| Mon 15 Nov 2010, 9:01 | | LON - Lonmin Plc - Final Results Announcement |
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LON
LOLMI
LON - Lonmin Plc - Final Results Announcement
Lonmin Plc (Incorporated in England and Wales)
(Registered in the Republic of South Africa under registration number
1969/000015/10)
JSE code: LON
Issuer Code: LOLMI & ISIN: GB0031192486 ("Lonmin")
15 November 2010
Lonmin Plc
Final Results Announcement
Lonmin Plc, (Lonmin or the Company), the world`s third largest primary
Platinum producer, today announces its Final Results for the year ended 30
September 2010.
HIGHLIGHTS
- A strong performance across all operations:
- Sales of 706,000 ounces of Platinum - meeting November 2009
guidance
- Cost per ounce increase held at 2%
- Mining - quarter by quarter performance improvement
- significant progress with available ore reserves up 32%
- Process Division - excellent concentrator recovery rates achieved
- Safety - performance continues to improve but more to do
- Business returned to profit - underlying PBT up $348 million to
$237 million
- Dividend recommenced (15.0 cents per share) with new policy
- Management actions taken in 2010:
- Lonmin`s operational health restored
- Future of Incwala Resources secure
- Number One Furnace run out
- managed the risk of dependence on single furnace
- Relocation of executive management to South Africa completed
- Outlook for 2011:
- PGM markets are likely to improve
- Platinum sales guidance of around 750,000 Platinum ounces
- Industry wide challenges to continue
- skills shortage
- inflationary pressures particularly in labour and power
- Rand cost per ounce increase to be less than 8% - subject to wage
settlement
- Capital expenditure expected to be around $380 million
- to support medium term growth profile
- Key focus areas for 2011 and beyond:
- Build on the strong operational performance
- drive productivity improvements
- Improving our position on the cost curve
- Achieving BEE ownership and transformation targets by 2014
- Delivering on the target of 850,000 Platinum ounces by 2013 for
Marikana and Pandora
- benefitting from expected strong PGM demand
- Evaluate longer term options for Limpopo and Akanani
Ian Farmer, Chief Executive Officer, commented:
"I am delighted that the actions that we have taken to rebuild the Company`s
operational health are so clearly demonstrated in these results. We have
delivered sales figures in line with guidance, and performance improvements
have been seen across our business. We have met our key operational targets
and this performance reflects the successful turnaround of our business.
We intend to build on this strong operational performance and anticipate that
Platinum sales will grow to around 750,000 ounces in 2011. While there are
challenges facing our industry, we believe that the fundamentals of the PGM
markets remain robust and that Lonmin is well placed as these markets improve
in 2011 and beyond."
FINANCIAL HIGHLIGHTS
Year to 30 September 2010 2009
Revenue $m 1,585 1,062
Underlying operating profit / $m 228 (93)
(loss) (i), (ii)
Operating profit / (loss) (ii) $m 203 (142)
Underlying profit / (loss) $m 237 (111)
before taxation (i)
Profit / (loss) before taxation $m 240 (272)
Underlying earnings / (loss) cent 70.2 (59.2)
per share (i) s
Earnings / (loss) per share cent 56.9 (163.7
s )
Net debt (iii) $m 375 113
Gearing (iii) % 10 2
NOTES ON FINANCIAL HIGHLIGHTS
(i) Underlying results and earnings per share are based on reported results
and earnings per share excluding the effect of special items as defined
in Note 3 to the Accounts.
(ii) Operating profit / (loss) is defined as revenue less operating expenses
before impairment of available for sale financial assets, finance income
and expenses and share of profit of equity accounted investments.
(iii)Gearing is calculated on the net debt attributable to the equity
shareholders of the Group divided by the total of the net debt
attributable to the Group and equity shareholders` funds.
ENQUIRIES:
Investors / Analysts:
Tanya Chikanza +44 (0) 207 201 6007
Head of Investor Relations
Media:
Cardew Group +44 (0) 207 930 0777
Rupert Pittman / Jamie Milton
Financial Dynamics +27 (0) 11 214 2000
Dani Cohen / Ravin Maharaj
This press release is available on www.lonmin.com. A live webcast of the
Final Results presentation starting at 09.30hrs (London) on 15 November 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.
Chairman`s Statement
Overview of the year
I am delighted to report that our business performed well in 2010. The
Company met its production and sales forecasts, returned to profitability and
reinstated the payment of dividends. While our mining and concentrating
activities performed extremely well, problems encountered with the Number One
furnace were again disappointing and contributed to higher than expected
costs and significant working capital movements with negative cash flow
implications.
We operate in a challenging inflationary environment in South Africa
compounded by a further strengthening of the Rand against the US Dollar. The
negative effects on our margins, however, have been outweighed by higher
dollar Platinum Group Metal (PGM) prices throughout the year.
The PGM market fundamentals have effectively remained in balance during the
year although with a modestly stronger underpinning. Recovery has been slow
but steady in the automotive market supported by continuing strong investment
demand through Exchange Traded Funds (ETF) and relatively steady platinum
jewellery demand. Jewellery demand is historically more price elastic but is
increasingly driven by demand in China, much boosted by the rapidly expanding
middle class. Supply side growth has remained limited given both the
constraints on capital and the pressure on margins that the industry has
experienced over the last two years.
We have met our key operational targets and this performance reflects the
progressive turnaround in our business:
- Safety: Performance continues to improve, but there is much still to be
achieved;
- Higher output from underground operations: Metal in concentrate is up
from 2009`s level of 618,000 to 691,000 Platinum ounces due to an
increase in tonnes mined, grade improvements and much improved
recoveries in the concentrators - up from 81.0% to 84.8%;
- Ore reserve development: A significant increase - up 32% to 2.7 million
centares;
- Platinum sales: Sales were 6,000 ounces above our market guidance of
700,000 Platinum sales ounces;
- Costs: Rand gross operating costs were impacted by the unexpected toll
refining charges and furnace rebuild costs, and the inflationary
environment we work in. Despite this our unit costs only increased by
2%, a pleasing result; and
- Capital Expenditure: Guidance of investing up to US$270 million was
achieved with significant spend being allocated to development at K4,
Saffy and Hossy.
The Number One Furnace however experienced fresh difficulties again this
year, with a matte run out at the end of the first half which was exacerbated
by a further run out on restart. Considerable attention is being given to
reconfiguring the furnace in its current re-build and to managing the
inherent risk of having a single furnace to meet all our current production
needs. Earlier this year, we announced that we would build additional
smelting capacity and this is intended to reduce significantly, if not
eliminate, this risk. In the meantime we were able to meet our customer needs
by using our pyromet furnaces and by toll refining some concentrate.
Ian Farmer, our Chief Executive, moved his base to South Africa in January
2010 and as the year comes to a close I can report that we have successfully
completed the transfer of all London based operational and management roles
to Johannesburg. We are already seeing benefits from this decision.
Much has been achieved in the past two years. The health of our operations
has been largely restored and we can now look forward to improving on the
work practices and disciplines that have been introduced into our operations,
in order to drive efficiency and productivity. We will also continue to give
concerted attention to our safety performance which must be further improved.
The imperatives of growth and transformation in South Africa
Virtually all Lonmin`s operating assets reside in South Africa while only
some 7.4% of our shares are held there, with the balance held
internationally. Lonmin has a primary listing in London, with a secondary
listing in Johannesburg.
Our commitment to ensuring that Lonmin`s South African operations meet the
highest standards of good corporate citizenship remains undimmed despite the
emergence of new challenges during the year. As the South African Government
seeks to reverse the wrongs of the apartheid system, and normalise wealth
distribution in the country, it has introduced legislation designed to
accelerate transformation. Given the mining industry`s historic dominance and
its economic and social impact, it has understandably been a focal point for
change initiatives. During the year the Government promulgated a revised
Mining Charter which, together with a Balanced Scorecard, defines the actions
required by companies wishing to retain their licence to operate. The Board
has constituted a Transformation Committee under the chairmanship of Cyril
Ramaphosa to support the many, complex and sometimes costly initiatives which
management must drive in order to achieve acceptable progress towards meeting
these transformational requirements. These range across every aspect of our
operations, from Historically Disadvantaged South African (HDSA) equity
ownership levels through to procurement and training. We will report each
year on our progress towards these goals which, for the most part, must be
achieved by 2014. It is to be hoped that the sheer scale of these changes for
the mining industry as a whole, at a time when operating margins, at least in
the platinum sector, are less than generous, will not stifle the growth
imperative on which the longer term economic prosperity of South Africa
crucially depends. It is an uncomfortable fact that recently South Africa`s
mining industry has experienced virtually no growth whilst internationally
the mining industry has grown annually. Recognition of the need to restore
South Africa`s attractiveness to international mining investors was
fundamental to the conclusions which emerged from the work of the tripartite
Mining Industry Growth, Development and Employment Task Team (MIGDETT)
exercise which concluded its work during the year.
Mention must also be made of the rather vocal calls for nationalisation of
the mining industry. These do little for investor confidence, but we are
encouraged by the steadfast position that key government ministers, senior
leaders within the ANC, and other industry participants such as the National
Union of Mineworkers, have taken in arguing the weaknesses and dangers for
South Africa`s economy of a policy of nationalisation.
Mining has always been a highly capital intensive business, and our
operations are no exception. Access to equity, and indeed the international
debt markets, is of fundamental importance to the achievement of Lonmin`s
potential. The $458 million rights issue last year, and the $229 million
equity placement earlier in the year under review effectively represented a
large foreign direct investment in South Africa. Our shareholders` and
bankers` willingness to support Lonmin in its capital expenditure programmes
and in helping Shanduka Resources (Proprietary) Limited (Shanduka) fund its
investment in Incwala Resources (Pty) Ltd (Incwala), depend on their
confidence in our security of tenure, primarily of our New Order Mining
Licences but, underlying that, of our mineral rights. I am happy to report
that a measure of uncertainty in the latter regard was speedily resolved
during the year with the active co-operation of the Department of Mineral
Resources. There remains only a private challenge to our right to mine
associated minerals over a small part of our property, and we are determined
to do everything possible to preserve that right.
Incwala and Shanduka
During the year we provided significant funding for Shanduka to acquire
Incwala shares from a number of counterparties, including certain of the
original HDSA shareholders. Shanduka now holds interests directly and
indirectly which represent in aggregate 50.03% of the shares of Incwala, an
outcome which simplifies the ownership structure.
Operating successfully in South Africa today requires a Black Economic
Partner (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 require that the relationships with our many stakeholders
operate effectively. The Board believes that Shanduka as the majority
shareholder in Incwala has a proven track record of investing in the natural
resources sector, strong leadership qualities, and has demonstrated the
financial capacity to participate in transactions together with Lonmin. The
Board therefore considers that a strong partnership with Shanduka will serve
Lonmin well. Our commitment to the importance of this partnership is
evidenced by Cyril Ramaphosa joining the Lonmin Board and by Shanduka`s
representatives attending the Lonmin Executive Committee meetings.
Against this background the Board decided that robust funding would be
required for the new BEE structure, in order to secure the long term future
and stability of Incwala. It became clear that the best way of this being
achieved would be with funding from Lonmin and we agreed to provide Shanduka
with a $304 million five year loan, secured on Shanduka`s interest in
Incwala, with Shanduka making an equity contribution of R300 million. In line
with the Board`s policy to maintain an appropriate capital structure Lonmin
financed this funding through a combination of the net proceeds from a
Placing to institutional investors which raised GBP160 million ($229
million), and from Lonmin`s own financial resources. I place on record
Lonmin`s appreciation of the support provided in this placing by our larger
shareholders, including Xstrata.
The South African Minister of Mineral Resources and the Department of Mineral
Resources (DMR) acknowledged Lonmin`s support for the transaction and
endorsed it as a constructive contribution to the long term financial
stability of our BEE structure.
Board changes
I am delighted to welcome to the Board Dr Len Konar and Cyril Ramaphosa who
joined us during the year as Non-executive Directors of the Company. Len is a
highly respected businessman in South Africa and his professional
contribution to the development of Lonmin will be important. Cyril`s breadth
of experience and wise counsel will be vital in helping Lonmin build on its
operational capacity in South Africa and to fulfil its strategic
transformational objectives.
I also look forward to Mahomed Seedat, currently our Chief Operating Officer,
joining the Board as a Non-executive Director on 1 January 2011. Mahomed`s
judgement and leadership have been invaluable as we have restored the
operational health of the business and he will remain in his executive
position until the end of 2010.
I am also pleased to welcome Simon Scott who was appointed to the Board as an
Executive Director on 27 September 2010 and will assume his role as Chief
Financial Officer on 15 November 2010. Simon brings both local knowledge and
relevant experience of financial management gained at senior levels of the
South African platinum mining industry. We look forward to the substantial
contribution he will make to the continuing development of Lonmin in years to
come.
The Board would also like to acknowledge the significant role which Alan
Ferguson has played and will continue to play until his departure on 31
December 2010. This is a very different Company from the one he joined three
and a half years ago and a large part of the credit for this transformation
should go to him. He will leave with our gratitude and best wishes.
Outlook
We are confident that PGM markets will sustain the improvements already seen,
and have the potential to advance further. Recovery in western automotive
markets and rapid growth in China will underpin auto catalyst demand. A new
factor of considerable potential is the demand for catalysts for off-road
vehicles. Platinum jewellery demand, increasingly favoured in the Far East,
will be supported inter alia by the recent narrowing of the spread between
the gold and platinum prices. We remain of the view that production increases
by the South African PGM industry over the next few years will remain modest.
We intend to build on the strong operational performance of 2010 and
anticipate that production at Marikana including our share of the Pandora
joint venture will grow to enable us to achieve Platinum sales of around
750,000 ounces in 2011. Our main challenge will be containing costs in the
face of inflationary pressures in the mining industry and the largest
component of our cost is labour. Given this, we anticipate unit cost will
increase by less than 8% on the assumption that we achieve a settlement with
the National Union of Mineworkers (NUM) in line with that achieved by our two
larger competitors.
Our capital spend will rise this year to some $380 million. This is higher
than our previous guidance of $300-350 million due to a decision to invest in
the new furnace ($38 million in 2011) and tailings treatment plants ($24
million in 2011), neither of which were within the original guidance. The
furnace spend is essential as a risk mitigation in the short term and to
ensure there is adequate capacity in the longer term. The tailings treatment
project is an exciting one as these new plants will recover PGMs from our
chrome depleted UG2 tailings. Over the next three years we expect to spend c.
$75 million on these plants, and as a result to improve our concentrator
recoveries from 2012 onwards at our UG2 plants by around 2%, which based on
today`s volumes represents around 25,000 PGM ounces per annum.
We remain on track to produce around 850,000 Platinum ounces by 2013 from our
Marikana operations, including our share of the Pandora joint venture, with
growth coming from Hossy, Saffy and K4. In addition to Marikana, we still
have options for growth at Limpopo and Akanani and we will be turning our
attention to these matters in the coming year. The pace at which investment
into growth projects can be applied will be impacted by the capital
requirements and cash generating capabilities of our existing operating
assets as well as long term demand trends for our products.
Dividend
Given the improved financial performance of the business, its projected cash
requirements and current trading conditions the Board has decided to resume
the payment of dividends. In coming to this decision the Board has revised
its dividend policy.
Our new policy is to recommend each year an ordinary final dividend at a rate
which the Board expects can at least be maintained in subsequent years. This
annual dividend would be announced after the year end and would be
supplemented by a special final dividend in years when our reported earnings
for the previous year, and our projected cash requirements, allow. Dividends
will therefore be paid only once a year.
In implementing this new policy in a year which produced net earnings (after
minorities) of $112 million (equivalent to 56.9 cents per share), the Board
has given consideration to the fact that operating margins are currently
still relatively low, our net debt at year end was $375 million and that the
capital expenditure requirements of the business are considerable.
The dividend of 15 US cents per share is recommended as the ordinary final
dividend for the year, to be paid to shareholders on the registers at the
close of business on 14 January 2011, is subject to approval by shareholders
at the Annual General Meeting on 27 January 2011.
Employees
Finally, I extend warm thanks to all Lonmin employees and contractors. Their
continued hard work and commitment has enabled us to deliver a rewarding set
of operational and financial results, and the prospect of continuing
improvement.
Roger Phillimore
Chairman
Chief Executive`s Review
1. Delivering Today
I am pleased to report that we have produced a very encouraging set of
results whilst continuing to improve on our safety record. These results mark
the end of the two year period we set ourselves in 2008 to restore the
operational health of our business and demonstrate the significant progress
we have made in that time.
We achieved Platinum sales of 706,000 ounces from our Marikana operations,
ahead of sales guidance of 700,000 ounces. The problems we encountered with
the Number One furnace again this year were disappointing and meant that we
had to toll refine and sell some part processed material. This was the best
commercial option for the business.
Encouragingly metal in concentrate was 694,000 Platinum ounces, well ahead of
663,000 Platinum ounces delivered last year, whilst the mines hoisted some
700,000 Platinum ounces as ore stocks were built up. This improvement came
about through an increase in underground tonnes hoisted, better grades and
significantly improved recoveries, all of which more than offset the impact
of closing Limpopo and our UG2 opencast pits in 2009.
At the same time, we continued to make significant progress with our
development of ore reserves, a crucial indicator of the health of our mining
operations.
Although we operated in an environment with inflationary pressures on key
inputs such as wages and electricity, our Rand unit costs per PGM ounce
produced only increased by 2%, much lower than South African PPI reflecting
productivity improvements
I believe we can now put behind us the notion that Lonmin is not on top of
its operational game. Of course we will still have issues as this is, and
will always be, a very challenging business. These results however, could not
have been delivered without a management team, and an emerging culture, in
which matters are identified and dealt with in a timely, constructive and
professional manner and where Key Performance Indicators are tracked and
monitored on a regular basis.
We have reiterated our production target of 850,000 Platinum ounces by 2013
from our Marikana operations including our share of Pandora joint venture,
with replacement and growth ounces being generated from Hossy, Saffy and K4.
Safety
Progress with our LTIFR
Safety is fundamental in everything we do and it will always be at the
forefront of our minds. We have worked hard at addressing the behavioural and
cultural issues which are fundamental to a good safety performance. This
includes focusing on upgrading our safe production training programmes and
increasing safe behaviour observations. We have also improved our procedures
for compiling safety data.
Our Lost Time Injury Frequency Rate (LTIFR) improved marginally, from the end
of the 2009 financial year to 5.87 per million man hours worked, but sadly we
suffered three fatalities, two as a result of fall-of-ground incidents and
one from a tramming incident. We extend our sincere condolences to the
families and friends of our late colleagues Miss Betty Moekwa, Mr Bavuyise
Bala and Mr Siyabonga Tomose.
We lost fewer tonnes this year from Section 54 stoppages as the frequency and
length of the stoppages decreased and the manner in which they are applied
became more pragmatic. This reflects the collaborative relationship we have
developed with our employees and the Department of Mineral Resources (DMR) on
safety matters, and the emphasis we have been placing on consistent
application of high safety standards in all our operations.
Mining
Our Mining Division`s performance continued to improve throughout the year,
with quarter four being very strong. The results reflect the division`s
commendable turnaround. Mining management throughout the year placed a strong
emphasis on quality of mining and improving mining discipline and it has
achieved this by introducing processes, procedures and training to support
these initiatives.
The success of these programmes is reflected in the gradual increase in
momentum we have seen throughout the year. Indeed, whilst production in the
first half of the year was adversely impacted by the Christmas holidays and a
fatal accident Section 54 related stoppage at K3, the second half showed a
marked increase with underground production reaching 5.8 million tonnes
compared to 5.2 million tonnes in the first half.
We have agreed a new working calendar with our employees and unions for the
forthcoming holiday season which should help improve productivity and provide
for a good Christmas break for our mining employees.
We have also streamlined the reporting in the Mining Division into a four
unit structure and removed excess reporting levels, to enable management to
be as close to the operations as possible. We will now report the output from
these four mines separately in our Production Report.
Ore reserves
The Marikana operations have immediately available ore reserves of 2.7
million centares as at the end of the 2010 financial year. This is a 32%
increase from the 2.0 million centares that were available at the end of 2009
and it allows us to support future production and forecast our short term
output with greater confidence.
If there is one statistic which for me best illustrates the scale of the
turnaround that has been achieved in the last two years it`s the fact that
available ore reserves are over 61% higher than they were at the end of 2008.
Progress made with Hossy
Hossy`s production profile and grade has improved during the year and we have
decided to continue with the fully mechanised proof of concept project. The
average monthly production has ramped up to 67,000 tonnes per month in 2010,
a significant increase from 2009 when it averaged 56,000, whilst the grade
has improved from 4.38 to 4.60 grammes per tonne. Two new mining half levels,
defined as quadrants in a mechanised shaft, came on stream in the first half
of this year bringing the total number of quadrants being mined to six.
The key drivers to Hossy`s improvements have been enhancements to the mining
layout and infrastructure and equipment upgrades. We have also kept up our
development and training initiatives in core areas. This is important as
there is a general shortage of people with mechanised experience in the
industry and this will remain a key area of focus.
We retain our target of achieving productivity of 2,200 square metres per
month per suite of equipment by the end of 2011 financial year in fully
developed quadrants.
Mining capital projects
We have continued to make good progress with the capital development at
Hossy, Saffy, K4, and the declines at K3 and Rowland shafts, all of which are
essential to our medium term production. While the key focus for the team is
delivery on time and budget, the Capital team, under the leadership of Frank
Russo-Bello, are examining ways of reducing capital costs and improving
project productivity. Frank is also leading a team that is looking at further
opportunities to optimise our life of mine extraction strategy.
Processing
The Process Division produced excellent results during the year with
significant recovery improvements being recorded.
Of particular note were the much improved recoveries at the concentrators
which averaged 84.7% throughout the year. This represents a significant 4.9%
points improvement over 2009. The success of our concentrator optimisation
programme could only have been achieved through the excellent teamwork and
commitment of the employees in this part of our operations led by Natascha
Viljoen.
The refineries also performed very well this year, again reflecting the
discipline exercised by the teams at these plants in following strict
processes aided by excellent technical support and plant maintenance
programmes.
Number One furnace
In 2010 the Number One furnace was down for almost fourteen weeks due to
scheduled maintenance and as a result of the double run out experienced in
March and May this year. This necessitated toll refining and selling part
processed material as the backlog was too big to hold in stock. The quantum
refined by third parties amounted to some 75,000 Platinum ounces and this had
an impact on costs as discussed elsewhere.
The Number One furnace was taken down again at the end of October 2010 for a
scheduled rebuild. This is running to plan and we expect it to be re-
commissioned in December 2010. Whilst the Number One furnace is down, the
three pyromet furnaces will operate as usual and we will continue to toll
refine a limited amount of metal-in-concentrate until the furnace is fully
operational again. We recognise and share the concerns of our investors about
the reliability of this vessel, but I believe we have a team who understand
the issues very well. We continue to make modifications to the furnace
designed to reduce disruption risk and this gives us confidence, tempered
with realism, for the future.
The decision was taken to add more back up capacity and work has commenced on
building the new 10MW pyromet furnace which is planned to come into
production in quarter three 2012 at a capital cost of some R350 million.
Whilst any disruption to the Number One furnace is always disappointing, the
value impact of such an event is not material to the long term value of
Lonmin. As a result, we do not intend to announce any future furnace
incidents unless they impact our market guidance.
Tailings projects
Earlier in the year, we entered into arrangements with Xstrata-Merafe Chrome
Venture and ChromTech to construct chrome recovery plants which will treat
tailings from our UG2 concentrators. This initiative will generate additional
revenue of some $20-30m per annum with effect from 2012, dependant on the
chrome price. The impact on 2011 will be approximately $10 million. In
addition, we have commenced an investment programme of around some $75
million to build tailings treatment plants which when fully operational will
improve our UG2 concentrator recoveries by some 2% from 2012 onwards,
equivalent when fully commissioned to approximately 25,000 PGM ounces
annually.
People focus
Motivating and developing our people is a key contributor to achieving
consistent production. We continued to introduce a number of employee
relations initiatives designed to promote a safe performance driven culture.
These are supported by regular and improved communication between management
and employees. We have also rolled out a programme to standardise and align
the production reward system across all our operations.
BEE partnership restructured
We are delighted to have played our part in helping secure the future of
Incwala, our BEE partner. It is important that we have a strong BEE partner,
and we welcome Shanduka as Incwala`s majority shareholder.
The terms of the funding provided to Shanduka, to help facilitate this
transaction, provide for Lonmin to receive a fair commercial return. In
addition, in the event that there is significant future value created for
Shanduka through its Incwala shareholding, the terms of the funding provide
that a proportion of such incremental value uplift will be shared with
Lonmin. This was not available to Lonmin under the original Incwala
transaction in 2004.
Shanduka has representation on our Executive Committee which meets every
month to consider operational and strategic issues, and Cyril Ramaphosa has
joined the Lonmin Board. This partnership will enable us to work closely
together as we explore new initiatives and execute our transformational
objectives.
We raised GBP160 million of fresh capital to part fund the loan to Shanduka
and I would like to thank our shareholders for their support.
Social and Labour Plans
Our communities and our employees are very important stakeholders. This year
we have spent R35 million on community projects and R15 million on converting
five hostel blocks into married and single room accommodation for our
employees. There is still much more work to be done in both these areas and
we have budgeted to invest some R42 million in 2011 on community projects and
R100 million per annum for the next three years on our hostel conversion
programme.
The education and training of our employees is another key area and we
continue to have employees enrolling in the Adult Based Education Training
(ABET) adult learning scheme. Our total training budget for 2011 amounts to
some R208 million, which includes the provision of bursaries to some 43 full
time university students of which 37 are Historically Disadvantaged South
Africans (HDSAs) and 21 are female.
Our management payroll now includes 43% HDSAs and these are all merit based
appointments.
Sustainability
Transformation is an essential area of business in South Africa today and we
are making steady progress. More of the work that we have done in this area
will be reported on in detail in our Annual Report and in our web based
Sustainability Report.
Seamless transfer of London operations to Johannesburg
The move of all London based operational and management roles to South Africa
is now largely complete. The transfer of these operations has run smoothly
under the leadership of Alan Ferguson and we go into 2011 with all these
functions based in South Africa. We will be sad to bid farewell to many of
our London colleagues who will not be relocating, but we welcome our new team
members. It is already clear that placing the Executive Directors closer to
the operations will generate many benefits some of which have already started
to come through.
2. Industry wide challenges and successes
There are a number of challenges faced by the South African mining industry,
some of which received significant publicity during the year.
The Revised Mining Charter
It was pleasing to note that a collaborative approach was adopted with the
review of the Mining Charter which was released in early September 2010.
Lonmin, along with other participants in the mining industry, was involved
through the South African Chamber of Mines. The Revised Mining Charter has
brought clarity in some areas and has re-oriented 2014 goals to take into
account the experience of the last five years. Concern has however been
expressed by industry participants and international investors regarding the
degree of subjectivity that still remains, as well as the powers granted to
the Minister of Mineral Resources to unilaterally amend the Charter. In this
context, concern has been expressed that companies` security of tenure over
their operations may be unfairly compromised.
We cannot understate the challenge the industry generally, and certainly
Lonmin, faces in achieving some of the 2014 goals within the timeframe
provided. Whilst investors have factored in the imperative for transformation
there is a cost in terms of time, effort and money associated with
implementing social transformation which is not easily quantifiable but
nonetheless exists. As South Africa positions itself to become globally
competitive, and an attractive destination for inward investment, these are
issues which cannot be ignored especially if the industry is to contribute to
South Africa`s well being to the full extent of its potential.
During 2011 we will be reviewing our Social and Labour Plans in the light of
the revised Mining Charter and we will report annually on progress against
these plans.
Associated Minerals
In May 2009 we discovered that we had an issue regarding our right to dispose
of associated minerals (i.e. non PGM metals which are found in our ore body
and which must be mined and processed together with the PGMs) when Keysha
Investments 220 (Proprietary) Limited (Keysha) applied for a prospecting
right over a small part of our property. In our view it is illogical and
wrong that a prospecting right can be granted over an ore body where mining
is already taking place, and where that company has in good faith converted
its old order rights into new order mining rights. The spirit and intention
of the conversion process was intended to leave title holders in the same
position after conversion as before.
After taking comprehensive legal advice we appealed against both the
application for and the subsequent award of the prospecting right. We also
filed section 102 applications to regularise the position in respect of the
balance of our property that was unaffected by the Keysha prospecting right.
On 4 August 2010 the DMR issued us with a notice suspending our ability to
sell all associated minerals across our business. We announced these facts to
the market which generated significant media attention for both Lonmin and
the wider South African mining industry. Shortly thereafter the Section 102s
were all approved confirming Lonmin`s right to extract and sell all
associated minerals. The issue with regard to the Keysha prospecting right
remains outstanding. We await the outcome of our appeal and we will take the
matter to judicial review if necessary.
Skills Shortage
Skills shortages remain an issue. The scarcity of experienced people
nationally and globally means that the industry is always chasing talent and
there is an insufficient skills pipeline to address this. This impacts mainly
on our mining operations, particularly at our mechanised Hossy shaft. We have
developed a new training strategy for the business whereby we will refocus
our training budget on better value adding initiatives that will help to
address these challenges.
Inflationary Pressures and Rand Strength
While South Africa has reported declining consumer price inflation during
2010, down to levels of around 3.5%, the mining sector has experienced
significant inflationary pressures, driven by the high cost of inputs such as
labour (up c. 8-10%) and power (up c26%). As well as impacting on working
cost, this also impacts on capital investment.
These pressures allied to the strength of the Rand has meant that margins and
the resulting free cash flow have been held back. This means as a business we
have to strive to deliver more output from the same input and this will be a
major area of focus as we go into 2011.
3. Anticipating tomorrow: the key areas of focus
Safety
We will maintain our focus on safety particularly around training and
employee behaviour as we continue our journey to zero harm.
Productivity
We have worked hard to restore the health of our Marikana operations in the
past two years and we will continue to monitor vigilantly the key operational
metrics of this business. Our focus on available ore reserve development will
remain undiminished.
Our challenge for next year is however subtly different from that faced in
2009 and 2010. Whilst we have been effective in 2010, we are not producing as
efficiently as we can and 2011 will be a year when we will seek to drive
productivity in our operations. This is vitally important given the
inflationary pressures we will face as we go into 2011 and our objective of
moving back down the relative cost curve. Our key focus will therefore be on
driving productivity.
We will look at a number of areas:
Day to day productivity
We are turning our attention to areas where we can improve our daily
productivity. This is the one area where we can see immediate flow through to
our production. We have also suffered historically from a shortage of
developed ore reserves, but we are now well positioned. We will focus on
mining our shafts efficiently, considering optimisation of half levels as
well as improving metrics such as advance per blast. Importantly, we will
build on the momentum we have achieved in 2010 and the partnership we have
built with our employees to support us in this challenge. This will be done
through a range of measures including appropriate bonus arrangements and a
new working calendar.
Structural issues
There are some areas which are more difficult to change immediately as they
are structural in nature. These include declining production from our small
older shafts as they approach the end of their working lives, the pace at
which Hossy and Saffy will move towards full capacity and the timing of K4
coming on stream. Initially of course the new ounces from K4 will be
relatively expensive but the cost per ounce will decrease as production ramps
up.
Rebuilding the Number One furnace and bringing the new furnace into
production on time and on budget are the other major areas of focus.
Investing in the future
2011
Capital expenditure at around $380 million is above our previous guidance due
to the inclusion of the new furnace as well as the tailings treatment
initiatives. We will, however, continue to monitor affordability and
development capital will always take priority. The majority of our capital
spend will be predominantly Rand based and will therefore be impacted by
exchange rate movements.
2011 and beyond
We will start to focus on how we wish to achieve 26% BEE ownership in our
operations by 2014. Currently we have 18% BEE ownership for Marikana and
Limpopo and 26% for Akanani. We see a broad based structure as optimal, but
we will be reviewing our options and ensuring we protect our shareholders`
interests.
Whilst Limpopo remains on care and maintenance, we are exploring
opportunities available to us to resume operations as well as working with
other parties to examine what possibilities we have to develop this asset
further.
4. Outlook
Guidance
Our operations have turned a corner and 2011 will be the next important step
towards achieving our sales target of 850,000 Platinum ounces by 2013. We
expect to continue to gain momentum whilst maintaining the quality of our
production. We anticipate sales of 750,000 Platinum ounces in 2011 with
additional production coming from Hossy, Saffy, K3 and opencast whilst output
from our Newman shaft is starting to decline.
Despite the significant inflationary pressures our operations will face, we
expect to maintain cost control by driving productivity and limiting the
increase in cost per ounce. Given this we anticipate that unit cost will
increase by less than 8% on the assumption that we achieve a settlement with
the National Union of Mineworkers (NUM) in line with that achieved by our two
larger competitors.
As already reported, our capex guidance is c$380 million. Most of the mining
capital spend will be on bringing K4 into production, finalising the capital
footprints in Hossy and Saffy and extending the mine lives of K3 and Rowland.
Beyond 2013
We also have to start turning our minds to our other assets and profitable
growth, as a business, beyond 850,000 Platinum ounces. Our initial focus for
growth beyond 2013 will be on the assets we already have in our portfolio
such as Akanani, Limpopo and Pandora, and of course Marikana. We will provide
direction on the outcome of our review of these assets and any other
potential options we may identify as appropriate.
5. Employees` contribution
Our business relies on the dedication and support of our employees,
contractors and community members. In a year when we have completed the
restoration of our operations back to good health I would like to thank each
and every one of them, for their contribution and hard work.
Ian Farmer
Chief Executive Officer
Operational Review
Market Overview
Last year we said 2010 would be a year of steady recovery as automotive and
industrial demand increased from the very low levels of 2009 and that demand
would improve further from mid 2011 onwards. While short term market
visibility remains somewhat opaque, we still believe this to hold true. The
recovery of the global economy in 2010 was reflected in PGM pricing, with the
prices of all metals rising during our financial year as the fiscal and
monetary stimulus injected into the global economy encouraged the
replenishment of inventories which had been depleted during 2008 and 2009.
In the short to medium term Platinum demand will be driven by a number of
factors. The continued recovery in the automotive sector in general as well
as the introduction of legislation for off road vehicles, dominated by diesel
engines, will stimulate demand. Jewellery sales continue to play a valuable
role as the elastic demand element and this segment is helped by the
increasing number of Chinese consumers being able to afford platinum
jewellery as well as the narrowing price differential between Platinum and
Gold. ETF purchases have assisted Platinum price recovery although more
recently trading volumes appear to have stabilised.
During the first half of the 2010 financial year, Platinum prices rose 28%
from $1,280 per ounce to $1,644 per ounce averaging $1,481 per ounce.
Platinum prices averaged $1,596 per ounce in the second half of the financial
year, a rise of 8% on the first half average.
Palladium outperformed platinum on the back of firm supply and demand
fundamentals, with palladium dominating the gasoline engine auto catalyst
market recovery in North America and the unabated growth in China. In
addition ETFs have been another source of demand in the period whilst rumours
persist that the Russian stock piles are close to depletion. Prices have
risen 95% from $290 per ounce at the end of the 2009 financial year to $565
per ounce at the end of the 2010 financial year.
Rhodium pricing has shown a steady recovery on the back of the automotive
industry restocking although it has been somewhat range bound lately largely
as a consequence of rhodium`s more limited product application. Despite this
it has maintained a price above the $2,000 per ounce level since early
November 2009.
Longer term, the impact of environmental legislation as a driver of demand
continues unabated and indeed existing legislation will drive increased
demand for our products out through 2015. In addition, there remain other
forms of transportation which we expect will eventually fall into the
legislative net. Other areas of potential growth such as fuel cells, both
stationary and those used in vehicles, continue to gather momentum. Electric
cars which do not use PGMs will continue to attract headlines, but from all
the research seen they are highly unlikely to become a significant market
segment in terms of vehicle units in the next decade.
Supply side challenges remain for all producers with the lack of free cash
flow significantly reducing mining capital investment over the last two
years. This allied to deeper mines, lower grades, skill shortages and long
term power and water supply challenges all mean the supply side response to
increasing demand is likely to be muted. The strength of the South African
Rand, and the inflationary pressures in the country, will also continue to
squeeze operating margins and cash flows whilst they persist. All of these
factors will provide an underpin to metal prices in the medium to long term,
especially if demand picks up more strongly than anticipated.
Consequently we will continue to carefully balance the need to invest in
growth ahead of the continued, and maybe stronger, upturn in demand whilst at
the same time remaining focused on maintaining strong financial discipline.
Safety
It is with regret that we report the death of three of our employees during
2010 however continued focus on safety has resulted in the LTIFR reducing to
5.87 per million hours. This is the sixth year in a row that we have achieved
a year on year rate improvement. Various milestones were reached during the
year. Saffy shaft has from the outset, ten years ago, never reported a
fatality which is an excellent achievement in the South African mining
industry. Several of our other shafts (six in total) have achieved in excess
of 1 million fatality free shifts with 4B and E1 shafts currently standing on
4.0 million and 3.4 million fatality free shifts respectively.
We have focused our drive for improved safety on six areas; mindset, culture,
safety leadership, governance, risk assessment management and compliance. In
each of these areas tactical measures were rolled out across the business and
the individual elements were driven down through the organisation. The road
to zero harm is a journey and there is always more we can and will do.
Our continuous focus on safety, and a more pragmatic approach from the
Department of Mineral Resource (DMR), is reflected in the fact that tonnes
lost as a result Section 54 safety shut downs were 0.2 million lower than in
2009. This was the result of fewer and less severe Section 54s issued.
Managing organisational risk exposure is paramount to Lonmin and an extensive
review of all shaft baseline risk assessments was completed this year, which
has resulted in an improvement of all shaft based risk registers.
Mining Division
In our 2010 financial year, the Mining Division demonstrated continuous
improvement, culminating in very strong production results for the last
quarter. Total tonnes mined during the 2010 financial year were 11.3 million,
a 0.5 million tonne increase from 2009. This is largely attributable to the
ramp up in production from our Middelkraal (Hossy and Saffy) operation.
Marikana opencast operations resumed production in March 2010 having been
closed during the first half of 2009. However, the increase in Marikana
opencast was more than offset by the decrease in Pandora opencast production
as this was mined out during 2009. There was no production from the Baobab
shaft at Limpopo during the year and this shaft continues on care and
maintenance while we evaluate potential options to restart operations.
A primary area of focus for the Mining management team continued to be ore
reserve development. At the end of September 2010, immediately available
underground ore reserves at Marikana reached 2.7 million square metres. The
year on year increase of 32% is a very positive indicator and it demonstrates
that the health of the ore body has been largely restored. Our two deep
shafts, K3 and Rowland, increased ore reserves by 59% and 49% respectively,
although K3 UG2 is still not where we want it to be. The two shafts in ramp
up, Hossy and Saffy, also increased ore reserves by 41% and 14% respectively.
Of course higher extraction rates will continue to require even greater
levels of development to maintain a satisfactory ore reserve position and our
plans in this regard are well in hand.
Our continued focus on delivering quality tonnes resulted in an improvement
in the milled head grade for underground ore of 2.2%, which equates to around
an additional 29,000 PGM ounces.
A number of the productivity programmes that were initiated by the Mining
team are starting to show benefits in 2010. These include:
- New incentive programmes for our productive employees to increase the
element of variable pay. These have delivered significant efficiency
improvements most noticeably towards the end of the financial year.
- The removal of technical bottlenecks and the implementation of improved
operating systems at each shaft have contributed somewhat to the
increased output; however, this still remains an area of further
opportunity.
- The implementation of several initiatives to assist us in better
managing inspections by the DMR, including a review of relevant
procedures and the roll out of a union consultation and communication
plan relating to Section 54 stoppages.
- The implementation of a new working calendar for the year should improve
productivity as well as providing our mining employees with a well
earned Christmas break.
Management attention is directed on achieving productivity improvements to
mitigate the inflationary cost pressures being experienced by the industry.
Issues such as absenteeism remain problematic and will be receiving further
attention during the course of 2011. Further work will also be carried out on
improving our mining operating and cost management reporting systems.
Marikana Mining
The total underground production at 10.8 million tonnes was the highest
achieved since 2007. This represented an increase of 6% from the 10.2 million
tonnes produced in 2009. It was encouraging to see momentum building over the
course of the year, with tonnes mined in quarter four being 20% above the
same period last year, and 19% above quarter three 2010.
The Merensky opencast operations at Marikana started production towards the
end of the second quarter of the 2010 financial year and is well on track.
The current production of around 80,000 tonnes per month from opencast
operations should be maintained during 2011.
During the year we revised the management structure into four discrete
business units which will improve accountability and help drive performance.
We will report against these units from now onwards.
In 2010 we mined 4.1 million tonnes from our Karee operations (currently
K3,1B/4B but will include K4 when it comes into production), an increase of
0.2 million tonnes from 2009. This is a result of the improvement in ore
reserves and reduction in the year on year impact of tonnes lost due to
Section 54 shut downs. Cost per tonne increased year on year by 13% to R537
per tonne largely due to the wage increase and a 24% increase in development
costs. The challenge here is to improve the performance of K3 and we are
starting to see encouraging results.
Production from our Westerns operations (Rowland and Newman) at 3.7 million
tonnes declined by 0.2 million tonnes on 2009. This was all due to the
closure of two mined out shafts, W1 and B3 during 2009 which produced 0.4
million tonnes. Unit costs were well contained with cost per tonne increasing
by just 4% to R474 per tonne.
The build up in production from our mechanised and hybrid shafts at
Middelkraal (Saffy and Hossy) is progressing well and increased by 0.5
million tonnes, or 39% to 1.9 million. Cost per tonne reduced by 1% to R629
per tonne with the ramp up in production and productivity measures improving
efficiencies.
Saffy continued to perform extremely well, despite the multiple challenges
faced by shaft management in converting from fully mechanised to hybrid
mining during the year, with the shaft exceeding its September month target,
the highest in the year, by 14%. The transition to full hybrid mining was
completed on schedule. Saffy also exceeded its ounce production target for
2010 through a combination of the quality tonnes delivered and a shaft head
grade above the planned grade. Saffy`s growth rate will be much lower in 2011
as development work to open up lower levels is completed. Growth rates should
accelerate again in 2012.
Hossy also recorded a good year, reflecting improved productivity on centares
per month per suite of mechanised equipment during the 2010 financial year.
Over the course of the year, production at Hossy continued to ramp up with
the average in 2010 of 67,000 tonnes per month growing by almost 20%. The
biggest challenge being faced by the mechanised mining team centres around
machine reliability, the availability of replacement parts and the supply of
trained artisans and we have ongoing programmes to address these issues. The
target of 2,200/m2 per suite of equipment from fully developed quadrants is
still expected to be achieved by the end of the 2011 financial year.
Our Easterns operations (E1, E2, and E3) also showed an improvement due to
the focus on development and productivity improvements. Tonnes mined at 1.1
million were up 0.1 million or some 16% on 2009. Cost per tonne was up 7% to
R544 per tonne.
Costs for the 2010 financial year at our core underground conventional
operations at Marikana Mining were R532 per tonne, up 8% from 2009. It should
be noted that this was achieved despite the continued cost pressures with
wage increases of 10% and electricity rate increases of 26%, both well in
excess of the published PPI data. Development costs have also increased 13%
resulting in increased ore reserves. Additionally extra costs were incurred
during the year to increase the roof support in some of the mines to improve
safety, as well as to extract ore from previously abandoned areas. Therefore,
whilst this performance demonstrated some underlying productivity
improvements, including the full year benefits of the March 2009
restructuring programme, more needs to be done to continue to mitigate the
inflationary increases expected for 2011.
Despite the increase in cost per tonne improvements in grade and recoveries
mean that the C1 cost per saleable PGM ounce produced for Mining increased by
just 2%.
Capital expenditure during 2010 at our Marikana Mining division was $205
million, the majority of which was allocated to Hossy, Saffy, K3 and K4.
Pandora joint venture
Our share of production from the Pandora joint venture underground operation
during the financial year was 166,000 tonnes mined, up 17% over 2009.
Opencast production at the joint venture came to an end during 2009 giving a
year on year decrease of 156,000 tonnes. Total production was, therefore,
down 132,000 tonnes on 2009.
Lonmin purchases 100% of the ore from the Pandora joint venture and this ore
contributed 49,345 saleable ounces of PGMs in concentrate to our production.
Pandora joint venture activities made a profit of $5 million after tax for
our account in the financial year.
The extension of the current Pandora underground operation which will give
access to two additional levels, extending the life of the shaft, has
commenced and completion is planned for 2011. The feasibility study on the
180,000 tonnes per month project was concluded during 2010 and various
components of the study continue to be reviewed in order to extract the
optimal value for the joint venture. This includes an option to extend the
current decline project resulting in access to four additional levels.
Process Division
The Process Division`s focus over the last two years on improving
efficiencies was rewarded with overall recovery increases. The most
significant increase was in underground recovery rates at the concentrators
which increased year on year by 3.8% points to 84.8%. This is the highest
since 2005 and is a significant achievement. This, combined with the
reduction of opencast ore in the mix resulted in an improvement of 4.9%
points in the overall concentrator recovery rate.
C1 unit costs for the year in the Process Division were R809 per saleable PGM
ounce produced which represents an increase of 17% over 2009. If toll
treatment and smelter re-build costs are removed from the calculation, but
not the associated ounces, the unit cost for the division would have actually
decreased by 1%. This was achieved despite wage increases of 10%, increased
expenditure on plant maintenance at the concentrators of 44% and a 26% price
rise for electricity.
Capital expenditure was $54 million with the main areas of spend being the
concentrator optimisation project, upgrade of the PMR security system and
tailings and storm water upgrades.
Concentrators
The concentrators produced a total of 694,376 saleable ounces of Platinum in
concentrate during the 2010 financial year, a 4.7% year on year increase,
mainly as a result of more Marikana underground tonnes, higher concentrator
recovery rates and improved head grade. Indeed the saleable ounces of
Platinum in concentrate from underground mining (including Pandora) rose by
11.8% in the year. This significant increase outweighed the impact of the
shafts and pits closed in 2009.
Overall concentrator recoveries improved during the 2010 financial year to
84.7%, from 79.8% in 2009, and the underground recoveries increased to 84.8%
in 2010, from 81.0% in 2009, mainly as a result of the extensive concentrator
optimisation programme undertaken over the last two years, which has focused
on plant availability and reliability, milling the right ores at the right
concentrator and excellent management disciplines. Performance against our
internal plant recovery models, which take account of ore mix issues, also
showed a significant improvement during the year and we are now operating
close to the optimal level.
Given this, we are now considering how to take our performance to higher
levels and our main focus is on extracting value from the treatment of our
tailings. Contracts for the extraction of chrome have been signed with
Xstrata-Merafe Chrome Venture and ChromTech and construction on three new
plants has commenced. These are to be commissioned in the second half of the
2011 financial year. This will result in around $10 million additional
revenue in 2011 and there will be a further increase in 2012 as the plants
will be on line for a full year. Tailings treatment plants which re-treat
tailings from the chrome plants to recover additional PGMs are also to be
constructed and commissioned. The first is currently under construction, with
commissioning scheduled towards the end of 2011. When all three treatment
plants are operational the recoveries from our UG2 Concentrators should
increase by up to 2%.
Underground milled head grade was 2.2% higher year on year at 4.67 grammes
per tonne (5PGE+Au) mainly as a result of better mining grade control allied
to reduced dilution at Saffy as the mining method changed assisted by
increased production from the stoping horizon, and at Hossy as a result of a
revised mine layout. Overall milled head grade increased significantly year
on year from 4.50 to 4.65 grammes per tonne (5PGE+Au) due to less open cast
ore being processed. The bulk of the open cast ore mined this year has been
stockpiled and will be milled during the Christmas break.
Smelter
The Smelter processed 136,818 tonnes of concentrate during 2010, an 8% year
on year decline, mainly as a result of lower Number One furnace availability.
In November 2009 the Number One furnace was taken down for a scheduled
rebuild whilst on 30 March 2010 a matte run out occurred when matte came into
contact with two lower waffle coolers after the heat up phase following a
mickey block repair. During recommissioning a leak occurred on the slag side
which delayed the restart of the furnace.
In total the availability of the Number One furnace in 2010 was only 74%. As
a consequence the back up Pyromet furnaces and external toll smelting /
refining were also used to process the excess concentrate produced in the
second half of the financial year.
A risk mitigation programme at the Number One furnace was put in place which
included reviewing the vessel`s original specification, with a view to making
it more robust. As a result, the furnace was taken down at the end of October
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.
In order to mitigate the impact of future Number One furnace disruptions the
Lonmin Board approved capital expenditure for a new 10MW furnace and it is
expected that this new vessel will be commissioned in May 2012.
Refineries
The continuous focus on recoveries is showing through and efficiencies and
recoveries have improved year on year supported by robust plant maintenance
programmes.
The BMR and PMR produced a total of 607,794 saleable ounces of Platinum and a
total of 1,205,443 saleable ounces of PGMs during the 2010 financial year,
down 7% and 3% respectively from the same period in 2009 due to the impact of
the Number One furnace downtime.
Final metal sales for 2010, including the toll refining of 77,571 Platinum
ounces and the sale of 24,850 Platinum ounces in concentrate in the fourth
quarter of the year, was slightly ahead of our sales guidance at 706,274
ounces of Platinum and 1,325,390 of total PGMs.
Unit costs
In line with our peers in the South African mining industry, Lonmin has
experienced continued inflationary cost pressures. Gross costs rose from R8.8
billion in 2009 to R9.7 billion in 2010, an increase of just under 10% driven
by wage increases of 10%, 26% electricity price rise, toll refining costs,
furnace rebuild cost, additional development costs which resulted in improved
ore reserves, increases in royalties and share based payment costs. In
addition maintenance costs increased as we drove improved recoveries and of
course variable costs rose to support the 6% increase in production.
It should be noted that toll costs will still impact on profits in 2011.
There will be some toll refining carried out in quarter one as part of a risk
mitigation plan, given the planned down time at the Number One furnace. In
addition there are still ounces in stock which are being toll refined. When
sold their carrying cost will include a toll fee.
Excluding the unexpected costs of R106 million for toll refining concentrate
and R52 million for rebuilding the Number One Furnace , as well as excluding
the new state royalty of R40 million and the increase in share based payments
of R30 million, the drivers of which are not linked to South African
inflation, gross costs increased by 7%. This is slightly higher than the
latest published PPI figure of 6.8%.
Despite these gross cost increases, unit costs per PGM ounce only increased
by 2% to R6,773. Excluding just the toll refining and smelter rebuild costs
would mean that underlying unit costs would have increased by less than 1%.
Lonmin remains committed to move down the cost curve with continuous focus on
productivity improvements planned for 2011.
Further details of unit cost analysis can be found in the operating
statistics table. It should be noted that with the further restructuring of
the business that occurred in the year the cost allocation between business
units has been changed to a degree and therefore whilst the total is on a
like for like basis individual line items are not totally comparable.
Reserves & Resources
During 2010, Lonmin has reviewed its Mineral Resource and Reserves and
certain areas have been re-estimated where necessary. The more notable
changes are as follows:
- The Mineral Resources at Marikana were largely unchanged. The tonnage
depletion through mining was offset by slightly more Inferred Resources
as a result of additional data acquired through surface drilling.
Exploration drilling at Marikana in FY10 was focused on infill drilling
rather than Mineral Resource extension.
- A revision of the relative proportions of the individual precious metals
resulted in slight adjustments to the Platinum quantities at Marikana
and Pandora.
- The Nickel and Copper grades of the Marikana Mineral Resource were
reviewed and the average Nickel and Copper percentages are reported in
the main Resource and Reserve report for each ore type.
- The Marikana Mineral Reserve grade increased by 3% (0.12 g/t). As a
result the 3PGE+Au content of the reserve was slightly higher (0.6 Moz).
This was largely due to several areas of Probable Reserves being removed
from the reserve and replaced by new higher grade reserves.
- The Proved Reserves increased by 24%, reflecting the Company`s focus on
Ore Reserve Development in 2010.
- The down-dip extension to the Pandora Plan 4 area was included in the
Mineral Reserve in 2010, resulting in approximately 0.3 Moz of 3PGE+Au
being added to in the Probable Reserve category attributable to Lonmin.
- Modelling of the assay results received from the prior year`s diamond
drilling at Akanani further increased the confidence in the P2 portion
of the Mineral Resource. Over 80% of the P2 Resource is now declared as
an Indicated Resource. The quantity of P2 Mineral Resource increased by
3% and 3PGE+Au grades remained largely unchanged, confirming the
robustness of the grade of this portion of the Akanani Mineral Resource.
In addition, the volume and grade of the underlying P1 Mineral Resource
was increased, albeit in the lower confidence category (Inferred
Resources).
- An Inferred Resource has been declared on the Denison Property, near
Sudbury Ontario, Canada which is subject to a JV that was formed with
INCO (now Vale) in 2005. This is the first Mineral Resource declared
for the JV and although the initial resource is relatively small it
demonstrates the economic potential for this style of mineralisation in
the area.
- The total 3PGE+Au content of the overall Lonmin Mineral Resource
increased by 2% and the grade decreased marginally. This was primarily
a result of the increase in the Inferred P1 Resource at Akanani.
A summary of the changes in both the Lonmin Mineral Resources and Reserves is
shown in the following tables and should be read in conjunction with the Key
Assumptions outlined below. The complete 2010 Mineral Resources and Reserves
statement can be found on our website: www.lonmin.com.
Mineral Resources (Total Measured, Indicated & Inferred)1,4,5
Area 30-Sep-2010 30-Sep-2009
Mt5 3PGE+Au Pt Mt5 3PGE+Au Pt
g/t Moz Moz g/t Moz Moz
Marikana 740.1 5.05 120.1 71.7 750.7 5.01 120.8 71.2
Limpopo2 144.7 4.23 19.7 10.0 144.7 4.22 19.6 10.0
Limpopo Baobab 46.1 3.91 5.8 3.0 46.1 3.91 5.8 3.0
shaft
Akanani 216.0 3.84 26.7 10.9 176.6 3.96 22.5 9.4
Pandora JV 54.8 4.30 7.6 4.5 54.9 4.29 7.6 4.7
Loskop JV3 10.1 4.04 1.3 0.8 10.1 4.04 1.3 0.8
Sudbury PGM JV3 0.35 6.23 0.07 0.04 - - - -
Total Resource 1,212 4.65 181.1 100. 1,183 4.67 177.6 99.0
.0 9 .1
Mineral Reserves (Total Proved & Probable)1,5
Area 30-Sep-2010 30-Sep-2009
Mt3 3PGE+Au Pt Mt3 3PGE+Au Pt
g/t Moz Moz g/t Moz Moz
Marikana 293.9 4.22 39.9 24.1 297.5 4.11 39.3 23.8
Limpopo2 42.4 3.20 4.4 2.2 40.1 3.23 4.2 2.1
Limpopo Baobab 9.4 3.16 1.0 0.5 9.4 3.16 1.0 0.5
shaft
Pandora JV 5.2 3.92 0.66 0.39 3.1 4.25 0.42 0.27
Total Reserve 350.8 4.07 45.9 27.1 350.1 3.98 44.8 26.6
Notes
1) All figures are reported on a Lonmin Plc attributable basis, the
relative proportions of ownership per project being shown in the Key
Assumptions outlined below.
2) Limpopo excludes Baobab shaft.
3) Loskop JV and Sudbury PGM JV excludes Rh, due to insufficient assays,
and therefore 2PGE+Au is reported.
4) Resources are reported Inclusive of Reserves.
5) Quantities and grades have been rounded to one or two decimal places,
therefore minor computational errors may occur.
Key assumptions regarding the 2010 Lonmin Mineral Resource and Reserve
Statement
- Mineral Resources are reported inclusive of Mineral Reserves. Resources
that are converted to Reserves are also included in the Mineral Resource
statement.
- All quoted Resources and Reserves includes Lonmin`s attributable portion
only. There have been no changes in the percentage attributable to
Lonmin during the year, aside from including the Sudbury resource. The
following percentages were applied to the total Mineral Resource and
Reserve for each property:
Marika Limpopo - Limpopo Akanan Pandor Losko Sudbur
na Dwaalkop - i a p y PGM
JV Baobab,
Doornvl
ei,
Zebedie
la
Lonmin 82% 41% 82% 74% 34.85% 41% 50%
Attribut
able
- Incwala Resources, Lonmin`s BEE partner, owns 18% of both Western
Platinum Limited and Eastern Platinum Limited, and 26% of Akanani.
- Limpopo includes Dwaalkop JV which is a Lonmin managed JV between
Mvelaphanda Resources (50%) and Western Platinum (50%).
- Pandora JV: Eastern Platinum Limited has an attributable interest of
42.5% in the Pandora JV together with Anglo Platinum (42.5%),
Mvelaphanda Resources (7.5%) and the Bapo Ba Mogale Mining Company
(7.5%).
- Loskop JV: Western Platinum Limited has an attributable interest of 50%
in the Loskop JV with Boynton Investments.
- Sudbury PGM JV - PGE grades are stated as Pt+Pd+Au (3E). Through the
JV, Lonmin acquires its pro rata share, currently a nominal 50%, of the
product from any PGE deposit developed on the participating properties.
The agreement is that Lonmin will be allocated its pro-rata share in
PGE`s and Vale will be allocated its pro-rata share in Nickel, Copper,
Cobalt, Gold and Silver. The exchange of metals will be governed by
prevailing metal prices at the time of the refined metal production.
- Where grades are reported as 3PGE+Au these are a summation of the
Platinum, Palladium, Rhodium and Gold grades. Modelling of available
assay information, obtained from drillhole core, indicates that the
proportion of 3PGE+Au contained in 5PGE+Au, which includes Ruthenium and
Iridium, is approximately as follows:
UG2 Merensky Platreef
Marikana 0.81 0.92 -
Limpopo 0.86 0.93 -
Akanani - - 0.95
Pandora 0.81 - -
- Where Nickel (Ni) and Copper (Cu) grade estimates are derived from
sufficient reliable information for the various Mineral Resources, they
are reported as average grades in percent. These grades represent acid
soluble proportions. Acid soluble percentages of Ni and Cu are closely
correlated to the metals present as sulphide minerals.
- Mineral Resources are reported as "in-situ" tonnes and grade and allow
for geological losses such as faults, dykes, potholes and Iron Rich
Ultramafic Pegmatite (IRUP).
- Mineral Resources are estimated using a minimum true width of at least
90 cm and therefore may include some diluting material.
- Proved and Probable Mineral Reserves are reported as tonnes and grade
expected to be delivered to the mill, are inclusive of diluting
materials and allow for losses that may occur when the material is
mined.
- Mine tailings dams are excluded from the above Mineral Resource summary.
- For economic studies and the determination of pay limits, consideration
was made of both short and long term revenue drivers. The following
long term global assumptions were used:
- Precious Metals (per Troy Ounce): Pt $1,800, Pd $500, Rh $3,000, Ru
$200, Ir $450, Au $800.
- Base Metals (per metric tonne): Ni $15,000, Cu $5,000.
- Average exchange rate of US$1 to R8.28.
- Dilutions are quoted as waste tonnes / waste + ore tonnes in percent.
Unless otherwise stated, the Lonmin Mineral Resources and Reserves estimates
were prepared or supervised by various persons employed by Lonmin.
Financial Review
Basis of preparation
The financial information presented has been prepared on the same basis and
using the same accounting policies as those which were used to prepare the
financial statements for the year ended 30 September 2009. 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 year.
Overview
The 2010 financial year has been characterised by significant recovery both
in terms of the operational performance of the business and the financial
results.
A major feature of Lonmin`s performance has been the increase in saleable
metal-in-concentrate produced from Marikana and Pandora`s underground ore.
The production of 691,447 Platinum ounces is 73,162 ounces or 11.8% ahead of
the prior year and has been achieved by growth of 6.3% in underground tonnes
mined, essentially from Hossy and Saffy shafts, together with a 4.7%
improvement in concentrator recovery rates and better grades. The only
operational disappointment was the performance of the Number One furnace,
which suffered two unplanned shut downs. As a result of these, and a rebuild
earlier in the year, the Number One furnace was down for 95 days during the
year. This resulted in sales being back end loaded and the necessity for some
toll refining and sales of concentrate. This gave rise to increased costs and
working capital, the latter being much higher at year end than previously
anticipated.
From a market perspective the year can be considered in two halves. For the
first half of 2010 the recovery in metal prices continued the strong growth
rates experienced in the second half of 2009. In the second half of 2010,
however, pricing stabilised. Nonetheless, pricing has been strong in
comparison to the prior year and this has contributed $471 million to
operating profit.
Foreign exchange has had a material impact on the results for the year with
the Rand strengthening from R9.00/$ to R7.45/$ in 2010. This has given rise
to a net adverse exchange impact of $185 million.
When looking at costs, the period can also be considered in two halves. For
the first half of 2010 Lonmin benefited from the restructuring programme
which was implemented in March 2009. This resulted in savings of $41 million
in the ongoing business and $27 million from the closure of opencast and
Limpopo operations. The second half of 2010 has seen an increase in South
African operating costs of $123 million versus the first half of the year.
This is driven in part by the increase in tonnes hoisted and milled in the
second half with costs increasing by $64 million in these areas. However,
costs were also impacted by the resumption of opencast mining at Marikana
costing $21 million, and processing cost increases of $27 million (with $15
million relating to additional toll fees and $7 million on furnace repair
costs).
Turning to the full year, as well as the toll refining and smelter costs, the
introduction of the new Mining Royalty at $5 million and increased share
based payments of $5 million were also factors in the year on year increase.
Adjusting for the unexpected costs associated with the Number One furnace and
the incremental royalty and share based payment costs means underlying costs
rose by 7%. This is marginally above the latest published South African PPI
figure of 6.8%.
During 2010 the Group provided a loan of GBP200 million ($304 million) to
Shanduka to facilitate its acquisition of a majority holding in Incwala
buying out all previous HDSA shareholders with the exception of the Bapo Ba
Mogale who continue to hold 2.85%. This resulted in a cash outflow of $285
million in the year. To support this transaction an equity placing was
carried out which raised $229 million net of costs. The Group therefore
funded $56 million from its own resources as well as rolling over some loans.
This, together with the adverse working capital effects of the extended
Number One furnace downtime, has led to net debt of $375 million which is
higher than planned at the outset of the year.
Analysis of results
Income Statement
The $321 million movement between the underlying operating profit of $228
million for the year ended 30 September 2010 and the underlying operating
loss of $93 million for the year ended 30 September 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 30 September 2009 reported operating (142)
loss
Year to 30 September 2009 special items 49
Year to 30 September 2009 underlying operating (93)
loss
PGM price 471
PGM volume 45
PGM mix (8)
Base metals 15
Revenue changes 523
Cost changes (including foreign exchange impact (202)
of $185m)
Year to 30 September 2010 underlying operating 228
profit
Year to 30 September 2010 special items (25)
Year to 30 September 2010 reported operating 203
profit
Revenue
As noted in the introduction the PGM pricing environment has improved
significantly since this time last year and the average prices achieved on
the key metals sold is shown below.
Year Year
ended ended
30.09.10 30.09.09
$/oz $/oz
Platinum 1,525 1,086
Palladium 448 224
Rhodium 2,308 1,571
PGM basket 1,139 786
Price gains added $471 million in revenue. Average Platinum and Palladium
prices increased by 40% and 100% over the previous year, respectively
contributing $301 million and $70 million to the PGM price gain. The
improvement in these metals has been driven by a recovery of automotive and
industrial demand, as well as new ETFs which were launched in the US early in
2010. The Rhodium price increased by 47% mainly due to automotive demand and
added $78 million to revenue with the remaining $22 million of price gain
coming from other PGMs. The price improvement for all the key metals occurred
mainly in the first half of 2010 and since March prices remained relatively
directionless with the overall PGM basket price achieved ranging from $1,100
per ounce to $1,250 per ounce. This was largely due to the consistency of
Platinum with prices achieved ranging from $1,500 to $1,675 per ounce in the
second half. Rhodium, which peaked at circa $2,700 per ounce in April and
May, fell back to $2,200 per ounce by September.
It should be noted that whilst the US Dollar basket price has increased by
45% over 2009 in Rand terms the basket price increased by only 22% due to the
stronger Rand.
PGM sales volume for the year to 30 September 2010 at 1,325,390 ounces was
56,472 PGM ounces or 4.5% up on 2009 despite the loss of some 79,000 PGM
ounces from the suspension of mining at Limpopo and closure of opencast
operations. The increase has been achieved largely through the ramp up of
activity at Middelkraal (Hossy and Saffy) and good improvements in grade and
recovery.
Revenue fell by an estimated $62 million due to the reduction in volumes at
Limpopo and opencast however this was offset by a $107 million revenue
improvement from underground operations resulting in a net revenue
improvement of $45 million. The mix of metals sold resulted in an adverse
impact to revenue of $8 million mainly due to a lower proportion of Platinum
due to metal-in-process inventory timing differences. Base metal revenue was
up $15 million due to a 24% increase in Nickel prices. Total revenue for 2010
of $1,585 million is $523 million higher than 2009.
Cost changes
Total underlying costs in US Dollar terms increased by $202 million mainly
due to an adverse foreign exchange movement of $185 million due to the
strengthening of the Rand compared to the prior year. A track of the cost
changes is shown in the table below:
$m
Year ended 30 September 2009 - underlying costs 1,155
Increase / (decrease)
Marikana underground mining 96
Concentrating and processing 34
Limpopo operations (8)
Overheads (11)
Operating costs 111
Pandora ore purchases (4)
Metal stock movement (118)
Foreign exchange 185
Depreciation and amortisation 28
Cost changes (including foreign exchange 202
impact)
Year ended 30 September 2010 - underlying costs 1,357
Marikana underground mining costs increased in the period by $96 million or
14%, as a result of increased production, the 10% wage increase incurred in
the year, increased development costs and a 26% escalation in electricity
costs due to an increase in tariffs. Cost per tonne was up 8%, whilst cost
per saleable PGM produced was only up 2% due to better grades and recoveries.
Marikana opencast volumes increased by 41% over 2009, however, due to new
contractual arrangements, and the fact we are now mining different pits,
costs did not increase.
Concentrator and processing costs were adverse by $34 million. This was due
to incremental toll fees and rebuild costs ($22 million in total) following
the furnace leaks, together with increased maintenance spend and escalation
effects, in particular electricity costs as described above.
Mining was suspended at Limpopo at the end of December 2008, and thus normal
operating costs were only incurred in the first quarter of financial year
2009. Costs in 2010 are $8 million lower with only care and maintenance costs
incurred.
Overheads were $11 million favourable year on year with savings from
restructuring, training, and pre-feasibility studies offsetting salary
escalation, increased share based payments and costs of the new Mining
Royalty which added $5 million to the cost base and came into effect on 1
March 2010.
There was a $118 million favourable impact on operating profit, excluding
exchange impacts, of metal stock movements. Due to the furnace issues in 2010
stock levels are higher at the year end than previously anticipated, up 16%
on the prior year, and, together with cost escalation and mix, the Rand stock
value has increased 34% as a result.
Foreign exchange has been a very significant factor with a $185 million
adverse impact. This mainly arose from the translation of costs into US
Dollars with the effective Rand exchange rate strengthening by 18.5% to give
an adverse variance of $192 million. In addition the translation of Rand
monetary working capital balances gave rise to an adverse impact of $32
million. The strengthening Rand, however, increased the US Dollar value of
stocks held generating a favourable $39 million which partially offset the
above.
Depreciation and amortisation in 2010 is $28 million higher than 2009.
Depreciation is calculated on a units of production basis, spreading costs in
relation to proved and probable reserves and so the increase in production in
the year resulted in higher depreciation. Furthermore, during 2010 the
depreciation of assets was calculated using the reserves identified in the
2009 Accounts, being the latest known position, and as these were lower than
the previous year this resulted in an increase in the depreciation rate per
unit of production. It is worth noting that the 2010 reserves have increased
marginally over 2009.
Cost per PGM ounce
The cost per PGM ounce produced for 2010 was R6,773. This was an increase of
only 2.2% compared to 2009 and has essentially been achieved by containing
cost escalations, increasing underground production and through improvements
in head grade and recovery. If we adjust for the toll and furnace rebuild
costs incurred in the year and assume the related ounces were processed
through the process division then it is estimated that the C1 cost per ounce
produced would have risen by less than 1%. This clearly demonstrates the
benefits of the many operational improvements and cost reduction programmes
initiated during the last two years.
Further details of unit costs analysis can be found in the Operating
Statistics.
Special operating costs
In 2010 special operating costs of $25 million were charged. The move of the
operational headquarters from London to South Africa cost $9 million. This
move will be completed in the last quarter of this calendar year. Fees of $5
million were incurred in relation to the transaction under which Shanduka
acquired a controlling interest in Incwala Resources and became Lonmin`s BEE
partner. The strategic decision to decommission the Merensky furnace in order
to leverage certain of its infrastructure for the new pyromet furnace has
resulted in a $10 million impairment charge and, in addition, a $2 million
charge was taken on the write-down of houses. These costs were offset, to a
limited extent, by a $1 million credit on the final winding up of defined
benefit scheme pension obligations.
In the year ended 30 September 2009 $49 million of special costs were
incurred on restructuring together with the abnormal operating costs for
Limpopo operations subsequent to the announcement of closure, and the cost of
the restructuring programme itself.
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 depressed financial markets, the value of
these investments fell 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 recorded in the statement of
comprehensive income. In the year to 30 September 2010 the value of
investments declined by $6 million, largely reversing the gain made in the
second half of 2009, and this loss was also recognised in the statement of
comprehensive income.
Summary of net finance income / (costs)
Year ended 30
September
2010 2009
$m $m
Net bank interest and fees (43) (20)
Capitalised interest payable and 43 23
fees
Exchange 1 (20)
Other - (2)
Underlying net finance income / 1 (19)
(costs)
Impact of raising share capital 2 (73)
HDSA receivable 14 0
HDSA derivative 12 0
Net finance income / (costs) 29 (92)
Net bank interest and fees is $23 million higher than the comparative period.
The key reasons for the increase were a $10 million increase in bank interest
expense, mainly reflecting the higher margins charged in the more challenging
credit environment, and higher pricing on Rand debt, together with
incremental amortisation of fees of $12 million subsequent to the refinancing
and waiver of covenants agreed at the end of financial year 2009.
In 2010 exchange on net debt was broadly neutral with a loss of $7 million on
the revolving credit facility in South Africa, which is now Rand denominated
and supports South African working capital requirements, offsetting an $8
million gain on Sterling cash held temporarily after the equity placement
pending completion of the loan facility for Shanduka. The volatility and
significant weakening of the Rand against the US Dollar at times during 2009
had a marked impact on Rand cash balances held for operational and funding
purposes. This resulted in $23 million of exchange losses on net debt which
was the main component of the $20 million charge in the prior year.
In 2009 the Group carried out a Rights Issue which resulted in $73 million of
finance costs being charged. This comprised $33 million arising from taking
forward currency hedges to fix the US Dollar value from the Sterling
receipts, $4m foreign exchange losses on proceeds received in advance and a
$36m loss which arose because the Rights Issue had to be treated as a
derivative under IAS 32. Whilst an amendment to the Standard changed the
position for companies raising capital in currencies other than their
functional currency, this was not adopted in time for the 2009 Accounts. In
2010 Lonmin Plc carried out an equity placing. This is not covered by the
amendment to IAS 32 which is only applicable to Rights Issues. This
transaction, therefore, again gave rise to a derivative under IFRS and this
resulted in the recognition of a $2m gain which is offset in reserves.
The HDSA receivable, being the Sterling loan to Shanduka, increased by $14
million with $11 million of foreign exchange gains recognised in addition to
$3 million of accrued interest. The fair value of the associated HDSA
derivative increased by $12 million largely due to changes in Lonmin`s share
price.
The total net finance income of $29 million for the year ended 30 September
2010 was therefore $121 million favourable compared to the year ended 30
September 2009.
Share of profit of equity accounted investments
The share of profit from the associate and joint venture has increased by $7
million to $8 million for the year ended 30 September 2010. This was mainly
due to improved profitability at Pandora.
Profit / (loss) before tax and earnings
Reported profit before tax for the year ended 30 September 2010 at $240
million is $512 million better than the prior year. This increase consists of
a $321 million improvement in underlying operating profit, a reduction of
$24m in special operating costs, a $39 million favourable variance on
impairment of available for sale assets, a $121 million benefit on net
finance costs and a $7 million improvement in the Group`s share of profit
from the associate and joint venture.
Reported tax for the current period was a charge of $118 million although
this is after exchange losses on the translation of Rand denominated tax
balances of $37 million and a $1 million charge on special costs. Therefore,
the underlying tax charge is $80 million with an effective rate of 34%. The
underlying charge reflects deferred tax charges of $78 million, largely due
to accelerated capital allowances with only $2 million current tax in the
period. The current tax related to secondary tax charges in the year due to
the dividends paid to non-controlling interests. Corporation tax was offset
by losses and unredeemed capital allowances brought forward.
Profit for the year ended 30 September 2010 attributable to equity
shareholders amounted to $112 million (2009 - loss $285 million) and the
earnings per share was 56.9 cents compared with a loss per share of 163.7
cents in 2009. Underlying earnings per share, being earnings excluding
special items, amounted to 70.2 cents (2009 - underlying loss per share 59.2
cents).
Balance sheet
A reconciliation of the movement in equity shareholders` funds for the year
ended 30 September 2010 is given below.
$m
Equity shareholders` funds as at 1 October 2009 2,417
as reported (61)
Prior year adjustment on deferred tax
Equity shareholders` funds as at 1 October 2009 2,356
as restated
Total comprehensive income and expense 107
Net proceeds from equity placing and on shares 229
issued under option schemes (2)
Movement on derivative liability on equity 14
placing 5
Transfer to reserve for own shares
Share based payments and shares issued
Equity shareholders` funds as at 30 September 2,709
2010
The prior year adjustment on deferred tax represents the equity shareholder`s
share of deferred tax liabilities on non-current assets which were not
recognised on transition to IFRS in 2006. There are no cash implications of
this adjustment.
Equity shareholders` funds during the period increased by $107 million due to
the recognition of $112 million attributable profit offset by a $5 million
loss from other movements in comprehensive income, which was mainly the
marking to market of available for sale financial assets. The equity placing
raised a net $229 million which increased share capital and share premium.
The derivative gain on the income statement (covered under net finance income
/ (costs) above) reversed through reserves creating a $2 million charge
resulting in no impact on reserves at the end of the year. A transfer of $14
million occurred during 2010 from share based payment accruals to the reserve
for own shares as the Directors opted to satisfy all future award schemes
with equity which included a $5 million charge to this point. A further $4
million of share based payment charges were subsequently recognised directly
in equity increasing the reserve for own shares and $1 million was recognised
on the issuance of shares for share schemes.
Net debt at $375 million has increased by $262 million since the 2009 year
end. Issues with the smelter led to a significant back end loading of sales,
toll refining and the sale of concentrate together with a stock build-up.
This has had a significant impact on working capital. Debtors and stock are
estimated to be $180 million higher than would have been the case under
normal operations, a large portion of which has already been converted into
cash as at the date of this report.
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 10% at September 2010 and 2% at 30 September 2009.
Cash flow
The following table summarises the main components of the cash flow during
the year:
Year ended 30
September
2010 2009
$m $m
Operating profit / (loss) 203 (142)
Depreciation, amortisation and 134 94
impairment
Changes in working capital (218) 110
Other 14 1
Cash flow generated from 133 63
operations
Interest and finance costs (41) (31)
Tax (12) (48)
Trading cash inflow / 80 (16)
(outflow)
Capital expenditure (261) (234)
Dividends paid to non- (22) (21)
controlling interests
Free cash outflow (203) (271)
Investment in joint venture (3) (5)
Net proceeds from equity 229 462
issuance
HDSA financing (285) -
Other shares issued 1 16
Equity dividends received - 3
Cash outflow (261) 205
Opening net debt (113) (303)
Foreign exchange 1 (27)
Unamortised fees (2) 12
Closing net debt (375) (113)
Trading cash inflow / 40.7c (9.2)c
(outflow) (cents per share)
Free cash outflow (cents per (103.2)c
share) (155.6)c
Cash flow generated from operations in the year ended 30 September 2010 was
positive, at $133 million, despite being impacted by working capital outflows
of $218 million. Debtors increased by $138 million in 2010 as a result of a
back end loaded sales profile due to the issues at the smelter. This also led
to a higher year end inventory of $125 million. In total it is estimated the
smelter problems have resulted in increased stocks and debtors of some $180
million. Compared to the prior year, cash flow generated from operations was
up $70 million. Whilst there was a $345 million improvement in reported
operating profit, this was offset by a $328 million turnaround in the working
capital position. Operating profit was also impacted by $40 million higher
depreciation, amortisation and impairment and a $10 million movement in
relation to share based payments.
Trading cash inflow for 2010 amounted to $80 million against a $16 million
outflow in 2009. The cash flow on interest and finance costs increased due to
the agreement, at the end of the 2009 financial year, to pay arrangement fees
on the renegotiation of bank facilities. The tax payment in 2009 represented
the final 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 and relate to
secondary taxes on minority dividends and limited payments for corporation
tax, partly relating to earlier years. The trading cash inflow per share was
40.7 cents for the year ended 30 September 2010 against a 9.2 cents outflow
in the prior year.
Capital expenditure cash flow at $261 million was $27 million above the prior
period and is within market guidance despite the significant strengthening of
the Rand in the second half. 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 Merensky opencast. In the Process Division spend was
focused at the concentrators. We continue to monitor the balance between the
need to invest for future production with the requirement to maintain a
strong balance sheet and provide a return to shareholders.
Dividends paid to non-controlling interests in the year at $22 million were
essentially the same as in 2009 and reflect the minimum payment required to
enable Incwala to service its loan facilities.
Free cash outflow at $203 million was $68 million favourable to the prior
year with the free cash outflow per share of 103.2 cents improving by 52.4
cents. Whilst the reported free cash flow was negative at $203 million, it is
estimated that this was impacted by circa $195 million of timing differences
due to the smelter, including the payment of toll fees, and in addition there
was a net outflow, after equity placing proceeds, of $56 million in
connection with the provision of finance to Shanduka.
Dividends
The Board`s new policy on dividends is to recommend each year a final
ordinary dividend at a rate which the Board expects to at least be maintained
in subsequent years, or possibly increased over time. This final dividend
will be supplemented by special dividends when our reported earnings and
projected cash requirements allow. Clearly the combination of metal prices,
the Rand to US Dollar exchange rate and capital expenditure plans will be key
factors to be considered when making this decision. Given this new policy,
the Directors believe it is appropriate to resume the payment of dividends
and propose a dividend of 15.0 cents per share for the year.
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. The Group funds its operations
through a mixture of equity funding and bank borrowings. The Group`s
philosophy on this is to maintain a low level of financial gearing given the
exposure the business has to fluctuations in PGM commodity prices and the
Rand to US Dollar exchange rate.
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.
During the course of the 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 covenant at September 2010. Our relationship banks
continue to show confidence in our business and we expect this support to
continue.
As at 30 September 2009, we had net debt of $113 million. At 30 September
2010, net debt had increased to $375 million, comprising $533 million of
drawn down facilities net of $148 million of cash and equivalents and $10
million of unamortised bank fees.
Lonmin has $888 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 $130 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, which started 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, the next test being in March 2011; a minimum
EBITDA/net interest ratio of 4.0 times, tested in September 2010; and a
maximum net debt/tangible net worth ratio 0.7 times;
- 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 $255 million term loan
(previously a $300m term loan which amortised by $45m during the
financial year) 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 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 $255 million
term loan.
The effective funding rate was circa 6% 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.
HDSA receivables
HDSA receivables are secured on the HDSAs shareholding in Incwala.
Interest rate risk
Currently, the bulk of our outstanding borrowings are in US Dollars and South
African Rand 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
The Group`s operations are essentially 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. 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.
The approximate effects on the Group`s results of a 10% movement in the Rand
to US Dollar 2010 financial year average exchange rate would be as follows:
EBIT +/-
$118m
Profit for the year +/-
$70m
EPS (cents) +/-
35.4c
These sensitivities are based on 2010 prices, costs and volumes and assume
all other variables remain constant. They are estimated calculations only.
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. The 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.
The approximate effects on the Group`s results of a 10% movement in the 2010
financial year average metal prices achieved for Platinum (Pt) ($1,525 per
ounce) and Rhodium (Rh) ($2,308 per ounce) would be as follows:
Pt Rh
EBIT +/- $108m +/- $23m
Profit for the year +/- $64m +/- $13m
EPS (cents) +/- 32.3 +/- 6.8c
These sensitivities are based on 2010 costs and volumes and assume all other
variables remain constant. They are estimated calculations only.
Fiscal risk
The South African Government introduced a new Mining Royalty on 1 March 2010.
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 percentage is subject
to a minimum rate of 0.5%.
The formula for refined products is:
% of Gross Sales = ( Adjusted EBIT* x100) + 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.
The mining royalty charge for this financial year amounted to $5 million.
Contingent liabilities
As a result of Shanduka acquiring the majority of the shares held in Incwala
Resources (Pty) Limited, guarantees provided by Lonmin in respect of the
former shareholders have now largely been extinguished and contingent
liabilities have fallen to $25 million.
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.
Alan Ferguson
Chief Financial Officer
Operating Statistics - 5 Year Review
Uni 2010 2009 2008 2007 2006
ts
Tonnes mined
Marikana Karee 1 kt 4,115 3,950 3,962 4,609 4,662
Westerns kt 3,694 3,912 4,343 4,931 5,503
1
Middelkr kt 1,918 1,385 884 461 63
aal 1
Easterns kt 1,082 935 1,036 1,212 1,256
1
Undergro kt 10,809 10,182 10,226 11,212 11,484
und
Opencast kt 329 234 1,300 1,597 1,583
Limpopo Undergro kt - 87 523 757 870
und
Pandora attributable Undergro kt 166 142 124 128 100
2 und
Opencast kt - 156 275 286 176
Lonmin Platinum Undergro kt 10,975 10,411 10,875 12,096 12,454
und
Opencast kt 329 389 1,575 1,883 1,759
Total kt 11,304 10,801 12,449 13,979 14,213
% tonnes mined from % 75.6 77.7 73.1 72.0 71.2
UG2 reef
Tonnes milled3
Marikana Undergro kt 10,655 10,148 10,206 11,216 11,502
und
Opencast kt 129 622 1,163 1,469 1,854
Limpopo Undergro kt - 92 534 781 901
und
Pandora 4 Undergro kt 391 335 293 301 236
und
Opencast kt - 430 595 649 394
Ore Purchases 5 Undergro kt - - - 75 14
und
Opencast kt - - 30 20 18
Lonmin Platinum Undergro kt 11,046 10,576 11,033 12,373 12,653
und
Opencast kt 129 1,053 1,788 2,138 2,266
Total kt 11,176 11,628 12,821 14,511 14,919
Lonmin Platinum - Undergro g/t 4.67 4.57 4.66 4.88 4.94
head grade 6 und
Opencast g/t 2.25 3.70 3.70 4.39 4.36
Total g/t 4.65 4.50 4.52 4.80 4.85
Lonmin Platinum - Undergro % 84.8 81.0 81.7 80.7 84.0
recovery rate 7 und
Opencast % 63.8 65.1 59.4 55.4 60.9
Total % 84.7 79.8 79.2 77.3 80.8
Uni 2010 2009 2008 2007 2006
ts
Metals in
concentrate 8
Marikana Platinum oz 668,62 612,910 660,42 778,049 881,068
0 9
Palladium oz 313,59 284,561 303,53 354,037 395,180
0 0
Gold oz 14,969 14,419 17,221 21,578 28,284
Rhodium oz 93,043 85,008 90,096 102,906 113,411
Ruthenium oz 144,91 130,080 139,15 164,826 182,078
3 8
Iridium oz 31,432 28,389 29,654 37,317 37,676
Total oz 1,266, 1,155,3 1,240, 1,458,7 1,637,6
PGMs 566 67 088 13 97
Limpopo Platinum oz - 3,770 22,017 35,567 48,640
Palladium oz - 3,331 16,477 24,351 36,834
Gold oz - 243 1,265 2,945 3,355
Rhodium oz - 487 2,660 3,723 6,904
Ruthenium oz - 688 4,128 5,769 8,704
Iridium oz - 159 121 1,245 1,973
Total oz - 8,679 46,667 73,600 106,410
PGMs
Pandora Platinum oz 25,756 46,421 48,743 52,479 34,125
Palladium oz 12,108 20,866 21,282 24,417 15,463
Gold oz 176 350 371 461 302
Rhodium oz 4,036 6,425 6,334 7,439 4,949
Ruthenium oz 6,228 9,338 9,379 10,922 7,507
Iridium oz 1,041 1,767 1,762 2,415 1,595
Total oz 49,345 85,168 87,872 98,133 63,941
PGMs
Ore Purchases 5 Platinum oz - - 937 3,737 1,125
Palladium oz - - 793 1,730 417
Gold oz - - 74 46 32
Rhodium oz - - 83 533 115
Ruthenium oz - - 107 809 202
Iridium oz - - 25 180 40
Total oz - - 2,019 7,035 1,931
PGMs
Lonmin Platinum Platinum oz 694,37 663,101 732,12 869,832 964,958
6 5
Palladium oz 325,69 308,758 342,08 404,535 447,894
7 1
Gold oz 15,144 15,013 18,932 25,030 31,973
Rhodium oz 97,079 91,920 99,173 114,601 125,379
Ruthenium oz 151,14 140,106 152,77 182,326 198,491
1 2
Iridium oz 32,473 30,315 31,562 41,157 41,284
Total oz 1,315, 1,249,2 1,376, 1,637,4 1,809,9
PGMs 911 14 645 81 79
Nickel 9 mt 2,972 2,794 3,549 4,636 5,120
Copper 9 mt 1,824 1,763 2,216 2,814 3,104
Uni 2010 2009 2008 2007 2006
ts
Refined production
Lonmin refined metal
production 10
Platinum oz 607,794 655,291 699,942 695,842 799,070
Palladium oz 303,748 297,415 330,209 318,758 369,859
Gold oz 15,284 18,277 20,257 20,485 20,955
Rhodium oz 94,690 95,596 91,063 88,469 115,453
Ruthenium oz 147,854 146,506 158,424 135,873 174,639
Iridium oz 36,073 23,908 31,599 30,430 40,836
Total PGMs oz 1,205,443 1,236,99 1,331,49 1,289,85 1,520,81
2 3 7 2
Toll refined metal
production
Platinum oz 77,571 2,025 - 93,609 -
Palladium oz 15,274 941 - 43,274 -
Gold oz 1,100 58 - - -
Rhodium oz 5,411 1,532 - 12,966 -
Ruthenium oz 8,278 2,647 - 20,439 -
Iridium oz 1,695 513 - 4,090 -
Total PGMs oz 109,328 7,717 - 174,378 -
Total refined PGMs
Platinum oz 685,365 657,317 699,942 789,451 799,070
Palladium oz 319,022 298,356 330,209 362,032 369,859
Gold oz 16,383 18,335 20,257 20,485 20,955
Rhodium oz 100,100 97,128 91,063 101,435 115,453
Ruthenium oz 156,133 149,153 158,424 156,312 174,639
Iridium oz 37,768 24,420 31,599 34,520 40,836
Total PGMs oz 1,314,772 1,244,70 1,331,49 1,464,23 1,520,81
9 3 5 2
Base metals
Nickel 11 mt 3,475 3,244 3,483 4,522 4,342
Copper 11 mt 2,091 1,988 2,009 2,466 2,452
Uni 2010 2009 2008 2007 2006
ts
Sales
Refined metal sales
10
Platinum oz 681,424 659,703 706,492 786,552 803,471
Palladium oz 315,515 305,332 329,460 362,077 373,303
Gold oz 16,289 18,910 20,151 24,449 22,133
Rhodium oz 98,657 94,160 93,337 102,916 116,281
Ruthenium oz 153,865 146,009 158,477 162,853 179,557
Iridium oz 34,790 23,522 32,140 37,858 38,092
Total PGMs oz 1,300,540 1,247,63 1,340,05 1,476,70 1,532,83
6 7 5 7
Concentrate and
other 12
Platinum oz 24,850 23,253 20,425 7,032 136,183
Palladium oz - (2,848) 11,888 3,232 61,110
Gold oz - 13 117 201 4,641
Rhodium oz - 175 889 1,008 15,965
Ruthenium oz - 303 26,205 1,942 26,137
Iridium oz - 387 1,789 64 5,291
Total PGMs oz 24,850 21,282 61,313 13,479 249,327
Lonmin Platinum
Platinum oz 706,274 682,955 726,918 793,584 939,654
Palladium oz 315,515 302,485 341,348 365,309 434,413
Gold oz 16,289 18,922 20,268 24,650 26,774
Rhodium oz 98,657 94,335 94,227 103,924 132,246
Ruthenium oz 153,865 146,312 184,682 164,795 205,694
Iridium oz 34,790 23,909 33,929 37,922 43,384
Total PGMs oz 1,325,390 1,268,91 1,401,37 1,490,18 1,782,16
8 1 4 4
Nickel 11 mt 3,033 3,318 3,338 5,308 4,604
Copper 11 mt 2,169 2,045 1,978 2,474 2,974
Average Prices
Platinum $/o 1,525 1,086 1,655 1,213 1,091
z
Palladium $/o 448 224 372 339 300
z
Gold $/o 1,153 912 867 647 571
z
Rhodium $/o 2,308 1,571 7,614 5,757 3,971
z
Ruthenium $/o 173 97 340 404 134
z
Iridium $/o 520 388 414 402 233
z
Basket price of PGMs $/o 1,139 786 1,529 1,196 972
13 z
Basket price of PGMs R/o 8,375 6,873 11,543 8,533 6,518
13 z
Nickel 11 $/M 18,569 15,006 22,556 26,461 17,975
T
Copper 11 $/M 6,623 6,291 7,212 6,971 7,882
T
Footnotes:
1 During the year we revised the management structure in mining into four
business units and we will report against these from now onwards. Karee
includes the shafts K3, 1B and 4B and will also include K4 once
production commences. Westerns comprises Rowland, Newman and the now
closed W1 and B3. Middelkraal represents Hossy and Saffy. Easterns
includes E1, E2 and E3.
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 Tonnes milled and derived metal in concentrate from third-party ore
purchases.
6 Head grade is the grammes per tonne (5PGE+Au) value contained in the
tonnes milled and fed into the concentrator from the mines (excluding
slag milled).
7 Recovery rate in the concentrators is the total content produced
divided by the total content milled (excluding slag).
8 Metals in concentrate includes slag and has been calculated using
industry standard downstream processing losses.
9 Corresponds to contained base metals in concentrate.
1 Lonmin refined metal production and sales include saleable ounces of
0 Platinum produced from toll refining third party concentrate estimated
at 8koz in 2010 and 4koz in 2009.
1 Nickel is produced and sold as nickel sulphate crystals or solution and
1 the volumes shown correspond to contained metal. Copper is produced as
refined product but typically at LME grade C.
1 Concentrate and others sales have been adjusted to a saleable ounce
2 basis using industry standard recovery rates.
1 Basket price of PGMs is based on the revenue generated in Rand and
3 Dollar from the actual PGMs (5PGE + Au) sold in the period based on the
appropriate Rand / Dollar exchange rate applicable for each sales
transaction.
Uni 2010 2009 2008 2007 2006
ts
Capital expenditure 1 Rm 1,989 2,106 2,816 1,923 1,207
$m 267 234 378 276 182
Cost per PGM ounce
sold 2
Group:
Mining - Marikana R/o 4,575 4,468 3,880 2,306 1,700
z
Mining - Limpopo R/o - 7,404 6,363 4,463 3,740
z
Mining (weighted R/o 4,575 4,490 3,979 2,430 1,827
average) z
Concentrating - R/o 862 808 724 470 330
Marikana z
Concentrating - R/o - 1,820 1,743 1,506 847
Limpopo z
Concentrating R/o 862 815 761 526 361
(weighted average) z
Process division R/o 809 693 686 600 406
z
Shared business R/o 527 632 845 612 463
services z
C1 cost per PGM ounce R/o 6,773 6,630 6,271 4,168 3,057
produced z
Stock movement R/o (358) 112 (863) 28 (9)
z
C1 cost per PGM ounce 6,415
sold R/o 6,742 5,408 4,196 3,048
before base metal z
credits
Base metal credits R/o (415) (440) (482) (762) (400)
z
C1 cost per PGM ounce 6,000
sold R/o 6,302 4,926 3,434 2,648
after base metal z
credits
Amortisation R/o 571 516 420 360 272
z
C2 cost per PGM ounce R/o 6,571 6,818 5,346 3,794 2,920
sold z
Pandora Mining cost:
C1 Pandora mining R/o 4,727
cost z 3,371 3,223 2,453 1,795
(in joint venture)
Pandora JV cost/ounce R/o 7,253
to Lonmin (adjusting z 5,956 6,200 4,225 3,110
Lonmin share of
profit)
Exchange Rates
Average rate for
period 3
R/$ 7.45 9.00 7.45 7.14 6.63
GBP 0.64 0.64 0.51 0.51 0.55
/$
Closing rate
R/$ 6.92 7.47 8.27 6.83 7.77
GBP 0.64 0.62 0.56 0.50 0.53
/$
Footnotes:
1 Capital expenditure is the aggregate of the purchase of property, plant
and equipment and intangible assets (includes capital accruals and
excludes capitalised interest).
2 It should be noted that with the restructuring of the business in both
2010 and 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.
3 Exchange rates are calculated using the market average daily closing rate
over the course of the period.
Consolidated income statement
for the year ended 30 September
Specia Specia
2010 l 2010 2009 l 2009
Underlyi items Total Underly items Total
Continuing operations Not ng i (note $m ing i (note $m
e $m 3) $m 3)
$m $m
Revenue 2 1,585 - 1,585 1,062 - 1,062
EBITDA / (LBITDA) ii 350 (13) 337 1 (49) (48)
Depreciation, (122) (12) (134) (94) - (94)
amortisation and
impairment
Operating profit / 228 (25) 203 (93) (49) (142)
(loss) iii
Impairment of - - - - (39) (39)
available for sale
financial assets
Finance income 4 10 28 38 9 - 9
Finance expenses 4 (9) - (9) (28) (73) (101)
Share of profit of 8 - 8 1 - 1
equity accounted
investments
Profit / (loss) before 237 3 240 (111) (161) (272)
taxation
Income tax expense iv 5 (80) (38) (118) (18) (33) (51)
Profit / (loss) for 157 (35) 122 (129) (194) (323)
the year
Attributable to: 138 (26) 112 (103) (182) (285)
- Equity shareholders 19 (9) 10 (26) (12) (38)
of Lonmin Plc
- Non-controlling
interests
6 70.2c 56.9c (59.2)c (163.7)c
Earnings / (loss) per
share
Diluted earnings / 6 70.0c 56.8c (59.2)c (163.7)c
(loss) per share v
Consolidated statement of comprehensive income
for the year ended 30 September
2010 2009
Total Total
$m $m
Profit / (loss) for the year 122 (323)
Other comprehensive income / (expense):
- Change in fair value of available for sale (6) 9
financial assets
- Net change in fair value of cash flow hedges 1 5
- Gains on settled cash flow hedges released to the (3) (24)
income statement
- Foreign exchange on retranslation of equity 3 6
accounted investments
- Deferred tax on items taken directly to the 1 6
statement of comprehensive income
Total comprehensive income / (expense) for the year 118 (321)
Attributable to:
- Equity shareholders of Lonmin Plc 107 (280)
- Non-controlling interests 11 (41)
118 (321)
Footnotes:
i Underlying results and earnings per share are based on reported results
and earnings per share excluding the effect of special items as defined
in note 3.
i EBITDA / (LBITDA) is operating profit / (loss) before depreciation,
i amortisation and impairment of goodwill, intangibles and property, plant
and equipment.
i Operating profit / (loss) is defined as revenue less operating expenses
i before impairment of available for sale financial assets, finance income
i and expenses and share of profit of equity accounted investments.
i The income tax expense substantially relates to overseas taxation and
v includes net exchange losses of $37 million (2009 - exchange losses of
$38 million) as disclosed in note 5.
v Diluted earnings / (loss) per share is based on the weighted average
number of ordinary shares in issue adjusted by dilutive outstanding
share options. For the year ended 30 September 2009 outstanding share
options were anti-dilutive and so have been excluded from diluted loss
per share in accordance with IAS 33 - Earnings Per Share.
Consolidated statement of financial position
as at 30 September
2010 2009
Not $m $m
e
Non-current assets
Goodwill 113 113
Intangible assets 978 964
Property, plant and equipment 2,199 2,036
Equity accounted investments 172 159
Other financial assets 404 93
3,866 3,365
Current assets
Inventories 396 271
Trade and other receivables 414 287
Assets held for sale - 6
Tax recoverable - 1
Derivative financial instruments - 1
Cash and cash equivalents 8 148 282
958 848
Current liabilities
Trade and other payables (381) (337)
Interest bearing loans and borrowings 8 (66) (58)
Derivative financial instruments (1) -
Tax payable (6) (10)
(454) (405)
Net current assets 504 443
Non-current liabilities
Employee benefits - (11)
Interest bearing loans and borrowings 8 (457) (349)
Deferred tax liabilities i (751) (643)
Provisions (80) (67)
(1,288) (1,070)
Net assets i 3,082 2,738
Capital and reserves
Share capital 202 193
Share premium 997 776
Other reserves 88 89
Retained earnings i 1,422 1,298
Attributable to equity shareholders of Lonmin 2,709 2,356
Plc i
Attributable to non-controlling interests i 373 382
Total equity i 3,082 2,738
Footnotes:
i 2009 deferred tax liabilities were restated as disclosed in note 1
impacting net assets accordingly. This has also impacted retained
earnings, including the split between equity shareholders and non-
controlling interests, and total equity as shown in the consolidated
statement of changes in equity.
Consolidated statement of changes in equity
for the year ended 30 September
Equity interest
Called Share Non-
up premiu Other Retain control Total
share m reserv ed Total ling equity
capita accoun es i earnin $m interes $m
l t $m gs ii ts iii
$m $m $m $m
At 1 October 2008 as 156 305 100 1,586 2,147 447 2,594
previously reported
Correction - - - (61) (61) (3) (64)
At 1 October 2009 156 305 100 1,525 2,086 444 2,530
(restated iv)
Loss for the year - - - (285) (285) (38) (323)
Total other - - (11) 16 5 (3) 2
comprehensive (expense)
/ income:
- Change in fair value - - - 9 9 - 9
of available for sale
financial assets
- Net change in fair - - 4 - 4 1 5
value of cash flow
hedges
- Gains on settled cash - - (20) - (20) (4) (24)
flow hedges released to
the income statement
- Foreign exchange gain - - - 6 6 - 6
on retranslation of
equity accounted
investments
- Deferred tax on items - - 5 1 6 - 6
taken directly to the
statement of
comprehensive income
Items recognised 37 471 - 42 550 (21) 529
directly in equity:
- Share-based payments - - - 2 2 - 2
- Share capital and 35 477 - - 512 - 512
share premium
recognised on equity
issuance v
- Equity issue costs - (21) - - (21) - (21)
charged to share
premium v
- Exchange gain on - - - 4 4 - 4
shares to be issued v
- Reversal of fair - - - 36 36 - 36
value movements on
derivative liability
recognised on equity
issuance v
- Shares issued on 1 - - - 1 - 1
exercise of share
options vi
- Shares issued under 1 15 - - 16 - 16
the IFC option
agreement vii
- Dividends - - - - - (21) (21)
At 30 September 2009 193 776 89 1,298 2,356 382 2,738
(restated iv)
Equity interest
Called Share Non-
up premiu Other Retain control Tota
share m reserv ed Tota ling l
capita accoun es i earnin l interes equi
l t $m gs ii $m ts iii ty
$m $m $m $m $m
At 1 October 2009 as 193 776 89 1,359 2,41 385 2,80
previously reported 7 2
Correction - - - (61) (61) (3) (64)
At 1 October 2009 193 776 89 1,298 2,35 382 2,73
(restated iv) 6 8
Profit for the year - - - 112 112 10 122
Total other comprehensive - - (1) (4) (5) 1 (4)
(expense) / income:
- Change in fair value of - - - (6) (6) - (6)
available for sale
financial assets
- Net change in fair value - - 1 - 1 - 1
of cash flow hedges
- Gains on settled cash - - (3) - (3) - (3)
flow hedges released to
the income statement
- Foreign exchange gain on - - - 2 2 1 3
retranslation of equity
accounted investments
- Deferred tax on items - - 1 - 1 - 1
taken directly to the
statement of comprehensive
income
Items recognised directly 9 221 - 16 246 (20) 226
in equity:
- Share-based payments - - - 4 4 1 5
- Transfer from liability - - - 14 14 1 15
for own shares viii
- Share capital and share 9 224 - - 233 - 233
premium recognised on
equity issuance ix
- Equity issue costs - (4) - - (4) - (4)
charged to share premium
ix
- Reversal of fair value - - - (2) (2) - (2)
movements on derivative
liability recognised on
equity issuance ix
- Shares issued on - 1 - - 1 - 1
exercise of share options
vi
- Dividends - - - - - (22) (22)
At 30 September 2010 202 997 88 1,422 2,70 373 3,08
9 2
Footnotes:
i Other reserves at 30 September 2010 represent the capital redemption
reserve of $88 million (2009 - $88 million) and a $nil hedging reserve
net of deferred tax (30 September 2009 - $1 million credit hedging
reserve net of deferred tax). The movement in the current year
represents the movement on the hedging reserve.
i Retained earnings include $16 million of accumulated credits in respect
i of fair value movements on available for sale financial assets (2009 -
$22 million accumulated credits) and a $14 million credit of accumulated
exchange on retranslation of equity accounted investments (2009 - $11
million credit).
i Non-controlling interests represent an 18% shareholding in Eastern
i Platinum Limited, Western Platinum Limited and Messina Limited and a 26%
i shareholding in Akanani Mining (Pty) Limited.
i Retained earnings as at 1 October 2008 and 30 September 2009 have been
v restated as disclosed in note 1.
v During the prior year the Group undertook a Rights Issue in which
35,072,129 shares were issued.
v During the year 173,936 share options were exercised (2009 - 426,315) on
i which $1 million of cash was received (2009 - $1 million).
v In the prior year 1,172,583 shares were issued under the International
i Finance Corporation option agreement. As the shares were issued at a
i discount only $15 million of cash was received.
v During the year the Directors took the policy decision that all award
i schemes will be satisfied by equity shares for the foreseeable future.
i As a result the balance on the liability for own shares relating to
i previously cash settled schemes was transferred to the reserve for own
shares.
i During the year the Group completed an equity placing of 9,064,249
x shares for net proceeds of $229 million. As disclosed in note 3, under
IAS 32 this resulted in the recognition of a derivative liability with
fair value movements taken through the income statement until
settlement. On settlement movements in fair value were reversed through
equity.
Consolidated statement of cash flows
for the year ended 30 September
2010 2009
Not $m $m
e
Profit / (loss) for the year 122 (323)
Taxation 5 118 51
Share of profit of equity accounted investments (8) (1)
Finance income 4 (38) (9)
Finance expenses 4 9 101
Impairment of available for sale financial 3 - 39
assets
Depreciation, amortisation and impairment 134 94
Change in inventories (125) 48
Change in trade and other receivables (138) 59
Change in trade and other payables 40 (9)
Change in provisions 5 12
Share-based payments 9 (1)
Loss on disposal of property, plant and 5 4
equipment
Other non cash expenses - (2)
Cash flow from operations 133 63
Interest received 3 3
Interest and bank fees paid (44) (34)
Tax paid (12) (48)
Cash inflow / (outflow) from operating 80 (16)
activities
Cash flow from investing activities
Investment in joint venture (3) (5)
HDSA financing 9 (285) -
Dividend received from associate - 3
Purchase of property, plant and equipment (259) (221)
Purchase of intangible assets (2) (13)
Cash used in investing activities (549) (236)
Cash flow from financing activities
Dividends paid to non-controlling interests (22) (21)
Proceeds from current borrowings 8 60 58
Repayment of current borrowings 8 (47) -
Proceeds from non-current borrowings 8 113 225
Repayment of non-current borrowings 8 - (405)
Proceeds from equity issuance 233 516
Costs of issuing shares (4) (21)
Loss on forward exchange contracts on equity - (33)
issuance
Issue of other ordinary share capital 1 16
Cash from financing activities 334 335
(Decrease) / increase in cash and cash 8 (135) 83
equivalents
Opening cash and cash equivalents 8 282 226
Effect of exchange rate changes 8 1 (27)
Closing cash and cash equivalents 8 148 282
Notes
1. Basis of preparation
The financial information presented has been prepared on the basis of
International Financial Reporting Standards (IFRSs) as adopted by the EU.
The 2008 and 2009 deferred tax liabilities in respect of non-current assets
have been restated to reflect an additional liability of $64 million which
should have been recorded on transition to IFRS in 2006. The deferred tax
liability will unwind over the life of the non-current assets. The income
statement impact in any given year is not material and therefore prior year
income statements have not been restated. There are no cash implications of
this adjustment.
Deferred
tax Reserves
liability $m
$m
Balance as reported at 1 October 2008 (540) 2,594
Correction (64) (64)
Restated balance at 1 October 2008 (604) 2,530
Balance as reported at 30 September 2009 (579) 2,802
Correction (64) (64)
Restated balance at 30 September 2009 (643) 2,738
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 intersegment transactions involve the
provision of funding between segments and any associated interest.
Year ended 30 September 2010
PGM Inter-
Operati Evaluat Explorat segment
ons ion ion Other Adjustme Total
Segment Segment Segment $m nts $m
$m $m $m $m
Revenue (external
sales by product)
Platinum 1,078 - - - - 1,078
Palladium 141 - - - - 141
Gold 19 - - - - 19
Rhodium 229 - - - - 229
Ruthenium 27 - - - - 27
Iridium 18 - - - - 18
PGMs 1,512 - - - - 1,512
Nickel 56 - - - - 56
Copper 14 - - - - 14
Chrome 3 - - - - 3
1,585 - - - - 1,585
Underlying i:
EBITDA / (LBITDA) ii 359 (3) (6) - - 350
Depreciation and (122) - - - - (122)
amortisation
Operating profit / 237 (3) (6) - - 228
(loss) ii
Finance income 3 - - 36 (29) 10
Finance expenses (23) - - (15) 29 (9)
Share of profit of 5 - - 3 - 8
equity accounted
investments
Profit / (loss) before 222 (3) (6) 24 - 237
taxation
Income tax (expense) / (82) (4) - 6 - (80)
credit
Profit / (loss) after 140 (7) (6) 30 - 157
taxation
Total assets 3,537 843 4 963 (523) 4,824
Total liabilities (1,888) (294) (46) (37) 523 (1,742)
Net assets 1,649 549 (42) 926 - 3,082
Share of net assets of 47 - - 125 - 172
equity accounted
investments
Additions to property, 293 17 - - - 310
plant, equipment and
intangibles
Material non cash 9 - - - - 9
items - share-based
payments
Year ended 30 September 2009
PGM Inter-
Operati Evaluat Explorat segment
ons ion ion Other Adjustme Total
Segment Segment Segment $m nts $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 iii (1,483) (257) (35) (32) 332 (1,475)
Net assets iii 1,606 574 (35) 593 - 2,738
Share of net assets of 39 - - 120 - 159
equity accounted
investments
Additions to property, 229 29 - - - 258
plant, equipment and
intangibles
Material non cash 4 - - - - 4
items - share-based
payments
Revenue by destination is analysed by geographical area below:
Year ended Year ended
30 30
September September
2010 2009
$m $m
The Americas 453 227
Asia 373 296
Europe 529 417
South Africa 230 122
1,585 1,062
The Group`s revenues are all derived from the PGM Operations segment. This
segment has 2 major customers who contributed 69% and 23% of revenue in the
year (2009 - 66% and 27%).
Metal sales prices are based on market prices which are denominated in US
Dollars. The majority of sales are also invoiced in US Dollars with the
exception of certain sales in South Africa which are invoiced in South
African Rand based on exchange rates determined in accordance with the
contractual arrangements.
Non-current assets, excluding financial instruments, by geographical
area are shown below:
Year ended Year ended
30 30
September September
2010 2009
$m $m
South Africa 3,461 3,271
Europe 1 1
3,462 3,272
Footnotes:
i Underlying results are based on reported results excluding the effect
of special items as defined in note 3.
i EBITDA / (LBITDA) and operating profit / (loss) are the key profit
i measures used by management.
i Total liabilities and net assets are restated as disclosed in note 1.
i
i
3. Special Items
`Special items` are those items of financial performance that the Group
believes should be separately disclosed on the face of the income statement
to assist in the understanding of the financial performance achieved by the
Group and for consistency with prior years.
2010 2009
$m $m
Operating loss: (25) (49)
- Costs relating to HDSA financing i (5) -
- Impairment of property, plant and equipment ii (12) -
- Restructuring and reorganisation costs iii (9) (49)
- Pension refund 1 -
Impairment of available for sale financial assets iv - (39)
Net finance income / (expense): 28 (73)
- Interest accrued from HDSA receivable i 3 -
- Exchange gains on HDSA receivable i 11 -
- Movement in fair value of HDSA derivative asset 12 -
- Loss on forward exchange contracts in respect of - (33)
equity issuance
- Exchange difference on holding Rights Issue proceeds - (4)
received in advance
- Movement in fair value of derivative liability in 2 (36)
respect of equity issuance v
Profit / (loss) on special items before taxation 3 (161)
Taxation related to special items (note 5) (38) (33)
Special loss before non-controlling interest (35) (194)
Non-controlling interests 9 12
Special loss for the year attributable to equity (26) (182)
shareholders of Lonmin Plc
Footnotes:
i As explained in note 9 the Group provided financing to assist Shanduka
to acquire a majority shareholding in Incwala, Lonmin`s Black Economic
Empowerment partner. This financing has given rise to foreign exchange
movements and the accrual of interest in the year. The Group also
incurred fees from advisors in relation to the transaction.
i During the year the Group took a strategic decision to enhance its
i smelting capacity by initiating the development of an additional pyromet
furnace. The most cost effective approach was to decommission the
existing Merensky furnace and leverage the existing infrastructure. To
the extent the Merensky furnace assets could not be reutilised these
have been written off. In addition, $2 million was written off with
respect to houses for sale.
i During the year the Group incurred $9 million in transition costs in
i relocating corporate functions from the London office to South Africa.
i In 2009 the Group incurred $49 million restructuring costs together with
abnormal non-productive operating costs at Limpopo following
announcement of its closure.
i During the prior year certain available for sale financial assets were
v marked to market and fell below original acquisition costs resulting in
$39 million of impairment charges being taken to the income statement.
v During the year the Group completed an equity placing of 9,064,249
ordinary shares. Since the equity was raised in Sterling and the
functional currency of the Group is US Dollars, the fair value of the
derivative recognised under IAS 32 - Financial Instruments: Presentation
increased by $2 million during the settlement period due to variations
in the share price and foreign exchange. The transaction could not be
treated as an equity instrument, rather than a derivative, under the
amendment to IAS 32 as it was not a Rights Issue. In the prior year a
charge of $36 million arose on the Rights Issue.
4. Net finance costs
2010 2009
$m $m
Finance income: 10 9
- Interest receivable on cash and cash equivalents 2 3
- Other interest receivable 7 -
- Movement in fair value of HDSA receivables - 3
- Exchange gains on HDSA receivables - 3
- Exchange gains on net debt i 1 -
Finance expenses: (9) (28)
- Interest payable on bank loans and overdrafts (25) (15)
- Bank fees (20) (8)
- Capitalised interest ii 43 23
- Other finance expenses (1) -
- Unwind of discounting on provisions (6) (5)
- Exchange losses on net debt i - (23)
Special items (note 3): 28 (73)
- Interest on HDSA receivable iii 3 -
- Exchange gain on HDSA receivable iii 11 -
- Movement in fair value of HDSA derivative iii 12 -
- Loss on forward exchange contracts in respect of equity - (33)
issuance
- Exchange difference on holding Rights Issue proceeds - (4)
received in advance
- Movement in fair value of derivative liability in 2 (36)
respect of equity issuance
Net finance income / (expense) 29 (92)
Footnotes:
i Net debt is defined by the Group as cash and cash equivalents, bank
overdrafts repayable on demand and interest bearing loans and
borrowings less unamortised bank fees.
i Interest expenses incurred have been capitalised on a Group basis to
i the extent that there is an appropriate qualifying asset. The weighted
average interest rate used by the Group for capitalisation is 5.7%
(2009 - 4.8%).
i During the year Shanduka purchased a majority shareholding in Incwala,
i Lonmin`s Black Economic Empowerment partner. Lonmin provided a
i Sterling loan to assist Shanduka in funding the transaction and this
has therefore given rise to foreign exchange movements and accrued
interest in the period since the Sterling loan was drawn. This facility
also included an embedded derivative. See note 9 for further details.
5. Taxation
2010 2009
$m $m
Current tax charge (excluding special items):
United Kingdom tax credit (6) -
Current tax (credit) / expense at 28% (2009 - 28%) (6) 33
Less amount of the benefit arising from double tax - (33)
relief available
Overseas current tax expense at 28% (2009 - 28%) 8 11
Corporate tax expense - current year 9 1
Adjustment in respect of prior years (3) -
Tax on dividends remitted 2 10
Deferred tax expense - UK and overseas 78 7
Origination and reversal of temporary differences 79 7
Adjustment in respect of prior years (1) 12
Tax on dividends unremitted - (12)
Special items - UK and overseas (note 3): 38 33
Reversal of utilisation of losses from prior years to - 1
offset deferred tax liability i
Exchange on current taxation i 1 (5)
Exchange on deferred taxation i 36 43
Tax on special items impacting profit before tax 1 (6)
Actual tax charge 118 51
80 18
Tax charge excluding special items (note 3)
49% (19%)
Effective tax rate
34% (16%)
Effective tax rate excluding special items (note 3)
A reconciliation of the standard tax charge to the actual tax charge was as
follows:
2010 2010 2009 2009
% $m % $m
Tax charge / (credit) on profit / (loss) at 29 70 28 (76)
standard tax rate
Tax effect of:
- Overseas taxes on dividends remitted by 1 2 - -
subsidiary companies
- Unutilised losses ii (2) (5) (7) 18
- Foreign exchange impacts on taxable profits 6 14 (13) 35
- Adjustment in respect of prior years (2) (4) (4) 10
- Impairment of available for sale financial - - (4) 11
assets
- Losses in respect of Rights Issue - - (7) 20
- Other 2 4 - -
Special items as defined above 15 37 (12) 33
Actual tax charge 49 118 (19) 51
The Group`s primary operations are based in South Africa. Therefore, the
relevant standard tax rate for the Group is the South African 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 is 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 30 September 2010 is $524 million (30
September 2009 - $412 million).
i Unutilised losses reflect losses generated in entities for which no
i deferred tax is provided as it is not thought probable that future
profits can be generated against which a deferred tax asset could be
offset or previously unrecognised losses utilised.
6. Earnings / (loss) per share
Earnings / (loss) per share (EPS / (LPS)) have been calculated on the
earnings attributable to equity shareholders amounting to $112 million (2009
- loss $285 million) using a weighted average number of 196,684,833 ordinary
shares in issue (2009 - 174,116,102 ordinary shares).
Diluted earnings / (loss) per share is based on the weighted average number
of ordinary shares in issue adjusted by dilutive outstanding share options in
accordance with IAS 33 - Earnings Per Share. In the 12 months to 30
September 2009 outstanding share options were anti-dilutive and so were
excluded from diluted loss per share in accordance with IAS 33 - Earnings Per
Share.
2010 2009
Profit Per Loss Per
for Number share for Number share
the of amount the of amount
year shares cents year shares cents
$m $m
Basic EPS / (LPS) 112 196,684, 56.9 (285) 174,116, (163.7)
833 102
Share option - 489,302 (0.1) - - -
schemes
Diluted EPS / 112 197,174, 56.8 (285) 174,116, (163.7)
(LPS) 135 102
2010 2009
Profit Per Loss Per
for Number share for Number share
the of amount the of amount
year shares cents year shares cents
$m $m
Underlying EPS / 138 196,684, 70.2 (103) 174,116, (59.2)
(LPS) 833 102
Share option - 489,302 (0.2) - - -
schemes
Diluted underlying 138 197,174, 70.0 (103) 174,116, (59.2)
EPS / (LPS) 135 102
Underlying earnings / (loss) per share has been presented as the Directors
consider it important to present the underlying results of the business.
Underlying earnings / (loss) per share is based on the earnings / (loss)
attributable to equity shareholders adjusted to exclude special items (as
defined in note 3) as follows:
2010 2009
(Loss)
Profit Per / Per
for Number share profit Number share
the of amount for of amount
year shares cents the shares cents
$m year
$m
Basic EPS / (LPS) 112 196,684, 56.9 (285) 174,116, (163.7)
833 102
Special items 26 - 13.3 182 - 104.5
(note 3)
Underlying EPS / 138 196,684, 70.2 (103) 174,116, (59.2)
(LPS) 833 102
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:
Year ended Year ended
30 30
September September
2010 2009
$m $m
Earnings / (loss) attributable to ordinary 112 (285)
shareholders (IAS 33 earnings)
Add back loss on disposal of property, plant and 5 4
equipment
Add back impairment of assets (note 3) 12 39
Tax related to the above items (5) -
Non-controlling interests (2) -
Headline earnings / (loss) 122 (242)
2010 2009
Profit Per Loss Per
for Number of share for Number share
the shares amount the of amount
year cents year shares cents
$m $m
Headline EPS / 122 196,684,8 62.0 (242) 174,116, (139.0)
(LPS) 33 102
Share option - 489,302 (0.1) - - -
schemes
Diluted Headline 122 197,174,1 61.9 (242) 174,116, (139.0)
EPS / (LPS) 35 102
7. Dividends
No dividends were paid in the year (2009 - $nil).
2010 2009
$m Cents per $m Cents per
share share
Prior year final dividend - - - -
paid in the year
Interim dividend paid in the - - - -
year
Total dividend paid in the - - - -
year
Interim dividend paid in the - - - -
year
Proposed final dividend for 30 15.0 - -
the year
Total dividend in respect of 30 15.0 - -
the year
8. Net debt as defined by the Group
Foreign As at
As at exchange 30
1 October and non September
2009 Cash flow cash 2010
$m $m movements $m
$m
Cash and cash equivalents 282 (135) 1 148
Current borrowings (58) (13) - (71)
Non-current borrowings (349) (113) - (462)
Unamortised bank fees 12 - (2) 10
Net debt as defined by the (113) (261) (1) (375)
Group
Foreign
As at exchange As at
1 October and non 30
2008 Cash flow cash September
$m $m movements 2009
$m $m
Cash and cash equivalents 226 83 (27) 282
Current borrowings - (58) - (58)
Non-current borrowings (529) 180 - (349)
Unamortised bank fees - - 12 12
Net debt as defined by the (303) 205 (15) (113)
Group
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.
9. HDSA financing
Lonmin fulfils its Black Economic Empowerment (BEE) ownership requirements
through its relationship with its BEE partner, Incwala Resources (Pty) Ltd
(Incwala). Incwala holds all of the non-controlling interests in Lonmin`s
principal subsidiaries.
At 1 October 2009 Lonmin was owed $25 million vendor financing from the
original HDSA investors in Incwala. In the year a further $59 million was
paid in respect of guarantees on behalf of the original HDSA investors, as
disclosed in the 2010 interim financial statements, in exchange for
additional HDSA receivables of this value.
On 8 July 2010, Lonmin entered into an agreement to provide financing for
Shanduka`s acquisition, at fair value, of 50.03% of shares in Incwala from
the original HDSA shareholders. Lonmin advanced a loan ("HDSA receivable") of
$304 million (or GBP200 million) denominated in Sterling which included the
roll-forward of receivables from the original HDSA investors and accrued
interest.
The terms of the financing provided by Lonmin to Shanduka include the accrual
of interest on the HDSA receivable at market rates based on a principal value
of GBP200 million ($304 million) which is repayable after 5 years including
accrued interest, or earlier at Shanduka`s discretion, and a mechanism for
returning additional value to Lonmin`s shareholders in the event of Shanduka
realising value through its investment in Lonmin. In presenting these
financial statements, the Directors specifically reviewed the balance of risk
and reward accruing to each of Lonmin and Shanduka as a result of this
mechanism.
These financing arrangements constitute, for accounting purposes under IAS
39, a hybrid financial instrument.
As permitted under IAS 39, the Directors have determined that it is
appropriate to account for this financial instrument by splitting it into two
components - the HDSA receivable being an amortised cost asset and a
financial derivative. The Directors have commissioned an independent
valuation of the hybrid instrument and its components to arrive at the
appropriate figures for fair value on initial recognition and subsequently
for the derivative at 30 September 2010.
10. Statutory Disclosure
The financial information set out above does not constitute the Company`s
statutory accounts for the years ended 30 September 2010 and 2009 but is
derived from those accounts. Statutory accounts for 2009 have been delivered
to the registrar of companies, and those for 2010 will be delivered in due
course. The auditors have reported on those accounts; their report 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.
Date: 15/11/2010 09:01:01 Produced by the JSE SENS Department.
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