TIDMLMI
RNS Number : 0378P
Lonmin PLC
14 November 2016
14 November 2016
2016 Final Results Announcement
Lonmin Plc, ("Lonmin" or "the Group"), one of the world's
largest primary Platinum producers, today publishes its Final
Results for the year ended 30 September 2016.
Highlights
-- The successful completion of the reorganisation has improved
Lonmin's profitability and resulted in the business being cash flow
positive after capital expenditure despite the continuing low PGM
pricing environment
-- Underlying operating profit increased to $7 million from a
loss of $134 million in the prior year
-- Cash improved from $69 million at end of first quarter to $173 million at year end
-- Liquidity improved from $422 million at end of first quarter to $537 million at year end
-- Sales of 735,747 Platinum ounces, exceeded the sales guidance
of 700,000 Platinum ounces, supported by our smelter clean-up and
metal release from improved processing technology
-- Achieved cost reduction of R1.3 billion, 86% higher than the target of R700 million
-- Underlying costs decreased by 3.2% to R14.1 billion - unit
costs increased by 4.0% to R10,748, despite 8.2% increase in labour
costs
-- Concentrator recoveries of 86.6% continue to be industry leading
-- Generation 2 shafts production of 8.1 million tonnes, 4.0% up
on the prior year on a comparable basis, and productivity up 5.0%,
notwithstanding rationalisation of the workforce by 19.0%
-- The planned decline of our Generation 1 shafts is on track,
reducing our high cost production in an oversupplied market
-- Saffy shaft production up 16.9% and has reached steady state
-- Average Rand full basket price (including base metals) up
7.5% on prior year, at R11,637 per PGM ounce
-- Peaceful and non-disruptive conclusion of multi-year wage
agreement, reflects a maturing relationship with the unions and
employees
-- Preserved Immediately Available Ore Reserves which stand at
22.4 months, providing us with operational flexibility
Safety
-- Determined to continuously improve our overall safety performance
-- Saddened by the loss of four employees during the year
despite our best efforts to achieve Zero Harm in all our
operations
-- Lost Time Injury Frequency Rate (LTIFR) improved by 8.1% to 4.97 (2015: 5.41)
Guidance for financial year 2017
-- Platinum sales between 650,000 and 680,000 ounces
-- Unit costs remain under pressure; expected to be in the range
of R10,800 to R11,300 per PGM ounce
-- Capital expenditure to be funded from cash generated from
operating activities and third party funding. Our 2017 guidance is
expected to be increased to approximately R1.8 billion, which
includes R400 million related to the Bulk Tailings Treatment
project
Lonmin Chief Executive Officer Ben Magara said:
"During 2016 we strengthened our balance sheet and renewed our
bank facilities, closed unprofitable shafts, reorganised the
business without labour disruptions, reduced costs and enhanced
profitability. We are now well placed to drive essential and
sustained improvements in productivity. I am pleased that we ended
the year with net cash of $173 million and increased total
liquidity to $537 million. I am also pleased that we signed a
multi-year wage agreement without labour or production disruption.
We have now repositioned the business, not only to withstand the
current low PGM price environment, but also to seize opportunities
to maximise value for shareholders and all our stakeholders."
FINANCIAL HIGHLIGHTS
30 September 30 September
2016 2015
----------------------------------------- ------------- -------------
Revenue $1,118m $1,293m
Underlying (I, ii) operating profit
/ (loss) $7m ($134)m
Operating loss (ii) $(322)m $(2,018)m
Underlying (i) loss before taxation $(3)m $(143)m
Loss before taxation $(355)m $(2,262)m
Underlying (i) loss per share(viii) (35.6)c (194.5)c
Loss per share (viii) (137.0)c (3,437.6)c
Trading cash inflow/(outflow) per share
(iii,viii) 23.2c (24.8)c
Unit cost of production per PGM ounce R10,748/oz R10,339/oz
Capital expenditure $89m $136m
Free cash outflow per share (iv, viii) (12.4)c (345.6)c
Net cash/(debt) as defined by the Group
(v) $173m $(185)m
Interest cover (times) (vi) 1.0x 7.9x
Gearing (vii) -% 9.9%
Footnotes:
i Underlying results are based on reported results excluding
the effect of special items as disclosed in note 3 to the
financial statements.
ii Operating (loss) / profit is defined as revenue less operating
expenses, profit on disposal of joint venture, finance income
and expenses and before share of (loss) / profit of equity
accounted investment.
iii Trading cash flow is defined as cash flow from operating activities.
iv Free cash flow is defined as trading cash flow less capital
expenditure on property, plant and equipment and intangibles,
proceeds from disposal of assets held for sale and dividends
paid to non-controlling interests.
v Net 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.
vi Interest cover is calculated on the underlying operating (loss)
/ 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.
viii The number of shares held prior to 12 December 2015 has been
adjusted by a factor of 0.08 to reflect the bonus element
of the Rights Issue.
ENQUIRIES
Investors / Analysts:
Tanya Chikanza (Head of Investor Relations) +27 11 218 8358 / +44 207 201 6007
Andrew Mari (Investor Relations Manager) +27 11 218 8420
Media:
Wendy Tlou +27 83 301 9663
Anthony Cardew / Emma Crawshaw, Cardew
Group +44 207 930 0777
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 more than 70% of known global PGM resources
are found.
The Company creates value for shareholders through mining,
refining and marketing PGMs and has a vertically integrated
operational structure - from mine to market. Underpinning the
operations is the Shared Services function which provides high
quality levels of support and infrastructure across the
operations.
For further information, please visit our website:
http://www.lonmin.com
CONTENTS
This document contains the following sections:
-- Chief Executive Officer's Review;
-- Operational Review;
-- Market Review;
-- Mineral Resources & Mineral Reserves;
-- Financial Review;
-- Operating Statistics - 5 Year Review;
-- Responsibility Statement of the Directors; and
-- Financial Statements
CHIEF EXECUTIVE OFFICER'S REVIEW
Improving cash and liquidity were our priorities for 2016 and
the results demonstrate good progress in these areas. After our
Rights Issue which strengthened our balance sheet and the renewal
of our bank facilities, we delivered on our promises to our
shareholders:
-- maintaining a strict focus on cash, which ensured that for
the three quarters following the successful reorganisation of the
business we were cash flow positive after capital expenditure and
improved operating profit to $7 million, from a loss of $134
million in 2015;
-- increasing our net cash position from $69 million with total
liquidity of $422 million at the end of quarter one, to $173
million with total liquidity of $537 million at the year end;
-- reducing cost by R1.3 billion, 86% higher than our target as
well as contained capital expenditure;
-- timely conclusion of a multi-year wage agreement; and
-- preserving immediately Available Ore Reserves, at 22.4
months, giving us operational flexibility.
Our structural and strategic changes stabilised the business,
generated cash and have opened up opportunities to maximise further
shareholder value. Our improving cash position and liquidity shows
that we have repositioned the Company. Supported by our long-life,
shallow ore resources, I am confident that we are capable of
meeting the immediate challenges and are equipped to take advantage
of any continued market improvement.
Safety is essential for good performance and remains our
priority. With regret I have to confirm that Zilindile Ndumela,
Goodman Mangisa, Fanelekile Giyama and Siphilo Makhende were
fatally injured during the year. Our condolences go to their
families and loved ones. Overall Lost Time Injury Frequency Rate
improved by 8.1%. We remain determined to better our overall safety
performance and have further enhanced our focus on safety
improvements. I absolutely believe Zero Harm is realistic and
achievable.
Reorganisation
The reorganisation of the Group, in line with the Business Plan,
was successfully completed in the first half of the year with a
total of 5,433 employees and contractors leaving the business
between 30 June 2015 and 31 March 2016. A further 1,428 employees
were reskilled and redeployed into vacant, more productive roles.
The reorganisation, whilst successful in being completed without
business interruptions, did nonetheless have a disruptive impact on
mining production, with total tonnes mined falling below our
ambitious Business Plan target. As the disruption created by the
rationalisation process settles down, we expect the mining teams to
start to improve levels of production. Additionally, a number of
initiatives have been actioned to support the achievement of
planned output for 2017.
Performance
Despite the reorganisation, we achieved Platinum sales of
735,747 ounces, exceeding our guidance of 700,000 Platinum ounces,
assisted by the impressive efforts of our Processing team, which
released 73,186 Platinum ounces from the smelter clean-up project
and metal release from our new Other Precious Metals (OPM) Plant. I
would like to praise the Processing team's entrepreneurial approach
and high performance culture.
We mined a total of 10.3 million tonnes, a decrease of 8.8% on
the prior year, reflecting the planned decline in production from
our older, higher cost Generation 1 shafts, which are being wound
down as part of our strategy to reduce high cost production. 2016
saw the orderly closure of our 1B shaft and the cessation of own
production from Newman shaft.
Tonnes mined from our core Generation 2 shafts were up 4.0% on a
comparable basis. Saffy shaft, which is now operating at full
production, performed notably well, offsetting the weaker
performance of K3 and Rowland shafts, which were affected by the
redeployment and reskilling of employees; absenteeism of key
personnel; and higher incidents of safety stoppages in the first
nine months of the year. Productivity at our Generation 2 shafts
increased 5.4% to a five year high of 5.9 square meters per
person.
The efforts to improve the performance and reliability of the
processing plants over recent years, based on ongoing optimisation
and improvement plans across the processing operations, continue to
pay off and the concentrators have achieved levels of PGM
recoveries amongst the highest in their history, with the
instantaneous recovery rate having increased to 89.6% for the
current year, from 87.2% in the 2015 financial year, benefiting
from the once-off smelter clean-up project.
We continue to pursue various initiatives to utilise our excess
processing capacity; the Bulk Tailings Treatment (BTT) project
being an example of this.
Cash and Liquidity, Profitability, Cost Savings and Capital
expenditure
The reorganisation resulted in the business delivering
underlying operating profit of $7 million compared to underlying
operating loss of $134 million in 2015 and meant the business was
cash positive after capital expenditure for the last three quarters
of the year. Our net cash position increased to $173 million (R2.4
billion) with total liquidity of $537 million (R7.5 billion) at the
year end. We benefited from a cash flow injection of circa R350
million (around $24 million) realised from permanently reducing our
metal in process stock following the commissioning of the OPM
Plant.
Underlying costs decreased by 3.2% to R14.1 billion. We
delivered cost reductions of R1.3 billion (in financial year 2015
money terms) over the course of the year, which is 86% ahead of our
Business Plan target of R700 million, achieved through the
reduction in the size of the Group's workforce, overhead costs and
support service structures, controlling of variable cost in line
with lower mining / concentrating production and total cost of
ownership projects.
We contained unit costs to R10,748, a 4.0% increase year on
year, in spite of the 8.2% increase in labour wages and the
disruption from the reorganisation, which was marginally ahead of
the revised guidance in our Q3 production report. The increase
reflects the production challenges experienced in our mining
operations, where the majority of our costs are incurred,
highlighting a need to build on our productivity improvements.
Capital expenditure was contained to $89 million, less than our
revised guidance of $105 million due to delay of the BTT project.
During 2016, $50 million competitive third party funding was
secured for our BTT project with the first tranche of $9 million
received in the fourth quarter.
During the year an impairment charge of $335 million was
incurred, reflecting the weakened Rhodium price long term outlook
and strengthened Rand to US Dollar exchange rate in the second
half.
Wage Settlement
On 31 October, we announced our agreement with The Association
of Mineworkers and Construction Union (AMCU) on wages and
conditions of service. The agreement, effective from 1 July 2016 to
30 June 2019, provides employees with a realistic and competitive
outcome and was negotiated without any business interruptions,
demonstrating the reducing risk in this area. The impact of this is
an average annual increase of 7.6%.
Pandora
On 11 November, we entered into a sale and purchase agreement to
acquire Anglo American Platinum's (AAP) 42.5% stake in Pandora,
bringing our total ownership in the asset to 92.5%. The
acquisition, for a minimum of R400 million (nominal terms) and a
maximum of R1 billion, over six years, increases our exposure to an
asset with good long-term development potential. The Pandora Joint
Venture made an operating loss of R109 million in 2016, with
Lonmin's 50% share being reflected in these accounts. However,
Lonmin received a contribution of R117 million from ore purchase
agreements, which offsets the joint venture loss. Adjacent to our
Saffy shaft, Lonmin expects to be able to access additional ounces
without having to incur further capital expenditure, allowing us to
defer capital to deepen the Saffy shaft. Additionally, Lonmin will
realise an annual rental fee of approximately R46 million, for a
three year period, from AAP for the use of the Baobab concentrator
in Limpopo. The transaction is expected to become unconditional
during 2017 following the fulfilment of all conditions
precedent.
The Market
During the year, the PGM pricing environment remained weak
although the platinum market deficit has widened. In the short-term
we expect markets to remain subdued, however we still believe the
long-term market fundamentals are strong. PGMs have a vital role to
play as we move towards a greener global economy. Platinum and
palladium's role in reducing harmful emissions remains key and is
of growing relevance for developing markets, which are increasingly
adopting more stringent emissions standards. Growth in jewellery
demand from India and the United States has recently offset the
slowdown in China and we believe the drivers of platinum investment
and demand are robust. When market sentiment improves, I am
confident that we will see an improvement in platinum prices
primarily because of the extended under-investment in the primary
supply.
Our Strategy
Our strategy in the short to medium term is to continue to
preserve cash with the objective of achieving positive cash flow
after capital expenditure. Much has been achieved and the Company
is now well positioned to maximise value for shareholders. In the
long-term, our strategy is to generate value from our
mine-to-market business by utilising our value chain, especially
our processing infrastructure and capabilities.
Our strategy focuses on the following four pillars, which take
into account our responsibilities around social and community
investment:
1) Operational Excellence
Profitability and returns are crucial. The Group is highly
geared to the PGM pricing environment and the Rand/US Dollar
exchange rate. We operate for value, not for volume. Given the
present PGM market, we believe that the priority in the short-term
is to make sustainable improvements in productivity and bolster
cash and liquidity.
To improve cash margins, we strive to ensure that our core,
larger, long-life Generation 2 shafts reach the most efficient and
profitable positions in terms of safety, costs, production and
productivity as the older Generation 1 shafts reach the end of
their lives.
Safety remains at the heart of all that we do. Our ambition to
achieve Zero Harm starts with the safety, health and wellbeing of
our employees and extends to everything we do including minimising
the environmental impact of our operations. Our approach to safety
is defined in the Lonmin Safety and Sustainable Development Policy,
Sustainable Development Standards and the Fatal Risk Control
Protocols and the Lonmin Mining Life Rules, a set of non-negotiable
rules that target the risk areas responsible for the majority of
fatal or serious accidents.
In line with our strategy to remove high cost production ounces,
the closure of inefficient areas and shafts will continue through
2017.
We remain vigilant in containing our costs. Overheads and
support services structures are expected to align with the planned
reduced sales profile. Additionally, capital expenditure will be
maintained at the level required to be cash neutral as a minimum
and should be sufficient to keep the Group's existing assets in
operation and to comply with legislative, safety, health and
environmental and social responsibility requirements without
compromising our bank covenants. The Group continues utilising
capital portfolio optimisation tools with the aim of ensuring that
capital expenditure is invested only in the most cash generative
development projects available to the Group with the aim of
predominantly funding capital expenditure through free cash flow
generated by operating activities.
The Group's planned capital expenditure includes the expansion
capital expenditure for the BTT project. In total, approximately
R400 million is included for this project in the total planned
capital expenditure for the financial year 2017.
We intend to maintain a clear strategic focus on the Group's
mineral resources, mining and processing infrastructure at
Marikana. Prior investment in this area means as at 30 September
2016 the Group had Immediately Available Ore Reserves equating to
22.4 months of mining at planned levels of production. Attributable
Mineral Resources were 180.6 million ounces of 3PGE+Au in 2016, a
decrease of 2.3 million ounces from 2015, and Attributable Mineral
Reserves were 31.7 million ounces of 3PGE+Au in 2016, a decrease of
4.6 million ounces from Marikana and 0.1 million ounces from
Pandora with 2015. The Marikana tailings were unchanged. This
provides Lonmin with a competitive advantage, giving operational
and strategic flexibility.
As part of our efforts to make use of the excess capacity within
our Processing Division, and in line with our focus on low cost
ounces and near term cash, work is underway on the BTT project.
Additionally, during the course of the year, we signed a toll
treating contract with Jubilee Platinum Plc, which will commence
during financial year 2017, producing 12,000 Platinum ounces in
2017 and 17,000 Platinum ounces per annum thereafter.
The BTT project involves the re-mining of Lonmin's Eastern
Tailings Dam and the reprocessing of 26 million tonnes of tailings
material at a rate of 300,000 tonnes per month. Once at
steady-state, the project is expected to deliver the lowest cost
ounces in the Lonmin portfolio, producing about 29,000 ounces of
Platinum per year or some 55,000 ounces of PGM (6E) (from tailings
with a grade of 1.42 grammes per tonne with a recovery rate of
35%). The project is expected to be mined by a contractor over a
seven-year period and to be commissioned and ramped up to full
production by the end of 2018. The chrome is expected to be
recovered in a new chrome spiral plant and the contained PGMs are
expected to be recovered in the Group's UG2 concentrator. Further
to this project, there are a number of additional tailings dams
available for life extension in the Western Dam, for potential
exploitation in the future.
In the longer term, the Directors believe the Group has a number
of attractive brownfield opportunities that could potentially be
developed when the PGM pricing environment improves, including the
K4 shaft, the Rowland MK2 resources, opening up of further levels
of Saffy shaft, the Pandora E3 deepening project and E4 Pandora
project. The Limpopo operations, currently on care and maintenance,
also offer a unique opportunity to develop what the Directors
believe to be a sizeable mechanised operation in a sustained higher
price environment. In addition, the Akanani project offers the
prospect of a large, long-life, low-cost and highly mechanised mine
which gives us optionality in the long term.
We sold our stake in a non-core gold exploration joint venture
in Kenya for $5 million during the year, but through our joint
ventures with Vale S.A. and Wallbridge Mining Company Limited, we
retain our international exploration projects in Canada. Limited
work also continues on the exploration licences that we hold in
Northern Ireland. While our International Projects offer an
opportunity of competitive advantage and are shallow or highly
mechanisable, in line with the Business Plan, allocation of funds
to such projects is restricted and consequently activity will
remain minimal on these projects through financial year 2017.
2) Enhanced Balance Sheet Strength
We achieved our stated aim of being cash flow positive after
capital expenditure whilst maintaining optionality to grow
production over time if and when pricing ultimately improves. Our
balance sheet will be managed prudently and conservatively.
3) Our People and Relationships
Our mining model is labour-intensive. Our people make the
difference and are the vehicle by which our strategy is effected
through the day to day operations. The Company values the
contribution made by all its employees and recognises that morale
and retention remain under pressure as a result of the
reorganisation and continuing cost constraints, which have limited
salary increases and development opportunities.
Progress against our human resources targets is measured through
monthly reporting of key internal indicators as well as integrating
certain targets as part of the Lonmin corporate objectives.
Lonmin's human resources strategy, policies and procedures align
with our operating country's labour laws and other relevant
frameworks, guidelines and codes of practice. These include in
South Africa, the social development requirements of the Minerals
and Petroleum Resource Development Act that are defined in the
Company's Social and Labour Plan, the human rights provision in the
International Council on Mining and Metals principles of
sustainable development and the United Nations Global Compact.
The Company also reports to the Department of Minerals and
Resources (DMR) against the broad-based economic development
requirements of the Mining Charter, which include housing and
living conditions, employment equity and human resource
development.
We continue on our journey to improve our employee's wellbeing
and financial literacy and have been encouraged by the results of
the initiatives we put in place to achieve this.
Our employees deserve decent living standards and must have a
choice of how and where they want to live. Achieving our vision for
sustainable, integrated settlements requires careful planning,
consultation and coordination between all stakeholders, including
the employees themselves, communities, potential funders,
developers, unions, local municipalities and all levels of
Government. To this end, Lonmin and its organised labour are
reviewing employee living standards as part of the human
settlements strategy, which should realise a tactical plan that
addresses employees' wishes, needs, security and affordability to
ensure a fit-for-purpose and decent standard of living.
As announced in October 2013, Lonmin remains committed to
spending R500 million over the five-year period to 2018 towards
employee accommodation and community bulk services.
Continuing to Improve Relationships with key Stakeholders
Our efforts to solidify and improve relations with our employees
and their representative trade unions continue. We accept that
building trust and strong relationships is a never ending
journey.
Management and unions continue to engage on a regular basis at
different levels to ensure timely communication and resolution of
issues at appropriate levels. We also have regular engagement with
our majority union, AMCU, in line with our Relationship
Charter.
Transformation
Lonmin embraces transformation as a business imperative. We are
committed to playing our part in addressing historic inequalities
and creating the conditions in which current and future generations
can succeed in creating a shared purpose. The Mining Charter
requires a focus on increasing the number of Historically
Disadvantaged South Africans (HDSAs) in management and the number
of women in mining.
Transformation is monitored and overseen at Board level by the
Social, Ethics and Transformation Committee. Transformation
considerations are incorporated into recruitment, succession,
skills development and talent management functions to develop an
internal pipeline of HDSAs, including women. Lonmin's bursary and
graduate development programmes prioritise HDSAs in order to build
the future supply of appropriate candidates. Targets relating to
transformation are included in the corporate balanced scorecard
that is used to measure performance for the incentive scheme.
4) Our Corporate Citizenship Agenda
Stakeholder engagement and corporate communication
Our business begins and ends with relationships and the quality
of those relationships are central to our success and that of our
stakeholders. Genuine stakeholder engagement and relationship
building has allowed us to understand stakeholder expectations and
to communicate on key issues transparently, consistently and in a
timely manner.
Social licence to operate
Maintaining our social licence to operate through securing the
trust and acceptance of communities and stakeholders is material as
they host our operations. This is achieved through:
-- stakeholder engagement to ensure realistic expectations are understood and managed;
-- community investment initiatives to address social issues;
-- transformation initiatives to meet the Government's social and economic development goals;
-- ethical business practices that include a commitment to upholding human rights; and
-- corporate and community partnerships.
This is very much work in process and is based on an
acknowledgement that trust must be restored and communities
healed.
The Board and Management
The year saw two Board changes. First the appointment of Kennedy
Bungane as a Non-Executive director. Kennedy is CEO of Phembani
Group Proprietary Limited, which merged with Lonmin's Black
Economic Empowerment partner Shanduka Group Pty Limited. Kennedy
has a wealth of corporate experience and his appointment is in line
with our original contractual arrangements with Shanduka.
In May, Simon Scott stepped down as Chief Financial Officer and
as a Director of the Company. We wish Simon every success in the
future and thank him for his contribution to the business over what
was a very challenging period.
We were delighted to be able to welcome Barrie van der Merwe as
Simon's replacement and as a member of the Board. Barrie has
brought with him extensive knowledge and experience of the mining
industry and the South African business environment and has already
made a significant contribution to the business.
Conclusion
Today, the business is well positioned with disruption from the
reorganisation process reducing. The Mining Division has now
stabilized following the reorganisation and is in a strong position
to move forward. We are focused on our core Generation 2 shafts. We
are well placed to drive essential and sustained improvements in
productivity and a number of initiatives have been implemented to
address mining's performance. Getting profitable ounces out of the
ground is an essential priority.
We have come a long way during 2016. I am particularly pleased
with our return to profitability and the increase in our cash
position and liquidity. We are now well positioned to explore
options to maximise value for our shareholders and all our
stakeholders; the acquisition of Pandora being a good example of
this.
Guidance
We expect Platinum sales for 2017 to be between 650,000 and
680,000 ounces, which takes into account the positive impact of
various initiatives such as the smelter clean-up. We remain
vigilant in our cost control, and expect our overheads and support
services structures to align with our sales profile. Unit costs
will remain under pressure until we see a sustained improvement in
production throughput from mining and are expected to be in the
range of R10,800 to R11,300 per PGM ounce. Like costs, our capital
expenditure is predominantly incurred in Rands. Going forward
therefore, our capital expenditure guidance will be provided in
Rands rather than US Dollars. Our 2017 guidance is approximately
R1.8 billion; the increase on previous guidance reflects the delay
to the BTT project which is third party funded and accounts for
R400 million. Capital expenditure will be maintained at the minimum
level required for the safe and efficient running of the Group's
operating, as we continue to focus on our aim of being cash
positive after capital expenditure.
Yours faithfully
Ben Magara
Chief Executive Officer
13 November 2016
OPERATIONAL REVIEW
Safety
Our goal is for every person in the business to have a personal
understanding of, and respect for, the importance of safety in the
workplace through entrenching safety principles in the organisation
and increasing visibility on safety matters.
Our safety strategy is centred around three key objectives:
-- fatality prevention;
-- injury prevention; and
-- a safe high performance operational culture.
Our current safety performance is not currently acceptable and
our focus on safety improvements remains a key priority for the
Group. We do believe Zero Harm is achievable and we strive to
realise this. We believe continuing to integrate our operational
and sustainability strategies will help deliver this.
Significant achievements:
-- K3 shaft achieved 6 million fatality free shifts on 22 July
2016, with the last fatality on 26 April 2013;
-- 4B/1B shaft won the JT Ryan Safety Award for the fourth
consecutive year; in recognition of its fatal-free safety
performance;
-- 4B/1B shaft achieved 10 million fatality free shifts, with
the last fatality at 1B shaft on 20 March 2004;
-- Saffy shaft achieved 3 million fatality free shifts on 13 April 2016;
-- EPC concentrator achieved 4 years LTI Free on 6 July 2016;
-- retained OHSAS 18001 at all processing plants; and
-- the LTIFR improved to 4.97 per million man hours worked from 5.41 in the prior year.
Performance
Despite most safety indicators showing improvements, regrettably
four of our colleagues were fatally injured. Two of the incidents
involved falls of ground and two were ore pass incidents. We deeply
regret the loss of our colleagues and extend our deepest
condolences to their families and friends.
Each incident was thoroughly investigated and reported to the
DMR. Lessons learned from each incident were implemented into
action plans and shared across operations. Our continuing efforts
to prioritise improving safety performance in a collaborative way
is demonstrated by the Tripartite Safety Day we held on 14 July
2016 at Rowland and E3 shafts, incorporating our key stakeholders
including the DMR and AMCU. Alongside myself, the focus on safety
was also reiterated to employees by Mr Joseph Mathunjwa, the
President of AMCU, and Mr Monageng Mothiba, Principal Inspector of
Mines for the Rustenburg region.
We had 50 Section 54 stoppages imposed at operations in
financial 2016, compared to 36 stoppages in financial year 2015,
which resulted in 164 production days lost compared to 173 days
lost in 2015. Section 54 stoppages were enforced more broadly and
were taking longer to lift in the first nine months of the year.
Not only do safety stoppages affect production, they also have a
negative impact on safety routines and care must be taken to safely
shut down work areas so that on their return, workers do not enter
a work area that is hazardous. We continued to engage proactively
with the DMR throughout and as shaft management develop a better
understanding and working relationship with the inspectorate and
with the Union, we are experiencing a reduction in the duration and
frequency of Section 54 stoppages and more localised application of
the stoppages. We are encouraged that this collaboration with the
DMR has started to show results, as we have experienced decreasing
Section 54 stoppages in the fourth quarter of the year. The rest of
our shaft and operational managers are now actively focusing on
improving their interaction with the inspectorate and the unions,
to align objectives and manage expectations on safety
stoppages.
We have intensified our focus on a number of safety initiatives
through visible felt leadership and direct employee engagement.
This includes continued focus on Fatal Risk Control Protocols
relating to fall-of-ground and scraping and rigging, the current
Mining Industry Occupational Safety and Health programme
initiatives, the roll out of the proximity detection systems,
compliance audits on contractors and contractor management.
Lonmin also began the roll out of the Du Pont leadership
programme, called the Lonmin Safety Leadership DNA programme. This
programme develops individuals' safety competencies, knowledge in
the safety theory, how to apply it and practice safety management.
Structured workplace coaching is also part of this programme which
is conducted one-to-one to bridge individual competency gaps and to
improve safety performance over time. Training has been delivered
to executive and senior management, union health and safety
structures and sixteen 'train the trainers' candidates.
There are a number of industry organisations that focus on
addressing safety and health concerns in the mining industry that
Lonmin participates in. These include amongst others the Chief
Executive Officer Zero Harm Task Team through the Chamber of Mines,
the International Council on Mining and Metals and the Association
of Mine Managers South Africa. These forums expose the Company to
shared learnings, best practice and peer performance
benchmarks.
Mining Division
Overview
Tonnes mined at 10.3 million were 8.8% lower than the 11.3
million from the prior year, mostly as a result of the decline in
production from the Generation 1 shafts of 1.1 million tonnes, in
line with our strategy to reduce high cost production in a low
price environment.
This was achieved in spite of the rationalisation of the
workforce by 19% or 6,861 people as at 30 June 2016, comprising a
reduction of 5,433 employees and contractors and the efficient
reskilling and redeployment into vacant, more productive roles of
1,428 employees. The vacancies were predominantly as a result of a
deliberate freeze on recruitment and losses due to natural
attrition.
A total of some 592,000 tonnes of production was lost in the
year mainly due to Section 54 safety stoppages and management
induced safety stoppages (MISS), equivalent to 39,000 Platinum
ounces lost, compared to 872,000 tonnes lost in the prior year.
Whilst we had a high number of Section 54 safety stoppages in the
first nine months of the year, we are experiencing a reduction in
the duration and frequency of Section 54 stoppages as a result of
our continued interaction with the DMR and the unions. Accordingly,
we have experienced an improving trend in production losses, and in
the fourth quarter of the year, only 95,000 tonnes were lost due to
Section 54 safety stoppages and MISS, compared to 297,000 tonnes in
the last quarter of the prior year.
Marikana Ore Reserves
The ore reserve position of the Marikana mining operations at
3.8 million square metres represents an average of 22.4 months
production. Since we are commencing an orderly shut down and
placement on care and maintenance of Hossy shaft, this shaft is now
reported as a Generation 1 shaft and prior periods have been
restated accordingly.
The overall decrease of 5% at the Generation 2 shafts is largely
driven by a 12% reduction at Rowland and 4B shafts. The drop in
Rowland available ore reserve is due to current levels reaching the
extremities of Rowland's lease area, but the lateral extensions
into MK2 and K3 ground scheduled for 2017/2018 are expected to open
new ore reserves. The drop in 4B available ore reserves is due to a
depleting shaft block. The decrease in the ore reserve position at
the Generation 1 shafts can be largely attributed to Hossy and
Newman shafts depletion and the curtailment of development.
Immediately Available Ore Reserves
(m(2) '000)
2015 2016 Variance
K3 1,054 1,030 (2)%
Rowland 576 504 (12)%
Saffy 733 765 4%
4B 635 556 (12)%
------------- ------ ------ ---------
Generation
2 2,998 2,855 (5)%
Generation
1 908 751 (17)%
K4 188 188 0%
------------- ------ ------ ---------
Total 4,094 3,794 (7)%
------------- ------ ------ ---------
Business Improvement Initiatives
The Business Support Office continually facilitates and monitors
the implementation of business improvement initiatives by line
management, aimed at increasing productivity and improving
performance.
Pursuant to the successful rationalisation of the workforce by
19%, we experienced an increase in productivity at our Generation 2
shafts from 5.6 square meters per man in 2015 to 5.9 square meters
per man in 2016. As the disruption created by the rationalisation
process settles down, we expect the mining teams to return to the
long run target levels of production. Whilst we are pleased with
the implementation of our Business Plan and with our strategy to
reduce high cost production in a low price environment, we have yet
to fully harness the productivity gains, and mining has not been
able to deliver the planned tonnes for Generation 2 shafts during
the 2016 financial year.
We remain focused on improving productivity and recognise that
multiple challenges remain and a step change is needed to realise
further improvement. In parallel with the ongoing implementation of
the initiatives set out below, additional stoping crews will be
deployed in order to further support the achievement of planned
output, as our healthy ore reserve position allows for this.
The current initiatives being implemented to improve
productivity are:
-- establishing a labour skills buffer;
-- addressing employee absenteeism;
-- introducing a programme aimed at the empowerment of frontline supervisors; and
-- implementing the Theory of Constraints framework in order to
improve the optimisation of half levels at Generation 2 shafts.
Further progress has been made in the current year on the
initiative to improve the performance of the bottom 20% of stoping
crews, and the performance of these bottom 20% crews at Generation
2 shafts has increased to an average of 216 square meters per crew
in the current year from 200 square meters per crew in the prior
year. The impact is to increase the overall average output for
stoping crews on these Generation 2 shafts to 316 square meters per
crew in the current year from 296 square meters per crew in the
prior year.
Marikana Mines
Generation 2 shafts
Our Generation 2 shafts represent around 78% of total tonnage
production. Generation 2 shafts production of 8.1 million tonnes,
was 4% up on prior year comparable production (after adjusting for
closure of 1B shaft in October 2015).
Generation 2 Shafts 2015 2016 2016 vs 2015
Tonnes ('000) Tonnes ('000) %
--------------------- --------------- --------------- -------------
K3 Shaft 2,713 2,687 (1.0)
Rowland Shaft 1,872 1,731 (7.5)
Saffy Shaft 1,758 2,055 16.9
4B Shaft* 1,409 1,588 12.7
Total Generation
2 Shafts 7,752 8,061 4.0
--------------------- --------------- --------------- -------------
*Following the closure of 1B Shaft in October 2015, the
production of 4B/1B has been restated to exclude the 219,000 tonnes
produced in 2015 for 1B
Productivity measured as square meters per mining employee at
our Generation 2 shafts improved again, and for the year increased
by 5% to 5.9 compared to 5.6 from the prior year.
K3 shaft
K3, our largest shaft produced 2.7 million tonnes, a slight
decrease of 1% on the prior year, partly due to the redeployment
and reskilling of employees, which took longer than anticipated and
the impact of geological challenges in the split reef area.
Rowland shaft
Rowland shaft produced 1.7 million tonnes which was a decrease
of 7.5 % on the prior year, largely driven by Section 54 safety
stoppages following the fatalities in October 2015 and May
2016.
Saffy shaft
Saffy shaft produced 2.1 million tonnes, an increase of 16.9 %
on the prior year, demonstrating the successful ramp up to full
production. This shaft has performed well and is now operating at
full production and achieved a record 200,079 tonnes in November
2015.
4B shaft
4B shaft alone produced 1.6 million tonnes, which was 12.7%
higher than the prior year production of 1.4 million tonnes. 1B
shaft was closed in October 2015 and produced only 5,940 ounces in
financial year 2016 and remains on care and maintenance.
Generation 1 shafts
Our Generation 1 shafts are reaching their end of lives and, as
expected, production has declined.
Hossy shaft
Hossy shaft produced 0.7 million tonnes, a decrease of 25.2%
compared to the prior year, due to depletion of the available ore
reserves as all development has been stopped. Hossy shaft will be
put on care and maintenance by the end of financial year 2017.
Newman shaft
Newman shaft produced 0.3 million tonnes, which was a decrease
of 54.7% on the prior year as planned and has now ceased own
production from Lonmin crews. Newman is currently being mined by
contractors and future extraction of the remaining ore reserves
using contract mining will be assessed annually.
Pandora E3 Joint Venture
Pandora production (100%) at 0.5 million tonnes was 13.4% lower
than the prior period, driven by Section 54 safety stoppages
following the fatalities in May and July 2016.
W1, East 1 and East 2 shafts
W1, East 1, East 2 are shafts at the end of their lives and
together produced 0.6 million tonnes compared with 0.7 million
tonnes in the prior year. Since these shafts continue to produce
profitable ounces, contractors have continued to run W1, East 1 and
East 2 (we run the engineering for East 2), and are responsible for
all the costs associated with such shafts, but retain the
flexibility to cease production if required. These shafts are
expected to remain operational under the current contractor model
for financial year 2017. The viability of these shafts is
reassessed annually.
Process Operations
The efforts to improve the performance and reliability of the
processing plants over recent years, based on ongoing optimisation
and improvement plans across the processing operations, continue to
pay off and the concentrators have achieved levels of PGM
recoveries amongst the highest in their history, with the
instantaneous recovery rate having increased to 89.6% for the
current year, from 87.2% in the 2015 financial year, benefiting
from the once-off smelter clean-up project.
Concentrating
Concentrating continued to deliver excellent underground and
overall recoveries for the year at 86.7% and 86.6% respectively,
despite the plant instability caused by the stoppages experienced
due to periods of insufficient ore supply from our mining
operations and lower opening stock than in 2015.
Total tonnes milled for the year at 10.4 million tonnes were
marginally higher than tonnes mined of 10.3 million tonnes, but
12.1 % lower than prior year of 11.8 million tonnes.
We achieved higher grade and good recoveries, but
platinum-in-concentrate production before concentrate purchases for
the year of 663,575 saleable Platinum ounces was 9.6% down on prior
year, due to lower tonnes mined and milled.
Underground milled head grade at 4.60 grammes per tonnes
(5PGE+Au) increased by 2.1% compared to the 4.51 grammes per tonne
achieved in 2015. The overall milled head grade was 4.59 grammes
per tonne, up 2.7% on the prior year. The ore mix milled, with
reduced opencast Merensky, and improvements in the shaft head
grades, were the main factors resulting in the higher head
grade.
Smelting and Refining
The Smelters, the Base Metal Refinery and Precious Metal
Refinery have been the subject of significant and ongoing
management attention over the years, which has embedded a strong
culture of "excellence in processing", and continue to deliver
strong performance following the initiatives undertaken.
Refined production of 741,890 Platinum ounces was achieved,
notwithstanding mined ounces of 659,754, a decrease of 2.3% on the
refined production from prior year. Total PGMs produced were
1,440,724 ounces, a decrease of 0.5% on prior year.
The innovative smelter clean-up project was implemented during
the current year and released 73,186 ounces of Platinum during the
year. The smelter clean-up project was one of the initiatives aimed
at improving performance, having identified the opportunity to
increase low cost refined Platinum production to make up for the
shortfall in mined ounces. The production process for the smelter
clean-up project involves the reprocessing of stock piles of used
refractories and some revert tails generated during the slag plant
construction, which contain low grade PGMs. The clean-up project is
expected to continue into the first half of the 2017 financial
year.
The ongoing innovation in the processing division was the
foundation for the OPM plant at the PMR, which uses the latest
third generation technology and improves Rhodium and Iridium
recoveries. The OPM contributed to additional release of 25,280
ounces of Rhodium and 13,068 ounces of Iridium.
Capital Expenditure
Capital expenditure for 2016 of $89 million was below our
revised guidance of $105 million, due to both the weakness of the
Rand and the delay to the BTT project. These projects are expected
to be completed in 2017 and commissioned in 2018.
In line with our strategy of limiting capital expenditure to
levels required to satisfy regulatory and safety standards,
essential sustaining capital expenditure in the continuing shafts
and ensuring that Immediately Available Ore Reserve positions are
maintained at an acceptable level to sustain production at our
Generation 2 shafts, 73% of the mining capital ($37 million) was
spent on ore reserve development and critical stay in business
(SIB) projects on the Generation 2 shafts.
At the concentrators the capital spent was prioritised on
regulatory compliance requirements, critical SIB projects and
continuation of the BTT Project. At smelting and refining the
capital was spent on regulatory compliance capital and SIB
projects.
2014 2015 2016
------------------------ ------ ------ ------
Actual Actual Actual
$m $m $m
------------------------ ------ ------ ------
K3 19 19 18
Saffy 10 8 0
Rowland 9 18 5
Rowland MK2 0 0 15
------ ------ ------
Generation 2 shafts 38 45 38
K4 8 19 0
Hossy 7 7 0
------ ------ ------
Generation 3 & 1 shafts 15 26 1
Central & Other Mining 10 12 13
------------------------ ------ ------ ------
Total Mining 64 83 52
------------------------ ------ ------ ------
Concentrators 12 17 19
Smelting & Refining 9 27 11
------ ------ ------
Total Process 21 44 30
------------------------ ------ ------ ------
Infill Apartments 5 7 4
Other 2 2 3
------------------------ ------ ------ ------
Total 93 136 89
------------------------ ------ ------ ------
People
Reorganisation
Our pro-active response to the deteriorating PGM market
conditions has repositioned our business. As a result, the
reorganisation initiated in 2015 and concluded in March 2016,
contributed to a headcount reduction of 5,433 people, and 1,428
employees were reskilled and redeployed into vacant, more
productive roles. Forced retrenchments were limited to 62 people.
The reduction was achieved through active engagements and
consultation with the trade unions. That the process was completed
without strike action or any significant operational disruptions is
a tribute to the emerging maturity of the relationship built
between the Company, employees, and our majority union, AMCU.
Support offered to the employees during the restructuring
included a dedicated help desk, a SMS helpline, easy access to
payroll services and financial advice from the external financial
advisor, as well as pension and provident fund service providers.
The counselling service offered emotional support and any study
assistance or debts to the Company accrued during the 2014 strike
were written off for those exiting the company. The voluntary and
forced separation packages included severance pay and access to a
portable skills training programme. Lonmin has a policy in place to
assist so as to act in a manner that is both substantially and
procedurally fair in the event that retrenchments are required.
Wage Settlement
The Company announced on 31 October 2016, the settlement of the
negotiations with AMCU about wages and conditions of service. The
three-year agreement, which is effective from 1 July 2016 to 30
June 2019, provides employees with a realistic and competitive
settlement and ensures the continued sustainability of Lonmin.
The key points of the agreement are:
-- increases for category 4 to 9: R1,000 per year or 7%
(whichever is greater) on basic salary;
-- increases for Officials (B and C band): 7% on Total Cost to
Company for each year of the agreement;
-- Living Out Allowance increases by R100 in each year of the agreement;
-- allowances calculated off pensionable basic;
-- Rock Drill Operator allowance increases by 6% in each year;
-- Holiday Leave Allowance calculated off Normal Basic from year 2 (1 July 2017); and
-- medical contributions for category 4-9 employees will
increase in January of each year. The medical aid contributions
increase will be based on the medical aid inflation as determined
by the Board of Trustees of the medical aid. The increase is
estimated to be 13.5%.
At the end of this wage agreement, a Rock Drill Operator at
Lonmin will earn R12,296 (basic salary) and a guaranteed package of
R19,455.
The impact of the wage agreement for this bargaining unit is an
increase of 7.8% in financial year one, 8.0% in financial year two
and 7.1% in financial year three or an average of 7.6% over the
three-year period.
Workforce Profile
As at 30 September 2016, our total workforce was 32,793,
compared to 35,669 in September 2015, of which 25,296 were
permanent employees and 7,497 were contractors. The decrease in
headcount is attributable to the reorganisation programme initiated
last year, natural attrition and a greater proportion of
contractors departing.
Employment Equity
Lonmin is committed to the principle of transformation and our
contribution to South Africa's transformation agenda has a direct
impact both on our reputation and on our social licence to operate.
Transformation is promoted throughout the business and is a
commitment in terms of the Mining Charter, specifically through the
ownership and procurement clauses that seek to accelerate the
participation of HDSAs in the mainstream economy.
The regulatory employment equity score is informed by legal
parameters which include white women. Scoring 52.3% (2015 - 50.3%)
we once again surpassed the required target of 40% at management
level.
Our focus is to create a pipeline of strong internal candidates,
particularly HDSAs and women, to take Lonmin into the future. This
is done, inter alia through our bursary and graduate development
programmes and prioritised recruitment.
Community Relations and Our Corporate Citizenship Agenda
Community Value Proposition (CVP)
The CVP project, now in its third year, has enabled the Company
to deliver focused social investment that is impactful and
sustainable. Our investment includes community education and skills
development, community healthcare, infrastructure development and
enterprise development.
Our Corporate Citizenship Agenda
We engage in a range of activities aimed at uplifting our
communities. These include education, health and social
infrastructure projects.
Social and Labour Plan (SLP)
Our commitment to corporate citizenship defines our duty to
contribute to the wellbeing and development of the communities that
host, and are affected by, our operations. This duty is formalised
in the SLP obligations under the terms of our mining rights. Our
broader social licence to operate depends on strong relationships
with our host communities. The Company's ability to build financial
capital in the long-term is critically dependent on a predictable
and stable operating environment, which is only possible if we have
good relationships with our immediate communities and
labour-sending areas.
Investing in the long-term social, economic and infrastructural
development of our host communities translates into an investment
in our current and future employee base, and ultimately is a direct
investment in the sustainability of the mines themselves.
Black Economic Empowerment (BEE)
Our BEE equity ownership is at least 26% and we strive to
maintain this in line with the requirements of the Mining
Charter.
Bapo Ba Mogale
Four contracts were awarded to the Bapo Ba Mogale (Bapo) under
the terms of the 2014 Transaction and have now been implemented.
The award of these contracts has resulted in Lonmin far exceeding
the procurement undertakings given to the Bapo. Our relationship
with the Bapo continues to evolve as we support them to build
capacity and governance structures within their organisation.
Employee Profit Share Scheme (EPSS)
The EPSS was implemented in 2014 and aims to provide our
employees with economic partnership and ownership whilst
simultaneously sharing the responsibilities and involvement that
this ownership brings. The implementation of this EPSS enabled
Lonmin to receive an HDSA equity accreditation of 3.8%.
Community Trusts
2014 saw the establishment of two separate community trusts.
Each trust holds 0.9% of the ordinary shares in Lonplats (Eastern
and Western Platinum combined), and is entitled to dividend
payments which have been mandated for upliftment projects in the
respective communities. To the extent that no dividend is payable
in a particular year, each community trust will be entitled to a
minimum annual payment of R5 million escalating in line with
consumer price index each year. The first transfer of R5 million to
each trust was made during the year. The funds are managed by ward
councillors through a board of trustees, which is mandated to
disburse funds for upliftment projects in the respective
communities. The establishment of these trusts, governance
structures and initial capital, could encourage other investors to
contribute to enable more substantial development.
While these transactions have been successfully concluded, there
has been a challenge to the transaction by a faction within the
Bapo community. Lonmin continues to engage with all stakeholders to
resolve the issues of concern.
MARKET REVIEW
Market Overview 2016
During the financial year platinum and palladium prices staged a
strong comeback, with platinum gaining 14% and palladium 10%,
helping to improve operating margins for primary producers and end
of the fiscal year. Metal prices subsequently retraced on the back
of weaker than expected market sentiment. Disruptions in production
at mines in South Africa, and lower than expected recycling growth
from scrapped autocatalysts, assisted to widen the fundamental
market deficit compared with 2015.
Demand has remained steady. Diesel market share has not fallen
as much as some may have expected in Europe and the role out of
tighter emissions legislation globally has helped to keep
autocatalyst demand flat year on year.
It's been a tough year for jewellery in China with difficult
retail trading conditions, lower manufacturer restocking and fewer
wedding registrations. Nonetheless, lower platinum prices have
motivated higher sales elsewhere. This and the ongoing rise in
demand in India and the United States is expected to partially
offset an expected drop in China.
Demand in 2016
Overall demand and individual segment market shares for platinum
are set to remain steady for 2016, with autocatalysts continuing to
dominate demand at 41% followed by jewellery at 33%. Despite
negative media attention on diesel powertrains, market share has
held up well and there was no sudden drop off by consumers as some
feared.
Autocatalyst demand for platinum was flat. Palladium demand is
expected to be 1% higher as vehicle sales growth in the United
States and China slowed. Rhodium demand is projected to decline by
5% as palladium and other technologies substitute.
Global demand for jewellery is forecast to decline owing to
lower demand in China, while investment demand reflected divergent
trends in the various geographies. Holdings in the United States,
Japan and Switzerland increased but were offset by a reduction in
holdings in the UK and South Africa.
The petroleum, chemical and electrical markets saw good growth
in 2015 owing to plant expansion but the forecast for 2016 is
expected to be lower or flat.
Supply in 2016
A recovery in PGM prices has helped to provide periods of
improved Rand free cash flow to producers in South Africa, with
announcements of expansion projects more forthcoming towards the
end of the financial year.
Primary platinum supply was negatively impacted by mine
accidents and safety stoppages during 2016. Notwithstanding the
normal level of outages and, assuming no further out of the
ordinary disruptions, supply is expected to be at least 100,000
ounces lower than the prior year.
During 2015 and throughout 2016, recycling growth rates were
constrained by the ongoing low scrap steel prices, limiting the
amount of end-of-life autocatalysts being collected by recyclers.
However, a recent recovery in both scrap steel and PGM prices has
helped kick-start a recovery in autocatalyst collection rates but
scrap steel prices remain well below pre-2015 levels, thus
continuing to hold back PGM recycling.
Sales
In 2016 Lonmin sold 735,747 ounces of platinum into the market.
Platinum sales contributed 65% to turnover. Palladium was the
second highest contributor to the revenue basket with the 334,319
ounces sold, constituting 18% of Lonmin's income. Combined sales of
Rhodium, Ruthenium and Iridium contributed a further 12.5% and Gold
and Base Metals made up the balance.
PGM Prices
During the financial year platinum outperformed both palladium
and rhodium. However, the average price of each metal was
substantially lower than was seen in financial year 2015. Refer to
the Financial Review section for details on average prices.
Platinum rallied in October 2015 to $908 per ounce, but fell to
a multi-year low of $814 per ounce on 21 January 2016, before
closing at $1,034 on 30 September 2016. The Rand started at 13.83
to the US Dollar in October 2015 and fell to a record low of R16.87
on 18 January 2016 against the US Dollar, dragging the platinum
price down in US Dollar terms.
The South African economy remained weak and the average exchange
rate achieved for financial year 2016 was 14.77 to the US
Dollar.
In US Dollar terms, the platinum price has gained 13% over the
financial year 2016 to close at $1,034.
The palladium price was hit by concerns over Chinese growth so
while its price recovered during 2016 it ended the financial year
just 4% higher.
Rhodium prices failed to join the rally in platinum and
palladium and were down 13% year on year.
Market Outlook 2017
The outlook for platinum is for demand to be virtually
unchanged. In Western Europe diesel's market share has been edging
slightly lower, and is projected to continue to do so, but will be
somewhat offset by continued growth in vehicle sales. In addition,
tightening emissions' legislation and increased vehicle production
in the emerging markets should further offset any further decline
in Europe. So a stable outlook for autocatalyst demand is
projected.
Global demand for jewellery is forecast to improve slightly
after weakening in 2016. Solid investment demand is anticipated as
bar and coin and Exchange Traded Fund investment are expected to be
positive. Several new glass fabrication facilities in the rest of
the world are set to lift platinum industrial requirements slightly
next year, offsetting declining demand for nitric acid production
and slower propane dehydrogenation capacity growth in China.
Though primary producers are indicating similar production
levels in 2017, there is a risk due to the current PGM basket price
for further mine closures and project delays at producers in the
fourth quartile of the cost curve. We believe that ultimately mine
closures due to low prices will drive further deficits.
Market Development Drivers
Ongoing development in the PGM demand sectors continues to be a
critical focus. We will continue to support the developments in
jewellery, investment and automotive while giving particular
support to new industries such as fuel cell adoption and additive
manufacturing of PGM based products. The importance of harmonised
global emissions legislations is critical and is central to a
healthy platinum industry.
MINERAL RESOURCES AND MINERAL RESERVES
2016 Mineral Resource
Main features of the Lonmin Mineral Resources as at 30 September
2016:
-- Attributable Mineral Resources were 180.6 million ounces of
3PGE+Au in 2016, a decrease of 2.3 million ounces from 2015.
Revisions to the South African Mineral Resource estimates were
confined to the Marikana and Pandora properties;
-- the Mineral Resources at Marikana (excluding tailings)
decreased by 2.35 million ounces 3PGE+Au in 2016. This is
attributed to the net effect of a decrease in the Merensky Mineral
Resources (0.65 million ounces) and a decrease of the UG2 Mineral
Resources (1.71 million ounces). The Merensky Measured and
Indicated Mineral Resources decreased by 0.51 million ounces and
the Inferred Mineral Resources decreased by 0.14 million ounces,
due to re-evaluation after consideration of depletions. The UG2
Measured and Indicated Mineral Resources decreased by 1.75 million
ounces mainly due to depletions and reassessment of geological
losses. The Inferred Mineral Resource increased by 0.05 million
ounces as a result of ore body re-evaluation; and
-- the Pandora Mineral Resource increased by 0.04 million ounces
of 3PGE+Au, the result of reassessment of "white areas" previously
excluded from the Mineral Resource, which was offset by 0.06
million ounces of mining depletion.
The Marikana Tailings, Akanani, Limpopo and Loskop Mineral
Resources were unchanged during 2016.
There were no revisions to the non-South African platinum
Mineral Resources, the Denison 109 Footwall deposit in Canada was
unchanged in 2016. The Mineral Resources for the Bumbo base metal
and gold in Kenya were sold to the joint venture partner in
2016.
PGE Mineral Resources (Total Measured, Indicated and Inferred)
1,5,6
30-Sep-2016 30-Sep-2015
----------------
3PGE+Au Pt 3PGE+Au Pt
-------- --------
Ore source Mt g/t Moz Moz Mt g/t Moz Moz
---------------- -------- ----- ------ ------ -------- ----- ------ ------
Marikana 728.6 4.91 115.0 69.3 742.2 4.92 117.4 70.6
Limpopo 128.8 4.07 16.8 8.4 128.8 4.07 16.8 8.4
Limpopo Baobab 46.1 3.91 5.8 3.0 46.1 3.91 5.8 3.0
Akanani 233.1 3.90 29.2 12.0 233.1 3.90 29.2 12.0
Pandora JV 77.5 4.65 11.6 7.0 77.3 4.65 11.5 7.0
Loskop JV 10.1 4.04 1.3 0.8 10.1 4.04 1.3 0.8
Sudbury PGM JV 0.2 5.86 0.04 0.02 0.2 5.86 0.04 0.02
Tailings Dams 22.5 1.10 0.80 0.5 22.5 1.10 0.80 0.5
Total 1,246.8 4.51 180.6 101.0 1,260.2 4.51 182.9 102.3
---------------- -------- ----- ------ ------ -------- ----- ------ ------
Notes on Mineral Resources
1) All figures are reported on a Lonmin Plc attributable basis,
the relative proportions of ownership per project being shown in
the Key Assumptions section of this report. (Mineral Resources are
reported inclusive of Mineral Reserves).
2) Limpopo excludes Baobab shaft.
3) Loskop and Sudbury PGM JV exclude Rh, due to insufficient
assays, and therefore 2PGE+Au are reported.
4) Tailings Dam exclude Au, due to assay values below laboratory
detection limit, and therefore are reported as 3PGE.
5) Mineral Resources are reported Inclusive of Mineral Reserves.
6) Quantities and grades have been rounded to one or two decimal
places, therefore minor computational errors may occur.
2016 Mineral Reserves
Main features of the Lonmin Mineral Reserves as at 30 September
2016:
-- Attributable Mineral Reserves were 31.7 million ounces of
3PGE+Au in 2016, a decrease of 4.6 million ounces from Marikana and
0.1 million ounces from Pandora
-- with 2015. The Marikana tailings were unchanged;
-- the Marikana attributable Mineral Reserves for 2016 are 30.1
million ounces of 3PGE+Au, a decrease of 4.6 million ounces with a
corresponding decrease of 32.9 million tonnes ore material. The
change is attributed to mining depletion at Marikana and mostly the
reconfiguration of the ore extraction at Hossy Shaft;
-- the Proved Mineral Reserve category (Marikana and Pandora)
decreased by 0.2 million ounces of 3PGE+Au;
-- the further reassessment of the Hossy Shaft operations has
resulted in a further removal of 13.1 Mt of ore material in 2016
through the reconfiguration of the Hossy Shaft block; and
-- the Pandora attributable Mineral Reserve of 0.8 million
ounces 3PGE+Au decreased by 0.1 million ounces due to depletion and
re-evaluation.
No Mineral Reserves continue to be declared for Limpopo, and
there were no revisions thereof in 2016.
PGE Mineral Reserves (Total Proved and Probable) 1,2
30-Sep-2016 30-Sep-2015
---------------
3PGE+Au Pt 3PGE+Au Pt
------ ------
Ore source Mt g/t Moz Moz Mt g/t Moz Moz
--------------- ------ ----- ----- ----- ------ ----- ----- -----
Marikana 230.9 4.06 30.1 18.3 263.8 4.10 34.7 21.2
Pandora JV 6.1 4.20 0.8 0.5 6.6 4.09 0.9 0.5
Tailings Dams 21.1 1.10 0.7 0.5 21.1 1.10 0.7 0.5
Total 258.2 3.82 31.7 19.2 291.5 3.88 36.4 22.2
--------------- ------ ----- ----- ----- ------ ----- ----- -----
Notes on Mineral Reserves
1) All figures are reported on a Lonmin Plc attributable basis,
the relative proportions of ownership per project being shown in
the Key Assumptions section of this report.
2) Tailings Dam exclude Au, due to assay values below laboratory
detection limit, and therefore are reported as 3PGE.
3) Quantities and grades have been rounded to one or two decimal
places, therefore minor computational errors may occur.
FINANCIAL REVIEW
Overview
In the first half of the financial year we completed the
significant reorganisation and restructuring of the Company. This
followed on from raising fresh equity through a Rights Issue
raising $373 million net of fees and an amendment of our debt
facilities, extending their maturity to May 2019 with an option to
extend to 2020. During the three quarters following the
restructuring the Group's business generated $104 million of cash.
At 30 September 2016 the Group had net cash of $173 million after
taking into account a $150 million drawn term loan and $215 million
of undrawn debt facilities available resulting in total liquidity
(liquidity being defined as cash on hand plus undrawn committed
debt facilities) of $537 million. It remains our overall objective
to be at least cash neutral after capital expenditure in this
low-price environment.
PGM prices were volatile during the year with the platinum price
ranging from a low of $816 per ounce on 21 January 2016 to a high
of $1,184 on 10 August 2016. On average the platinum price for the
financial year was 11% lower than the prior year. However, the
completion of the restructuring of the business in the first half
of the year, continued focus on cost management, capital
expenditure discipline and the weakening of the Rand by 23% against
the US Dollar resulted in improved profitability compared to the
prior year. We achieved cost reductions of R1.3 billion (real
terms) compared to the prior year and compared to a targeted
reduction of R700 million. The cost of production per PGM ounce for
the year was R10,748. The year-on-year increase in unit costs was
limited to 4%, well below current inflationary levels and despite
an 8.2% increase in labour costs and a very challenging operating
environment that was hard hit by safety stoppages as well as the
disruption from restructuring the workforce which resulted in 5,433
employees and contractors leaving the Group and 1,428 employees
being reskilled and redeployed into vacant, more productive roles.
Further details on unit costs can be found in the Operating
Statistics section of the Report. Underlying EBITDA for 2016 was
$109 million, an increase of $89 million on 2015 and an underlying
operating profit of $7 million was realised compared to an
underlying operating loss of $134 million in 2015.
The trading cash inflow for the year was $58 million, $70
million higher than the prior year trading cash outflow of $12
million. After capital expenditure of $89 million in the year the
free cash outflow for 2016 was $31 million. Excluding the negative
impact of once-off restructuring and reorganisation payments of $13
million and $10 million financing costs to amend the debt
facilities we were largely successful in our aim to fund capital
expenditure for the year from free cash flow. The net cash inflow
in the combined three quarters following the restructuring was
positive at $104 million.
We made significant efforts during the year to generate
additional value from our assets. The clean-up project around the
smelter yielded additional PGM sales of $93 million including
73,186 ounces of Platinum. The commissioning of the OPM Plant in
December 2015 reduced the time it takes us to refine Rhodium and
Iridium resulting in a permanent once-off release of metal in
process stock of around $24 million representing 25,280 ounces of
Rhodium and 13,067 ounces of Iridium. We secured $50 million third
party competitive funding for the Bulk Tailings Treatment project
through a specific project finance metal streaming agreement. The
first tranche of the project funding of $9 million was received in
August 2016. Furthermore, we sold our stake in a non-core gold
exploration joint venture in Kenya for $5 million.
The long-term Rhodium price outlook softened during the second
half of the year and the Rand to US Dollar exchange rate
strengthened. The impact of the changes in these external factors,
despite good progress against the Business Plan resulted in a
reduction in the recoverable amount of the Marikana cash generating
unit (CGU) and an impairment charge of $335 million which is
reflected in the financial statements.
Income Statement
The $142 million increase between the underlying operating
profit of $7 million for the year ended 30 September 2016 and the
underlying operating loss of $134 million for the year ended 30
September 2015 is analysed overleaf:
$m
2015 reported operating loss (2,018)
2015 special items 1,884
--------
2015 underlying operating loss (134)
2015 underlying depreciation and amortisation 155
--------
2015 underlying EBITDA 21
PGM price (171)
PGM volume (24)
PGM mix 35
Base metals (15)
--------
Revenue changes (175)
South African underlying operating cost reductions (FY15
money terms and exchange rate) 111
Escalation on South African underlying costs at CPI of
6.5% (72)
--------
South African cost changes 39
Decrease in international exploration and other costs 4
Foreign exchange impact on cost, stock and working capital 256
Metal stock movement (36)
2016 underlying EBITDA 109
2016 underlying depreciation and amortisation (102)
--------
2016 underlying operating profit 7
2016 special items (329)
--------
2016 reported operating loss (322)
--------
Revenue
Total revenue for the year ended 30 September 2016 of $1,118
million reflects a decrease of $175 million compared to the prior
year. As noted in the Overview, the US Dollar PGM prices achieved
were significantly lower than the prior year despite the platinum
price steadily increasing since January 2016, reversing the
downward trend in the prior year. The average prices achieved on
the key metals sold are shown below:
Year ended Year ended
30 September 2016 30 September 2015
$/oz $/oz
Platinum 978 1,095
Palladium 589 718
Rhodium 671 998
------------------- -------------------
PGM basket (including by-product revenue) 796 902
------------------- -------------------
Rand PGM basket (including by-product revenue) R11,637 R10,829
------------------- -------------------
The US Dollar PGM basket price (including by-products) decreased
by 12% compared to the 2015 average price, resulting in a reduction
in revenue of $171 million. It should be noted that whilst the US
Dollar basket price decreased compared to 2015, in Rand terms the
basket price (including by-products) increased by 7% driven by the
weaker Rand.
The PGM sales volume for the year to 30 September 2016 was 2%
lower compared to the year to 30 September 2015, which had a
negative impact on revenue of $24 million.
The mix of metals sold increased revenue by $35 million mainly
due to the higher proportion of Rhodium sold in 2016 as a result of
the commissioning of the OPM plant in December 2015. Base metal
revenue decreased by $15 million as a result of a reduction in
prices compared to 2015.
Costs
The positive impact of the removal of high cost production and
reorganisation are evidenced across all our operations with
underlying South African operating costs decreasing by $111 million
in financial year 2015 money terms and excluding the impact of the
weaker Rand. Total costs in Rand in 2016 were R14,083 million. In
2015 money terms the total costs for 2016 would have been R13,223
million (assuming South African Consumer Price Index of 6.5%). With
actual costs of R14,550 million in 2015, this means that on a
like-for-like basis, 2016 total costs were R1,327 million lower
than the prior year, almost double the guided cost savings of R700
million. The movements in operating costs are shown in the table
below:
$m Rand
2015 - underlying South African operating costs (1,218) (14,550)
Cost reductions in FY15 money terms and exchange rate (Rand/USD 12.0):
Underground mining 64 757
Opencast mining 5 61
Concentrating 15 182
Smelting and refining 4 45
Overhead, centralised services and other 14 171
Ore and concentrate purchases 9 111
-------- ---------
111 1,327
Escalation, assuming South African CPI of 6.5% (72) (860)
-------- ---------
Translation gains on underlying costs due to movement in exchange rate 216
2016 - underlying South African operating costs (963) (14,083)
-------- ---------
Before CPI escalation, underground mining costs decreased by
R757 million or 8% during the year as the restructuring, reduction
in volumes mined and strict cost control more than offset the
labour cost increase of 8.2% and other escalations. Opencast mining
costs decreased by R61 million as these operations have ceased.
Concentrating costs decreased by R182 million or 11% when compared
to 2015 driven by lower production. Smelting and refining costs
reductions were R45 million or 3% despite broadly flat PGM
production year on year. Overheads reduced by R171 million largely
due to cost containment, the reorganisation programme and a
reduction in the provision for rehabilitation at our opencast
operations which were closed.
Ore and concentrate purchases decreased by R111 million year on
year driven by lower volumes produced by suppliers of this material
and lower prices.
Exchange rate impacts
The Rand weakened by 23% against the US Dollar during the year
averaging R14.8 to $1 in 2016 compared to an average of R12.0 to $1
in 2015 resulting in a $255 million positive impact on the
underlying operating cost of sales.
2016 2015
R/$ R/$
Average exchange rate for the year 14.77 12.01
Closing exchange rate 13.71 13.83
The weaker Rand resulted in underlying operating costs for 2016
being $216 million lower than 2015 and the movement in metals stock
due to the weaker Rand was $88 million favourable to the prior
year. The exchange gain on working capital was $2 million in 2016
compared with $50 million in 2015 resulting in an adverse movement
year on year of $48 million.
$m
Year on year cost reduction due to impact of weaker Rand 216
Reduction in metal stock movement due to impact of weaker Rand 88
Year on year reduction in exchange gains on working capital (48)
Net impact of exchange rate movements 256
-----
Metal stock movement
The decrease in metal stock of $36 million was driven by an $80
million decrease in metal stock offset by a $44 million reversal in
the 2015 write-down of stock to net realisable value. This reversal
was driven by higher metal prices at the balance sheet date. The
decrease in the value of metal stock was largely due to the
strength of the Dollar against the Rand, the release of stock
following the commissioning of the OPM plant, and other efficiency
projects that resulted in a reduction in in-process metal
inventory.
Depreciation and amortisation
Depreciation and amortisation decreased by $53 million year on
year mainly due to the impairment of assets in September 2015. The
reduced production from the Generation 1 shafts, in line with our
plans for placement on care and maintenance, also had an impact on
the depreciation charge as depreciation is calculated on a
units-of-production basis, spreading costs in relation to proven
and probable reserves.
Special operating costs
Special operating costs for the year ended 30 September 2016
were made up as follows:
Year ended 30 September
2016 2015
$m $m
Impairment of non-financial assets (335) (1,811)
Restructuring and reorganisation costs 21 (59)
Debt refinancing costs (10) -
Share based payments (5) -
BEE transaction (14)
(329) (1,884)
------ --------
The revised rhodium price outlook and the strengthening of the
Rand since our Interim results in March 2016 offset optimisation
improvements in our mining plan and resulted in the value in use of
the Marikana cash generating unit declining below the carrying
amount of the non-financial assets of the operations of $1,625
million. The recoverable amount of the Marikana CGU was $1,290
million. As a result of the impact of the changes in these external
factors and despite good progress made in the year against the
Business Plan, a special impairment charge of $335 million is
reflected in the financial statements (2015 - $1,465 million). In
2015 the special impairment charge was $1,811 million of which
$1,465 million related to the Marikana operation and $346 million
related to the full impairment of the Limpopo and Akanani assets.
See note 10 to the Financial Statements for details.
The planned reorganisation of the business was achieved at a
lower cost due to the reskilling and redeployment of employees
combined with a greater proportion of contractors departing as well
as natural attrition resulting in a $21 million reversal of the
2015 provision for restructuring costs. Costs incurred to amend the
bank debt facilities amounted to $10 million while the adjustment
to reflect the Rights Issue and share consolidation in 2015
resulted in the acceleration of share based expenses to the amount
of $5 million. For the period ended 30 September 2015, $14 million
was incurred in relation to the BEE transaction concluded in
December 2014 which largely comprised $13 million for the lock-in
premium paid to the Bapo as well as legal and consulting costs of
$1 million related to the transaction.
Net Finance costs
Year ended 30 September
2016 2015
$m $m
Net bank interest and fees (11) (25)
Interest and fees capitalised 1 19
Foreign exchange gains on net cash/(debt) 15 12
Dividends received from investment 1 1
Unwinding of discount on environmental
provision (9) (10)
Other (2) (1)
--------- ----------
Underlying net finance costs (5) (4)
HDSA receivable - accrued interest 27 18
HDSA receivable - exchange losses (60) (28)
HDSA receivable - impairment - (227)
Foreign exchange gains on the Rights 5 -
Issue proceeds
Net finance costs (33) (239)
--------- ----------
Underlying total net finance costs increased by $1 million to $5
million for the year ended 30 September 2016.
Net bank interest and fees incurred in the year at $11 million
were $14 million lower than 2015 due the impact of the strengthened
balance sheet and accordingly the reduction in drawn debt
facilities. Interest totalling $1 million was capitalised to assets
compared to $19 million in 2015 as the debt facilities at asset
level were repaid in December 2015. Exchange gains on net cash in
2016 amounted to $15 million compared with $12 million exchange
gains on net debt in 2015.
The Historically Disadvantaged South Africans (HDSA) receivable,
being the Sterling loan to Phembani Group (Proprietary) Limited
(Phembani) accrued interest and attracted an exchange loss. The
loan was granted to Shanduka Resources Group (Proprietary) Limited,
our former BEE partner, which has now merged with Phembani, and the
merged entity operates as Phembani Group (Proprietary) Limited. The
gross loan, excluding prior years impairments of $376 million, drew
an exchange loss for the year of $60 million (2015 - $28 million)
due to the significant weakening of Sterling against the US Dollar
in 2016 on the back of the uncertainty following the referendum
result regarding the UK's exit from the EU. Prior years impairments
are based in US Dollar, being the Group's functional currency,
resulting in no exchange gains. Accrued interest of $27 million in
2016 was higher than the $18 million charged in 2015 due to a 2.5%
increase in the rate of interest charged on the loan from July
2015. The balance of the receivable at 30 September 2016 was $69
million (2015 - $102 million).
The $5 million foreign exchange gains on the Rights Issue
comprise the gains on translation of advanced cash proceeds
received prior to the effective date of the Rights Issue as well as
hedging gains on forward exchange contracts entered into to
minimise the risk of the exposure to currency fluctuations on the
Rand and Pound Sterling proceeds.
Taxation
Reported tax for 2016 was a charge of $45 million compared to a
credit of $363 million in 2015. The tax charge of $45 million
includes the tax impact of special items of $59 million (2015 -
$280 million) and special exchange gains on the retranslation of
Rand denominated deferred tax liabilities of $5 million (2015 - $48
million).
Cash generation and net cash
The following table summarises the main components of the cash
flow during the year:
Year ended 30 September
2016 2015
$m $m
Operating loss (322) (2,018)
Depreciation, amortisation and
impairment 437 1,966
Changes in working capital (25) 63
Other non-cash movements (8) 4
Cash flow generated from operations 82 15
Interest and finance costs (14) (24)
Tax paid (10) (3)
------------------------------------------- ------------ --------------
Trading cash inflow/(outflow) 58 (12)
Capital expenditure (89) (136)
Dividends paid to minority shareholders - (19)
------------------------------------------- ------------ --------------
Free cash outflow (31) (167)
Contributions to joint venture (3) (7)
Proceeds from sale of joint venture 5 -
Net proceeds from equity issuance 368 3
Cash inflow/(outflow) 339 (171)
Opening net debt (185) (29)
Foreign exchange 20 17
Unamortised fees (1) (2)
Closing net cash/(debt) 173 (185)
------------------------------------------- ------------ --------------
Trading cash inflow/(outflow)
(cents per share) 23.2c (24.8)c
------------------------------------------- ------------ --------------
Free cash outflow (cents per
share) (12.4)c (345.6)c
------------------------------------------- ------------ --------------
Cash flow generated by operations for 2016 at $82 million
represented an increase of $67 million compared to 2015. The
increase in profitability in the current year more than offset
working capital movements which at $(25) million were $88 million
adverse to the prior year. Operating cash flow for the year
included $13 million one-off voluntary separation payments as part
of the reorganisation and $10 million financing costs to amend the
debt facilities.
Trading cash flow for the year increased by $70 million to $58
million compared to the prior year trading cash outflow of $12
million. The cash outflow on interest and finance costs decreased
by $10 million as the proceeds from the Rights Issue were used to
pay down the Rand debt facilities. Tax paid in the year of $10
million was $7 million higher than the prior year on the back of
increased profitability. The prior year tax payment was also
reduced by the utilisation of brought forward trading losses. The
trading cash inflow per share was 23.2 cents for the year ended 30
September 2016 compared to a cash outflow of 24.8 cents in the
prior year.
The strength of the US Dollar against the Rand lowered capital
expenditure for 2016 by $14 million compared with that anticipated
in the Business Plan. Capital expenditure at $89 million for 2016
was $47 million lower than the prior year as we followed our
strategy of minimising capital expenditure whilst ensuring
compliance to regulatory and safety standards and ensuring that the
Immediately Available Ore Reserve position is maintained at the
level necessary to support planned production at the Generation 2
shafts. This current year spend was lower than the revised guidance
of $105 million as a result of the delay in obtaining the funding
for the BTT project and the associated delay in capital spend for
the Rowland pump station as well as ongoing cost containment.
Barrie van der Merwe
Chief Financial Officer
Operating statistics
5 year review
Units 2016 2015 2014 2013 2012
---------------- ---------------- --------------- ------- ---------- ---------- -------- ---------- ----------
Generation
Tonnes mined(1) 2 K3 shaft kt 2,687 2,713 1,484 3,101 2,646
Rowland shaft kt 1,731 1,872 1,005 1,781 1,599
---------- -------- ---------- ----------
Saffy shaft kt 2,055 1,758 782 1,150 898
---------- -------- ---------- ----------
4B shaft kt 1,588 1,409 768 1,559 1,333
---------- -------- ---------- ----------
Generation
2 kt 8,061 7,752 4,039 7,591 6,475
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
Generation
1 1B shaft kt 6 219 123 286 289
Hossy shaft kt 712 953 609 1,051 864
Newman shaft kt 346 765 428 948 919
W1 shaft kt 162 180 102 170 126
East 1 shaft kt 141 148 104 390 496
East 2 shaft kt 293 390 279 426 397
East 3 shaft kt 63 68 28 94 104
Pandora (100%)
(2) kt 471 544 299 571 435
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
Generation
1 kt 2,196 3,267 1,973 3,935 3,628
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
K4 shaft kt - 49 - 4 117
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
Total
Underground kt 10,256 11,067 6,012 11,531 10,221
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
Opencast kt 49 230 333 528 443
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
Total
Underground
& Opencast kt 10,305 11,297 6,345 12,058 10,663
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
Limpopo(3) Underground kt - - 6 - -
---------------- --------------- ------- ---------- ---------- -------- ---------- ----------
Total Tonnes
Lonmin 100% mined kt 10,305 11,297 6,351 12,058 10,663
% tonnes mined
from UG2 reef
(100%) % 75.3 75.1 74.1 73.9 71.7
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
Lonmin Underground
(attributable) & Opencast kt 10,070 11,016 6,180 11,730 10,413
---------------- --------------- ------------------------ ---------- ---------- -------- ---------- ----------
Lonmin excl.
Ounces mined(4) Pandora Platinum oz 627,245 668,319 371,651 717,882 635,346
Pandora
(100%) Platinum oz 32,509 36,458 20,327 40,917 30,714
Limpopo Platinum oz - 255 - -
--------------- ------- ---------- ---------- -------- ---------- ----------
Lonmin Platinum oz 659,754 704,776 392,233 758,799 666,060
Lonmin excl.
Pandora Total PGMs oz 1,200,244 1,280,964 707,913 1,340,678 1,174,776
Pandora
(100%) Total PGMs oz 63,857 71,861 40,044 78,353 58,300
Limpopo Total PGMs oz - - 572 - -
--------------- ------- ---------- ---------- -------- ---------- ----------
Lonmin Total PGMs oz 1,264,101 1,352,825 748,529 1,419,032 1,233,076
---------------- --------------- ------------------------ ---------- ---------- -------- ---------- ----------
Tonnes
milled(5) Marikana Underground kt 9,806 10,930 5,389 10,854 9,936
Opencast kt 98 318 422 393 450
Total kt 9,904 11,248 5,810 11,248 10,386
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
Pandora(6) Underground kt 471 562 281 574 432
---------------- --------------- ------------------------ ---------- ---------- -------- ---------- ----------
Limpopo(7) Underground kt - - 27 - -
---------------- --------------- ------- ---------- ---------- -------- ---------- ----------
Lonmin Underground kt 10,277 11,491 5,696 11,428 10,367
Platinum Opencast kt 98 318 422 393 450
Total kt 10,375 11,810 6,118 11,822 10,817
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
Milled head Lonmin Underground g/t 4.60 4.51 4.48 4.60 4.56
grade(8) Platinum Opencast g/t 3.59 3.08 3.20 2.92 3.01
Total g/t 4.59 4.47 4.39 4.54 4.49
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
Concentrator Lonmin Underground % 86.7 86.8 87.0 87.0 86.1
recovery
rate(9) Platinum Opencast % 73.6 85.1 84.5 85.3 85.9
Total % 86.6 86.7 86.9 87.0 86.1
--------------- ----------------------------------------- ---------- ---------- -------- ---------- ----------
Operating statistics
5 year review
Units 2016 2015 2014 2013 2012
--------------------------- ------------- ------------ ------- ---------- ---------- -------- ---------- ----------
Metals-in-concentrate(10) Marikana Platinum oz 631,066 696,489 355,926 706,012 646,393
Palladium oz 292,315 323,177 164,960 323,622 295,409
Gold oz 15,206 16,503 9,879 17,664 16,925
Rhodium oz 90,151 101,435 49,908 95,241 83,144
Ruthenium oz 147,740 165,689 81,693 144,304 127,269
Iridium oz 29,845 32,416 16,143 33,059 27,610
Total PGMs oz 1,206,322 1,335,710 678,508 1,319,902 1,196,750
------------ ------------------------------------------------- ---------- ---------- -------- ---------- ----------
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 32,509 37,553 18,913 41,117 30,625
Palladium oz 15,231 17,496 8,960 19,190 14,261
Gold oz 95 131 54 315 228
Rhodium oz 5,360 6,383 3,226 6,563 4,743
Ruthenium oz 8,852 10,466 5,168 9,764 7,135
Iridium oz 1,811 1,988 916 1,773 1,195
Total PGMs oz 63,857 74,019 37,237 78,721 58,188
------------ ------------------------------------------------- ---------- ---------- -------- ---------- ----------
Lonmin Platinum oz 663,575 734,042 375,960 747,129 677,019
Platinum Palladium oz 307,545 340,673 174,894 342,812 309,670
before Gold oz 15,301 16,635 10,026 17,979 17,153
concentrate Rhodium oz 95,511 107,818 53,248 101,803 87,886
purchases Ruthenium oz 156,591 176,156 87,022 154,067 134,404
Iridium oz 31,655 34,405 17,103 34,832 28,805
Total PGMs oz 1,270,179 1,409,729 718,253 1,398,623 1,254,938
------------ ------------------------------------------------- ---------- ---------- -------- ---------- ----------
Concentrate Platinum oz 5,129 6,273 4,398 3,813 2,802
purchases Palladium oz 1,555 1,869 1,242 1,132 973
Gold oz 18 18 14 14 10
Rhodium oz 565 816 531 421 329
Ruthenium oz 919 1,079 546 428 404
Iridium oz 242 338 224 172 129
Total PGMs oz 8,429 10,394 6,955 5,980 4,647
------------ ------------------------------------------------- ---------- ---------- -------- ---------- ----------
Lonmin Platinum oz 668,704 740,315 380,359 750,942 679,821
Platinum Palladium oz 309,101 342,542 176,136 343,944 310,643
Gold oz 15,319 16,653 10,040 17,993 17,163
Rhodium oz 96,076 108,634 53,779 102,225 88,216
Ruthenium oz 157,510 177,235 87,567 154,495 134,808
Iridium oz 31,898 34,743 17,327 35,004 28,934
Total PGMs oz 1,278,607 1,420,122 725,208 1,404,603 1,259,585
Nickel(11) mt 3,265 3,669 2,092 3,743 3,489
Copper(11) mt 1,983 2,250 1,314 2,340 2,226
------------ ------------------------------------------------- ---------- ---------- -------- ---------- ----------
Refined Lonmin Platinum oz 739,315 759,005 431,683 707,665 648,414
refined
production metal Palladium oz 334,470 350,040 208,756 319,841 310,558
production Gold oz 19,596 18,232 12,299 18,676 18,398
Rhodium oz 121,149 102,372 76,940 79,124 110,896
Ruthenium oz 177,006 181,803 107,166 171,052 153,394
Iridium oz 44,855 32,180 27,991 28,068 32,844
Total PGMs oz 1,436,390 1,443,633 864,835 1,324,426 1,274,503
------------ ------------------------------------------------- ---------- ---------- -------- ---------- ----------
Toll refined Platinum oz 2,575 689 4,501 1,364 38,958
metal Palladium oz 713 280 1,765 662 21,043
production Gold oz 30 14 116 289 729
Rhodium oz 207 95 1,546 1,837 4,717
Ruthenium oz 698 2,093 7,417 6,519 7,907
Iridium oz 110 560 1,914 1,012 1,944
Total PGMs oz 4,333 3,731 17,259 11,683 75,299
------------ ------------------------------------------------- ---------- ---------- -------- ---------- ----------
Operating statistics
5 year review
Units 2016 2015 2014 2013 2012
------------ --------------- ------------ ------- ---------- ---------- -------- ---------- ----------
Refined Toll refined Platinum oz 741,890 759,695 436,184 709,029 687,372
production PGMs Palladium oz 335,183 350,320 210,521 320,503 331,601
Gold oz 19,626 18,246 12,415 18,965 19,128
Rhodium oz 121,356 102,467 78,486 80,961 115,613
Ruthenium oz 177,704 183,896 114,583 177,571 161,300
Iridium oz 44,965 32,740 29,905 29,081 34,788
Total PGMs oz 1,440,724 1,447,364 882,094 1,336,109 1,349,802
Base metals Nickel(12) mt 3,769 3,720 2,387 3,532 3,786
Copper(12) mt 2,227 2,276 1,480 2,168 2,153
------------ ------------------------------------ ---------- ---------- -------- ---------- ----------
Sales Refined Platinum oz 735,747 751,560 441,684 695,803 701,831
metal sales Palladium oz 334,319 347,942 212,500 313,030 335,849
Gold oz 20,735 19,199 13,100 18,423 19,273
Rhodium oz 121,604 92,520 81,120 77,625 119,054
Ruthenium oz 145,306 192,549 121,904 168,266 170,751
Iridium oz 47,392 30,114 29,778 28,828 37,187
Total PGMs oz 1,405,103 1,433,883 900,087 1,301,973 1,383,945
Nickel(12) mt 3,773 3,656 2,251 3,586 3,843
Copper(12) mt 2,265 2,131 1,448 2,130 2,197
Chrome(12) mt 1,563,236 1,440,901 747,881 1,388,761 1,209,643
------------ ------------------------------------ ---------- ---------- -------- ---------- ----------
Average Platinum $/oz 978 1,095 1,403 1,517 1,517
prices Palladium $/oz 589 718 775 715 630
Gold $/oz 1,425 1,487 1,509 1,508 1,597
Rhodium $/oz 671 998 1,050 1,097 1,274
Basket price of PGMs(13) $/oz 753 849 1,013 1,100 1,095
Full Basket price
of PGMs(14) $/oz 796 902 1,072 1,167 1,163
Basket price of PGMs(13) R/oz 11,030 10,207 10,654 10,291 8,807
Full Basket price
of PGMs(14) R/oz 11,637 10,829 11,277 10,921 9,304
Nickel(12) $/MT 7,357 10,512 13,053 12,772 14,330
Copper(12) $/MT 4,508 5,584 6,810 7,113 7,201
----------------------------- -------------------- ---------- ---------- -------- ---------- ----------
Operating statistics
5 year review
Units 2016 2015 2014 2013 2012
----------------- ------------------------------ ---------- -------- -------- -------- -------- --------
Capital Rm 1,268 1,641 992 1,500 3,296
Expenditure(15) $m 89 136 93 159 408
------------------------------------------------- --------- -------- -------- -------- -------- --------
Employees
& Employees as at 30 September # 25,296 26,968 28,276 28,379 28,230
Contractors as at 30
contractors September # 7,497 8,701 10,016 10,042 8,293
----------------- ------------------------------ ---------- -------- -------- -------- -------- --------
Productivity m(2) per mining employee
(Generation (shaft head)
2)
m(2)
K3 shaft /person 5.6 5.5 2.9 6.0 5.5
m(2)
4B/1B shaft(16) /person 7.6 6.8 3.7 7.7 6.9
m(2)
Rowland shaft /person 5.6 5.9 3.1 5.7 5.7
m(2)
Saffy shaft /person 5.5 4.6 2.1 3.8 3.8
-------- -------- -------- -------- --------
m(2)
Generation 2 /person 5.9 5.6 2.9 5.8 5.5
-------- -------- -------- -------- --------
m(2) per per stoping
& white area crew
m(2)
K3 shaft /crew 284.5 285.4 151.4 313.4 n/a
m(2)
4B/1B shaft(16) /crew 387.7 338.8 180.5 371.2 n/a
m(2)
Rowland shaft /crew 340.7 335.1 200.2 344.4 n/a
m(2)
Saffy shaft /crew 292.6 243.5 121.7 249.4 n/a
-------- -------- -------- -------- --------
m(2)
Generation 2 /crew 316.4 296.4 160.6 321.8 n/a
-------- -------- -------- -------- --------
Exchange Average rate for period(17) R/$ 14.77 12.01 10.55 9.24 8.05
rates GBP/$ 0.70 0.65 0.60 0.64 0.63
Closing rate R/$ 13.71 13.83 11.29 9.99 8.30
GBP/$ 0.77 0.66 0.62 0.62 0.62
----------------------------------------------------------- -------- -------- -------- -------- --------
Underlying PGM operations segment
cost of sales Mining $m (625) (785) (622) (919) (877)
Concentrating $m (114) (145) (107) (159) (168)
Smelting and refining(18) $m (102) (120) (106) (133) (147)
Shared services $m (49) (71) (74) (101) (100)
Management and marketing
services $m (21) (25) (24) (26) (35)
Ore, concentrate and
other purchases $m (34) (48) (38) (64) (48)
Limpopo mining $m (2) (2) (3) (7) (9)
Special item adjustment $m - - 287 - 121
Community trusts donations $m (1) (1) - - -
Royalties $m (7) (9) (5) (6) (8)
Shared based payments $m (11) (14) (15) (13) (12)
Inventory movement $m (34) (84) (79) 203 (140)
FX and Group Charges $m (1) 51 25 44 14
---------------------------- -------- -------- -------- -------- --------
Total PGM operations
segment $m (999) (1,253) (761) (1,181) (1,412)
---------------------------- -------- -------- -------- -------- --------
Evaluation - excluding
FX $m - - - 1 2
Exploration - excluding
FX $m (5) (7) (6) (4) (5)
Corporate - excluding
FX $m (3) (2) (2) (10) (4)
FX $m (2) (10) (1) (4) (2)
---------------------------- -------- -------- -------- -------- --------
Total underlying cost
of sales $m (1,009) (1,272) (771) (1,199) (1,421)
---------------------------- -------- -------- -------- -------- --------
PGM operations segment
Mining Rm (9,155) (9,414) (6,556) (8,545) (7,079)
Concentrating Rm (1,650) (1,731) (1,121) (1,469) (1,346)
Smelting and refining(18) Rm (1,470) (1,426) (1,119) (1,235) (1,183)
Shared services Rm (721) (810) (786) (928) (805)
Management and marketing
services Rm (304) (294) (256) (243) (287)
Ore, concentrate and
other purchases Rm (494) (574) (402) (597) (385)
Limpopo mining Rm (23) (25) (31) (61) (76)
------------------------------ ---------------------------- -------- -------- -------- -------- --------
Operating statistics
5 year review
Units 2016 2015 2014 2013 2012
--------------- ---------------------------- ------- --------- --------- -------- --------- ---------
Underlying PGM operations segment
cost of sales Special item adjustment Rm - - 3,028 - 966
Community trusts donations $m (15) (10) - - -
Royalties Rm (94) (103) (52) (55) (68)
Shared based payments Rm (158) (164) (148) (121) (99)
Inventory movement Rm (510) 6 (480) 2,145 (842)
FX and Group Charges Rm 257 (2,659) (1,117) (1,247) (218)
--------- --------- -------- --------- ---------
Rm (14,335) (17,203) (9,040) (12,356) (11,424)
--------- --------- -------- --------- ---------
Shaft head Rand per tonne
unit
cost - K3 shaft R/T (890) (840) (990) (629) (599)
underground 4B/1B shaft(16) R/T (714) (760) (859) (571) (527)
operations Rowland shaft R/T (936) (825) (992) (694) (631)
excluding
K4 Saffy shaft R/T (858) (886) (1,164) (878) (853)
--------- --------- -------- --------- ---------
Generation 2 R/T (857) (830) (995) (666) (623)
--------- --------- -------- --------- ---------
Hossy shaft (915) (927) (1,002) (749) (698)
Newman shaft R/T (1,008) (738) (907) (592) (603)
East 1 shaft R/T (1,041) (1,025) (1,162) (611) (505)
East 2 shaft R/T (1,033) (824) (831) (657) (642)
East 3 shaft & ore
purchases R/T (927) (872) (964) (905) (788)
W1 shaft R/T (920) (902) (987) (934) (989)
--------- --------- -------- --------- ---------
Generation 1 R/T (957) (858) (956) (720) (662)
--------- --------- -------- --------- ---------
Total underground R/T (878) (838) (983) (683) (636)
--------- --------- -------- --------- ---------
Rand per PGM oz
K3 shaft R/oz (7,409) (7,171) (8,683) (5,314) n/a
4B/1B shaft(16) R/oz (6,806) (7,442) (8,231) (5,385) n/a
Rowland shaft R/oz (7,359) (6,428) (7,727) (5,292) n/a
Saffy shaft R/oz (6,755) (7,143) (9,702) (7,912) n/a
--------- --------- -------- --------- ---------
Generation 2 R/oz (7,118) (7,023) (8,539) (5,683) n/a
--------- --------- -------- --------- ---------
Hossy shaft R/oz (6,961) (8,375) (8,472) (6,671) n/a
Newman shaft R/oz (7,568) (5,412) (6,741) (4,626) n/a
East 1 shaft R/oz (7,949) (7,406) (8,233) (4,805) n/a
East 2 shaft R/oz (7,654) (6,163) (6,924) (5,175) n/a
East 3 shaft & ore
purchases R/oz (6,960) (6,522) (7,201) (6,606) n/a
W1 shaft R/oz (7,565) (7,362) (6,969) (7,695) n/a
--------- --------- -------- --------- ---------
Generation 1 R/oz (7,257) (6,774) (7,487) (5,778) n/a
--------- --------- -------- --------- ---------
Total underground R/oz (7,150) (6,950) (8,195) (5,714) n/a
--------- --------- -------- --------- ---------
Operating statistics
5 year review
Units 2016 2015 2014 2013 2012
-------------------- --------------------------- -------- ---------- ---------- --------- ---------- ----------
Cost of production Cost
(PGM operations Mining Rm (9,155) (9,414) (6,556) (8,545) (7,079)
segment)(19) Concentrating Rm (1,650) (1,731) (1,121) (1,469) (1,346)
Smelting and refining(18) Rm (1,470) (1,426) (1,119) (1,235) (1,183)
Shared services Rm (721) (810) (786) (928) (805)
Management and marketing
services Rm (304) (294) (256) (243) (287)
---------- ---------- --------- ---------- ----------
Rm (13,299) (13,674) (9,838) (12,420) (10,701)
---------- ---------- --------- ---------- ----------
PGM Saleable ounces
Mined ounces excluding
ore purchases oz 1,200,244 1,280,964 707,913 1,340,678 1,174,776
Metals-in-concentrate
before concentrate
purchases oz 1,270,178 1,409,729 715,746 1,398,623 1,254,938
Refined ounces oz 1,440,724 1,447,364 882,094 1,336,109 1,349,802
Metals-in-concentrate
including concentrate
purchases oz 1,278,607 1,420,122 722,701 1,404,603 1,259,585
Cost of production
Mining R/oz (7,627) (7,349) (9,261) (6,373) (6,026)
Concentrating R/oz (1,299) (1,228) (1,567) (1,051) (1,073)
Smelting and refining(18) R/oz (1,020) (985) (1,269) (925) (877)
Shared services R/oz (564) (570) (1,087) (661) (639)
Management and marketing
services R/oz (237) (207) (355) (173) (228)
---------- ---------- --------- ---------- ----------
R/oz (10,748) (10,339) (13,538) (9,182) (8,843)
---------- ---------- --------- ---------- ----------
% increase in cost
of production
Mining % (3.8) 20.6 (45.3) (5.8) (12.4)
Concentrating % (5.8) 21.6 (49.2) 2.1 (11.8)
Smelting and refining(18) % (3.6) 22.4 (37.3) (5.4) (5.4)
Shared services % 1.1 47.5 (64.5) (3.3) (27.2)
Management and marketing
services % (14.8) 41.7 (104.9) 24.1 (41.9)
---------- ---------- --------- ---------- ----------
% (4.0) 23.6 (47.4) (3.8) (13.1)
---------- ---------- --------- ---------- ----------
Footnotes:
1 Reporting of shafts are in line with our operating strategy for Generation
1 and Generation 2 shafts.
2 Pandora underground and opencast tonnes mined represents 100% of the total
tonnes mined on the Pandora joint venture of which 42.5% for October and
November 2014 and 50% thereafter is attributable to Lonmin.
3 Limpopo underground tonnes mined represents low grade development tonnes
mined whilst on care and maintenance.
4 Ounces mined have been calculated at achieved concentrator recoveries and
with Lonmin standard downstream processing recoveries to present produced
saleable ounces.
5 Tonnes milled exclude slag milling.
6 Lonmin purchases 100% of the ore produced by the Pandora joint venture
for onward processing which is included in downstream operating statistics.
7 Limpopo tonnes milled represent low grade development tonnes milled.
8 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).
9 Recovery rate in the concentrators is the total content produced divided
by the total content milled (excluding slag).
10 As from 2014, metals-in-concentrate have been calculated at Lonmin standard
downstream processing recoveries to present produced saleable ounces.
11 Corresponds to contained base metals in concentrate.
12 Nickel is produced and sold as nickel sulphate crystals or solutions 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.
13 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 to each sales transaction.
14 As per footnote 13 but including revenue from base metals.
15 Capital expenditure is the aggregate of the purchase of property, plant
and equipment and intangible assets (includes capital accruals and excludes
capitalised interest).
16 Includes 1B shaft.
17 Exchange rates are calculated using the market average daily closing rate
over the course of the period.
18 Comprises of Smelting and Refining costs as well as direct Process Operations
shared costs.
19 It should be noted that with the implementation of the revised operating
model in 2014, 2015 and 2016 the cost allocation between business units
has been changed and, therefore, whilst the total is on a like-for-like
basis, individual line items are not totally comparable.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL REPORT AND ACCOUNTS
We confirm that to the best of our knowledge:
* the financial statements, prepared in accordance with
the applicable set of accounting standards, give a
true and fair view of the assets, liabilities,
financial position and profit or loss of the Company
and the undertakings included in the consolidation
taken as a whole; and
* the management report required by DTR 4.1.8R
(contained in the Strategic Report and the Directors'
Report) includes a fair review of the development and
performance of the business and the position of the
Company and the undertakings included in the
consolidation taken as a whole, together with a
description of the principal risks and uncertainties
that they face.
Brian Beamish Barrie van der Merwe
Chairman Chief Financial Officer
13 November 2016
FINANCIAL STATEMENTS
Consolidated income statement
for the year ended 30 September
Special Special
2016 items 2016 2015 items 2015
Underlying (note Underlying (note
(i) 3) Total (i) 3) Total
Notes $m $m $m $m $m $m
------------------------------------------ ------- ------------- -------- --------- ------------ -------- -----------
Revenue 2 1,118 - 1,118 1,293 - 1,293
========================================== ======= ============= ======== ========= ============ ======== ===========
EBITDA / (LBITDA) (ii) 109 6 115 21 (73) (52)
Depreciation, amortisation
and impairment (102) (335) (437) (155) (1,811) (1,966)
------------------------------------------ ------- ------------- -------- --------- ------------ -------- -----------
Operating loss (iii) 7 (329) (322) (134) (1,884) (2,018)
Profit on disposal of
joint venture 3 - 5 5 - - -
Finance income 4 23 32 55 16 20 36
Finance expenses 4 (28) (60) (88) (20) (255) (275)
Share of loss of equity
accounted investment (5) - (5) (5) - (5)
------------------------------------------ ------- ------------- -------- --------- ------------ -------- -----------
Loss before taxation (3) (352) (355) (143) (2,119) (2,262)
Income tax (charge) /
credit (iv) 5 (109) 64 (45) 35 328 363
------------------------------------------ ------- ------------- -------- --------- ------------ -------- -----------
Loss for the year (112) (288) (400) (108) (1,791) (1,899)
========================================== ======= ============= ======== ========= ============ ======== ===========
Attributable to:
* Equity shareholders of Lonmin Plc
(89) (253) (342) (94) (1,567) (1,661)
* Non-controlling interests (23) (35) (58) (14) (224) (238)
------------------------------------------ ------- ------------- -------- --------- ------------ -------- -----------
Loss per share 6 (137.0)c (3,437.6)c
------------------------------------------ ------- ------------- -------- --------- ------------ -------- -----------
Diluted loss per share
(v) 6 (137.0)c (3,437.6)c
------------------------------------------ ------- ------------- -------- --------- ------------ -------- -----------
Consolidated statement of comprehensive income
for the year ended 30 September
2016 2015
Total Total
Note $m $m
--------------------------------------------------------- ------- ------- --------
Loss for the year (400) (1,899)
Items that may be reclassified subsequently to the
income statement:
------- --------
- Change in fair value of available for sale financial
assets 8 - (4)
- Foreign exchange loss on retranslation of equity
accounted investment - (8)
- Deferred tax on items taken directly to the statement
of comprehensive income (1) -
------- --------
Total other comprehensive expenses for the year (1) (12)
--------------------------------------------------------- ------- ------- --------
Total comprehensive loss for the year (401) (1,911)
========================================================= ======= ======= ========
Attributable to:
- Equity shareholders of Lonmin Plc (343) (1,672)
- Non-controlling interests (58) (239)
--------------------------------------------------------- ------- ------- --------
(401) (1,911)
========================================================= ======= ======= ========
Footnotes:
i Underlying results are based on reported results excluding the effect of
special items as defined in note 3.
ii EBITDA / (LBITDA) is operating profit / (loss) before depreciation, amortisation
and impairment of goodwill, intangibles and property, plant and equipment.
iii Operating profit / (loss) is defined as revenue less operating expenses
before profit on disposal of joint venture, finance income and expenses
and share of (loss) / profit of equity accounted investment.
iv The income tax (charge) / credit substantially relates to overseas taxation
and includes exchange gains of $5 million (2015 - $48 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 financial position
as at 30 September
2016 2015
Notes $m $m
----------------------------------------------- ------- ------ ------
Non-current assets
Intangible assets 10 74 94
Property, plant and equipment 10 1,158 1,477
Equity accounted investment 24 26
Royalty prepayment 37 38
Other financial assets 8 21 19
----------------------------------------------- ------- ------ ------
1,314 1,654
----------------------------------------------- ------- ------ ------
Current assets
Inventories 245 281
Trade and other receivables 67 71
Tax recoverable - 1
Other financial assets 8 69 102
Cash and cash equivalents 9 323 320
----------------------------------------------- ------- ------ ------
704 775
----------------------------------------------- ------- ------ ------
Current liabilities
Trade and other payables (193) (208)
Provisions - (39)
Interest bearing loans and borrowings 9 - (505)
Deferred revenue - (23)
(193) (775)
----------------------------------------------- ------- ------ ------
Net current assets 511 -
----------------------------------------------- ------- ------ ------
Non-current liabilities
Interest bearing loans and borrowings 9 (150) -
Deferred tax liabilities (34) (9)
Deferred royalty payment (3) (3)
Deferred revenue (9) -
Provisions (127) (122)
----------------------------------------------- ------- ------ ------
(323) (134)
----------------------------------------------- ------- ------ ------
Net assets 1,502 1,520
=============================================== ======= ====== ======
Capital and reserves
Share capital 586 586
Share premium 1,816 1,448
Other reserves 88 88
Accumulated loss (821) (493)
----------------------------------------------- ------- ------ ------
Attributable to equity shareholders of Lonmin
Plc 1,669 1,629
Attributable to non-controlling interests (167) (109)
----------------------------------------------- ------- ------ ------
Total equity 1,502 1,520
=============================================== ======= ====== ======
The financial statements of Lonmin Plc, registered number 103002, were approved
by the Board of Directors on 13 November 2016 and were signed on its behalf
by:
Brian Beamish Chairman
Barrie van der Merwe Chief Financial Officer
Consolidated statement of changes in equity
for the year ended 30 September
Equity interest
------------------------------------------------------
Called
up Share Accumu-
share premium Other lated Non-controlling Total
reserves interests
capital account (i) loss(ii) Total (iii) equity
$m $m $m $m $m $m $m
------------------------------------------------------------- --------- --------- ----------- ---------- ------- ---------------- ---------
At 1 October 2015 586 1,448 88 (493) 1,629 (109) 1,520
Loss for the year - - - (342) (342) (58) (400)
Total other comprehensive
expenses: - - - (1) (1) - (1)
--------- --------- ----------- ---------- ------- ---------------- ---------
* Deferred tax on items taken directly to the statement
of comprehensive income - - - (1) (1) - (1)
--------- --------- ----------- ---------- ------- ---------------- ---------
Transactions with owners,
recognised directly in equity: - 368 - 15 383 - 383
--------- --------- ----------- ---------- ------- ---------------- ---------
* Share-based payments - - - 15 15 - 15
* Share capital and share premium recognised on equity
issuance - 395 - - 395 - 395
* Equity issue costs charged to share premium - (27) - - (27) - (27)
At 30 September 2016 586 1,816 88 (821) 1,669 (167) 1,502
============================================================= ========= ========= =========== ========== ======= ================ =========
Equity interest
--------------------------------------------------------
Retained
Called
up Share earnings/
share premium Other (Accumu- Non-controlling Total
lated
reserves loss) interests
capital account (i) (ii) Total (iii) equity
$m $m $m $m $m $m $m
------------------------------------------------------------- --------- --------- ----------- ----------- -------- ---------------- ---------
At 1 October 2014 570 1,411 88 1,164 3,233 149 3,382
Loss for the year - - - (1,661) (1,661) (238) (1,899)
Total other comprehensive
expenses: - - - (11) (11) (1) (12)
--------- --------- ----------- ----------- -------- ---------------- ---------
* Change in fair value of available for sale financial
assets - - - (4) (4) - (4)
* Foreign exchange loss on retranslation of equity
accounted investment - - - (7) (7) (1) (8)
Transactions with owners,
recognised directly in equity: 16 37 - 15 68 (19) 49
--------- --------- ----------- ----------- -------- ---------------- ---------
* Share-based payments - - - 15 15 - 15
* Shares issued on exercise of share options (iv) 3 - - - 3 - 3
* Share capital and share premium recognised on the BEE
transaction 13 37 - - 50 - 50
* Dividends (note 7) - - - - - (19) (19)
At 30 September 2015 586 1,448 88 (493) 1,629 (109) 1,520
============================================================= ========= ========= =========== =========== ======== ================ =========
Footnotes:
i Other reserves at 30 September 2016 represent the capital redemption reserve
of $88 million (2015 - $88 million).
ii (Accumulated loss) / retained earnings include a $17 million debit of
accumulated exchange on retranslation of equity accounted investments
(2015 - $17 million debit).
iii Non-controlling interests represent a 13.76% effective shareholding in
each of Eastern Platinum Limited, Western Platinum Limited and Messina
Limited and a 19.87% effective shareholding in Akanani Mining (Proprietary)
Limited.
iv During the year 378,978 share options were exercised (2015 - 3,120,687)
on which $38 of cash was received (2015 - $3 million).
Consolidated statement of cash flows
for the year ended 30 September
2016 2015
Notes $m $m
---------------------------------------------------- ------- ------ --------
Loss for the year (400) (1,899)
Taxation 5 45 (363)
Share of loss of equity accounted investment 5 5
Finance income 4 (55) (36)
Finance expenses 4 88 275
Profit on disposal of joint venture (5) -
Non-cash movement on deferred revenue (23) (27)
Depreciation, amortisation and impairment 437 1,966
Change in inventories 36 92
Change in trade and other receivables (4) 6
Change in trade and other payables (15) (38)
Change in provisions (51) 3
Deferred revenue received 9 -
Share-based payments 15 15
Loss on disposal of property, plant and equipment - 3
BEE charge - 13
Cash inflow from operations 82 15
Interest received 6 3
Interest and bank fees paid (20) (27)
Tax paid (10) (3)
---------------------------------------------------- ------- ------ --------
Cash inflow / (outflow) from operating activities 58 (12)
---------------------------------------------------- ------- ------ --------
Cash flow from investing activities
Contributions to joint venture (3) (7)
Proceeds on disposal of joint venture 5 -
Purchase of property, plant and equipment (87) (134)
Purchase of intangible assets (2) (2)
Cash used in investing activities (87) (143)
---------------------------------------------------- ------- ------ --------
Cash flow from financing activities
Dividends paid to non-controlling interests 7 - (19)
Proceeds from current borrowings 9 - 391
Repayment of current borrowings 9 (506) (60)
Proceeds from non-current borrowings 9 150 -
Proceeds from equity issuance 395 -
Costs of issuing shares (27) -
Profit on forward exchange contracts on equity 5 -
issuance
Issue of other ordinary share capital - 3
Cash inflow from financing activities 17 315
---------------------------------------------------- ------- ------ --------
(Decrease) / increase in cash and cash equivalents 9 (12) 160
Opening cash and cash equivalents 9 320 143
Effect of foreign exchange rate changes 9 15 17
---------------------------------------------------- ------- ------ --------
Closing cash and cash equivalents 9 323 320
==================================================== ======= ====== ========
Notes to the accounts
1. Statement on accounting policies
Basis of preparation
The financial information presented has been prepared on the basis of International
Financial Reporting Standards (IFRSs) as adopted by the EU.
Going concern
In determining the appropriate basis of preparation of the financial statements,
the Directors are required to consider whether the Group can continue in
operational existence for the foreseeable future.
The debt facilities available to the Group are summarised as follows:
* Revolving credit facilities totalling $71 million and
a $150 million term loan, at a Lonmin Plc level.
* Revolving credit facility totalling R1,980 million,
at Western Platinum Limited (WPL) level.
This capital structure places the Group in a strong financial position to
ride the normal working capital cycles while providing a buffer to withstand
the effects of operational shocks that the business may face. 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 PGM commodity prices and the Rand / US Dollar exchange rate.
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. Various
scenarios have been considered to test the Group's resilience against operational
risks including:
* Adverse movements in PGM commodity prices and Rand /
US Dollar exchange rate or a combination thereof;
* Failure to meet forecast production targets.
The Directors have concluded that the Group's capital structure provides
sufficient headroom to cushion against downside operational risks and minimises
the risk of breaching debt covenants. As a result, the Directors believe
that the Group will continue to meet its obligations as they fall due and
comply with its financial covenants and accordingly have formed a judgement
that it is appropriate to prepare the financial statements on a going concern
basis. Therefore, these financial statements do not include any adjustments
that would result if the going concern basis of preparation is inappropriate.
New standards and amendments in the year
The following revised IFRSs have been adopted in these financial statements.
The application of these IFRSs did not have any material impact on the amounts
reported for the current and prior years:
* Annual improvements to IFRSs 2010-2012 cycle and
2011-2013 cycle - amendments to IFRS 1, 2, 3, 8 and
13 and IAS 16, 24,38 and 40.
There were no other new standards, interpretations or amendments to standards
issued and effective for the year which materially impacted the Group's financial
statements.
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. The Other segment 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.
No operating segments have been aggregated. Operating segments have consistently
adopted the consolidated basis of accounting and there are no differences
in measurement applied.
2016
------------------------------------------------------------------------------
PGM Inter-
Operations Evaluation Exploration segment
Segment Segment Segment Other Adjustments Total
$m $m $m $m $m $m
------------------------- ------------ ------------- -------------- -------- ------------- --------
Revenue (external sales
by product):
Platinum 720 - - - - 720
Palladium 197 - - - - 197
Gold 30 - - - - 30
Rhodium 82 - - - - 82
Ruthenium 5 - - - - 5
Iridium 25 - - - - 25
------------------------- ------------ ------------- -------------- -------- ------------- --------
PGMs 1,059 - - - - 1,059
Nickel 28 - - - - 28
Copper 10 - - - - 10
Chrome 21 - - - - 21
------------------------- ------------ ------------- -------------- -------- ------------- --------
1,118 - - - - 1,118
========================= ============ ============= ============== ======== ============= ========
2016
----------------------------------------------------------------------------
PGM Inter-
Operations Evaluation Exploration segment
Segment Segment Segment Other Adjustments Total
$m $m $m $m $m $m
---------------------------------------- ------------ ------------- ------------ -------- ------------- --------
Underlying (i) :
EBITDA / (LBITDA) (ii) 119 - (5) (5) - 109
Depreciation, amortisation and
impairment (102) - - - - (102)
---------------------------------------- ------------ ------------- ------------ -------- ------------- --------
Operating profit / (loss) (ii) 17 - (5) (5) - 7
Finance income 25 - - 49 (51) 23
Finance expenses (66) - - (13) 51 (28)
Share of loss of equity accounted
investment (5) - - - - (5)
---------------------------------------- ------------ ------------- ------------ -------- ------------- --------
(Loss) / profit before taxation (29) - (5) 31 - (3)
Income tax charge (109) - - - - (109)
---------------------------------------- ------------ ------------- ------------ -------- ------------- --------
Underlying (loss) / profit after
taxation (138) - (5) 31 - (112)
Special items (note 3) (iii) (254) - 4 (38) - (288)
---------------------------------------- ------------ ------------- ------------ -------- ------------- --------
Loss after taxation (392) - (1) (7) - (400)
======================================== ============ ============= ============ ======== ============= ========
Total assets (iv) 1,936 9 7 1,796 (1,730) 2,018
Total liabilities (1,866) (136) (60) (184) 1,730 (516)
---------------------------------------- ------------ ------------- ------------ -------- ------------- --------
Net assets / (liabilities) 70 (127) (53) 1,612 - 1,502
======================================== ============ ============= ============ ======== ============= ========
Share of net assets of equity accounted
investment 24 - - - - 24
Additions to property, plant, equipment
and intangibles 96 2 - - - 98
Material non-cash items - share-based
payments 15 - - - - 15
---------------------------------------- ------------ ------------- ------------ -------- ------------- --------
2015
------------------------------------------------------------------------------
PGM Inter-
Operations Evaluation Exploration segment
Segment Segment Segment Other Adjustments Total
$m $m $m $m $m $m
------------------------- ------------ ------------- -------------- -------- ------------- --------
Revenue (external sales
by product):
Platinum 823 - - - - 823
Palladium 250 - - - - 250
Gold 29 - - - - 29
Rhodium 92 - - - - 92
Ruthenium 8 - - - - 8
Iridium 16 - - - - 16
------------------------- ------------ ------------- -------------- -------- ------------- --------
PGMs 1,218 - - - - 1,218
Nickel 39 - - - - 39
Copper 12 - - - - 12
Chrome 24 - - - - 24
------------------------- ------------ ------------- -------------- -------- ------------- --------
1,293 - - - - 1,293
========================= ============ ============= ============== ======== ============= ========
2015
------------------------------------------------------------------------------
PGM Inter-
Operations Evaluation Exploration segment
Segment Segment Segment Other Adjustments Total
$m $m $m $m $m $m
------------------------------ ------------ ------------- -------------- -------- ------------- --------
Underlying (i) :
EBITDA / (LBITDA) (ii) 40 7 (5) (21) - 21
Depreciation, amortisation
and impairment (155) - - - - (155)
------------------------------ ------------ ------------- -------------- -------- ------------- --------
Operating (loss) / profit
(ii) (115) 7 (5) (21) - (134)
Finance income 17 - - 13 (14) 16
Finance expenses (48) - - 14 14 (20)
Share of loss of equity
accounted investment (5) - - - - (5)
------------------------------ ------------ ------------- -------------- -------- ------------- --------
(Loss) / profit before
taxation (151) 7 (5) 6 - (143)
Income tax credit 34 - - 1 - 35
------------------------------ ------------ ------------- -------------- -------- ------------- --------
Underlying (loss) / profit
after taxation (117) 7 (5) 7 - (108)
Special items after tax
(note 3) (iii) (1,380) (173) - (238) - (1,791)
------------------------------ ------------ ------------- -------------- -------- ------------- --------
Loss after taxation (1,497) (166) (5) (231) - (1,899)
============================== ============ ============= ============== ======== ============= ========
Total assets (iv) 2,117 60 3 1,724 (1,475) 2,429
Total liabilities (1,800) (134) (56) (394) 1,475 (909)
------------------------------ ------------ ------------- -------------- -------- ------------- --------
Net assets / (liabilities) 317 (74) (53) 1,330 - 1,520
============================== ============ ============= ============== ======== ============= ========
Share of net assets of
equity accounted investment 26 - - - - 26
Additions to property,
plant, equipment and
intangibles 159 2 - - - 161
Material non-cash items
- share-based payments 14 - - 1 - 15
------------------------------ ------------ ------------- -------------- -------- ------------- --------
Revenue by destination is analysed by geographical area below:
--------------------------------------------------------------------
2016 2015
$m $m
---------------------------------- --------------- ---------------
The Americas 508 260
Asia 215 240
Europe 338 559
South Africa 57 234
---------------------------------- --------------- ---------------
1,118 1,293
================================== =============== ===============
The Group's revenue is all derived from the PGM Operations segment. This
segment has three major customers who respectively contributed 41% ($455
million), 19% ($211 million) and 19% ($209 million) of revenue in the 2016
financial year (2015 - 58% ($505 million), 16% ($204 million) and 9% ($117
million)).
Metal sales prices are based on market prices which are denominated in US
Dollars. The majority of sales are also invoiced in US Dollars with the exception
of certain sales in South Africa which are invoiced in South African Rand
based on exchange rates determined in accordance with the contractual arrangements.
Non-current assets (excluding financial instruments and deferred tax assets)
of $1,291 million (2015 - $1,635 million) are all situated in South Africa.
Footnotes:
i Underlying results are based on reported results excluding the effect
of special items as defined in note 3.
ii EBITDA / (LBITDA) and operating profit / (loss) are the key profit measures
used by management.
iii The impairment of the HDSA receivable of $nil (2015 - $227 million) and
of non-financial assets of $335 million (2015 - $1,811 million) are shown
as special items in the segmental analysis. The HDSA receivable forms
part of the "Other" segment. The impairment of non-financial assets is
allocated to the PGM Operations segment.
iv The assets under "Other" include the HDSA receivable of $69 million (2015
- $102 million) and intercompany receivables of $1,658 million (2015 -
$1,475 million). Available for sale financial assets of $7 million (2015
- $7 million) forms part of the "Other" segment and the balance of $4
million (2015 - $4 million) forms part of the PGM Operations segment.
3. Special Items
'Special items' are those items of financial performance that the Group believes
should be separately disclosed on the face of the income statement to assist
in the understanding of the financial performance achieved by the Group and
for consistency with prior years.
2016 2015
$m $m
--------------------------------------------------------------- ------ --------
Operating loss: (329) (1,884)
------ --------
Restructuring and reorganisation costs (i) 21 (59)
Debt refinancing costs (ii) (10) -
Share-based payments (iii) (5) -
Impairment of non-financial assets
- Impairment of goodwill - (40)
- Impairment of intangibles (19) (358)
- Impairment of property, plant and equipment (316) (1,413)
BEE transaction
- BEE charge - (13)
- Consulting fees - (1)
Profit on disposal of joint venture (iv) 5 -
Net finance expenses: (28) (235)
------ --------
- Interest accrued from HDSA receivable (v) 27 20
- Foreign exchange loss on HDSA receivable (v) (60) (28)
- Impairment of HDSA loan receivable (v) - (227)
- Gain on retranslation and forward exchange contracts 5 -
in respect of the Rights Issue
Loss on special items before taxation (352) (2,119)
Taxation related to special items (note 5) 64 328
--------------------------------------------------------------- ------ --------
Special loss before non-controlling interests (288) (1,791)
Non-controlling interests 35 224
--------------------------------------------------------------- ------ --------
Special loss for the year attributable to equity shareholders
of Lonmin Plc (253) (1,567)
=============================================================== ====== ========
Footnotes:
i The planned restructuring of the business was achieved at a lower cost
due the reskilling and redeployment of employees combined with a greater
proportion of contractors departing as well as natural attrition. This
resulted in the reversal of the remainder of the provision for redundancy
costs.
ii Costs were incurred to amend the debt facilities with the lenders.
iii The employee share option schemes were adjusted to reflect the Rights
Issue and share consolidation. This resulted in the accelerated vesting
of the share-based payment expenses per IFRS2. These accelerated share-based
payment costs were treated as special costs.
iv In 2016 the Group sold its percentage interest in a joint venture between
subsidiary AfriOre Kenya Limited and Acacia Mining Plc generating a profit
of $5 million.
v During the year ended 30 September 2010 the Group provided financing to
assist Lexshell 806 Investments (Proprietary) Limited, a subsidiary of
Phembani Group (Proprietary) Limited (Phembani, formerly known as Pembani)
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. See note 8 for details regarding the HDSA
receivable.
4. Net finance expenses
2016 2015
$m $m
------------------------------------------------------------ ----- ------
Finance income: 23 16
----- ------
- Interest receivable on cash and cash equivalents 7 3
- Dividend received from investment (i) 1 1
- Foreign exchange gains on net cash / (debt) (ii) 15 12
----- ------
Finance expenses: (28) (20)
----- ------
- Interest payable on bank loans and overdrafts (14) (20)
- Bank fees (4) (8)
- Unamortised bank fees realised on settlement of old loan (1) -
facility
- Capitalised interest (iii) 1 19
- Unwinding of discount on provisions (9) (10)
- Other finance expenses (1) (1)
Special items (note 3): (28) (235)
----- ------
- Interest accrued from HDSA receivable (note 8) 27 20
- Foreign exchange loss on HDSA receivable (note 8) (60) (28)
- Impairment of HDSA receivable (note 8) - (227)
- Gain on retranslation and forward exchange contracts in 5 -
respect of the Rights Issue
Net finance expenses (33) (239)
============================================================ ===== ======
Footnotes:
i Dividends received relate to dividends accruing from investment in Petrozim
Line (Private) Limited. The investment in Petrozim Line (Private) Limited
has a $nil carrying value as it has been fully impaired.
ii 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.
iii Interest expenses incurred have been capitalised on a Group basis to the
extent that there is an appropriate qualifying asset. The weighted average
interest rate used by the Group for capitalisation is 4.0% (2015 - 3.8%).
5. Taxation
2016 2015
$m $m
-------------------------------------------------------------- --------- ------
Current tax charge (excluding special items):
United Kingdom tax expense - -
--------- ------
Current tax expense at 21% (2015 - 20.5%) (i) - -
Less amount of the benefit arising from double tax relief
available - -
--------- ------
Overseas current tax expense at 28% (2015 - 28%) 19 4
--------- ------
Corporate tax expense - current year 8 4
Adjustment in respect of prior years 11 -
--------- ------
Total current tax charge 19 4
-------------------------------------------------------------- --------- ------
Deferred tax charge / (credit) (excluding special items):
Deferred tax expense - UK and overseas 90 (39)
--------- ------
Origination and reversal of temporary differences 72 (39)
Adjustment in respect of prior years 18 -
--------- ------
Deferred tax credit on special items - UK and overseas (note
3): (64) (328)
--------- ------
Foreign exchange revaluation on deferred tax (ii) (5) (48)
Deferred tax on special items impacting profit before tax (59) (280)
--------- ------
Total deferred tax charge / (credit) 26 (367)
-------------------------------------------------------------- --------- ------
Total tax charge / (credit) 45 (363)
============================================================== ========= ======
Tax charge / (credit) excluding special items (note 3) 109 (35)
============================================================== ========= ======
Effective tax rate (13)% 16%
============================================================== ========= ======
Effective tax rate excluding special items (note 3) (3,633)% 24%
============================================================== ========= ======
A reconciliation of the standard tax credit to the actual tax
charge / (credit) was as follows:
2016 2016 2015 2015
% $m % $m
--------------------------------------------------- ----- ----- ----- ------
Tax credit on loss at standard tax rate 28 (99) 28 (626)
Tax effect of:
- Unutilised losses (iii) (18) 65 (1) 27
- Foreign exchange impacts on taxable profits(ii) (10) 34 2 (37)
- Adjustment in respect of prior years (8) 29 - -
- Disallowed expenditure (6) 23 (15) 316
- (Income) / expenses not subject to tax - (2) - 5
Foreign exchange revaluation on deferred tax(ii) 1 (5) 2 (48)
--------------------------------------------------- ----- ----- ----- ------
Actual tax charge / (credit) (13) 45 16 (363)
=================================================== ===== ===== ===== ======
The Group's primary operations are based in South Africa. The South African
statutory tax rate is 28% (2015 - 28%). Lonmin Plc operates a branch in South
Africa which is also subject to a tax rate of 28% on branch profits (2015
- 28%). The aggregated standard tax rate for the Group is 28% (2015 - 28%).
The dividend withholding tax rate is 15% (2015 - 15%). Dividends payable
by the South African companies to Lonmin Plc are subject to a 5% withholding
tax benefitting from double taxation agreements.
Footnotes:
i In the 2015 Summer Budget the Chancellor announced a reduction in the
UK corporation tax rate from 20% to 19% (effective from 1 April 2017)
and 18% (effective from 1 April 2020) and these rates were substantively
enacted on 26 October 2015. In the 2016 Budget the Chancellor announced
a further reduction in the UK corporation tax rate to 17% from 1 April
2020. This does not materially impact the Group's recognised deferred
tax liabilities.
ii Overseas tax charges are predominantly calculated based in Rand as required
by the local authorities. As these subsidiaries' functional currency is
US Dollar this leads to a variety of foreign exchange impacts being the
retranslation of current and deferred tax balances and monetary assets,
as well as other translation differences. The Rand denominated deferred
tax balance in US Dollars at 30 September 2016 is $62 million (30 September
2015 - $177 million).
iii Unutilised losses reflect losses generated in entities for which no deferred
tax is provided as it is not thought probable that future profits can
be generated against which a deferred tax asset could be offset or previously
unrecognised losses utilised.
6. Loss per share
Loss per share (LPS) has been calculated on the loss attributable to equity
shareholders amounting to $342 million (2015 -$1,661 million) using a weighted
average number of 249,656,150 ordinary shares in issue (2015 - 48,319,119
ordinary shares).
During November 2015 the Group undertook a capital raising by way of a Rights
Issue. As a result the LPS figures have been adjusted retrospectively as
required by IAS 33 - Earnings Per Share. On 20 November 2015, 26,997,717,400
ordinary shares were issued with 46 new ordinary shares issued for every
existing ordinary share held. For the calculation of the LPS, the number
of shares held prior to 20 November 2015 has been adjusted by a factor of
0.08 to reflect the bonus element on the Rights Issue.
Diluted loss per share is based on the weighted average number of ordinary
shares in issue adjusted by dilutive outstanding share options in accordance
with IAS 33 - Earnings Per Share. As at 30 September 2016 outstanding share
options were anti-dilutive and so were excluded from diluted loss per share.
2016 2015 (restated)
------------------------------------ ------------------------------------
Loss for Per share Loss for Per share
the year Number of amount the year Number of amount
$m shares cents $m shares cents
---------------------- ---------- ------------ ---------- ---------- ------------ ----------
Basic LPS (342) 249,656,150 (137.0) (1,661) 48,319,119 (3,437.6)
Share option schemes - - - - - -
---------------------- ---------- ------------ ---------- ---------- ------------ ----------
Diluted LPS (342) 249,656,150 (137.0) (1,661) 48,319,119 (3,437.6)
====================== ========== ============ ========== ========== ============ ==========
2016 2015 (restated)
Loss for Per share Loss for Per share
the year Number of amount the year Number of amount
$m shares cents $m shares cents
---------------------- ---------- ------------ ---------- ---------- ------------ ----------
Underlying LPS (89) 249,656,150 (35.6) (94) 48,319,119 (194.5)
Share option schemes - - - - - -
---------------------- ---------- ------------ ---------- ---------- ------------ ----------
Diluted Underlying
LPS (89) 249,656,150 (35.6) (94) 48,319,119 (194.5)
====================== ========== ============ ========== ========== ============ ==========
Underlying loss per share has been presented as the Directors consider it
important to present the underlying results of the business. Underlying loss
per share is based on the loss attributable to equity shareholders adjusted
to exclude special items (as defined in note 3) as follows:
2016 2015 (restated)
------------------------------------
Loss for Per share Loss for Per share
the year Number of amount the year Number of amount
$m shares cents $m shares cents
--------------------- ---------- ------------ ---------- ---------- ------------ ----------
Basic LPS (342) 249,656,150 (137.0) (1,661) 48,319,119 (3,437.6)
Special items (note
3) 253 - 101.4 1,567 - 3,243.0
--------------------- ---------- ------------ ---------- ---------- ------------ ----------
Underlying LPS (89) 249,656,150 (35.6) (94) 48,319,119 (194.6)
===================== ========== ============ ========== ========== ============ ==========
Headline loss and the resultant headline loss per share are specific disclosures
defined and required by the Johannesburg Stock Exchange. These are calculated
as follows:
2016 2015
$m $m
---------------------------------------------- ------ --------
Loss attributable to ordinary shareholders
(IAS 33 earnings) (342) (1,661)
Add back loss on disposal of property, plant
and equipment - 3
Add back profit on disposal of joint venture (5) -
(note 3)
Add back impairment of assets (note 3) 335 1,811
Tax related to the above items (65) (261)
Non-controlling interests (37) (224)
---------------------------------------------- ------ --------
Headline loss (113) (332)
============================================== ====== ========
2016 2015 (restated)
------------------------------------
Loss for Per share Loss for Per share
the year Number of amount the year Number of amount
$m shares cents $m shares cents
---------------------- ---------- ------------ ---------- ---------- ------------ ----------
Headline LPS (113) 249,656,150 (45.3) (332) 48,319,119 (687.1)
Share option schemes - - - - - -
---------------------- ---------- ------------ ---------- ---------- ------------ ----------
Diluted Headline
LPS (113) 249,656,150 (45.3) (332) 48,319,119 (687.1)
====================== ========== ============ ========== ========== ============ ==========
7. Dividends
No dividends were declared by Lonmin Plc for the financial years ended 30
September 2016 and 2015.
No advance dividends were made by WPL, a subsidiary of Lonmin Plc, to Incwala
Platinum (Proprietary) Limited (IP) during the year (2015 - $19 million (R228
million)). IP is a substantial shareholder in the Company's principal operating
subsidiaries. Total advance dividends made between 2009 and 2016 amount to
$135 million (R1,309 million). IP has authorised WPL to recover these amounts
by reducing future dividends that would otherwise be payable to all shareholders.
These advance dividends are adjusted for in the non-controlling interest
of the Group.
8. Other financial assets
Restricted Available
cash for sale HDSA receivable Total
$m $m $m $m
------------------------- ----------- ---------- ---------------- ------
At 1 October 2015 8 11 102 121
Interest accrued 2 - 27 29
Foreign exchange losses - - (60) (60)
At 30 September 2016 10 11 69 90
------------------------- ----------- ---------- ---------------- ------
Restricted Available
cash for sale HDSA receivable Total
$m $m $m $m
------------------------- ----------- ---------- ---------------- ------
At 1 October 2014 12 15 337 364
Interest accrued 1 - 20 21
Movement in fair value - (4) - (4)
Foreign exchange losses (5) - (28) (33)
Impairment loss - - (227) (227)
------------------------- ----------- ---------- ---------------- ------
At 30 September 2015 8 11 102 121
------------------------- ----------- ---------- ---------------- ------
2016 2015
$m $m
--- ----- -----
Current assets
Other financial assets 69 102
-------------------------- --- ----
Non-current assets
Other financial assets 21 19
-------------------------- --- ---
Restricted cash deposits are in respect of mine rehabilitation obligations.
Available for sale financial assets include listed investments of $7 million
(2015 - $7 million) held at fair value using the market price on 30 September
2016.
On 8 July 2010, Lonmin entered into an agreement to provide financing of GBP200
million to Lexshell 806 Investments (Proprietary) Limited, a subsidiary of
Phembani Group (Proprietary) Limited, to facilitate the acquisition, at fair
value, of 50.03% of shares in Incwala Resources (Proprietary) Limited from
the original HDSA shareholders. The terms of the financing provided by Lonmin
Plc to the Phembani subsidiary include the accrual of interest on the HDSA
receivable at a fixed rate based on a principal value of GBP200 million which
is repayable on demand, including accrued interest.
The Company holds the HDSA receivable at amortised cost. The receivable is
secured on shares in the HDSA borrower, Lexshell 806 Investments (Proprietary)
Limited, whose only asset of value is its holding in Incwala Resources (Proprietary)
Limited (Incwala). Incwala's principal assets are investments in WPL, EPL
and Akanani Mining (Proprietary) Limited (Akanani), all subsidiaries of Lonmin
Plc. One of the sources of income to fund the settlement of the receivable
is the dividend flow from these underlying investments. Given the continued
subdued PGM pricing environment, there have not been any substantial dividends
declared by these Lonmin subsidiaries in recent years.
An impairment review was performed on the balance of the loan at 30 September
2016. This assessment has been made based on the value of the security,
which is primarily driven by the value of Incwala's underlying investments
in WPL, EPL and Akanani. The same valuation model for the Marikana CGU
that was prepared to assess impairment of non-financial assets was used
as the basis for determining the value of Incwala's investments. Thus,
similar judgements apply around the determination of key assumptions in
those valuation models. Based on the assessment there was no impairment
to the carrying value of this loan as at 30 September 2016 (2015 - impairment
of $227 million).
Any movements in the key assumptions would affect the value of the security
which would lead to further impairment or reversal of a previous impairment
of the receivable as follows:
Reversal of impairment /
Assumption Movement in assumption (further impairment) of receivable
------------------------ ----------------------- -----------------------------------
Metal prices +/-5% $36m/($26m)
ZAR:USD exchange rate -/+5% $29m/($21m)
Discount rate -/+ 100 basis points $18m/($6m)
Production +/-5% $33m/($23m)
9. Net cash / (debt) as defined by the Group
Transfer of
unamortised
bank fees
to other receivables
As at $m As at
Foreign exchange
1 October and non-cash 30 September
2015 Cash flow movements 2016
$m $m $m $m
--------------------------- ------------ ----------- ----------------- ---------------------- --------------
Cash and cash equivalents
(ii) 320 (12) 15 - 323
Current borrowings (506) 506 - - -
Non-current borrowings - (150) - - (150)
Unamortised bank fees
(iii) 1 - - (1) -
------------ ----------- ----------------- ---------------------- --------------
Net (debt) / cash as
defined by the Group
(i) (185) 344 15 (1) 173
=========================== ============ =========== ================= ====================== ==============
Transfer of
unamortised
bank fees
to other receivables
As at $m As at
Foreign exchange
1 October and non-cash 30 September
2014 Cash flow movements 2015
$m $m $m $m
--------------------------- ------------ ----------- ----------------- ---------------------- --------------
Cash and cash equivalents
(ii) 143 160 17 - 320
Current borrowings (87) (331) (88) - (506)
Non-current borrowings (88) - 88 - -
Unamortised bank fees
(iii) 3 - (2) - 1
------------ ----------- ----------------- ---------------------- --------------
Net debt as defined by
the Group (i) (29) (171) 15 - (185)
=========================== ============ =========== ================= ====================== ==============
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 Current cash and cash equivalents to the value of $6 million will be treated
as restricted cash to be utilised for rehabilitation obligations (2015
- $6 million).
iii As at 30 September 2016 unamortised bank fees of $4 million relating to
undrawn facilities were included in other receivables (2015 - $1 million
of unamortised bank fees relating to drawn facilities were offset against
net debt).
10. Impairment of non-financial assets
At each financial reporting date, the Group assesses whether there is any
indication that non-financial assets are impaired. If any such indication
exists, the recoverable amount of the assets is estimated in order to determine
the extent of the impairment (if any). The recoverable amount is the higher
of fair value less costs to sell and value in use.
For impairment assessment, the Group's net assets are grouped into CGUs
being the Marikana CGU, Akanani CGU, Limpopo CGU and Other. The Marikana
and Limpopo CGUs relate to the PGM segment and the Akanani CGU relates to
the Evaluation segment.
The Marikana CGU is located in the Marikana district to the east of the
town of Rustenburg in the North West province of South Africa. It contains
a number of producing underground mines, various development properties,
concentrators, tailings storage facilities and smelting and refining operations.
The Akanani CGU is an evaluation asset and is located on the Northern Limb
of the Bushveld Igneous Complex in the Limpopo province of South Africa.
A pre-feasibility study was completed in 2012.
The Limpopo CGU is located on the Northern Sector of the Eastern Limb of
the Bushveld Igneous Complex in the Limpopo province of South Africa and
comprises two resource blocks (Baobab and Baobab east). The CGU includes
mines which were placed on care and maintenance in 2009 and a concentrator
complex.
For Marikana and Akanani, the recoverable amounts were calculated using
a value in use valuation. The key assumptions contained within the business
forecasts and management's approach to determine appropriate values in use
are set out below:
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 $1,063 to $1,536 per
ounce in real terms over the life of the mine. Palladium
and Rhodium prices are expected to range between $600
to $842 and $764 to $1,251 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 cost 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 Projections are based on the operational plan, which
requirements sets out the long-term plan of the business and is approved
by the Board, and includes capital expenditure to access
reported reserves from existing mining operations as
well as maintenance expenditure.
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.
Discount rate The discount rate is based on a Weighted Average Cost
of Capital (WACC) calculation using the Capital Asset
Pricing Model grossed up to a pre-tax rate. The Group
uses external consultants to calculate an appropriate
WACC.
-------------------------- ---------------------------------------------------------------
For impairment testing, management projects cash flows over the life of
the relevant mining operation which is significantly greater than five years.
For the Marikana CGU a life of mine spanning until 2062 was applied. Whilst
the majority of mining licenses are currently valid until 2037 the Director's
expect the licenses will be renewed until beyond 2062. For the Akanani CGU
the life of mine spans until 2056.
The risk-adjusted pre-tax discount rate applied for impairment testing of
the Marikana CGU for 2016 was 15.6% real (2015 - 15.6% real).
The Akanani asset was fully impaired at 30 September 2015. There have been
no significant changes since that date to lead us to believe that the valuation
of this asset is different. Therefore no full assessment has been performed
at 30 September 2016 as we do not expect a reversal of impairment at this
stage.
The non-financial assets of the Limpopo CGU were also fully impaired at
30 September 2015.
For the 2016 financial year, the Group's non-financial assets were impaired
by $335 million (2015 - $1,811 million) primarily due to the downward revision
of the Rhodium price outlook and the strengthening of the Rand against the
US Dollar since our interim results in March 2016. The impact of these external
factors, despite good progress made in the year against the Business Plan,
led to the value in use declining below the carrying amount of the non-financial
assets of the operations. The impairment charge was allocated as follows:
2016 2015
$m $m $m $m $m
--------- --------- -------- -------- --------
Marikana Marikana Akanani Limpopo
CGU CGU CGU CGU Total
Carrying amount pre-impairment:
Goodwill - 40 - - 40
Other intangibles 91 180 219 53 452
Property, plant and equipment 1,473 2,816 - 74 2,890
Equity accounted investment 24 26 - - 26
Royalty prepayment 37 38 - - 38
--------- --------- -------- -------- --------
Total 1,625 3,100 219 127 3,446
========= ========= ======== ======== ========
Recoverable amount:
Goodwill - - - - -
Other intangibles 72 94 - - 94
Property, plant and equipment 1,157 1,477 - - 1,477
Equity accounted investment 24 26 - - 26
Royalty prepayment 37 38 - - 38
--------- --------- -------- -------- --------
Total 1,290 1,635 - - 1,635
========= ========= ======== ======== ========
Impairment:
Goodwill - (40) - - (40)
Other intangibles (19) (86) (219) (53) (358)
Property, plant and equipment (316) (1,339) - (74) (1,413)
Equity accounted investment - - - - -
Royalty prepayment - - - - -
--------- --------- -------- -------- --------
Total (335) (1,465) (219) (127) (1,811)
========= ========= ======== ======== ========
For the Marikana CGU, the impairment charge was allocated pro-rata to intangibles
and property, plant and equipment, but limited to the assets' recoverable
amounts.
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 amounts of the CGUs would
cause the units' carrying amounts to exceed their recoverable amounts. A
reasonably possible change in any of the assumptions used to value the Marikana
CGU will lead to a reduction or increase in the impairment charge as follows:
Reversal of impairment/(Further
Assumption Movement in assumption impairment)
------------------------ ----------------------- --------------------------------
Metal prices +/-5% $345m/($346m)
ZAR:USD exchange rate -/+5% $267m/($293m)
Discount rate -/+100 basis points $140m/($122m)
Production +/-5% $309m/($313m)
11. Events after the financial reporting period
As announced on 11 November 2016 the Group has into an agreement to acquire
Anglo American Platinum's (AAP) 42.5% of the Pandora Joint Venture which
will increase the Group's ownership of the asset to 92.5%. The consideration
is a cash payment of 20% of the distributable free cash flows generated
by the Pandora E3 operations on an annual basis for a period of six year,
subject to a minimum deferred consideration of R400 million (nominal terms)
which is the expected aggregate consideration. The Group has also entered
into a 36 months rental agreement with Anglo American Platinum for the Baobab
concentrator in the Limpopo, conditional upon the Transaction completing,
whereby AAP will pay Lonmin a rental fee of at least R46 million per year.
The acquisition allows Lonmin to consolidate its position in this relatively
shallow and high-grade mineral resource providing an attractive option for
development by EPL in both the short and longer term. The Pandora JV area
is contiguous with our existing EPL operations, relies on Lonmin's mining
and processing infrastructure and is operated by EPL.
The transaction remains subject to certain conditions precedent including
approval by the competition authorities of the Republic of South Africa;
and all necessary consents being obtained from the Department of Mineral
Resources of South Africa, including section 11 approval for the transfer
of the mining rights. The transaction is also subject to approval by Lonmin's
lending banks and remaining Pandora JV partner, Northam Limited. The transaction
is expected to become unconditional during 2017 following the fulfilment
of all conditions precedent.
12. Statutory Disclosure
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 September 2016 and 2015 but is
derived from those accounts. Statutory accounts for 2015 have been delivered
to the Registrar of Companies and those for 2016 will be delivered in due
course. The auditors have reported on those accounts; their report 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FFWEEDFMSEFF
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November 14, 2016 02:00 ET (07:00 GMT)
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