TIDMLMI
RNS Number : 8081G
Lonmin PLC
12 May 2014
REGULATORY RELEASE
12 May 2014
2014 Interim Results
Lonmin Plc, ("Lonmin" or "the Company"), the world's third
largest primary platinum producer, today publishes its Interim
Results for the period ended 31 March 2014 and an update on events
to today's date.
Key Features
Safety is our number one priority:
o Improved LTIFR to3.23 incidents per million man hours compared
to 3.66 in the prior year period
o We regret that we suffered one fatality at the start of H1
2014
Results significantly impacted by the industrial action:
o Minimal operations during the striking period - 3.2 million
tonnes produced, down 43%
o 155,720 of equivalent saleable Platinum ounces lost as result
of the strike
o Saleable metal in concentrate of 215,117 Platinum ounces, down
41% on prior year period
o Platinum sales of 263,675 ounces - down 19% on the prior year
period
o Basket price down 16% to $1,056 per PGM ounce despite supply
side concerns around the strike action
o Rand unit cost at R13,058 per PGM ounce, up 46% on prior year
period
o Underlying EBIT $34 million, down from $93 million in the
prior year period
o Solid track record in overall concentrator recoveries -
improved from 86.8% in prior year period to 87.7%
o Net cash of $71 million with available committed debt
facilities of $589 million
o Cash flow requirements on resumption of operations may put the
business in a net debt position.
o Force majeure notices issued to customers, suppliers and
contractors during strike period
Focus on maintaining integrity of operations, in readiness for
re-start and safe and effective ramp up:
o Furnaces idling and being monitored; concentrators and
refineries shut
o Pipeline stocks not fully depleted. It is intended to resume
processing operations in May to process remaining pipeline
o Available ore reserve position at 3.7 million centares
provides for flexibility
o Cash conservation measures reduced cash outflows by around 60%
of normal operating costs and capital expenditure
Market outlook:
o Deficits in 2014 as protected strike continues and South
African supply shrinks
o Improving automotive demand and sustained and increasing
jewellery demand
Guidance:
o K4 return to be delayed
o Sales guidance will be predicated on timing of return to
work
o Expect unit cost per PGM ounce to be above wage inflation and
capex to be lower than previous guidance of $210 million - we will
provide guidance in due course
Ben Magara Chief Executive Officer, said: "This has been a
challenging first half of the year, latterly dominated by
protracted industrial action across the PGM sector. Whilst we
continue to work to resolve this dispute we have also taken
decisive and early action to reduce cash burn, to safeguard our
great assets and protect our balance sheet integrity ahead of a
safe and successful ramp up when the strike ends; something we have
demonstrated we excel in."
Financial Highlights
6 months 6 months
to to
31 March 31 March
2014 2013
--------------------------------------- ---------- ----------
Revenue $578m $735m
Underlying (i) operating profit $34m $93m
Operating (loss) / profit (ii) $(131)m $90m
Underlying (i) profit before taxation $26m $89m
(Loss) / profit before taxation $(278)m $54m
Underlying (i) earnings per share 3.5c 12.3c
(Loss) / earnings per share (35.5)c 13.3c
Trading cash outflow per share (iii) (12.5)c (17.2)c
Free cash outflow per share (iv) (23.4)c (31.9)c
Net cash as defined by the Group
(v) $71m $194m
Interest cover (times) (vi) 21.0x 9.1x
Gearing (vii) - -
Footnotes:
i Underlying results and earnings per share are based on reported results
and (loss) / earnings per share excluding the effect of special items as
disclosed in note 3 to the interim statements.
ii Operating (loss) / profit is defined as revenue less operating expenses
before impairment of available for sale financial assets, finance income
and expenses and before share of (loss) / profit of equity accounted investments.
iii Trading cash flow is defined as cash flow from operating activities.
iv Free cash flow is defined as trading cash flow less capital expenditure
on property, plant and equipment and intangibles, proceeds from disposal
of assets and dividends paid to non-controlling interests.
v Net cash 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.
vi Interest cover is calculated for the twelve month periods to 31 March 2014
and 31 March 2013 on the underlying operating profit divided by the underlying
net bank interest payable excluding exchange differences.
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
+27 11 218 8358
Tanya Chikanza (Head of Investor /
Relations) +44 20 7201 6007
Floyd Sibandze (Investor Relations
Manager) +27 11 218 8300
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. Lonmin's mining
operations extract ore from which the Process Division produces
refined PGMs for delivery to customers. Underpinning the operations
is the Shared Services function which provides high quality levels
of support and infrastructure across the operations.
For further information please visit our website:
http://www.lonmin.com
Chief Executive Officer's Review
1. Introduction
The six month period to 31 March 2014 was significantly impacted
by the protracted wage strike which has beset the platinum industry
in South Africa and is now in its sixteenth week. The length of the
strike has put an industry that is already struggling with the
combined pressures of low PGM prices and high cost inflation under
enormous pressure and challenges the viability of some of the
marginal operating shafts in the industry.
At Lonmin, production at both the mining and processing
divisions at our Marikana operations have been minimal since 23
January 2014 when the Association of Mineworkers and Construction
Union (AMCU), representing 70% of the workforce (as at 31 March),
commenced protected strike action, impacting performance for the
half year.
-- Sadly we lost a colleague due to a vehicle related accident at E3 shaft.
-- We mined 3.2 million attributable tonnes during the period,
down 43% from the prior year period. Production momentum in the
first quarter was impacted by Section 54 safety stoppages and low
productivity levels arising from the tensions around the then wage
negotiations. In quarter two, operations have been at a virtual
standstill for nine of the twelve possible weeks of production as a
result of the strike.
-- Production losses directly associated with industrial action
are around 2.6 million tonnes, equivalent to 160,475 ounces of
saleable Platinum ounces, of which 155,720 ounces were directly
related to the strike.
-- The depressed PGM pricing environment experienced in the
first quarter of the financial year continued in the second quarter
despite supply side concerns around the strike actions.
-- We delivered 215,117 ounces of Platinum in concentrate, down
41% from the prior year period.
-- However we achieved Platinum sales of 263,675 ounces during
the period, down 19% as we benefitted from a healthy closing
pipeline position at the end of the 2013 financial year. In
addition, we anticipated the strike towards the end of quarter one
and managed our stock to enable us to continue to supply our
customers into quarter two.
-- We have made progress with our unit cost containment in the
last 18 months, but as a result of relatively low production
volumes unit cost of production increased by 46% to R13,058 per PGM
ounce when compared with the prior year period.
-- The favourable ZAR/USD exchange rate was partially offset by
the low PGM price environment and has resulted in underlying EBITDA
of $103 million (excluding fixed production overheads incurred
during the strike and other strike related costs which have been
classified as special costs), compared to $171 million in the prior
year period. When the strike related costs are included the
operating loss in the half year was $131 million, compared to a
profit of $90 million in the prior year period and loss before tax
of $278 million compared to $54 million profit in 2013.
We have focused on safeguarding the business through a number of
initiatives. This has been done with a view to ensuring an
efficient ramp up when operations resume but also retaining the
flexibility to effect further measures to safeguard the assets in
the event of a prolonged strike:
-- We took decisive action on cost containment and cash
conservation measures during the strike and have seen normal cash
outflows reduce by around 60%, with potential to decrease further.
Our spend on capital was $46 million and our net cash balance was
$71 million at 31 March 2014 with available committed debt
facilities of $589 million. This compares with net cash of $201
million at 30 September 2013.
-- We issued force majeure notices to our PGM customers, suppliers and contractors.
-- We secured the integrity of our operations ahead of the
strike and have been idling the furnaces. This, combined with the
healthy available ore reserve position which stood at 3.7 million
centares and our solid track record in consistently achieving high
concentrator recovery rates means we are well positioned to safely
and effectively ramp up when operations resume as we did in
2012.
-- In anticipation of finding a solution to the strike we will
start the processing operations during May 2014 to process the
remaining material in the pipeline. However, if the strike
continues, we will fully deplete the pipeline and limit further
cash outflow.
-- We have a programme for further cash conservation which
potentially includes a restructuring plan should the anticipated
start up not materialise. This will further reduce the daily cash
burn.
2. Safety
Regrettably one of our colleagues, Mr Siyabonga Sibango, was
fatally injured in an underground vehicle accident at E3 shaft on
26 October 2013. We extend our deepest condolences to his family
and friends. This fatality and a rise in fatalities across the
Rustenburg region contributed to the production losses attributable
to management induced stoppages and Section 54s experienced only
during quarter one. The safety of our employees is central to all
that we do and we continue to emphasise the importance of applying
safe working practices throughout our operations. Notwithstanding
the loss of our colleague Siyabonga, our safety record during the
first half of the year was encouraging. Our rolling twelve month
average Lost Time Injury Frequency Rate (LTIFR) to 31 March 2014,
improved to 3.23 incidents per million man hours, compared to 3.66
at 31 March 2013 and reflects the reduced hours of work as a result
of the strike.
3. Production Performance
Our production performance in the first half of the 2014
financial year declined significantly as a result of the industrial
action led by AMCU. This unprecedented strike action has rendered
the latter part of the half year unproductive, with limited mining
activity from contract mining.
Mining Division
Total tonnes mined during the half year of 3.2 million, showed a
decrease of 43% when compared to the prior year period production
of 5.7 million tonnes. The Marikana underground mining operations
produced 3.0 million tonnes during the half year, a decrease of 2.3
million tonnes or 44% on the prior year period as the strike
impacted all underground shafts.
Production from our Merensky opencast operations of 155,000
tonnes was 46% lower than the prior year period as this operation
is run by non-striking contractors but has been scaled back due to
the subdued price environment. Pandora (100%) production decreased
by 107,000 tonnes, or 41% on the prior year period due to the
impact of the strike.
In total, 2,806,000 tonnes of underground production were lost
during the half year, of which 2,592,000 tonnes were lost due to
industrial action, 191,000 tonnes related to Section 54 safety
stoppages and 23,000 tonnes to management induced safety stoppages.
This compared to a total of 220,000 tonnes lost in the prior year
period of which 101,000 tonnes were due to Section 54 safety
stoppages, and 40,000 tonnes and 79,000 tonnes were due to
management induced safety stoppages and labour stoppages
respectively.
Ore reserve development
The reserve position remains healthy such that our immediately
available ore reserves at Marikana at the end of the period, were
3.7 million centares. This level of ore reserves represents an
average of 18 months based on production levels before the start of
the strike and will support our ramp up programme when operations
re-start as we will have the necessary flexibility to deploy our
production stoping crews and effectively ramp up.
Process Division
Concentrators
Operations in the Process Division have also been impacted by
the strike action in view of the minimal production from mining.
Total tonnes milled in the half year period at 3.4 million tonnes
were down 2.3 million tonnes on the prior year period or 41% as the
concentrating division was also shut down from 23 January.
Underground milled head grade decreased by 0.7% to 4.60 grammes
per tonne (5PGE+Au) compared to the prior year period. Overall the
milled head grade was 4.50 grammes per tonne, down 1.3% on the
prior year period due to a change in mix between the higher grade
and lower grade shafts.
Underground concentrator recoveries for the half year increased
by 1.2% to 87.9% when compared to the prior year period. Overall
concentrator recoveries for the period continued the upward
improvements and increased by 1.1% to 87.7% when compared to the
prior period.
Total PGMs and Platinum in concentrate for the period under
review were 412,170 and 215,117 saleable ounces respectively being
40% and 41% lower respectively when compared to the prior year
period as a result of strike related concentrator plant shut
down.
Smelters and Refineries
Our furnaces have idled and our refinery plants have been shut
during the strike period to save power and costs. As a result,
total refined production for the period at 257,217 ounces of
saleable Platinum was down 21% when compared against the prior year
period. PGMs produced in the half year were 543,179 ounces,
representing a decrease of 12% on the prior year period.
Pipeline
At this stage we have not fully depleted our pipeline stocks. We
will however start the processing operations comprised of three
concentrators and one furnace in May to process ore from the
contract mine areas as well as third party concentrate and the
remaining material in the pipeline.
Platinum sales for the half year at 263,675 ounces were 19%
lower than the prior year period, and the 547,413 PGM ounces
achieved during the period, were 6.7% lower than the prior year
period.
Production statistics for Quarter Two of the year can be found
in a separate announcement published today or on the Company's
website: www.lonmin.com.
4. Wage Negotiations and Strike Update
Industrial relations remain an increasing challenge and risk in
South Africa's mining industry with the platinum sector losing
billions of Rand in revenue to wage strikes since 2011. Lonmin and
AMCU have been engaged in wage negotiations around increases which
would be effective from 1 October 2013, with AMCU seeking a basic
wage of R12,500 per month for the lowest level employee. Following
non-resolution, a protected strike, unlike the illegal strike we
experienced during the Events at Marikana in August 2012, commenced
on 23 January. The strike involves an estimated 70,000 AMCU members
across the three affected platinum producers, namely Lonmin, Impala
Platinum Holdings and Anglo Platinum (the Companies). This action
has seen the Companies come together in seeking resolution to this
impasse. Although unsuccessful in gaining resolution, we are
grateful to the South African Government for its intervention early
on in the process, through the Commission for Conciliation,
Mediation and Arbitration (CCMA), and more recently through the
Department of Labour. More still needs to be done with regards to
law enforcement in order to allow employees freedom to come to work
should they so wish.
Revised Settlement Offer
In April 2014, the Companies tabled a revised settlement offer
in respect of the wages and benefits to AMCU and its members. This
followed engagements between the CEOs of the Companies and the
President of AMCU, Mr Joseph Mathunjwa, and AMCU's national
leadership, facilitated by the officials of the Department of
Labour.
This revised offer ensures that the minimum total cash
remuneration (comprising basic wages and holiday, living out and
other allowances) for entry level underground employees will rise
to R12,500 per month take home pay before deductions from 1 July
2017. To achieve this, the basic salary for the Lonmin employees
would rise by between 7.5% and 9.5% per year across the various
bands of our employees.
Fundamentally, AMCU's insistent demand to achieve R12,500 basic
monthly salary over four years still represents an annual increase
of 29%. This remains completely unaffordable and would have
disastrous consequences for our business, people, communities and
country if we were to agree to it as it will result in shaft
closures and job losses. In addition, the prolonged industrial
action by AMCU has made restructuring inevitable.
The revised settlement offer, represents an increase from the
7.5% to 9% per year CCMA offer, and the 7.5% to 8.5% per year offer
made prior to the commencement of the strike. The Companies, acting
in good faith, have made various attempts over the last three
months to end the industrial action. The offer will result in an
overall 9.7% increase in total cost to Company of our current
salary and wage bill for the 2014 financial year. Labour costs
account for approximately 55% to 60% of annual production costs and
unsustainable increases in these costs will be damaging to the
viability of the industry and the South African economy.
The offer currently includes the payment of wage increase back
pay related to the annual increase from 1 October 2013 for Lonmin
employees, for which there is no legal requirement. The
affordability of the back pay becomes increasingly challenging as
the duration of the strike increases. The principle of 'no work, no
pay' applies for the duration of the strike.
Alternative Solutions
Unfortunately this revised offer has been rejected by AMCU. As a
result, Lonmin similar to Impala and Anglo Platinum has now taken
the offer directly to its employees as individuals, as allowed by
the South African labour law. We expect to be able to assess the
success of the return to work by the end of May 2014 with
production provisionally scheduled to start in June if successful.
In the event that the positive responses we have received from
employees are not sufficient to enable operations to resume, the
Company will consider its other options to mitigate against further
costs and conserving cash in order to protect our business. These
may include measures to reduce capital and a review of the business
operations. Fundamentally, the longer the strike continues, the
greater the impact on our higher cost shafts, our ability to return
to a normal operating environment and critically, on jobs.
Our Philosophy on Unions and Wage Negotiations
We are committed to finding peaceful solutions to challenging
issues and believe that the fact we have been talking with AMCU,
and other unions represented at Lonmin and directly with our
employees, reflects Lonmin's commitment to finding peaceful and
sustainable solutions to these issues. We are resolute that our
improving relationships with employees and unions will continue
when operations resume.
We have worked hard to rebuild relationships with both our
majority and minority unions in what is a changing landscape - not
just in the mining industry but other sectors as well. We
acknowledge that employees choose the union they wish to represent
them. We are clear about the fact that the Company's future, and by
implication its profitability, rests as much on the relationships
it has with its employees and wider stakeholder group as it does on
the core fundamentals of mining and the market. Lonmin is focused
on improving its relationship with its employees and empowering
managers to have a direct relationship with their employees.
Instrumental in the process has been the establishment of an
internal communications structure and establishment of workplace
forums to facilitate a two way dialogue. This has been particularly
useful in the two-way communication we have had with our employees
around the status of negotiations and in receiving feedback during
the strike.
Impact on Employees and our Communities
While the negative impact of the strike on our national GDP and
the country's balance sheet is well understood, the impacts on the
ground - in the communities around our operations and from which we
draw our labour - are far reaching given the multiplier effect of
the platinum mines' revenues and expenditures. The strike has also
eroded the health and financial position of our employees, with
many workers in an unstable financial situation. We believe much
responsibility and care should be exercised by union leadership in
educating their members on the economic realities of our business,
as opposed to continually advancing arguments that price jobs
beyond what the markets can afford.
Holistic Solution Required as Response to the Social Issues
We acknowledge that there are historical labour inequities in
South Africa. We believe that many steps have been and are being
taken towards remedying these inequalities over the years, but we
also acknowledge that much more still needs to be done. It has,
however, been recognised that business cannot deal with many of
these socioeconomic challenges alone and a holistic solution is
required for meaningful and sustainable changes to the labour
system. We welcome the greater involvement of Government in this
area.
Meaningful and sustainable changes to the labour system are
required. However, structural change can only be achieved over time
through a carefully considered labour compact that not only
considers the disposable income of workers, but also the
socioeconomic wellbeing of workers and the mining communities that
host our operations; and the sustainability of these
operations.
5. Cash Management
Cash and Cost Conservation
Since the strike started on 23 January we have implemented a
series of cash conservation measures, resulting in reducing normal
cash outflows by around 60% of normal operating costs on the back
of a similar reduction in both planned operating costs and capital
expenditure. However, given our single location dependency, these
measures have been taken with a view to maintaining a business
state most prepared for a safe and rapid ramp up on resolution of
the strike. Measures taken include temporarily putting on hold
leave encashment and encouraging non-striking employees with
overdue leave to go on leave. This has been voluntary and we are
grateful to all employees who actioned this call for
assistance.
Net cash as at 31 March 2014 reduced to $71 million from $201
million at 30 September 2013. The Group has additional support in
the form of its debt facilities comprised of a revolving credit
facility of $400 million at a Lonmin Plc level and three bilateral
facilities of R660 million each, the sum total of which is
equivalent to $189 million at a subsidiary level. These facilities
have been committed and are available to use.
The Company has a robust programme for further cash conservation
measures to protect the assets, which may include a restructuring
plan should the anticipated start up in June 2014 not materialise.
This will further reduce the daily cash burn rate. Whilst this will
conserve cash and is crucial in the near term, it will ultimately
impact our ability to quickly ramp up when operations eventually
resume.
Capital Expenditure
As a result of the strike, we scaled back our capital
expenditure in line with our management agenda to conserve cash by
deferring major capital spend during this period. As a result,
capital spend in the half year was $46 million compared to $73
million in the prior year period. Capital expenditure in the first
six months was mainly on stay in business capital across the
various shafts and processing facilities, development of ore
reserves at K3, Rowland and Saffy shafts as well as critical ore
pass rehabilitation work on K4. The hostel conversion programme
continued as it is an important part of improving the living
conditions of our employees. The feasibility study on the bulk
tailings retreatment initiative was also completed. We will start
this project when cash flows permit.
Customers and Suppliers
We have issued force majeure notices to suppliers and
contractors and placed a moratorium on new hires, travel and
training, unless absolutely critical or already contracted. We have
also sadly declared force majeure with our customers due to the
prolonged strike. We are, however, still able to deliver a small
amount of metal being returned from our tolling contracts. The
relationships we have with our customers are longstanding. We are
grateful for their understanding and we continue to find ways to
manage their requirements.
6. Ramp Up
We have developed a comprehensive ramp up programme aimed at
ensuring a safe start up when employees return to work. This has
been presented to the Department of Minerals and Resources (DMR) to
ensure there is alignment to our zero harm aspirations when we
start up. Our ability to ramp up safely was demonstrated in the
first quarter of the 2013 financial year following the Events at
Marikana in 2012. Unlike 2012, we anticipated the current
industrial action and managed an orderly shut down of our
operations and mitigated the risks to the integrity of our
infrastructure. We secured our shafts and underground work areas
were made safe whilst heavy equipment has been parked away in clean
dry places for its protection. We also continue to carry out
routine maintenance.
Furnace Integrity
The Furnaces performed well up to the commencement of the
strike. Furnace One reliability was increased by the new barrel
installed in June 2013. Furnace Two also performed well and the
design changes made to the roof proved to be successful.
During this extended strike, maintaining the integrity of the
furnaces has remained critical to ensure a successful start up of
the smelting operations. The measureable and monitored parameters
on the furnaces (furnace movement and hearth temperatures) are
still showing a stable trend after sixteen weeks. The furnaces are
monitored daily and changes are made as required to ensure a
reduced impact on furnace integrity. The concentrators, base metal
and precious metal refineries have been safely shut down in such a
manner as to enable an efficient start up in May.
Initial Phase
As part of the production ramp up, we will secure the return of
our employees as many went home at the beginning of the strike. We
will invest many hours in safety training and carrying out medicals
on the employees before re-opening operations in order to minimise
the risk of any safety failure. The initial phase of the ramp up
will also involve checks of the operations. Our ongoing monitoring
of work areas indicate that there has been minimal damage to
underground workings to date although actual conditions will become
more apparent once the rock faces are re-started. The healthy state
of our ore reserves will provide us with the flexibility we will
need to resume operations as we will have the option to move crews
from compromised areas to more secure levels as we re-start.
The longer the strike continues the greater the risk that the
strike will cause irreparable damage to our assets and make the
operations unsafe and more costly for us to rehabilitate and safely
re-start.
7. Going Concern
The Directors have assessed the Group's ability to continue as a
going concern and have concluded that the Group's capital structure
provides sufficient head room to cushion against downside
operational risks and minimise the risk of breaching debt covenants
on the assumption that the strike action will end and employees
return to their stations in June 2014. However, a delayed
resolution of the strike action would require the Group to take
other operational measures to ensure that it has sufficient funds
to facilitate all ongoing operations on start up. The lack of
clarity over the end date of the strike represents a material
uncertainty that may cast doubt about the going concern
assumptions.
Nevertheless, based on the Group's expectation that the strike
action will be resolved within a reasonable period and further
management actions which would be taken if this proved not to be
the case being possible and successful, the Directors believe that
the Group will continue to have adequate financial resources to
meet 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 of
preparation is inappropriate.
8. Transformation 2014 Targets
The Mining Charter, which was originally issued in October 2002
and revised and reissued in September 2010 alongside a new
Scorecard, following consultation with government and industry
stakeholders, creates a statutory framework which formalises the
mining industry transformation responsibilities. The charter and
scorecard are a fundamental element of our licence to operate as it
is both a legal obligation which is linked to the delivery of our
Social Labour Plan (SLP) commitments and the right thing to do. We
are committed to contributing towards this fundamental change that
is required and we continue to strive to do so. A healthy and
profitable Lonmin brings benefits to all stakeholders, be they
investors, our employees, the authorities or communities in which
we operate.
We have a robust plan around achieving our December 2014 goals
and have made significant inroads in working towards some of them.
We have six headline transformation targets, linked to our
SLPs:
-- Black Economic Empowerment (BEE) equity - Achieve 26% equity
ownership in Lonmin by Historically Disadvantaged South Africans
(HDSAs);
-- HDSAs in management - Increase the participation of employees
from designated groups within each level of management to at least
40%;
-- Women in Mining - Increase female participation at the mine to 10%;
-- Procurement - Meet the Charter targets on our discretionary spend with HDSA suppliers;
-- Housing and accommodation - Work towards individual and
family accommodation for employees, moving away from the single sex
hostel system; and
-- Communities - Improve the quality of life of employees and
the communities around our operations.
BEE Equity Ownership
Lonmin is continuing with its projects to achieve 26% BEE equity
ownership by December 2014. This is not only because of a
regulatory requirement but because our values support improving and
developing the communities where we are operating and aligning the
interests of employees and host communities with those of
shareholders. In that context, engagements are ongoing on three
transactions to increase our BEE equity ownership:
-- a transaction with the Bapo ba Mogale community to convert
royalties and their share in Pandora into equity;
-- an Employee Share Ownership Plan (ESOP); and
-- a Community Trust.
Engagements on these transactions are ongoing. The ongoing
strike action is delaying the consultation process and
implementation, however, we are confident that the above proposed
transactions or a combination thereof will be implemented timeously
so that we achieve our targets.
HDSA Management
Lonmin has committed to achieve 40% HDSA in management by the
end of 2014. As at 31 March 2014, 49% of Lonmin's management was
HDSA, including white females, as prescribed by the DMR. We also
monitor our HDSA percentage, excluding white females and this was
38% at the end of the half year. We continue to focus on this and
are striving to achieve this target by the end of the calendar
year. For Lonmin, it is not just compliance but more about creating
an environment where all employees irrespective of their race and
gender are able to be their best as this ultimately also benefits
Lonmin and the greater community.
Women in Mining
We continue to target women to join the industry as we believe
this to be beneficial for the industry and our wider transformation
goals. However, this is an area in which we face both historical
and cultural challenges, not least in making underground work
appealing to women, something which has not always been easy. We
are targeting women for our mining related skills programmes, but
acknowledge that achieving the 10% of women in mining target by the
end of the 2014 calendar year will remain a big challenge. The
uptake of women has been severely impacted by the current
industrial action. In addition, the drive for this programme of
recruitment will likely be impacted by cash constraints, given the
strike.
Procurement
Lonmin has made excellent progress in this area in meeting our
targets as we aim to broaden economic participation in our host
communities. However, many local HDSA companies do not have the
experience or resources to meet our business needs. We introduced
supplier development programmes as an integral part of our
preferential procurement strategy to bridge the gap. The strike has
significantly impacted our HDSA suppliers as we have issued force
majeure to some of them, many of whom are in the Greater Lonmin
Community (GLC).
Housing and Accommodation
Hostel Conversions
Lonmin is in the last year of fulfilling its commitment to
convert its hostel blocks to decent and affordable family and
single units. Of the 128 single-sex traditional hostel blocks, 108
blocks were converted as at the end of the 2013 financial year. Our
aim is to complete the remaining 20 hostel blocks during this
calendar year at an estimated cost of R90 million. As in earlier
phases of this programme, we have continued to contract this work
out to HDSA GLC contractors. Our ability to complete the conversion
on time is however being hampered by the ongoing strike. At the end
of the programme the 128 converted blocks will yield a total of
2,664 units, comprised of 796 family and 1,868 single units.
Communities
We continue to look at the most effective ways of improving
employees' living conditions and create programmes to deliver on
these commitments. We have launched a comprehensive review of
requirements to create sustainable communities. We will review
infrastructure requirements, such as number, location and type of
accommodation units required and the rental and ownership mix, as
well as the financial commitment necessary to achieve this. We are
partners with all levels of local government, the Department of
Human Settlements and projects such as the Presidential Task team's
Rustenburg living conditions initiative.
Marikana Extension 2 Housing Project
On 29 October 2013, we donated the Marikana Extension 2
comprising 50.1 hectares, to the Rustenburg Local Municipality
under the direction of, and in collaboration with the North West
Member of the Executive Committee (MEC) responsible for Human
Settlement under the auspices of the Special Presidential
Initiatives. The donated land comprises 850 serviced stands that
will be developed by the Rustenburg Local Municipality utilising
provincial and national government funding. At this early planning
phase, rezoning and consolidation is being considered to develop
approximately 2,600 of mixed housing schemes. The beneficiaries
will be the Marikana community of which Lonmin category 4 to 9
employees represent the greatest portion.
9. Strategy - Development and Optimisation
Our immediate priority to enhance value creation through higher
asset utilisation for improved returns has been adversely impacted
by the prolonged strike. Saffy is among the key ramp up shafts
where progress has been disrupted and we continue to prepare this
shaft for its re-start. We anticipate continuing with our plans to
deploy crews from low margin shafts to enhance returns and drive
down costs but industrial action will delay the timing to steady
state production. We will provide more detail around this in due
course.
The momentum established at Rowland following the gains achieved
from the de-bottlenecking project have been eroded by the
industrial action. The full impact will be better understood as
employees return to work.
K4, an important shaft in our portfolio, was scheduled to be
brought back from care and maintenance in the 2015 financial year,
predicated on improved market conditions and the Company being cash
flow positive. We now anticipate that as a consequence of the
industrial action, K4 will continue to be on care and maintenance
until the Company is cash flow positive and market circumstances
allow for its return. The exact timing of when this shaft may be
brought back will be better understood once the strike has ended.
The delay is likely to result in K4's ounces being replacement
rather than growth ounces.
Exploration
Lonmin has PGM exploration joint ventures with Vale and
Wallbridge Mining on properties around the Sudbury Basin in
Ontario, Canada. Lonmin as the operator of the Vale Sudbury PGM
joint venture will be carrying out further drilling and studies on
the Denison PGM resource as well as pursuing targets on other
properties. We are planning to spend approximately $5 million on
exploration on our Wallbridge Sudbury Camp and North Range joint
ventures this year, with the summer programme focused on trenching
and drilling of targets identified from extensive geophysical
surveys.
10. Markets
Looking beyond the current challenges, we remain confident about
the fundamentals of PGMs as the world will continue to need
platinum and other PGMs. Emissions legislation continues to tighten
in established markets and is planned to do the same in emerging
ones. Whilst we will always see thrifting and three-way
substitution, new markets and applications continue to open up.
Whilst we are going through a very tough period in terms of demand
and prices, we remain optimistic on the future fundamentals and
that the protracted strike may have brought that future nearer.
Automotive Production - positive growth bodes well for PGM
demand
Vehicle production trends continue to moderately increase with a
rise of 13.7 million units recorded between 2007 and 2013; 2.2
million were added last year alone. LMC Automotive forecast growth
in most of the markets in 2014 and almost 50 million units are
expected to be added between 2013 and 2025.
Automotive PGM Demand
The return to growth in many automotive markets coupled with
tightening emissions legislation bodes well for demand in PGMs.
Europe is expected to remain the biggest automotive platinum market
where demand will be driven by ever stricter emissions legislation
and a sustained diesel market. Platinum demand will also continue
to grow in Heavy Duty Diesel and Non-road demand. Automotive
palladium demand rose strongly in North America, Western Europe and
China. The biggest increase in demand was recorded in China, where
palladium-rich gasoline cars dominate and where vehicle production
was up by 12%. Rhodium automotive demand also rose in all major
markets except Japan and India. Rhodium is expected to retain an
important role in automotive catalyst formulations and demand is
expected to grow.
Jewellery Remains a Platinum Affair
The China platinum jewellery market grew year on year from 2012
to 2013 by an estimated 3% according to Platinum Guild
International and is forecast to grow by a further 5% in 2014 if
current price ranges prevail. The Indian wedding market is growing
due to a larger middle class and active promotion of the engagement
ring in addition to wedding bands only. SFA Oxford estimates that
India's demand for platinum jewellery could more than double over
the next ten years.
Fuel Cells Vehicles - a real market for platinum
Automotive fuel cell technology represents a growing market for
our metals, with several automakers on track to put noteworthy
numbers of vehicles into the mainstream market in 2015. The success
of Fuel Cell Vehicles is a virtuous circle, as loadings come down
to affordable levels fuelling infrastructure gets built and,
governments give tax breaks to get emissions down - much of this
growth potential relies on the nature of these tax breaks offered
by legislators in given markets. Stationary fuel cells also provide
growth opportunities.
Investment Gaining Momentum
Last year began quietly for platinum Exchange Traded Fund (ETF)
demand until Absa Bank (Absa) launched its NewPlat ETF in May 2013.
Within nine weeks it became the largest single platinum ETF and
finished the year holding 910,000 ounces. The Absa ETF was almost
entirely responsible for global ETF holdings rising by 909,000
ounces to 2,559,000 ounces in 2013. January 2014 saw the first
concerted selling from the Absa ETF which dropped to 885,000 ounces
by February, but buying then picked up and the fund has now
breached 1 million ounces. The major palladium ETF's had a subdued
2013 with holdings at 2,035,000 ounces. The two South African
palladium ETF's, launched at the end of March this year, were met
with interest and could potentially add to the already deep
fundamental deficit placing further pressure on prices and
potentially accelerating a switch back to platinum and rhodium.
South African Strike Impacts 2014
By the end of March, SFA Oxford estimated a loss of 640,000
ounces of platinum, 300,000 ounces of palladium and 85,000 ounces
of rhodium supply from South African operations as a result of the
strike. However, this does not include the possibility of lost
production from re-starting mines up to steady state levels and the
restocking of the process pipeline stocks. Taking this into
consideration South African output could drop to just over 3
million platinum ounces in 2014 compared with 4.13 million ounces
in 2013. The strikes have also widened the palladium market deficit
to 1.8 million ounces in 2014. There are also concerns over future
supplies of palladium from Russia, given geo-political events in
that region. Reverse substitution of palladium back to rhodium in
three-way autocatalysis could relieve some pressure on stocks.
Currently it is once again cheaper to manufacture a rhodium-rich
catalyst. The impact of current strike action could lead to a
deficit of 150,000 ounces of rhodium for this year.
PGM recycling an Established Supply Competitor
Global PGM recycling has grown from less than 1 million ounces
in 2000 to 4.6 million ounces in 2013. Palladium has grown the
most, it being 9.5 times higher than in 2000, compared to platinum
and rhodium which are 3.6 times and 2.6 times higher respectively.
This growth can be attributed to both the cocktail of metals and
higher loadings of metals in catalysts that are coming back to
market via scrapped vehicles. Recycling has become essential to
ensure sustainability of the PGM market, helping to cap extreme
metal price volatility, particularly with supply from South Africa
contracting since 2006.
Diversity and Innovation Sustain PGM Markets
The market will be in significant deficit in 2014, drawing down
at least 1 million ounces of above ground stocks, possibly more,
depending on duration of the strike. Looking ahead, automotive
production will continue to grow, legislation continues to tighten
and jewellery will remain strong especially in China and is growing
in India.
Opportunities lie with a stronger recovery in Europe and higher
loadings as Euro 6 is promulgated in 2014, while jewellery demand
in China is growing strongly beyond bridal. China was the world's
largest consumer of platinum in 2013, mainly in jewellery. In
addition, the Indian platinum jewellery market is burgeoning with
supportive demographics. Jewellery looks set to continue to be an
important and growing end use for platinum adding diversity to its
portfolio. The risk of substitution, however, remains ever
present.
11. Legislative Environment - MPRDA Update
MPRDA Update
The end of February saw an announcement that the South African
Mineral and Petroleum Resources Development Act (MPRDA) Amendment
Bill was going to be delayed to allow for further consultations to
determine whether the oil and gas sectors should be dealt with in a
separate legislation. Notwithstanding this publicly announced
delay, it was subsequently announced by the Public Portfolio
Committee that it had approved its amendments to the Bill. The Bill
has also been approved by the National Council of Provinces and is
currently awaiting signature by President Zuma.
Whilst several concessions in respect of the Bill were made by
the DMR during a bilateral consultation process headed by the
Chamber of Mines, the extent to which Ministerial discretion is
permitted remains a challenge. The discretion granted to the
Minister to declare a mineral as strategic is likely to have the
biggest impact on Lonmin and other mining companies, given that the
Minister may declare PGM's as strategic in which event the Minister
is empowered to determine what volumes of such minerals are to be
available to be sold locally. The lack of clarity on pricing and
rates information to be used remains a concern. However this would
not be a concern if free market pricing was to be allowed.
With the general downturn of investment in greenfield mining
projects, South Africa's need for a sound mining legislative
framework has been greatly increased. The current MPRDA Amendment
Bill is far from perfect, but does provides a platform for a
regulatory framework and a policy direction for the future of
mining in South Africa. The Regulations to the Bill have not yet
been drafted so implementation of the Act's provisions is likely to
be delayed until the Regulations are completed.
Labour Relations Act
Progress has been slow as regards finalising the labour
relations legislative framework. Whilst the Employment Tax
Incentive Act (otherwise known as the Youth Subsidy Act) became law
on 1 January 2014 and provides tax incentives to employers who
employ qualifying persons between the ages of 18 and 29, amendments
to the Labour Relations Act and the Basic Conditions of Employment
Act continue to be debated before submission to Cabinet for final
approval. Contentious issues include whether there should be
circumstances in which a strike can be suspended and who can take
part in picketing activities. It appears that the amended
legislation will not contain provisions banning labour brokers or
providing for a ballot process prior to the implementation of a
strike. Once the amended versions of the various pieces of
legislation have been submitted to and approved by Cabinet, the
President will be entitled to sign the amended legislation into law
and it will become effective on a date stipulated in the Amendment
Acts.
12. Farlam Commission
The Farlam Commission of Inquiry into the Events at Marikana in
August 2012 is still in progress. 'Phase 1' is continuing and is
looking at evidence relating to the events, on and leading up to,
16 August 2012. The Commission has now concurrently embarked on
'Phase 2' of its inquiry, which will look at the underlying
socioeconomic conditions that may have contributed to the events.
This has taken the form of a series of public seminars to enable
the Commission to obtain information and advice from a wide range
of experts on identified topics (such as migrant labour and
collective bargaining) and open these matters up for public debate.
While the inquiry was due to conclude at the end of April 2014, it
has been granted a final extension to 31 July 2014 by President
Zuma. The Commission is still investigating the role of the South
African Police Services' leadership and is yet to call Lonmin to
the stand.
Lonmin continues to fully support the inquiry and is cooperating
fully with the Commission's investigations.
13. Outlook
The protracted wage strike which has been the main feature of
the first half of the year, has significantly impacted the
Company's profitability. Our ability to achieve a sustained steady
state production is predicated on when operations resume. We expect
unit costs to exceed wage inflation and capital spend to be less
than the previously guided $210 million. We will update the market
on the production, associated unit costs and capital spend outlook
once the strike has ended.
14. Management and Board Update
On 7 November 2013, we announced that the Chairman, Roger
Phillimore, had indicated his intention to retire from office
during 2014. As a result, Roger Phillimore retired as Chairman and
as a Director of the Company at the close of business on 30 April
2014.
Brian Beamish, an independent Non-executive Director who joined
the Board on 1 November 2013, became Interim Chairman with effect
from 1 May 2014.
We are grateful for Roger's commitment and wise contributions to
the Company over the last seventeen years. He joined the Board in
1997, became Deputy Chairman in 2002 and then took over the mantle
of Chairman in 2009. During his five years as our Chairman he has
led the Board through some of the most challenging years in the
Company's long history. We welcome Brian who brings a wealth of
experience, knowledge and skills to our boardroom, and in
particular has a deep insight into the needs of 21st century South
Africa which we value greatly.
15. Employee Contribution
I would like to express my gratitude to the Lonmin Board,
employees and management, our contractors, the GLC and all
stakeholders who have shown incredible amount of resilience and
support during what has been a challenging first half of the year.
I hope that AMCU and its members make the right choice to return to
work so as to ensure a sustainable Lonmin for their and our
benefits and should avoid the prolonged suffering of our employees,
partners and the GLC.
Ben Magara
Chief Executive Officer
9 May 2014
Financial Review
Overview
The impact of the protected strike action in the South African
platinum sector which commenced on 23 January 2014 is a dominant
feature of our financial performance during the six months ended 31
March 2014. Key in this impact has been the reduction in the volume
of Platinum Group Metals (PGMs) produced and sold while fixed
production costs continued to be incurred during the strike period
which has had an adverse effect on the Group's profitability.
The depressed PGM pricing environment experienced in the first
quarter of the financial year continued in the second quarter
despite supply side concerns due to strike action. As a result
revenue was severely impacted by reduced production and subdued
metal prices.
On the cost side we have separately accounted for fixed
production overheads incurred during the protected strike for which
there was no associated production output as well as additional
costs arising directly as a result of the strike action. These have
been disclosed as special costs to assist in understanding the
financial performance achieved by the Group on a comparable basis
with prior periods. As a result our underlying performance excludes
the impact of the strike action. Other than the impact of the
strike, movements in underlying costs were driven primarily by the
release of stock locked up at end of the previous financial year
end and utility and overhead escalations, somewhat mitigated by
favourable exchange movements. The cost of production per PGM ounce
for the 2014 period, including the adverse impact of the strike
action, was R13,058 compared to R8,960 for the 2013 corresponding
period. The loan to Shanduka, our HDSA partner, was impaired by
$160 million during the period. The security for the loan is the
value of Shanduka's shareholding in Incwala. This valuation has
fallen driven by a downward revision in PGM price assumptions. At
31 March the balance of the receivable stood at $260 million.
Despite a decrease in capital expenditure during the period, the
declining profitability on the back of the strike action impacted
the Group's ability to generate cash. However, the balance sheet
strength attained during the 2013 financial year when we undertook
a rights issue and settled our debt has allowed the Group to absorb
the operational disruption caused by the strike to date and still
end the period in a net cash position of $71 million. We continue
to put in place measures to conserve cash and protect our balance
sheet position in order to support a successful ramp up on return
to production. However uncertainty remains around the strike
resolution date which may have a bearing on the going concern
assumption as detailed in the basis of preparation section of the
interim financial statements.
Income Statement
The $59 million movement between the underlying operating profit
of $34 million for the six months ended 31 March 2014 and that of
$93 million for the six months ended 31 March 2013 is analysed
below.
$m
Period to 31 March 2013 reported operating profit 90
Period to 31 March 2013 special items 3
------
Period to 31 March 2013 underlying operating
profit 93
------
PGM price (71)
PGM volume (46)
PGM mix (27)
Base metals (13)
------
Revenue changes (157)
Cost changes (net of positive foreign exchange
impact of $135m) 98
Period to 31 March 2014 underlying operating
profit 34
Period to 31 March 2014 special items (165)
------
Period to 31 March 2014 reported operating loss (131)
------
Revenue
Total revenue for the six months ended 31 March 2014 decreased
by $157 million from the six months ended 31 March 2013 to $578
million.
As noted in the overview the PGM pricing environment
deteriorated over the prior period and the impact on the average
prices achieved on the key metals sold is shown below:
Six months Six months
ended ended
31.03.14 31.03.13
$/oz $/oz
Platinum 1,400 1,598
Palladium 735 713
Rhodium 1,003 1,196
----------- -----------
PGM basket (excluding by-product revenue) 999 1,178
----------- -----------
PGM basket (including by-product revenue) 1,056 1,252
----------- -----------
The US Dollar PGM basket price (excluding by-products) decreased
by 15% resulting in a $71 million reduction in revenue. It should
be noted that whilst the US Dollar basket price has decreased by
15% over the 2013 comparable period, in Rand terms the basket price
(excluding by-products) remained flat compared to 2013 propped up
by the significantly weaker Rand.
PGM sales volume for the six months to 31 March 2014 was 7% down
on the six months to 31 March 2013. The impact of the strike was
partially diluted by the release of inventory locked up at the end
of the 2013 financial year as a result of the smelter incident. The
reduction in PGM volumes contributed $46 million to the overall
decrease in revenue. The mix of metals sold resulted in a negative
impact of $27 million mainly due to a higher proportion of
Palladium, Rhodium and Ruthenium due to metal-in-process inventory
timing differences. Base metal revenue was down $13 million on the
back of lower volumes sold and softer metal prices.
Operating Costs
Total underlying costs (excluding the impact of the strike
disruption) in US Dollar terms decreased by $98 million mainly due
to the impact of decreased production as a result of the strike and
positive foreign exchange movements partially offset by the impact
of metal stock movements and cost escalations. A track of these
changes is shown in the table below.
$m
Six months ended 31 March 2013 - underlying
costs 642
Increase / (decrease):
-------
Marikana underground mining (62)
Marikana opencast mining (14)
Limpopo mining (2)
Concentrating and processing (1)
Overheads 8
Idle fixed production overheads excluded from
underlying costs (157)
-------
Operating costs (228)
-------
Pandora and W1 ore purchases (11)
Metal stock movement 285
Foreign exchange (135)
Depreciation and amortisation (9)
-------
Cost changes (net of positive foreign exchange
impact) (98)
-------
Six months ended 31 March 2014 - underlying
costs 544
-------
Marikana underground mining costs decreased in the period by $62
million or 14%, as wage and utility escalations were more than
offset by the impact of reduced production and withholding of wages
as a result of the strike action. Marikana opencast mining costs
decreased by $14 million or 48% due to similar reasons.
Concentrator and processing costs remained flat compared to the
prior year period, as the impact of reduced production as a result
of the strike was offset by cost escalations and an increase in
maintenance during plant idle time.
Overheads increased by $8 million or 9% largely due to cost
escalation effects.
Ore purchases decreased by $11 million or 36% as volumes of ore
produced were impacted by the strike action.
The six months under review saw a release of stock in process
locked up following last year's smelter incident as well as a
general reduction in inventory as a result of lower production.
This has resulted in a $285 million negative impact on operating
profit, excluding exchange impacts, arising from metal stock
movements. The $285 million comprises of a $157 million stock
decrease in 2014 and a $128 million increase in stock in 2013.
The Rand weakened considerably against the US Dollar during the
period under review averaging ZAR10.46 to USD1 compared to an
average of ZAR8.79 to USD1 in the 2013 period resulting in a $135
million positive impact on operating costs.
Depreciation and amortisation decreased by $9 million over the
2013 period reflecting the decrease in production during the
period. Depreciation is calculated on a units of production basis,
spreading costs in relation to proved and probable reserves.
Cost of Production per PGM Ounce
The cost of production per PGM ounce for the six months to 31
March 2014 was R13,058 compared to R8,960 for the six months to 31
March 2013, an increase of 45.7%. Cost escalations during the
period were exacerbated by significant production disruptions due
to increased Section 54 and management induced safety stoppages in
the first quarter of the year and the protected strike action over
the major portion of the second quarter. It should be noted that
the cost of production per PGM ounce is based on all production
costs including idle fixed production overheads which have been
excluded from our underlying results as discussed below. If these
strike related costs are excluded the unit cost per PGM ounce
produced for the 2014 reporting period would have actually reduced
by 2.5% compared to the 2013 reporting period.
Further details of unit costs can be found in the Operating
Statistics.
Special Operating Costs
Special operating costs for the six months ended 31 March 2014
are made up as follows:
$m
Strike related costs 164
157
* Idle fixed production costs 3
4
* Contract costs
* Security costs
----
Other 1
165
----
As highlighted earlier, fixed production overheads incurred
during the strike period for which there was no associated
production output and costs arising directly as a result of the
strike action have been classified as special items. The total of
these strike related costs amounted to $164 million. Idle fixed
production costs incurred during the strike period amounted to $157
million. Costs relating to contractors not being able to fulfil
their obligations amounted to $3 million while the costs of
additional security totalled $4 million.
For the six months ended 31 March 2013, special costs totalled
$3 million and related to residual costs arising from the strike
action of 2012 ($2 million) and restructuring costs ($1
million).
Net Finance Costs
6 months to 31 March
2014 2013
$m $m
Net bank interest and fees (8) (14)
Capitalised interest payable and fees 4 9
Exchange 2 8
Other (4) (10)
---------- --------
Underlying net finance costs (6) (7)
HDSA receivable (139) (15)
Exchange loss in respect of Rights
Issue - (10)
Net effects of unwinding the interest
rate swap - (7)
Net finance costs (145) (39)
---------- --------
The total net finance costs of $145 million for the six months
ended 31 March 2014 represent a $106 million movement compared to
total net finance costs of $39 million for the six months ended 31
March 2013.
Net bank interest and fees decreased from $14 million to $8
million for the six months ended 31 March 2014 largely as a result
of the non-recurring unwinding of previously unamortised bank fees
on settlement of old loan facilities in 2013 and a reduction in
average drawn facilities during the period under review. Interest
totalling $4 million was capitalised to assets (2013 - $9
million).
The Historically Disadvantaged South Africans (HDSA) receivable,
being the Sterling loan to Shanduka Resources (Proprietary) Limited
(Shanduka), decreased by $139 million during the period to 31 March
2014 as positive exchange movements of $12 million and accrued
interest of $9 million were more than offset by an impairment
charge of $160 million. The impairment charge arose as the value of
the security for the loan (being the value of Shanduka's
shareholding in Incwala calculated based on discounted cash flows
of Incwala's underlying investments in WPL, EPL and Akanani) had
fallen below the carrying amount of the receivable largely driven
by a downward revision in PGM price assumptions applied in the
valuation models. This compares to adverse exchange movements of
$23 million and accrued interest of $8 million in the period to 31
March 2013. At 31 March 2014 the balance of the receivable stood at
$260 million (2013 - $366 million).
The financial effects of forward exchange contracts in
synchronisation with the Rights Issue process and unwinding of the
interest rate swap in 2013 did not recur in 2014.
Taxation
Reported tax for the current six month period was a credit of
$67 million compared to a credit of $34 million in the 2013 period.
The underlying tax charge of $2 million in the 2014 period becomes
a $67 million tax credit after taking into account exchange gains
on the retranslation of Rand denominated deferred tax liabilities
($23 million) and the tax impact of special items ($46 million).
These gains are treated as special items. In the prior year
comparative period exchange gains had an effect of $47 million on
the tax credit.
Cash Generation and Net Cash
The following table summarises the main components of the cash
flow during the period:
Six months ended 31 March
2014 2013
$m $m
Operating (loss)/profit (131) 90
Depreciation, amortisation and
impairment 69 78
Changes in working capital (10) (226)
Other 8 (2)
Cash flow utilised in operations (64) (60)
Interest and finance costs (8) (23)
Tax received/(paid) 1 (2)
----------------------------------------- ------------------------ ------------------------------
Trading cash outflow (71) (85)
Capital expenditure (46) (73)
Distribution from joint venture - 2
Dividends paid to minority shareholders (16) -
----------------------------------------- ------------------------ ------------------------------
Free cash outflow (133) (156)
Net proceeds from equity issuance - 767
Cash (outflow)/inflow (133) 611
Opening net cash/(debt) 201 (421)
Foreign exchange 3 10
Unamortised fees - (6)
----------------------------------------- ------------------------ ------------------------------
Closing net cash 71 194
----------------------------------------- ------------------------ ------------------------------
Trading cash outflow (cents per
share) (12.5)c (17.2)c
----------------------------------------- ------------------------ ------------------------------
Free cash outflow (cents per
share) (23.4)c (31.9)c
----------------------------------------- ------------------------ ------------------------------
Cash flow utilised in operations in the six months ended 31
March 2014 at $64 million reflects a $4 million increase from the
same period in 2013. For the six months ended 31 March 2014, the
cash outflow is largely driven by the operating loss as a result of
the strike action partially offset by improved working capital
movements on the back of a release of stock. In 2013 the cash
outflow was largely as a result of working capital movements, a
significant portion of which was attributed to the replenishment of
the metal in process pipeline following the production stoppage of
2012.
Trading cash outflow for the six months to 31 March 2014
amounted to $71 million (2013 - $85 million). The cash flow on
interest and finance costs decreased by $15 million largely as a
result of non-recurring amendment fees for the revised facilities
and the costs of unwinding the interest rate swap in 2013. The
trading cash outflow per share was 12.5 cents for the six months
ended 31 March 2014 (2013 - 17.2 cents).
Capital expenditure cash flow at $46 million was $27 million
below the prior period as our capital investment programme was
impacted by the strike. Capital expenditure in the first six months
was mainly on stay in business capital across the various shafts
and processing facilities, development of ore reserves at K3,
Rowland and Saffy shafts as well as critical ore pass
rehabilitation work on K4. The hostel conversion programme
continued as it is an important part of improving the living
conditions of our employees. The feasibility study on the bulk
tailings retreatment initiative was also completed.
Dividends paid to minority shareholders in the year of $16
million reflect the minimum payments required to enable Incwala to
service its loan facilities.
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 31 March 2013 of $194 million. This position of
balance sheet strength has allowed the Group to absorb the
operational disruption caused by strike to date. However, the
impact of the strike action on the business has resulted in the net
cash position receding to $71 million at 31 March 2014.
Principal Risks and Uncertainties
The Group faces many risks in the operation of its business. The
Group's strategy takes into account known risks, but risks will
exist of which we are currently unaware. The principal risks and
uncertainties highlighted in our 2013 annual report have largely
remained unchanged except for the elevation of the risk associated
with employee relations given the ongoing strike action and the
resulting liquidity concerns as detailed below.
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, PGM commodity prices and in recent times, production
disruptions as a result of labour action.
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.
The Group's current debt 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 Western Platinum Limited (WPL) level.
The following financial covenants apply to these facilities:
-- consolidated tangible net worth will not be less than $2,250 million;
-- consolidated net debt will not exceed 25 per cent of consolidated tangible net worth; and
-- if:
o in respect of the amended US Dollar Facilities Agreement, the
aggregate amount of outstanding loans exceeds $75 million at any
time during the last six months of any test period; or
o in respect of both the amended US Dollar Facilities Agreement
and the amended Rand Facilities Agreements, consolidated net debt
exceeds $300 million as of the last day of any test period,
the capital expenditure of the Group must not exceed the limits
set out in the table below, provided that, if 110 per cent of
budgeted capital expenditure for any test period ending on or after
30 September 2013 is lower than the capital expenditure limit set
out in the table below for that test period, then the capital
expenditure limit for that test period shall be equal to 110 per
cent of such budgeted capital expenditure.
Test Period Capital expenditure limit (ZAR)
1 October 2012 to 31 March 2013 (inclusive) 800,000,000
1 October 2012 to 30 September 2013 (inclusive)
1,600,000,000
1 April 2013 to 31 March 2014 (inclusive) 1,800,000,000
1 October 2013 to 30 September 2014 (inclusive)
2,000,000,000
1 April 2014 to 31 March 2015 (inclusive) 3,000,000,000
1 October 2014 to 30 September 2015 (inclusive)
4,000,000,000
1 April 2015 to 31 March 2016 (inclusive) 4,000,000,000
1 October 2015 to 30 September 2016 (inclusive)
4,000,000,000
While the capital structure referred to above has allowed the
business to absorb the impact of the current strike action to date,
the impact on the balance sheet has been a reduction in net cash
resources as highlighted above. The non-resolution of the strike
will impact the availability of funds to meet business needs and
the going concern assumption as discussed in detail in the basis of
preparation section of the interim financial statements. It is
envisaged that the working capital requirements of the business to
ramp up production following the resolution of the strike as well
as its ongoing sustaining capital requirements may result in the
business operating in a net debt position for the foreseeable
future. This may necessitate steps such as a review of the Group's
capital structure or a reduction in capital expenditure in
future.
Credit Risk
Banking Counterparties
Banking counterparty credit risk is managed by spreading
financial transactions across an approved list of counterparties of
high credit quality. Banking counterparties are approved by the
Board and consist of the ten banks that participate in Lonmin's
bank debt facilities. These counter-parties comprise: BNP Paribas
S.A., Citigroup Global Markets Limited, FirstRand Bank Limited,
HSBC Bank Plc, Investec Bank Limited, J.P. Morgan Limited, Lloyds
TSB Bank Plc, The Royal Bank of Scotland N.V., The Standard Bank of
South Africa Limited and Standard Chartered Bank.
Trade Receivables
The Group is exposed to significant trade receivable credit risk
through the sale of PGMs to a limited group of customers.
This risk is managed as follows:
-- aged analysis is performed on trade receivable balances and reviewed on a monthly basis;
-- credit ratings are obtained on any new customers and the
credit ratings of existing customers are monitored on an ongoing
basis;
-- credit limits are set for customers; and
-- trigger points and escalation procedures are clearly defined.
It should be noted that a significant portion of Lonmin's
revenue is from two key customers. However, both of these customers
have strong investment grade ratings and their payment terms are
very short, thereby reducing trade receivable credit risk
significantly.
HDSA Receivables
HDSA receivables are secured on the HDSA's shareholding in
Incwala Resources (Pty) Limited. Refer to note 8 in the financial
statements for details on the valuation of this security and the
resulting impairment charge.
Interest Rate Risk
Currently amounts on deposit as well as our outstanding
borrowings are in both US Dollars and South African Rand and at
floating rates of interest. Given current market rates, this
position is not considered to be high risk at this point in time.
This position is kept under constant review in conjunction with the
liquidity policy outlined above and future funding requirements of
the business.
Foreign Currency Risk
The Group's operations are predominantly based in South Africa
and the majority of the revenue stream is in US Dollars. However,
the bulk of the Group's operating costs and taxes are paid in Rand.
Most of the cash received in South Africa is in US Dollars. Most of
the Group's funding sources are in US Dollars.
The Group's reporting currency is the US Dollar and the share
capital of the Company is based in US Dollars.
During the period under review Lonmin did not undertake any
foreign currency hedging.
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 period 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 prepaid sale of 75% of
its current gold production for the next 54 months in March 2012.
In terms of this contract Lonmin will deliver 70,700 ounces of gold
over the period with delivery on a quarterly basis and in return
received an upfront payment of $107 million. The upfront receipt
was accounted for as deferred revenue on our balance sheet and is
being released to profit and loss as deliveries take place at an
average price of $1,510/oz delivered.
Contingent Liabilities
The Group provided third party guarantees to Eskom as security
to cover estimated electricity consumption for three months.At 31
March 2014 these guarantees amounted to $10 million (2013 - $10
million).
Simon Scott
Chief Financial Officer
Operating Statistics for the 6 months to 31 March 2014
6 months 6 months
to to
Units 31 March 31 March
2014 2013
--------------- -------------------------- ------------------------
Tonnes mined Marikana K3 shaft kt 771 1,521
K4 shaft kt - 4
1B/4B shaft kt 480 898
------------------------ ---------------------------------------------------- ---------- ----------
Karee kt 1,251 2,423
Rowland shaft kt 553 867
Newman shaft kt 239 476
Hossy shaft kt 295 491
W1 shaft kt 54 73
------------------------ ---------------------------------------------------- ---------- ----------
Westerns kt 1,140 1,907
Saffy shaft kt 387 526
East 1 shaft kt 57 199
East 2 shaft kt 135 182
East 3 shaft kt 12 46
------------------------ ---------------------------------------------------- ---------- ----------
Easterns kt 591 953
------------------------ ---------------------------------------------------- ---------- ----------
Underground kt 2,982 5,284
Opencast kt 155 288
Total kt 3,136 5,571
------------------------ ---------------------------------------------------- ---------- ----------
Pandora (100%) (1) Underground kt 156 263
Limpopo (2) Underground kt 9 -
--------------------------
Total tonnes mined
Lonmin (100%) (100%) kt 3,301 5,834
% tonnes mined from
UG2 reef (100%) % 74.4% 73.3%
------------------------ ---------------------------------------------------- ---------- ----------
Lonmin (attributable) Underground & Opencast kt 3,211 5,683
-------------------------- ------------------------ ------------------------- ---------- ----------
Ounces Mined
(3) Lonmin excluding Pandora Pt ounces oz 198,884 350,493
Pandora (100%) Pt ounces oz 11,372 18,865
Limpopo Pt ounces oz 359 -
------------------------ --------- ---------- ----------
Lonmin Pt ounces oz 210,616 369,358
Lonmin excluding Pandora PGM ounces oz 380,556 650,883
Pandora (100%) PGM ounces oz 22,366 35,936
Limpopo PGM ounces oz 804 -
------------------------ --------- ---------- ----------
Lonmin PGM ounces oz 403,726 686,819
-------------------------- ------------------------ ------------------------- ---------- ----------
Tonnes milled
(4) Marikana Underground kt 2,982 5,238
Opencast kt 208 213
Total kt 3,190 5,450
------------------------ ---------------------------------------------------- ---------- ----------
Pandora (5) Underground kt 151 266
-------------------------- ------------------------ ------------------------- ---------- ----------
Limpopo (6) Underground kt 27 -
-------------------------- ------------------------ --------- ---------- ----------
Lonmin Platinum Underground kt 3,161 5,503
Opencast kt 208 213
Total kt 3,368 5,716
------------------------ ---------------------------------------------------- ---------- ----------
Milled head Lonmin Platinum Underground g/t 4.60 4.63
grade (7) Opencast g/t 3.09 2.93
Total g/t 4.50 4.56
------------------------ ---------------------------------------------------- ---------- ----------
Concentrator Lonmin Platinum Underground % 87.9 86.8
recovery rate
(8) Opencast % 84.3 85.4
Total % 87.7 86.8
------------------------ ---------------------------------------------------- ---------- ----------
Operating Statistics for the 6 months to 31 March 2014
(continued)
6 months 6 months
to to
Units 31 March 31 March
2014 2013
------------- ------------------------ -------------
Metals in Marikana Platinum oz 201,366 345,083
concentrate
(9) Palladium oz 93,436 156,088
Gold oz 4,894 8,820
Rhodium oz 29,035 45,508
Ruthenium oz 47,033 70,132
Iridium oz 9,671 16,124
Total PGMs oz 385,434 641,754
------------- ------------------------------------------------ ---------- ----------
Limpopo Platinum oz 1,121 -
Palladium oz 974 -
Gold oz 93 -
Rhodium oz 114 -
Ruthenium oz 161 -
Iridium oz 44 -
Total PGMs oz 2,508 -
------------------------ ------------- --------- ---------- ----------
Pandora Platinum oz 10,988 19,095
Palladium oz 5,203 8,756
Gold oz 74 143
Rhodium oz 1,867 2,992
Ruthenium oz 2,974 4,537
Iridium oz 488 837
Total PGMs oz 21,595 36,360
------------- ------------------------------------------------ ---------- ----------
Lonmin Platinum before Platinum oz 213,475 364,178
concentrate purchases Palladium oz 99,613 164,844
Gold oz 5,060 8,962
Rhodium oz 31,016 48,500
Ruthenium oz 50,168 74,669
Iridium oz 10,203 16,960
Total PGMs oz 409,536 678,115
------------- ------------------------------------------------ ---------- ----------
Concentrate purchases Platinum oz 1,642 1,880
Palladium oz 482 548
Gold oz 9 5
Rhodium oz 198 185
Ruthenium oz 212 197
Iridium oz 91 79
Total PGMs oz 2,634 2,896
------------- ------------------------------------------------ ---------- ----------
Lonmin Platinum Platinum oz 215,117 366,059
Palladium oz 100,095 165,392
Gold oz 5,069 8,968
Rhodium oz 31,214 48,686
Ruthenium oz 50,380 74,866
Iridium oz 10,295 17,039
Total PGMs oz 412,170 681,010
Nickel (10) oz 1,087 1,789
Copper (10) oz 699 1,147
------------- ------------------------------------------------ ---------- ----------
Operating Statistics for the 6 months to 31 March 2014
(continued)
6 months 6 months
to to
Units 31 March 31 March
2014 2013
---------------- ------------------------------- ----------------- --------- ---------- ----------
Lonmin refined metal
Refined production Platinum oz 256,665 324,720
production Palladium oz 128,283 145,964
Gold oz 6,360 9,049
Rhodium oz 62,953 35,746
Ruthenium oz 61,986 82,187
Iridium oz 18,817 12,853
Total PGMs oz 535,065 610,519
----------------- ---------------------------------------------------------- ---------- ----------
Toll refined metal production Platinum oz 551 1,364
Palladium oz 1,010 312
Gold oz 73 271
Rhodium oz 896 1,717
Ruthenium oz 4,482 5,185
Iridium oz 1,102 913
Total PGMs oz 8,114 9,762
----------------- ---------------------------------------------------------- ---------- ----------
Total refined PGMs Platinum oz 257,217 326,084
Palladium oz 129,293 146,276
Gold oz 6,433 9,321
Rhodium oz 63,848 37,463
Ruthenium oz 66,469 87,372
Iridium oz 19,919 13,766
Total PGMs oz 543,179 620,282
----------------- ---------------------------------------------------------- ---------- ----------
Base metals Nickel (11) MT 1,312 1,650
Copper (11) MT 764 1,030
----------------- ---------------------------------------------------------- ---------- ----------
Sales Lonmin Platinum Platinum oz 263,675 326,142
Palladium oz 136,573 140,775
Gold oz 6,500 8,337
Rhodium oz 53,993 33,469
Ruthenium oz 66,830 66,417
Iridium oz 19,843 11,614
Total PGMs oz 547,413 586,753
Nickel (11) MT 1,338 1,687
Copper (11) MT 804 1,024
Chrome (11) MT 505,101 651,010
----------------- ---------------------------------------------------------- ---------- ----------
Average prices Platinum $/oz 1,400 1,598
Palladium $/oz 735 713
Gold $/oz 1,510 1,529
Rhodium $/oz 1,003 1,196
Ruthenium $/oz 54 76
Iridium $/oz 490 1,005
Basket price of
PGMs (12) $/oz 999 1,178
Basket price of
PGMs (13) $/oz 1,056 1,252
Basket price of
PGMs (12) R/oz 10,457 10,410
Basket price of
PGMs (13) R/oz 11,049 11,056
Nickel (11) $/MT 11,572 14,184
Copper (11) $/MT 6,890 7,472
Chrome (11) $/MT 19 18
----------------- ---------------------------------------------------------- ---------- ----------
Operating Statistics for the 6 months to 31 March 2014
(continued)
Footnotes:
1 Pandora underground tonnes mined represents 100% of the total tonnes mined
on the Pandora joint venture of which 42.5% is attributable to Lonmin.
2 Limpopo underground tonnes mined represents low grade development tonnes
mined whilst on care and maintenance.
3 Ounces mined have been calculated at achieved concentrator recoveries and
as from 2014 with Lonmin standard downstream processing recoveries 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 Limpopo tonnes milled represents low grade development tonnes milled.
7 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).
8 Recovery rate in the concentrators is the total content produced divided
by the total content milled (excluding slag).
9 Metals in concentrate include metal derived from slag processing and as
from 2014 have been calculated at Lonmin standard downstream processing
recoveries to present produced saleable ounces.
10 Corresponds to contained base metals in concentrate.
11 Nickel is produced and sold as nickel sulphate crystals or solution and
the volumes shown correspond to contained metal. Copper is produced as
refined product but typically at LME grade C. Chrome is produced in the
form of chromite concentrate and volumes shown are in the form of chromite.
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.
6 months 6 months
to to
Units 31 March 31 March
2014 2013
------------------- ---------------------- ------------------------------- --------- ---------- -----------
Capital expenditure(1) Rm 491 656
$m 46 73
------------------- ---------------------------------------------------------------- ---------- -----------
Exchange rates Average rate for period (2) R/$ 10.46 8.79
Closing rate R/$ 10.54 9.22
------------------- ------------------------------------------------------- -------- ---------- -----------
Underlying
cost PGM operations Mining $m (334) (467)
of sales segment Concentrating $m (61) (75)
Smelting and refining
(3) $m (60) (68)
Shared services $m (36) (39)
Management and marketing
services $m (14) (13)
Ore and concentrate purchases $m (17) (31)
Limpopo mining $m (2) (4)
Special item adjustment $m 157 -
Royalties $m (3) (4)
Share based payments $m (13) (11)
Inventory movement $m (105) 129
FX and Group charges $m 15 28
---------- -----------
Total PGM Operations (473) (555)
---------- -----------
Evaluation - excluding - -
FX
Exploration - excluding
FX (2) (1)
Corporate - excluding
FX - (6)
FX - (2)
---------- -----------
Total underlying costs of sales $m (475) (564)
---------- -----------
PGM operations Mining Rm (3,462) (4,136)
segment Concentrating Rm (626) (656)
Smelting and refining
(3) Rm (619) (599)
Shared services Rm (381) (346)
Management and marketing
services Rm (144) (112)
Ore and concentrate purchases Rm (181) (278)
Limpopo mining Rm (17) (32)
Special item adjustment Rm 1,726 -
Royalties Rm (31) (33)
Share based payments Rm (134) (100)
Inventory movement Rm (923) 1,286
FX and Group charges Rm (481) (693)
---------- -----------
Rm (5,272) (5,699)
---------- -----------
Operating Statistics for the 6 months to 31 March 2014
(continued)
6 months 6 months
to to
Units 31 March 31 March
2014 2013
-------------------- -------------------- -------------------------- --------- ---------- ----------
Cost of production Cost Mining Rm (3,462) (4,136)
(PGM operations Concentrating Rm (626) (656)
Smelting and refining
segment) (3) Rm (619) (599)
Shared services Rm (381) (346)
Management and marketing
services Rm (144) (112)
---------- ----------
Rm (5,233) (5,849)
---------- ----------
PGM saleable Mined ounces excluding
ounces ore purchases oz 380,556 650,883
Metals in concentrate
before
concentrate purchases oz 407,029 678,115
Refined ounces oz 543,179 620,282
Metals in concentrate
including concentrate
purchases oz 409,663 681,010
Cost of production Mining R/oz (9,097) (6,355)
Concentrating R/oz (1,538) (968)
Smelting and refining
(3) R/oz (1,140) (965)
Shared services R/oz (929) (508)
Management and marketing
services R/oz (352) (165)
---------- ----------
R/oz (13,058) (8,960)
---------- ----------
% increase in Mining % 43% n/a
cost of
production Concentrating % 59% n/a
Smelting and refining % 18% n/a
(3)
Shared services % 83% n/a
Management and marketing % 114% n/a
services
---------- ----------
% 46% 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 Exchange rates are calculated using the market average daily closing rate
over the course of the period.
3 Comprises of smelting and refining costs as well as direct process operations
shared costs.
Responsibility statement of the directors in respect of the
interim financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU, and
-- the interim management report includes a fair review of the information required by:
(a) DTR4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
(b) DTR4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Brian Beamish Simon Scott
Chairman Chief Financial Officer
9 May 2014
INDEPENDENT REVIEW REPORT TO LONMIN PLC
Introduction
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 March 2014 which comprises the consolidated
income statement, consolidated statement of comprehensive income,
consolidated statement of financial position, consolidated
statement of changes in equity, consolidated statement of cash
flows and the related explanatory notes. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the Disclosure and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA"). Our review
has been undertaken so that we might state to the company those
matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company
for our review work, for this report, or for the conclusions we
have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the EU.
The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
March 2014 is not prepared, in all material respects, in accordance
with IAS 34 as adopted by the EU and the DTR of the UK FCA.
Emphasis of matter - Going concern
In forming our conclusion on the condensed set of financial
statements, which is not modified, we have considered the adequacy
of the disclosures made in note 1 in the condensed set of financial
statements concerning the Group's ability to continue as a going
concern; in particular, the uncertainty over the end date of the
strike which has been ongoing since 23 January 2014, and the
uncertainty as to the continued availability of sufficient,
appropriate debt facilities, including the ability of the Group to
withstand down side scenarios affecting cash flows and covenants
and the successful implementation of any mitigating operational
measures. These conditions, along with the other matters explained
in note 1 of the condensed set of financial statements, indicate
the existence of a material uncertainty which may cast significant
doubt on the Group's ability to continue as a going concern. The
condensed set of financial statements do not include the
adjustments that would result if the Group were unable to continue
as a going concern.
Robert Seale
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL
9 May 2014
Consolidated income statement
for the 6 months to 31 March 2014
6 6
months months Year
6 months to 6 months to Year ended
to 31 to 31 ended 30
31 March Special March 31 March Special March 30 Sep Special Sep
2014 items 2014 2013 items 2013 2013 items 2013
Underlying (note Underlying (note Underlying (note
(i) 3) Total (i) 3) Total (i) 3) Total
Note $m $m $m $m $m $m $m $m $m
----------------- ----- ----------- -------- -------- ----------- -------- ------- ----------- -------- ------
Revenue 2 578 - 578 735 - 735 1,520 - 1,520
----------------- ----- ----------- -------- -------- ----------- -------- ------- ----------- -------- ------
(LBITDA)/EBITDA
(ii) 2 103 (165) (62) 171 (3) 168 321 (17) 304
Depreciation,
amortisation
and impairment (69) - (69) (78) - (78) (157) - (157)
Operating (loss)
/ profit (iii) 2 34 (165) (131) 93 (3) 90 164 (17) 147
Impairment of
available
for sale
financial
assets - - - - - - - (2) (2)
Finance income 4 4 21 25 9 16 25 9 26 35
Finance expenses 4 (10) (160) (170) (16) (48) (64) (19) (25) (44)
Share of (loss)
/
profit of
equity
accounted
investments (2) - (2) 3 - 3 4 - 4
----------------- ----- ----------- -------- -------- ----------- -------- ------- ----------- -------- ------
(Loss) / profit
before
taxation 26 (304) (278) 89 (35) 54 158 (18) 140
Income tax
credit
(iv) 5 (2) 69 67 (13) 47 34 (27) 85 58
----------------- ----- ----------- -------- -------- ----------- -------- ------- ----------- -------- ------
(Loss) / profit
for
the period 24 (235) (211) 76 12 88 131 67 198
----------------- ----- ----------- -------- -------- ----------- -------- ------- ----------- -------- ------
Attributable to:
- Equity
shareholders
of Lonmin Plc 20 (222) (202) 61 5 66 109 57 166
-
Non-controlling
interests 4 (13) (9) 15 7 22 22 10 32
----------------- ----- ----------- -------- -------- ----------- -------- ------- ----------- -------- ------
(Loss) /
earnings
per share 6 (35.5)c 13.3c 31.2c
----------------- ----- ----------- -------- -------- ----------- -------- ------- ----------- -------- ------
Diluted (loss)
/
earnings per
share
(v) 6 (35.5)c 13.3c 31.1c
----------------- ----- ----------- -------- -------- ----------- -------- ------- ----------- -------- ------
Footnotes:
i Underlying results are based on reported results excluding the effect of
special items as defined in note 3.
ii (LBITDA) / EBITDA is operating (loss) / profit before depreciation, amortisation
and impairment of goodwill, intangibles and property, plant and equipment.
iii Operating (loss) / profit is defined as revenue less operating expenses
before impairment of available for sale financial assets, finance income
and expenses and share of (loss) / profit of equity accounted investments.
iv The income tax credit substantially relates to overseas taxation and includes
exchange gains of $23 million (6 months to 31 March 2013 - exchange gains
of $47 million and year ended 30 September 2013 - exchange gains of $80
million) as disclosed in note 5.
v Diluted (loss) / earnings per share is based on the weighted average number
of ordinary shares in issue adjusted by dilutive outstanding share options.
Consolidated statement of comprehensive income
for the 6 months to 31 March 2014
6 months 6 months Year ended
to to 30 September
31 March 31 March 2013
2014 2013
Note $m $m $m
------------------------------------------------ ----- ---------- ---------- --------------
(Loss) / profit for the period (211) 88 198
Items that may be reclassified subsequently
to the income statement
- Changes in fair value of available for
sale financial assets 8 (1) (2) -
- Changes in settled cash flow hedges released
to the income statement - 8 8
- Foreign exchange loss on retranslation
of equity accounted investments (2) (6) (9)
- Deferred tax on items taken directly to the 1 - -
statement of comprehensive income
------------------------------------------------------- ---------- ---------- --------------
Total other comprehensive expenses for the
period (2) - (1)
------------------------------------------------ ----- ---------- ---------- --------------
Total comprehensive (loss) / income for the
period (213) 88 197
------------------------------------------------ ----- ---------- ---------- --------------
Attributable to:
- Equity shareholders of Lonmin Plc (204) 67 166
- Non-controlling interests (9) 21 31
------------------------------------------------ ----- ---------- ---------- --------------
(213) 88 197
------------------------------------------------ ----- ---------- ---------- --------------
Consolidated statement of financial position
as at 31 March 2014
As at As at As at
31 March 31 March 30 September
2014 2013 2013
Note $m $m $m
------------------------------------------- ----- ---------- ---------- --------------
Non-current assets
Goodwill 40 40 40
Intangible assets 460 469 462
Property, plant and equipment 2,891 2,885 2,908
Equity accounted investments 32 36 36
Other financial assets 8 289 399 430
------------------------------------------- ----- ---------- ---------- --------------
3,712 3,829 3,876
------------------------------------------- ----- ---------- ---------- --------------
Current assets
Inventories 351 381 449
Trade and other receivables 55 99 86
Tax recoverable 1 4 4
Cash and cash equivalents 9 660 196 201
------------------------------------------- ----- ---------- ---------- --------------
1,067 680 740
------------------------------------------- ----- ---------- ---------- --------------
Current liabilities
Trade and other payables (166) (248) (295)
Interest bearing loans and borrowings 9 (277) (2) -
Deferred revenue (23) (23) (23)
(466) (273) (318)
------------------------------------------- ----- ---------- ---------- --------------
Net current assets 601 407 422
------------------------------------------- ----- ---------- ---------- --------------
Non-current liabilities
Interest bearing loans and borrowings 9 (312) - -
Deferred tax liabilities (431) (527) (501)
Deferred revenue (37) (61) (47)
Provisions (138) (139) (140)
------------------------------------------- ----- ---------- ---------- --------------
(918) (727) (688)
------------------------------------------- ----- ---------- ---------- --------------
Net assets 3,395 3,509 3,610
------------------------------------------- ----- ---------- ---------- --------------
Capital and reserves
Share capital 569 568 569
Share premium 1,411 1,411 1,411
Other reserves 88 88 88
Retained earnings 1,151 1,240 1,341
------------------------------------------- ----- ---------- ---------- --------------
Attributable to equity shareholders of
Lonmin Plc 3,219 3,307 3,409
Attributable to non-controlling interests 176 202 201
------------------------------------------- ----- ---------- ---------- --------------
Total equity 3,395 3,509 3,610
------------------------------------------- ----- ---------- ---------- --------------
Consolidated statement of changes in equity
for the 6 months to 31 March 2014
Equity shareholders' funds
-----------------------------------------------------
Called Share Non-
up share premium Other Retained controlling Total
reserves earnings interests
capital account (i) (ii) Total (iii) equity
$m $m $m $m $m $m $m
At 1 October 2012 203 997 80 1,208 2,488 257 2,745
Profit for the period - - - 66 66 22 88
Total other comprehensive income: - - 8 (7) 1 (1) -
---------- --------- ---------- ---------- ------ ------------- --------
- Change in fair value of available
for sale financial
assets - - - (2) (2) - (2)
- Changes in settled cash flow
hedges released to
the income statement - - 8 - 8 - 8
- Foreign exchange loss on
retranslation
of equity
accounted investments - - - (5) (5) (1) (6)
Transactions with owners, recognised
directly in equity: 365 414 - (27) 752 (76) 676
---------- --------- ---------- ---------- ------ ------------- --------
- Share-based payments - - - 12 12 - 12
- Incwala equity accounting
adjustment (iv) - - - (39) (39) (76) (115)
- Share capital and share premium
recognised on
Rights Issue (v) 365 459 - - 824 - 824
- Rights Issue costs charged
to share premium (v) - (45) - - (45) - (45)
At 31 March 2013 568 1,411 88 1,240 3,307 202 3,509
-------------------------------------- ---------- --------- ---------- ---------- ------ ------------- --------
At 1 April 2013 568 1,411 88 1,240 3,307 202 3,509
Profit for the period - - - 100 100 10 110
Total other comprehensive expense: - - - (1) (1) - (1)
---------- --------- ---------- ---------- ------ ------------- --------
- Change in fair value of available
for sale financial
assets - - - 2 2 - 2
- Foreign exchange loss on
retranslation
of equity
accounted investments - - - (3) (3) - (3)
Transactions with owners, recognised
directly in equity: 1 - - 2 3 (11) (8)
---------- --------- ---------- ---------- ------ ------------- --------
- Share-based payments - - - 2 2 - 2
- Shares issued on exercise
of share options 1 - - - 1 - 1
- Dividends - - - - - (11) (11)
---------- --------- ---------- ---------- ------ ------------- --------
At 30 September 2013 569 1,411 88 1,341 3,409 201 3,610
-------------------------------------- ---------- --------- ---------- ---------- ------ ------------- --------
Consolidated statement of changes in equity (continued)
for the 6 months to 31 March 2014
Equity shareholders' funds
Called Share Non-
up share premium Other Retained controlling Total
reserves earnings interests
capital account (i) (ii) Total (iii) equity
$m $m $m $m $m $m $m
At 1 October 2013 569 1,411 88 1,341 3,409 201 3,610
Loss for the period - - - (202) (202) (9) (211)
Total other comprehensive expense: - - - (2) (2) - (2)
---------- --------- ---------- ---------- ------ ------------- --------
- Change in fair value of available
for sale financial
assets - - - (1) (1) - (1)
- Foreign exchange loss on
retranslation
of equity
accounted investments - - - (2) (2) - (2)
- Deferred tax on items taken
directly to the
statement of comprehensive income - - - 1 1 - 1
Transactions with owners, recognised
directly in equity: - - - 14 14 (16) (2)
---------- --------- ---------- ---------- ------ ------------- --------
- Share-based payments - - - 14 14 - 14
- Dividends - - - - - (16) (16)
---------- --------- ---------- ---------- ------ ------------- --------
At 31 March 2014 569 1,411 88 1,151 3,219 176 3,395
-------------------------------------- ---------- --------- ---------- ---------- ------ ------------- --------
Footnotes:
i Other reserves at 31 March 2014 represent the capital redemption reserve
of $88 million (31 March 2013 and 30 September 2013 - $88 million).
ii Retained earnings include $4 million of accumulated credits in respect
of fair value movements on available for sale financial assets (31 March
2013 - $3 million and 30 September 2013 - $5 million) and an $8 million
debit of accumulated exchange on retranslation of equity accounted investments
(31 March 2013 - $2 million debit and 30 September 2013 - $6 million debit).
iii Non-controlling interests represent a 13.76% effective shareholding in
Eastern Platinum Limited, Western Platinum Limited and Messina Limited
and a 19.87% effective shareholding in Akanani Mining (Proprietary) Limited.
iv 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.
v During December 2012 the Group undertook a Rights Issue in which 365,496,943
shares were issued.
Consolidated statement of cash flows
for the 6 months to 31 March 2014
6 months 6 months Year ended
to to 30 September
31 March 31 March 2013
2014 2013
Note $m $m $m
-------------------------------------------- ----- ---------- ---------- --------------
(Loss) / profit for the period (211) 88 198
Taxation 5 (67) (34) (58)
Share of loss / (profit) after tax
of equity accounted investments 2 (3) (4)
Finance income 4 (25) (25) (35)
Finance expenses 4 170 64 44
Impairment of available for sale financial
assets 3 - - 2
Non-cash movement on deferred revenue (10) (10) (24)
Depreciation, amortisation and impairment 69 78 157
Change in inventories 98 (121) (189)
Change in trade and other receivables 31 (15) (2)
Change in trade and other payables (129) (80) (32)
Change in provisions (6) (14) (23)
Share-based payments 14 12 14
Loss on disposal of property, plant
and equipment - - 5
Cash (outflow) / inflow from operations (64) (60) 53
Interest received 2 1 1
Interest and bank fees paid (10) (24) (34)
Tax recovered / (paid) 1 (2) (4)
-------------------------------------------- ----- ---------- ---------- --------------
Cash (outflow) / inflow from operating
activities (71) (85) 16
-------------------------------------------- ----- ---------- ---------- --------------
Cash flow from investing activities
Distribution from joint venture - 2 1
Purchase of property, plant and equipment (45) (70) (156)
Purchase of intangible assets (1) (3) (3)
Cash outflow from investing activities (46) (71) (158)
-------------------------------------------- ----- ---------- ---------- --------------
Cash flow from financing activities
Dividends paid to non-controlling
interests (16) - (11)
Proceeds from current borrowings 9 395 - 257
Repayment of current borrowings 9 (118) (120) (380)
Proceeds from non-current borrowings 9 312 200 369
Repayment of non-current borrowings 9 - (819) (988)
Proceeds from equity issuance - 823 823
Costs of issuing shares - (45) (45)
Loss on forward exchange contracts
on equity issuance - (11) (11)
Issue of ordinary share capital other
than through the Rights Issue - - 1
Cash inflow from financing activities 573 28 15
-------------------------------------------- ----- ---------- ---------- --------------
Increase / (decrease) in cash and
cash equivalents 9 456 (128) (127)
Opening cash and cash equivalents 9 201 315 315
Effect of exchange rate changes 9 3 9 13
-------------------------------------------- ----- ---------- ---------- --------------
Closing cash and cash equivalents 9 660 196 201
-------------------------------------------- ----- ---------- ---------- --------------
Notes to the accounts
1 Statement on accounting policies
Basis of preparation
Lonmin Plc (the Company) is a Company domiciled in the United
Kingdom. The condensed consolidated interim financial statements of
the Company as at and for the six months to 31 March 2014 comprise
the Company and its subsidiaries (together referred to as the
Group) and the Group's interests in equity accounted
investments.
These condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 - Interim Financial
Reporting, as adopted by the EU. The annual financial statements of
the Group are prepared in accordance with International Financial
Reporting Standards (IFRSs), as adopted by the EU. As required by
the Disclosure and Transparency Rules of the Financial Conduct
Authority, the condensed set of financial statements have been
prepared applying the accounting policies and presentation that
were applied in the preparation of the Company's published
consolidated financial statements for the year ended 30 September
2013, except as noted below. They do not include all of the
information required for full annual financial statements and
should be read in conjunction with the consolidated financial
statements of the Group for the year ended 30 September 2013.
The comparative figures for the financial year ended 30
September 2013 are not the Group's full statutory accounts for that
financial year. Those accounts have been reported on by the Group's
auditors and delivered to the registrar of companies. The report of
the auditors was (i) unqualified, (ii) did not include a reference
to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) did not contain
a statement under section 498 (2) or (3) of the Companies Act
2006.
The consolidated financial statements of the Group as at and for
the year ended 30 September 2013 are available upon request from
the Company's registered office at 4 Grosvenor Place, London, SW1X
7YL.
These condensed consolidated interim financial statements were
approved by the Board of Directors on 9 May 2014.
These condensed consolidated interim financial statements apply
the accounting policies and presentation that will be applied in
the preparation of the Group's published consolidated financial
statements for the year ending 30 September 2014.
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.
In December 2012, following the events at Marikana, Lonmin Plc
successfully concluded a Rights Issue which raised net proceeds of
$767 million. 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 debt facilities currently
available to the Group 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 Western Platinum Limited (WPL) level.
At 31 March 2014 these facilities were fully drawn down and the
Group had cash resources of $660 million. The revised capital
structure has allowed the business to absorb the financial impact
of the current protected strike action in the South African
Platinum sector which commenced on 23 January 2014 and is ongoing
at the date of approval of these condensed interim financial
statements. The strike has had a significant financial impact as
fixed production overheads continue to be incurred with no
associated production output. The non-resolution of the current
strike action therefore poses the most significant risk to the
Group's ability to continue as a going concern.
The financial performance of the Group is also 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.
Notes to the accounts (continued)
1 Statement on accounting policies (continued)
Basis of preparation (continued)
Going concern (continued)
In assessing the Group's ability to continue as a going concern,
the Directors have prepared cash flow forecasts for a period in
excess of 12 months. These cash flow forecasts are based on the
assumption that the strike action will end and workers will return
to their stations in June 2014 and the Group's existing drawn down
facilities will be rolled over within the terms of the existing
facilities including those for rollover in August 2014. In addition
to this, various scenarios have been considered to test the Group's
resilience against operational risks including:
- Adverse movements in the Rand / US Dollar exchange rate and
PGM commodity prices or a combination thereof.
- Failure to meet forecast production targets.
The Directors have concluded that the Group's capital structure
provides sufficient head room to cushion against downside
operational risks and minimises the risk of breaching debt
covenants on the assumption that the strike action will end and the
workers return to their stations in June 2014.
However, should the resolution of the strike action be delayed
beyond June 2014, this would require the Group to take other
operational measures to ensure that it has sufficient funds to
facilitate all ongoing operations on start-up. These may include,
but are not limited to:
- Renegotiating conditions of employment with employees not on
strike and other cost reduction measures.
- Renegotiating some or all of the Group's existing bank facilities and covenants.
- Tapping into alternative sources of funding.
- Restructuring the business.
The lack of clarity over:
- the end date of the strike;
- the continued availability of sufficient, appropriate debt
facilities and, in particular, the ability of the Group to
withstand down side scenarios affecting cash flows and covenants
which is largely dependent on timing of resolution of the strike;
and
- whether such operational measures, if required should the
resolution of the strike action be delayed beyond June 2014, would
be possible and successful,
represents a material uncertainty that may cast significant
doubt about the Group's ability to continue as a going concern such
that the Group may be unable to realise its assets and discharge
its liabilities in the normal course of business.
Nevertheless, based on the Group's expectation that the strike
action will be resolved within a reasonable period and further
management actions which would be taken if this proved not to be
the case being possible and successful, the Directors believe that
the Group will continue to have adequate financial resources to
meet 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 of
preparation is inappropriate.
New standards and amendments in the period
The following IFRS's have been adopted in these condensed
consolidated financial statements. The application of these IFRS's
have not had any material impact on the amounts reported for the
current and prior periods.
IFRIC 20 - Stripping costs in the production phase of a surface
mine (effective 1 January 2013) requires that stripping costs
incurred, which provide improved access to the ore, be recognised
as a non-current asset ("stripping activity asset") when certain
criteria are met. The principles of IFRIC 20 were adopted by the
Group in 2012.
Notes to the accounts (continued)
1 Statement on accounting policies (continued)
New standards and amendments in the period (continued)
Amendment to IAS 16 - Property, plant and equipment (effective 1
January 2013) clarifies the accounting for spare parts, stand-by
equipment and servicing equipment.
Amendment to IAS 34 - Disclosure of segment assets and segment
liabilities (effective 1 January 2013) aligns the disclosure
requirements for segment assets and segment liabilities in interim
financial reporting with IFRS 8 Operating segments.
IFRS 13 - Fair value measurement (effective 1 January 2013)
defines fair value, establishes a framework for measuring fair
value and sets out disclosure requirements for fair value
measurements.
Amendments to IAS 36 - Recoverable amount disclosures for
non-financial assets (effective 1 January 2014, but early adopted
by the Group) reverses the unintended requirement in IFRS 13 Fair
Value Measurement to disclose the recoverable amount of every
cash-generating unit to which significant goodwill or
indefinite-lived intangible assets have been allocated. Under the
amendments, recoverable amount is required to be disclosed only
when an impairment loss has been recognised or reversed.
There were no other new standards, interpretations or amendments
to standards issued and effective for the period which materially
impacted the Group.
New standards that are relevant to the Group but not yet
effective
There are no new standards, interpretations or amendments to
standards issued, but not yet effective for the period which are
expected to materially impact the Group's financial statements.
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.
Notes to the accounts (continued)
2 Segmental analysis (continued)
6 months to 31 March 2014
------------------------------------------------------------------------
PGM
Operations Evaluation Exploration Intersegment
Segment Segment Segment Other Adjustments Total
$m $m $m $m $m $m
-----------------------------------
Revenue (external sales
by product):
Platinum 369 - - - - 369
Palladium 100 - - - - 100
Gold 10 - - - - 10
Rhodium 54 - - - - 54
Ruthenium 4 - - - - 4
Iridium 10 - - - - 10
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
PGMs 547 - - - - 547
Nickel 15 - - - - 15
Copper 6 - - - - 6
Chrome 10 - - - - 10
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
578 - - - - 578
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Underlying (i) :
EBITDA / (LBITDA) (ii) 105 2 (2) (2) - 103
Depreciation, amortisation
and impairment (69) - - - - (69)
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Operating profit / (loss)
(ii) 36 2 (2) (2) - 34
Finance income 4 - - 10 (10) 4
Finance expenses (14) - - (6) 10 (10)
Share of loss of equity
accounted investments (2) - - - - (2)
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Profit / (loss) before
taxation 24 2 (2) 2 - 26
Income tax expense (2) - - - - (2)
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Underlying profit / (loss)
after taxation 22 2 (2) 2 - 24
Special items (note 3) (96) - - (139) - (235)
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
(Loss) / profit after
taxation (74) 2 (2) (137) - (211)
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Total assets (iii) 3,792 273 3 1,791 (1,080) 4,779
Total liabilities (iv) (1,807) (186) (46) (425) 1,080 (1,384)
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Net assets / (liabilities) 1,985 87 (43) 1,366 - 3,395
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Share of net assets of
equity accounted investments 32 - - - - 32
Additions to property,
plant, equipment and intangibles 50 - - - - 50
Material non-cash items
- share-based payments 14 - - - - 14
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Notes to the accounts (continued)
2 Segmental analysis (continued)
6 months to 31 March 2013
------------------------------------------------------------------------
PGM
Operations Evaluation Exploration Intersegment
Segment Segment Segment Other Adjustments Total
$m $m $m $m $m $m
-----------------------------------
Revenue (external sales
by product):
Platinum 521 - - - - 521
Palladium 100 - - - - 100
Gold 13 - - - - 13
Rhodium 40 - - - - 40
Ruthenium 5 - - - - 5
Iridium 11 - - - - 11
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
PGMs 690 - - - - 690
Nickel 24 - - - - 24
Copper 8 - - - - 8
Chrome 13 - - - - 13
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
735 - - - - 735
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Underlying (i) :
EBITDA / (LBITDA) (ii) 180 4 (1) (12) - 171
Depreciation, amortisation
and impairment (78) - - - - (78)
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Operating profit / (loss)
(ii) 102 4 (1) (12) - 93
Finance income 11 - - 5 (7) 9
Finance expenses (14) - - (9) 7 (16)
Share of profit of equity
accounted investments 3 - - - - 3
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Profit / (loss) before
taxation 102 4 (1) (16) - 89
Income tax expense (13) - - - - (13)
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Underlying profit / (loss)
after taxation 89 4 (1) (16) - 76
Special items (note 3) 45 - - (33) - 12
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Profit / (loss) after
taxation 134 4 (1) (49) - 88
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Total assets (iii) 3,819 275 1 1,507 (1,093) 4,509
Total liabilities (iv) (1,828) (193) (48) (24) 1,093 (1,000)
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Net assets / (liabilities) 1,991 82 (47) 1,483 - 3,509
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Share of net assets of
equity accounted investments 36 - - - - 36
Additions to property,
plant, equipment and intangibles 75 7 - - - 82
Material non-cash items
- share-based payments 12 - - - - 12
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Notes to the accounts (continued)
2 Segmental analysis (continued)
Year ended 30 September 2013
------------------------------------------------------------------------
PGM
Operations Evaluation Exploration Intersegment
Segment Segment Segment Other Adjustments Total
$m $m $m $m $m $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
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
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) 68 - - (1) - 67
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Profit / (loss) after
taxation 215 8 (4) (21) - 198
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Total assets (iii) 3,899 276 - 1,603 (1,162) 4,616
Total liabilities (iv) (1,909) (187) (42) (30) 1,162 (1,006)
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Net assets / (liabilities) 1,990 89 (42) 1,573 - 3,610
----------------------------------- ------------ ----------- ------------ ------ ------------- --------
Share of net assets of
equity accounted investments 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)
Revenue by destination is analysed by geographical area
below:
6 months to 6 months to Year ended
31 March 2014 31 March 2013 30 September 2013
$m $m $m
-------------- --------------- --------------- -------------------
The Americas 91 221 411
Asia 167 237 461
Europe 252 215 451
South Africa 68 62 197
578 735 1,520
-------------- --------------- --------------- -------------------
The Group's revenues are all derived from the PGM Operations segment. This
segment has two major customers who contributed 59% ($341 million) and 26%
($150 million) of revenue in the six months to 31 March 2014, 59% ($431 million)
and 32% ($234 million) in the six months to 31 March 2013 and 62% ($937 million)
and 30% ($459 million) in the year ended 30 September 2013.
Metal sales prices are based on market prices which are denominated in US
Dollars. The majority of sales are also invoiced in US Dollars with the exception
of certain sales in South Africa which are invoiced in South African Rand
based on exchange rates determined in accordance with the contractual arrangement.
Non-current assets, excluding financial instruments, by geographical area
are shown below:
As at As at As at
31 March 2014 31 March 2013 30 September 2013
$m $m $m
-------------- --------------- --------------- -------------------
South Africa 3,423 3,429 3,446
Europe - 1 -
3,423 3,430 3,446
-------------- --------------- --------------- -------------------
Footnotes:
Underlying results are based on reported results excluding the effect of
i special items as defined in note 3.
(LBITDA) / EBITDA and operating (loss) / profit are the key profit measures
ii used by management.
iii The assets under "Other" include the HDSA receivable of $260 million (31
March 2013 - $366 million, 30 September 2013 - $399 million) and intercompany
receivables of $1,008 million (31 March 2013 - $1,019 million, 30 September
2013 - $1,162 million).
The liabilities under "Other" include borrowings of $401 million (31 March
iv 2013 and 30 September 2013 - $nil).
Notes to the accounts (continued)
3 Special items
"Special items" are those items of financial performance that the Group believes
should be separately disclosed on the face of the consolidated income statement
to assist in the understanding of the financial performance achieved by the
Group and for consistency with prior periods.
6 months to 6 months to Year ended
31 March 31 March 30 September
2014 2013 2013
-----------------------------------------------
$m $m $m
----------------------------------------------- ------------ ------------ --------------
Operating loss: (165) (3) (17)
------------ ------------ --------------
- Strike related costs (i)
Idle fixed production costs (157) - -
Contract costs (3) - -
Security costs (4) - (1)
Other costs - (2) (6)
- Restructuring and reorganisation costs
(ii) (1) (1) (10)
Impairment of available for sale financial
assets - - (2)
Net finance (expenses) / income: (139) (32) 1
------------ ------------ --------------
- Interest accrued from HDSA receivable
(iii) 9 8 17
- Foreign exchange gain / (loss) on HDSA
receivable (iii) 12 (23) 1
- Impairment of HDSA receivable (iii) (160) - -
- Net change in fair value of settled
cash flow hedges - 7 7
- Unwinding fees relating to early settlement
of interest rate swap - (14) (14)
- Foreign exchange gain on holding Rights
Issue proceeds received in
advance - 1 1
- Loss on forward exchange contracts
in respect of Rights Issue - (11) (11)
------------ ------------ --------------
Loss on special items before taxation (304) (35) (18)
Taxation related to special items (note
5) 69 47 85
----------------------------------------------- ------------ ------------ --------------
Special (loss) / gain before non-controlling
interests (235) 12 67
Non-controlling interests 13 (7) (10)
----------------------------------------------- ------------ ------------ --------------
Special (loss) / gain for the period
attributable to equity shareholders of
Lonmin Plc (222) 5 57
----------------------------------------------- ------------ ------------ --------------
Footnotes:
i Fixed production overheads incurred during the protected strike period
for which there was no associated revenue and costs arising directly as
a result of the strike action have been classified as special items. The
total of these strike related costs amounted to $164 million. Idle fixed
production costs incurred during the strike period amounted to $157 million.
Costs relating to contractors not being able to fulfil their obligations
as a result of the disruption amounted to $3 million. Additional security
costs of $4 million were also incurred.
ii These costs relate to the management restructuring exercise completed
in 2013.
iii During the year ended 30 September 2010 the Group provided financing to
assist Lexshell 806 Investments (Proprietary) Limited, a subsidiary of
Shanduka Resources (Proprietary) Limited (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. Refer to note 8 for details regarding the impairment of the
HDSA receivable.
Notes to the accounts (continued)
4 Net finance expenses
6 months to 6 months to Year ended
31 March 31 March 30 September
2014 2013 2013
------------------------------------------------
$m $m $m
------------------------------------------------ ------------ ------------ --------------
Finance income: 4 9 9
------------ ------------ --------------
- Interest receivable on cash and cash
equivalents 2 1 1
- Foreign exchange gains on net cash
/ (debt) (i) 2 8 8
------------ ------------ --------------
Finance expenses: (10) (16) (19)
------------ ------------ --------------
- Interest payable on bank loans and
overdrafts (5) (9) (11)
- Bank fees (5) (3) (7)
- Unamortised bank fees realised on settlement
of old loan facility - (3) (3)
- Capitalised interest (ii) 4 9 11
- Unwind of discounting on provisions (4) (10) (9)
Special items (note 3): (139) (32) 1
------------ ------------ --------------
- Interest accrued on HDSA receivable 9 8 17
- Foreign exchange gain / (loss) on HDSA
receivable 12 (23) 1
- Impairment of HDSA receivable (160) - -
- Net change in fair value of settled
cash flow hedges - 7 7
- Unwinding fees relating to early settlement
of interest rate swap - (14) (14)
- Foreign exchange gain on holding Rights
Issue proceeds
received in advance - 1 1
- Loss on forward exchange contracts
in respect of Rights Issue - (11) (11)
------------ ------------ --------------
Net finance expenses (145) (39) (9)
------------------------------------------------ ------------ ------------ --------------
Footnotes:
i Net cash 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 in the period was 5.0%
(6 months to 31 March 2013 - 5.7%, year ended 30 September 2013 - 5.9%).
Notes to the accounts (continued)
5 Taxation
6 months to 6 months to Year ended
31 March 31 March 30 September
2014 2013 2013
$m $m $m
----------------------------------------------- ------------ ------------ --------------
Current tax charge (excluding special
items):
United Kingdom tax expense
- Current tax expense at 23% (March 2013
- 24%, September 2013 -
23.5%) (i) - - -
Overseas current tax expense at 28% (2013
- 28%) 2 - 2
- Corporate tax expense - current year 2 - 3
- Adjustment in respect of prior years - - (1)
Deferred tax charge (excluding special
items):
Deferred tax expense - UK and overseas - 13 25
------------ ------------ --------------
- Origination and reversal of temporary
differences 4 13 26
- Adjustment in respect of prior years (4) - (1)
Tax credit on special items - UK and overseas
(note 3): (69) (47) (85)
------------ ------------ --------------
- Exchange on current taxation (ii) - - 1
- Exchange on deferred taxation (ii) (23) (47) (81)
- Deferred tax on special items impacting
profit before tax (46) - (5)
------------ ------------ --------------
Actual tax credit (67) (34) (58)
----------------------------------------------- ------------ ------------ --------------
Tax charge excluding special items (note
3) 2 13 27
----------------------------------------------- ------------ ------------ --------------
Effective tax rate (24%) (63%) (41%)
----------------------------------------------- ------------ ------------ --------------
Effective tax rate excluding special items
(note 3) 8% 15% 17%
----------------------------------------------- ------------ ------------ --------------
Notes to the accounts (continued)
5 Taxation (continued)
A reconciliation of the standard tax charge to the actual tax
charge was as follows:
6 months 6 months 6 months 6 months Year ended Year ended
to to to to 30 September 30 September
31 March 31 March 31 March 31 March 2013 2013
2014 2014 2013 2013
% $m % $m % $m
--------------------------------- ---------- ---------- ---------- ---------- -------------- --------------
Tax (credit) / charge on (loss)
/ profit at standard tax rate (28) (78) 28 15 28 39
Tax effect of:
- Unutilised losses (iii,)
(iv) 13 38 17 9 4 5
- Foreign exchange impacts
on taxable profits (3) (9) (26) (14) (17) (23)
- Adjustment in respect of
prior years (1) (4) - - (1) (2)
- Disallowed expenditure 19 53 - - 1 1
- Expenses not subject to
tax 1 2 5 3 5 7
- Special items as defined
above (25) (69) (87) (47) (61) (85)
--------------------------------- ---------- ---------- ---------- ---------- -------------- --------------
Actual tax credit (24) (67) (63) (34) (41) (58)
--------------------------------- ---------- ---------- ---------- ---------- -------------- --------------
The Group's primary operations are based in South Africa. The South African
statutory tax rate is 28% (2013 - 28%). Lonmin Plc operates a branch in South
Africa which is subject to a tax rate of 28% on branch profits (2013 - 28%).
Footnotes:
i 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 in Rand as required by
the local authorities. As these subsidiaries' functional currency is US
Dollar this leads to a variety of foreign exchange impacts being the retranslation
of current and deferred tax balances and monetary assets, as well as other
translation differences. The Rand denominated deferred tax balance in US
Dollars at 31 March 2014 is $366 million (31 March 2013 - $425 million,
30 September 2013 - $388 million).
iii Unutilised losses increased due to a change in SA tax legislation of $37million.
iv 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 (Loss) / earnings per share
(Loss) / earnings per share ((LPS) / EPS) has been calculated on the loss
for the period attributable to equity shareholders amounting to $202 million
(6 months to 31 March 2013 - profit of $66 million, year ended 30 September
2013 - profit of $166 million) using a weighted average number of 569.5 million
ordinary shares in issue for the 6 months to 31 March 2014 (6 months to 31
March 2013 - 495.1 million ordinary shares, year ended 30 September 2013
- 532.1 million ordinary shares).
Diluted (loss) / earnings 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 6 months to 31 March
2014 outstanding share options were anti-dilutive and so were excluded from
diluted loss per share in accordance with IAS 33 - Earnings Per Share.
6 months to 31 March 6 months to 31 March Year ended 30 September
2014 2013 2013
--------------------------------- -------------------------------- --------------------------------
Loss
for Profit Per Profit Per
the Number Per share for the Number share for the Number share
period of shares amount period of shares amount year of shares amount
$m millions cents $m millions cents $m millions cents
--------------- -------- ----------- ---------- --------- ----------- -------- --------- ----------- --------
Basic (LPS) /
EPS (202) 569.5 (35.5) 66 495.1 13.3 166 532.1 31.2
Share option
schemes - - - - 1.2 - - 2.1 (0.1)
--------------- -------- ----------- ---------- --------- ----------- -------- --------- ----------- --------
Diluted (LPS)
/ EPS (202) 569.5 (35.5) 66 496.3 13.3 166 534.2 31.1
--------------- -------- ----------- ---------- --------- ----------- -------- --------- ----------- --------
6 months to 31 March 6 months to 31 March Year ended 30 September
2014 2013 2013
--------------------------------- -------------------------------- --------------------------------
Profit
for Profit Per Profit Per
the Number Per share for the Number share for the Number share
period of shares amount period of shares amount year of shares amount
$m millions cents $m millions cents $m millions cents
--------------- -------- ----------- ---------- --------- ----------- -------- --------- ----------- --------
Underlying EPS 20 569.5 3.5 61 495.1 12.3 109 532.1 20.5
Share option
schemes - - - - 1.2 - - 2.1 (0.1)
--------------- -------- ----------- ---------- --------- ----------- -------- --------- ----------- --------
Diluted
underlying
EPS 20 569.5 3.5 61 496.3 12.3 109 534.2 20.4
--------------- -------- ----------- ---------- --------- ----------- -------- --------- ----------- --------
Underlying earnings per share have been presented as the Directors consider
it important to present the underlying results of the business. Underlying
earnings per share are based on the earnings attributable to equity shareholders
adjusted to exclude special items (as defined in note 3) as follows:
6 months to 31 March 6 months to 31 March Year ended 30 September
2014 2013 2013
---------------------------------- -------------------------------- --------------------------------
Profit Profit Per Profit Per
for the Number Per share for the Number share for the Number share
period of shares amount period of shares amount year of shares amount
$m millions cents $m millions cents $m millions cents
-------------- --------- ----------- ---------- --------- ----------- -------- --------- ----------- --------
Basic (LPS) /
EPS (202) 569.5 (35.5) 66 495.1 13.3 166 532.1 31.2
Special items
(note 3) 222 - 39.0 (5) - (1.0) (57) - (10.7)
-------------- --------- ----------- ---------- --------- ----------- -------- --------- ----------- --------
Underlying
EPS 20 569.5 3.5 61 495.1 12.3 109 532.1 20.5
-------------- --------- ----------- ---------- --------- ----------- -------- --------- ----------- --------
Notes to the Accounts (continued)
6 (Loss) / earnings per share (continued)
Headline (loss) / earnings and the resultant headline (loss) / earnings per
share are specific disclosures defined and required by the Johannesburg Stock
Exchange.
These are calculated as follows:
6 months 6 months to
to 31 March Year ended
31 March 2013 30 September
2014 2013
--------------------------------------------
$m $m $m
-------------------------------------------- ---------- ------------ --------------
(Loss) / earnings attributable to ordinary
shareholders (under IAS 33) (202) 66 166
Add back loss on disposal of property,
plant and equipment - - 5
Add back impairment of assets (note 3) - - 2
Tax related to the above items - - (1)
Non-controlling interests - - (1)
Headline (loss) / earnings (202) 66 171
-------------------------------------------- ---------- ------------ --------------
6 months to 31 March 6 months to 31 March Year ended 30 September
2014 2013 2013
--------------------------------- --------------------------------- ------------------------------
Loss Profit Profit
for for for Per
the Number Per share the Number Per share the Number share
period of shares amount period of shares amount year of shares amount
$m millions cents $m millions cents $m millions cents
---------------- -------- ----------- ---------- -------- ----------- ---------- ------- ----------- --------
Headline (LPS)
/
EPS (202) 569.5 (35.5) 66 495.1 13.3 171 532.1 32.1
Share option
schemes - - - - 1.2 - - 2.1 (0.1)
---------------- -------- ----------- ---------- -------- ----------- ---------- ------- ----------- --------
Diluted
headline
(LPS) / EPS (202) 569.5 (35.5) 66 496.3 13.3 171 534.2 32.0
---------------- -------- ----------- ---------- -------- ----------- ---------- ------- ----------- --------
7 Dividends
No dividends were declared during the period (6 months to 31 March 2013 and
year ended 30 September 2013 - $nil).
Notes to the Accounts (continued)
8 Other financial assets
Restricted Available
cash for sale HDSA receivable Total
$m $m $m $m
------------------------------ ----------- ---------- ---------------- ------
At 1 October 2013 14 17 399 430
Interest accrued - - 9 9
Movement in fair value - (1) - (1)
Foreign exchange differences (1) - 12 11
Impairment loss - - (160) (160)
------------------------------ ----------- ---------- ---------------- ------
At 31 March 2014 13 16 260 289
------------------------------ ----------- ---------- ---------------- ------
Restricted Available
cash for sale HDSA receivable Total
$m $m $m $m
------------------------------ ----------- ---------- ---------------- ------
At 1 April 2013 16 17 366 399
Interest accrued 1 - 9 10
Movement in fair value - 2 - 2
Foreign exchange differences (3) - 24 21
Impairment loss - (2) - (2)
------------------------------ ----------- ---------- ---------------- ------
At 30 September 2013 14 17 399 430
------------------------------ ----------- ---------- ---------------- ------
Restricted Available
cash for sale HDSA receivable Total
$m $m $m $m
------------------------------ ----------- ---------- ---------------- ------
At 1 October 2012 18 19 381 418
Interest accrued - - 8 8
Movement in fair value - (2) - (2)
Foreign exchange differences (2) - (23) (25)
------------------------------ ----------- ---------- ---------------- ------
At 31 March 2013 16 17 366 399
------------------------------ ----------- ---------- ---------------- ------
Restricted cash deposits are in respect of rehabilitation obligations.
Available for sale financial assets include listed investments of $12 million
(31 March 2013 - $13 million and 30 September 2013 - $13 million) held at
fair value using the market price on 31 March 2014.
On 8 July 2010, Lonmin Plc entered into an agreement to provide financing
of GBP200 million to Lexshell 806 Investments (Proprietary) Limited, a subsidiary
of Shanduka Resources (Proprietary) Limited, to facilitate the acquisition,
at fair value, of 50.03% of shares in Incwala Resources (Proprietary) Limited
(Incwala) from the original HDSA shareholders. The terms of the financing
provided by Lonmin Plc to the Shanduka subsidiary include the accrual of interest
on the HDSA receivable at fixed rates based on a principal value of GBP200
million which is repayable after 5 years including accrued interest, or earlier
at the Shanduka subsidiary's discretion.
Notes to the Accounts (continued)
8 Other financial assets (continued)
This HDSA receivable is secured on shares in the Shanduka subsidiary, whose
only asset of value is its holding in Incwala. As Incwala's principal assets
are investments in Western Platinum Limited (WPL), Eastern Platinum Limited
(EPL) and Akanani Mining (Proprietary) Limited, all subsidiaries of Lonmin
Plc, the value in use models for the Marikana and Akanani CGU's (refer to
note 10) are applied to determine the value of Incwala and in turn, the value
of the Shanduka subsidiary's shareholding in Incwala (the security). The value
of the security is $260 million at 31 March 2014. The carrying amount of the
HDSA receivable has been impaired by $160 million to bring it down to its
recoverable amount. The impairment loss is largely driven by a downward revision
in PGM price assumptions applied to the valuation models. Any further changes
in the key assumptions would affect the value of the security which would
lead to a further impairment or reversal of recognised impairment as follows:
(Impairment) / write up
Assumption Movement in assumption of receivable
Metal prices +/- 5% $60 m / ($60 m)
ZAR:USD exchange rate +/- 5% $43 m / ($47 m)
Discount rates +/- 100 basis points ($44 m) / $54 m
Notes to the Accounts (continued)
9 Analysis of net cash (i)
Transfer
of unmortised
As at Foreign exchange bank fees As at
1 October and non-cash to other 31 March
2013 Cash flow movements receivables 2014
$m $m $m $m $m
--------------------------- ----------- ---------- ----------------- --------------- ----------
Cash and cash equivalents 201 456 3 - 660
Current borrowings - (277) - - (277)
Non-current borrowings - (312) - - (312)
--------------------------- ----------- ---------- ----------------- --------------- ----------
Net cash as defined
by the Group (i) 201 (133) 3 - 71
--------------------------- ----------- ---------- ----------------- --------------- ----------
Transfer
of unmortised
As at Foreign exchange bank fees As at 30
1 April and non-cash to other September
2013 Cash flow movements receivables 2013
$m $m $m $m $m
--------------------------- --------- ---------- ----------------- --------------- -----------
Cash and cash equivalents 196 1 4 - 201
Current borrowings (2) 3 (1) - -
Unamortised bank fees
(ii) - (6) 6 - -
--------------------------- --------- ---------- ----------------- --------------- -----------
Net cash as defined
by the Group (i) 194 (2) 9 - 201
--------------------------- --------- ---------- ----------------- --------------- -----------
Transfer
of unmortised
As at Foreign exchange bank fees As at
1 October and non-cash to other 31 March
2012 Cash flow movements receivables 2013
$m $m $m $m $m
--------------------------- ----------- ---------- ----------------- --------------- ----------
Cash and cash equivalents 315 (128) 9 - 196
Current borrowings (123) 120 1 - (2)
Non-current borrowings (619) 619 - - -
Unamortised bank fees
(ii) 6 3 (4) (5) -
Net (debt) / cash as
defined by the Group(i) (421) 614 6 (5) 194
--------------------------- ----------- ---------- ----------------- --------------- ----------
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 31 March 2014 unamortised bank fees of $4 million relating to undrawn
facilities were treated as other receivables (31 March 2013 - $5 million
and 30 September 2013 - $5 million).
Borrowings consist of a $400 million syndicated revolving credit US Dollar
facility and three South African Rand bilateral facilities of R660 million
each.
The main features of the $400 million syndicated facility which is supported
by BNP Paribas S.A., Citigroup Global Markets Limited, HSBC Bank Plc, J.P.
Morgan Limited, Lloyds TSB Bank Plc, The Royal Bank of Scotland N.V. and Standard
Chartered Bank are as follows:
* a $400 million five-year committed revolving credit
facility that matures in May 2016; and
* the margin on the facility is in the range 300bps to
375bps.
Notes to the Accounts (continued)
9 Analysis of net cash (continued)
The three R660 million bilateral facilities are at the Western Platinum Limited
level, an operating company. These facilities are supported by FirstRand Bank
Limited, Investec Bank Limited and The Standard Bank of South Africa Limited.
The main features of these facilities are as follows:
* each facility is of a revolving credit nature and
consists of a R330 million five year committed
component that matures in June 2016 and a R330
million one year committed component that can be
rolled annually at the discretion of the bank
(subsequent to 31 March 2014, the one year committed
component has been rolled over to June 2015); and
* the margins on these facilities vary from facility to
facility and bank to bank.
The following financial covenants apply to these facilities:
* consolidated tangible net worth will not be less than
$2,250 million;
* consolidated net debt will not exceed 25% of
consolidated tangible net worth; and
* if:
* in respect of the 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
* in respect of both the US Dollar Facilities Agreement
and the 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% 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% of such
budgeted capital expenditure.
Test Period Capital expenditure
limit (ZAR)
1 October 2012 to 31 March 2013 (inclusive) 800 000 000
1 October 2012 to 30 September 2013 (inclusive) 1 600 000 000
1 April 2013 to 31 March 2014 (inclusive) 1 800 000 000
1 October 2013 to 30 September 2014 (inclusive) 2 000 000 000
1 April 2014 to 31 March 2015 (inclusive) 3 000 000 000
1 October 2014 to 30 September 2015 (inclusive) 4 000 000 000
1 April 2015 to 31 March 2016 (inclusive) 4 000 000 000
1 October 2015 to 30 September 2016 (inclusive) 4 000 000 000
As at 31 March 2014, Lonmin had net cash of $71 million, comprising of cash
and cash equivalents of $660 million and borrowings of $589 million (31 March
2013 - net cash of $194 million and 30 September 2013 - net cash of $201
million). The facilities were fully drawn at 31 March 2014 (undrawn facilities
at 31 March 2013 amounted to $600 million and on 30 September 2013 they amounted
to $598 million).
Notes to the Accounts (continued)
10 Impairment of Non-financial assets (excluding Inventories and deferred tax)
The Group's principal non-financial assets (excluding inventories and deferred
tax assets) are property, plant and equipment, intangibles and goodwill associated
with mining and processing activities. For the purpose of assessing impairment,
these assets are grouped into cash generating units (CGUs). The Group's two
key CGU's are:
* Marikana, which includes Western Platinum Limited
(WPL) and Eastern Platinum Limited (EPL). The
Marikana CGU mines and processes substantially all of
the ore produced by the Group; and
* Akanani Mining (Proprietary) Limited, an exploration
and evaluation asset located on the Northern Limb of
the Bushveld Complex in South Africa.
Goodwill and intangible assets with an indefinite useful life are tested for
impairment annually regardless of whether an indication of impairment exists.
Items of property, plant and equipment that are not in use are reviewed annually
for impairment on a fair value less costs to sell basis.
Under IFRS 6 exploration and evaluation assets are assessed for impairment
when facts and circumstances suggest that the carrying amount of the assets
may exceed their recoverable amount.
At each financial reporting date, the Group assesses whether there is any
indication that assets are impaired. If any such indication exists, the recoverable
amount of the assets is estimated. Recoverable amount is the higher of "fair
value less costs to sell" and "value in use". If the recoverable amount of
an asset (or CGU) is estimated to be less than its carrying amount, the carrying
amount of the asset (or CGU) is reduced to its recoverable amount. Any impairment
is recognised immediately as an expense. Impairment losses within a CGU are
allocated first to goodwill and then to reduce the carrying amounts of other
assets in the unit on a pro-rata basis.
Due to the weaker PGM price outlook and the possible impact of the ongoing
strike, there is an indication that there may be an impairment of the non-financial
assets. Therefore the key CGU's were tested for impairment as at 31 March
2014.
Fair value less costs to sell
Fair value less costs to sell is determined by reference to the best information
available to reflect the amount that the Group could receive for the CGU in
an arm's length transaction.
When comparable market transactions or public valuations of similar assets
exist these are used as a source of evidence. However, the Group believes
that mining CGUs tend to be unique and have their value determined largely
by the nature of the underlying ore body. The fair value therefore is typically
determined by calculating the value of the CGU using an appropriate valuation
methodology such as calculating the post-tax net present value using a discounted
cash flow forecast (as described in value in use).
Value in use
In assessing value in use, the estimated future cash flows, based on the most
up to date business forecasts or studies for exploration and evaluation assets,
are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific
to the assets for which estimates of future cash flows have not been adjusted.
The key assumptions contained within the business forecasts or studies for
exploration and evaluation assets, and management's approach to determine
appropriate values are set out below:
Notes to the Accounts (continued)
10 Impairment of Non-financial assets (excluding Inventories and deferred tax) (continued)
Key Assumption Management Approach
--------------------------------- -------------------------------------------------------------
PGM prices Projections are determined through a combination of
the views of the Directors, market estimates and forecasts
and other sector information. The Platinum price is
projected to be in the range of $1,416 to $2,072 (September
2013: $1,600 to $2,100) per ounce in real terms over
the life of the mines. Palladium and Rhodium prices
are expected to range between $732 and $1,299 (September
2013: $750 to $1,200) and $1,045 and $1,570 (September
2013: $1,000 to $2,000) respectively per ounce in
real terms over the same period.
--------------------------------- -------------------------------------------------------------
Production volume Projections are based on the capacity and expected
operational capabilities of the mines, the grade of
the ore, and the efficiencies of processing and refining
operations.
--------------------------------- -------------------------------------------------------------
Production costs Projections are based on current costs adjusted for
expected cost changes as well as giving consideration
to specific issues such as the difficulty in mining
particular sections of the reef and the mining method
employed.
--------------------------------- -------------------------------------------------------------
Capital expenditure requirements Projections are based on the operational plan, which
sets out the long-term plan of the business and is
approved by the Board.
--------------------------------- -------------------------------------------------------------
Foreign currency exchange Spot rates as at the end of the reporting period are
rates applied.
--------------------------------- -------------------------------------------------------------
Reserves and resources Projections are determined through surveys performed
of the CGU by Competent Persons and the views of the Directors
of the Company.
--------------------------------- -------------------------------------------------------------
Management uses past experience and assessment of future conditions, together
with external sources of information in order to assign values to the key
assumptions.
Management has projected cash flows over the life of the relevant mining operation
which is significantly greater than 5 years. For the Marikana CGU a life of
mine spanning until 2056 was applied. For the Akanani CGU the life of mine
spans until 2049. Projecting cash flows over a period longer than 5 years
is in line with industry practice and is supported by the Group's history
of the resources expected to be found being proven to exist. Management does
not apply a growth rate because a detailed life of mine plan is used to forecast
future production volumes.
For each CGU a risk-adjusted pre-tax discount rate is used for impairment
testing. The key factors affecting the risk premium applied are the relevant
stage of the development of the asset in the CGU (extensions to existing operations
having significantly lower risk than evaluation projects for example), the
level of knowledge and consistency of the ore body and sovereign risk. The
rate applied in the Marikana CGU for the 6 months to March 2014 was 11.8%
pre-tax real (September 2013 - 11.8% real). The rate applied for the exploration
and evaluation asset in the Akanani CGU for the 6 months to March 2014 was
15.4% pre-tax nominal (September 2013 - 14.8% nominal).
Marikana CGU
For the Marikana CGU the value in use calculated based on the assumptions
above exceeded the unit's carrying amount and therefore no impairment is required
at 31 March 2014. In preparing the financial statements, management has considered
whether a reasonably possible change in the key assumptions on which management
has based its determination of the recoverable amount of the Marikana CGU
would cause the unit's carrying amount to exceed its recoverable amount. Management
believe that a reasonably possible change in pricing and foreign exchange
rate assumptions would lead to impairment. The approximate effects on the
carrying amount of the Marikana CGU of movements in three key assumptions
would be as follows:
Approximate impact on
Assumption Movement in assumption carrying amount
Metal prices -5% ( $154 m)
ZAR:USD exchange rate -5% ( $14 m)
Discount rates +100 basis points -
Notes to the Accounts (continued)
10 Impairment of Non-financial assets (excluding Inventories and deferred tax) (continued)
Akanani CGU
The Akanani CGU is currently at prefeasibility study level and value in use
calculations for the CGU are calculated using cash flows derived from the
results of the latest study. Given the Akanani CGU is at the exploration and
evaluation stage it is reasonably possible that the completion of that stage
will result in changes to indicated and inferred reserves of PGM ounces and
a further refinement of capital and operating expenses. In addition the quantity
of resources is also sensitive to the long-term metal prices. Adverse changes
in reserves and resources, capital and operating expenses, and long-term metal
prices might cause the recoverable amount to fall below the carrying amount
of the CGU.
The Akanani CGU was impaired in 2012, and no further impairment is required
at 31 March 2014. In preparing the financial statements, management has considered
whether a reasonably possible change in the key assumptions on which management
has based its determination of the recoverable amount of the Akanani CGU would
impact the carrying amount. Management believe that a reasonably possible
change in any of the key assumptions would lead to impairment or reversal
of a previous impairment. The approximate effects on the carrying amount of
the Akanani CGU of movements in three key assumptions would be as follows:
Approximate impact on
Assumption Movement in assumption carrying amount
Metal prices +/- 5% $35 m / ($34 m)
ZAR:USD exchange rate +/- 5% $28 m / ($31 m)
Discount rate +/- 100 basis points ($58 m) / $73 m
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GGUQGAUPCPUG
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