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Lonmin PLC LMI Final Results


Attachment:

  Lonmin PLC (LMI) - Final Results

RNS Number : 7225Q
Lonmin PLC
09 November 2012
 



 

 

 

 

 

 

 

 

 

REGULATORY RELEASE

 

 

9 November 2012

 

                       2012 Final Results Announcement

 

Lonmin Plc,  (Lonmin  or  the  Company), the  world's  third  largest  primary 
Platinum producer, today  publishes its Final  Results for the  year ended  30 
September 2012.

 

HIGHLIGHTS

 

•      Commendable operational performance in light of circumstances

o  The  tragic  events  at Marikana  significantly  impacted  operational  and 
financial results

§ Impact of 110,000 ounces of mined Platinum

o  Saleable metal in concentrate down 5.5% to 679,821 Platinum ounces

o  Platinum sales of 701,831 ounces - down 2.6% on 2011

o  Improved safety performance  - LTIFR of 4.16  per million man hours  worked 
vs. 4.71 in FY2011

o  Immediately  available ore  reserves  at 3.3  million  centares, up  14%  - 
healthy levels  aligned  to creating  operational  flexibility to  respond  to 
market conditions

o  Further improvements in grades and concentrator recoveries

o  Number Two  Furnace commissioned on  schedule in July  2012 and Number  One 
Furnace successfully modified and operating well

 

•      Financial results

o  Underlying profit before tax $57 million

o  Special costs of $755 million, including $159 million for costs related  to 
illegal work  stoppage and  impairment of  Akanani exploration  asset at  $602 
million

o  Resulting loss before tax of $698 million

 

•      Balance Sheet restructuring

o  Underwritten Rights  Issue to  raise c. $817  million announced  separately 
today

o  Amended banking facilities - strengthening financial position

 

•      Focus areas FY2013 onwards

o   FY2013  guidance  of  680,000  Platinum  ounces  of  saleable  metals   in 
concentrate, and sales of 660,000 ounces

o  Targeting Platinum sales in excess of 750,000 ounces in FY2014 and FY2015

o  Unit costs to increase by around 10% to ZAR9,350 per PGM ounce produced  in 
FY2013

o  Capital expenditure of $175 million for 2013 financial year

o   Attractive  long-term  fundamentals   for  PGM  markets  remain,   despite 
short-term volatility

 

Roger Phillimore, Chairman, said: "The publication of today's results closes a
painful chapter in Lonmin's history.  There are many lessons to be learnt  and 
these will inform our actions in the future.  However we are now looking ahead
with renewed confidence.  We have secured our financial position and we have a
clear strategic plan that management and workers alike need to deliver on  for 
the sake of all our stakeholders."

 

FINANCIAL HIGHLIGHTS

 

                                          30 September 2012  30 September 2011
Revenue                                             $1,614m            $1,992m
Underlying ^i operating profit                         $67m              $311m
Operating (loss) / profit  ^ii                      $(702)m              $307m
Underlying ^i profit before taxation                   $57m              $315m
(Loss) / profit  before taxation                    $(698)m              $293m
Underlying ^i earnings per share                       7.4c             111.6c
(Loss) / earnings per share                        (202.3)c             134.8c
Trading cash inflow per share ^iii                   129.8c             311.2c
Free cash (outflow) / inflow per share              (78.5)c             103.7c
^iv
Net debt as defined by the Group ^v                   $421m              $234m
Gearing ^vi                                             14%                 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 financial statements.
ii  Operating (loss) / profit  is defined as  revenue less operating  expenses 
    before impairment of available for  sale financial assets, finance  income 
    and expenses  and before  share of  (loss) /  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  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.

 

CONTENTS

 

The following sections are contained in this document:

·     Events at Marikana in August and September 2012

·     Chairman's Letter

·     Chief Executive Officer's Review

·     Operational Review

·     Financial Review

·     Reserves & Resources

·     Operating Statistics - 5 Year Review

·     Financial Statements

 

ENQUIRIES

 

Investors / Analysts:

Lonmin

Tanya Chikanza (Head of Investor Relations) +27 11 218 8300 /

                                             +44 20 7201 6007
Ruli Diseko (Investor Relations Manager)      +27 11 218 8373

 

Media:

Cardew Group

James Clark / Emma Crawshaw +44 20 7930 0777
Sue Vey                      +27 72 644 9777

 

Brunswick - Johannesburg

Cecilia de Almeida +27 11 502 7400 /

                     +27 83 325 9169

 

Notes to editors

 

Lonmin, which is listed on both the London Stock Exchange and the Johannesburg
Stock Exchange, is one of the world's largest primary producers of PGMs. These
metals are essential  for many industrial  applications, especially  catalytic 
converters  for  internal  combustion  engine  emissions,  as  well  as  their 
widespread use in jewellery.

 

Lonmin's operations  are situated  in the  Bushveld Complex  in South  Africa, 
where nearly 80% of known global PGM resources are found.

 

The Company  creates  value  for shareholders  through  mining,  refining  and 
marketing PGMs and has  a vertically integrated  operational structure -  from 
mine to market. Lonmin's mining operations extract ore from which the  Process 
Division produces refined  PGMs for  delivery to  customers. Underpinning  the 
operations is the Shared Services function which provides high quality  levels 
of support and infrastructure across the operations.

 

For further information please visit our website: http://www.lonmin.com

Events at Marikana in August and September 2012

 

There is no way to  begin our Annual Report  this year without addressing  the 
terrible events which took place at Marikana in August and September.

 

The scenes which unfolded there shocked and horrified all who witnessed them. 
They placed this Company in the global spotlight and, crucially, they left the
nation of South Africa seeking answers to some of the most difficult questions
it has faced in a generation.

 

Mining is a  dangerous business.   We are  proud of  our record  of being  the 
safest primary platinum mining company  in the world, but  all of us who  have 
been involved in this  industry for years know  the pain of losing  colleagues 
underground.  Nothing, though, could have  prepared the Lonmin family for  the 
loss of so many colleagues during the events which took place.  Like the whole
nation around us, it will take  a long time for us  to come to terms with  the 
tragedy that  unfolded  and for  normality  to  return.  We  have  begun  that 
journey, but it will be long and difficult.

 

In compiling our  Annual Report this  year we  faced a challenge  in that  the 
Events at Marikana are so relevant to so much of our business that they  could 
be mentioned in most sections of  the report.  An Annual Report, however,  is, 
by definition, a complex and  technical publication, containing a huge  amount 
of information to help inform its shareholders.

 

For that reason we felt that we should address Marikana immediately. Much  has 
been written by others about those  weeks, some of it moving, some  insightful 
but, sadly, much that is wholly  inaccurate.  In reporting this year, we  felt 
it was important to deal with that.

 

Of course, the issues around Marikana  are the subject of an ongoing  judicial 
inquiry in South Africa.  It is for Judge Farlam and his team, whom we support
fully and completely, to establish causes  and examine effects, and we do  not 
intend to do that  here. It would  be entirely wrong to  do so.  However  some 
facts, sadly, are  not in dispute  in that before  16 August eight  employees, 
including two security guards, as well as two policemen were killed whilst  on 
16 August 34 people were killed and many more injured.

 

Speaking a few days later  at a Memorial Service for  those who died, we  both 
tried to find the right words to express our deep sorrow, shock and regret  at 
what had happened.  We tried, also, to speak of hope, and healing.  Even  now, 
many weeks later, there are  no words adequate to  reflect the events of  that 
day; but, our heartfelt  sympathy for the families  and friends who have  lost 
loved ones remains undiminished.

 

Lonmin with  its  Black Economic  Empowerment  (BEE) partner,  Shanduka  Group 
(Proprietary) Limited, established the 16/8 Memorial  Fund in the wake of  the 
shootings, committing to fund the education of the children of those who  died 
to adulthood,  and  providing  care  to  the  injured.   The  fund  is  to  be 
independently run,  and open  for  public donations  or donations  from  other 
organisations or companies (a number of which have already, both publicly  and 
anonymously, contributed generously).  Details can be found elsewhere in  this 
report.

 

In the wake  of the  shootings sporadic  violence continued,  combined with  a 
focused campaign of threats and intimidation  to prevent the vast majority  of 
our workforce of 28,000  (and another 10,000  contractors) from reporting  for 
work.  We worked hard with SAPS to try to address this, not least because  the 
vast majority  of  our  workforce wanted  to  return  to work,  but  the  very 
geography of Marikana made this difficult.

 

It is important  to remember also  that we  found ourselves at  the centre  of 
nothing less than a national crisis for South Africa.  Certainly we faced huge
pressure to find a way to resolve  the situation in order that we could  start 
mining again and protect the safety and jobs of tens of thousands who had  not 
been involved, but also to give the nation an opportunity to begin to  address 
the difficult issues it faced.

 

Both Board and Management were convinced that a resolution which could deliver
a sustainable peace was essential.

 

We worked  tirelessly  with  government, religious  and  traditional  leaders, 
unions  and  other  workers'  representatives,  under  the  guidance  of   the 
Commission for Conciliation, Mediation and Arbitration (CCMA), to bring  about 
a Peace Accord.  We thank all these parties for their involvement and for  the 
significant role each  and every  one of  them played.   That document,  which 
committed all parties to peaceful negotiation, was signed on September 6.  One
union chose  not to  sign, but  in the  interests of  peace we  and the  other 
signatory parties reached  out to  them to  join the  wage negotiations  which 
followed.

 

The discussions which followed the signing of the Peace Accord resulted in  an 
agreement, again facilitated by  the CCMA and signed  by all the trade  unions 
party to our existing wage agreement, to add an addendum to our existing  wage 
agreement which gave pay  rises of between  11% and 22%  to most workers  (not 
including management).  Many have failed to report that this included rises of
9% to 10% already due.  Subsequently we  saw an immediate return to work,  and 
the resumption of  operations. We  refer to this  tragic series  of events  as 
"Events at Marikana" in the rest of the Annual Report.

 

We believe we did the right thing  both for this Company and for South  Africa 
in helping bring the dispute and associated  violence to an end.  It was  easy 
to blame Lonmin,  as some have  done, for the  spread of unrest  in the  weeks 
after our agreement.  We reject this  accusation. Unrest in the mining  sector 
predated the Marikana dispute, and was growing elsewhere during it.

 

Deep-rooted issues of poverty and inequality have been highlighted by what has
taken place, but those go beyond mining and to every corner of South  Africa.  
It is certainly  true that  mining companies  have faced  criticism for  their 
efforts to support the transformation agenda  in the country and, on  Lonmin's 
behalf, we accept  that we must  do more, particularly  around the  nationally 
difficult issue of housing.  However we  are rightly proud of the huge  amount 
we have achieved in  education, health, infrastructure  and other areas,  both 
for our  employees and  the  wider community  - work  which  has not  had  the 
recognition the dedicated teams who deliver it deserve.

 

Nonetheless, no company, however large,  can alone address the  socio-economic 
issues facing the Republic.  Only by  working in partnership with central  and 
local government to build  a sustainable and profitable  mining sector can  we 
make the investments needed to create  and sustain the jobs and careers  which 
will help solve some of these problems.

 

We are committed to being a good corporate citizen of South Africa, to meeting
the challenges set us  around BEE and Transformation  and, more than this,  to 
being a  force for  good in  a country  in which  mining is  a vital  part  of 
economic well-being.

 

In doing all this,  however, we must  never lose sight  of the most  important 
thing, which must  be to help  ensure that such  terrible events never  happen 
again.

 

South Africa is  a country which  has been  through more than  most, and  come 
through all challenges to  become a better place.   It is a beautiful  nation, 
blessed with many resources and home  to a vibrant and determined people.   It 
deserves to reap the benefits of all of this.  What happened at Marikana was a
tragedy for the  families and friends  of those  who died, and  for those  who 
still bear the physical and mental injuries of those events; but it was also a
warning to all of South Africa.  Together, we must heed that warning.

 

Roger Phillimore                                             Simon Scott

Chairman                                                          Acting Chief
Executive Officer

 

Chairman's Letter

 

Dear Fellow Shareholder,

 

This has  been  a  year  where  issues of  business  and  commerce  have  been 
overshadowed by tragic  loss of life,  violence, unrest and  fear.  Events  at 
Marikana and elsewhere mark a  watershed for post-Apartheid South Africa,  and 
leave everyone involved in the country asking questions and seeking answers.

 

What is clear, though, is  that if South Africa is  to deal with the  historic 
issues of poverty  and dissatisfaction which  underpin much of  the unrest  we 
have witnessed, it  will require  a growing  and effective  private sector  to 
provide the jobs  so desperately needed.   It is business  which will help  to 
deliver much of the growth which, in turn, will help to provide the  economic, 
educational and social  platforms for change.   Given the country's  extensive 
natural resources, mining will be a key part of that.

 

The future of your Company, like  our peers, is intrinsically linked with  the 
future of  South  Africa.   The  Government of  the  Republic  recognises  the 
importance of this link.

 

Whilst there are those who  attack the mining industry  as being to blame  for 
many of South Africa's ills, and demand  it does ever more to address them,  I 
am confident that the government realises that loading more and more costs  on 
to the  sector during  difficult times  can only  lead, in  the long  run,  to 
serious damage to the nation's economy.

 

Certainly miners have a role to play, and perhaps greater responsibility  than 
others given  the labour-intensive  nature of  our businesses.   Your  Company 
accepts that challenge,  and that responsibility,  but we must  also be  clear 
that the  change all  of  us who  love  South Africa  wish  to see  cannot  be 
delivered by  businesses alone.   We  are a  crucial  component, but  only  by 
working  in   partnership  with   government   and  other   stakeholders   can 
transformation be delivered.  To play our part morally and legally, we must be
financially and  commercially  healthy.  We  are  a  business;  without  being 
successful at what we do we can do nothing to help South Africa.

 

What is clear from the  terrible events of August  and September is that,  for 
both government and the mining industry, the reality of what happened has bred
a new determination to work in partnership for the betterment of South Africa,
and to do all we can to ensure such awful scenes never take place again.

 

Financial Issues Post Year End

 

Since the year end  there have been a  number of significant financial  events 
affecting your Company, the full details of which are contained in a number of
relevant documents you will, I hope, have seen by the time this Annual  Report 
is published.

 

Chief amongst these  was our announcement  on October 30  that we intended  to 
raise US$800 million  in a  Rights Issue, the  Prospectus for  which is  being 
published on 9 November 2012.

 

This was designed with  one thing in mind:  to help our shareholders  maximise 
returns in the  long-term from  this Company's  excellent assets,  operational 
turnaround and position in the market when it improves.

 

The fact  that this  Rights Issue  is fully  underwritten is  a real  vote  of 
confidence in our business, as well as in South Africa's ability to deal  with 
its short-term problems and move forwards.

 

The Rights Issue is vital,  so as not to lose  the benefits of your  Company's 
fundamental strengths:

·      Operations located in the world's premier PGM deposit

·      Long life mineral  resource base backed by  long-term New Order  Mining 
Rights

·      Significant  inherent  value  in existing  infrastructure  and  mineral 
reserves

·      Attractive long-term fundamentals  for PGM markets, despite  short-term 
volatility

·      Maximisation of value through vertical integration

·      Operational gearing

·      Industry leading expertise in processing UG2 ore

 

The Rights Issue  should also be  viewed against the  background of our  clear 
strategic focus on future plans for our outstanding asset at Marikana.

 

Markets, Operations and Costs

 

Platinum miners were  hit hard  by a combination  of lower  prices and  rising 
costs, and instability in the latter part of the year.

 

Much of this year saw a  continuation of the global economic instability  with 
issues in  Europe  in particular  heavily  impacting sentiment  across  global 
markets.

 

The Events at Marikana, and subsequent strike action at almost all other South
African PGM producers have, given the importance of South African producers to
global PGM production, in a  short space of time  altered the outlook for  the 
supply side of the PGM industry.  These events have increased operating  costs 
for Lonmin and other companies in the South African PGM mining industry, while
at the same  time creating  supply constraints  which have  contributed to  an 
increase in PGM prices.  Your Board believes that the disruption to the  South 
African PGM  mining  industry  is  also likely  to  result  in  some  capacity 
reductions in the  near term as  higher cost operations  are forced to  reduce 
output or close down, and/or in the longer term as reduced capital expenditure
plans today  defer the  production  of replacement  or  growth ounces  in  the 
future.  Your  Board  believes  that these  factors  should  sustain  improved 
pricing for PGMs.

 

Over the  longer term,  your Board  also believes  that improved  PGM  pricing 
should be supported by underlying positive demand dynamics.  Automotive demand
is expected to be driven by a combination of increasingly stringent  emissions 
legislation, the ongoing extension of this regime to non-road applications and
a positive outlook  for vehicle  sales in  US and  Chinese markets.   Although 
Chinese  growth   expectations  have   recently  been   downgraded,   consumer 
expenditure in China is still expected to increase with positive  implications 
for jewellery sales.

 

Your Company's  key operational  challenges this  year were  safety,  managing 
costs and labour relations (before the events of August and September).

 

Lonmin can be  proud of its  safety record.   It is the  safest South  African 
platinum mining company, having achieved the lowest Lost Time Injury Frequency
Rate amongst  the primary  producers, and  a  number of  our shafts  have  set 
records in South Africa for fatality-free shifts.

 

Constant vigilance and procedures notwithstanding, regrettably two  colleagues 
lost their lives in mining related incidents this year.

 

Your Company is determined to continue to be the safest platinum miner in  the 
business.  Our commitment to "zero harm" remains undiminished and safety  will 
always be our first priority.

 

Rising wages and  other price  increases in areas  such as  power drove  gross 
costs up this year.  Unit costs  were of course significantly impacted by  the 
seven weeks we were unable to mine due to the illegal strike at Marikana.  The
cost of agreeing the wage settlement which ended it will add approximately 14%
to our wage costs  in 2013 over  our normailsed costs  for 2012.  Included  in 
this are the awards negotiated in 2011 for implementation in October 2012.

 

Industry Challenges

 

The issue of nationalisation seems to  have slipped down the political  agenda 
in South  Africa during  2011/12, with  many mainstream  politicians  publicly 
stating that it would  neither be practicable  nor desirable.  However,  there 
remains the issue of multi-faceted intervention  by the state which over  time 
could amount to nationalisation by stealth.  Your Company is working hard,  in 
partnership with its  industry peers  and business  organisations, to  address 
this.

 

Responsible mining  companies  operate  to  the standards  laid  down  by  the 
International Council on Mining  and Metals (ICMM).  They  have much to  offer 
their host nations and,  because of this,  we and our  peers continue to  make 
clear to government that a balance must be maintained between the distribution
of wealth generated by mining companies and recognition of the commercial  and 
competitive environment in which they operate.

Transformation

 

Your Company has  long taken  the view that  delivering on  its ambitions  and 
responsibilities in these  areas is  an essential  element of  its licence  to 
operate in South Africa,  both legally in terms  of its obligations under  the 
Mining Charter or morally in  terms of being a  good corporate citizen of  the 
country.

 

Lonmin has a good record and one it can be proud of, but it has also delivered
more slowly in  some areas, notably  the difficult issue  of housing, than  it 
would have liked, despite strenuous efforts.  Addressing these shortcomings is
a priority, but I would not wish this to eclipse the good work we have done in
recent years.

 

The socio-economic realities of South Africa are such that no company, however
large,  can  resolve  the  issues   of  housing,  unemployment,  poverty   and 
dissatisfaction which exist in the country.  Your Company is wholly  committed 
to both  the BEE  and Transformation  agendas,  to being  part of  the  future 
success of the Republic of South Africa, and of being a force for good in  the 
country.  In doing so, it will grow and ensure returns for its investors.

 

Role and effectiveness of the Board

 

Your Company is committed to the highest standards of corporate governance.

 

The continuous improvement  opportunity presented  by a formal  review of  the 
Board's effectiveness  is valuable.   Ordinarily, we  would have  done such  a 
review in August/September  2012, but given  all the recent  events the  Board 
judged that it would be inappropriate to  conduct such a review in 2012.   The 
Board does not  believe that  this decision  creates any  additional risk  for 
Shareholders, and believes that the decision  can be justified given that  the 
time otherwise needed for a review was utilised to address the multiple issues
then facing  the  Company.   It  is currently  intended  that  an  independent 
facilitator will manage a rigorous review process in 2013.

 

Management

 

Your management  team  is  to  be congratulated  for  the  strong  operational 
performance of  the business  through  July, with  marked improvement  in  the 
performance of safety initiatives, production and costs.  The terrible  Events 
at Marikana  happened days  after  Ian Farmer,  Chief Executive  Officer,  was 
hospitalised with a serious condition.  The Board appointed Simon Scott to act
as Chief  Executive  Officer in  Ian's  absence, and  he  has done  a  frankly 
remarkable job in leading the strong executive team in returning the  business 
to stable production  and developing  the renewal  plans for  the future.   My 
thanks are due to them for their exceptional commitment to Lonmin.

 

The Board recognises the Company's need for permanent leadership and will take
such actions as are necessary to establish this at the appropriate time.

 

Dividend

 

Whilst dividends are not affordable  in the short-term, Lonmin has  confidence 
in the future demand  for PGMs and  its expectation is for  prices to firm  in 
response to anticipated supply deficits in the future.  We are also determined
to increase the effectiveness of our  operations, in both production and  cost 
terms.  While  there are  challenges to  be overcome  in achieving  this,  our 
current planning anticipates positive free  cash flow from the 2014  financial 
year onwards.  The return to stronger earnings and cash flows will permit  the 
resumption of  dividends at  some point.   When we  do resume  the payment  of 
dividends we  would intend  to  follow the  existing  policy of  declaring  an 
ordinary final dividend  at a rate  which the  Board expects can  at least  be 
maintained in subsequent years.

 

Outlook

 

Sales of  Platinum  is forecast  to  be around  660,000  ounces for  the  2013 
financial year, significantly impacted  by the Events  at Marikana which  have 
resulted in lower capital spend, the suspension  of mining at K4 and the  time 
it takes to ramp up the operation back to previous levels of productivity.

 

Metal prices have shown some recovery  as recent industrial unrest across  the 
industry has in a short space of time altered the outlook for the supply  side 
of the PGM industry.   Lonmin is extremely well  positioned to benefit from  a 
strong pricing environment  when it  comes thanks to  the quality  of our  ore 
body, our un-utilised shaft capacity, our immediately available ore  reserves, 
and the capacity and quality of our Processing Division.

 

Employees

 

We are a large  Company, averaging some 28,000  employees (and another  10,000 
contractors).  I t  has been my  practice to  thank them each  year for  their 
work, dedication and loyalty.  Given the nature of our business and the  risks 
associated with it this  thank you, on behalf  of our shareholders, is  always 
heartfelt and genuine.

 

This year, though, our people have been through something unprecedented.   The 
bravery we  witnessed amongst  employees determined  to come  to work  despite 
terrible intimidation, amongst managers  who faced down  angry, armed mobs  of 
people and then,  ultimately, the courage  of the entire  workforce in  coming 
together in the wake of the deaths  of so many colleagues and friends to  help 
your Company return to operations.

 

We have seen terrible  things in 2012, but,  as is often the  way in times  of 
crisis, we have also seen the very best of people.  For everything our  people 
have done this  year, much of  it beyond  anything we could  have expected  of 
them, my thanks are particularly poignant.

 

Roger Phillimore

Chairman

Chief Executive Officer's Review

 

Dear Fellow Shareholder,

 

1. Introduction

 

Both the Chairman and I have spoken  in this report about the shocking  events 
which took place at Marikana in 2012, their impact and effect on our  Company, 
and South Africa more widely.

 

As the Acting Chief Executive Officer (CEO), it is my role in this section  of 
our Annual Report to review the year for our shareholders and to report on our
performance. Our success as a business is central to our ability to be a  good 
corporate citizen of South Africa and to play our part in its transformation.

 

Everyone, then, has a stake in our success.

 

I am pleased to  report that we delivered  a solid operational performance  in 
the 2012  financial year,  in spite  of the  significant disruptions  that  we 
experienced. The results reflect the healthy state of our operating assets and
a team that is continuing to deliver in a challenging environment.

 

Taking the  2012  financial year  as  a whole  total  tonnes mined  were  10.4 
million, a 1.3  million tonnes  decrease from  2011 as  a result  both of  the 
Events  at  Marikana  and  the  uncharacteristically  high  number  of  safety 
stoppages that were seen across the  South African PGM mining industry  during 
the first half.  This resulted in  total refined production  for 2012 of  just 
under 690,000 Platinum ounces compared to just over 730,000 Platinum ounces in
the previous year.  Sales of Platinum  ounces were 702,000  helped by  running 
down stocks in the pipeline.

 

Total revenue declined by US$378 million from 2011 to US$1,614 million for the
year ended 30 September 2012. Total underlying costs (excluding the impact  of 
the strike disruption) in US Dollar  terms decreased by US$134 million  mainly 
due to the impact of cost escalations being offset by decreased production and
positive foreign  exchange  movements.  Resulting underlying  EBIT  was  US$67 
million, although this is before special costs including those relating to the
Events at Marikana and the impairment  of Akanani. After special items,  which 
are detailed in the  Financial Review, the loss  before interest and  taxation 
was US$702 million.

 

Our unit  cost  guidance  of an  8.5%  increase  was exceeded  as  unit  costs 
increased by  12.9% to  R8,507  per PGM  ounce produced  as  a result  of  the 
significant disruption to  production we experienced.  On a normalised  basis, 
unit costs would have increased by 5.2%

 

Cash flow generated from operations was US$300 million although this benefited
from the pre-paid sale of  gold undertaken in the first  half of the year  and 
the reduction  in closing  stocks following  the Events  at Marikana.  Capital 
expenditure at US$408 million was less  than guidance. Total cash outflow  was 
US$185 million leaving net debt at US$421 million.

 

We have been  monitoring carefully our  covenant position in  relation to  our 
existing debt facilities. While the covenants as at 30 September 2012 were not
breached our debt  levels are  likely to  rise significantly  over the  coming 
months in order to fund the production  ramp up and enable stock levels to  be 
rebuilt through the production  pipeline. Indeed at 31  October 2012 net  debt 
was approximately  US$550 million.  In  light of  this,  we believe  that  the 
Company may  breach  its  covenants  under the  terms  of  the  existing  debt 
facilities when they are  tested for the  six months ended  31 March 2013,  or 
subsequently, in the  event that  the Company does  not raise  new equity  and 
secure the  agreed  amendments  to  its  existing  bank  facilities.  This  is 
addressed in Section 4 below.

 

2. Safety

 

Our commitment to  zero harm  and safe production  in our  work place  remains 
undiminished.  We  believe  that  while our  fundamental  approach  to  safety 
management remains sound,  we continue to  learn from the  root cause of  each 
incident. Regrettably we  recorded two  mining related  fatalities during  the 
period and we extend our sincere condolences  to the family and friends of  Mr 
Albino Moises Cuna who died in December  2011 and Mr Thobisani David Didi  who 
died in  June  2012.   The  full  year  mining  safety  record,  absent  these 
fatalities, has been commendable.  Lonmin achieved the lowest Lost Time Injury
Frequency Rate (LTIFR) in the platinum industry of 4.16 per million man  hours 
worked, 11.7% lower than the 4.71  achieved in 2011.  Rowland shaft  continued 
to be an industry  leader as it recorded  the significant achievement of  12.9 
million Fall of Ground Fatality  Free Shifts over a  ten year period. We  also 
recorded a best ever five million Fatality Free Shifts for Lonmin as a  whole. 
We remain completely focused  on improving our  safety working in  partnership 
with the Department of Mineral Resources (DMR).

 

3. Operational Review

 

There is no question that  the tragic events that  took place at our  Marikana 
operations in August and September were hugely disruptive but I am pleased  to 
say that we  are working well  to stabilise the  Company and bring  production 
back to normal. Following the addendum  to the existing wage agreement  signed 
at the end  of September, employee  attendance is back  to normal levels.  The 
production ramp  up is  currently  going better  than  expected and  we  fully 
anticipate that we will be  operating at previously achieved productivity  run 
rates during the third quarter of the 2013 financial year.

 

Mining

 

In respect  to the  2012 financial  year,  the total  tonnes mined  were  10.4 
million, a 1.3 million tonnes decrease from the 2011 financial year. As  noted 
at the time of the Company's  interim results, productivity at all the  mining 
divisions, Karee, Middelkraal, Easterns and Westerns in the first half of  the 
year was impacted by an uncharacteristically high number of Section 54  safety 
stoppages, which were  also seen  across the  whole South  African PGM  mining 
industry during this period. The momentum established at the beginning of  the 
second half was  however impacted  by the  Events at  Marikana which  affected 
production of the whole operation. The combined impact of these disruptions in
the period  was a  loss of  approximately  2.4 million  tonnes, of  which  1.8 
million tonnes, equivalent to 110,000 mined  Platinum ounces, was as a  result 
of the  Events  at Marikana.  Notwithstanding  the disruptions  we  made  good 
progress with our mining  initiatives which aim  to improve productivity.  Our 
immediately available ore reserves  increased by 14%  to 3.3 million  centares 
equal to 18 months.  This level of preparedness  provides flexibility for  the 
future. Our safety  initiatives have  produced excellent results  and this  is 
reflected in the number of industry safety awards that were won by the various
mining teams and shafts.

 

Our Line of Sight  System to track  production on a  daily basis and  identify 
early technical bottlenecks is progressing  well and our production  incentive 
bonus system is now fully rolled out. In addition team effectiveness  training 
has now been rolled out at Karee and early indications are encouraging.

 

Processing

 

I am pleased to report the success  of a number of initiatives in the  Process 
Division in the 2012 financial year. The Easterns Tailing Treatment Plant  was 
commissioned, coming into production in April 2012, and has contributed to the
improvements in our overall recovery  rates. The smelter complex has  improved 
its flexibility  and capacity  through  the rebuild  and modification  of  the 
Number One furnace  and the construction  of the new  Number Two furnace.  The 
first matte tap from the Number Two furnace took place in July 2012.

 

In terms of performance the total tonnes milled during the 2012 financial year
declined by 10%  to 10.8  million tonnes  when compared  against 12.0  million 
tonnes in 2011. This translated into total refined production for 2012 of just
under 690,000 Platinum ounces, compared  to just over 730,000 Platinum  ounces 
in the  previous  year.  Despite  the  disruptions,  we  delivered  underlying 
operational improvements with total milled head grade and overall concentrator
recoveries improving during the year.

 

The US Dollar basket price including base metal revenue at US$1,163 was  16.3% 
lower than  the prior  financial  year. The  corresponding Rand  basket  price 
including base metal revenue was ZAR9,304, which was 4.2% lower than the  2011 
financial year.

 

4. Balance Sheet Structure

 

In last year's  Annual Report,  we provided  guidance on  our planned  capital 
expenditure of around US$450 million for the 2012 financial year, based on the
then outlook for  PGM markets.  This  guidance was reiterated  at our  interim 
results in  May 2012,  recognising  the uncertain  near-term outlook  for  PGM 
prices (the price  of platinum had  fallen from  a 2012 peak  of US$1,722  per 
ounce on  28 February  2012 to  US$1,440 by  the time  of publication  of  the 
interim results on  14 May 2012),  and stating our  intention to defer  future 
capital expenditure if appropriate.

 

By the time of publication of the  Third Quarter Production Report on 26  July 
2012, the platinum price had remained  below US$1,500 per ounce for more  than 
eleven weeks, and we acknowledged that the weak pricing environment was likely
to persist  for longer  than  anticipated.  As  a  result, we  announced  that 
capital expenditure would  be reduced  to around  US$430 million  in the  2012 
financial year (reflecting  the proximity of  the year end  and the lead  time 
relating to capital expenditure programmes),  and to around US$250 million  in 
each of  2013 and  2014 financial  years.  This  reduction would  be  achieved 
principally through the deferral of capital  spend on the Hossy, K4 and  Saffy 
shafts, as  well as  the optimisation  of some  of the  processing  projects.  
Against this backdrop, the Events at Marikana resulted in a material reduction
in mine production at a  time when we were not  well positioned to absorb  the 
resulting financial  shock,  though production  and  sales of  finished  metal 
continued during the period of the work stoppage by maintaining operations  in 
the Process Division through the running down of stocks in the pipeline.

 

Given this we  completed a thorough  review of Lonmin's  strategy and  capital 
structure  and  concluded  that  reducing  Lonmin's  cost  base  and   capital 
expenditure in the near term, whilst raising additional equity, in conjunction
with entering into amended bank facilities,  is the best route to achieving  a 
more  appropriate  and  robust   capital  structure  with  greater   financial 
flexibility.

 

We believe that Lonmin's  long-life assets should  be substantially funded  by 
long-term equity  capital, supplemented  by free  cash flow  with  appropriate 
levels of debt funding available  to provide additional financial  flexibility 
for the  Group as  well as  to reduce  its overall  cost of  capital. In  this 
context, we view debt financing as providing the flexibility required to  fund 
Lonmin's normal  working capital  requirements and  to accommodate  short-term 
cash flow volatility inherent in an operationally geared business arising from
either or both  of movements in  the price of  PGMs and the  Rand / US  Dollar 
exchange rate. In addition, we believe  that it would be more appropriate  for 
the Group's debt facilities  to contain covenants that  are linked to  capital 
expenditure  and  tangible   net  worth  rather   than  covenants  linked   to 
profitability, which  do  not  reflect  the  significant  asset  backing  that 
underpins the longer-term credit quality of the Group.

 

The announcement  of our  results therefore  coincides with  the launch  of  a 
Rights Issue seeking to raise  approximately US$817 million before costs,  the 
intention for which we announced on 30 October. In addition, the terms of  our 
debt facilities  will be  revised  subject to  a  successful Rights  Issue  to 
provide greater funding flexibility. More details on the agreed amendments  to 
debt facilities are included in the Financial Review.

 

Rights Issue

 

The proceeds from  the Rights  Issue will be  used to  permanently reduce  the 
Company's available  US Dollar  denominated borrowing  facilities from  US$700 
million to US$400 million  and partially pay down  outstanding amounts on  our 
remaining facilities. Post the repayment, the US Dollar Revolving Facility  of 
US$400 million and the other  Facilities of approximately US$225 million  will 
remain available to the  Company. This lower level  of borrowing will  provide 
the flexibility we need to fund the Company's normal working capital.

 

The UK issue price of 140 pence  per new share represents a discount of  44.4% 
to the theoretical  ex-rights (TERP) and  a discount of  69.1% to the  closing 
price of 452.8 pence per share on Thursday 8 November. The South African issue
price of ZAR 19.4872 per share represents a discount of 45.0% to the TERP  and 
a discount of 69.7% to the closing price of ZAR 64.22 per share on Thursday  8 
November.

 

The Rights Issue  is being fully  underwritten save in  respect of new  shares 
which the Company's Directors have irrevocably committed to take up, which  is 
around 0.03% of  the new  shares to  be issued  in the  Rights Issue.  Further 
details relating to the Rights Issue  are outlined in a separate  announcement 
published today.

 

5. Future Production, Cost Management and Capital Expenditure

 

Future Production 

 

We continue to have a clear  strategic focus on our mineral resources,  mining 
and processing infrastructure at Marikana, and have invested significantly  in 
these areas in  recent years.  This  investment had two  aims.  First, it  was 
necessary in order to restore the operational health of the business which had
fallen to unacceptable  levels prior  to 2008. We  believe this  aim has  been 
achieved.  There  have  been  significant  improvements  in  metrics  such  as 
development, grade and  recoveries, and following  further expenditure in  the 
Process Division  the  risk  of  smelter outages,  for  example,  have  fallen 
materially.  The second aim  was to deliver  significant growth in  production 
and sales over the medium-term in order to meet expected demand and to  result 
in a reduction in unit costs over the corresponding period.

In light of the Events at Marikana, the focus of and priority for the  Company 
during the 2013 financial  year is to return  productivity levels safely  back 
to, and  then above,  the run  rates achieved  prior to  those events  and  to 
improve relationships with employees. Part  of this will require  implementing 
sustainable inclusive collective  bargaining structures  that facilitate  wage 
agreements that are accepted by all  the relevant stakeholders to be  binding. 
We have announced  plans to target  production at Marikana  of around  680,000 
Platinum ounces of metal in concentrate in the year ending 30 September  2013, 
although Platinum sales for the year are expected to be around 660,000  ounces 
as in-process inventory levels  are rebuilt within  the Process Division.  The 
ramp up back to these normalised levels of productivity is so far  progressing 
better than  planned  and  we  fully expect  the  Marikana  operations  to  be 
operating at  previously  achieved productivity  run  rates during  the  third 
quarter of the 2013 financial year.

 

We will continue to monitor developments in PGM market conditions closely  and 
may accelerate or delay planned  investment if we deem doing  so to be in  the 
best interests of shareholders.

 

Beyond the  2013  financial  year,  we  will  continue  to  target  growth  in 
production and an improvement in its  relative position on the cost curve.  We 
are targeting production in excess of  750,000 Platinum ounces in each of  the 
years ending 30  September 2014 and  2015, and in  excess of 800,000  Platinum 
ounces per annum by the 2016 financial year.

 

Cost Management

 

The Events  at Marikana  have  created two  specific  cost pressures  for  the 
Company in the 2013  financial year.  First, the  agreement entered into  with 
the trade  unions  and worker  representatives  increased the  wages  paid  to 
Lonmin's workers employed in  the Category 4-9 bargaining  units by about  14% 
from 1 October  2012, which includes  the wage  increase of 9%  due under  the 
existing wage agreement signed in 2011.  As a result, employment costs overall
will increase by  approximately 11%  in the  2013 financial  year against  the 
normalised employee cost in FY2012.  Secondly, there is inefficiency  inherent 
in any production ramp up, as the business bears the full costs of operations,
but does not achieve full production in the early stages of that ramp up.   As 
a result, we anticipate unit costs  of around ZAR9,350 per PGM ounce  produced 
for the 2013 financial year.

 

A number of  measures are in  place, or  will be implemented  during the  2013 
financial year, both to address the pressures of gross cost increases and also
to improve the  effectiveness of  the Company's  expenditure.  These  measures 
include:

·      A  review of  the  Company's operating  model,  as well  as  management 
structure, is expected to yield savings in excess of ZAR200 million per annum,
on an annualised basis, with the full effect from 2014 onwards;

·      A procurement initiative  known as "Total Cost  of Ownership" is  being 
implemented which is expected to yield savings of ZAR100 million in the second
half of  the  2013  financial  year and  in  each  subsequent  financial  year 
thereafter; and

·       The  Company  has  already  completed  and  embedded  a   productivity 
enhancement programme  known as  "Line of  Sight" and  "Mission Directed  Work 
Teams", which will form  the foundation for a  series of further  productivity 
and optimisation initiatives in the  2013 financial year.  Team  effectiveness 
training trials at  various shafts in  the Karee mining  unit during the  2012 
financial year have  shown the  potential of  this initiative,  which will  be 
extended across  the business  during the 2013 financial  year.  This will  be 
supported by  improved  systems  and training,  particularly  for  supervisory 
management. 

 

Taken together, these and other  initiatives should significantly improve  the 
productivity of the Company.

 

Capital Expenditure

 

In order to achieve the targeted level of production Lonmin expects to  invest 
approximately US$175 million  for the  2013 financial  year and  approximately 
US$210 million for the 2014 financial year (depending on the Rand / US  Dollar 
exchange rate).  Of the aggregate capital expenditure planned for the 2013 and
2014 financial  years,  approximately US$260  million  relates to  the  Mining 
Division with the balance relating to the Process Division and expenditure  as 
part of the Company's Social Labour  Plan (SLP) commitments.  In the 2015  and 
2016 financial years, the Directors expect that capital expenditure will  rise 
to around US$400 million per annum (depending on the Rand / US Dollar exchange
rate).  The step-up in capital expenditure from 2015 onwards primarily relates
to further  development  in  Hossy, Saffy  and  K4  in order  to  support  the 
increased production levels and processing projects.  However, the increase in
capital expenditure in the  2015 and 2016 financial  years is contingent  upon 
performance in the earlier  years and that there  is sufficient market  demand 
and  sufficiently  attractive  pricing  for  PGMs  to  warrant  the  increased 
investment.  The  thresholds  in  the financial  covenant  linked  to  capital 
expenditure within  the amended  bank facilities  described in  the  Financial 
Review have been set at approximately 10% above the budgeted levels of capital
expenditure outlined above.

 

6. Building a Sustainable Business

 

Social License to Operate

 

Alongside our legal and regulatory obligations, we believe it is essential  to 
hold an informal social license from the people and communities that host  its 
operations.

 

We have transformation goals  which were established in  line with the  Mining 
Charter and are aligned to our SLP commitment to the South African Government.
We have worked  with determination to  accomplish the goals  we have set   and 
made progress  in many  areas, notably  in our  education programmes  for  the 
community, in the number of  Historically Disadvantaged South Africans  (HDSA) 
employees within our management structures, which now stands at 36% (excluding
white women) and  in our initiatives  to procure from  HDSA managed and  owned 
suppliers.

 

Our  gender-related  policies  and   procedures,  designed  to  increase   the 
participation of women in the Company, have had some success, with the  number 
of women at the Company  having grown by 66% since  2007, but there are  still 
challenges in order to meet our 2014 commitments.

 

Nevertheless, we recognise that we have  delivered more slowly in some  areas. 
Housing is the hardest task the wider mining sector faces, in terms of what is
still to be  done. Lonmin is  far from alone  in trying to  deal with what  is 
essentially a national problem in South Africa.

 

Our housing  strategy  is  comprised of  three  elements:  hostel  conversion, 
Marikana housing ownership  and the  long-term housing programme.  To date  we 
have converted  79  of  the  128 old-style  hostels  into  931  single  person 
occupancy and  580 family  units and  we have  detailed plans  to convert  the 
remaining blocks by 31 December 2014.  We have also seen 242 employees  become 
owners of homes, sold through the Marikana Housing Development Corporation.

 

The challenge  however is  in facilitating  the provision  of mass  affordable 
employee accommodation particularly for our  migrant workforce. The Events  at 
Marikana have highlighted  the critical  shortage of affordable  housing as  a 
major challenge  for  Lonmin  and  the  South  African  nation  more  broadly, 
reflecting the need for  a solution that  involves all stakeholders  including 
government, mining  companies  and  employees.  Management  is  engaging  with 
employees and  all  stakeholders  as  necessary  to  understand  better  their 
requirements as part of developing a framework for a sustainable and  fundable 
solution. We  recognise there  will be  a cost  to this  and we  will  develop 
appropriate budgets in due course. The partnership Lonmin has with the Greater
Lonmin Community where its operations are  based is important to us. For  over 
18 years, we have paid royalties into a trust on behalf of the Bapo  Ba-Mogale 
community. The amount  of funds  contributed to date  is approximately  ZAR371 
million.

 

The Events at Marikana have shown, however,  that much remains to be done  and 
we need to  work more  closely with our  communities to  improve dialogue  and 
rebuild trust as this will be key to enhancing better relations with them. Our
management team will be focusing on this in the coming months.

 

Equity Ownership

 

We are required to  increase HDSA ownership in  our operations by 31  December 
2014 to the 26% required  under the Mining Charter.  As at 30 September  2012, 
HDSA investors directly and indirectly owned  18% of the share capital of  our 
subsidiaries that own and operate Marikana and Limpopo and that participate in
the Pandora  joint  venture, as  well  as 26%  of  the share  capital  of  its 
subsidiary that owns Akanani.

 

Our  Black  Economic  Empowerment  partner,  Incwala  Resource  (Pty)  Limited 
(Incwala), is owned as to 50.03% of its equity by Shanduka Group (Proprietary)
Limited.  Other equity investors in Incwala include a trust for the benefit of
community members, the Industrial  Development Corporation and Lonmin  itself. 
In considering  how best  to meet  its HDSA  2014 ownership  requirements,  we 
believe that  one element  we must  consider is  how to  achieve further  HDSA 
ownership through a  broad-based solution as  this will ultimately  be in  the 
best interests of shareholders.

Judicial Commission of Inquiry

 

The Judicial Commission of Inquiry into the Events of Marikana commenced on  1 
October, led by  retired Judge  Farlam. We welcome  this Inquiry  and will  be 
co-operating fully with its work.

 

7. Guidance

 

In light  of the  Events  at Marikana,  our focus  during  2013 is  to  return 
production safely back to the run rate levels achieved prior to those  events. 
We have announced  our plans  to deliver  Platinum production  at Marikana  of 
680,000 ounces  of  saleable  metal  in concentrate  in  the  year  ending  30 
September 2013.  This  is below  our  previous expectations  for  two  reasons 
associated with  the Events  at Marikana:  first, due  to the  estimated  time 
required to return to  normal productivity levels; and,  secondly, due to  the 
impact of lower  capital spend and  the suspension of  production at K4  shaft 
which, as  previously  announced,  was  placed  on  care  and  maintenance  in 
September 2012.

 

The metal in  concentrate output forecast  for 2013 is  expected to result  in 
Platinum sales  of around  660,000  ounces.  The  shortfall of  around  20,000 
ounces from the metal in concentrate output represents the necessary  build-up 
of pipeline ounces in the smelters  and the refineries during 2013 to  replace 
stocks depleted during the fourth quarter of the current financial year.

 

Taking into account the reduced production  profile for 2013 and the  increase 
in wages, we anticipate that the unit cost per PGM ounce will increase by 10 %
to R9,350.

 

Capital expenditure for  2013 is forecast  to be US$175  million as  mentioned 
above.

 

8. Executive

 

Ian Farmer, CEO,  is undergoing a  course of treatment  for a serious  illness 
diagnosed in August. In all of this, he remains firmly in our thoughts.

 

Our executive team has excelled, despite  trying times. The team continues  to 
demonstrate its  cohesiveness,  eminent  expertise,  and  notwithstanding  the 
recent absence of Ian, solid support for me in my role as Acting CEO.

 

My thanks go to the Chairman and Mahomed Seedat who have joined the  Executive 
Committee and to Alan  Ferguson who has  been working with  me on a  part-time 
basis.  Their support has been invaluable during this challenging time.

 

9. Thank You to All

 

The dedication, support and professionalism of our employees remain key to our
success. The tragic events of the last  two months of the financial year  have 
affected all of  us and  although saddened, I  am satisfied  that the  Company 
navigated these events appropriately.  I am confident that  we have the  right 
strategy and plan to realise  long-term value from the Company's  high-quality 
resource  base  and  existing  infrastructure  for  the  benefit  of  all  our 
stakeholders and I look forward to delivering against these plans in 2013.

 

Ian Farmer joins me in conveying our best wishes to everyone in the Company.

 

Simon Scott

Acting Chief Executive Officer

Operational Review

 

Our performance  in  2012 was  impacted  in the  first  half of  the  year  by 
uncharacteristically high Section  54 safety  stoppages which  were a  feature 
across the platinum industry. In  the second half of  the year the tragic  and 
violent  events  that  occurred  in  August  and  September  at  our  Marikana 
operations are forever  etched in our  collective memory as  we witnessed  the 
loss of so many lives. The Company, however, managed to deliver some  positive 
operational results despite these significant challenges.

 

"Events at Marikana"

 

On 10 August 2012, approximately 3,000 rock drill operators employed by Lonmin
commenced an  unlawful  work  stoppage  and protest  march  at  the  Company's 
Marikana mine operations.  This was followed by significant levels of  violent 
intimidation of  non-striking workers,  with  eight employees,  including  two 
security guards as well as  two policemen, killed in  the initial days of  the 
unlawful work stoppage.  As a result, in subsequent days the vast majority  of 
the 24,000 mine workers were absent from work and it was no longer possible to
maintain production.  Tragically the violence and unrest escalated  materially 
throughout that week and  in total 46 people,  including 40 Lonmin  employees, 
lost their lives.

 

The Board was deeply  saddened by the violent  unrest which took place  during 
this time and continues  to express its profound  sympathy to those  affected, 
including the  families,  friends  and  colleagues of  those  who  died.   The 
Company, with its partner Shanduka Group (Proprietary) Limited (Shanduka), has
committed to establish and  contribute to a Memorial  Fund for the benefit  of 
the families of  the deceased, the  central purpose  of which is  to fund  the 
education of their children. 

 

The Company then worked resolutely to resolve the tensions within the  various 
factions of the workforce in order to create an environment where a return  to 
work was possible.  We refer to this tragic series of events as the "Events at
Marikana".

 

On  18  September  2012,   following  an  all-inclusive  negotiation   process 
facilitated by  the Commission  for  Conciliation, Mediation  and  Arbitration 
(CCMA) involving  the Company,  trade  unions, the  South African  Council  of 
Churches, the Department of  Mineral Resources, the  Department of Labour  and 
delegates of striking employees,  an addendum to  the existing wage  agreement 
was signed by the Company, the National Union of Mineworkers, the  Association 
of Mineworkers and Construction Union,  Solidarity, the United Association  of 
South Africa and representatives of the delegates of striking employees, which
agreed on a return to work with effect from 20 September 2012.

 

On 20 September  2012, 81.4% of  Lonmin's employees returned  to work and  the 
initial focus of the Company was to ensure a safe resumption of production. As
a result it was not  until 1 October 2012 that  the normal mine shift  pattern 
was re-established and  blasting across  the property  restarted.  Since  then 
employee attendance has continued at  high levels, with normal shift  patterns 
and in the  week ended 26  October 2012, attendance  averaged 93.1%, which  is 
regarded by  the  Board  as a  normal  level  for Lonmin's  business,  due  to 
scheduled leave, sickness and other reasons for absence. All concentrators are
now in production, except for  the Number One UG2 plant,  which is down for  a 
planned  upgrade.   The  Number  One   and  Number  Two  smelters  are   fully 
operational,  as  are  the  Base  Metals  Refinery  and  the  Precious  Metals 
Refinery.  The first Platinum ounces were turned out on 31 October.

 

Farlam Commission of Inquiry

 

The rapid escalation  of public  disorder and subsequent  intervention by  law 
enforcement, accompanied  with the  loss  of so  many  lives resulted  in  the 
President of  the  Republic of  South  Africa,  Mr Jacob  Zuma,  announcing  a 
Judicial Commission of Inquiry  to investigate the events  that led up to  the 
wide scale tragedy.  The Judicial  Commission is  being led  by retired  Judge 
Farlam.   Lonmin  welcomes  this  Judicial   Commission  of  Inquiry  and   is 
co-operating fully with it.

 

The Inquiry will look into the following in relation to Lonmin:

·      whether Lonmin  exercised its  best endeavors to  resolve any  disputes 
which may have arisen between Lonmin and its labour force on the one hand  and 
generally among its labour force on the other; 

·      whether Lonmin responded  appropriately to the  threat and outbreak  of 
violence which occurred at its premises;

·      whether the Company, by act  or omission, created an environment  which 
was conducive to the  creation of tension, labour  unrest, disunity among  its 
employees or other harmful conduct; and

·      whether it employed  sufficient safeguards and  measures to ensure  the 
safety of its  employees and property  and the prevention  of the outbreak  of 
violence between any parties.

 

The Commission  will also  examine Lonmin  policies generally,  including  the 
procedure, practices  and  conduct relating  to  its employees  and  organised 
labour.

 

It will also investigate whether by  act or omission, the Company directly  or 
indirectly caused loss of life or damage to persons or property.

 

It is not expected that the Commission will report before February 2013.

 

Safety

 

Performance Overview

 

The safety  of our  people is  an integral  part of  how we  conduct our  core 
business and is a priority.

 

We are thus saddened by the loss of two lives during the course of our  mining 
operations, and extend our  deepest condolences to the  families of Mr  Albino 
Moises Cuna and Mr  Thobibisani David Didi. We  have however made progress  on 
our  journey  to  achieving  zero  harm.  Significant  effort  has  gone  into 
identifying key  learnings from  these incidents  and implementing  corrective 
action to  mitigate  the  reoccurrence  of  such  events.  This  includes  the 
adaptation and revision of systems, procedures and standards.

 

During the  past three  years Lonmin's  safety results  have been  impressive, 
having recorded, compared to its peers, the lowest industry Fatality Frequency
rate.

 

This year has also been no exception,  where once again Lonmin is an  industry 
leader, on  a  comparative  basis,  recording  the  lowest  Lost  Time  Injury 
Frequency Rate (LTIFR) in the platinum industry of 4.16 per million man  hours 
worked (11.7% improvement compared to the prior year). This puts us in a  good 
position to achieve the  2013 Department of  Mineral Resources (DMR)  fatality 
rate milestones.

 

Whilst improvements  arose in  mining the  Process Division  also reflected  a 
significant improvement in both the LTIFR and Medical Treatment Case Frequency
Rate (MTCFR) for 2012.

 

There were a number of factors  behind this overall improvement in safety.  It 
required attention  to  all  three  key objectives  in  our  strategy,  namely 
fatality prevention, injury prevention and  safe production culture. Also  the 
effort and  collaboration between  operations and  service departments  helped 
deliver the much improved results. We  also undertook a number of  initiatives 
in the year.

 

Initiatives

 

Our investigation methodology (ICAM) has been reviewed and formalised to align
with the Culture Transformation Framework requirements for risk management.  A 
simplified tool has  been developed and  adopted by the  business, which  will 
also facilitate a  more effective environment  for knowledge sharing.  Actions 
resulting from ICAM  investigations on injuries  as well as  Section 54 or  55 
stoppages are managed  and monitored  via the  TeamMate software  application, 
which has already proved to be very successful in the tracking control  points 
raised by internal and external auditors.

 

In addition, there is always a need for us to continuously improve the  levels 
of safety knowledge and awareness amongst our leadership teams.  Consequently, 
a team of our executive  management and senior leaders attended  international 
best practice training in this area.  The greater knowledge and skills  gained 
are evident as demonstrated by the improved communication processes which have
helped increase safety awareness amongst all employees.

 

Tactical teams headed up by  Vice Presidents were established for  Leadership, 
Simple  Systems,  Enabling  Environment   and  Safe  Production  Culture,   to 
facilitate and  manage  certain  projects  and  initiatives  to  generate  and 
maintain momentum within  the safety programme.  The projects and  initiatives 
from these teams were intertwined within the 15 Lonmin sustainable development
standards (LSDS) and will grow from this platform.

 

Fatal Risk Control Protocols  (FRCP) were successfully  rolled out across  the 
operations. The relevant and  critical FRCP per  division were identified  and 
repackaged as easily understandable critical behaviours for each of the Lonmin
Life Rules, via various communication mediums. Safe and At Risk behaviours are
also monitored, and the results used  to direct Visible Felt Leadership  (VFL) 
programmes.

 

Finally, Lonmin  implemented a  Contractor Safety  Management Framework.  This 
framework set the basis for industry collaboration through standardisation and
reciprocity opportunities. The Lonmin  Contractor Safety Management  framework 
covers  all  aspects  of  contractor  utilisation  from  pre-qualification  to 
closure.

 

Acknowledgements

•      During her budget speech in parliament earlier this year, the  Minister 
of  Mineral  Resources,   congratulated  Lonmin  for   its  exemplary   safety 
performance.

•      The  South  African Association  of  Mine Manager's  recognised  Lonmin 
during its annual safety awards function held in 2012 as having won a majority
of the industry safety Awards on offer. The same awards were won in 2011.

•      Mine Safe 2012,  recognised Lonmin's safety record,  as being the  most 
improved amongst its peers. 

•      Lonmin's 1B/4B Mine received the prestigious JT Ryan award, which is an
international award for the safest mine in South Africa.

•      Lonmin's  Rowland shaft  achieved a  world record  13 million  Fall  of 
Ground Fatality free shifts.

•      Lonmin Mining  has on two  occasions achieved 6  million Fatality  free 
shifts. No other comparable mining company has achieved this.

•      Lonmin Mining  has achieved  12 million  Fall of  Ground Fatality  free 
shifts.  No other comparable mining company has achieved this.

 

Summary

 

Whilst we  are proud  of our  achievements so  far we  are well  aware of  the 
journey ahead of us to  realise our vision of zero  harm. We believe that  the 
various initiatives being undertaken will help enable us to ultimately achieve
our  goal.  What  remains  clear  however  is  that  collaboration  with   all 
stakeholders, internal  and external,  will  remain a  critical factor  as  we 
approach the milestone of zero harm.

 

Mining Division

 

Total tonnes mined  during the 2012  financial year were  10.4 million, a  1.3 
million tonnes  decrease  from  2011. The  decreased  performance  is  largely 
attributable to the Events at Marikana.Productivity  in the first half of  the 
year was impacted by the uncharacteristically high Section 54 safety stoppages
that were seen across the South African platinum industry during this  period, 
as well as labour and community unrest and management induced safety stoppages
(MISS). 

 

The total tonnes lost during the financial year associated with MISS,  Section 
54's and illegal  industrial actions  / community  unrest is  estimated to  be 
around 2.4 million tonnes with the Events at Marikana contributing around  1.8 
million tonnes, equivalent to 110,000 mined  Platinum ounces, and 0.5  million 
tonnes as a result of Section 54's and MISS.

 

Marikana Ore Reserves

 

              FY12      FY11    Variance    %

            ('000m^2) ('000m^2)
Karee         1,808     1,437     371     25.8%
Middelkraal    466       385       81     21.0%
Westerns       581       576       5      0.9%
Easterns       472       533      (61)   (11.4)%
Total         3,327     2,931     396     13.5%

 

We delivered a good performance with respect to development as the ore reserve
position increased overall by 13.5% from  the level reported in 2011. The  ore 
reserve increase for Karee of 25.8% and Middelkraal of 21.0% are aligned  with 
Lonmin's strategy  of  creating  greater  flexibility  in  these  shafts.  The 
Easterns operations decreased as  planned. Mining grades  as delivered to  the 
concentrators increased slightly in comparison to 2011 due to:

•      higher underground Merensky mining grade;

•      slight improvement in stoping dilution;

•      unchanged underground UG2 grade;

•      constant ratio of UG2 to Merensky ore;

•      constant ratio of developing to stoping tonnes;

•      lower proportion of Merensky opencast ore; and

•      significantly improved opencast grade.

 

Business Improvement Initiatives

 

A number  of  initiatives  are  in place  to  support  improved  delivery  and 
increased productivity in the Mining Division. These include:

•      the "Line of  Sight" management system to  track production on a  daily 
basis is embedded  in all  the operations  and is  starting to  bear fruit  in 
allowing early identification  of technical bottlenecks,  lost blast  analysis 
and improved productivity;

•      the  team  effectiveness  programme  has  commenced  and  half  of  the 
operations' employees  went through  the programme,  the initial  productivity 
results specifically at the Karee operations are encouraging;

•      technical up skilling of lower level operational employees; and

•      relationships with the DMR continue  to improve as a result of  various 
safety initiatives implemented across the operations resulting in the best  in 
industry LTIFR.

 

The inflationary cost pressures being experienced by the industry continue  to 
be of  great concern  and  so productivity  improvement programmes,  as  noted 
above, are critical in helping mitigate these pressures.

 

Overview of Marikana Mines

 

Karee

 

In 2012 the  Karee operations, K3,  1B, 4B  and K4, mined  4.4 million  tonnes 
which represents  a decrease  of 1.2%,  or 54,000  tonnes from  2011. This  is 
largely as a  result of the  Events at  Marikana with losses  estimated to  be 
706,000 tonnes. The mining grade has decreased as a result of reduced  in-situ 
grades in the UG2 reef. Unit cost per tonne increased by 12% to R640 per tonne
due to the Events at Marikana.

 

Westerns

 

Production from  our  Westerns operations,  Rowland,  W1 and  Newman,  at  2.6 
million tonnes  declined  by 23.0%,  or  791,000  tonnes from  2011  with  the 
depletion of Newman shaft as expected and the Events at Marikana which had  an 
estimated impact of 460,000 tonnes. Additional dilution resulting from adverse
ground conditions  on  Rowland shaft  and  a  decrease in  the  in-situ  grade 
negatively impacted  shaft head  resulting  in a  4.6%  decrease on  the  2011 
figures. The reduced production resulted in the unit cost per tonne increasing
by 26% to R681 per tonne.

 

Middelkraal

 

In 2012 the  Middelkraal, Saffy (conventional)  and Hossy  (mechanised/hybrid) 
operations mined 1.8 million  tonnes which represents a  decrease of 7.5%,  or 
142,000 tonnes  from 2011.  Production  losses emanating  from the  Events  at 
Marikana are estimated to be 333,000 tonnes. Grade was negatively impacted  by 
the higher ratio of  development ore versus stoping  ore. Unit cost per  tonne 
increased to  R837  per tonne  or  13% as  the  operations struggled  to  meet 
increased production targets mainly due to the Events at Marikana.

 

Saffy's production was  significantly impacted during  2012 by adverse  ground 
conditions. The  production  delays  experienced during  the  year  have  been 
addressed by means of changes in layout  designs as well as a revision to  the 
support strategy. The  increase in  ore reserve availability  and the  planned 
build-up of stoping  crews will give  the shaft the  necessary flexibility  to 
deliver planned production increases in 2013.

 

Hossy increased tons hoisted from 793,000 tonnes to 864,000 tonnes during 2012
notwithstanding the Events at Marikana.  The biggest challenges that  continue 
to be faced by the mechanised  mining team centre around machine  reliability, 
the availability of replacement parts and the supply of trained artisans.  The 
decision taken to introduce hybrid mining in some upper quadrants resulted  in 
the increased production.

 

Easterns

 

At our Easterns operations performance for the year decreased from 1.2 million
tonnes in  2011 to  1.0 million  tonnes. E3  and E2  shafts were  impacted  by 
Section 54's in December 2011 and July 2012 as well as the Events at  Marikana 
which had an estimated impact on production of 164,000 tonnes. The unit  costs 
at R643 per tonne showed an 11% year on year increase.

 

Opencast

 

Production at  the  Merensky opencast  operation  at Marikana  decreased  from 
601,000 tonnes in 2011 to 443,000 tonnes in 2012. Grade improved significantly
(by 34.8%) as a result of the change in mining method and sequence of mining.

 

Pandora Joint Venture

 

                                         2012   2011  Variance
Attribuable production ('000 tonnes)     185    168    10.3%
Saleable metal in concentrate (oz PGMs) 58,188 48,199  20.7%

 

The capital expansion plan  relating to 9 and  10 levels progressed well  with 
level 9 moving  into production during  April 2012 and  a further build-up  in 
production is scheduled for the 2013 financial year.

 

The studies on additional expansion projects  have been deferred by two  years 
due to the  current economic  situation and have  been agreed  with our  Joint 
Venture (JV) partner (Anglo Platinum).

 

Capital Expenditure

 

Capital expenditure in  the Mining Division  was $269 million  during 2012  of 
which around $20  million related to  the change in  the accounting policy  to 
capitalise deferred stripping associated with opencast mining. The majority of
the remaining capital was spent developing  ore reserves at K4, K3, Saffy  and 
Hossy.

 

Process Division

 

The Process Division produced 687,372  ounces of refined Platinum compared  to 
731,273 ounces in 2011. This represents a decrease of 6.0% which is  primarily 
attributable to the Events at Marikana.

 

Unit costs  2011    2012   Variance
Processing R872/oz R830/oz   11%

 

Cost management  and  control  received  the highest  focus  over  the  period 
particularly due  to  above Consumer  Price  Index increases  associated  with 
labour costs, chemicals, power and water.

 

Before and during the Events at Marikana the Process Division embarked on cash
conservation measures as well as various cost improvement measures due to  the 
reduced throughput  from  mining.  These improvement  measures  will  continue 
during 2013 together with our other continuous improvement projects.

 

Concentrators

 

2012 proved to be  another exceptional year in  terms of recoveries  achieved. 
This can be  attributed to the  Eastern's tailings treatment  plant coming  on 
line in April 2012. Additional recovery  improvements are planned for 2013  as 
the concentrators  continue on  their journey  of technology  and  operational 
excellence.

 

Plant  running  times  continued  to  improve  during  2012  and  the  overall 
concentrator running time has increased to  92.8% in 2012 from 91.4% in  2011. 
The concentrators are  targeting a  0.5% uplift in  running time  per year  to 
ensure we equal and improve on the previously best achieved during the  period 
from 2003 to 2005.

 

The overall milled  grade improved  by 2.2% to  4.49g/t when  compared to  the 
previous year  largely due  to less  opencast ore  being treated  and a  34.8% 
increase in the opencast grade. The underground grade is relatively flat  with 
an improvement of 0.4% and continues to be within the acceptable ranges.

 

Tailing Treatment and Chrome Plants

 

The  Eastern's  tailings  treatment  plant  was  commissioned  and  the  first 
production started  in  April 2012.  This  plant has  achieved  above  planned 
recoveries and throughput. All chrome  plants were operational for the  period 
under review excluding the  strike period and sales  increased to 1.2  million 
tonnes compared to sales of 0.7 million tonnes in 2011.

 

Smelter

 

The smelter  delivered  a  solid operational  performance  with  total  tonnes 
smelted  increasing  by  0.6%  compared  to  2011.  The  furnace  availability 
increased compared  to  2011  due  to  improved  operational  and  maintenance 
practices. The Number Two furnace was successfully commissioned and was handed
over to production on 21 June. After heat  up the first slag was tapped on  11 
July and the  first matte on  16 July.  The project was  completed within  the 
estimated budget. Over the past year the new design and operational discipline
of the Number One furnace  has proven to be  more robust, with no  operational 
disruptions during the reporting period.

 

Refineries

 

'000 oz  2012  2011  Variance
Platinum  687   731   (6.0)%
PGMs     1,350 1,447  (6.7)%

 

The refineries  delivered  a  solid operational  performance,  with  increased 
product quality  being achieved  at  the Base  Metal Refinery  (BMR).  Refined 
production of PGMs decreased by  6.7% whilst Platinum production decreased  by 
6.0%. This  was as  a result  of  the Events  at Marikana.  The  instantaneous 
recoveries were maintained at prior year levels (82.4%).

 

Final metal  sales for  2012 were  701,831 Platinum  ounces which  reflects  a 
decrease of 2.6% compared to the prior period sales of 720,783 ounces and  PGM 
sales were 3.6%  lower than the  prior year at  1,383,945 PGM ounces,  despite 
benefiting from the depletion  of stocks in the  pipeline which resulted  from 
the Events at Marikana.

 

Capital Expenditure

 

Capital expenditure in the Process Division during 2012 was $121 million.  The 
majority of this expenditure  was for the upgrading  and capacity increase  at 
the Number One  Shaft concentrator, the  Number Two furnace  and the  Easterns 
Tailing Treatment plant which was commissioned during the year.

 

Unit Costs

 

Notwithstanding production losses associated  with the increased Section  54's 
during the first half of the year, the improved cost control and  productivity 
measures implemented  had a  real  effect and  Lonmin  would have  beaten  its 
previously announced guidance  of an 8.5%  unit cost increase.  The unit  cost 
increase was however around 13% following the Events at Marikana where  Lonmin 
lost around 1.8 million tonnes from the mining operations. When normalised and
taking cognisance of the production losses associated with the strike the unit
cost would have been limited to around 5.2%.

Business Development

 

Limpopo

 

Shanduka delivered the Limpopo Feasibility Review  on 31 August 2012 which  is 
currently being reviewed by  Lonmin. If the  feasibility review is  successful 
and subject  to  the fulfilment  of  certain suspensive  conditions  including 
Shanduka raising and contributing R1.1 billion in funding towards the ramp  up 
and development of operations, Shanduka  will acquire control and  operational 
management of the operating entity.

 

Akanani

 

During the second half  of the financial year  we completed a  pre-feasibility 
study on the Akanani exploration and evaluation asset. This study provided  an 
update on the results of the original concept study undertaken at the time  of 
acquisition. Based on the results  of this pre-feasibility study coupled  with 
the current and long term  PGM pricing outlook we  have taken the decision  to 
impair the asset and reduced the net  carrying amount of this asset from  $628 
million in 2011 to $162 million at  30 September 2012. We continue to  enhance 
our mining and  processing studies on  this project and  will make a  decision 
during 2013 on further development.

 

BEE Equity Ownership

 

The Company is required to  increase Historically Disadvantaged South  African 
(HDSA) ownership in its prospecting and mining ventures by 31 December 2014 to
the 26%  required under  the Mining  Charter. As  at 30  September 2012,  HDSA 
investors directly  and indirectly  owned  18% of  the  share capital  of  the 
Company's subsidiaries  that own  and operate  Marikana and  Limpopo and  that 
participate in the  Pandora JV, as  well as 26%  of the share  capital of  its 
subsidiary that owns Akanani.

 

Shanduka owns  50.03%  of  the  Company's  Black  Economic  Empowerment  (BEE) 
partner, Incwala Resources (Pty) Limited (Incwala).  Other equity investors in
Incwala include a trust for the  benefit of community members, the  Industrial 
Development Corporation and Lonmin itself. In considering how best to meet its
HDSA ownership requirements by 31 December  2014, the Board believes that  one 
element it must consider  is how to achieve  further HDSA ownership through  a 
broad based  solution as  this will  ultimately  be in  the best  interest  of 
shareholders.

 

It is possible that the Company may wish to facilitate the creation of  trusts 
for the benefit of current and future employees, and separately for members of
the Greater Lonmin Community, to which new shares could be allotted for  their 
sole  economic  benefit.   In  order   to  achieve  this   increase  in   HDSA 
participation, the Company  is considering  a range of  options involving  the 
issuance  of  additional   shares  which   could  dilute   the  interests   of 
shareholders. The Company has not yet finalised its proposals, and any  future 
transaction would need to  be considered on its  merits and may require  prior 
shareholder approval. 

 

Exploration

 

International

 

Lonmin is exploring for PGM deposits around the Sudbury Basin in Canada in JVs
with Wallbridge  Mining  and  Vale  S.A.  On  the  Vale  JV,  Lonmin  met  its 
exploration earn-in commitment in  December 2011 for the  right to earn a  50% 
interest in low sulphide, PGM rich  deposits on the properties comprising  the 
JV. Consultants Wardrop Tetra  Tech assisted in the  completion of a  positive 
pre-feasibility study  for a  shallow open  pit on  the Denison  109 Zone  PGM 
mineralisation. The open pit  design covers the top  95 metres of the  deposit 
containing 456,275 tonnes of ore at an average grade of 3.58g/t (52,500 ounces
Pt+Pd+Au).

 

Exploration mapping, geophysical  surveys and drilling  continued to  generate 
targets for follow up in the coming year on our Canadian and Northern  Ireland 
properties.

 

South Africa

 

Western Platinum Limited  carried out exploration  activities on a  PGM-Nickel 
prospect on Vlakfontein, and has defined shallow, drill ready targets.  Lonmin 
has a JV with Boynton in the eastern Bushveld.

Market Review

 

Overview

 

The market this year has been characterised by significant influences on  both 
the supply and demand side. Though the fallout from illegal strikes  affecting 
mines in South Africa is  still to run its course,  it is likely that  primary 
metal supplies will continue a decreasing trend while operating cost increases
will exceed South African inflation rates putting pressure on the availability
of capital for increased levels  of capital expenditure. This will  ultimately 
impact on future supply levels. The Eurozone crisis continues to be the  major 
dampener of demand.

 

Notwithstanding softer demand during 2012, there are numerous areas of captive
demand that should continue to support  the platinum market and prices in  the 
medium term  and  beyond. Catalyst  fabricators  are  gearing up  for  Euro  6 
emissions legislation  in  2014.  In  addition, a  growing  number  of  engine 
categories that  were previously  not fitted  with PGM  containing  catalysts, 
including non-road  equipment (construction,  agriculture and  mining) in  the 
USA, Japan and Europe, as well  as heavy-duty on-road engines in Europe,  will 
need to comply from 2014. The  tightening of legislation for non-road  engines 
in emerging countries will see  the legislative net increasingly capture  more 
than the current 20% of the world's non-road fleet.

 

Longer term, there are wide-ranging drivetrain  options that could be used  to 
reduce CO[2] output  from vehicles,  including full  electric power.  However, 
significant advances in  combustion engine technology,  including smaller  and 
more efficient turbocharged engines, as well  as hybridisation and the use  of 
advanced lightweight materials, ensure the  future of the internal  combustion 
engine for many years to come. Consequently the fundamental outlook for  PGM's 
remains positive and robust.

 

PGM Prices

 

Downgrades to forecast economic  growth in Europe in  the second half of  2011 
pulled the  platinum  price  down from  an  average  of $1,748  per  ounce  in 
September 2011 to an average of  $1,454 per ounce in December. Price  weakness 
continued through 2012 with prices mostly trading in a $1,400-1,500 per  ounce 
range, except for two major supply  events that stimulated price rallies,  the 
second of which is still underway.

 

An illegal strike at  Impala Platinum in February  reduced platinum supply  by 
150,000 ounces and led to  a price rally that  lifted platinum to over  $1,700 
per ounce for a week.

 

Most recently the Events at Marikana  and subsequent illegal strikes at  other 
mines saw platinum prices rise from below $1,400 per ounce to close to  $1,700 
per ounce by mid-September.

 

2012 average platinum  prices at $1,535  per ounce were  still $180 per  ounce 
down on the same period in 2011.

 

Palladium prices tend to be more volatile but moved in tandem and in  reaction 
to the same events that affected platinum.  Palladium prices for 2012 declined
12% year on year compared to platinum's drop of 10%.

 

The lasting effects from a tight market that forced the rhodium price spike in
2008 are becoming increasingly evident, as manufacturers continue to look  for 
breakthroughs that would require less rhodium. As a result of weak demand  and 
a stock overhang, the fall in the rhodium price has far exceeded both platinum
and palladium with a 34% drop in 2012 compared to 2011.

 

Demand

 

Automotive

 

While European auto sales contracted in the period under review the large auto
inventory overhang  of more  than two  million vehicles  in 2008/09  does  not 
appear to exist today. Auto manufacturers adjusted factory output to carefully
manage  inventories.  Global  vehicle   production  is  already  higher   than 
pre-financial crisis levels and looks set to continue to grow.

 

Platinum demand in  2012, while  likely to  be down  in Europe,  will to  some 
degree be offset  by growth from  the USA, Japan  and the rest  of the  world, 
especially from  higher  metal  loadings  associated  with  tighter  emissions 
already affecting new heavy duty vehicles in USA and Japan.

 

Palladium substitution for platinum in  light duty diesel catalysts  continues 
steadily. However, there are more than six million heavy duty on-road and  all 
types of non-road diesel engines scheduled to  be affected by the roll out  of 
tighter emissions  regulations  of which  most  will require  a  platinum-rich 
catalyst after treatment system.

 

Jewellery

 

In recent years jewellery demand  has become increasingly significant for  the 
platinum market and now accounts for 33% of demand. Chinese platinum jewellery
consumption, which accounts for more than 65% of the global jewellery  market, 
continues to  grow.  Underlying,  and less  price  elastic,  bridal  jewellery 
purchases are increasing year on  year along with wedding registrations  which 
were up more  than 10% for  the first  six months of  2012. Despite  softening 
Gross Domestic Product growth forecasts  for China, major jewellery  retailers 
continue to expand.

 

Investment

 

The industrial action and social-political unrest at PGM mines in South Africa
seemed to be the catalyst for the most recent increase in Exchange Traded Fund
(ETF) holdings  of 187,000  ounces of  platinum. Palladium  ETF holdings  were 
barely affected with only 34,000  additional ounces added. Platinum supply  is 
heavily concentrated in South Africa at 73% of primary supply, while palladium
supplies are more globally  spread with 37% derived  from South African  based 
mines.

 

Looking at 2012 year-to-date, platinum ETFs have added 263,000 ounces to reach
a new record level of 1.59 million ounces. Palladium ETFs added 233,000 ounces
of palladium this year to reach 1.86 million ounces.

 

Outlook

 

Primary supply will be down  year on year in  2012 mainly owing to  industrial 
unrest, but also  due to some  closures, notably Aquarius'  Everest South  and 
Blue Ridge operations. Looking  ahead, supply will  remain constrained due  to 
supply disruptions  and  forced  cutbacks of  capital  expenditure  since  the 
financial crisis started in 2008.

 

At the start  of 2012,  with a  backdrop of  weakening demand  in Europe,  the 
prospect of a platinum market surplus loomed. However, based on recent  supply 
disruptions a market shortfall is  increasingly likely. There are  significant 
stocks that have  accumulated since the  financial crisis in  2008, but  these 
should start to be drawn down  and translate into higher prices,  particularly 
as captive demand takes hold towards the latter part of 2013 and during 2014.

 

The palladium market remains in structural deficit and reliant on  accumulated 
stocks to meet  demand. The switch  from palladium to  platinum in light  duty 
diesel catalysts makes sense today at the current price differential and  will 
continue to  benefit producers  and  investors exposed  to palladium  for  the 
medium term, but the palladium supply-demand mismatch is unsustainable  beyond 
this time frame.

 

Rhodium supply is most  concentrated in South  Africa and supply  disruptions, 
particularly affecting marginal UG2 (rhodium rich) operations should start  to 
accelerate the drawdown of accumulated inventories.

Financial Review

 

Overview

 

The Events at  Marikana in  August and September  of the  2012 financial  year 
resulted in  Lonmin being  unable  to mine  for seven  weeks  and that  had  a 
significant impact on our financial results.  Key in this impact has been  the 
reduction in the  volume of  Platinum Group  Metals (PGMs)  produced and  sold 
while fixed production costs continued to be incurred during the strike period
which has had an adverse effect on the Group's profitability.

 

Prior to the Events  at Marikana industrial demand  for PGMs had been  subdued 
resulting in a  depressed pricing  environment which was  putting pressure  on 
revenues and  margins. The  supply  side concerns  resulting from  the  strike 
action, which spread  to others  in the  industry, saw  prices rebound  during 
August and September but this only benefited minimal inventory and  processing 
pipeline sales conducted during this period in the absence of new production.

 

On the cost side we have  separately accounted for fixed production  overheads 
incurred during  the Events  at Marikana  for which  there was  no  associated 
production output as well as additional costs arising directly as a result  of 
the strike action.  These have been  disclosed as special  costs to assist  in 
understanding the financial performance achieved by the Group on a  comparable 
basis with prior years.  As a result our  underlying performance excludes  the 
impact of the strike action. Other than the impact of the strike, movements in
underlying costs were driven primarily by above inflation wage and electricity
tariff increases, somewhat mitigated by favourable exchange movements. The  C1 
unit cost per  ounce produced  for 2012, including  the impact  of the  strike 
action, was 12.9% higher than 2011.

 

Capital expenditure for 2012 was $408 million. This coupled with the loss made
as a result of events described above resulted in an increase in our net  debt 
position which was partially mitigated by the prepaid sale of gold  undertaken 
in the first half of  the financial year and  the reduction in closing  stocks 
following the strike disruption.  Our net debt position  at 30 September  2012 
amounted to $421 million. This  figure has increased significantly  subsequent 
to year end as we  fund the production ramp up  and enable stock levels to  be 
rebuilt through  the production  pipeline. At  31 October  2012 net  debt  was 
approximately $550 million.

 

Subsequent to year end we have embarked on significant steps to strengthen our
financial position. The announcement of our results coincides with the  launch 
of a  Rights Issue  seeking to  raise $817  million before  costs and  foreign 
exchange charges.  In addition,  the  terms of  our  debt facilities  will  be 
revised subject  to  a successful  Rights  Issue to  provide  greater  funding 
flexibility going forward. Details of the Rights Issue and proposed amendments
to debt facilities are included below and in our Rights Issue Prospectus.  

 

Income Statement

 

The $244  million movement  between the  underlying operating  profit of  $311 
million for the year ended 30 September  2011 and that of $67 million for  the 
year ended 30 September 2012 is analysed below.

 

                                                                   $m  
 Year to 30 September 2011 reported operating profit                307
 Year to 30 September 2011 special items                              4
 Year to 30 September 2011 underlying operating profit              311

  
 PGM price                                                        (325)

 PGM volume                                                        (68)

 PGM mix                                                             42

 Base metals                                                       (27)
 Revenue changes                                                  (378)
 Cost changes (including foreign exchange impact of $151 million)   134
                                                                       

 Year to 30 September 2012 underlying operating profit               67
 Year to 30 September 2012 special items                          (769)
 Costs relating to illegal work stoppage                            159

 Impairment of Akanani exploration and evaluation asset             602

 Other                                                                8
 Year to 30 September 2012 reported operating loss                (702)

Revenue

 

Total revenue declined  by $378 million  from 2011 to  $1,614 million for  the 
year ended 30 September 2012.

 

The PGM pricing environment  during the year deteriorated  over the last  year 
and the impact on the average prices achieved on the key metals sold is  shown 
below:

 

                                          Year ended Year ended

                                            30.09.12   30.09.11
                                                $/oz       $/oz
Platinum                                       1,517      1,769
Palladium                                        630        752
Rhodium                                        1,274      2,145
PGM basket (excluding by-product revenue)      1,095      1,299

 

The fragile  conditions in  the auto  industry, particularly  in Europe,  have 
resulted in  subdued short-term  demand for  PGMs negatively  impacting  their 
price. PGM  price  deterioration  contributed  $325  million  to  the  overall 
decrease in revenue. It should be noted that whilst the US Dollar basket price
has decreased by 16% over  the 2011 financial year,  in Rand terms the  basket 
price decreased by only 3% impacted by the relatively weaker Rand.

 

PGM sales volume for the year to 30 September 2012 was 4% down on the year  to 
30 September 2011. The  reduction in PGM  volumes, mainly as  a result of  the 
Events at  Marikana,  contributed  $68  million to  the  overall  decrease  in 
revenue. However, the mix of metals sold resulted in a positive impact of  $42 
million mainly  due to  a higher  proportion of  Platinum and  Rhodium due  to 
metal-in-process inventory timing differences. Base metal revenue was down $27
million largely due to lower nickel prices.

 

Operating Costs

 

Total underlying costs (excluding the impact  of the strike disruption) in  US 
Dollar terms decreased by $134 million mainly due to positive foreign exchange
movements and decreased production offset by the impact of cost escalations. A
track of these changes is shown in the table below.

 

                                                          $m
Year ended 30 September 2011 - underlying costs        1,681
 

Increase / (decrease):

 
Marikana underground mining                               33

Marikana opencast mining                                (18)

Limpopo mining                                             3

Concentrating and processing                              15

Overheads                                                 48

Special operating costs excluded from underlying costs (169)
Underlying operating costs                              (88)
Pandora and W1 ore purchases                               1

Metal stock movement                                     100

Foreign exchange                                       (151)

Depreciation and amortisation                              4
Cost changes (including foreign exchange impact)       (134)
Year ended 30 September 2012 - underlying costs        1,547

 

Total Marikana mining costs (underground and opencast)  increased in the  year 
by $15 million or 2%, mainly as a result of an 8.5% wage increase incurred  in 
the period partially offset by the  reduction in production due to the  strike 
disruption. Marikana  opencast mining  costs  reduced by  $18 million  or  33% 
driven by a reduction in production initiated in the first half as we  focused 
on grade improvement.

 

Concentrator and processing costs increased over 2011 by $15 million or 4%  as 
escalation effects, in particular from electricity costs were partially offset
by reduced production.

 

Overheads increased by  $48 million largely  due to some  $37 million of  idle 
production costs flowing directly to  the income statement with no  production 
inventory to allocate them  to. In addition $5  million worth of debt  capital 
raising costs and  an additional  $5 million was  spent to  settle the  Keysha 
dispute. These costs form  part of the $169  million of costs re-allocated  to 
special items (see below).

 

The $100  million  adverse  impact on  operating  profit,  excluding  exchange 
impacts, of  metal stock  movements  results from  the reduction  of  pipeline 
stocks towards the end  of the year  due to minimal  production in August  and 
September as a result of the strike disruption.

 

The Rand weakened substantially  against the US Dollar  during the year  under 
review averaging ZAR8.05 to USD1 compared to an average of ZAR6.95 to USD1  in 
2011 resulting in a $151 million positive impact on operating costs.

 

Cost per PGM Ounce

 

The C1 cost  per PGM  ounce produced  for the year  to 30  September 2012  was 
R8,507. This was  an increase of  12.9% compared to  2011. The cost  increases 
were largely driven by higher than inflation increases in the wage bill (8.5%)
and  electricity  tariffs  (24%).   These  were  exacerbated  by   significant 
production disruptions  due to  increased Section  54 and  management  induced 
safety stoppages as well as community unrest in the first half of the year and
the Events at Marikana in August and September. It should be noted that the C1
cost per  PGM ounce  is based  on all  production costs  including idle  fixed 
production overheads which have been  excluded from our underlying results  as 
discussed below. If these  strike related costs are  excluded the increase  in 
unit cost per  PGM ounce produced  for 2012  would have been  a 5.2%  increase 
compared to 2011.

 

Further details  of  unit  costs  analysis  can  be  found  in  the  Operating 
Statistics.

 

Special Operating Costs

 

In 2012 special operating costs are made up as follows:

                                                            $m
Impairment of the Akanani exploration and evaluation asset 602
Strike related costs                                       159
-     Idle fixed production costs                          120

-     Contract costs                                        29

-     Payroll costs                                          7

-     Other                                                  3
Debt capital raising costs                                   5

Costs relating to disputed prospecting rights                5
Reversal of impairment of employee housing                 (2)
                                                           769

 

During the second half  of the financial year  we completed a  pre-feasibility 
study on the Akanani exploration and evaluation asset. This study provided  an 
update on the results of the original concept study undertaken at the time  of 
acquisition and showed a significant increase in capital and operating  costs, 
influenced by mining methodology and  concentrator requirements. Based on  the 
results of this pre-feasibility study, coupled with the current and  long-term 
PGM pricing outlook, we have  taken the decision to  impair the asset by  $602 
million.  The  carrying amount  of the  asset has  reduced from  $806  million 
(including $73 million of  goodwill) in 2011 to  $208 million at 30  September 
2012 after accounting for $4 million worth of additions during the year.

 

As highlighted earlier, fixed production overheads incurred during the illegal
strike period for which  there was no associated  production output and  costs 
arising directly as  a result  of the strike  action have  been classified  as 
special items.  The total  of  these strike  related  costs amounted  to  $159 
million. Idle  fixed  production  costs  incurred  during  the  strike  period 
amounted to $120  million. Costs  relating to  contractors not  being able  to 
fulfil  their  obligations  as  a  result   of  the  disruption  as  well   as 
demobilisation costs  on  K4 amounted  to  $29 million.  The  negotiated  wage 
settlement included an amount to be paid to employees on their return to  work 
which  totalled  $7  million.  Other  costs  related  to  the  strike  include 
additional security, media coordination and consumables.

 

Debt capital raising  costs of $5  million were incurred  prior to the  strike 
disruption. These  costs  related  to exploratory  work  and  capital  raising 
initiatives looking  at tapping  various  debt markets.  As mentioned  in  the 
overview section above, we will now be launching a Rights Issue to  strengthen 
our balance sheet.

 

Costs amounting to  $5 million (or  R40 million) were  incurred to  compensate 
Holgoun Investment Holdings  (Proprietary) Limited,  Keysha's parent  company, 
for relinquishing a  disputed prospecting  right and for  its costs  including 
those incurred in carrying out prospecting activities.

 

The impairment charge  to write down  employee housing processed  in 2011  has 
been reversed during the  year under review following  a re-assessment of  the 
realisable value of the houses.   

 

In 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 at a cost of $2 million and a further $2 million impairment charge was
taken on the write down of employee housing in Marikana.

 

Impairment of Available for Sale Financial Assets

 

The $6 million impairment  of available for  sale financial assets  represents 
the loss in  value of  our share in  Platmin Limited  following the  company's 
delisting in December 2011.

 

Financing Costs

 

                                                 Year ended 30 September
                                                      2012          2011

                                                        $m            $m
Net bank interest and fees                            (27)          (46)
Capitalised interest payable and fees                   26            46
Exchange                                               (1)             2
Other                                                 (12)           (7)
Underlying net finance costs                          (14)           (5)
Special HDSA receivable income / (costs)                30          (12)
Special fair value movements in cash flow hedges         -           (6)
Net finance income / (costs)                            16          (23)

 

The total net finance income  of $16 million for  the year ended 30  September 
2012 represents a $39  million favourable movement compared  to the total  net 
finance costs of $23 million for the year ended 30 September 2011.

 

Net bank interest and fees decreased from  $46 million to $27 million for  the 
year ended 30 September 2012 largely as a result of the 2011 figures including
the unwinding of previously capitalised unamortised bank fees relating to  the 
old banking facilities which  were replaced by new  facilities during 2011  as 
well as a  lower weighted average  cost of financing  under current bank  debt 
facilities. Interest totalling $26 million  was capitalised to assets (2011  - 
$46 million).

 

Other finance costs largely relate to the unwinding of the discounting of site
rehabilitation liabilities.

 

The Historically  Disadvantaged South  Africans (HDSA)  receivable, being  the 
Sterling  loan  to  Shanduka   Resources  (Proprietary)  Limited   (Shanduka), 
increased by  $30 million  during the  year  to 30  September 2012  being  $14 
million of foreign exchange gains and $16 million of accrued interest. The $12
million reduction in  2011 represented  a $24  million reduction  in the  fair 
value of the HDSA derivative and $3 million worth of exchange losses partially
offset by $15 million of accrued interest.

 

During 2011 Lonmin  entered into an  interest rate swap  to hedge against  its 
exposure to a base floating interest rate linked to a six month USD libor. The
swap was entered into prior to drawing down on the loan facility resulting  in 
an interim fair value loss of  $6 million before hedge accounting was  applied 
in that financial year.

 

Taxation

 

Reported tax for the current year was  a credit of $148 million after the  tax 
effects of special  items of $187  million. The underlying  tax charge is  $39 
million reflecting an  effective rate  of 68%. The  underlying charge  largely 
comprises  deferred  tax  charges  being  recognised  on  accelerated  capital 
allowances with a reduced level  of current tax in  the year due to  decreased 
profitability. The very high underlying  effective tax rate is largely  driven 
by exchange effects  on profits  arising from  a predominantly  Rand tax  base 
translated to the US Dollar functional currency expressed as a percentage of a
small profit before tax figure.

 

Cash Generation and Net Debt

 

The following table summarises the main components of the cash flow during the
year.

 

                                                       Year ended 30 September
                                         2012                             2011
                                           $m                               $m
Operating (loss)  /                     (702)                              307
profit
Depreciation,                             726                              124
amortisation    and 
impairment
Changes in  working                       278                              245
capital
Other                                     (2)                                6
Cash flow generated                       300                              682
from operations
Interest        and                      (27)                             (36)
finance costs
Tax                                      (10)                             (16)
Trading cash inflow                       263                              630
Capital expenditure                     (408)                            (410)
Dividends  paid  to                      (14)                             (10)
minority
Free cash (outflow)                     (159)                              210
/ inflow
Distribution from /                         7                              (2)
(investment     in) 
joint venture
Additions        to                       (2)                             (30)
financial assets
Issue   costs    on                         -                              (8)
non-current
borrowings
Dividends  paid  to                      (31)                             (30)
equity shareholders
Shares issued                               -                                1
Cash  (outflow)   /                     (185)                              141
inflow
Opening net debt                        (234)                            (375)
Foreign exchange                            -                                2
Unamortised fees                          (2)                              (2)
Closing net debt                        (421)                            (234)
Trading cash inflow                    129.8c                           311.2c
(cents per share)
Free cash (outflow)                   (78.5c)                           103.7c
/ inflow (cents per
share)

 

Cash flow generated  from operations in  the year ended  30 September 2012  at 
$300 million was significantly lower than  the $682 million recorded in  2011. 
This was driven off the back of reduced operating profits due to the impact of
the Events at  Marikana and the  subdued PGM pricing  environment. Changes  in 
working capital improved  by $33 million  compared to 2011.  In 2012,  working 
capital cash flows benefited  from the reduction in  stock levels at year  end 
due to extracting  ounces out of  the stock  pipeline as well  as the  revenue 
received in advance  on the  forward sale  of gold in  the first  half of  the 
financial year.

 

Trading cash inflow for the year to 30 September 2012 amounted to $263 million
(2011 -  $630  million).  The  cash outflow  on  interest  and  finance  costs 
decreased by $9 million.  Tax payments decreased by  $6 million and  represent 
provisional corporate  tax payments.  The trading  cash inflow  per share  was 
129.8 cents for the year ended 30 September 2012 against 311.2 cents for 2011.

 

Capital expenditure cash flow at $408 million was in line with the prior year.
In Mining, the expenditure incurred  was focused on operating developments  at 
Hossy and Saffy shafts, equipping and development at K4 and investment in  the 
sub-decline at K3. In the Process Division spend comprised additional  furnace 
capacity, the  Easterns tailings  treatment plant  as well  as expenditure  to 
increase capacity at the Number One shaft concentrator.

 

The proposed dividend of 15  cents per share for  the financial year ended  30 
September 2011  was paid  during the  year under  review resulting  in a  cash 
outflow of $31 million.

 

Net debt at  $421 million  has increased by  $187 million  since 30  September 
2011. Pressure on net  debt as a result  of declining profitability driven  by 
the PGM pricing environment and significant business disruptions was partially
mitigated by  the deferred  revenue proceeds  as well  as reduction  in  stock 
levels at the end of the year.

 

As a result 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  14% at  30 September  2012  (30 
September 2011 - 7%). The ratio of consolidated net debt to underlying  EBITDA 
increased from 0.54 times at 30 September  2011 to 2.18 times at 30  September 
2012 which  remains  within  the  covenants  relating  to  the  existing  bank 
facilities. As  mentioned  later in  this  report,  the terms  of  these  bank 
facilities will be revised subject to a successful Rights Issue.

 

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. This financial review focuses on financial risk management.

 

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  (market  risk). 
Factors which  are  outside  the  control  of  management  which  can  have  a 
significant impact on  the business  remain, specifically,  volatility in  the 
Rand / US Dollar exchange rate and PGM commodity prices.

 

These are  the critical  factors  to consider  when  addressing the  issue  of 
whether the Group is a Going Concern.

 

Liquidity Risk

 

The policy on 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  borrowings. The  Group's  philosophy  is  to 
maintain an appropriately low level of financial gearing given the exposure of
the business to fluctuations in PGM commodity prices and the Rand / US  Dollar 
exchange rate. This is supplemented with additional risk mitigation strategies
such as those  described below in  respect of foreign  currency and  commodity 
price risk.

 

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.

 

Prior to the  strike disruption, the  Group had  embarked on a  review of  its 
growth strategy, future production profile and capital investment programme as
a result  of  prevailing  subdued  short-term  demand  for  PGMs.  The  strike 
disruption and  the  continued PGM  market  environment has  necessitated  the 
Group's further review of its strategy and capital structure. To this end, the
Board has concluded  that reducing capital  expenditure in the  near term  and 
raising additional equity, in conjunction  with a revision to bank  facilities 
will result  in  the appropriate  capital  structure and  retain  the  Group's 
flexibility regarding financial risks.

 

Consequently the announcement of these  results will coincide with the  launch 
of a Rights Issue which is  conditional on, amongst other things,  shareholder 
approval. The  Group  proposes  to raise  approximately  $817  million  before 
expenses as well as amend the existing debt facilities.

 

Both the amended US  Dollar Facilities Agreement  and amended Rand  Facilities 
Agreements will  only  come  into  effect if  the  proposed  Rights  Issue  is 
completed and raises at least  $700 million of net  proceeds no later than  31 
December  2012  and  such  net  proceeds  are  used  to  prepay  the   Group's 
indebtedness under  the  Existing  Facilities Agreements,  including  (i)  the 
prepayment in  full of  amounts outstanding  (amounting to  $300 million  plus 
accrued interest and  applicable break fees)  under the US  Dollar Term  Loan, 
which facility  will  then  be cancelled;  and  (ii)  (to the  extent  of  the 
remaining net  proceeds  of  the  Rights  Issue)  the  prepayment  of  amounts 
outstanding (amounting to  $400 million plus  accrued interest and  applicable 
break fees)  under the  US Dollar  Revolving Credit  Facility; and  (iii)  the 
partial  prepayment  of  amounts  outstanding  (amounting  to  R1,980  million 
equivalent as at 31  October 2012, which is  equivalent to approximately  $229 
million based  on  a Rand/US  dollar  exchange  rate of  R8.66)  plus  accrued 
interest and applicable break fees) under the Rand Facilities Agreements.

 

The principal amendments to the  Existing Facilities Agreements are to  remove 
the net debt/EBITDA and  EBITDA/net interest covenants  and to substitute  the 
following financial covenants into each of these agreements:

 

·      consolidated tangible net worth will not be less than $2,250 million;

·      consolidated net debt will not exceed 25 per cent of consolidated
tangible net worth; and

·      if:

o  in respect  of the amended  US Dollar Facilities  Agreement, the  aggregate 
amount of outstanding loans  exceeds $75 million at  any time during the  last 
six months of any test period; or

o  in  respect of  both the  amended US  Dollar Facilities  Agreement and  the 
amended Rand Facilities Agreements, consolidated net debt exceeds $300 million
as of the last day of any test period,

 

the capital expenditure of the Group must not exceed the limits set out in the
table below, provided that,  if 110 per cent  of budgeted capital  expenditure 
for any test period  ending on or  after 30 September 2013  is lower than  the 
capital expenditure limit  set out in  the table below  for that test  period, 
then the capital expenditure limit for that test period shall be equal to  110 
per cent of such budgeted capital expenditure.

 

Test
Period                                                                                                                          
Capital expenditure limit (ZAR)

 

1 October 2012 to 31 March 2013
(inclusive)                                                                            
800,000,000

1 October 2012 to 30 September 2013
(inclusive)                                                                  
1,600,000,000

1 April 2013 to 31 March 2014
(inclusive)                                                                               
1,800,000,000

1 October 2013 to 30 September 2014
(inclusive)                                                                  
2,000,000,000

1 April 2014 to 31 March 2015
(inclusive)                                                                               
3,000,000,000

1 October 2014 to 30 September 2015
(inclusive)                                                                  
4,000,000,000

1 April 2015 to 31 March 2016
(inclusive)                                                                               
4,000,000,000

1 October 2015 to 30 September 2016
(inclusive)                                                                  
4,000,000,000

 

As at 30 September 2012, Lonmin had net debt of $421 million, comprising  $739 
million of drawn facilities net of $315 million of cash and equivalents and $6
million of unamortised bank fees as well  as a further $3 million of  external 
debt incurred to  fund the construction  of a chrome  treatment plant with  an 
outside partner.

 

The effective cost of debt funding for the 2012 financial year was circa 4.3%.

 

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 and consist of the ten  banks 
that participate  in  Lonmin's  bank debt  facilities.  These  counter-parties 
comprise: BNP Paribas S.A., Citigroup  Global Markets Limited, FirstRand  Bank 
Limited, HSBC Bank Plc, Investec Bank Limited, J.P. Morgan Limited, Lloyds TSB
Bank Plc, The Royal Bank of Scotland  N.V., The Standard Bank of South  Africa 
Limited and Standard Chartered Bank.

Trade Receivables

 

The Group is exposed to significant  trade receivable credit risk through  the 
sale of PGMs 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.

 

It should be noted that a significant portion of Lonmin's revenue is from  two 
key customers. However, both of  these customers have strong investment  grade 
ratings and  their  payment  terms  are very  short,  thereby  reducing  trade 
receivable credit risk significantly.

 

HDSA Receivables

 

HDSA receivables are secured on  the HDSA's shareholding in Incwala  Resources 
(Pty) Limited.

 

Interest Rate Risk

 

Currently, the bulk of Lonmin's outstanding  borrowings are in US Dollars.  Of 
the US Dollar borrowings, the  base rate in respect  of the $300 million  term 
facility has been  fixed through an  interest rate  swap for the  term of  the 
facility which runs until May 2016.  The remaining USD borrowings and the  ZAR 
borrowings are  at  floating rates  of  interest  linked to  LIBOR  and  JIBAR 
respectively.  The  interest  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  predominantly  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 is the US  Dollar and the share capital of  the 
Company is based in US Dollars.

 

Because of the depressed level of  our revenue basket when expressed in  Rands 
experienced prior to the strike disruption  and the sensitivity of this  price 
to a strengthening Rand,  a decision was taken  to use hedging instruments  in 
respect of the Rand /  US Dollar currency exposure for  up to 75% of  forecast 
non platinum revenues for the second half  of the 2012 financial year. All  of 
these hedging instruments matured  by 30 September  2012 without creating  any 
financial impact and  no new  foreign exchange hedging  instruments have  been 
entered into.

 

The approximate effects on the Group's results  of a 10% movement in the  Rand 
to US Dollar based on the 2012 average exchange rate would be as follows:

 

 Underlying operating profit    +/- $117m
 Underlying profit for the year  +/- $69m
 EPS (cents)                    +/- 34.0c

 

These sensitivities are based on 2012 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, excluding  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 did not undertake any hedging of base metals under this authority in
the financial year and no forward contracts  were in place in respect of  base 
metals at the end of the year.

 

In respect of gold, Lonmin entered into  a prepaid sale of 75% of its  current 
gold production  for the  next  54 months  in March  2012.  In terms  of  this 
contract Lonmin  will deliver  70,700  ounces of  gold  over the  period  with 
delivery on a  quarterly basis and  in return received  an upfront payment  of 
$107 million. The upfront receipt was accounted for as deferred revenue on our
balance sheet and  is being  released to profit  and loss  as deliveries  take 
place at an average price of $1,510/oz delivered.

 

The approximate effects on the Group's results  of a 10% movement in the  2012 
average metal prices achieved for Platinum (Pt) ($1,517 per ounce),  Palladium 
(Pd) ($630 per ounce) and Rhodium (Rh) ($1,274 per ounce) would be as follows:

 

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