to variations in foreign
exchange rates and share price. This loss was charged to finance expenses in
the income statement as a special item. On the exercise of the rights the
derivative liability was extinguished and the cumulative $343 million liability
was reversed to retained earnings creating a net gain of $36 million in
reserves, resulting in a net $nil effect on retained earnings.
The IASB issued an amendment to IAS 32 which was adopted by the EU subsequent
to the signing of the 2009 year end accounts. Under this amendment no
derivative liability and associated fair value remeasurements would have been
recognised. Since the net effect on retained earnings is $nil the Directors
have decided not to adopt the amendment early and so not to restate the 2009
comparative figures.
For a more detailed explanation of the Rights Issue transaction see note 29 in
the 2009 year end financial statements.
Notes to the Accounts (continued)
10 Contingent liabilities
As at As at As at
31 March 31 March 30
2010 2009 September
2009
$m $m $m
Third party guarantees i 5 7 5
Indemnities ii 24 66 83
Preference share capital put options 24 17 23
iii
Vantage Capital Investments iv 21 16 20
Outstanding legal claims - 2 -
Contingent liabilities v 74 108 131
Footnotes:
i Third party guarantees relate to guarantees provided by the Group in
connection with the sale of certain subsidiaries in 1996, 1997 and 1998
for which amounts have been reasonably estimated but the liabilities
are not probable and therefore the Group has not provided for such
amounts in the accounts.
ii Indemnities arise from the vendor financing indemnity given by Lonmin
following the purchase of the additional 9.11% in Eastern Platinum
Limited (EPL) and Western Platinum Limited (WPL) and the investment in
Incwala Resources (Pty) Limited (Incwala). Lonmin agreed to indemnify
Impala Platinum Holdings Limited (Impala) against any non-payment on
the relevant due date of any principal amount owing to Impala by any
HDSA (historically disadvantaged South African) investor in relation to
loans made by Impala to HDSA investors for their purchase of shares in
EPL and WPL. The indemnity is for the US Dollar equivalent of R176
million ($24 million of which $16 million would become enforceable on
30 September 2011 and $8 million would become due after 16 September
2011). A counter-indemnity has been given by each HDSA investor which
is secured on that HDSA investor`s shares in Incwala. In the half year
to 31 March 2010, Impala called on the portion of indemnity due which
totalled US Dollar equivalent of R442 million ($59 million) recognised
in other receivables. An indemnity has been given by each HDSA investor
which is secured on that HDSA investor`s shares in Incwala.
iii Various preference share capital put option agreements were entered
into by Lonmin with a number of banks who subscribed for preference
shares in HDSAs investing in Incwala. These options, which are for the
US Dollar equivalent of R176 million ($24 million), can be put upon
Lonmin by the banks in the event that the HDSAs default on payment. A
counter-indemnity has been given by each HDSA investor which is secured
on that HDSA investor`s shares in Incwala.
iv Vantage Capital Investments:
1) In 2006, pursuant to a reorganisation of the HDSA shareholdings in
Incwala, Lonmin Plc granted Standard Chartered Bank Johannesburg Branch
a put option in respect of 96 preference shares in Vantage Capital
Investments (Pty) Ltd. During the year ended 30 September 2007 the bank
sold 48 of these put options to Thelo Incwala Investments (Pty) Limited
(Thelo). The put option granted by Lonmin Plc outstanding at 31 March
2010 was for the US Dollar equivalent of R120 million ($16 million).
2) The Lonmin Employee Masakane Trust (LEMT) has a 25% shareholding
in Thelo. Lonmin Plc has provided a guarantee to Sanlam Capital Markets
Limited, on behalf of LEMT, over their 25% share of the Thelo funding
to acquire 48 preference shares in Vantage Capital. The guarantee at 31
March 2010 covers the US Dollar equivalent of R35 million ($5 million).
v The preference share capital put options and Vantage Capital
Investments guarantees will fall away if the transaction with Shanduka
Resources (Proprietary) Limited proceeds as indicated in note 11.
Notes to the Accounts (continued)
11 Events after the balance sheet date
Under the South African Mining Charter, Lonmin is required to comply with Black
Economic Empowerment (BEE) regulations by securing relevant BEE accreditation.
Lonmin currently fulfils its BEE ownership requirements through its
relationship with its BEE partner, Incwala Resources (Pty) Limited (Incwala).
As announced, Shanduka Resources (Proprietary) Limited (Shanduka) has agreed to
acquire a majority stake in Incwala. Lonmin and Shanduka both believe the
transaction will secure the long term future and financial stability of
Incwala.
Given the importance for Lonmin of securing a stable empowerment partnership
via a financially robust funding structure, the Company has agreed to provide a
loan of approximately GBP206 million (at R11.3/GBP), on commercial terms, to
Shanduka which will be secured on its holding in Incwala. This includes
rolling the existing HDSA financing of $91 million (GBP61 million at $1.5/GBP)
into the new structure and releasing the existing receivables. In line with
the Board`s policy to maintain an appropriate capital structure, which retains
financial flexibility and supports future growth, the loan will be financed
through a combination of an equity Placing with the balance coming from
existing financial resources.
In the event there is significant future value created for Shanduka through its
investment in Incwala the funding agreement allows Lonmin to participate in
this. Lonmin expects at the appropriate time that this may result in a
derivative asset being recognised on its statement of financial position.
Subsequent to any recognition, any movements in the fair value of the
derivative asset arising would be recognised as special gains or losses in the
income statement and therefore will increase the volatility of reported
results.
On the basis that the deal proceeds as intended, when the above financing is
put in place the preference share capital put options and Vantage Capital
Investments guarantees will both fall away leaving the Impala vendor financing
indemnity ($24 million) as a contingent liability (note 10).
Date: 10/05/2010 08:02:01 Produced by the JSE SENS Department.
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