| Mon 13 Dec 2010, 14:08 | | LON - Lonmin Plc - Annual Report and 2011 Annual General Meeting |
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LON
LOLMI
LON - Lonmin Plc - Annual Report and 2011 Annual General Meeting
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")
13 December 2010
Lonmin Plc ("Lonmin" or the "Company")
Annual Report and 2011 Annual General Meeting
On 15 November 2010 Lonmin announced its Final Results for the year ended 30
September 2010. The announcement made on that date included inter alia a
condensed set of financial statements and a management report, as required by
DTR 4.1.
Lonmin has today posted to shareholders and, in accordance with LR 9.6.1 R,
has submitted to the National Storage Mechanism, printed copies of the
following documents:
- Annual Report and Accounts for the year ended 30 September 2010 (the
"Annual Report")
- Circular relating to the Annual General Meeting to be held on 27 January
2011
- Forms of Proxy for shareholders on the UK and SA registers
These documents will shortly be available for inspection on the National
Storage Mechanism www.Hemscott.com/nsm.do.
As required by DTR 6.3.5 R (3), the Company confirms that the Annual Report
and the Circular relating to the Annual General Meeting are now available to
view or download in pdf format from the Lonmin website, www.lonmin.com.
Pursuant to DTR 6.1.2 R, Lonmin confirms that one of the resolutions to be
proposed at the Annual General Meeting is the adoption of a new employee
share scheme, the Annual Share Award Plan. In accordance with its
obligations under LR 13.8.11 R, Lonmin confirms that a copy of the draft
rules will be available on the National Storage Mechanism and are also
available from the Company Secretary`s Office, Lonmin Plc, 4 Grosvenor Place,
London SW1X 7YL and, on the date of the Annual General Meeting, at the Church
House Conference Centre, Dean`s Yard, Westminster, London SW1P 3NZ from at
least 15 minutes before the commencement of the meeting until its conclusion.
The appendix to this announcement contains additional information which has
been extracted from the Annual Report and Accounts for the year ended 30
September 2010 (the "Annual Report and Accounts") for the purposes of
compliance with the Disclosure and Transparency Rules and should be read
together with the Final Results Announcement, which can be downloaded from
the Company`s website at www.lonmin.com. This announcement should be read in
conjunction with and is not a substitute for reading the full Annual Report
and Accounts. Together these constitute the information required by DTR
6.3.5. which is required to be communicated to media in full unedited text
through a Regulatory Information Service. Page and note references in the
text below refer to page numbers and notes in the Annual Report and
Accounts.:
- A statement on internal control and the principal risks and
uncertainties
- A statement on related party transactions
- Certain financial statements
APPENDIX
INTERNAL CONTROLS AND RISK MANAGEMENT
This section explains the Group`s internal control environment, how we assess
its effectiveness and how we identify, evaluate and manage risk. There is
also a discussion of the principal risks and uncertainties facing the Group,
the consequences if these are not managed, and the mitigations currently
relied upon by management.
Internal controls
The Company complied throughout the year under review, and continues to
comply with, the provisions of the Combined Code on internal controls and the
relevant parts of the Turnbull and Smith guidance. While the Board has
overall responsibility for the Company`s system of internal control,
management is responsible for implementing agreed Board policies. It is
important to recognise that systems of internal control can only be designed
to manage, rather than eliminate, the risk of failure to achieve the business
objectives and cannot provide absolute assurance against material mis-
statement or loss.
Key features of the Company`s internal control framework include:
- a schedule of matters reserved for the Board`s decision;
- detailed terms of reference for the Board Committees;
- a Code of Business Ethics and external whistle-blowing hotline;
- Human Resources policies which establish a consistent set of values and
standards for managing employees and contractors throughout the group;
- a document summarising the delegation of authority cascade from the
Board to the various levels of Group management;
- documented policies and procedures for certain key group wide matters,
including treasury, capital investment, risk management, human capital
and procurement, supported by local policies and procedures as
necessary;
- the Group strategy and Life of Business Plan, supported by the mineral
resource database and model, and annual technical and financial budgets;
- systems including the SAP enterprise resource planning system, a bespoke
metallurgical tracking system and a detailed mine planning system;
- management reporting against plans, budgets and forecasts;
- external audit and other assurance, including a biennial audit of
mineral reserves and resources; and
- internal audit and other in-house review processes including control
self assessments.
To ensure the Audit and Risk Committee has full oversight of the work of the
internal audit function, the Head of Internal Audit reports to the Chairman
of the Audit and Risk Committee, with a joint reporting line with effect from
1 October to the CFO (previously it was to the VP, Treasury and Risk). The
Audit and Risk Committee meets regularly with both the internal and external
auditors to discuss internal control and other matters arising from the
assurance process.
The Board is responsible for reviewing the effectiveness of the system of
internal control, including financial, operational and compliance controls
and systems for the identification and management of risk. This task is
carried out on behalf of the Board by the Audit and Risk Committee, which has
undertaken a review of the internal control environment following the year
end. To do so, the Committee assessed the following:
- responses provided by c.90 senior managers in management confirmation
letters completed at the end of the financial year and designed to
provide assurance on the effectiveness of internal controls and
compliance with Group policies and procedures;
- a number of external parties providing assurance to different parts of
the business on its control environment;
- progress made by management in identifying and mitigating the key risks
facing the Group;
- routine management reporting on business performance and results; and
- reports provided to the Audit and Risk Committee by both internal and
external auditors and other specialist advisors in relation to the
Group`s risk and control environments.
Action has been, or is being, taken where necessary to address as far as
practicable any significant failings and weaknesses identified in the reviews
of effectiveness of internal controls whether they are financial, operational
or compliance.
Risk management
We have an integrated approach to risk management and internal controls to
ensure that our review and assessment of risk is used to inform the internal
audit process and the design of the internal controls environment. The risk
management process, which has been in place throughout the year under review
and to the date of approval of the accounts, identifies, evaluates, manages
and monitors the significant risks facing the business. The Audit and Risk
Committee regularly reviews this process and monitors its effectiveness on
behalf of the Board, in line with the guidance appended to the Combined Code.
The approach taken is systematic and combines both a "top-down" and a "bottom-
up" review and approval process. All senior managers are responsible for
managing and monitoring risks in their area of responsibility that could
impede the achievement of business objectives and these are recorded in a
risk register. It is mandatory for this process to take place at least once a
year but in practice, reviews take place more frequently in most business
areas. For each risk identified, management assesses the root causes,
consequences and mitigating controls in relation to the risk. An assessment
is then made of the maximum risk exposure and the effectiveness of the
controls in place to mitigate that risk. A numerical scoring matrix is used
to derive a risk score and priority after taking account of mitigating
controls. Where the risk score and priority remains high after mitigating
controls are taken into account, action plans are devised to reduce these
risks further and progress against these plans is regularly reviewed. Each of
the business areas is supported by an Operational Risk Champion who co-
ordinates all risk management activity in that business area and ensures that
actions are implemented appropriately. Applying this risk management process
across all business activities ensures all risks are measured, monitored and
reported on a consistent basis.
Due to the nature of our operations, a significant part of our risk register
relates to safety, environmental and social matters. To further enhance our
focus on such matters, each business area has dedicated personnel responsible
for managing environmental and safety matters respectively, including
monitoring the progress of action plans recorded in the risk register. In
this way, we ensure accountability and responsibility for these matters
remains with the operational management team.
The principal risks faced by the Company are considered and reviewed
regularly by the Board. Risks specifically relating to safety, environmental
and social matters are reviewed separately and in more detail by the Safety &
Sustainability Committee, which then provides views on the management of
these risks to the Board.
Lonmin groups risks into strategic, financial, external and operational
risks. The key risks faced by Lonmin, based on our current understanding,
along with their potential impact and the mitigation strategies developed are
detailed on the following pages. There is no implied ranking in the order of
disclosure. The Company`s strategy takes into account these known risks, but
risks will exist of which we are currently unaware and the severity or
probability of the occurrence of known risks may change from time to time.
Strategic Risk
Impact - Ineffective or poorly executed strategy fails to create shareholder
value or fails to meet shareholder expectations.
Risk Impact Mitigation
Investment and Shareholder value Review of strategy at Board level
business decisions not optimised. on an annual basis with monthly
fail to deliver monitoring of operational and
shareholder value financial performance. Consistent
investment appraisal process
applied to new capital spend.
Opportunities have been taken to
restructure the business to
maximise shareholder value.
Access to a secure Could impact on Measurement of water usage and
supply of water* the ability to run water saving initiatives
current operations implemented. Plans aligned with
and deliver future long term strategy of the
expansion plans. Company. Water supplies secured
for key areas of the business and
strategies developed to support
expansion plans. Active
participation in relevant
Industry Bodies.
Access to a secure Could impact on Measurement of energy usage and
supply of the ability to run energy saving initiatives
electricity* current operations implemented. Load shed and
and deliver future contractual agreements in place
expansion plans. with Eskom (SA energy supplier).
Continuity planning in place and
additional supply for key areas
to be secured accordingly e.g.
additional power supply secured
for the new K4 mining shaft.
Active participation in relevant
Industry Bodies.
* see Sustainable Development Review for more detailed disclosure.
Financial Risk
Impact - Asset performance and / or excessive leverage results in the Group
not being able to meet its financial obligations.
Risk Impact Mitigation
Foreign exchange Significant Current policy is not to hedge
risk (specifically fluctuations in this currency pair. There is a
US Dollar/SA Rand) exchange rates to long term correlation between US
which the Group is Dollar/SA Rand and PGM basket
exposed could have price, although this can
a material adverse dislocate over the shorter term.
effect on the
Group`s financial
condition.
Commodity price Significant Current policy is not to hedge
risk fluctuations in PGM basket prices.
commodity prices There is a long term correlation
to which the Group between US Dollar/SA Rand and PGM
is exposed could basket price, although this can
have a material dislocate over the shorter term.
adverse effect on Hedging of base metals and gold
the Group`s is undertaken under the remit of
financial the Price and Risk Committee.
condition.
Uncompetitive Could have a High cost per ounce operations
gross and/or unit material adverse put on care and maintenance. Cost
costs effect on the base was significantly reduced in
Group`s 2009 and we continue to monitor
competitive this closely. Clear understanding
position and of our competitive position and
future financial significant focus on productivity
condition. improvement plans. Balanced
scorecard measures incentivise
cost control and productivity.
Introduced additional cost
controls such as the "Bill of
Materials" which better aligns
usage of consumables with
production.
Access to cost The Group may not All debt matures beyond FY11. Key
effective be able to obtain covenants in banking lines
funding** cost effective constantly monitored through
funding when rolling cash flow forecasts.
required which Regular contact with our banking
could impact on group. Financing for the Shanduka
the ability of the transaction facilitated by an
Group to meet its equity placing.
liabilities as
they fall due.
** see Financial Review for more detailed disclosure.
External Risk
Impact - The political, industry or market environment may negatively impact
on the Group`s ability to independently manage and grow its business.
Risk Impact Mitigation
Changing political The occurrence of Ongoing dialogue with government
landscape in any such a change at all relevant levels and other
of the countries could have a key stakeholders. Effective
in which we material adverse communications programmes with
operate negatively effect on the key stakeholders. Many PGM mining
impacts the Group`s future companies would face the same
business operational issue.
performance
and financial
condition.
PGM supply & Significant Gathering market information from
demand volatility changes to customers and other sources.
either/both the Monitoring market segments and
demand and supply trends in the industry. Continue
side in the PGM to support initiatives to develop
industry (e.g. existing and new markets for
product PGMs. Longer term volume
substitution or contracts with key customers.
supply side
constraints) could
have a material
adverse effect on
the Group`s future
operational
performance and
financial
condition.
Operational Risks
Impact - Operational event impacting staff, contractors, communities or the
environment leading to loss of revenue and / or reputation or increased
costs.
1. Losing Licence to Operate
Risk Impact Mitigation
Failure of safety Could result in a The Safety & Sustainability
routines and/or catastrophic loss Committee oversees all safety
safety strategy of life, severely matters. Safety standards set and
disrupt operations monitored regularly throughout
and have a the Company. Clearly defined
material adverse safety protocols including Safe
effect on the Behaviour Observations. Plant
Group`s financial maintenance programmes supported
condition. by critical spares inventory.
Regular safety audits carried out
by the company and independent
experts as well as inspections by
the Department of Mineral
Resources (DMR). Business
interruption insurance cover in
place. Balanced scorecard measure
and other bonus schemes
incentivise appropriate safety
behaviour.
Impairment to Lonmin`s right to In 2010, Lonmin received
Lonmin`s mine may be confirmation from the DMR of its
mineral rights compromised in mineral rights including the
some measure. right to mine associated
minerals. A private challenge may
exist in relation to a limited
portion of the estate which
Lonmin intends to contest
vigorously.
Corporate & Social Non-delivery of Social and community programmes
Responsibility* our Social and are monitored by the Executive
Labour plan Committee and the Safety and
could result in Sustainability Committee. KPIs
the withdrawal of are set and measured on a regular
our basis. Ongoing dialogue with the
Mining Licence. relevant authorities. Balanced
scorecard measures incentivise
delivery of a selection of
targets.
Failure to comply Results in a Engagement with the DMR in South
with Black deteriorating Africa and with all other
Economic relationship with stakeholders to ensure
Empowerment (BEE) the DMR in South compliance. We have transformed
codes in relation Africa and puts our BEE vehicle (Incwala) by
to mining e.g. mineral rights at focusing on one strong partner
failure to achieve risk. (Shanduka) and have financially
BEE equity supported the transaction that
participation of facilitated this change.
26% by 2014
Theft of Lives are put at Delivery and tracking of
explosives risk both explosives is strictly controlled
internally and and independently audited. Audit
externally e.g. points are closely followed up.
where explosives Access points are controlled
are stolen to across the property and
perpetrate a identification checks and
further criminal employee searches are conducted.
act outside of the
business.
* see Sustainable Development Review for more detailed disclosure.
Operational Risks (continued)
2. Serious Impairment in Production
Risk Impact Mitigation
Inadequate and/or Significant Bore hole sampling and seismic
poor changes to our surveys conducted
quality ore assessment of under the supervision of
reserves the quality and specialist geologists coupled
extent of our ore with independent audits of
reserves reserves. Quality in-house
could have a technical team with multiple
material adverse internal review
effect on the processes.
Group`s future
operational
performance
and financial
condition.
Lack of long term Shareholder value Independent peer review of Long
ore not optimised over Term Plan before
reserve depletion the submission to the Board.
planning long term.
Lack of short term Could severely Technical Services functions
ore reserve disrupt operations acting independently of mine
development and have a management located at mine shafts
planning and material adverse scrutinising flexibility and
resultant effect on the working areas. Clear mining
shortfalls in Group`s financial management structure with defined
mining output condition. accountabilities and
responsibilities. Performance
measured and reported to the
Board. Balanced scorecard measure
incentivises appropriate ore
reserve development.
Theft of equipment Lives are put at Access points are controlled
and materials e.g. risk e.g. across the property and
copper cable electronic safety identification checks and
equipment no employee searches are conducted.
longer functions Constant vigilance required.
effectively where
copper cable has
been stolen.
Metal recoveries Could have a Grade targets set and measured by
throughout material adverse assay and sampling in Mining. In
operations not effect on the Processing, plant maintenance
maximised Group`s financial programmes ensure plant stability
condition. to assist in optimising
recoveries. Technical Services
functions acting independently of
operational management scrutinise
management information.
Experienced management teams and
clear benchmarks set. Balanced
scorecard measure ensures focus
on recoveries. Third party audits
and peer reviews conducted.
Inadequate Could severely Pyromets provide an element of
smelting disrupt operations back-up capacity. Spare capacity
performance & back-and have a in Number One furnace currently
up capacity material adverse gives ability to catch up. Number
effect on the One furnace includes improved
Group`s financial monitoring and fault detection
condition. technology. The Board has
approved the necessary investment
to increase smelting capacity by
the construction of an additional
furnace and for ongoing
improvements to the Number One
furnace.
Major fault on key Could severely Plant maintenance programmes
piece of equipment disrupt operations coupled with an on-site stock of
e.g. smelter and have a critical spares.
material adverse
effect on the
Group`s financial
condition.
Deteriorating Could result in an Full engagement strategy with the
industrial unstable workforce unions and employees. This
relations and/or that severely strategy is supported by our
union disruption disrupts other external relationships,
operations and has community projects and regular
a material adverse communication with our employees.
effect on the New union meeting structure in
Group`s financial place.
condition.
3. Major Financial Fraud or Theft
Risk Impact Mitigation
Fraud and/or theft Could have a Fraud awareness training and
of PGM product material adverse security reviews supported by a
effect on the code of ethics and a whistle
Group`s financial blowing programme. Security and
condition. Investigations department
operations carried out in key
areas of the business. New
management structure for Security
has been implemented to improve
line accountability and to
provide a better check and
balance within the security
function.
Failure of Could severely Clear organisational structure
internal controls disrupt operations with appropriate segregation of
and have a duties which is independently
material adverse monitored on an ongoing basis.
effect on the Significant focus on tracking the
Group`s financial ounces through the production
condition. process. Independent internal and
external audits with follow up of
outstanding action points.
Aligning the Risk Management
framework to the Internal Audit
framework to provide further
assurance that key controls
effectively mitigate key risks.
4. Catastrophic Environmental Event
Risk Impact Mitigation
Catastrophic Could lead to loss Flood barriers in place at mine
environmental of life, health shafts. Safety and monitoring
event results in concerns in local procedures in place on return
contamination communities, water and tailings dams. Surface
and/or emissions withdrawal of and ground water contamination
that impact on the relevant licences levels monitored. Emissions
surrounding and potential monitored by regular sampling and
environment and litigation. scrubber systems in place.
communities* Business interruption insurance
cover in place.
* see Sustainable Development Review for more detailed disclosure.
Transactions with Related Parties
In March 2010 the Company announced that it had entered into long-term
contracts with two parties to supply low-grade PGM but chrome-rich tailings
to those counterparties, who would construct chrome recovery plants to treat
the tailings and return a chrome-depleted concentrate to Lonmin for further
reprocessing. One of the counterparties is the Xstrata-Merafe Chrome Venture,
which involves a subsidiary of Xstrata Plc, which owns a significant
shareholding in the Company. The UK Listing Authority concurred with the
Company`s assessment that this transaction was of a revenue nature in the
ordinary course of business, and no shareholder approval was required.
The transaction with Shanduka Resources referred to above resulted in a
financial benefit flowing to the selling shareholders in Incwala Resources
(Pty) Ltd. Two of the selling shareholders, being the Thelo Consortium and
the Vantage Consortium included certain individuals who had been nominated by
Incwala to serve as directors of Lonmin`s operational subsidiaries. As such,
Thelo and Vantage were considered to be related parties of the Company. Of
the GBP200 million provided to Shanduka by Lonmin, approximately GBP96
million of this was used by Shanduka to purchase Thelo and Vantage`s
interests in Incwala. It was these elements of the Shanduka transaction which
were therefore technically transactions with related parties for the purposes
of the UK Listing Rules. The quantum of these transactions did not require
shareholder approval.
As detailed above, part of the funding provided to Shanduka by Lonmin was
funded by an equity placing. Pursuant to the placing, Xstrata Zinc BV, a
subsidiary of Xstrata Plc, subscribed for 2,233,600 new ordinary shares of $1
each at a cost of approximately GBP39.4 million and M&G Investment Management
Limited, part of the Prudential plc group of companies, subscribed for
998,377 new ordinary shares of $1 each at a cost of approximately GBP17.6
million. Both Xstrata Plc and the Prudential plc group of companies own
significant shareholdings in the Company. The quantum of these transactions
did not require shareholder approval.
Statement of Directors` responsibility
The following responsibility statement is repeated here solely for the
purpose of complying with Disclosure and Transparency Rule 6.3.5. This
statement relates to and is extracted from page 91 of the Annual Report and
Accounts. Responsibility is for the full Annual Report and Accounts not the
extracted information presented in this announcement or the Final Results
Announcement.
"We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as a whole; and
- the directors` report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they
face.
Roger Phillimore Alan Ferguson
Chairman Chief Financial Officer"
end
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