RNS Number : 6380S
Lonmin PLC
11 November 2013
 



 

 

 

 

 

 

 

 

 

 

REGULATORY RELEASE

 

 

11 November 2013

 

2013 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 2013.

 

HIGHLIGHTS

 

•    Strong performance across the Company

Lost Time Injury Frequency Rate (LTIFR) of 3.50, a 15.9% improvement on previous year, but sadly 3 fatalities

Production ramp up achieved well ahead of Renewal Plan

Highest Marikana underground tonnes hoisted in 6 years (11 million)

751,000 Platinum ounces in concentrate achieved, highest in 6 years and an 10.5% increase on last year

Platinum sales of 696,000 ounces, exceeding guidance of 660,000 ounces; pipeline rebuilt

Immediately available ore reserves at 3.8 million centares, up 14.7%

Concentrator recoveries at record level at 87.0%

 

•    Financial results

Rights Issue of December 2012, raised net proceeds of $767 million

Underlying profit before tax of $158 million ($57 million in 2012)

Net cash of $201 million (net debt of $421 million in 2012)

Cost of production per PGM ounce increase contained to 3.8% - exceeding guidance and lower than South African inflation

Capital expenditure of $159 million (below guidance of $175 million - in line with guidance in Rand terms)

Underlying Earnings per Share of 20.5 cents versus 3.9 cents in prior year (restated for impact of Rights Issue)

 

•    Guidance and focus areas FY2014 onwards

FY2014 guidance of Platinum sales in excess of 750,000 ounces

Unit costs to increase by less than wage inflation

Capital expenditure of $210 million for 2014 financial year

 

•    Driving achievements through a focus on operational excellence and value optimisation



 

Lonmin Chief Executive Officer Ben Magara said: "These are strong results. Despite the constraints faced at the start of the financial year our ramp up was impressive and we met production expectations with costs well under control and with many areas of the business recording their best performance in years. Our top management team has been strengthened and we have the right people in place to take Lonmin forward. Our focus for the coming year will be on driving higher performance and delivery further and harder whilst continuing with cost control and working to bring that same focus to the business critical issues of employee relationships and social responsibility."

 

FINANCIAL HIGHLIGHTS

 


30 September 2013


30 September 2012





Revenue

$1,520m


$1,614m

Underlying i operating profit

$164m


$67m

Operating profit / (loss) ii

$147m


$(702)m

Underlying i profit before taxation

$158m


$57m

Profit / (loss)  before taxation

$140m


$(698)m

Underlying i earnings per share iii

20.5c


3.9c

Earnings / (loss) per share iii

31.2c


(107.7)c









Trading cash inflow per share iii, iv

3.0c


69.1c

Free cash outflow per share iii, v

(28.9)c


(41.8)c









Net cash / (debt) as defined by the Group vi

$201m


$(421)m









Gearing vii

-


14%





 

Footnotes:

 

i

Underlying results and earnings / (loss) per share are based on reported results and earnings / (loss) per share excluding the effect of special items as disclosed in note 3 to the financial statements.

ii

Operating profit / (loss) is defined as revenue less operating expenses before impairment of available for sale financial assets, finance income and expenses and before share of profit / (loss) of equity accounted investments.

iii

During December 2012 the Group undertook a Rights Issue of shares. As a result, the September 2012 underlying earnings per share, loss per share, trading cash flow per share and the free cash flow per share have been adjusted to reflect the bonus element of the Rights Issue as disclosed in note 6 to the financial statements.

iv

Trading cash flow is defined as cash flow from operating activities.

v

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.

vi

Net cash / (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, unless the unamortised bank fees relate to undrawn facilities in which case they are treated as other receivables.

vii

Gearing is calculated as the net debt attributable to the Group divided by the total of the net debt attributable to the Group and equity shareholders' funds.

 

ENQUIRIES

 

Investors / Analysts:

Lonmin

Tanya Chikanza (Head of Investor Relations)

+27 11 218 8300 /

+44 20 7201 6007

 

Media:

Cardew Group

James Clark / Emma Crawshaw

+44 20 7930 0777

Sue Vey

+27 72 644 9777

 

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 Igneous 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. 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

 

CONTENTS

 

This document contains the following sections:

·     Chief Executive Officer's Review;

·     Operational Review;

·     Market Review;

·     Reserves & Resources;

·     Financial Review;

·     Responsibility Statement of the Directors';

·     Operating Statistics - 5 Year Review; and

·     Financial Statements



CHIEF EXECUTIVE'S REVIEW

 

I was appointed Chief Executive of Lonmin Plc on 1 July this year. Under the interim leadership of our Chief Financial Officer, Simon Scott, Lonmin had been strengthening its position. Set against a continuingly tough market, and given the disruptions which defined the beginning of the period, our ramp up quickly exceeded the schedule which was maintained throughout the year. We continued to outperform and achieved 751,000 Platinum metal in concentrate ounces, and sales of 696,000 Platinum ounces by the end of the year.

 

Whilst proud of our operational achievements we regard our solid performance in 2013 as the foundation to build on. Our sustained hard work to improve relationships with our employees is yielding results, not least around labour relations, but I want to see a step change.

 

Our safety performance improved and I believe that our "zero harm" aspiration is achievable, that all injuries and fatalities are preventable and that this remains our goal.

 

We remember with great sadness the loss of our colleagues Elson Ngomane, Gil Macamo and Ayanda Dziliyana during 2013. Their deaths remind us of both the intrinsic dangers of mining and that we must redouble our efforts in this area.

 

My priority on joining the business was to meet as many employees and stakeholders as possible to begin the task of winning back hearts and minds in the wake of last year's events at Marikana.

 

To this end I visited our shafts, plants and the communities around them and went to the areas of South Africa from which most of our employees come. I also visited the families of those who lost their lives during the terrible Events at Marikana last year. All these groups of people expressed to me the shared wish of wanting Lonmin to succeed. This is important and encouraging, given that we regard the support of all our stakeholders as crucial in stripping uncertainty from our business and driving higher performance.

 

Whilst our hard work has begun to rebuild trust, demonstrated by the fact that we were able to sign a union recognition agreement and attend the Marikana commemoration, we still have much more to do in this regard.

 

Our stakeholder relationships are business critical. I reject any contention that these are "soft" issues, set against the "hard" issues of operations and finances.

 

My second step was to make a number of changes and additions to Lonmin's top executive team. We now have the team in place to focus our resources more strategically and achieve a steady improvement in value for our shareholders.

 

The Executive team is comprised of the following:

·    Simon Scott -Chief Financial Officer

·    Albert Jamieson - Chief Commercial Officer (to 31 December 2013)

·    Abey Kgotle - Executive Vice President Human Resources

·    Barnard Mokwena - Executive Vice President Transformation

·    Lerato Molebatsi - Executive Vice President Communications and Public Affairs

·    Mark Munroe - Executive Vice President Mining and Group Safety

·    Thandeka Ncube - Shanduka Resources - Business Transformation Manager

·    Natascha Viljoen- Executive Vice President Processing and Sustainability

 

Looking ahead, I have set out four management pillars for the future which will drive delivery of value to all of our shareholders and stakeholders. Overall they represent evolutionary improvements in those things we do well, and demand more rapid changes in areas where we have been slower to perform. These can be summarised as: continuing to reclaim our role as managers in our relationships with employees and stakeholders; operational credibility and excellence; management of value optimisation; and finally sustainability and social agenda. I will deal with each of these in turn.

 

Lonmin's relationships with its employees and stakeholders

As a labour-intensive industry our people are key to our success. In narrow tabular mining, where mechanisation will always be limited, people make the difference and should be a source of competitive advantage. This is absolutely not a "soft" issue. This year has seen significant and very welcome interventions from the South African Government in the context of employment and industrial relations. Lonmin's greater collaboration with Government and with our colleagues in the South African mining sector will enable steady progress to be made in establishing a renewed stability. Our challenge is to build on this positive start to create a long-term environment where performance increases through a more content and dedicated workforce, removing uncertainty from the business, and in which our success benefits our shareholders and all our stakeholders. This is fundamentally about rebuilding trust.

 

Operational credibility and excellence

We continue to be cautious about the near and medium-term markets for PGMs. It is vital, then, that we exploit our assets as safely and efficiently as possible. It is absolutely necessary that we only mine profitably and that we maintain a rigorous control over costs. I believe that such discipline is the only way in which to ensure that our shareholders benefit from the eventual improvement in the market when it comes; about which we remain confident. The Lonmin Renewal Plan, which was in operation when I arrived, has proved a success. It enabled us to hit targets and achieve ramp up ahead of expectations. In order to plan more effectively for Lonmin's future, we must now look strategically and holistically at all our assets and properties and prioritise investment to protect and enhance value accordingly. We will focus on fewer projects at a time. My initial review of our operations led us to decide that continuing to invest in our Saffy shaft is the best use of capital at this stage, optimising efficiencies and enabling growth at the right time. The majority of the investment in Saffy has already been made.

 

Value optimisation management (VOMA)

It is essential that our drive to work efficiently, profitably and strategically is underpinned by a coherent strategy. In the near-term we must: guarantee a return on the recent and historical investment at Marikana; maximise cash flow in order to self fund capital expenditure; improve profitability by margin focused mining and increased productivity; and continue to improve cost management.  In the medium-term we must also ensure our mining plans and processing capacity are flexible enough to respond to an improving market and continue to work to identify value enhancing opportunities.

 

We will continue to assess the choices available to us, but already we see an opportunity to improve our commercial sales strategy in line with value optimisation. We are also advancing our exciting PGM Tailings Re-treatment project, where we expect to mine one of our old tailings dams hydraulically for the extraction of both PGMs and chrome. Re-treatment of old tailings is not new in mining and is a great source of medium-term value. This will allow us to tap into a low risk, low cost on surface asset to enhance our overall profitability.

 

Above all else, we will continue to maximise the conservation and generation of cash and maintain our relentless focus on overheads and fixed costs. Against these priorities, we have already made good progress but there is much more to do.

 

Sustainability and social agenda

Our relationships with our employees and the communities who live on and around our operations are key to our performance. Pre-eminent amongst the requirements is the need to improve housing, facilitate good health and education and continue to deliver on our environmental responsibilities.

 

The conversion or upgrade of hostels into family units and single private units is one of the measures we are judged against and to date, we have converted 107 hostel blocks. We expect to achieve completion in 2014.

 

All the conversion work thus far has been executed by Historically Disadvantaged South African (HDSA) Greater Lonmin Community (GLC) companies which are now able to manage and deliver multimillion Rand projects as a result.

 

We have also concluded research and scoping projects around Integrated Human Settlements as part of our long-term planning for housing development and supporting infrastructure at Marikana.

 

Post the year-end, we signed an agreement with the Provincial Department of Human Settlement, whereby, we contributed 50ha of serviced land for immediate development. This land contribution is an integral part of the integrated human settlement plan for the Marikana area and forms part of our commitment to support the Presidential initiatives to improve living conditions. In addition Lonmin will contribute at least R0.5 billion over the next five years towards employee accommodation and bulk services as part of its Social Labour Plan programme.

 

Social infrastructure cannot be delivered by business alone but this is an area in which Lonmin's involvement must be accelerated to produce a step change. By the same token, and again in partnership with Government, we will remain committed to our long-held objective of reaching "zero-harm" in everything that we do. We must also ensure that we minimise our use of power and water - both of which are limited.

Finally, this approach supports the goals and initiatives for the business set out by the Board in early 2013 which encompassed employee relations, empowerment, migrant and local labour, use of invested capital and infrastructure and housing and accommodation.

 

Black Economic Empowerment (BEE)

Our BEE and Mining Charter commitments require Lonmin to increase HDSA ownership in its prospecting and mining ventures by 31 December 2014 to at least 26%. By 30 September 2013, 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 joint venture, as well as 26% of the share capital of its subsidiary that owns Akanani.

 

We are now deeply engaged in examining ways in which the remaining 8% we need to achieve might be apportioned. There is clearly a balance to be struck between delivering this for our employees and communities and doing so in a way which is sustainable, fair and equitable to our present shareholders. Share ownership schemes are one area of our thinking, although not the only one, and our ability to explore those actively is facilitated by the signing of our recent union recognition agreement.

 

We have not yet finalised all our proposals, and any future transaction would need to be considered on its merits.

 

Dividend

A dividend is not proposed for the current financial year. However, Lonmin has confidence in the future demand for PGMs and our expectation is for prices to firm in the future. Our Renewal Plan 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. 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.

 

Conclusion

Overall, the longer-term fundamentals of the PGM markets remain robust, although we continue to be cautious about the market in the near and medium-term.

 

We will enhance value for our shareholders by leveraging our established operations and quality assets in the world's premier PGM deposit through:

 

§ Embedding our operational credibility and excellence;

§ Rebuilding our employee and stakeholder relationships;

§ Improving utilisation of our infrastructure, especially Saffy and processing;

§ Continued focus on cost control;

§ Cash conservation and funding capital from our operations; and

§ Driving our social and citizenship agenda through partnership.

 

Outlook

Given the prevailing labour landscape combined with an uncertain market outlook, we are maintaining sales guidance in excess of 750,000 Platinum ounces with capital spend estimate set at $210 million, in line with our Renewal Plan. Unit cost of production is guided to be less than wage inflation.

 

Colleagues

Finally, I would like to offer my thanks and congratulations to all our employees, contractors, communities and partners for their hard work throughout the year. Without their dedication we would not be reporting such positive achievements.

 

Ben Magara

Chief Executive Officer

10 November 2013



OPERATIONAL REVIEW

 

Safety

Our safety aim is simple - zero harm. However there still remains a lot to do.

 

Lonmin believes this objective is achievable, and that every injury or fatality is preventable.

 

Our Lost Time Injury Frequency Rate (LTIFR) in 2013 continued to improve, this time by 15.9% to reach 3.50. However, improvements become more and more difficult as safety achievements are made. Initially systems, protective equipment and working practices must be evaluated, where after a culture of safe working must be designed and implemented. But after this, safety increasingly rests on the behaviours and mind-sets of individuals which is a much harder challenge to overcome.

 

Some of our shafts remain industry leaders in safety. 4B/1B, for example, is deemed the safest shaft in the country, achieving seven million fall of ground fatality free shifts during the year. It won the prestigious JT Ryan trophy this year to mark it as South Africa's safest shaft of its type.

 

We were deeply saddened by the deaths of three colleagues in falls of ground during the financial period.

 

Our safety strategy rests on three pillars: fatality prevention; injury prevention; and safe production. Within each of these pillars the strategy focus is on leadership, simplifying systems, creating an enabling environment and creating a safety conscious culture.

 

We believe that keeping people safe is a team effort and that good working relationships lead to good working practices.

 

Another feature of our safety initiatives has been the continual empowerment of employees to exercise their right to withdraw from unsafe work areas. We report and analyse these incidents weekly and use the data to address shortcomings and drive improvement.

 

Finally, safety for Lonmin does not end at the gate to a mine. We work hard with employees, Non-Governmental Organisations and authorities to address concerns about crime, stress and substance abuse away from work.

 

Mining Division

 

Overview

In the financial year 2013, Marikana underground operations delivered their best performance in the last six years. Given the issues at the end of last year, this is a welcome achievement. We maintained the momentum established at the beginning of the financial year and achieved an impressive result, to mine a total of 11.7 million attributable tonnes during the year, an increase of 1.3 million tonnes from 2012.

 

Of this, 11.0 million tonnes were from Marikana underground operations, being a 12% increase from 2012.

 

It is important to read these results, however, within the context of the six week stoppage and early ramp up of late 2012, which affects year on year comparisons favourably for 2013.

 

K4 shaft was placed on care and maintenance at the beginning of the year and contributed 0.1 million tonnes in the prior year.

 

Productivity, measured as square metres per mining employee (Marikana mining) excluding opencast, W1 and ore purchased from our joint venture operations, improved by 6% year on year.

 

The impact of Section 54 stoppages, management induced safety stoppages and labour disruptions reduced to around 0.6 million tonnes compared to 2.4 million tonnes for the financial year 2012, which included the lengthy strike action and wider disruption at Marikana.

 

The reduced number of Section 54 stoppage figures also provides encouragement in terms of our relationship with the Department of Mineral Resources (DMR) at all levels.

 

Marikana Ore Reserves and Grades

 


FY13

('000m2)

FY12

('000m2)

Variance

%

Karee

1,879

1,808

71

3.9%

Middelkraal

800

466

334

71.7%

Westerns

747

581

166

28.6%

Easterns

389

472

(83)

(17.6)%

Total

3,815

3,327

488

14.7%

 

Performance with respect to ore development was positive, resulting in the ore reserve position increasing by 14.7% from the level reported at the end of 2012 to 3.8 million centares. The most significant increase was at the Middelkraal operations and is almost entirely due to the increase at Saffy shaft where the ore reserve position increased by 108.7% from 2012. Westerns operations also delivered a significant year on year increase in ore reserves with a 36.6% increase at Rowland shaft. The overall improvements are in line with Lonmin's strategy of creating greater flexibility at these shafts. The ore reserve position remained largely unchanged but healthy at the Karee operations and decreased as planned at the Easterns operations.

 

Mining grades as delivered to the concentrators remained largely unchanged compared to 2012. The salient factors affecting the mining grades are:

 

§ Underground Merensky grade increased by 3.0% due to higher in situ grades;

§ UG2 reef grade was unchanged;

§ Stoping dilution was controlled as planned; and

§ The ratio of development ore to stoping ore decreased slightly, based on a less aggressive ore reserve growth.

 

Business Improvement Initiatives

 

De-Bottlenecking of Operations

A pilot project based on the Theory of Constraints management philosophy was carried out at Rowland Shaft during the year. The project has delivered promising results with the production output at Rowland increasing towards the end of the year to achieve an 11.4% increase from the last financial year. Our intention is that this philosophy will be integrated into the mining operating model and rolled out to all operations, starting with Saffy. The best practice teams have also undergone extensive training in this and will assist in the roll out.

 

Alternative Shift Cycle Configuration

A project was initiated as one of the Board's five initiatives to investigate alternatives to the current eleven day per fortnight shift cycle that is being worked. The brief was to explore alternative shift cycles that would be value accretive for all stakeholders in the business. A number of options have been investigated and explored and have been narrowed down to those that have the greatest probability of success at our operations. The remaining options will be further refined and consultations with the unions will follow during 2014. Implementation will be evaluated thereafter.

 

Technical and Leadership Skills Improvement

An increased emphasis is being placed on training and development of people across all levels of the Mining Division. A leadership development programme was introduced during the year with the aim of equipping all leaders with the necessary skills to face the challenges of the ever changing working environment. All mining crews attended a one day team training session during the year as a follow up to the three day training sessions that were held during 2012. Phase two of the team training programme has been developed and will be rolled out during 2014. Learnerships and skills development training in the form of mining, engineering and technical services learnership programmes as well as the learner official and graduate programmes have begun to deliver success as graduates of these programmes were appointed into vacancies in the organisation during the past year. Based on the successes to date, these programmes are set to continue and be further refined.

 

Best Practice / Optimisation Teams

The optimisation and best practice teams were strengthened during the year and have been deployed across the operations with the aim of assisting in identifying the causes of underperformance and to assist in implementing the appropriate corrective action. The process also involves coaching of supervisors in supervisory best practice and coaching the mining teams in best practice mining cycles and work practices.

 

Absenteeism Project

Unplanned absenteeism remains a challenge in the operations and a number of projects are underway to mitigate the reasons for key team members not being at work.

 

The inflationary cost pressures experienced by the platinum industry continue to be of great concern and productivity improvement programmes, as outlined above, play an important role in reducing the impact. Unit cost of production increases for mining operations, at 5.8% year on year, were successfully contained at levels below wage inflation.

 

Overview of Marikana mines

 

Karee

Karee operations, comprised of K3, 4B/1B and K4, mined 4.95 million tonnes during 2013, an increase of 12.9%. K3, our largest shaft, increased by 17.2% whilst the grade increased by 9.2% year on year mainly as a result of an increase in the Merensky grade as mining increased in the higher grade decline area.

 

Middelkraal

Hossy shaft increased tonnes hoisted by 21.6% to 1.05 million tonnes during 2013, despite continuing challenges relating to machine reliability, the availability of replacement parts and retention of trained artisans that have negatively affected the historical mechanisation of this shaft. The decision to introduce hybrid mining continues to deliver positive results. The roll out of the hybrid crews will be further pursued in 2014.

 

Importantly our investment and focus on Saffy has begun to yield positive rewards, as production for the year reached 1.15 million tonnes a 28.1% increase from last year as its ore reserve position increased by 108.7% year on year in line with plans to ramp up production at this shaft. Notwithstanding this encouraging increase in production, the ramp up at Saffy has been slower than planned as it continued to face poor ground conditions and follows a process of stringent roof support systems. The significant increase in available ore reserves however now provides the flexibility required to address these challenges. Additional stoping crews have been deployed from other shafts and more will be added to Saffy which gives us confidence that the further ramp up planned for 2014 can be realised. We expect Saffy to mine 200,000 tonnes per month when it reaches full capacity making this Lonmin's second largest shaft.


Westerns

Production from our Westerns operations, Rowland, Newman and W1, at 2.90 million tonnes increased in 2013 by 9.7%, or 256,000 tonnes from 2012. Rowland achieved 14 million fall of ground fatality free shifts - the best in the South African mining industry in 2013. The depletion of Newman continued as expected. Grades at both Rowland and Newman shafts remained unchanged during 2013 when compared to 2012.

 

Easterns

At our Easterns operations, performance for the year decreased from 1.0 million tonnes produced in 2012 to 0.9 million tonnes produced in 2013. This is in line with the planned depletion of E1. Grade at E1 shaft increased by 2.0% year on year as reef development reduced in line with the declining production profile. Grades increased at E2 shaft and E3 shaft by 3.6% and 6.2% year on year respectively as stoping moved to the higher grade lower levels of the shafts.

 

Opencast

Production at the Merensky opencast operation at Marikana increased from 0.4 million tonnes in 2012 to 0.5 million tonnes in 2013. We evaluate our options around opencast operations on a continuous basis especially in this relatively subdued price environment. It is currently planned to scale back on these operations in 2014 as production from other shafts increases.

 

Pandora Joint Venture


2013

2012

Variance

Attributable production1

('000 tonnes)

243

185

31.4%

Saleable metal in concentrate2 (oz PGMs)

78,721

58,188

35.3%

Profit after tax

$4m

$2m

100%

 

Footnotes:

1 Represents Lonmin's 42.5% share of the total tonnes mined.

2 Lonmin purchases 100.0% of the ore produced by the joint venture for onward processing.

 

The project to extend the mining footprint at E3 shaft by another two levels was completed at the end of 2013 with the newly developed 9 and 10 levels being commissioned. 

 

Capital Spend

Capital expenditure in the Mining Division was limited to $99 million during 2013. The majority of the capital was spent on sustaining capital across the various shafts and central engineering. Only K3 Shaft UG2 Decline project, Saffy Shaft and Rowland Shaft were allocated capital funds to continue with ore reserve development projects that are currently in execution. K4 shaft will continue to be on care and maintenance for the duration of 2014. Key work on ore passes and critical infrastructure will take place during 2014. The restart of K4 is currently contemplated to take place in 2015 and its ramp up will be subject to market conditions.

 

Process Division

 

The Processing Division also had another good year.

 

During the financial year our total tonnes milled increased by 9.3% to 11.8 million tonnes. This was a commendable achievement which reflects the increase in tonnes mined in a challenging year. The total milled head grade improved to 4.54 grammes per tonne or 1.1% higher than the prior year period.

 

We saw a continued improvement in the concentrators' efficiency during the year, with an exceptional improved year on year recovery performance up from 86.1% to 87.0%. This was achieved against the backdrop of one plant being out of operation for an upgrade for the full year. We rationalised plant use and took the opportunity to upgrade the plant at the same time. The continued multi-year investment made in the concentrator operating assets, to secure higher sustainable run times over previous reporting periods, enabled this outstanding performance. We are particularly proud that all of our plants are achieving recoveries in excess of 80% for the first time.

 

The Eastern tailing treatment plant continued to show improved recoveries, whilst the Eastern concentrators also delivered an encouraging improvement in the reporting period. The continued impact of the concentrator improvements can be seen in sustainable, improved throughputs and efficiencies across the plants that were in operation in 2013.

 

For the financial year, we achieved 750,942 saleable ounces of Platinum in concentrate, up 10.5% and the highest amount since 2007 due to higher mined production and improved recoveries. Refined production of 709,029 Platinum ounces were lower as a result of refilling the pipeline and a stock lock up following the smelter  incident at the Number Two furnace. Platinum sales of 695,803 ounces were achieved during 2013.

 

The strategy to increase the back up capacity at the smelter has proven to be successful, as production from the smelter for the full year did not suffer after the failure in April 2013 of the Number Two furnace roof. Whilst the smelter was able to process the backlog, some excess stock remained in the pipeline at the refineries at the year end. A full refurbishment of all the pyromet furnaces ancillary equipment was completed to improve the reliability of the back up capacity.

 

PGM ounces produced of 1,336,109 were down 13,693 or 1.0% compared to the prior year period. The difference in production of Platinum and PGMs is a reflection of the longer processing times for non-Platinum PGMs.

 

People development

Our mission directed works teams have gone from strength to strength this year. They are focused on vertical alignment but more importantly they are used to engage each employee in every aspect of the workplace. The level of innovation from the shop floor is impressive and contributing to the continuous improvement in results.

 

We have launched the first Processing learning programmes with ten employees passing the first phase on a MQF level 2. This is the first of its kind in the platinum industry.

 

Capital Spend

In 2013, the Process Division spent $52 million on capital compared to $121 million in 2012. The 2013 expenditure included the completion of the Number One shaft concentrator and the Number One furnace integrity optimisation. The prior year included the completion of the Tailings Treatment Project and the new Number Two furnace.

 

Labour Relations

Unions

The labour relations landscape changed significantly following the events at Marikana in August 2012. The Association of Mineworkers and Construction Union (AMCU) became the new majority union representing 66% of our total workforce. This significant increase in membership resulted in the National Union Mineworkers' overall membership declining to 14% of the total workforce.

 

We were legally obliged to terminate our existing union agreements and negotiate new ones as a result of these changes, most significantly in the year our new agreement with AMCU, as largest union. It is unfortunate that this process is formally called "derecognition" in South Africa - a term which is unhelpful and does not reflect events.

 

We are now actively engaging with minority unions as our view is that every employee's voice must be heard, regardless of which union, if any, they belong to.

 

Going forward, our primary focus will remain on rebuilding relations with our employees and strengthening bonds with the representative unions of their choice.

 

Employee Value Proposition

We have made a good start with the Employee Value Proposition initiative. The main focus of this initiative is to address the needs of our employees and as we work to rebuild relationships. It seeks to go beyond taking an interest in an employee only when he or she is at work and takes a holistic approach. An example of the kind of initiatives we want to see more of in this area is financial literacy training, aimed at addressing the high levels of debt among our employees. More than 11,000 employees participated in this training in the last twelve months and it has now been incorporated into the induction programme.

 

Judicial Commission of Inquiry

The Farlam Commission into the events of August 2012 at Marikana continues with our full participation. We continue to wholly support the inquiry and expect some of our employees to be asked to give evidence in early 2014.



MARKET REVIEW

 

Overview

In 2013 Lonmin sold 695,803 ounces of Platinum into the market. Platinum sales contributed 69% of our turnover. Palladium was the second highest contributor to the revenue basket with the 313,030 ounces sold constituting 15% of Lonmin's income. Combined sales of Rhodium, Ruthenium and Iridium contributed a further 8% and Gold and Base Metals made up the balance.

 

Autocatalyst production remains the largest end user of our products. The internal combustion engine is set to remain the dominant drivetrain for passenger and commercial vehicles for the foreseeable future, offering the best combination of fuel efficiency, purchase cost and running cost. Diesel engines for light duty vehicles, which are more highly platinum loaded than gasoline engines, retain their fuel efficiency advantage over gasoline at a time when reducing CO2 emissions is paramount for automakers. Of the two leading light duty diesel markets, Europe is mature while India still has significant growth potential. Increasing categories of non-road engines are now subject to emissions legislation in the US and Europe, resulting in growing platinum demand despite slowing vehicle production in Europe. Rising concerns over air quality in China and other growing markets is expected to see emissions legislation tightening for both on-road and non-road vehicles, despite ongoing efforts to substitute metals with less volatile price profiles. PGMs remain the most effective product for autocatalyst production.

 

Jewellery, driven by Chinese demand, which has taken advantage of periods of lower prices and strengthening local currency continues to grow at a steady pace and is forecast to contribute 37% to platinum demand in 2013.

 

The influence of primary production from South Africa on platinum prices is diminishing somewhat, in part due to the growth of recycling in the northern hemisphere which is having an increasing impact on primary supply.

 

PGM prices

The 2013 calendar year started with a platinum price rally on the back of supply fears and planned producer restructuring, with prices peaking at $1,725 per ounce in early February. Thereafter, investor concerns about excess capacity removed much of the upside momentum and the price retreated back towards $1,400 per ounce by the end of September, despite the purchase of 660,000 ounces of platinum by the Absa Exchange Traded Fund (ETF).

 

The gold price collapse in April pulled platinum down with it. At the beginning of April gold was trading at over $1,600 per ounce, but by the end of June had fallen to below $1,200 per ounce and has since recovered to over $1,300 per ounce.

 

Firming palladium demand supported a steady rise in the palladium price through the first half of the year, followed by a more volatile second half.

 

Rhodium is a small market and susceptible to price volatility from trading movements.

 

Supply

Primary South African supply is unlikely to grow over the next year as a result, primarily, of restructuring activities and there is mounting pressure on primary producers to reduce operating costs and raise operating efficiencies.

 

Platinum supply in the Rest of the World is forecast to remain flat in 2013, with growth in Zimbabwe offsetting lower production in Russia. Production in North America has been flat year on year. As outlined earlier the rate of recycling will compensate for the lower primary supply.

 

Demand

Autocatalyst PGM demand has inevitably been affected by the slow down in vehicle production, but was mitigated by the rise in Chinese jewellery demand.

 

Car production in Europe, diesel's largest car market and hence platinum's largest automotive market, is regarded by many in the industry to be close to a return to growth after several years. Despite the emergence of some very competitive gasoline cars, highly fuel efficient diesel took just short of 50% of light duty vehicle sales and we anticipate that this will continue.

 

Palladium automotive demand growth has excelled over the last five years, increasing by 1.91 million ounces mainly on the back of strong gasoline vehicle sales in emerging markets and the increasing substitution of platinum in diesel vehicles in Europe. Over the same period, however, the price has more than doubled leading to a drop in demand in other applications and encouraging further recycling. Net new metal demand growth was 480,000 ounces.

 

Jewellery

Jewellery remains the second major market for platinum. China continues to dominate the platinum jewellery market and indeed accounts for 24% of total platinum demand alone. Platinum is making headway in India, the largest market for gold jewellery. India is now the fourth largest market for platinum jewellery and is expected to move into second place over the next few years on the back of changing demographics.

 

Investment

Overall holdings in the principal platinum ETFs grew by just 22,000 ounces or 1.5% over the first four months of the year to 1,474,000 ounces. Absa's NewPlat ETF, launched in April, has added 660,000 ounces (to the end of September) and total holdings have increased by 516,000 ounces (35%) to 1,990,000 ounces.

 

Palladium ETFs started the year more strongly than platinum, adding 160,000 ounces in Quarter One, taking total holdings in the principal ETFs to 2.0 million. Over the last three months, the major ETF holdings have seen modest outflows of some 110,000 ounces, down to 1.75 million (to the end of September). Year to date palladium ETFs have lost 46,000 ounces        (-2.6%). Absa is expected to launch a new palladium ETF by the 2013 calendar year end.

 

Rhodium ETF holdings have almost doubled this year, adding 41,000 ounces to total 95,000 ounces.

 

Outlook

PGM demand growth from autocatalysts is based on the expected growth in vehicle numbers and on more classes of vehicle becoming subject to tighter emissions legislation. Europe with Euro 6, and the US with LEV III, are leading the way. These regulations are likely to form the basis for legislation in all regions in future although the availability of sufficiently clean fuel, both diesel and gasoline, is a prerequisite for this. Increasingly driving emissions are found to be significantly higher than legislated standards, raising the prospect of even tighter standards, and hence PGM demand.

 

Consumers and retailers, particularly in China and increasingly in India, continue to grow the market for platinum jewellery. Platinum is increasingly seen as the bridal metal of choice. Retailers continue to expand their store networks to meet demand as disposable income rises outside the main metros in Asia.

 

The minor end uses of platinum - including chemical and petroleum catalysis, medical, glass fabrication and electronics - together make up around 20% of total demand. Most are highly dependent on the particular properties of platinum and face little risk from substitution, but significant recycling takes place too, reducing the need for new metal. Palladium and Rhodium are highly dependent on the autocatalyst market.


 

RESERVES & RESOURCES

 

·     Revisions to the South African Mineral Resource estimates were confined to the Marikana and Pandora properties.  The Akanani, Limpopo and Loskop Mineral Resources were unchanged during 2013.

The Mineral Resources at Marikana (excluding tailings) increased by 3.9 Moz of 3PGE+Au in 2013.  This increase is attributed to the extension of the Inferred Mineral Resources of 2.5 Moz and Indicated Mineral Resources of 2.0 Moz which was offset by a decrease of Measured Mineral Resources.

Measured Mineral Resources decreased by 0.6 Moz 3PGE+Au.  Mining depletion accounted for a decrease of 1.5 Moz which was offset by an increase of 0.9 Moz converted from Indicated Mineral Resources.

There were no material changes in geological losses at Marikana.

The decrease of 0.05 Moz 3PGE+Au to the Pandora Mineral Resource was due to mining depletion.

·     No revisions were made to the Mineral Resources in Sudbury and Kenya during 2013.

·     The following revisions to the Marikana Mineral Reserves were made in 2013, there being no changes to the Limpopo Reserves:

The focus at Marikana in 2013 was on ore reserve management which resulted in an increase of 0.4 Moz 3PGE+Au Proved Mineral Reserves compared with 2012.

The total UG2 Reef and Merensky Reef Mineral Reserves increased by 1.6 Moz to 42.9 Moz of 3PGE+Au due to an increase in the Probable Mineral Reserves at K4 Shaft Merensky Reef as well as the inclusion of 0.7 Moz 3PGE from the Eastern Platinum Number One tailings dam.

 

A summary of the changes to Lonmin's Mineral Resources and Mineral Reserves are shown in the following tables and should be read in conjunction with the Key Assumptions section of this report.  Detailed breakdowns of these Mineral Resources and Mineral Reserves into their respective confidence categories can be found in the sections specific to the individual areas.

 

PGE Mineral Resources (Total Measured, Indicated & Inferred)1

 

Area

30-Sep-2013

30-Sep-2012

Mt 4

3PGE+Au

Pt

Mt 4

3PGE+Au

Pt

g/t

Moz

Moz

g/t

Moz

Moz

Marikana

755.4

4.85

117.8

71.0

732.7

4.83

113.9

68.5

Limpopo2

128.8

4.07

16.8

8.4

128.8

4.07

16.8

8.4

Limpopo Baobab shaft

46.1

3.91

5.8

3.0

46.1

3.91

5.8

3.0

Akanani

216.0

3.84

26.7

10.9

216.0

3.84

26.7

10.9

Pandora JV

65.9

4.65

9.8

6.0

66.2

4.65

9.9

6.0

Loskop JV3

10.1

4.04

1.3

0.8

10.1

4.04

1.3

0.8

Sudbury PGM JV3

0.4

6.30

0.07

0.04

0.4

6.30

0.07

0.04

Tailings Dam3

22.5

1.10

0.8

0.5

22.5

1.10

0.8

0.5

Total Mineral Resource

1 245.1

4.48

179.1

100.5

1 222.7

4.46

175.2

98.1

 

Notes

1)    All figures are reported on a Lonmin Plc attributable basis, the relative proportions of ownershipper project being shown in the Key Assumptions section of this report.Mineral Resources are reported Inclusive of Mineral Reserves.

2)    Limpopo2 excludes Baobab shaft.

3)    Loskop and Sudbury PGM JV exclude Rh, due to insufficient assays, and therefore 2PGE+Au are reported. Tailings Dam exclude Au, due to assay values below laboratory detection limit, and therefore are reported as 3PGE.

4)    Quantities and grades have been rounded to one or two decimal places, therefore minor computational errors may occur.

 

PGE Mineral Reserves (Total Proved & Probable)1

 

Area

30-Sep-2013

30-Sep-2012

Mt 4

3PGE+Au

Pt

Mt3

3PGE+Au

Pt

g/t

Moz

Moz

g/t

Moz

Moz

Marikana

281.2

3.98

36.0

21.9

269.8

4.06

35.2

21.3

Limpopo2

42.4

3.20

4.4

2.2

42.4

3.20

4.4

2.2

Limpopo Baobab shaft

9.4

3.16

1.0

0.5

9.4

3.16

1.0

0.5

Pandora JV

6.1

4.11

0.8

0.5

6.3

4.02

0.8

0.5

Tailings Dam 3

21.1

1.10

0.7

0.5

-

-

-

-

Total Mineral  Reserve

360.2

3.70

42.9

25.6

327.9

3.92

41.3

24.4

 

Notes

1)    All figures are reported on a Lonmin Plc attributable basis, the relative proportions of ownership per project being shown in the Key Assumptions section of this report.

2)    Limpopo excludes Baobab shaft.

3)    Tailings Dam exclude Au, due to assay values below laboratory detection limit, and therefore are reported as 3PGE.

4)    Quantities have been rounded to one decimal place and grades have been rounded to two decimal places, therefore minor computational errors may occur.

 

Key assumptions pertaining to the 2013 Lonmin Mineral Resource and Mineral Reserve Statement

 

·     Mineral Resources are reported inclusive of Mineral Reserves. Mineral Resources that are converted to Mineral Reserves are also included in the Mineral Resource statement.

·     All Mineral Resources and Mineral Reserves quoted reflect Lonmin's attributable portion only.  There have been no changes in the percentage attributable to Lonmin during the year.  The following percentages were applied to the total Mineral Resource and Mineral Reserve for each property:

 


Marikana

Limpopo - Dwaalkop JV

Limpopo - Baobab & Doornvlei

Akanani

Pandora JV

Loskop JV

Sudbury PGM JV

Lonmin Attributable

82%

41%

82%

74%

34.85%

41%

50%

 

Incwala Resources, Lonmin's BEE partner, owns 18% of both Western Platinum Limited and Eastern Platinum Limited, and 26% of Akanani. Lonmin's 23.56% holding in the share capital of Incwala does not factor in the calculations of its attributable interest.

Limpopo includes Dwaalkop joint venture, which is a joint venture between Mvelaphanda Resources (50%) and Western Platinum (50%) that is managed by Lonmin.

Eastern Platinum Limited has an attributable interest of 42.5% in the Pandora joint venture together with Anglo Platinum (42.5%), Mvelaphanda Resources (7.5%) and the Bapo Ba Mogale Mining Company (7.5%).

Western Platinum Limited has an attributable interest of 50% in the Loskop joint venture together with Boynton Investments (50%).

Lonmin's share of the Sudbury PGM joint venture is currently a nominal 50%, of the product from any PGE deposit developed on the participating properties.  The agreement is that Lonmin will be allocated its pro-rata share in PGE's and Vale will be allocated its pro-rata share in Nickel, Copper, Cobalt, Gold and Silver.  The exchange of metals will be governed by prevailing metal prices at the time of the refined metal production.

Lonmin has a 49% attributable portion of the Bumbo Mineral Resource in terms of The West Kenya Earn-in and joint venture agreement between African Barrick Gold Limited and AfriOre International (Barbados) Limited, a wholly owned subsidiary of Lonmin Plc.

 

·     Where grades are reported as 3PGE+Au these are a summation of the Platinum, Palladium, Rhodium and Gold grades.  Modelling of available assay information, obtained from drillhole core, indicates that the proportion of 3PGE+Au contained in 5PGE+Au, which includes Ruthenium and Iridium, is approximately as follows:

 


UG2

Merensky

Platreef

Marikana

0.81

0.92

-

Marikana Tailings

0.78

-

-

Limpopo

0.86

0.93

-

Akanani

-

-

0.95

Pandora

0.81

-

-

 

·     Where Nickel (Ni) and Copper (Cu) grade estimates are derived from sufficient reliable information for the various Mineral Resources, they are reported as average grades in percent.  These grades represent acid soluble proportions.  Acid soluble percentages of Ni and Cu are closely correlated to the metals present as sulphide minerals.

·     Mineral Resources are reported as "in-situ" tonnes and grade and allow for geological losses such as faults, dykes, potholes and Iron Rich Ultramafic Pegmatite (IRUP).

·     Mineral Resources are estimated using a minimum true width of at least 90 cm and therefore may include some diluting material.

·     Proved and Probable Mineral Reserves are reported as tonnes and grade expected to be delivered to the mill, are inclusive of diluting materials and allow for losses that may occur when the material is mined.

·     A Mineral Resource and Mineral Reserve estimate of the Eastern Platinum No 1 tailings dam has been included.  The remaining tailing dams will be considered as and when the appropriate assessments take place.

·     For economic studies and the determination of pay limits, consideration was made of both short and long term revenue drivers.  The following long term global assumptions were used:

Precious Metals (per Troy Ounce): Pt USD1,865, Pd USD888, Rh USD1,348, Ru USD95, Ir USD630, Au USD1,385.

Base Metals (per metric tonne): Ni USD14,890, Cu USD7,233.

Average exchange rate of USD1 to Rand 9.0.

·     Dilutions are quoted as waste tonnes / (waste + ore tonnes) in percent.

·     Bumbo Mineral Resources are reported using a cut-off grade of 0.7% copper equivalent.

·     The copper equivalent formula for Bumbo was based upon commodity prices at the close of the market on 25th July 2011, namely:

Copper: USD9633/tonne ($Cu)

Zinc: USD2441/tonne ($Zn)

Gold: USD1614/ounce ($Au)

Silver: USD40/ounce ($Ag)

The copper equivalent (CuEq) is as follows:

CuEq (%) = Cu% + (Zn%*($Zn/100)/($Cu/100)) + (Au g/t*($Au/31.1034768)/($Cu/100)) +

(Ag g/t*($Ag/31.1034768)/($Cu/100))

·     Unless otherwise stated, the Lonmin Mineral Resources and Mineral Reserves estimates were prepared or supervised by various persons employed by Lonmin.



FINANCIAL REVIEW

 

Overview

The foundation for this year's financial performance was laid in the first half of the financial year when we strengthened our financial position with a successful refinancing and we achieved a better than anticipated production ramp up following the production disruption in 2012. The excellent operational performance continued into the second half of the year. This coupled with a consistent focus on cost containment and assisted by the weakening Rand resulted in a solid financial outcome for the year ended 30 September 2013.

 

The Group undertook a successful Rights Issue which was completed in December 2012. The Rights Issue was fully subscribed with just below 97% of the take up coming from existing shareholders and the remainder from the rump placement. Total net proceeds of $767 million after costs and foreign exchange movements were raised. In addition, the terms of our debt facilities were revised in conjunction with the successful Rights Issue. Details of the amendments to debt facilities are included below. This refinancing has resulted in a robust balance sheet with significantly improved funding flexibility.

 

The exceptional production performance during the year allowed us to replenish the metal in process pipeline which was depleted in order to protect liquidity in September 2012. Saleable metal in concentrate Platinum production reached its highest level in 6 years. However PGM sales volumes were lower compared to 2012 given lower opening stocks and the lock up in inventory as a result of the smelter incident in April 2013.  The overall PGM pricing environment improved marginally which partially mitigated the effect of lower sales volumes but the net result was lower revenue for the year ended 30 September 2013 compared to 2012.

 

The Rand was significantly weaker during the year under review resulting in favourable exchange impacts. These, coupled with positive stock movements as a result of the metal in process replenishment, offset cost escalations yielding significantly improved profitability for the year ended 30 September 2013. Profit for the year attributable to equity shareholders amounted to $166 million (2012 - loss of $410 million) and the earnings per share were 31.2 cents compared to a loss per share of 107.7 cents in 2012 (note that the prior period loss per share has been recalculated, in accordance with accounting standards, to take into account the effects of the Rights Issue referred to above). It should also be noted that 2012 profitability was severely impacted by the disruptive events of last year and the impairment of Akanani, an exploration and evaluation asset.

 

The successful refinancing of the business, the return to profitability during the year under review and the revised strategy and streamlined capital investment programme have allowed us to repay all debt and end the year in a net cash position of $201 million.


 

Income Statement

The $97 million movement between the underlying operating profit of $67 million for the year ended 30 September 2012 and that of $164 million for the year ended 30 September 2013 is analysed below.

 


$m

Year to 30 September 2012 reported operating loss

(702)

Year to 30 September 2012 special items

769

Year to 30 September 2012 underlying operating profit

67

PGM price

PGM volume

PGM mix

Base metals

4

(90)

3

(11)

Revenue changes

(94)

Cost changes (including foreign exchange impact of $194 million)

191

Year to 30 September 2013 underlying operating profit

164

Year to 30 September 2013 special items

(17)

Year to 30 September 2013 reported operating profit

147

 

Revenue

Total revenue declined by $94 million from 2012 to $1,520 million for the year ended 30 September 2013.

 

As mentioned in the overview the PGM pricing environment improved only marginally over the last year and the impact on the average prices achieved during the year on the key metals sold is shown below:

 


Year ended

30.09.13

Year ended

30.09.12


$/oz

$/oz

Platinum

1,517

1,517

Palladium

715

630

Rhodium

1,097

1,274

PGM basket (excluding by-product revenue)

1,100

1,095

 

The US Dollar basket price (excluding by-products) increased by 0.5% contributing $4 million to the movement in revenue. It should be noted that whilst the US Dollar basket price only increased by 0.5% from the 2012 financial year, in Rand terms the basket price increased by 17% impacted by the relatively weaker Rand.

 

PGM sales volume for the year to 30 September 2013 was 6% down on the year to 30 September 2012. The reduction in PGM volumes, mainly as a result of process inventory replenishment following last year's production disruption as well as some inventory lock up as a result of the smelter incident, contributed $90 million to the overall decrease in revenue. However, the mix of metals sold resulted in a positive impact of $3 million mainly due to a higher proportion of Platinum due to metal in process inventory timing differences. Base metal revenue was down $11 million as the 15% increase in Chrome volumes was more than offset by lower base metal prices and lower sales volumes of Nickel and Copper.



 

Operating Costs

Total underlying costs in US Dollar terms decreased by $191 million mainly due to positive metal stock and foreign exchange movements partially offset by the impact of increased production and cost escalations. A track of these changes is shown in the table below.

 


$m

Year ended 30 September 2012 - underlying costs

1,547

 

Increase / (decrease):

 


Marikana underground mining

Marikana opencast mining

Limpopo mining

Concentrating and processing

Overheads

2012 special idle fixed production costs excluded from underlying costs

150

27

(2)

28

13

120

Underlying operating costs

336

Pandora and W1 ore purchases

Metal stock movement

Foreign exchange

Depreciation and amortisation

29

(393)

(194)

31

Cost changes (including foreign exchange impact)

(191)

Year ended 30 September 2013 - underlying costs

1,356

 

Marikana underground mining costs increased in the year by $150 million or 18%, mainly as a result of a 12% increase in production on the back of a successful ramp up following last year's seven week production disruption. This was compounded by the 14% wage increase incurred in October 2012. Marikana opencast mining costs increased by $27 million driven by a 19% increase in production as well as wage inflation which impacted on contractual mining rates.

 

Concentrating and processing costs increased from 2012 by $28 million or 8% as escalation effects, in particular from electricity costs were partially offset by reduced refined production due to smelter downtime.

 

Overheads increased by $13 million or 10% largely due to cost escalation effects.

 

In 2012, $120 million relating to fixed production overheads incurred during the strike for which there was no associated production was re-allocated to special costs.

 

Ore purchases increased by $29 million on the back of a 32% increase in tonnes purchased.

 

The year under review saw a replenishment of stock in process following last year's pipeline depletion. This has resulted in a $393 million positive impact on operating profit, excluding exchange impacts, arising from metal stock movements. The $393 million comprises of a $253 million increase in stock in 2013 and a $140 million stock decrease in 2012.

 

The Rand weakened substantially against the US Dollar during the year under review averaging Rand 9.24 to USD1 compared to an average of Rand 8.05 to USD1 in 2012 resulting in a $194 million positive impact on operating costs.

 

Depreciation, which is calculated on a units of production basis, increased during the year by $31 million as a direct result of increased production in both opencast and underground mining.

 

Cost of production per PGM Ounce

The C1 cost per PGM ounce produced for the year to 30 September 2013 was R8,832. This was an increase of 3.8% compared to 2012. The containment of unit costs in the face of cost escalation pressures (14% wage escalation and 12% power escalation) was achieved on the back of increased volumes, improved recoveries and our continued focus on cost control.

 

In the current year, we have introduced a more inclusive and transparent measure for unit costs, "Cost of production per PGM ounce". This measure differs from the C1 cost per PGM ounce produced in that it includes sales and marketing costs, as well as other management and shared services costs. This makes for a more easily understood cost comparison and benchmarking tool. The cost of production per PGM ounce in 2013 at R9,182 increased by 3.8% over 2012 which is in line with the C1 unit cost increase stated above. A trend analysis going back five years reveals a similar correlation between the two cost measures.

 

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

 

Special Operating Costs

Residual strike related costs arising from the Events at Marikana continue to be incurred. For the year ended 30 September 2013, these costs totalled $7 million and largely consisted of communication costs relating to reputational rebuild as well as costs related to the ongoing Farlam Commission. In addition $10 million was spent on the management restructuring exercise which formed part of the Lonmin Renewal Plan. The restructuring exercise was cost neutral in 2013 but is expected to yield savings of approximately R200 million per annum going forward.

 

In 2012 special operating costs of $769 million were charged. These related to the impairment of the Akanani exploration and evaluation asset ($602 million), strike related costs ($159 million) and other costs amounting to $8 million.

 

Impairment of Available for Sale Financial Assets

The $2 million impairment of available for sale financial assets represents the loss in value below the original cost price of one of our investments.

 

In 2012 the $6 million impairment represented the loss in value of one of our investments following the company's de-listing in December 2011.

 

Financing Costs


Year ended 30 September


2013

$m


2012

$m

Net bank interest and fees

(20)


(27)

Capitalised interest payable and fees

11


26

Exchange gain / (loss)

8


(1)

Other

(9)


(12)

Underlying net finance costs

(10)


(14)

Special finance income / (costs)




Unwinding fees relating to interest rate swap

(14)


-

Fair value movements in cash flow hedges

7


-

HDSA receivable

18


30

Exchange loss in respect of Rights Issue

(10)


-

Net finance (costs) / income

(9)


16

 

The total net finance costs of $9 million for the year ended 30 September 2013 represent a $25 million adverse movement compared to the total net finance income of $16 million for the year ended 30 September 2012.

 

Net bank interest and fees decreased from $27 million to $20 million for the year ended 30 September 2013 as the benefit of settling debt following the successful Rights Issue was partially offset by the unwinding of previously unamortised bank fees on settlement of the original loan facilities. Interest totalling $11 million was capitalised to assets (2012 - $26 million).

 

Following the retiring of debt after the Rights Issue, further periodic borrowings to fund the working capital cycle were largely incurred in Rand and benefited from the weakening of the Rand in relation to the US Dollar as the year progressed. Exchange gains for the year ended 30 September 2013 amounted to $8 million compared to a loss of $1 million in 2012.

 

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

 

The interest rate swap entered into in 2011 to hedge against interest rate fluctuations was unwound after the underlying bank debt was settled. Fees amounting to $14 million were incurred as a result. The unwinding fees were partially offset by positive fair value movements amounting to $7 million upon the release of the cash flow hedge resulting from the interest rate swap.

 

The Historically Disadvantaged South Africans (HDSA) receivable, being the Sterling loan to a subsidiary of Shanduka Resources (Proprietary) Limited (Shanduka), increased by $18 million during the year to 30 September 2013 being $1 million of foreign exchange gains and $17 million of accrued interest. The $30 million increase in 2012 represented $14 million worth of exchange gains and $16 million of accrued interest. At 30 September 2013 the balance of the receivable stood at $399 million (2012 - $381 million) and is secured on shares in the Shanduka subsidiary whose only asset of value is its ultimate shareholding in Incwala Resources (Proprietary) Limited (Incwala). The value of the security, based on the value of Incwala, calculated based on discounted cash flows of Incwala's underlying investments in Western Platinum Limited (WPL), Eastern Platinum Limited and Akanani, currently marginally exceeds this amount. Should the value of security fall below the carrying amount of the receivable, an impairment charge would be effected.

 

In order to minimise the risk of the exposure to currency fluctuations on the Rand and Sterling proceeds expected, the Group entered into forward exchange contracts in synchronisation with the Rights Issue process. The US Dollar weakened over the offer period resulting in the Rand and Sterling proceeds received and translated at prevailing spot rates being more than that due under the forward exchange contracts. This resulted in the recognition of exchange losses under hedging arrangements of $11 million which was partially offset by a $1 million exchange gain on retranslation of advance proceeds of the Rights Issue.

 

Taxation

 

Reported tax for the current year was a credit of $58 million after the tax effects of special items of $85 million. The underlying tax charge is $27 million reflecting an effective rate of 17%. The underlying charge largely comprises deferred tax charges being recognised on accelerated capital allowances. The low underlying effective tax rate of 17% compared to a standard tax rate of 28% is largely driven by exchange effects on profits arising from a predominantly Rand tax base translated to the US Dollar functional currency.


 

Cash Generation and Net Debt

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

 


Year ended 30 September


2013


2012


$m


$m

Operating profit / (loss)

147


(702)

Depreciation, amortisation and impairment

157


726

Changes in working capital

(246)


265

Other

(5)


11

Cash flow generated from operations

53


300

Interest and finance costs

(33)


(27)

Tax

(4)


(10)

Trading cash inflow

16


263

Capital expenditure

(159)


(408)

Dividends paid to minority interests

(11)


(14)

Free cash outflow

(154)


(159)

Dividend from joint venture

1


7

Additions to other financial assets

-


(2)

Net proceeds from equity issuance

767


-

Issue of other ordinary share capital

1


-

Dividends paid to equity shareholders

-


(31)

Cash inflow / (outflow)

615


(185)

Opening net debt

(421)


(234)

Foreign exchange

13


-

Unamortised fees

(6)


(2)

Closing net cash / (debt)

201


(421)





Trading cash inflow (cents per share)

3.0c


69.1c

Free cash outflow (cents per share)

(28.9c)


(41.8c)

 

Cash flow generated from operations in the year ended 30 September 2013 at $53 million was lower than the $300 million recorded in 2012. The cash benefits of improved profitability were more than offset by adverse working capital movements, $189 million was attributable to the replenishment of the metal in process pipeline following last year's production stoppage as well as some lock up of the pipeline experienced as a result of the smelter incident. It should be noted that in 2012, working capital cash flows benefited from the reduction in stock levels at year end as well as from the revenue received in advance on the forward sale of gold.

 

Trading cash inflow for the year to 30 September 2013 amounted to $16 million (2012 - $263 million). The cash outflow on interest and finance costs increased by $6 million as the benefit of reduced debt levels was offset by amendment fees paid for revised debt facilities and the cost of unwinding the interest rate swap. Tax payments decreased by $6 million and represent provisional corporate tax payments which benefitted from unredeemed capital expenditure deductions. The trading cash inflow per share was 3.0 cents for the year ended 30 September 2013 against 69.1 cents for 2012. Note that the prior year trading cash inflow per share has been recalculated, in accordance with accounting standards, to take into account the effects of the Rights Issue referred to below.

 

Capital expenditure cash flow at $159 million was $249 million below prior year reflecting our revised strategy and capital investment programme. In Mining, the expenditure incurred was focused on sustaining capital across the various shafts as well as ore reserve development projects at K3 shaft UG2 decline, Saffy shaft and Rowland shaft. In the Process Division spend comprised the completion of work at the Number One shaft concentrator and the Number One furnace integrity optimisation project.

 

The Group undertook a successful Rights Issue which was completed in December 2012 and raised total net proceeds of $767 million after costs and foreign exchange charges. The proceeds of the Rights Issue were utilised to settle debt resulting in a net cash position at 30 September 2013 of $201 million compared to a net debt position of $421 million at 30 September 2012.

 

Key Financial Risks

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) and fluctuations in interest, 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. We ordinarily seek to fund capital requirements from equity.

 

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 or changes in production forecasts.  Where funding requirements are identified from the cash flow forecast, appropriate measures are taken to ensure these requirements can be satisfied. Factors taken into consideration are:

 

·     the size and nature of the requirement;

·     preferred sources of finance applying key criteria of cost, commitment, availability, security / covenant conditions;

·     recommended counterparties, fees and market conditions; and

·     covenants, guarantees and other financial commitments.

 

During the year under review, the Group revised its debt facilities on the back of the successful Rights Issue. The amended US Dollar Facilities and amended Rand Facilities came into effect in December 2012. The proceeds of the Rights Issue were used to repay the Group's indebtedness under the original facilities, including (i) the repayment in full of amounts outstanding (amounting to $300 million plus accrued interest and applicable break fees) under the US Dollar Term Loan, which facility was cancelled; and (ii) the repayment of amounts outstanding under the US Dollar Revolving Credit Facility; and (iii) the repayment of amounts outstanding under the Rand Facilities Agreements.

 

The remaining facilities are summarised as follows:

 

·     Revolving Credit Facility of $400 million at a Lonmin Plc level; and

·     Three bilateral facilities of R660 million each at a WPL level.

 

The principal amendments to each of the original agreements were to remove the net debt/EBITDA and EBITDA/net interest covenants and to substitute these with the following financial covenants:

 

·     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 (Rand)

 

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

 

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 shares, whose only asset of value is its shareholding in Incwala.

 

Interest Rate Risk

Given that all debt has been repaid, this risk is not considered to be high at this point in time. 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 majority of the Group's operating costs and taxes are paid in Rand. Most of the cash received in South Africa is in US Dollars. A majority 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.

 

During the year under review, Lonmin did not undertake any foreign currency hedging except in relation to Rights Issue proceeds as described above.

 

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 allows Lonmin 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 year under review and no forward contracts were in place in respect of base metals at the end of the period.

 

In respect of gold, Lonmin entered into a pre-paid 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 per ounce delivered.

 

Contingent Liabilities

The Group provided third party guarantees to Eskom as security to cover estimated electricity consumption for three months. At 30 September 2013 these guarantees amounted to $10 million (2012 - $12 million).

 

Simon Scott

Chief Financial Officer

10 November 2013


 

Responsibility Statement of the Directors in respect of the Annual Report and Accounts

 

We confirm that to the best of our knowledge:

 

·      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

 

·      the Directors' report and Strategic report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

 

 

Roger Phillimore                                                                             Simon Scott

Chairman                                                                            Chief Financial Officer

 

 

10 November 2013



 

Operating statistics - 5 year review

 

 

 

Units

2013

2012

2011

2010

2009

Tonnes mined








Marikana

Karee 1

kt

4,950

4,384

4,438

4,115

3,950


Westerns 1

kt

2,899

2,643

3,434

3,694

3,912


Middelkraal 1

kt

2,201

1,762

1,904

1,918

1,385


Easterns 1

kt

910

997

1,174

1,082

935


Underground

kt

10,960

9,786

10,949

10,809

10,182


Opencast

kt

528

443

601

329

234

Total Marikana

Underground & Opencast

kt

11,487

10,229

11,550

11,137

10,415









Pandora (100%) 2

Underground

kt

571

435

394

391

335


Opencast

kt

-

-

-

-

366


Total

kt

571

435

394

391

702









Limpopo

Underground

kt

-

-

-

-

87









Lonmin (100%)

Total Tonnes mined

kt

12,058

10,663

11,944

11,529

11,204


% Tonnes mined from UG2 reef (100%)

%

73.9

71.7

73.2

76.1

78.5









Lonmin (attributable) 2

Underground & Opencast

kt

11,730

10,413

11,718

11,304

10,801

Ounces mined3








Lonmin excluding Pandora

Platinum

oz

717,882

635,346

695,474

686,108

609,108

Pandora (100%)

Platinum

oz

40,917

30,714

25,342

25,670

42,885

Lonmin

Platinum

oz

758,799

666,060

720,816

711,778

651,993









Lonmin excluding Pandora

Total PGMs

oz

1,340,678

1,174,776

1,306,082

1,297,452

1,151,770

Pandora (100%)

Total PGMs

oz

78,353

58,300

48,420

49,227

79,474

Lonmin

Total PGMs

oz

1,419,032

1,233,076

1,354,501

1,346,679

1,231,245

Tonnes milled 4








Marikana

Underground

kt

10,854

9,936

10,896

10,655

10,148


Opencast

kt

393

450

748

129

622

Limpopo

Underground

kt

-

-

-

-

92

Pandora (100%) 5

Underground

kt

574

432

394

391

335


Opencast

kt

-

-

-

-

430

Lonmin Platinum

Underground

kt

11,428

10,367

11,290

11,046

10,576


Opencast

kt

393

450

748

129

1,053


Total

kt

11,822

10,817

12,037

11,176

11,628

Milled head grade 6








Lonmin Platinum

Underground

g/t

4.60

4.56

4.54

4.67

4.57


Opencast

g/t

2.92

3.01

2.23

2.25

3.70


Total

g/t

4.54

4.49

4.40

4.65

4.50

Concentrator recovery rate 7








Lonmin Platinum

Underground

%

87.0

86.1

85.4

84.8

81.0


Opencast

%

85.3

85.9

81.6

63.8

65.1


Total

%

87.0

86.1

85.3

84.7

79.8



Operating statistics - 5 year review

 

 

 

Units

2013

2012

2011

2010

2009

Metals in concentrate 8








Marikana

Platinum

oz

706,012

646,393

694,149

668,620

612,910


Palladium

oz

323,622

295,409

324,655

313,590

284,561


Gold

oz

17,664

16,925

17,471

14,969

14,419


Rhodium

oz

95,241

83,144

91,659

93,043

85,008


Ruthenium

oz

144,304

127,269

144,369

144,913

130,080


Iridium

oz

33,059

27,610

31,294

31,432

28,389


Total PGMs

oz

1,319,902

1,196,750

1,303,597

1,266,566

1,155,367

Limpopo

Platinum

oz

-

-

-

-

3,770


Palladium

oz

-

-

-

-

3,331


Gold

oz

-

-

-

-

243


Rhodium

oz

-

-

-

-

487


Ruthenium

oz

-

-

-

-

688


Iridium

oz

-

-

-

-

159


Total PGMs

oz

-

-

-

-

8,679

Pandora

Platinum

oz

41,117

30,625

25,241

25,756

46,421


Palladium

oz

19,190

14,261

11,847

12,108

20,866


Gold

oz

315

228

179

176

350


Rhodium

oz

6,563

4,743

3,865

4,036

6,425


Ruthenium

oz

9,764

7,135

6,070

6,228

9,338


Iridium

oz

1,773

1,195

996

1,041

1,767


Total PGMs

oz

78,721

58,188

48,199

49,345

85,168

Lonmin Platinum before

Concentrate Purchases

Platinum

oz

747,129

677,019

719,390

694,376

663,101


Palladium

oz

342,812

309,670

336,502

325,698

308,758


Gold

oz

17,979

17,153

17,650

15,145

15,013


Rhodium

oz

101,803

87,886

95,524

97,079

91,920


Ruthenium

oz

154,067

134,404

150,439

151,141

140,106


Iridium

oz

34,832

28,805

32,290

32,473

30,315


Total PGMs

oz

1,398,623

1,254,938

1,351,796

1,315,911

1,249,214

Concentrate purchases

Platinum

oz

3,813

2,802

-

-

-


Palladium

oz

1,132

973

-

-

-


Gold

oz

14

10

-

-

-


Rhodium

oz

421

329

-

-

-


Ruthenium

oz

428

404

-

-

-


Iridium

oz

172

129

-

-

-


Total PGMs

oz

5,980

4,647

-

-

-

Lonmin Platinum

Platinum

oz

750,942

679,821

719,390

694,376

663,101


Palladium

oz

343,944

310,643

336,502

325,697

308,758


Gold

oz

17,993

17,163

17,650

15,144

15,013


Rhodium

oz

102,225

88,216

95,524

97,079

91,920


Ruthenium

oz

154,495

134,808

150,439

151,141

140,106


Iridium

oz

35,004

28,934

32,290

32,473

30,315


Total PGMs

oz

1,404,603

1,259,585

1,351,796

1,315,911

1,249,214


Nickel 9

mt

3,743

3,489

3,537

2,972

2,794


Copper 9

mt

2,340

2,226

2,223

1,824

1,763



Operating statistics - 5 year review

 


Units

2013

2012

2011

2010

2009

Refined production







Lonmin refined metal production







Platinum

oz

707,665

648,414

686,877

607,794

655,291

Palladium

oz

319,841

310,558

323,907

303,748

297,415

Gold

oz

18,676

18,398

18,013

15,284

18,277

Rhodium

oz

79,124

110,896

86,702

94,690

95,596

Ruthenium

oz

171,052

153,394

164,374

147,854

146,506

Iridium

oz

28,068

32,844

26,337

36,073

23,908

Total PGMs

oz

1,324,426

1,274,503

1,306,210

1,205,443

1,236,992

Toll refined metal production







Platinum

oz

1,364

38,958

44,396

77,571

2,025

Palladium

oz

662

21,043

49,119

15,274

941

Gold

oz

289

729

2,879

1,100

58

Rhodium

oz

1,837

4,717

14,402

5,411

1,532

Ruthenium

oz

6,519

7,907

24,408

8,278

2,647

Iridium

oz

1,012

1,944

5,249

1,695

513

Total PGMs

oz

11,683

75,299

140,453

109,328

7,717

Total refined PGMs







Platinum

oz

709,029

687,372

731,273

685,365

657,317

Palladium

oz

320,503

331,601

373,026

319,022

298,356

Gold

oz

18,965

19,128

20,892

16,383

18,335

Rhodium

oz

80,961

115,613

101,103

100,100

97,128

Ruthenium

oz

177,571

161,300

188,782

156,133

149,153

Iridium

oz

29,081

34,788

31,586

37,768

24,420

Total PGMs

oz

1,336,109

1,349,802

1,446,662

1,314,772

1,244,709

Base metals







Nickel 10

mt

3,532

3,786

4,188

3,475

3,244

Copper 10

mt

2,168

2,153

2,454

2,091

1,988



Operating statistics - 5 year review


Units

2013

2012

2011

2010

2009

Sales

Refined metal sales







Platinum

oz

695,803

701,831

720,783

681,424

659,703

Palladium

oz

313,030

335,849

372,284

315,515

305,332

Gold

oz

18,423

19,273

19,417

16,289

18,910

Rhodium

oz

77,625

119,054

102,653

98,657

94,160

Ruthenium

oz

168,266

170,751

187,189

153,865

146,009

Iridium

oz

28,828

37,187

33,603

34,790

23,522

Total PGMs

oz

1,301,973

1,383,945

1,435,929

1,300,540

1,247,636

Concentrate and other 11







Platinum

oz

-

-

-

24,850

23,253

Palladium

oz

-

-

-

-

  (2,848)

Gold

oz

-

-

-

-

13

Rhodium

oz

-

-

-

-

175

Ruthenium

oz

-

-

-

-

303

Iridium

oz

-

-

-

-

387

Total PGMs

oz

-

-

-

24,850

21,282

Lonmin Platinum







Platinum

oz

695,803

701,831

720,783

706,274

682,955

Palladium

oz

313,030

335,849

372,284

315,515

302,485

Gold

oz

18,423

19,273

19,417

16,289

18,922

Rhodium

oz

77,625

119,054

102,653

98,657

94,335

Ruthenium

oz

168,266

170,751

187,189

153,865

146,312

Iridium

oz

28,828

37,187

33,603

34,790

23,909

Total PGMs

oz

1,301,973

1,383,945

1,435,929

1,325,390

1,268,918

Nickel 10

mt

3,586

3,843

4,180

3,033

3,318

Copper 10

mt

2,130

2,197

2,448

2,169

2,045

Chrome 10

MT

1,388,761

1,209,643

730,278

684,654

708,753

Average prices

Platinum

$/oz

1,517

1,517

1,769

1,525

1,086

Palladium

$/oz

715

630

752

448

224

Gold

$/oz

1,508

1,597

1,405

1,153

912

Rhodium

$/oz

1,097

1,274

2,145

2,308

1,571

Ruthenium

$/oz

74

103

168

173

97

Iridium

$/oz

946

1,042

938

520

388

Basket price of PGMs 12

$/oz

1,100

1,095

1,299

1,139

786

Full Basket price of PGMs 13

$/oz

1,167

1,163

1,389

1,195

836

Basket price of PGMs 12

R/oz

10,291

8,807

9,109

8,375

6,873

Full Basket price of PGMs 13

R/oz

10,921

9,304

9,716

8,790

7,316

Nickel 10

$/MT

12,772

14,330

21,009

18,569

15,006

Copper 10

$/MT

7,113

7,201

8,612

6,623

6,291

Chrome 10

$/MT

19

20

27

5

2

 

Footnotes:

 

1

Karee includes the shafts K3, K4 (currently on care and maintenance), 1B and 4B.  Westerns comprises Rowland, Newman and W1.  Middelkraal represents Hossy and Saffy.  Easters includes E1, E2 and E3.

2

Pandora underground and opencast tonnes mined represents 100% of the total tonnes mined on the Pandora joint venture of which 42.5% is attributable to Lonmin.

3

Ounces mined have been calculated at achieved concentrator recoveries and industry standard downstream processing losses to present produced saleable ounces.

4

Tonnes milled excludes slag milling.

5

Lonmin purchases 100% of the ore produced by the Pandora joint venture for onward processing which is included in downstream operating statistics.

6

Head Grade is the grammes per tonne (5PGE + Au) value contained in the tonnes milled and fed into the concentrator from the mines (excludes slag milled).

7

Recovery rate in the concentrators is the total content produced divided by the total content milled (excluding slag).

8

Metals in concentrate include metal derived from slag processing and have been calculated at industry standard downstream processing losses to present produced saleable ounces.

9

Corresponds to contained base metals in concentrate.

10

Nickel is produced and sold as nickel sulphate crystals or solution and the volumes shown correspond to contained metal. Copper is produced as refined product but typically at the LME grade C. Chrome is produced in the form of chromite concentrate and volumes shown are in the form of chromite.

11

Concentrate and other sales have been adjusted to a saleable ounce basis using industry standard recovery rates.

12

Basket price of PGMs is based on the revenue generated in Rand and Dollar from the actual PGMs (5PGE + Au) sold in the period based on the appropriate Rand / Dollar exchange rate applicable for each sales transaction.

13

As per note 10 but including revenue from base metals.



Operating statistics - 5 year review

 

 

Units

2013

2012

2011

2010

2009

Capital expenditure 1

Rm

1,500

3,296

2,907

1,989

2,106


$m

159

408

410

267

234








Cost per PGM ounce sold 2, 5







Group:







Mining - Marikana

R/oz

6,247

5,963

5,292

4,575

4,468

Mining - Limpopo

R/oz

-

-

-

-

7,404

Mining (weighted average)

R/oz

6,247

5,963

5,292

4,575

4,490

Concentrating - Marikana

R/oz

1,051

1,073

960

862

808

Concentrating - Limpopo

R/oz

-

-

-

-

1,820

Concentrating (weighted average)

R/oz

1,051

1,073

960

862

815

Smelting and refining 3

R/oz

917

872

830

809

693

Shared business services

R/oz

618

600

452

527

632

C1 cost per PGM ounce produced

R/oz

8,832

8,507

7,534

6,773

6,630

Stock movement

R/oz

(970)

(192)

(272)

(358)

112

C1 cost per PGM ounce sold

before base metal credits

 

R/oz

7,862

8,315

7,262

6,415

 

6,742

Base metal credits

R/oz

(627)

(497)

(606)

(415)

(440)

C1 cost per PGM ounce sold

after base metal credits

 

R/oz

7,235

7,817

6,656

6,000

 

6,302

Amortisation

R/oz

992

708

617

571

516

C2 cost per PGM ounce sold

R/oz

8,227

8,525

7,273

6,571

6,818

Pandora mining cost:


 

 

 

 

 

C1 Pandora mining cost

(in joint venture)

R/oz

5,242

5,229

5,020

4,727

 

3,371

Pandora JV cost/ounce to Lonmin (adjusting Lonmin share of profit) 

R/oz

8,229

7,644

7,228

7,253

 

5,956

Exchange rates


 

 

 

 


Average rate for period 4

R/$

9.24

8.05

6.95

7.45

9.00


£/$

0.64

0.63

0.62

0.64

0.64

Closing rate

R/$

9.99

8.30

8.05

6.92

7.47


£/$

0.62

0.62

0.64

0.64

0.62







 



Operating statistics - 5 year review

 

 

 

Units

2013

2012

2011

2010

2009

Underlying cost of sales








PGM operations








Mining


$m

(919)

(877)

(995)

(811)

(594)

Concentrating


$m

(159)

(168)

(187)

(153)

(115)

Smelting and refining 3


$m

(133)

(147)

(172)

(156)

(112)

Shared services


$m

(101)

(100)

(97)

(79)

(88)

Management and marketing services


$m

(26)

(35)

(32)

(31)

(34)









Ore and concentrate purchases


$m

(64)

(48)

(46)

(42)

(41)

Limpopo mining


$m

(7)

(9)

(7)

(5)

(9)









Special item adjustment


$m

-

121

-

-

-

Royalties


$m

(6)

(8)

(12)

(6)

-

Share based payments


$m

(13)

(12)

(13)

(12)

(1)

Inventory movement


$m

203

(140)

(12)

111

(48)

FX and Group charges


$m

44

14

5

(43)

(10)



$m

(1,181)

(1,412)

(1,567)

(1,226)

(1,051)









PGM operations








Mining


Rm

(8,545)

(7,079)

(7,002)

(6,026)

(5,302)

Concentrating


Rm

(1,469)

(1,346)

(1,297)

(1,142)

(1,019)

Smelting and refining 3


Rm

(1,235)

(1,183)

(1,203)

(1,161)

(982)

Shared services


Rm

(928)

(805)

(679)

(586)

(776)

Management and marketing services


Rm

(243)

(287)

(217)

(227)

(298)









Ore and concentrate purchases


Rm

(597)

(385)

(318)

(315)

(363)

Limpopo mining


Rm

(61)

(76)

(50)

(37)

(106)









Special item adjustment


Rm

-

966

-

-

-

Royalties


Rm

(55)

(68)

(82)

(40)

-

Share based payments


Rm

(121)

(99)

(87)

(87)

-

Inventory movement


Rm

2,145

(842)

(119)

649

(289)

FX and Group charges


Rm

(1,247)

(218)

(517)

(53)

404



Rm

(12,356)

(11,424)

(11,572)

(9,025)

(8,733)









Cost of production (PGM operations)








Cost








Mining


Rm

(8,545)

(7,079)

(7,002)

(6,026)

(5,302)

Concentrating


Rm

(1,469)

(1,346)

(1,297)

(1,142)

(1,019)

Smelting and refining 3


Rm

(1,235)

(1,183)

(1,203)

(1,161)

(982)

Shared services


Rm

(928)

(805)

(679)

(586)

(776)

Management and marketing services


Rm

(243)

(287)

(217)

(227)

(298)



Rm

(12,420)

(10,701)

(10,399)

(9,142)

(8,379)

PGM Saleable Ounces








Mined ounces excluding ore purchases


oz

1,340,678

1,174,776

1,306,082

1,297,452

1,151,770

Metals in concentrate before concentrate purchase


oz

1,398,623

1,254,938

1,351,796

1,315,911

1,249,214

Refined ounces


oz

1,336,109

1,349,802

1,446,662

1,314,772

1,244,709

Metals in concentrate including concentrate purchases


oz

1,404,603

1,259,585

1,351,796

1,315,911

1,249,214











Operating statistics - 5 year review

 

 

 

Units

2013

2012

2011

2010

2009

Cost of production (PGM operations) (continued)








Cost of production








Mining


R/oz

(6,373)

(6,026)

(5,361)

(4,644)

(4,604)

Concentrating


R/oz

(1,051)

(1,073)

(960)

(868)

(816)

Smelting and refining 3


R/oz

(925)

(877)

(832)

(883)

(789)

Shared services


R/oz

(661)

(639)

(503)

(446)

(622)

Management and marketing services


R/oz

(173)

(228)

(161)

(173)

(239)



R/oz

(9,182)

(8,843)

(7,815)

(7,013)

(7,069)

% increase in cost of production








Mining


%

5.8

12.4

15.4

0.9

n/a

Concentrating


%

(2.1)

11.8

10.6

6.4

n/a

Smelting and refining 3


%

5.4

5.4

(5.8)

11.8

n/a

Shared services


%

3.3

27.2

12.8

(28.3)

n/a

Management and marketing services


%

(24.1)

41.9

(7.0)

(27.7)

n/a



%

3.8

13.1

11.4

(0.8)

n/a









 

Footnotes:

 

1

Capital expenditure is the aggregate of the purchase of property, plant and equipment and intangible assets (includes capital accruals and excludes capitalised interest).

2

It should be noted that with the restructuring of the business in 2011, 2010 and 2009 the cost allocation between business units has been changed and, therefore, whilst the total is on a like-for-like basis, individual line items are not totally comparable.

3

Comprises of Smelting and Refining costs as well as direct Process Operations shared costs.

4

Exchange rates are calculated using the market average daily closing rate over the course of the period.

5

The cost per PGM ounce sold has been replaced by the cost of production from 2013.



Consolidated income statement

for the year ended 30 September

 

 

 

 

Continuing operations

 

 

 

Note

 

2013

Underlying i

$m

Special

items

(note 3)

$m

 

2013

Total

$m

2012

Underlying i

$m

Special

items

(note 3)

$m

 

2012

Total

$m

Revenue

2

1,520

-

1,520

1,614

-

1,614









EBITDA ii


321

(17)

304

193

(169)

24

Depreciation, amortisation and impairment

 

 

(157)

-

(157)

(126)

(600)

(726)

Operating profit / (loss)iii


164

(17)

147

67

(769)

(702)

Impairment of available for sale financial assets


-

(2)

(2)

-

(6)

(6)

Finance income

4

9

26

35

5

30

35

Finance expenses

4

(19)

(25)

(44)

(19)

-

(19)

Share of profit / (loss) of equity accounted investments


4

-

4

4

(10)

(6)

Profit / (loss) before taxation


158

(18)

140

57

(755)

(698)

Income tax credit iv

5

(27)

85

58

(39)

187

148

Profit / (loss) for the year


131

67

198

18

(568)

(550)









Attributable to:

- Equity shareholders of Lonmin Plc

- Non-controlling interests


109

22

57

10

166

32

15

3

(425)

(143)

(410)

(140)

 

Earnings / (loss) per share v

6



31.2c



(107.7)c

Diluted earnings / (loss) per sharev,vi

6



31.1c



(107.7)c

 

Consolidated statement of comprehensive income

for the year ended 30 September

 


 

 

 

2013

Total

$m

2012

Total

$m

Profit / (loss) for the year


198

(550)

Items that may be reclassified subsequently to the income statement




- Changes in fair value of available for sale financial assets


-

(8)

- Changes in settled cash flow hedges released to the income statement vii


8

-

- Foreign exchange loss on retranslation of equity accounted investments


(9)

(5)

- Deferred tax on items taken directly to the statement of comprehensive income


-

(2)

Total other comprehensive expense for the period


(1)

(15)





Total comprehensive income / (loss) for the period


197

(565)

 

Attributable to:

- Equity shareholders of Lonmin Plc

- Non-controlling interests

 

 

 

 

(425)

(140)



197

(565)

 

Footnotes:

 

i

Underlying results and earnings / (loss) per share are based on reported results and earnings / (loss) per share excluding the effect of special items as defined in note 3.

ii

EBITDA is operating profit / (loss) before depreciation, amortisation and impairment of goodwill, intangibles and property, plant and equipment.

iii

Operating profit / (loss) is defined as revenue less operating expenses before impairment of available for sale financial assets, finance income and expenses and share of profit / (loss) of equity accounted investments.

iv

The income tax credit substantially relates to overseas taxation and includes net exchange gains of $80 million (2012 - $17 million) as disclosed in note 5.

v

During December 2012 the Group undertook a Rights Issue of shares.  As a result the September 2012 loss per share and diluted loss per share have been adjusted to reflect the bonus element of the Rights Issue as disclosed in note 6.

vi

Diluted earnings / (loss) per share is based on the weighted average number of ordinary shares in issue adjusted by dilutive outstanding share options.

vii

Refer to note 4 for detail regarding the unwinding of the interest rate swap derivative.



Consolidated statement of financial position

as at 30 September

 


 

Note

2013

$m

2012

$m





Non-current assets




Goodwill


40

40

Intangible assets


462

462

Property, plant and equipment


2,908

2,889

Equity accounted investments


36

157

Other financial assets


430

418



3,876

3,966





Current assets




Inventories


449

260

Trade and other receivables


86

79

Tax recoverable


4

3

Cash and cash equivalents

8

201

315



740

657





Current liabilities




Trade and other payables


(295)

(328)

Interest bearing loans and borrowings

8

-

(123)

Derivative financial instruments


-

(5)

Deferred revenue


(23)

(24)



(318)

(480)

Net current assets


422

177

 

Non-current liabilities




Interest bearing loans and borrowings

8

-

(613)

Derivative financial instruments


-

(10)

Deferred tax liabilities


(501)

(562)

Deferred revenue


(47)

(70)

Provisions


(140)

(143)



(688)

(1,398)

Net assets


3,610

2,745

 

Capital and reserves




Share capital


569

203

Share premium


1,411

997

Other reserves


88

80

Retained earnings


1,341

1,208

Attributable to equity shareholders of Lonmin Plc


3,409

2,488

Attributable to non-controlling interests


201

257

Total equity


3,610

2,745

 

The financial statements of Lonmin Plc, registered number 103002, were approved by the Board of Directors on 10 November 2013 and were signed on its behalf by:

 

Roger Phillimore Chairman

Simon Scott Chief Financial Officer



Consolidated statement of changes in equity

for the year ended 30 September

 


Equity interest



               

Called up

share

capital

$m

Share

premium

account

$m

 

Other

reserves i

$m

 

Retained

earnings ii

$m

 

 

Total

$m

Non-controlling

interests iii

$m

 

Total

equity

$m









At 1 October 2011

203

997

80

1,650

2,930

411

3,341

Loss for the year

-

-

-

(410)

(410)

(140)

(550)

Total other comprehensive expense:

-

-

-

(15)

(15)

-

(15)

- Change in fair value of available for sale financial  assets

-

-

-

(8)

(8)

-

(8)

- Foreign exchange on retranslation of equity accounted investments

-

-

-

(5)

(5)

-

(5)

- Deferred tax on items taken directly to the statement of comprehensive income

-

-

-

(2)

(2)

-

(2)

Transactions with owners, recognised directly in equity:

-

-

-

(17)

(17)

(14)

(31)

- Share-based payments

-

-

-

14

14

-

14

- Dividends

-

-

-

(31)

(31)

(14)

(45)









At 30 September 2012

203

997

80

1,208

2,488

257

2,745



Consolidated statement of changes in equity (continued)

for the year ended 30 September

 


Equity interest



               

Called up

share

capital

$m

Share

premium

account

$m

 

Other

reserves i

$m

 

Retained

earnings ii

$m

 

 

Total

$m

Non-controlling

interests iii

$m

 

Total

equity

$m









At 1 October 2012

203

997

80

1,208

2,488

257

2,745

Profit for the year

-

-

-

166

166

32

198

Total other comprehensive expense:

-

-

8

(8)

-

(1)

(1)

- Change in settled cash flow hedges released to the income statement iv

 

-

-

8

-

8

-

8

- Foreign exchange on retranslation of equity accounted investments

-

-

-

(8)

(8)

(1)

(9)

Transactions with owners, recognised directly in equity:

366

414

-

(25)

755

(87)

668

- Share-based payments

-

-

-

14

14

-

14

- Incwala equity accounting adjustment v

-

-

-

(39)

(39)

(76)

(115)

- Share capital and share premium recognised on Rights Issue vi

365

459

-

-

824

-

824

- Rights Issue costs charged to share premium vi

-

(45)

-

-

(45)

-

(45)

- Shares issued on exercise of share options vii

1

-

-

-

1

-

1

- Dividends

-

-

-

-

-

(11)

(11)









At 30 September 2013

569

1,411

88

1,341

3,409

201

3,610

 

Footnotes:

 

i

Other reserves at 30 September 2013 represent the capital redemption reserve of $88 million (2012 - $88 million) and a $nil hedging loss net of deferred tax (2012 - $8 million).

ii

Retained earnings include $5 million of accumulated credits in respect of fair value movements on available for sale financial assets (2012 - $5 million accumulated credits) and a $6 million debit of accumulated exchange on retranslation of equity accounted investments (2012 - $3 million credit).

iii

Non-controlling interests represent a 13.76% shareholding in each of Eastern Platinum Limited, Western Platinum Limited and Messina Limited and a 19.87% shareholding in Akanani Mining (Proprietary) Limited.

iv

Refer to note 4 for detail regarding the unwinding of the interest rate swap derivative.

v

Where an associate owns an equity interest in a group entity an adjustment is made to the equity accounting and the non-controlling interest to avoid double counting.  Any difference between the adjustment to the investment in the associate and non-controlling interest is taken direct to equity.

vi

During December 2012 the Group undertook a Rights Issue in which 365,496,943 shares were issued as disclosed in note 9.

vii

During the year 900,000 share options were exercised (2012 - 400,000) on which $0.9 million of cash was received (2012 - $0.4 million).



Consolidated statement of cash flows

for the year ended 30 September

 


 

Note

2013

$m

2012

$m

Profit / (loss) for the year


198

(550)

Taxation

5

(58)

(148)

Share of (profit) / loss of equity accounted investments


(4)

6

Finance income

4

(35)

(35)

Finance expenses

4

44

19

Impairment of available for sale financial assets

3

2

6

Non cash movement on deferred revenue


(24)

(13)

Depreciation, amortisation and impairment


157

726

Change in inventories


(189)

124

Change in trade and other receivables


(2)

75

Change in trade and other payables


(32)

(28)

Change in provisions


(23)

(3)

Deferred revenue received


-

107

Share-based payments


14

14

Loss on disposal of property, plant and equipment


5

-

Cash flow from operations


53

300

Interest received


1

4

Interest and bank fees paid


(34)

(31)

Tax paid


(4)

(10)

Cash inflow from operating activities


16

263





Cash flow from investing activities




Distribution from joint venture


1

7

Additions to other financial assets


-

(2)

Purchase of property, plant and equipment


(156)

(404)

Purchase of intangible assets


(3)

(4)

Cash used in investing activities


(158)

(403)





Cash flow from financing activities




Equity dividends paid to Lonmin shareholders


-

(31)

Dividends paid to non-controlling interests


(11)

(14)

Proceeds from current borrowings

8

257

120

Repayment of current borrowings

8

(380)

(10)

Proceeds from non-current borrowings

8

369

589

Repayment of non-current borrowings

8

(988)

(275)

Proceeds from equity issuance

9

823

-

Costs of issuing shares

9

(45)

-

Loss on settlement of forward exchange contracts on equity issuance

9

(11)

-

Issue of other ordinary share capital


1

-

Cash inflow from financing activities


15

379

(Decrease) / increase in cash and cash equivalents

8

(127)

239

Opening cash and cash equivalents

8

315

76

Effect of foreign exchange rate changes

8

13

-

Closing cash and cash equivalents

8

201

315



Notes to the accounts

 

1.  Statement on accounting policies

 

Basis of preparation

 

The financial information presented has been prepared on the basis of International Financial Reporting Standards (IFRSs) as adopted by the EU.

 

Going concern

In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

 

The financial performance of the Group is dependent upon the wider economic environment in which the Group operates. Factors exist which are outside the control of management which can have a significant impact on the business, specifically, volatility in the Rand / US Dollar exchange rate and PGM commodity prices. The events at Marikana in August and September 2012 necessitated a review of the strategy and capital structure of the Group. To this end, the Lonmin Plc Board concluded that reducing capital expenditure in the near term and raising additional equity, in conjunction with a revision to bank facilities would result in the appropriate capital structure and retain the Group's flexibility as regards financial risks.

 

In December 2012, Lonmin Plc successfully concluded a Rights Issue which raised net proceeds of $767 million (see note 9). In conjunction with the Rights Issue, Lonmin Plc negotiated certain amendments to the terms of the Group's existing debt facilities. The proceeds of the Rights Issue were utilised to reduce the Group's debt exposure.

 

The Directors have prepared cash flow and covenant forecasts for a period in excess of twelve months and have concluded that the capital structure, after the successful Rights Issue and debt facilities amendments, provides sufficient head room to cushion against downside operational risks and minimises the risk of breaching new covenants.

 

As a result, the Directors believe that the Group will continue to meet its obligations as they fall due and comply with its financial covenants and accordingly have formed a judgement that it is appropriate to prepare the financial statements on a going concern basis. Therefore, these financial statements do not include any adjustments that would result if the going concern basis on preparation is inappropriate.

 

New standards and amendments in the year

 

The following revised IFRS has been adopted in these financial statements. The application of this IFRS has not had any material impact on the amounts reported for the current and prior years:

 

·      IAS 1 - Amendments to Presentation of Financial Statements (effective 1 July 2012) requires that an entity present separately the items of Other Comprehensive Income that may be reclassified to the income statement in future from those that would never be reclassified to the income statement.

There were no other new standards, interpretations or amendments to standards issued and effective for the year which materially impacted the Group's financial statements.



Notes to the accounts (continued)

 

2.  Segmental analysis

 

The Group distinguishes between three reportable operating segments being the Platinum Group Metals (PGM) Operations segment, the Evaluation segment and the Exploration segment.

 

The PGM Operations segment comprises the activities involved in the mining and processing of PGMs, together with associated base metals, which are carried out entirely in South Africa. These operations are integrated and designed to support the process for extracting and refining PGMs from underground. PGMs move through each stage of the process and undergo successive levels of refinement which result in fully refined metals. The Chief Executive Officer, who performs the role of Chief Operating Decision Maker (CODM), views the PGM Operations segment as a single whole for the purposes of financial performance monitoring and assessment and does not make resource allocations based on margin, costs or cash flows incurred at each separate stage of the process. In addition, the CODM makes his decisions for running the business on a day to day basis using the physical operating statistics generated by the business as these summarise the operating performance of the entire segment.

 

The Evaluation segment covers the evaluation through pre-feasibility of the economic viability of newly discovered PGM deposits.  Currently all of the evaluation projects are based in South Africa. 

 

The Exploration segment covers the activities involved in the discovery or identification of new PGM deposits.  This activity occurs on a worldwide basis.

 

No operating segments have been aggregated. Operating segments have consistently adopted the consolidated basis of accounting and there are no differences in measurement applied. Other covers mainly the results and investment activities of the corporate Head Office.  The only intersegment transactions involve the provision of funding between segments and any associated interest.

 


Year ended 30 September 2013


PGM

Operations

Segment

$m

 

Evaluation

Segment

$m

 

Exploration

Segment

$m

 

 

Other

$m

Inter-

segment

Adjustments

$m

 

 

Total

$m








Revenue (external sales by product):







Platinum

1,055

-

-

-

-

1,055

Palladium

224

-

-

-

-

224

Gold

28

-

-

-

-

28

Rhodium

85

-

-

-

-

85

Ruthenium

13

-

-

-

-

13

Iridium

27

-

-

-

-

27

PGMs

1,432

-

-

-

-

1,432

Nickel

46

-

-

-

-

46

Copper

15

-

-

-

-

15

Chrome

27

-

-

-

-

27


1,520

-

-

-

-

1,520



Notes to the accounts (continued)

 

2.  Segmental analysis (continued)

 


Year ended 30 September 2013


PGM

Operations

Segment

$m

 

Evaluation

Segment

$m

 

Exploration

Segment

$m

 

 

Other

$m

Inter-

segment

Adjustments

$m

 

 

Total

$m








Underlying i:







EBITDA / (LBITDA) ii

339

8

(4)

(22)

-

321

Depreciation, amortisation and impairment

(157)

-

-

-

-

(157)

Operating profit / (loss) ii

182

8

(4)

(22)

-

164

Finance income

13

-

-

14

(18)

9

Finance expenses

(25)

-

-

(12)

18

(19)

Share of profit of equity accounted investments

4

-

-

-

-

4

Profit / (loss) before taxation

174

8

(4)

(20)

-

158

Income tax expense

(27)

-

-

-

-

(27)

Underlying profit / (loss) after taxation

147

8

(4)

(20)

-

131

Special items (note 3) iii

68

-

-

(1)

-

67

Profit / (loss) after taxation

215

8

(4)

(21)

-

198















Total assets iv

3,899

276

-

1,603

(1,162)

4,616

Total liabilities v

(1,909)

(187)

(42)

(30)

1,162

(1,006)

Net assets

1,990

89

(42)

1,573

-

3,610








Share of net assets of equity accounted investments vi

36

-

-

-

-

36

Additions to property, plant, equipment and intangibles

174

7

-

-

-

181

 

Material non cash items - share-based payments

13

-

-

1

-

14



Notes to the accounts (continued)

 

2.  Segmental analysis (continued)

 


Year ended 30 September 2012


PGM

Operations

Segment

$m

 

Evaluation

Segment

$m

 

Exploration

Segment

$m

 

 

Other

$m

Inter-

segment

Adjustments

$m

 

 

Total

$m








Revenue (external sales by product):







Platinum

1,064

-

-

-

-

1,064

Palladium

212

-

-

-

-

212

Gold

31

-

-

-

-

31

Rhodium

152

-

-

-

-

152

Ruthenium

17

-

-

-

-

17

Iridium

39

-

-

-

-

39

PGMs

1,515

-

-

-

-

1,515

 

Nickel

55

-

-

-

-

55

Copper

16

-

-

-

-

16

Chrome

28

-

-

-

-

28


1,614

-

-

-

-

1,614








 

 

Year ended 30 September 2012


PGM

Operations

Segment

$m

 

Evaluation

Segment

$m

 

Exploration

Segment

$m

 

 

Other

$m

Inter-

segment

Adjustments

$m

 

 

Total

$m








Underlying i:







EBITDA / (LBITDA) ii

202

3

(4)

(8)

-

193

Depreciation, amortisation and impairment

(126)

-

-

-

-

(126)

Operating profit / (loss) ii

76

3

(4)

(8)

-

67

Finance income

5

-

-

14

(14)

5

Finance expenses

(15)

-

-

(18)

14

(19)

Share of profit of equity accounted investments

2

-

-

2

-

4

Profit / (loss) before taxation

68

3

(4)

(10)

-

57

Income tax expense

(39)

-

-

-

-

(39)

Underlying profit / (loss) after taxation

29

3

(4)

(10)

-

18

Special items (note 3) iii

(103)

(481)

-

16

-

(568)

(Loss) / profit after taxation

(74)

(478)

(4)

6

-

(550)















Total assets iv

3,862

269

-

1,493

(1,001)

4,623

Total liabilities v

(2,094)

(188)

(46)

(551)

1,001

(1,878)

Net assets

1,768

81

(46)

942

-

2,745



Notes to the accounts (continued)

 

2.  Segmental analysis (continued)

 


Year ended 30 September 2012


PGM

Operations

Segment

$m

 

Evaluation

Segment

$m

 

Exploration

Segment

$m

 

 

Other

$m

Inter-

segment

Adjustments

$m

 

 

Total

$m








Share of net assets of equity accounted investments

42

-

-

115

-

157

Additions to property, plant, equipment and intangibles

439

5

-

-

-

444

 

Material non cash items - share-based payments

13

-

-

1

-

14

 

Revenue by destination is analysed by geographical area below:

 


Year ended

30 September

2013

$m

Year ended

30 September

2012

$m

The Americas

411

319

Asia

461

485

Europe

451

508

South Africa

197

302


1,520

1,614

 

The Group's revenues are all derived from the PGM Operations segment. This segment has two major customers who contributed 62% ($937 million) and 30% ($459 million) of revenue in the year (2012 - 49% ($794 million) and 29% ($473 million)).

 

Metal sales prices are based on market prices which are denominated in US Dollars. The majority of sales are also invoiced in US Dollars with the exception of certain sales in South Africa which are invoiced in South African Rand based on exchange rates determined in accordance with the contractual arrangements.

 

Non-current assets, excluding financial instruments, by geographical area are shown below:

 



Year ended

30 September

2013

$m

Year ended

30 September

2012

$m

South Africa

3,446

3,547

Europe

-

1


3,446

3,548

 

Footnotes:

 

i

Underlying results are based on reported results excluding the effect of special items as defined in note 3.

ii

EBITDA / (LBITDA) and operating profit / (loss) are the key profit measures used by management.

iii

The impairment of Akanani to the value of $nil (2012 - $602 million) is included under special items in the segmental analysis. Akanani forms part of the Evaluation segment.

iv

The assets under "Other" include the HDSA receivable of $399 million (2012 - $381 million) and intercompany receivables of $1,162 million (2012 - $707 million).

v

The liabilities under "Other" include non-current borrowings of $nil (2012 - $500 million).

vi

Refer to footnote v in the statement of changes in equity.



Notes to the accounts (continued)

 

3.  Special Items

 

'Special items' are those items of financial performance that the Group believes should be separately disclosed on the face of the income statement to assist in the understanding of the financial performance achieved by the Group and for consistency with prior years.

 


2013

$m

2012

$m




Operating loss:

(17)

(769)

- Costs relating to illegal work stoppage i



            Idle fixed production costs

-

(120)

            Contract costs

-

(29)

            Payroll costs

-

(7)

            Other costs

(7)

(3)

- Capital raising costs

-

(5)

- Impairment of property, plant and equipment

-

2

- Restructuring and reorganisation costs ii

(10)

-

- Costs incurred relating to disputed prospecting rights

-

(5)

- Impairment of exploration and evaluation assets iii

-

(602)




Impairment of available for sale financial assets iv

(2)

(6)

Share of impairment recognised in investment in associate

-

(10)




Net finance income:

1

30

- Interest accrued from HDSA receivable v

17

16

- Foreign exchange gain on HDSA receivable v

1

14

- Net change in fair value of settled cash flow hedges vi

7

-

- Unwinding fees relating to early settlement of interest rate swap vi

(14)

-

- Foreign exchange gain on holding Rights Issue proceeds received in advance (note 9)

1

-

- Loss on forward exchange contracts in respect of Rights Issue (note 9) 

(11)

-




Loss on special items before taxation

(18)

(755)

Taxation related to special items (note 5)

85

187

Special gain / (loss) before non-controlling interest

67

(568)

Non-controlling interests

(10)

143

Special gain / (loss) for the year attributable to equity shareholders of Lonmin Plc

57

(425)

 

Footnotes:

 

i

Residual strike related costs arising from the Events at Marikana continue to be incurred. For the year ended 30 September 2013, these costs totalled $7 million and largely consisted of communication costs relating to reputational rebuild as well as costs related to the on-going Farlam Commission.

The costs for 2012 related to 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. 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 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.

ii

These costs relate to the management restructuring exercise completed during 2013.

iii

Impairment charges relate to the write down of goodwill and the exploration and evaluation asset of Akanani.

iv

The $2 million (2012 - $6 million) impairment of available for sale financial assets represents the loss in value below the original cost price of one of our investments.

v

During the year ended 30 September 2010 the Group provided financing to assist a subsidiary of Shanduka to acquire a majority shareholding in Incwala, Lonmin's Black Economic Empowerment partner.  This financing gave rise to foreign exchange movements and the accrual of interest.

vi

Refer to note 4 for detail regarding the unwinding of the interest rate swap derivative.



Notes to the accounts (continued)

 

4.  Net finance (expenses) / income

 


2013

$m

2012

$m




Finance income:

9

5

- Interest receivable on cash and cash equivalents

1

4

- Other interest receivable

-

1

- Foreign exchange gains on net cash / (debt) i

8

-




Finance expenses:

(19)

(19)

- Interest payable on bank loans and overdrafts

(11)

(20)

- Effective portion of cash flow hedges released to the income statement

-

(5)

- Bank fees

(7)

(6)

- Unamortised bank fees realised on settlement of old loan facility

(3)

-

- Capitalised interest ii

11

26

- Unwind of discounting on provisions

(9)

(11)

- Ineffective portion of cash flow hedges released to the income statement

-

(2)

- Foreign exchange losses on net cash / (debt) i 

-

(1)




Special items (note 3):

1

30

- Interest on HDSA receivable

17

16

- Foreign exchange gain on HDSA receivable

1

14

- Net change in fair value of settled cash flow hedges iii 

7

-

- Unwinding fees relating to early settlement of interest rate swap iii 

(14)

-

- Foreign exchange gain on holding Rights Issue proceeds received in advance (note 9) 

1

-

- Loss on forward exchange contracts in respect of Rights Issue (note 9)

(11)

-




Net finance (expenses) / income 

(9)

16

 

Footnotes:

 

i

Net cash / (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, unless the unamortised bank fees relate to undrawn facilities in which case they are treated as other receivables.

ii

Interest expenses incurred have been capitalised on a Group basis to the extent that there is an appropriate qualifying asset. The weighted average interest rate used by the Group for capitalisation is 5.9% (2012 - 4.3%).

iii

The interest rate swap entered into in 2011 was unwound after the funds raised from the Rights Issue were used to settle the underlying bank debt.  The equity related hedging loss of $8m and the derivative liability of $15m were transferred to the income statement resulting in net finance income of $7m.  In addition unwinding fees of $14m were incurred for early settlement of the interest rate swap.



Notes to the accounts (continued)

 

5.  Taxation

 


2013

$m

2012

$m

Current tax charge (excluding special items):



United Kingdom tax expense

-

-

Current tax expense at 23.5% (2012 - 25%) i

-

-

Less amount of the benefit arising from double tax relief available

-

-




Overseas current tax expense at 28% (2012 - 28%)

2

10

Corporate tax expense - current year

3

9

Adjustment in respect of prior years

(1)

1




Deferred tax charge (excluding special items):



Deferred tax expense - UK and overseas

25

29

Origination and reversal of temporary differences

26

31

Adjustment in respect of prior years

(1)

(2)




Tax credit on special items - UK and overseas (note 3):

(85)

(187)

Reversal of utilisation of losses from prior years to offset deferred tax liability

-

(2)

Foreign exchange on current taxation ii

1

-

Foreign exchange on deferred taxation ii

(81)

(17)

Tax on special items impacting profit before tax

(5)

(168)




Actual tax credit

(58)

(148)

 

Tax charge excluding special items (note 3)

27

39

 

Effective tax rate

(41%)

21%

 

Effective tax rate excluding special items (note 3)

17%

68%




 

A reconciliation of the standard tax charge / (credit) to the actual tax credit was as follows:

 


2013

2013

2012

2012


%

%

Tax charge / (credit) on profit / (loss) at standard tax rate

28

39

28

(195)

Tax effect of:





- Unutilised losses iii

4

5

-

-

- Foreign exchange impacts on taxable profits

(17)

(23)

(2)

14

- Adjustment in respect of prior years

(1)

(2)

-

-

- Disallowed expenditure

1

1

-

-

- (Income) / expenses not subject to tax

5

7

-

(1)

Special items as defined above

(61)

(85)

(5)

34

Actual tax credit

(41)

(58)

21

(148)

 

The Group's primary operations are based in South Africa.  The South African statutory tax rate is 28% (2012 - 28%).  Lonmin Plc operates a branch in South Africa which is also subject to a tax rate of 28% on branch profits (2012 - 28%). The aggregated standard tax rate for the Group is 28% (2012 - 28%). The dividends withholding tax rate is 15% (2012 - 15%).  Dividends payable by the South African companies to Lonmin Plc are subject to a 5% withholding tax benefitting from double taxation agreements.

 

Footnotes:

 

i

Effective from 1 April 2013 the United Kingdom tax rate changed from 24% to 23%.  Effective from 1 April 2014 the United Kingdom tax rate will change from 23% to 21% and from 21% to 20% from 1 April 2015. This does not materially impact the Group's recognised deferred tax liabilities.

ii

Overseas tax charges are predominantly calculated based in Rand as required by the local authorities. As these subsidiaries' functional currency is US Dollar this leads to a variety of foreign exchange impacts being the retranslation of current and deferred tax balances and monetary assets, as well as other translation differences. The Rand denominated deferred tax balance in US Dollars at 30 September 2013 is $388 million (30 September 2012 - $461 million).

iii

Unutilised losses reflect losses generated in entities for which no deferred tax is provided as it is not thought probable that future profits can be generated against which a deferred tax asset could be offset or previously unrecognised losses utilised.



Notes to the accounts (continued)

 

6.  Earnings / (loss) per share

 

Earnings / (loss) per share (EPS / (LPS)) has been calculated on the profit attributable to equity shareholders amounting to $166 million (2012 - loss of $410 million) using a weighted average number of 532,130,347 ordinary shares in issue (2012 - 380,691,485 ordinary shares).

 

During December 2012 the Group undertook a capital raising by way of a Rights Issue.  As a result the EPS / (LPS) figures have been adjusted retrospectively as required by IAS 33 - Earnings Per Share.  On 11 December 2012, 365,496,943 ordinary shares were issued with nine new ordinary shares issued for every existing five ordinary shares held.  For the calculation of the EPS / (LPS), the number of shares held prior to 11 December 2012 has been increased by a factor of 1.878 to reflect the bonus element of the Rights Issue.

 

Diluted earnings / (loss) per share is based on the weighted average number of ordinary shares in issue adjusted by dilutive outstanding share options in accordance with IAS 33 - Earnings Per Share. In the year to 30 September 2012 outstanding share options were anti-dilutive and so were excluded from diluted loss per share in accordance with IAS 33 - Earnings Per Share.

 


2013

2012 (restated)


Profit for

the year

$m

 

Number of

shares

Per share

amount

cents


Loss for

the year

$m

 

Number of

shares

Per share

amount

cents

Basic EPS/(LPS)

166

532,130,347

31.2


(410)

380,691,485

(107.7)

Share option schemes

-

2,105,203

(0.1)


-

-

-

Diluted EPS/(LPS)

166

534,235,550

31.1


(410)

380,691,485

(107.7)





2013

2012 (restated)


Profit for

the year

$m

 

Number of

shares

Per share

amount

cents


Profit for

the year

$m

 

Number of

shares

Per share

amount

cents

Underlying EPS

109

532,130,347

20.5


15

380,691,485

3.9

Share option schemes

-

2,105,203

(0.1)


-

3,174,636

-

Diluted Underlying EPS

109

534,235,550

20.4


15

383,866,121

3.9

 

Underlying earnings per share has been presented as the Directors consider it important to present the underlying results of the business. Underlying earnings per share is based on the earnings attributable to equity shareholders adjusted to exclude special items (as defined in note 3) as follows:

 


2013

2012 (restated)


 

Profit for

the year

$m

 

 

Number of

shares

 

Per share

amount

cents


(Loss)/

profit for

the year

$m

 

 

Number of

shares

 

Per share

amount

cents

Basic EPS/(LPS)

166

532,130,347

31.2


(410)

380,691,485

(107.7)

Special items (note 3)

(57)

-

(10.7)


425

-

111.6

Underlying EPS

109

532,130,347

20.5


15

380,691,485

3.9

 

Headline earnings and the resultant headline earnings per share are specific disclosures defined and required by the Johannesburg Stock Exchange. These are calculated as follows:


Year ended

30 September

2013

$m

Year ended

30 September

2012

$m

Earnings / (loss) attributable to ordinary shareholders (IAS 33 earnings)

166

(410)

Add back loss on disposal of property, plant and equipment

5

-

Add back impairment of assets (note 3)

2

616

Tax related to the above items

(1)

(120)

Non-controlling interests

(1)

(86)

Headline earnings

171

-



Notes to the accounts (continued)

 

6.  Earnings / (loss) per share (continued)

 


2013

2012 (restated)


Profit for

the year $m

 

Number of

shares

Per share

amount

cents


Loss for

the year

$m

 

Number of

shares

Per share

amount

cents

Headline EPS

171

532,130,347

32.1


-

380,691,485

-

Share option schemes

-

2,105,203

(0.1)


-

3,174,636

-

Diluted Headline EPS

171

534,235,550

32.0


-

383,866,121

-

 

7.  Dividends

 


2013


2012


$m

Cents per share


$m

Cents per share







Prior year final dividend paid in the year

-

-


31

15.0

Interim dividend paid in the year

-

-


-

-

Total dividend paid in the year

-

-


31

15.0







Interim dividend paid in the year

-

-


-

-

Proposed final dividend for the year

-

-


-

-

Total dividend in respect of the year

-

-


-

-



Notes to the accounts (continued)

 

8.  Net cash / (debt) as defined by the Group

 


 

As at

1 October

2012

$m

 

 

 

Cash flow

$m

Foreign exchange and non cash

movements

$m

Transfer of unmortised bank fees to other receivables

$m

As at

30 September

2013

$m

 





Cash and cash equivalents

315

(127)

13

-

201

Current borrowings

(123)

123

-

-

-

Non-current borrowings

(619)

619

-

-

-

Unamortised bank fees ii

6

(3)

2

(5)

-

Net cash / (debt) as defined by the Group i

(421)

612

15

 

(5)

201

 

 


 

As at

1 October

2011

$m

 

 

Cash

flow

$m

Foreign

exchange and non cash

movements

$m

Transfer of unmortised bank fees to other receivables

$m

As at

30 September

2012

$m







Cash and cash equivalents

76

239

-

-

315

Current borrowings

(10)

(110)

(3)

-

(123)

Non-current borrowings

(308)

(314)

3

-

(619)

Unamortised bank fees ii

8

-

(2)

-

6

Net debt as defined by the Group i

(234)

(185)

(2)

-

(421)

 

Footnotes:

 

i

Net cash / (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, unless the unamortised bank fees relate to undrawn facilities in which case they are treated as other receivables.

ii

As at 30 September 2013 unamortised bank fees of $5 million relating to undrawn facilities were treated as other receivables (30 September 2012 - $6 million of unamortised bank fees relating to drawn facilities were offset against loans).  During the year ended 30 September 2013 the term loan was repaid and cancelled resulting in the related unamortised bank fees of $3 million being expensed.  Additional bank fees incurred in amending the USD and the Rand revolving credit facilities were capitalised and are being amortised over the remaining term of the facilities.



Notes to the Accounts (continued)

 

9.  Rights Issue

 

Overview of the Rights Issue offer

 

On 9 November 2012, Lonmin announced a fully underwritten 9 for 5 Rights Issue of 365,503,264 new shares at 140 pence per new share for shareholders on the London Stock Exchange and at ZAR19.4872 per new share for shareholders on the Johannesburg Stock Exchange. The offer period commenced on 20 November 2012 and closed for acceptance on 10 December 2012. The final number of shares issued was 365,496,943.


In the prospectus, Lonmin anticipated raising $817 million of total proceeds which, net of expenses of $40 million would raise funds of $777 million. The issue was successful with a take up of just below 97% and the remaining 3% raised through a rump placement. The Company raised total net cash proceeds of $767 million which was slightly below expectations given in the prospectus as a result of exchange differences between the prospectus exchange rate and that achieved ($4 million) as well as expenses being $5 million more than anticipated.

 

Accounting for the Rights Issue

 

The Rights Issue proceeds were received over the offer period and initially credited to a "shares to be issued" account at the prevailing spot exchange rates at the dates of receipt resulting in the recognition of cash inflow of $823 million before the impact of hedging arrangements. The retranslation of these receipts at the spot rate on closing resulted in a $1 million exchange gain recognised through finance income as a special item.

 

Share capital and share premium of $365 million and $459 million respectively were recognised on the statement of financial position using the spot exchange rate on the date of issuance being 11 December 2012. $45 million of issue costs were also recognised and charged against share premium. Therefore the total net increase in share capital and share premium was $779 million.


In order to minimise the risk of the exposure to currency fluctuations on the Rand and Sterling proceeds expected, the Group entered into forward exchange contracts in synchronisation with the Rights Issue process. The Dollar weakened over the offer period resulting in the Rand and Sterling proceeds received and translated at prevailing spot rates being more than due under the forward exchange contracts. This resulted in the recognition of exchange losses of $11 million. This $11 million fair value loss cannot be offset against equity (which it was effectively hedging for economic purposes) as, under IFRS, hedge accounting can only be applied to cash flows which ultimately affect profit and loss. The loss on forward exchange contracts has therefore been shown as a special charge in finance costs in the income statement. The offset is effectively in the recognition of a higher credit to the share premium account.

 

A summary of the above transaction is shown below:

 


$m

Cash proceeds received at spot rates

823

Foreign exchange gain on retranslation of advance cash proceeds

1

Gross increase in share capital and share premium

824

Costs of issue charged to share premium

(45)

Net increase in share capital and share premium

779

Loss on settlement of forward exchange contracts

(11)

Total i

768

 

Footnote:

 

i

Net cash proceeds amounted to $767 million (excluding the foreign exchange gain on retranslation of advance cash proceeds of $1 million).



 

Notes to the Accounts (continued)

 

10.  Statutory Disclosure

 

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 September 2013 or 2012 but is derived from those accounts. Statutory accounts for 2012 have been delivered to the registrar of companies, and those for 2013 will be delivered in due course. The auditor has reported on those accounts. Their report on the accounts for 2013 was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. Their report on the accounts for 2012 was (i) unqualified, (ii) drew attention by way of emphasis without qualifying their report to a material uncertainty in respect of going concern and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.


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