Lonmin PLC Update on Trading, Business Plan and Funding (9007C)

TIDMLMI

RNS Number : 9007C

Lonmin PLC

21 October 2015

Lonmin Plc

4 Grosvenor Place

London SW1X 7YL

United Kingdom

T: [phone]

F: [phone]

www.lonmin.com

REGULATORY RELEASE

21 October 2015

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, INTO OR WITHIN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL. THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS.

Update on year end trading, Business Plan and funding strategy

1. Summary

Lonmin Plc ("Lonmin" or, together with its subsidiaries, the "Group"), a primary platinum producer, announces a trading update for the year ended 30 September 2015, Lonmin's business plan (the "Business Plan") and the Board's funding strategy.

Lonmin is taking action to mitigate the effects of the current low PGM pricing environment. The Board is pleased to announce that, on an unaudited basis, the unit cost of production of approximately ZAR10,339 per PGM ounce is expected to be achieved for the year ended 30 September 2015, well within the original guidance of ZAR10,800 per PGM ounce. Capital expenditure for the year has also been tightly controlled. On an unaudited basis, Lonmin's capital expenditure for the year ended 30 September 2015 was US$136 million, compared with its original guidance of US$250 million. On an unaudited basis, net debt as at 30 September 2015 amounted to US$185 million, compared to US$282 million as at 31 March 2015.

The Board and executive management have reviewed the Group's business and capital structure and developed the Business Plan in order to be able to deal effectively with the effects of a continuation of the current low PGM pricing environment.

The Business Plan will accelerate the implementation of Lonmin's published strategy to control costs, reduce capital expenditure and enable decisive measures to be taken. The Business Plan aims to achieve positive cash flow after capital expenditure in the current low PGM pricing environment while preserving the ability of the Group to increase its production as and when PGM prices improve.

The Board intends to raise approximately US$400 million in gross proceeds through a rights issue (the "Proposed Rights Issue"), and, at the same time, enter into amended debt facilities (the "Amended Debt Facilities") with its lending banks for a total of US$370 million, maturing in May 2020, conditional on credit committee approvals, on full documentation being agreed, on the Group raising a further US$400 million in new equity funding and other customary provisions. The Amended Debt Facilities will replace the existing debt facilities commitments which as at 30 September 2015 were approximately US$543 million and which are maturing in May and June 2016 (the "Existing Debt Facilities").

Key terms have been agreed in principle commercially with the Group's lending banks to provide the Amended Debt Facilities of US$370 million maturing in May 2020, conditional on credit committee approvals, on full documentation being agreed, on the Group raising a further US$400 million in new equity funding and other customary provisions.

The Board believes that the Proposed Rights Issue and the Amended Debt Facilities taken together will strengthen the business and provide the Group with sufficient resources for working capital and capital expenditure to sustain the business in an ongoing low PGM pricing environment.

The Board intends to announce on 9 November 2015 the full terms of the Proposed Rights Issue to provide the new equity funding required of US$400 million and to publish a prospectus and the audited results for the Group for the year ended 30 September 2015. The Proposed Rights Issue is expected to be underwritten on 9 November 2015, inter-conditional with the Amended Debt Facilities. In order to be able to close the Proposed Rights Issue before the end of the year, the Board intends to give notice to shareholders on 2 November 2015 of a general meeting expected to be held on 19 November 2015, at which resolutions will be proposed which, if passed by the shareholders, will enable the Proposed Rights Issue to proceed.

The Public Investment Corporation, which holds approximately seven per cent. of the issued share capital of Lonmin, has indicated to the Board its intention to take up its entitlement in full in the Proposed Rights Issue and, subject to satisfactory investment committee approvals and documentation, to sub underwrite a material portion of the Proposed Rights Issue in excess of its entitlement.

Lonmin's reduced production profile due to the low PGM pricing environment may lead to job losses in line with the reduced production profile. In this regard, the Public Investment Corporation and Lonmin will work together and collaborate with government and unions on alternatives to minimise the impact of job losses at Lonmin by finding alternative economic participation for some of the retrenched employees, for example through agricultural projects in labour sending areas.

2. Trading update for the year ended 30 September 2015

On an unaudited basis, Lonmin's sales of platinum exceeded its guidance for the year ended 30 September 2015, achieving sales of 751,560 platinum ounces compared to forecast guidance of 730,000 platinum ounces. The Group achieved mined production of approximately 704,000 platinum ounces, after taking into account approximately 48,000 platinum ounces of production lost as a result of section 54 safety stoppages. Total platinum metal in concentrate for the year ended 30 September 2015 was 740,315 saleable platinum ounces.

Lonmin took early decisive action to reduce costs and capital expenditure to preserve cash. As a result, on an unaudited basis, the unit cost of production of approximately ZAR10,339 per PGM ounce is expected to be achieved for the year ended 30 September 2015, well within the original guidance of ZAR10,800 per PGM ounce despite the section 54 safety stoppages. On an unaudited basis, capital expenditure for the year ended 30 September 2015 was US$136 million, compared to original guidance of US$250 million. The US$/ZAR exchange rate further benefited the capital expenditure reduction.

On an unaudited basis, net debt as at 30 September 2015 amounted to US$185 million compared to US$282 million as at 31 March 2015 and US$29 million as at 30 September 2014.

The restructuring programme started with the freezing of general recruitment and natural attrition to reduce workforce levels. In addition, over 1,550 employees had left the Group through voluntary separations and early retirement by 16 October 2015. In total, approximately 6,000 employees, including contractors, are affected by the right-sizing of the Group and the restructuring programme is expected to be completed by the end of September 2016. Full provision as a Special cost is expected to be made in the 2015 accounts for the estimated one-off retrenchment and associated restructuring costs of approximately ZAR0.8 billion, on an unaudited basis, in respect of the affected employees.

Good progress is being made with the section 189 consultation process. In the interest of ensuring timely consultations, Lonmin is running two concurrent consultation processes; one with the Association of Mineworkers and Construction Union (AMCU), the majority union, and a second process with the other unions and non-unionised employees. Both processes are being facilitated by the Commission for Conciliation, Mediation and Arbitration (CCMA). The consultation period has been extended by mutual agreement of all relevant stakeholders to enable full exploration of all alternatives to forced retrenchments.

Lonmin expects to announce its fourth quarter production report on 2 November 2015 and its full year audited results for the year ended 30 September 2015 on 9 November 2015.

3. The Business Plan

The Board and executive management have undertaken a detailed review of the Group's business and capital structure and set out the Business Plan to manage the effects of the continuing low PGM pricing environment and to ensure that Lonmin is prudently structured to withstand the current weak PGM market and safeguard the long-term interests of the shareholders, employees and other key stakeholders.

The Business Plan has been developed to reduce fixed cost expenses, remove high-cost PGM production ounces and reduce capital expenditure to the minimum required for the safe and efficient running of the Group's operations, while preserving the ability of the Group to increase its production when PGM prices improve. The Group aims to continue to preserve cash with the objective of achieving a cash flow positive position after capital expenditure despite the current low PGM pricing environment. The key elements of the Business Plan are:

-- Reducing capital expenditure - Comprehensive assessment of capital projects has been undertaken with the aim of limiting capital expenditure to levels required to satisfy regulatory and safety standards and essential sustaining capital expenditure in the continuing shafts and for a limited number of development projects. Capital portfolio optimisation tools have been utilised with the aim of ensuring that capital expenditure is invested only in the most valuable development projects available to the Group. The Group expects to limit its capital expenditure to approximately US$132 million, US$110 million and US$188 million for the years ending 30 September 2016, 2017 and 2018, respectively.

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-- Removing high cost production: Following a shaft-by-shaft analysis, Lonmin decided to reduce high cost production ounces to improve the Group's profitability and cash flows. The Group plans to carry out the orderly closure and placement on care and maintenance of two shafts, Newman and Hossy, by stopping development and capital work and only mining immediately available ore reserves. The Group also plans to close and place on care and maintenance the 1B shaft as soon as possible. Following renegotiation of ore purchase agreements between the Group and contractor management on more favourable terms, and subject to a favourable outcome of the section 189 consultation process, mining at E1 and W1 shafts will continue for the year ending 30 September 2016, and these shafts will not be placed on care and maintenance as previously announced in July 2015. Lonmin plans to reassess the viability of continuing to mine these shafts at the end of September 2016. In addition, the Group is in negotiations with third parties regarding the funding and commissioning of a bulk tailings treatment project. The K4 shaft will remain on care and maintenance for the time being. As a result, Lonmin expects that the sales profile for the Group will be approximately 700,000 platinum ounces for the year ending 30 September 2016, with approximately 650,000 platinum ounces for each of the years ending 30 September 2017 and 2018.

-- Protecting jobs in the low PGM price environment: Lonmin employed some 38,000 people, including contractors, as at 30 September 2014 and through the Chamber of Mines is a signatory to the Mining Leadership Declaration agreement to ameliorate job losses. It is the Board's objective to protect the majority of those jobs over the long term by ensuring that the Group can deal effectively with the sustained low PGM pricing environment. As part of right-sizing the business in line with the reduced production profile as a consequence of the continuing low pricing environment, approximately 6,000 employees and contractors are affected. The Group aims to complete the process by the end of September 2016.

-- Reducing overhead and support service structures: New measures identified as part of the Business Plan for overhead and support services will remove associated overhead costs, including the decommissioning of a concentrator and the revision of all incentive schemes to encourage production efficiencies and to ensure that bonus and incentives schemes are self-funding. Annual bonuses to management level employees for the year ended 30 September 2015 have been waived. In addition, no salary increases have been granted to management for the year ending 30 September 2016. Marketing and promotional expenses, as well as discretionary spending on training, are being reduced.

The Board believes that the implementation of the Business Plan will result in a cost reduction of approximately ZAR0.7 billion in financial year 2016 (against the annual cost base for the year ended 30 September 2015, unaudited) and a further cost reduction of approximately ZAR1.6 billion in financial year 2017 (against the forecast annual cost base for the year ended 30 September 2016). The Group aims to keep its unit costs per PGM ounce in nominal terms broadly flat in line with the year ended 30 September 2015, for the years ending 30 September 2016, 2017 and 2018.

4. Funding Strategy

The Board has also reviewed the funding requirements of the Group.

Key terms have been agreed in principle commercially with the Group's lending banks to provide Amended Debt Facilities of US$370 million maturing in May 2020, conditional on credit committee approvals, on full documentation being agreed, on the Group raising a further US$400 million in new equity funding and other customary provisions.

The Board intends to announce full terms of an underwritten Proposed Rights Issue to raise US$400 million and to publish a prospectus in relation to the Proposed Rights Issue at the time of publication of the Group's audited results on 9 November 2015. The Proposed Rights Issue will be conditional on inter alia shareholder approval and other customary provisions. In order to be able to close the Proposed Rights Issue by the end of 2015, the Board intends to give notice to shareholders on 2 November 2015 of a general meeting expected to be held on 19 November 2015, at which resolutions will be proposed which, if passed by shareholders, will enable the Proposed Rights Issue to proceed. The net proceeds of the Proposed Rights Issue will strengthen the Group's balance sheet and be deployed towards funding capital expenditure, right-sizing the business to reduce costs and working capital.

The Board will keep shareholders and the market updated with progress in due course.

- ENDS -

ENQUIRIES

Investors / Analysts:

Lonmin

 
 Tanya Chikanza (Head of Investor    [phone] 
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Media:

 
 Cardew Group 
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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. Lonmin's mining operations extract ore from which the processing operations produce refined PGMs for delivery to customers. Underpinning the operations is the shared services function which provides support and infrastructure across the operations.

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

This announcement includes forward-looking statements. All statements other than statements of historical fact included in this announcement, including without limitation those regarding Lonmin's plans, objectives and expected performance, are forward-looking statements. Lonmin has based these forward-looking statements on its current expectations and projections about future events, including numerous assumptions regarding its present and future business strategies, operations, and the environment in which it will operate in the future. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "could", "would", "expect", "intend", "estimate", "anticipate", "believe", "plan", "aim" or "continue", or, in each case, their negative, or other variations or comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors related to Lonmin, including, among other factors: (1) material adverse changes in economic conditions generally or in relevant markets or industries in particular; (2) fluctuations in demand and pricing in the mineral resource industry and fluctuations in exchange rates; (3) future regulatory and legislative actions and conditions affecting Lonmin's operating areas; (4) obtaining and retaining skilled workers and key executives; and (5) acts of war and terrorism. By their nature, forward-looking statements involve risks, uncertainties and assumptions and many relate to factors which are beyond Lonmin's control, such as future market conditions and the behaviour of other market participants. Actual results may differ materially from those expressed in forward-looking statements. Given these risks, uncertainties, and assumptions, you are cautioned not to put undue reliance on any forward-looking statements. In addition, the inclusion of such forward-looking statements should under no circumstances be regarded as a representation by Lonmin that Lonmin will achieve any results set out in such statements or that the underlying assumptions used will in fact be the case. Other than as required by applicable law or the applicable rules of any exchange on which Lonmin's securities (the "Securities") may be listed, Lonmin has no intention or obligation to update or revise any forward-looking statements included in this announcement after the publication of this announcement.

This announcement is an advertisement and not a prospectus. It does not constitute, or form part of, an offer to sell or a solicitation of any offer to buy the securities of the Company and investors should not subscribe for or purchase any shares referred to in this announcement except on the basis of information in the prospectus to be published by the Company in due course in connection with the Proposed Rights Issue, and any supplement or amendment thereto (the "Prospectus"). Copies of the Prospectus will, following publication, be available from the Company's registered office.

This announcement is not an offer to sell or a solicitation of any offer to buy any Securities in the United States, Australia, Canada, Japan or in any other jurisdiction where such offer or sale would be unlawful or to any person to whom it would be unlawful to make such offer or solicitation.

The Securities have not been and will not be registered under the US Securities Act of 1933 (the "Securities Act"), or with any securities regulatory authority of any State or other jurisdiction of the United States, and may not be offered, sold, resold, pledged, taken up, exercised, renounced or otherwise delivered, distributed or transferred, directly or indirectly, into or within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any State or other jurisdiction of the United States. No public offering of the Securities is being made in the United States.

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