| Mon 9 May 2011, 8:00 | | LON - Lonmin Plc - 2011 Interim Results Announcement |
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LON
LOLMI
LON - Lonmin Plc - 2011 Interim Results Announcement
Lonmin Plc (Incorporated in England and Wales)
(Registered in the Republic of South Africa under registration number
1969/000015/10)
JSE code: LON
Issuer Code: LOLMI & ISIN: GB0031192486 ("Lonmin")
9 May 2011
Lonmin Plc
2011 Interim Results Announcement
Lonmin Plc, (Lonmin or the Company), the world`s third largest Platinum
producer, today announces its Interim Results for the half year period ended 31
March 2011.
HIGHLIGHTS
* Solid financial performance:
* Platinum sales of 318,306 ounces - up 9%
* Revenue basket of $938 million, up 42% on increased volume growth and
robust pricing environment
* Net operating profit of $144 million, a 122% increase on H1 2010
* Strengthened balance sheet as net debt is reduced by 21% since 2010
year end to $296 million
* Gathering production momentum at Marikana operations, but an unacceptable
safety performance:
* Unacceptable level of fatalities - commitment to zero harm and safe
production remain
* Tonnes produced at 5.9 million, up 12.7%
* Ore reserves at 2.8 million centares, even as mining output continues
to grow
* Saleable metal in concentrate up 10.3% to 354,863 Platinum ounces
* Underground head grade reduced to 4.56%g/t from 4.74g/t primarily due
to mix and difficult geological conditions at K3
* Concentrator recoveries continue to improve - up to 85.6%
* Number One furnace successfully re-commissioned
* New growth potential beyond 2013 to 950,000 Platinum ounces by 2015:
* Optimising on the potential within Marikana, our existing operating
asset
* Sufficient balance sheet capacity to support capital requirement for
growth
* Market outlook positive:
* Robust demand fundamentals as automotive demand continues to recover
* Off road and HDD legislation will drive further demand
* Near term supply constraints will lead to a market deficit and
potentially higher prices
* Overall long term market fundamentals remain positive
* 2011 guidance on track:
* Rand unit operating costs of R7,372, up 12.8% on H1 2010 but full year
guidance maintained
* Unit cost increase to be broadly in line with wage inflation
increase of 8% as production increases in H2 2011
* 750,000 Platinum ounces absent any further abnormal production
interruptions from safety stoppages
* Capex spend expected to be around $400 million, up from $380 million
guidance - as Rand continues to strengthen
* Number Two Furnace on track
Ian Farmer, Chief Executive Officer, commented:
"We have been very disappointed and saddened by the six fatalities we have
experienced since the beginning of the 2011 financial year. I believe that our
fundamental approach to safety management remains sound; however, we continue to
learn from the root causes of each incident. Our commitment to zero harm and
safe production without fatalities in our work place remains undiminished.
Management have built on the solid and stable platform established over the past
two and a half years and continue to focus on operational performance.
Consequently, our operations delivered good results in the first half of 2011
and the quarter on quarter production momentum established last year has been
maintained despite the challenging environment that we operate in. We are on
target to achieve our 2011 year guidance for sales and costs subject to any
further abnormal production stoppages. In light of the continued strength of the
Rand, we expect that capital expenditure for the full year may be in the region
of $400 million, up from the $380 million guidance we gave earlier in the year.
The long term fundamentals of the PGM markets remain attractive and it is our
intention to grow output at our Marikana operations including Pandora to 950,000
Platinum ounces per annum by 2015."
Financial Highlights
6 months to 6 months
31 March to
2011 31 March
2010
Revenue $938m $661m
Underlying i operating profit $148m $70m
Operating profit ii $144m $65m
Underlying i profit before taxation $149m $82m
Profit before taxation $159m $77m
Underlying i earnings per share 45.0c 22.8c
Earnings per share 44.5c 15.5c
Trading cash inflow per share iii 148.4c 31.1c
Free cash inflow / (outflow) per share iv 54.3c (43.0)c
Net debt as defined by the Group v $296m $250m
Interest cover (times) vi 11.3x 4.7x
Gearing vii 9% 7%
Footnotes:
i Underlying results and earnings per share are based on reported results
and earnings per share excluding the effect of special items as
disclosed in note 3 to the interim statements.
ii Operating profit is defined as revenue less operating expenses before
impairment of available for sale financial assets, finance income and
expenses and before share of profit of equity accounted investments.
iii Trading cash flow is defined as cash flow from operating activities.
iv Free cash flow is defined as trading cash flow less capital expenditure
on property, plant and equipment and intangibles, proceeds from
disposal of assets held for sale and dividends paid to non-controlling
interests.
v Net debt as defined by the Group comprises cash and cash equivalents,
bank overdrafts repayable on demand and interest bearing loans and
borrowings less unamortised bank fees.
vi Interest cover is calculated for the 12 month periods to 31 March 2011
and 31 March 2010 on the underlying operating profit divided by the
underlying net bank interest payable excluding exchange.
vii Gearing is calculated as the net debt attributable to the Group divided
by the total of the net debt attributable to the Group and equity
shareholders` funds.
ENQUIRIES:
Investors / Analysts:
Tanya Chikanza +44 (0) 207 201 6000
Head of Investor Relations
Media:
Cardew Group +44 (0) 207 930 0777
Rupert Pittman / James Milton
Financial Dynamics +27 (0) 21 487 9000
Dani Cohen / Ravin Maharaj
This press release is available on www.lonmin.com. A live webcast of the
Interim Results presentation starting at 09.30hrs (London) on 9 May 2011 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.
Chief Executive`s Review
Introduction
I am pleased to report that the first half of the 2011 financial year has
demonstrated a continued momentum from the foundations established in the past
two and a half years. The key features during this first half are as follows:
Operational and financial performance
Our operations delivered good results in the first half of 2011 and the quarter
on quarter production momentum established last year has been maintained.
Platinum sales up 9.0% to 318,306 ounces when compared to the 2010 half year and
revenue supported by the robust pricing environment increased by 42% to $938
million. Our profitability improved and we delivered underlying profit before
tax for the period of $149 million compared to $82 million in the prior year
period and more than doubled our profit before tax for the half year to $159
million compared to $77 million recorded for the 2010 half year. Net debt
decreased from $375 million at the beginning of the year to $296 million at 31
March 2011.
Safety
Our safety record has been disappointing and I have been saddened by the six
fatalities that we have experienced since the beginning of the 2011 financial
year. I believe that our fundamental approach to safety management remains
sound; we however continue to learn from the root causes of each incident and
our commitment to zero harm and safe production without fatalities in our work
place remains undiminished.
On target to achieve full year guidance
The continued growth momentum in production underpins our confidence in meeting
our full year sales and unit cost guidance. However, in light of the continued
strength of the Rand, we expect that capital expenditure for the full year may
be in the region of $400 million, up from the $380 million guidance we gave
earlier in the year.
Growth from Marikana beyond 2013
We are confident in the operational progress that we have made and we have
reviewed our growth options beyond 2013. We see the most efficient growth coming
from our Marikana asset given its considerable resources and reserves and our
ability to leverage the existing infrastructure and management skills. This and
our firm belief that the long term fundamentals of the PGM markets remain
attractive gives us confidence to commit to continue to invest in our Marikana
operations to achieve 950,000 safe Platinum ounces per annum by 2015 and
gradually move down the cost curve over the same period.
Safety performance
The safety of our employees is our first consideration in everything we do. We
have historically been proud of the progress we have made in making our working
environment safer and in the leading position in safety that we have occupied
within the industry. We are therefore concerned by the uncharacteristically high
level of fatalities that we have experienced since the beginning of the 2011
financial year, with each incident being different in nature. We extend our
sincere condolences to the families and friends of our six late colleagues,
Thamage Kgwatlha, Modisaotsile Edward Setlhare, Alfiado Maziwe, Hermanus
Potgieter, Rafael Macamo and Alpheus Mokgano Moerane. Four of these fatalities
occurred within the six months to 31 March 2011. Two fatalities occurred in
April. The processes and procedures for safe production remain fundamentally
sound, however, we believe that a change in focus in our tactical approach is
required and, in consultation with our union leadership and the Department of
Minerals and Resources (DMR), we are reinvigorating our efforts to re-assert our
industry leading position.
Despite these tragic events our Lost Time Injury Frequency Rate (LTIFR)
continues to improve and was 5.4 per million man hours worked compared to 5.9 at
the end of the 2010 financial year. During the six months we experienced a
reduction in Section 54 stoppages instituted by the DMR. However we instituted
stoppages in response to conditions we believed to be unsafe together with self-
regulated mine wide production stoppages instituted by management on 30 March
and 14 April 2011 to reinforce the importance of safety following two of the
fatal accidents.
Operational delivery
Management continued to focus on operational delivery off the solid and stable
platform established over the past two and a half years. Considerable effort
continues to be given to maintaining developed reserves at each of the operating
shafts.
Containing operational costs has been challenging. Our gross Rand operating
costs increased by 22% from R4.4 billion to R5.3 billion partly as a result of
increased underground production, production from higher cost open cast areas,
slightly lower head grades and partly due to the inflationary pressures that are
being generally felt by the industry in the South African operating environment,
as well the impact of some one off costs and bonuses. Consequently, the increase
in our unit cost per PGM ounce over that achieved in the first six months of
2010 is 12.8%. This is higher than the wage inflation of 8% experienced over the
comparative period, however with the continued incremental increase in
production expected in the second half of the year, the unit cost increase per
PGM ounce for the full year is expected to be more in line with our wage
inflation of 8% for the full year.
On target to achieve full year guidance
We remain on target to meeting our full year sales of around 750,000 Platinum
ounces in the absence of further abnormal production stoppages and expect the
unit cost increases for the year to be broadly in line with our previous
guidance. This will be predicated on the expected incremental increases in
production in the second six months of the year, taking into account the impact
on production of normal safety stoppages and disruptions of public holidays.
Capital expenditure incurred in the first half was $154 million. In light of the
continued strength of the Rand, we expect that capital expenditure for the year
may be in the region of $400 million, up from the $380 million guidance we gave
earlier in the year.
Mining Division
Steady increase in production
Performance in our Mining Division has been showing a continuing positive trend.
The Merensky opencast pit re-opened in March 2010 has ramped up to contribute to
the overall output. What is most encouraging is the continued improvement
against each prior year comparative quarter, which shows that whilst there are
specific factors, such as the Christmas holiday break, which occur in certain
quarters in the cycle, we have continued to deliver steady growth. Our focus in
the second half of the year will be to grow our production safely and profitably
with a view to achieving our full year targets.
Production statistics for the second quarter of the year can be found in a
separate announcement published today.
Grade
Underground milled head grade fell to 4.56 grammes per tonne in the first half
of 2011 from 4.74 grammes per tonne in the prior year period as a result of an
increase in the overall contribution of Merensky ore to the mix and difficult
geological conditions at our K3 shaft. The overall head grade for the same
period dropped by 7.7% from 4.71 grammes per tonne to 4.34 grammes per tonne.
This can be attributed to the 550,000 tonnes of opencast ore that was milled in
the first half of this year compared to 61,000 tonnes in the prior year. Overall
we are comfortable, that given our current mining mix, the current grade is in
line with expectations.
Development
We continued to make good progress in improving our ore reserve development
position and immediately available ore reserves at Marikana at the end of the
first half of the 2011 financial year was 2.8 million centares compared to 2.7
million centares at the end of 2010 financial year and 2.4 million centares in
the prior year period despite the increasing rates of mining during the period
Mine production
Total underground production as total underground tonnes mined increased by 6.4%
to 5.5 million compared to 5.1 million in the prior year period. The greatest
contribution was made by Karee which mined 2.2 million tonnes compared to 1.9
million in the same period last year, with a significant contribution coming
from our K3 shaft. Middelkraal mined 919,000 tonnes against 866,000 tonnes as
Hossy and Saffy continued to ramp up. Easterns production was up by 23.6% to
615,000 tonnes, whilst the planned decline in production at Newman shaft
resulted in Westerns production falling by 119,000 tonnes from the prior year
period to 1.7 million tonnes.
A significant contribution was also made by the Merensky open cast operations.
This time last year we were just beginning to mine the open cast and we have
produced 336,000 tonnes in the current period against 7,000 tonnes in the prior
year period.
Pandora underground production is increasing at a steady rate and was 83,000
attributable tonnes for the first half of 2011, an increase of 7.3% when
compared against the prior year period. Lonmin purchases 100% of the ore from
the Pandora joint venture and this ore contributed 11,074 saleable Platinum
ounces in concentrate and 21,112 saleable PGM ounces in concentrate to our
production, marginal decreases of 1.7% and 2.0% respectively from the prior year
period as fall in grades offset the increase in volumes.
Overall production at our Marikana operations has continued to gather momentum
and total tonnes mined increased by 12.7% from the prior year period to 5.9
million.
We expect our production performance in the second half of 2011 to continue to
be supported by increased contributions from our major shafts, K3 and Rowland as
well as the continued ramping up of Saffy and Hossy shafts.
Process Division
Our Process Division performed very well during the first half of 2011.
Concentrators
Metals in concentrate production from Marikana increased by 10.7% to 343,789
saleable ounces of Platinum whilst the total tonnes milled increased by 17.0% to
6 million for the half year to 31 March 2011.
The opencast volumes had an impact on the total milled head grade which dropped
to 4.34 grammes per tonnes from 4.71 grammes per tonnes. The impact of the grade
reduction was partially offset by a 1.2% improvement in total concentrator
recoveries from 84.4% to 85.4%.
Total metals in concentrate produced increased by 10.3% from 321,864 saleable
Platinum ounces for the half year 2010 to 354,863 saleable Platinum ounces and
saleable PGM ounces increased by 9.5% from 609,142 saleable PGM ounces to
667,088 in the same period, of which 30,239 PGM ounces is attributable to
opencast.
We also announced last year the agreement reached with Xstrata-Merafe Chrome
Venture and ChromTech to construct chrome recovery plants. Significant progress
has been made with this project with the commissioning of the first plant having
already commenced in the first week of April 2011. We expect the remaining two
plants to be commissioned by the beginning of quarter one of the 2012 financial
year.
The construction of the tailings treatment plant that we announced last year for
the treatment of current arisings is underway and on schedule to be commissioned
in the first half of the 2012 financial year. This will result in further
improvement in concentrator recoveries in the Easterns concentrator recovery
plants.
Smelters
The Number One furnace was successfully re-commissioned on schedule in December
2010 and has been ramping up steadily over time to reach 14 MW, which is the
level at which it is currently operating. The steady ramp up combined with the
use of the pyromet furnaces has ensured the smelting of most of the stockpiles
from the first quarter.
Good progress is being made and we are on budget in the building of the Number
Two furnace on the site of the old Merensky furnace. We are, on schedule for the
furnace to be cold commissioned in March 2012 and for full commissioning to be
achieved on budget in May 2012.
Refineries
Total refined production for the six months to 31 March 2011 was 316,834 ounces
of Platinum and 680,709 ounces of PGMs, an increase of 8.5% and 15.9%
respectively on the prior year period. The PGM percentage increase is greater on
the basis that it includes a disproportionately higher number of Other Platinum
Metal ounces which were returned by third party toll refiners during the period.
Transformation remains a priority
The transformation imperatives are an essential element of doing business in
South Africa. We recently completed the process of refreshing our Social Labour
Plan (SLP) in consultation with all stakeholders. We have done this to ensure
that the SLP is aligned with the Revised Mining Charter that was released in
August 2010. Specific integrated strategies have been developed for Human
Resources Development, Housing and Community Development to underpin delivery
against our SLP.
We are making good progress in performing against our environmental targets and
shall report more on this in our year end report.
Optimising growth at Marikana beyond 2013
We have reviewed our long term options for growth beyond the 850,000 Platinum
ounces 2013 target and we see the most efficient growth coming from our Marikana
asset. This is an asset we understand, it has considerable resources and
reserves which would allow us to leverage existing infrastructure and management
skills, whilst minimising the execution risk that is associated with growing PGM
assets. Historically the Marikana operations including Pandora have produced
950,000 Platinum ounces and we are increasingly confident that the asset can
produce at these levels again. We are therefore planning for organic growth at
the Marikana asset to produce at the 950,000 Platinum ounces level by 2015.
Gradual annual growth over this period will also improve our relative position
on the cost curve over time.
Karee will be a significant contributor with increased production from K3 and in
particular K4 as it comes into production and ramps up. Production from
Middelkraal`s Saffy and Hossy shafts will make significant contributions as both
shafts ramp up, whilst the continued increase in production at Rowland at
Westerns, will be offset by the expected decline at Newman. Within Easterns,
Pandora will reach a steady state production level of around 50,000 Platinum
ounces by 2013. Opencast will contribute in the initial years, with these
operations tailing off by 2014. This growth translates to sustained annual
growth of 50,000 Platinum ounces every year until 2015.
Capital expenditure and balance sheet for growth
We have a strong balance sheet and have seen debt reduce by 21% since the end of
September 2010, to $296 million, through the increased cash flows resulting from
both volume growth and the favourable pricing environment. We have committed
debt facilities of some $900 million and are modestly geared at 9% at the end of
the current period.
In order to achieve the growth we have outlined, we expect the Company`s total
capital expenditure to amount to around $400 million per year up to 2015 in
current money terms. We would expect to cover this expenditure from existing
debt headroom and cash flows generated through the years and it would not be at
the expense of good balance sheet management.
Lonmin of the future
Our aim is to grow, achieve scale and move down the cost curve.
Our approach to sustainability and safety issues and our ability to achieve our
transformational objectives as part of the delivery of our SLP will be
fundamental as it will enable us to develop and recognise the important cultural
attributes necessary to ensure success.
We need to leverage off the Marikana asset base, improving on productivity and
developing our Human Resource programmes specifically to manage the skills
shortage gap that is prevalent in the industry today. The other assets in our
portfolio provide us with future growth options, namely Limpopo which we are
reviewing as announced last year, and Akanani which has a significant resource.
We also have exploration assets in Sudbury, Canada where we are partnered with
Vale. We will be providing an update on these growth options at the year end.
Containing the cost of production and moving down the industry`s cost curve is
key to building a robust business. This requires us to have systems in place to
capture adequate data, analyse and implement change that will result in us being
more competitive.
Overall the integration of all these initiatives is critical to the future
success of Lonmin.
Dividend
We announced with the 2010 financial year results, our new dividend policy of
paying a dividend once a year which will be announced with the final results.
Accordingly no interim dividend has been declared.
Employees` contribution
Finally, I would like to thank all our employees, contractors and community
members for their support and commitment to Lonmin. While we have all been
saddened by the safety issues we have experienced recently, we know that we can
rely on the support of all our people in returning Lonmin to our place as the
industry leader in safe production.
Ian Farmer
Chief Executive Officer
6 May 2011
Market Review
PGM prices continued to increase during the period
Platinum rose steadily in price throughout the period to $1,780 per ounce at the
end of March 2011, from $1,642 per ounce at the end of the 2010 financial year.
Palladium registered the largest percentage increase closing at $761 at the end
of March 2011 from $573 per ounce at the start of the period. Rhodium remained
broadly flat at $2,375 at the end of March 2011 compared to $2,300 at the start
of the six months period. This recovery was mainly due to moderate improvements
in the global economy in particular the automotive industry and the investment
climate for precious metals.
Automotive demand encouraging
The recovery in automotive demand has continued, despite the recent earthquake
in T?hoku in Japan where calendar year production is anticipated to be back
loaded. The most recent estimates of near term production has been revised
downward to be between 750,000 and 2.1 million vehicle units in the first half
of 2011 calendar year with the expectation that this production will be largely
recouped in the second half of the year and the remainder in early 2012.
Growth in the US automotive demand is accelerating due to returning pent-up
consumer demand and improving access to credit. Within the European automotive
market we see Germany and France posting positive growth numbers, while the UK,
Spain and Italy are still contracting. Overall, European auto sales numbers are
stronger than expected with diesel powered vehicles regaining market share lost
during the scrappage incentive period.
China automotive growth is expected to slow from the 20%-30% of the last two
years to 10%-15% this year, but it is now the world`s largest vehicle market and
any growth is significant in absolute terms. We believe that other emerging
markets such as India and Russia are set to contribute strongly to future
growth.
Platinum demand in HDD and Off-Road
From the beginning of this year Stage 3b emissions legislation in Europe and the
Tier 4 emissions legislation in the US came into effect, for off-road
applications including inter alia agricultural, construction and mining
equipment. The encompassing of this heavy diesel oriented fleet is estimated to
add 190,000 ounces of incremental platinum demand. In 2011, additional
categories of equipment will be captured in the following three years creating a
total of 470,000 ounces per annum of incremental platinum demand by 2014.
Furthermore the number of engines legislated by 2014 is still only 18% of the
global manufacturing base, with further potential as new countries adopt ultra-
low sulphur fuel. This off-road demand comes on top of an already existing heavy
duty on-road diesel market which is experiencing a strong recovery of its own.
Jewellery demand - will remain a demand swing factor
China continues to be the world`s largest platinum jewellery market, accounting
for more than 50% of the global total in the last five years. China`s demand is
price sensitive. For example, Chinese jewellery demand declined 31% year on year
in January, with the platinum price 15% higher than a year ago. Following the
earthquake in Japan and an 8% fall in the platinum price, China`s jewellery
demand jumped almost 80% year on year. With China`s population rapidly
urbanising and wealth per capita rising, it is creating a growing market for
luxury items such as jewellery. India is also a potential growth market for
platinum jewellery, but from a very low base given the dominance of and local
preference for gold.
Investment demand remaining steadfast
PGM investment demand continues to increase with platinum ETFs adding 300,000
ounces per year on average and palladium ETFs around 500,000 ounces. This has
seen platinum ETF holdings increasing to record levels of almost 1.3 million
ounces this year and palladium to over 2.2 million ounces. ETF markets reacted
to events in Japan, with both platinum and palladium ETF funds seeing
redemptions following the quake on 11 March 2011. Platinum inflows in the first
two weeks of the month still outweighed the draw downs, with the net change in
the month of March amounting to a positive 19,000 ounces. In the case of
palladium, the outflows outnumbered the inflows and the net change for the month
of March was a drawdown of 175,000 ounces. We expect the investment market to
remain a net buyer over time, but with periodic bouts of selling when
alternative investments appear more attractive.
PGM market outlook - our view is positive
Platinum supply constraints and inducement pricing
We believe that under investment, rising costs and challenging geology have
meant significant lead time delays for new projects, which will exacerbate the
supply deficit in the medium term. It is estimated that in 2012 the industry`s
production will still be over half a million ounces down on 2006 levels. Nearly
all brownfield and greenfield projects need higher prices than today`s levels to
bring on new projects especially given the Rand strength. Current calculations
at a Rand/Dollar exchange rate of R6.91 indicate an incentive price on a
weighted average of at least $2,185 per platinum ounce, although some new
generation deep shafts could require even higher prices to take account of the
significant capex inflation over the last few years.
Overall positive view
Our view of the platinum market has not changed significantly from last year.
The events in Japan may provide a boost to metal demand and prices once
rebuilding commences. We believe that the global economic recovery whilst
somewhat fragile, remains on track and we expect small market deficits for both
platinum and palladium as industrial and auto demand recovers and new demand
from off-road emission legislation begins to come through. We expect growing
market deficits in the 2012 to 2014 period.
While an upside surprise on the demand side appears remote, supply still has the
ability to surprise on the downside, given the numerous constraints. This may
lead to a tighter market and higher prices. Overall our view is that the long
term market fundamentals remain positive.
Albert Jamieson
Chief Commercial Officer
6 May 2011
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 will be used to prepare the
financial statements for the year ending 30 September 2011. There have been no
changes in accounting policy or new standards applied which have had an effect
on reported performance in comparison to the prior period.
Overview
The 2011 interim period has been characterised by solid performance both in
terms of the operational performance of the business and the financial results.
A key feature of Lonmin`s performance has been the increase in saleable
metal-in-
concentrate produced from Marikana underground ore and the resumption of
opencast mining. The refined production of 316,834 Platinum ounces is 24,913
ounces or 9% ahead of the prior period and has been underpinned by growth in
tonnes mined, together with a further improvement in concentrator recovery
rates.
From a market perspective the sustained recovery of automotive and industrial
demand has seen platinum group metal prices continue to rise steadily through
the period under review. This has contributed $168 million to operating profit.
The increased revenue base has underpinned a 111% increase in underlying
operating profit from $70 million achieved in the same period last year to $148
million for the six months ended 31 March 2011. This has been achieved despite
significant cost pressures experienced during the period under review as wage
and electricity tariff increases continued at above inflation rates. Wages
increased by an average of 8% based on settlement agreements achieved, and
electricity tariffs increased by 24% over the prior period. Certain once-off
costs, being toll refining costs and wage settlement bonuses also had an adverse
effect on costs for the period. This coupled with increased production from open
pit mining areas, which is substantially more expensive, and a deterioration in
milled head grade have resulted in a 12.8% increase in unit costs.
The significant increase in operating profits coupled with a reduction in
working capital has resulted in a $79 million decrease in net debt from $375
million at 30 September 2010 to $296 million at 31 March 2011.
In the second half of the year increased productivity and cost control will
continue to receive significant focus within the Group. It is expected that
this, together with the normal calendarisation of production will cushion the
impact of cost escalations on unit costs to a level more in line with the
overall wage increases experienced of 8%.
Analysis of results
Income Statement
The $78 million movement between the underlying operating profit of $148 million
for the six months ended 31 March 2011 and that of $70 million for the six
months ended 31 March 2010 is analysed below. This substantial increase in
profitability reflects increased PGM and Base metal prices as well as higher
sales volumes, offset somewhat by increased costs, including the effect of the
stronger rand, and a negative sales mix variance.
$m
Period to 31 March 2010 reported operating 65
profit
Period to 31 March 2010 special items 5
Period to 31 March 2010 underlying operating 70
profit
PGM price 168
PGM volume 92
PGM mix (17)
Base metals 34
Revenue changes 277
Cost changes (including foreign exchange impact (199)
of $39m)
Period to 31 March 2011 underlying operating 148
profit
Period to 31 March 2011 special items (4)
Period to 31 March 2011 reported operating 144
profit
Revenue
As noted in the overview the PGM pricing environment has steadily improved since
this time last year and the impact on the average prices achieved on the key
metals sold is shown below.
6 months 6 months
ended ended
31.03.11 31.03.10
$/oz $/oz
Platinum 1,777 1,489
Palladium 755 400
Rhodium 2,345 2,332
PGM basket 1,290 1,068
Average Platinum and Palladium prices increased by 19% and 89% respectively over
the previous period, contributing $92 million and $67 million to the PGM price
gain. The improvement in these metal prices has been driven by a sustained
recovery of automotive and industrial demand. The Rhodium price remained
relatively flat between the two comparative periods.
It should be noted that whilst the US Dollar basket price has increased by 21%
over the 2010 comparative period, in Rand terms the basket price increased by
only 11% due to the relatively stronger Rand.
PGM sales volume for the period to 31 March 2011 at 679,557 ounces was 86,028
PGM ounces or 14% up on the period to 31 March 2010. The increase has been
achieved through improved mining production with significant improvement in
contributions from open cast mining as well underground mining at Karee,
Middelkraal and Easterns.
The improvement in PGM volumes contributed $92 million. However, the mix of
metals sold resulted in an adverse impact of $17 million mainly due to a lower
proportion of Platinum due to metal-in-process inventory timing differences.
Base metal revenue was up $34 million due to a combination of volume and price
improvements. Total revenue for the six months to 31 March 2011 of $938 million
is $277 million higher than for the same period in 2010.
Cost changes
Total underlying costs in US Dollar terms increased by $199 million mainly due
to increased production and the impact of cost escalations. A track of the cost
changes is shown in the table below:
$m
6 months ended 31 March 2010 - underlying costs 591
Increase:
Marikana underground mining 64
Marikana opencast mining 24
Concentrating and processing 22
Overheads 7
Operating costs 117
Pandora and W1 ore purchases 13
Metal stock movement 22
Foreign exchange 39
Depreciation and amortisation 8
Cost changes (including foreign exchange 199
impact)
6 months ended 31 March 2011 - underlying costs 790
Total Marikana mining costs increased in the period by $88 million or 22%, as a
result of increased production, the 8% wage increase incurred in the period, and
a 24% escalation in electricity costs due to an increase in tariffs. The
resumption of opencast mining also added $24 million to the Marikana mining cost
base.
Concentrator and processing costs increased by $22 million. This was due to
increased ore received from mining, incremental toll fees and escalation
effects, in particular electricity costs as described above.
Ore purchases increased by $13 million comprising a $3 million increase in ore
purchases from Pandora and the introduction of ore purchases from W1 which
contributed $10 million to the increase in costs.
Overheads increased by $7 million largely due to salary escalation and costs of
the new Mining Royalty which added $4 million to the cost base over the prior
year comparative period.
The $22 million adverse impact on operating profit, excluding exchange impacts,
of metal stock movements results from the level of stock build up being less
pronounced during the period under review when compared to 2010.
The Rand remained strong during the period under review when compared to the
corresponding period in 2010. The translation of Rand denominated working
capital balances gave rise to an adverse exchange impact of $39 million.
Depreciation and amortisation for the six months ended 31 March 2011 is $8
million higher than in 2010. As depreciation is calculated on a units of
production basis the increase in production in the year resulted in the higher
depreciation charge.
Cost per PGM ounce
The cost per PGM ounce produced for the period to 31 March 2011 was R7,372. This
was an increase of 12.8% compared to the same period in 2010 and is largely
driven by higher than inflation increases in the wage bill (8%) and electricity
tariffs (24%) as well as a lower grade due to the change in ore mix (increase in
Merensky ore from opencast and underground operations as well as poorer geology
at K3 shaft). Other factors contributing to the increase in unit costs are the
introduction of higher cost opencast material and once off items such as the
signing bonus awarded to employees at the conclusion of annual wage negotiations
and toll refining costs. The increase in production and associated concentrator
recoveries during the period under review somewhat mitigated the increase in
unit costs. The benefit of increased production on unit costs is expected to be
more pronounced in the second half of the financial year assuming normal levels
of production losses due to safety stoppages.
Further details of unit costs analysis can be found in the Operating Statistics.
Special operating costs
In the six months ended 31 March 2011 special operating costs of $4 million were
charged. The move of the operational head office from London to South Africa was
completed in the first quarter with a cost of $2 million. In addition a further
$2 million impairment charge was taken on the write down of employee housing in
Marikana.
In the six months ended 31 March 2010 $5 million of special costs were incurred
relating to the London to South Africa head office relocation.
Summary of net finance income / (costs)
6 months to 31
March
2011 2010
$m $m
Net bank interest and fees (20) (22)
Capitalised interest payable and 20 23
fees
Exchange 2 6
Other (4) 1
Underlying net finance (costs) / (2) 8
income
HDSA receivable 14 0
Net finance income 12 8
Net bank interest and fees decreased from $22 million to $20 million for the six
months ended 31 March 2011 largely reflecting the stable lending environment
over the two comparative periods under review.
Marginal exchange gains on net debt are as a result of relative movements in the
exchange rates, mix and quantum of debt facilities.
The Historically Disadvantaged South Africans (HDSA) receivable, being the
Sterling loan to Shanduka Resources (Proprietary) Limited (Shanduka), increased
by $14 million during the six months to 31 March 2011 with $7 million of foreign
exchange gains recognised in addition to $7 million of accrued interest. The
fair value of the associated HDSA derivative remained flat reflecting net
movements in Lonmin`s share price since 30 September 2010.
The total net finance income of $12 million for the six months ended 31 March
2011 was therefore $4 million favourable compared to the six months ended 31
March 2010.
Share of profit of equity accounted investments
The share of profit from the associate and joint venture has decreased by $1
million to $3 million for the six months ended 31 March 2011. This was due to
declining profitability at Incwala while the Pandora result remained flat.
Profit before tax and earnings
Reported profit before tax for the six months ended 31 March 2011 at $159
million is $82 million better than the comparative period. This increase
consists of a $78 million improvement in underlying operating profit, a
reduction of $1 million in special operating costs, a $4 million benefit on net
finance costs and a $1 million decline in the Group`s share of profit from the
associate and joint venture.
Reported tax for the current period was a charge of $57 million although this is
after exchange losses on the translation of Rand denominated tax balances of $10
million and the tax effects of special items of $3 million. Therefore, the
underlying tax charge is $44 million reflecting an effective rate of 30%. The
underlying charge largely reflects deferred tax charges being recognised on
accelerated capital allowances with minimal current tax in the period due to
carried forward losses and unredeemed capital allowances.
Profit for the six months ended 31 March 2011 attributable to equity
shareholders amounted to $90 million (2010 - $30 million) and the earnings per
share was 44.5 cents compared to 15.5 cents in 2010. Underlying earnings per
share, being earnings excluding special items, amounted to 45.0 cents (2010 -
22.8 cents).
Balance sheet
A reconciliation of the movement in equity shareholders` funds for the period
ended 31 March 2011 is given below.
$m
Equity shareholders` funds as at 1 October 2010 2,70
9
Total comprehensive income and expense 86
Dividends paid (30)
Share based payments 8
Equity shareholders` funds as at 31 March 2011 2,77
3
Equity shareholders` funds during the period increased by $64 million due to the
recognition of $90 million attributable profit and an $8 million increase in
share based payments reserves reduced by $4 million of losses from changes in
the fair value of financial instruments and the dividend payment of $30 million
during the period.
Net debt at $296 million has decreased by $79 million since 30 September 2010.
In the 2010 financial year 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 had a significant impact on working capital. The working
capital locked up in receivables at the 2010 year end has subsequently been
realised during the current period under review. Improved profitability on the
back of higher PGM prices and improved volumes has also had a positive impact on
the group`s net debt position.
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 9% at 31 March 2011 (30 September 2010 - 10%, 31 March 2010 -
7%).
Cash flow
The following table summarises the main components of the cash flow during the
year:
6 months ended 31
March
2011 2010
$m $m
Operating profit 144 65
Depreciation, amortisation and impairment 62 52
Changes in working capital 109 (46)
Other 12 15
Cash flow generated from operations 327 86
Interest and finance costs (19) (24)
Tax (7) (2)
Trading cash inflow 301 60
Capital expenditure (191) (132)
Investment expenditure (1) -
Dividends paid to minority - (11)
Free cash inflow / (outflow) 109 (83)
Dividends paid to equity shareholders (30) -
Indemnity payments re Incwala - (59)
Shares issued - 1
Cash inflow / (outflow) 79 (141)
Opening net debt (375) (113)
Foreign exchange - 3
Unamortised fees - 1
Closing net debt (296) (250)
Trading cash inflow (cents per share) 148.4c 31.1c
Free cash inflow / (outflow) (cents per 54.3c (43.0)c
share)
Cash flow generated from operations in the six months ended 31 March 2011 at
$327 million, was significantly higher than the $86 million recorded for the
corresponding period in 2010. This was driven off the back of improved operating
profits coupled with better working capital management which saw debtors
decrease by $216 million during the six months under review. This was partially
offset by a $58 million increase in inventory and a $49 million decrease in
creditors.
Trading cash inflow for the period to 31 March 2011 amounted to $301 million
(2010 - $60 million). The cash flow on interest and finance costs decreased by
$5 million. The six months to 31 March 2010 cash flow included arrangement fees
paid on the renegotiation of bank facilities following the 2009 financial year
end. Following the difficult trading conditions in 2009 tax payments in 2010
were de-minimis and related to secondary taxes on minority dividends and limited
payments for corporation tax. The payments made in 2011 represent provisional
corporate tax payments as profitability has been restored. The trading cash
inflow per share was 148.4 cents for the six months ended 31 March 2011 against
31.1 cents for the 2010 comparative period.
Capital expenditure cash flow at $191 million was $59 million above the prior
period. In Mining the expenditure incurred was focused on development of the
operations at Hossy and Saffy, equipping and development at K4 and investment in
sub-declines at K3. In the Process Division spend was focused on the
concentrators and additional furnace capacity. In light of the continued
strength of the Rand, we expect that capital expenditure for the full 2011 year
may be in the region of $400 million, up from the $380 million guidance given
earlier in the year on the assumption of a weaker Rand outlook. 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.
Free cash inflow at $109 million was $192 million better than the prior period
with the free cash inflow per share of 54.3 cents improving by 97.3 cents on the
back of improved profitability.
Dividends paid
The proposed dividend of 15 cents per share for the financial year ended 30
September 2010 was paid during the period under review resulting in a cash
outflow of $30 million.
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.
These are the critical factors to consider when addressing the issue of whether
the Group is a Going Concern. As is clear from the following paragraphs, the
Group is in a strong position regarding financial risk. 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 is to
maintain a low level of financial gearing given the exposure of the business 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.
As at 31 March 2011, Lonmin had net debt of $296 million, comprising $419
million of drawn down facilities net of $115 million of cash and equivalents and
$8 million of unamortised bank fees.
Lonmin has $873 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 $110 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 was 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; a minimum EBITDA/net interest ratio of 4.0 times; 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 expires in mid 2013; and
* Key covenants in both these South African facilities are consistent and are
tested at the Western Platinum Limited / Eastern Platinum Limited 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.
The effective funding rate was circa 6% for the financial period.
Lonmin is currently in the process of restructuring its bank debt facilities.
Once complete this will ensure more cost effective funding with a longer
maturity profile.
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 HDSA`s 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. 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 2011 half year average exchange rate would be as follows:
EBIT +/-
$70m
Profit for the year +/-
$41m
EPS (cents) +/-
20.3c
These sensitivities are based on H1 2011 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 2011
period average metal prices achieved for Platinum (Pt) ($1,777 per ounce) and
Rhodium (Rh) ($2,345 per ounce) would be as follows:
Pt Rh
EBIT +/- $57m +/- $13m
Profit for the year +/- $34m +/- $8m
EPS (cents) +/- 16.6c +/- 3.7c
These sensitivities are based on H1 2011 costs and volumes and assume all other
variables remain constant. They are estimated calculations only.
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 $26 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. There is an extensive discussion of the principal risks and
uncertainties facing the Company on pages 29 to 33 of the 2010 Annual Report,
available from the Company`s website, www.lonmin.com.
Simon Scott
Chief Financial Officer
6 May 2011
Operating Statistics
6 months 6
to months
Uni 31 March to
ts 2011 31
March
2010
Tonnes Marikana Karee 1 kt 2,214 1,936
mined
Westerns 1 kt 1,725 1,844
Middelkraal 1 kt 919 866
Easterns 1 kt 615 497
Underground kt 5,473 5,142
Opencast kt 336 7
Pandora attributable 2
Underground kt 83 77
Lonmin Platinum Underground kt 5,556 5,220
Opencast kt 336 7
Total kt 5,891 5,227
% tonnes mined from the % 72.4 77.5
UG2 reef
Tonnes Marikana Underground kt 5,275 4,899
milled 3
Opencast kt 550 61
Pandora 4 Underground kt 175 167
Lonmin Platinum Underground kt 5,451 5,066
Opencast kt 550 61
Total kt 6,000 5,128
Lonmin Platinum - Head Underground g/t 4.56 4.74
grade 5
Opencast g/t 2.20 1.96
Total g/t 4.34 4.71
Lonmin Platinum - Underground % 85.6 84.6
Recovery rate 6
Opencast % 81.8 42.3
Total % 85.4 84.4
Metals in Marikana Platinum oz 343,789 310,603
Concentrate Palladium oz 161,419 145,175
7
Gold oz 9,133 6,490
Rhodium oz 44,982 43,802
Ruthenium oz 71,091 66,893
Iridium oz 15,564 14,634
Total PGMs oz 645,978 587,598
Pandora 4 Platinum oz 11,074 11,261
Palladium oz 5,179 5,276
Gold oz 77 77
Rhodium oz 1,689 1,782
Ruthenium oz 2,654 2,693
Iridium oz 438 455
Total PGMs oz 21,112 21,545
Lonmin Platinum Platinum oz 354,863 321,864
Palladium oz 166,597 150,451
Gold oz 9,210 6,567
Rhodium oz 46,671 45,584
Ruthenium oz 73,745 69,586
Iridium oz 16,002 15,089
Total PGMs oz 667,089 609,142
Nickel 8 MT 1,823 1,293
Copper 8 MT 1,157 804
6 months 6
to months
Uni 31 March to
ts 2011 31
March
2010
Refined Lonmin refined metal Platinum oz 280,980 291,742
production
production Palladium oz 138,386 150,292
Gold oz 6,664 7,437
Rhodium oz 38,524 42,945
Ruthenium oz 72,407 72,749
Iridium oz 13,411 20,423
Total PGMs oz 550,372 585,588
Toll refined metal Platinum oz 35,854 179
production
Palladium oz 48,635 63
Gold oz 2,866 -
Rhodium oz 13,892 809
Ruthenium oz 23,999 512
Iridium oz 5,091 -
Total PGMs oz 130,337 1,562
Total refined PGMs Platinum oz 316,834 291,921
Palladium oz 187,021 150,355
Gold oz 9,530 7,437
Rhodium oz 52,416 43,754
Ruthenium oz 96,406 73,261
Iridium oz 18,502 20,423
Total PGMs oz 680,709 587,150
Base metals Nickel 9 MT 2,113 1,550
Copper 9 MT 1,214 904
Sales Lonmin Platinum Platinum oz 318,306 291,922
Palladium oz 189,531 150,354
Gold oz 8,638 7,413
Rhodium oz 54,807 47,301
Ruthenium oz 91,773 75,871
Iridium oz 16,503 20,667
Total PGMs oz 679,557 593,529
Nickel 9 MT 2,110 1,386
Copper 9 MT 1,077 1,006
Chrome 9 MT 241,746 339,527
Average Platinum $/o 1,777 1,489
prices z
Palladium $/o 755 400
z
Gold $/o 1,125 1,125
z
Rhodium $/o 2,345 2,332
z
Ruthenium $/o 170 154
z
Iridium $/o 840 421
z
Basket price of $/o 1,290 1,068
PGMs 10 z
Basket price of R/o 8,990 8,077
PGMs 10 z
Basket price of R/o 9,619 8,356
PGMs 11 z
Nickel 9 $/M 22,241 15,844
T
Copper 9 $/M 8,720 6,417
T
Chrome 9 $/M 26 2
T
Footnotes:
1 During 2010 the management structure in mining was revised into four
business units. Karee includes the shafts K3, 1B and 4B and will also
include K4 once production commences. Westerns comprises Rowland,
Newman and ore purchases from W1. 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 Head Grade is the grammes per tonne (5PGE + Au) value contained in the
tonnes milled and fed into the concentrator from the mines (excludes
slag milled).
6 Recovery rate in the concentrators is the total content produced divided
by the total content milled (excluding slag).
7 Metals in concentrate includes slag and has been calculated using
industry standard downstream processing losses.
8 Corresponds to contained base metals in concentrate.
9 Nickel is produced and sold as nickel sulphate crystals or solution and
the volumes shown correspond to contained metal. Copper is produced as
refined product but typically at LME grade C. Chrome is produced in the
form of chromite concentrate and volumes shown are in the form of
chromite.
10 Basket price of PGMs is based on the revenue generated in Rand and
Dollar from the actual PGMs (5PGE + Au) sold in the period based on the
appropriate Rand/Dollar exchange rate applicable for each sales
transaction.
11 As per note 10 but including revenue from base metals.
6 months 6 months
to to
Units 31 March 31 March
2011 2010
Capital Expenditure 1 Rm 1,069 793
$m 154 106
Group cost per PGM ounce sold 2
Mining - Marikana R/oz 5,111 4,354
Concentrating - Marikana R/oz 922 845
Process division R/oz 920 785
Shared business services R/oz 420 551
C1 cost per PGM ounce produced R/oz 7,372 6,535
Stock movement R/oz (337) (432)
C1 cost per PGM ounce sold before base R/oz 7,036 6,103
metal credits
Base metal credits R/oz (629) (373)
C1 costs per PGM ounce sold after base R/oz 6,407 5,730
metal credits
Amortisation R/oz 600 550
C2 costs per PGM ounce sold R/oz 7,007 6,280
Pandora mining cost:
C1 Pandora mining cost (in joint R/oz 5,340 4,763
venture)
Pandora JV cost per ounce produced to 8,251 7,021
Lonmin (adjusting Lonmin share of R/oz
profit)
Exchange rates Average rate for period R/$ 6.93 7.48
3
Closing rate R/$ 6.77 7.28
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 2010
the cost allocation between business units was 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.
Responsibility statement of the directors in respect of the interim financial
report
We confirm that to the best of our knowledge:
the condensed set of financial statements has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU; and
the interim management report includes a fair review of the information required
by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for
the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the
related party transactions described in the last annual report that could
do so.
For and on behalf of the Board
Roger Phillimore Simon Scott
Chairman Chief Financial Officer
6 May 2011
Independent Review Report to Lonmin Plc
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31 March
2011 which comprises the consolidated income statement, consolidated statement
of comprehensive income, consolidated statement of financial position,
consolidated statement of changes in equity, consolidated statement of cash
flows and the related explanatory notes. We have read the other information
contained in the half-yearly financial report and considered whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Disclosure
and Transparency Rules ("the DTR") of the UK`s Financial Services Authority
("the UK FSA"). Our review has been undertaken so that we might state to the
company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company for our review work, for
this report, or for the conclusions we have reached.
Directors` responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the DTR of the UK FSA.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the EU. The condensed set of
financial statements included in this half-yearly financial report has been
prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the
EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and consequently does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 31 March 2011 is not prepared, in all material
respects, in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the DTR of the UK FSA.
Robert M. Seale
for and on behalf of KPMG Audit Plc
Chartered Accountants, London
6 May 2011
Consolidated income statement
for the 6 months to 31 March 2011
6 months to Special 6 months to 6 months
31 March items 31 March to
2011 2011 31 March
2010
Underlying i (note 3) Total Underlyin
g i
Continuing Note $m $m $m $m
operations
Revenue 2 938 - 938 661
EBITDA ii 2 208 (2) 206 122
Depreciation, (60) (2) (62) (52)
amortisation and
impairment
Operating profit 2 148 (4) 144 70
iii
Finance income 4 3 14 17 11
Finance expenses 4 (5) - (5) (3)
Share of profit of 3 - 3 4
equity accounted
investments
Profit before 149 10 159 82
taxation
Income tax expense 5 (44) (13) (57) (31)
iv
Profit for the 105 (3) 102 51
period
Attributable to:
-Equity 91 (1) 90 44
shareholders of
Lonmin Plc
-Non-controlling 14 (2) 12 7
interests
Earnings per share 6 45.0c 44.5c 22.8c
Diluted earnings 6 44.8c 44.3c 22.8c
per share v
Table Continues
Special 6 months to Year ended Special
items 31 March 30 Sep items
2010 2010
(note 3) Total Underlying i (note 3)
$m $m $m $m
- 661 1,585 -
(5) 117 350 (13)
- (52) (122) (12)
(5) 65 228 (25)
- 11 10 28
- (3) (9) -
- 4 8 -
(5) 77 237 3
(11) (42) (80) (38)
(16) 35 157 (35)
(14) 30 138 (26)
(2) 5 19 (9)
15.5c 70.2c
15.5c 70.0c
Consolidated statement of comprehensive income
for the 6 months to 31 March 2011
6 months 6 Year
to months ended
31 March to 30
2011 31 September
March 2010
2010
$m $m $m
Profit for the period 102 35 122
Other comprehensive income / (expense):
- Change in fair value of available for (5) 5 (6)
sale financial assets
- Net change in fair value of cash flow 1 (5) 1
hedges
- Gains on settled cash flow hedges - (1) (3)
released to the income statement
- Foreign exchange on retranslation of - - 3
equity accounted investments
- Deferred tax on items taken directly to - 2 1
the statement of comprehensive income
Total comprehensive income for the period 98 36 118
Attributable to:
- Equity shareholders of Lonmin Plc 86 32 107
- Non-controlling interests 12 4 11
98 36 118
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.
ii EBITDA is operating profit before depreciation, amortisation and
impairment of goodwill, intangibles and property, plant and equipment.
iii Operating profit is defined as revenue less operating expenses before
impairment of available for sale financial assets, finance income and
expenses and before share of profit of equity accounted investments.
iv The income tax expense relates substantially to overseas taxation and
includes exchange losses of $10 million (6 months to 31 March 2010 -
$10 million and year ended 30 September 2010 - $37 million) as
disclosed in note 5.
v Diluted earnings per share are based on the weighted average number of
ordinary shares in issue adjusted by dilutive outstanding share
options.
Consolidated statement of financial position
as at 31 March 2011
As at As at As at
31 March 31 March 30
2011 2010 September
2010
No $m $m $m
te
Non-current assets
Goodwill 113 113 113
Intangible assets 980 977 978
Property, plant and equipment 2,330 2,107 2,199
Equity accounted investments 176 163 172
Other financial assets 417 164 404
4,016 3,524 3,866
Current assets
Inventories 454 353 396
Trade and other receivables 198 220 414
Cash and cash equivalents 8 115 92 148
767 665 958
Current liabilities
Trade and other payables (297) (277) (381)
Interest bearing loans and 8 (56) (45) (66)
borrowings
Derivative financial instruments - (5) (1)
Tax payable (4) (12) (6)
(357) (339) (454)
Net current assets 410 326 504
Non-current liabilities
Employee benefits - (1) -
Interest bearing loans and 8 (355) (310) (457)
borrowings
Deferred tax liabilities i (802) (678) (751)
Provisions (110) (78) (80)
(1,267) (1,067) (1,288)
Net assets i 3,159 2,783 3,082
Capital and reserves
Share capital 202 193 202
Share premium 997 777 997
Other reserves 88 85 88
Retained earnings i 1,486 1,351 1,422
Attributable to equity 2,773 2,406 2,709
shareholders of Lonmin Plc i
Attributable to non-controlling 386 377 373
interests i
Total equity i 3,159 2,783 3,082
Footnote:
i The 2010 annual financial statements included a restatement of the
2008 and 2009 deferred tax liabilities to reflect an additional
liability of $64 million which should have been recorded on the
transition to IFRS in 2006. As a result the 31 March 2010 position
also requires restatement.
Consolidated statement of changes in equity
for the 6 months to 31 March 2011
Equity shareholders` funds
Called Share Non-
up share premium Other Retained controlling Total
capital account reserves earnings Total interests equity
i ii iii
$m $m $m $m $m $m $m
At 1 October 193 776 89 1,359 2,417 385 2,802
2009 as - - - (61) (61) (3) (64)
previously
reported
Correction iv
At 1 October 193 776 89 1,298 2,356 382 2,738
2009
(restated) iv
Profit for - - - 30 30 5 35
the period
Comprehensive - - (4) 6 2 (1) 1
(expense) /
income:
- Change in - - - 5 5 - 5
fair value of
available for
sale
financial
assets
- Net change - - (4) - (4) (1) (5)
in fair value
of cash flow
hedges
- Gains on - - (1) - (1) - (1)
settled cash
flow hedges
released to
the
income
statement
- Deferred - - 1 1 2 - 2
tax on items
taken
directly to
the statement
of
comprehensive
income
Items - 1 - 17 18 (9) 9
recognised
directly in
equity:
- Share- - - - 3 3 1 4
based
payments
- Transfer - - - 14 14 1 15
from
liability for
own shares
- Shares - 1 - - 1 - 1
issued on
exercise of
share options
- Dividends - - - - - (11) (11)
At 31 March 193 777 85 1,351 2,406 377 2,783
2010
(restated) iv
At 1 April 193 777 85 1,412 2,467 380 2,847
2010 as
previously
reported
Correction iv - - - (61) (61) (3) (64)
At 1 April 193 777 85 1,351 2,406 377 2,783
2010
(restated) iv
Profit for - - - 82 82 5 87
the period
Comprehensive - - 3 (10) (7) 2 (5)
income /
(expense):
- Change in - - - (11) (11) - (11)
fair value of
available for
sale
financial
assets
- Net change - - 5 - 5 1 6
in fair value
of cash flow
hedges
- Gains on - - (2) - (2) - (2)
settled cash
flow hedges
released to
the
income
statement
- Foreign - - - 2 2 1 3
exchange gain
on
retranslation
of equity
accounted
investments
- Deferred - - - (1) (1) - (1)
tax on items
taken
directly to
the statement
of
comprehensive
income
Items 9 220 - (1) 228 (11) 217
recognised
directly in
equity:
- Share- - - - 1 1 - 1
based
payments
- Share 9 224 - - 233 - 233
capital and
share premium
recognised on
equity
issuance
- Equity - (4) - - (4) - (4)
issue costs
charged to
share premium
- Reversal - - - (2) (2) - (2)
of fair value
movements on
derivative
liability
recognised in
respect of
equity
issuance
- Dividends - - - - - (11) (11)
At 30 202 997 88 1,422 2,709 373 3,082
September
2010
Consolidated statement of changes in equity (continued)
for the 6 months to 31 March 2011
Equity shareholders` funds
Called Share Non-
up premium Other Retained controlling Total
share
capital account reserves earnings Total interests equity
i ii iii
$m $m $m $m $m $m $m
At 1 October 2010 202 997 88 1,422 2,709 373 3,082
Profit for the - - - 90 90 12 102
period
Comprehensive - - - (4) (4) - (4)
expense :
- Change in fair - - - (5) (5) - (5)
value of
available for
sale financial
assets
- Net change in - - - 1 1 - 1
fair value of
cash flow hedges
Items recognised - - - (22) (22) 1 (21)
directly in
equity :
- Share-based - - - 8 8 1 9
payments
- Dividends - - - (30) (30) - (30)
At 31 March 2011 202 997 88 1,486 2,773 386 3,159
Footnotes:
i Other reserves at 31 March 2011 represent the capital redemption
reserve of $88 million (31 March 2010 and 30 September 2010 - $88
million) and a $nil hedging reserve net of deferred tax (31 March 2010
- $3 million and 30 September 2010 - $nil).
ii Retained earnings include $11 million of accumulated credits in respect
of fair value movements on available for sale financial assets (March
2010 - $27 million and September 2010 - $16 million) and a $14 million
credit of accumulated exchange on retranslation of equity accounted
investments (March 2010 - $11 million and September 2010 - $14
million).
iii Non-controlling interests represent an 18% shareholding in Eastern
Platinum Limited, Western Platinum Limited and Messina Limited and a
26% shareholding in Akanani Mining (Pty) Limited.
iv The 2010 annual financial statements included a restatement of the 2008
and 2009 deferred tax liabilities to reflect an additional liability of
$64 million which should have been recorded on the transition to IFRS
in 2006. As a result the 1 April 2010 position also requires
restatement.
Consolidated statement of cash flows
for the 6 months to 31 March 2011
6 months 6 months Year
to to ended
31 March 31 March 30
2011 2010 September
2010
Note $m $m $m
Profit for the period 102 35 122
Taxation 5 57 42 118
Share of profit after tax of equity (3) (4) (8)
accounted investments
Finance income 4 (17) (11) (38)
Finance expenses 4 5 3 9
Depreciation, amortisation and 62 52 134
impairment
Unrealised foreign exchange in 3 8 5
provisions
Change in inventories (58) (82) (125)
Change in trade and other 216 68 (138)
receivables
Change in trade and other payables (49) (32) 40
Share-based payments 9 7 9
Loss on disposal of property, plant - - 5
and equipment
Cash inflow from operations 327 86 133
Interest received 1 1 3
Interest and bank fees paid (20) (25) (44)
Tax paid (7) (2) (12)
Cash inflow from operating 301 60 80
activities
Cash flow from investing activities
Investment in joint venture (1) - (3)
HDSA financing - (59) (285)
Purchase of property, plant and (191) (132) (259)
equipment
Purchase of intangible assets - - (2)
Cash outflow from investing (192) (191) (549)
activities
Cash flow from financing activities
Dividends paid to non-controlling - (11) (22)
interests
Dividends paid to controlling (30) - -
interests
Proceeds from current borrowings 8 - - 60
Repayment of current borrowings 8 (11) (13) (47)
Proceeds from non-current 8 149 - 113
borrowings
Repayment of non-current borrowings 8 (250) (39) -
Proceeds from equity issuance - - 233
Costs of issuing shares - - (4)
Issue of ordinary share capital - 1 1
Cash (outflow) / inflow from (142) (62) 334
financing activities
Decrease in cash and cash 8 (33) (193) (135)
equivalents
Opening cash and cash equivalents 8 148 282 282
Effect of exchange rate changes 8 - 3 1
Closing cash and cash equivalents 8 115 92 148
Notes to the accounts
1 Statement on accounting policies
Basis of preparation
Lonmin Plc (the "Company") is a company domiciled in the United Kingdom.
The condensed consolidated interim financial statements of the Company as
at and for the 6 months to 31 March 2011 comprise the Company and its
subsidiaries (together referred to as the "Group") and the Group`s
interests in equity accounted investments.
These condensed consolidated interim financial statements have been
prepared in accordance with IAS 34 - Interim Financial Reporting, as
adopted by the EU. As required by the Disclosure and Transparency Rules of
the Financial Services Authority, the condensed set of financial statements
has been prepared applying the accounting policies and presentation that
were applied in the preparation of the company`s published consolidated
financial statements of the year ended 30 September 2010. They do not
include all of the information required for full annual financial
statements and should be read in conjunction with the consolidated
financial statements of the Group for the year ended 30 September 2010.
The comparative figures for the financial year ended 30 September 2010 are
not the Group`s full statutory accounts for that financial year. Those
accounts have been reported on by the Group`s auditors and delivered to the
registrar of companies. The report of the auditors was (i) unqualified,
(ii) did not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report, and (iii) did
not contain a statement under section 498 (2) or (3) of the Companies Act
2006.
The consolidated financial statements of the Group as at and for the year
ended 30 September 2010 are available upon request from the Company`s
registered office at 4 Grosvenor Place, London, SW1X 7YL.
These condensed consolidated interim financial statements were approved by
the Board of Directors on 9 May 2011.
These consolidated interim financial statements apply the accounting
policies and presentation that will be applied in the preparation of the
Group`s published consolidated financial statements for the year ending 30
September 2011.
In accordance with IAS 8 - Accounting Policies, Changes in Accounting
Estimates and Errors, the 2010 annual financial statements included a
restatement of the 2008 and 2009 deferred tax liabilities to reflect an
additional $64 million of deferred tax liabilities which were not
recognised in relation to certain fair value consolidation adjustments on
the transition to IFRS which occurred in the year ended 30 September 2006.
As a result the 31 March 2010 position also requires restatement. The
restatement has no cash impact. The additional liability will unwind as
the related assets are amortised which will result in a tax credit of
approximately $2 million tax credit to the income statement which is not
considered material.
The Directors have assessed the forecast cash flows of the business and the
available banking facilities and continue to adopt the going concern basis
in preparing the financial statements. Management`s review of the factors
likely to affect its future development, performance and position of the
business and the approach to financial risk management are given in the
Financial Review.
New standards and amendments in the period
There were no new standards, interpretations or amendments to standards
issued and effective for the period which materially impacted the Group.
New standards that are relevant to the Group but have not yet been adopted
The following standard, issued by the IASB and endorsed by the EU, has not
yet been adopted by the Group:
IAS 24 (revised 2009) - Related Party Disclosures (effective 1 January
2011) amends the definition of a related party and modifies certain related
party disclosure requirements for government related entities.
The Group does not expect the adoption of other new, or revisions to
existing, standards or interpretations issued by the IASB, not listed
above, to have a material impact on the consolidated results or financial
position of the Group.
Notes to the accounts (continued)
2 Segmental analysis
The Group distinguishes between 3 reportable operating segments being the
Platinum Group Metals ("PGM") Operations segment, the Evaluation segment
and the Exploration segment. The PGM Operations segment comprises the
activities involved in the mining and processing of PGMs, together with
associated base metals, which are carried out entirely in South Africa.
The Evaluation segment covers the evaluation through pre-feasibility of the
economic viability of newly discovered PGM deposits. Currently all of the
evaluation projects are based in South Africa. The Exploration segment
covers the activities involved in the discovery or identification of new
PGM deposits. This activity occurs on a worldwide basis. No operating
segments have been aggregated. Operating segments have consistently
adopted the consolidated basis of accounting and there are no differences
in measurement applied. Other covers mainly the results and investment
activities of the corporate head office. The only inter-segment
transactions involve the provision of funding between segments and any
associated interest.
6 months to 31 March 2011
PGM Evaluat Explora Other Inter- Total
Operati ion tion $m Segment $m
ons Segment Segment Adjustme
Segment $m $m nts
$m $m
Revenue (external
sales by product):
Platinum 566 - - - - 566
Palladium 143 - - - - 143
Gold 9 - - - - 9
Rhodium 128 - - - - 128
Ruthenium 16 - - - - 16
Iridium 14 - - - - 14
PGMs 876 - - - - 876
Nickel 47 - - - - 47
Copper 9 - - - - 9
Chrome 6 - - - - 6
938 - - - - 938
Underlying i :
EBITDA / (LBITDA) ii 206 (1) 2 1 - 208
Depreciation and (60) - - - - (60)
amortisation
Operating profit / 146 (1) 2 1 - 148
(loss) ii
Finance income 3 - - 4 (4) 3
Finance expenses (9) - - - 4 (5)
Share of profit of 3 - - - - 3
equity accounted
investments
Profit / (loss) before 143 (1) 2 5 - 149
taxation
Income tax expense (44) (2) - 2 - (44)
Profit / (loss) after 99 (3) 2 7 - 105
taxation
Total assets 3,469 844 7 996 (533) 4,783
Total liabilities (1,678) (300) (45) (134) 533 (1,624)
Net assets / 1,791 544 (38) 862 - 3,159
(liabilities)
Share of net assets of 54 - - 122 - 176
equity accounted
investments
Additions to property, 191 6 - - - 197
plant, equipment and
intangibles
Material non-cash 9 - - - - 9
items - share-based
payments
Notes to the accounts (continued)
2 Segmental analysis (continued)
6 months to 31 March 2010
PGM Evaluat Explora Other Inter- Total
Operati ion tion $m Segment $m
ons Segment Segment Adjustme
Segment $m $m nts
$m $m
Revenue (external
sales by product):
Platinum 433 - - - - 433
Palladium 60 - - - - 60
Gold 8 - - - - 8
Rhodium 110 - - - - 110
Ruthenium 12 - - - - 12
Iridium 9 - - - - 9
PGMs 632 - - - - 632
Nickel 22 - - - - 22
Copper 7 - - - - 7
Chrome - - - - - -
661 - - - - 661
Underlying i :
EBITDA / (LBITDA) ii 126 (1) (3) - - 122
Depreciation and (51) - - (1) - (52)
amortisation
Operating profit / 75 (1) (3) (1) - 70
(loss) ii
Finance income 5 - - 9 (3) 11
Finance expenses (6) - - - 3 (3)
Share of profit of 3 - - 1 - 4
equity accounted
investments
Profit / (loss) before 77 (1) (3) 9 - 82
taxation
Income tax expense (31) - - - - (31)
Profit / (loss) after 46 (1) (3) 9 - 51
taxation
Total assets 3,107 850 2 632 (402) 4,189
Total liabilities iii (1,456) (278) (40) (34) 402 (1,406
)
Net assets / 1,651 572 (38) 598 - 2,783
(liabilities) iii
Share of net assets of 43 - - 120 - 163
equity accounted
investments
Additions to property, 111 19 - - - 130
plant, equipment and
intangibles
Material non-cash 6 - - 1 - 7
items - share-based
payments
Notes to the accounts (continued)
2 Segmental analysis (continued)
Year ended 30 September 2010
PGM Evaluat Explora Other Inter- Total
Operati ion tion $m Segment $m
ons Segment Segment Adjustme
Segment $m $m nts
$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
1585 - - - - 1585
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
Notes to the accounts (continued)
2 Segmental analysis (continued)
Revenue by destination is analysed by geographical area below:
6 months to 6 months to Year ended
31 March 2011 31 March 2010 30 September
$m $m 2010
$m
The Americas 239 149 453
Asia 267 163 373
Europe 239 268 529
South Africa 193 81 230
938 661 1,585
The Group`s revenues are all derived from the PGM Operations segment. This
segment has two major customers who contributed 60% and 27% of revenue in the 6
months to 31 March 2011, 70% and 24% in the 6 months to 31 March 2010 and 69%
and 23% in the year ended 30 September 2010.
Metal sales prices are based on market prices which are denominated in US
Dollars. The majority of sales are also invoiced in US Dollars with the
exception of certain sales in South Africa which are invoiced in South African
Rand based on exchange rates determined in accordance with the contractual
arrangement.
Non-current assets, excluding financial instruments, by geographical area are
shown below:
6 months to 6 months to Year ended
31 March 2011 31 March 2010 30 September
$m $m 2010
$m
South Africa 3,598 3,360 3,461
Europe 1 - 1
3,599 3,360 3,462
Footnotes:
i Underlying results are based on reported results excluding the effect
of special items as defined in note 3.
ii EBITDA / (LBITDA) and operating profit / (loss) are the key profit
measures used by management.
iii Total liabilities and net assets are restated as disclosed in footnote
iv in the consolidated statement of changes in equity.
Notes to the accounts (continued)
3 Special items
Special items are those items of financial performance that the Group believes
should be separately disclosed on the face of the consolidated income statement
to assist in the understanding of the financial performance achieved by the
Group and for consistency with prior periods.
6 months to 6 months to Year ended
31 March 31 March 30
2011 2010 September
2010
$m $m $m
Operating loss: (4) (5) (25)
- Costs relating to HDSA financing i - - (5)
- Impairment of property, plant and (2) - (12)
equipment ii
- Restructuring and reorganisation (2) (5) (9)
costs iii
- Pension refund - - 1
Net finance income: 14 - 28
- Interest accrued from HDSA 7 - 3
receivable i
- Exchange gain on HDSA receivable i 7 - 11
- Movement in fair value of HDSA - - 12
derivative asset
- Movement in fair value of derivative - - 2
liability in respect of
equity issuance
Profit / (loss) on special items 10 (5) 3
before taxation
Taxation related to special items (13) (11) (38)
(note 5)
Special loss before non-controlling (3) (16) (35)
interests
Non-controlling interests 2 2 9
Special loss for the period (1) (14) (26)
attributable to equity shareholders of
Lonmin Plc
Footnotes:
i During the 12 months ended 30 September 2010 the Group provided
financing to assist Shanduka to acquire a majority shareholding in
Incwala, Lonmin`s Black Economic Empowerment partner. This financing
gave rise to foreign exchange movements and the accrual of interest.
The Group also incurred fees from advisors in relation to the
transaction. See the 30 September 2010 annual financial statements for
further detail.
ii During the 12 months ended 30 September 2010 the Group took a strategic
decision to enhance its 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 were written off. In addition, $2 million was written
off with respect to houses for sale. In the 6 months to March 2011 a
further $2 million was written off with respect to houses.
iii The Group incurred transition costs in relocating corporate functions
from the London office to South Africa.
Notes to the accounts (continued)
4 Net finance income
6 months to 6 months to Year ended
31 March 31 March 30
2011 2010 September
2010
$m $m $m
Finance income: 3 11 10
- Interest receivable on cash and 1 1 2
cash equivalents
- Other interest receivable - 4 7
- Exchange gains on other receivables - 3 -
- Exchange gains on net debt 2 3 1
Finance expenses: (5) (3) (9)
- Interest payable on bank loans and (15) (11) (25)
overdrafts
- Bank fees (6) (12) (20)
- Capitalised interest i 20 23 43
- Other finance expenses - - (1)
- Unwind of discounting on provisions (4) (3) (6)
Special items (note 3): 14 - 28
- Interest accrued from HDSA 7 - 3
receivable
- Exchange gains on HDSA receivable 7 - 11
- Movement in fair value of HDSA - - 12
derivative asset
- Movement in fair value of - - 2
derivative liability in respect of
equity issuance
Net finance income 12 8 29
Footnote:
i Interest expenses incurred have been capitalised on a Group basis to the
extent that there is an appropriate qualifying asset. The weighted
average interest rate used by the Group for capitalisation in the period
was 5.8% (6 months to 31 March 2010 - 5.5%, year ended 30 September 2010
- 5.7%).
Notes to the accounts (continued)
5 Taxation
6 months 6 months Year
to to ended
31 March 31 March 30
2011 2010 September
$m $m 2010
$m
United Kingdom:
- Current tax credit at 28% (2010 - 28%) (2) - (6)
i
Overseas:
- Current tax expense at 28% (2010 - 28%) 6 4 8
excluding special items:
- Corporate tax expense - current year 6 3 9
- Adjustment in respect of prior years - - (3)
- Tax on dividends remitted - 1 2
Deferred tax expense - UK and overseas: 40 27 78
- Origination and reversal of temporary 40 26 79
differences
- Adjustment in respect of prior years - 1 (1)
Special items - UK and overseas (note 3): 13 11 38
- Reversal of utilisation of losses from 1 1 -
prior periods to offset deferred
tax liability
- Exchange on current taxation ii - - 1
- Exchange on deferred taxation ii 10 10 36
- Deferred tax on special items impacting 2 - 1
profit before tax
57 42 118
Actual tax charge
44 31
Tax charge excluding special items (note 3) 80
36% 55%
Effective tax rate 49%
30% 38%
Effective tax rate excluding special items 34%
(note 3)
Notes to the accounts (continued)
5 Taxation (continued)
A reconciliation of the standard tax charge to the actual tax charge was as
follows:
6 6 6 6 Year Year
months months months months ended ended
to to to to 30 30
31 31 31 31 Septemb Septemb
March March March March er er
2011 2011 2010 2010 2010 2010
$m $m $m
Tax charge on profit at 28% 45 29% 23 29% 70
standard tax rate
Tax effect of:
- Overseas taxes on - - 1% 1 1% 2
dividends remitted by
subsidiary companies
- Unutilised losses iii 1% 2 7% 5 (2%) (5)
- Foreign exchange impacts - - 4% 3 6% 14
on taxable profits
- Adjustment in respect of - - 1% 1 (2%) (4)
prior years
- Other - (1) (2%) (2) 2% 4
- Special items as defined 7% 11 15% 11 15% 37
above
Actual tax charge 36% 57 55% 42 49% 118
The Group`s primary operations are based in South Africa which has a statutory
tax rate of 28% (2010 - 28%). Lonmin Plc operates a branch in South Africa
which is subject to a tax rate of 33% on branch profits (2010 - 33%). The
secondary tax rate on dividends remitted by South African companies was 10%
(2010 - 10%).
Footnotes:
i Effective from 1 April 2011 the United Kingdom tax rate changes from 28%
to 26%. This does not significantly impact the Group`s deferred tax
liabilities.
ii Overseas tax charges are predominantly calculated in Rand as required by
the local authorities. As these subsidiaries` functional currency is US
Dollar this leads to a variety of foreign exchange impacts being the
retranslation of current and deferred tax balances and monetary assets,
as well as other translation differences. The Rand denominated deferred
tax balance in US Dollars at 31 March 2011 is $574 million (31 March
2010 - $452 million, 30 September 2010 - $524 million).
iii Unutilised losses reflect losses generated in entities for which no
deferred tax is provided due as it is not thought probable that future
profits can be generated against which a deferred tax asset could be
offset or previously unrecognised losses utilised.
Notes to the Accounts (continued)
6 Earnings per share
Earnings per share (EPS) have been calculated on the earnings for the period
attributable to equity shareholders amounting to $90 million (6 months to 31
March 2010 - $30 million, year ended 30 September 2010 - $112 million) using a
weighted average number of 202.3 million ordinary shares in issue for the 6
months to 31 March 2011 (6 months to 31 March 2010 - 193.1 million ordinary
shares, year ended 30 September 2010 - 196.7 million ordinary shares).
Diluted earnings per share are 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.
6 months to 31 6 months to 31 Year ended 30
March 2011 March 2010 September 2010
Prof Number Per Profit Numb Per Profit Numb Per
it of share for er shar for er shar
for shares amount the of e the of e
the period shar amou year shar amou
peri es nt es nt
od
$m millio cents $m mill cent $m mill cent
ns ions s ions s
Basic EPS 90 202.3 44.5 30 193. 15.5 112 196. 56.9
1 7
Share option - 0.6 (0.2) - 0.3 - - 0.5 (0.1
schemes )
Diluted EPS 90 202.9 44.3 30 193. 15.5 112 197. 56.8
4 2
6 months to 31 6 months to 31 Year ended 30
March 2011 March 2010 September 2010
Prof Number Per Profit Numb Per Profit Numb Per
it of share for er shar for er shar
for shares amount the of e the of e
the period shar amou year shar amou
peri es nt es nt
od
$m millio cents $m mill cent $m mill cent
ns ions s ions s
Underlying EPS 91 202.3 45.0 44 193. 22.8 138 196. 70.2
1 7
Share option - 0.6 (0.2) - 0.3 - - 0.5 (0.2
schemes )
Diluted 91 202.9 44.8 44 193. 22.8 138 197. 70.0
underlying EPS 4 2
Underlying earnings per share have been presented as the Directors consider it
important to present the underlying results of the business. Underlying
earnings per share are based on the earnings attributable to equity shareholders
adjusted to exclude special items (as defined in note 3) as follows:
6 months to 31 March 6 months to 31 Year ended 30
2011 March 2010 September 2010
Profit Number Per Profit Numb Per Profit Numb Per
for of share for er shar for er shar
the shares amount the of e the of e
period period shar amou year shar amou
es nt es nt
$m millio cents $m mill cent $m mill cent
ns ions s ions s
Basic EPS 90 202.3 44.5 30 193. 15.5 112 196. 56.9
1 7
Special items 1 - 0.5 14 - 7.3 26 - 13.3
(note 3)
Underlying 91 202.3 45.0 44 193. 22.8 138 196. 70.2
EPS 1 7
Notes to the Accounts (continued)
6 Earnings per share (continued)
Headline earnings and the resultant headline earnings per share are specific
disclosures defined and required by the Johannesburg Stock Exchange.
These are calculated as follows:
6 months 6 months to Year ended
to 31 March 30
31 March 2010 September
2011 2010
$m $m $m
Earnings attributable to ordinary 90 30 112
shareholders under IAS 33
Add back loss on disposal of property, 1 - 5
plant and equipment
Add back impairment of assets (note 3) 2 - 12
Tax related to the above items (1) - (5)
Non-controlling interests - - (2)
Headline earnings 92 30 122
6 months to 31 March 6 months to 31 Year ended 30
2011 March 2010 September 2010
Profit Number Per Prof Numb Per Prof Numb Per
for the of share it er share it er shar
period shares amount for of amount for of e
the shar the shar amou
peri es year es nt
od
$m millio cents $m mill cents $m mill cent
ns ions ions s
Headline EPS 92 202.3 45.5 30 193. 15.5 122 196. 62.0
1 7
Share option - 0.6 (0.2) - 0.3 - - 0.5 (0.1
schemes )
Diluted 92 202.9 45.3 30 193. 15.5 122 197. 61.9
Headline EPS 4 2
7 Dividends
No dividends were declared during the period (6 months to 31 March 2010 - $nil
and year ended 30 September 2010 - $30 million proposed dividend). The proposed
dividend as at September 2010 was paid during the period.
Notes to the Accounts (continued)
8 Analysis of net debt i
As at Cash flow Foreign As at
1 October exchange 31 March
2010 and non-cash 2011
movements
$m $m $m $m
Cash and cash 148 (33) - 115
equivalents
Current borrowings (71) 11 - (60)
Non-current borrowings (462) 101 2 (359)
Unamortised bank fees 10 - (2) 8
Net debt as defined by (375) 79 - (296)
the Groupi
As at Cash flow Foreign As at
1 April exchange 30
2010 and non-cash September
movements 2010
$m $m $m $m
Cash and cash 92 58 (2) 148
equivalents
Current borrowings (45) (26) - (71)
Non-current borrowings (310) (152) - (462)
Unamortised bank fees 13 - (3) 10
Net debt as defined by (250) (120) (5) (375)
the Groupi
As at Cash flow Foreign As at
1 October exchange 31 March
2009 and non-cash 2010
movements
$m $m $m $m
Cash and cash 282 (193) 3 92
equivalents
Current borrowings (58) 13 - (45)
Non-current borrowings (349) 39 - (310)
Unamortised bank fees 12 - 1 13
Net debt as defined by (113) (141) 4 (250)
the Groupi
Footnotes:
i Net debt as defined by the Group comprises cash and cash equivalents,
bank overdrafts repayable on demand and interest bearing loans and
borrowings less unamortised bank fees.
ii At 31 March 2010 unamortised bank fees of $13 million were shown as a
prepayment where facilities had not been drawn down and therefore there
was no loan balance to offset against. As at 31 March 2011 $8 million
of unamortised bank fees have been offset against loans according to
the amortisation profile.
Date: 09/05/2011 08:00:04 Produced by the JSE SENS Department.
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