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LMI Lonmin Plc

75.60
0.00 (0.00%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Lonmin Plc LSE:LMI London Ordinary Share GB00BYSRJ698 ORD USD0.0001
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 75.60 73.70 74.00 0.00 00:00:00
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
0 0 N/A 0

Lonmin PLC Annual Report & 2017 Annual General Meeting (6455S)

22/12/2016 2:45pm

UK Regulatory


Lonmin (LSE:LMI)
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TIDMLMI

RNS Number : 6455S

Lonmin PLC

22 December 2016

22 December 2016

Lonmin Plc ("Lonmin" or the "Company")

Annual Report and 2017 Annual General Meeting

On 14 November 2016 Lonmin announced its Final Results for the year ended 30 September 2016 (the "Final Results Announcement"). The announcement made on that date included inter alia a condensed set of financial statements, a management report and a directors' responsibility statement, all as required by DTR 4.1.

Lonmin has today posted to shareholders and has submitted to the National Storage Mechanism, copies of the following documents:

 
 --  Annual Report and Accounts for the year 
      ended 30 September 2016 (the "Annual Report 
      and Accounts") 
--   Circular relating to the Annual General 
      Meeting to be held on 26 January 2017 
--   Forms of Proxy for shareholders on the 
      UK and SA registers 
 

These documents will shortly be available for inspection on the National Storage Mechanism www.morningstar.co.uk/uk/nsm.

As required by DTR 6.3.5 R (3), the Company confirms that the Annual Report and Accounts and the Circular relating to the Annual General Meeting are now available to view or download in pdf format from the Lonmin website, www.lonmin.com.

The appendix to this announcement contains additional information which has been extracted from the Annual Report and Accounts for the purposes of compliance with DTR 6.3.5 and should be read together with the Final Results Announcement, which can be downloaded from the Company's website, www.lonmin.com. This announcement should be read in conjunction with and is not a substitute for reading the full Annual Report and Accounts. Together these constitute the information required by DTR 6.3.5. which is required to be communicated to the media in full unedited text through a Regulatory Information Service. Page and note references in the text below refer to page numbers and notes in the Annual Report and Accounts:

 
      A statement on the principal risks and 
  --   uncertainties 
--    A statement on related party transactions 
 
S

APPIX

LONMIN'S PRINCIPAL RISKS AND UNCERTAINTIES

These risks have been ranked on a residual basis according to the magnitude of potential impact, probability and taking into account the effectiveness of existing controls. The risks represent a snapshot of the Company's current risk profile. This is not an exhaustive list of all risks the Company faces. As the macro environment changes and country and industry circumstances evolve, new risks may arise or existing risks may recede or the rankings of these risks may change.

 
      1 OPERATIONAL EXECUTION 
------------------------------------------------------------------------ 
      Description 
       Failure to deliver against production and cost 
       targets can result from a variety of reasons, 
       including, poor productivity, high absenteeism, 
       safety stoppages, industrial action, difficult 
       geological conditions as well as ineffective 
       control of operational expenditure. 
 
       Impact 
       Poor operational delivery can lead to not achieving 
       the Business Plan deliverables which includes 
       a decline in profitability and cash generation, 
       which in turn pose threats to our liquidity position 
       and impacts profitability. 
 
       Mitigation 
       Critical measures implemented to address this 
       exposure were: 
        *    Enhanced focus on improving operational attendance 
             levels which included the root cause analysis and 
             mitigation of absenteeism; 
 
 
        *    The rollout of operational performance bonuses at 
             targeted operational levels. Rigorous performance 
             monitoring against business plan targets (cost and 
             production); 
 
 
        *    A more rigorous approvals framework (delegation of 
             authority) was implemented; 
 
 
        *    Continued DMR engagement to address safety stoppages 
             and increased operational focus to improve overall 
             safety performance and culture; 
 
 
        *    Productivity improvement plans have been established 
             to enhance current resource efficiency; 
 
 
        *    Operational oversight was improved through rigorous 
             tracking of crew performance by the Business Support 
             Office; and 
 
 
        *    As part of ensuring that potential operational 
             bottlenecks are managed, the Theory of Constraints 
             method was implemented across various operational 
             areas. 
 
 
       -- 
       Change 
       This risk remains unchanged due to the ongoing 
       impact of the Section 54 operational stoppages 
       experienced as well as other operational challenges 
       experienced. The downside risk was however offset 
       to some extent through the excellent Processing 
       performance during the year. 
------------------------------------------------------------------------ 
      2 PRICE AND MARKET VOLATILITY 
------------------------------------------------------------------------ 
            Description 
             Commodity price and currency volatility exacerbates 
             the uncertainties in managing a mining business. 
             This is especially because mining requires long 
             planning horizons to plan new mines and make 
             decisions regarding the expansion and contraction 
             of existing operations. These decisions often 
             need to be made based on assumptions regarding 
             future metal prices (which drive revenue) and 
             exchange rates (in our case primarily the USD/Rand 
             exchange rate as the majority of our cost and 
             capital expenditure are incurred in South African 
             Rand). When these cash flows are less than anticipated, 
             it can have a significant negative financial 
             impact on the business. 
 
             Impact 
             The uncertainty related to metal price and exchange 
             rate assumptions used in long-term planning can 
             lead to incorrect planning decisions and have 
             negative financial consequences. In addition, 
             volatile metal prices may also affect the decisions 
             made by our customers and may result in them 
             considering substituting our products with other 
             alternatives. 
 
             Mitigation 
             Measures implemented to address exposure: 
              *    Quarterly review of supply and demand dynamics of key 
                   products and the factors that could affect metal 
                   price volatility and forecasting processes; 
 
 
              *    Longer term volume contracts with key customers to 
                   mitigate off-take risk; 
 
 
              *    Weekly short-term cash flow forecasts to manage 
                   liquidity and pro-actively flag negative cash flow 
                   impacts; 
 
 
              *    Monthly Price Risk Committee meetings, as well as 
                   consideration of forward selling and hedging 
                   strategies as and when appropriate; 
 
 
              *    The Company collects market information from a number 
                   of different sources to better understand the supply 
                   and demand dynamics of key products and the factors 
                   that could affect metal price volatility. This 
                   includes the participation in various local and 
                   international Platinum related forums and 
                   associations; This information serves as input to the 
                   forecasting processes; 
 
 
              *    A detailed cost response strategy has been 
                   implemented, including the responsible closure of 
                   Hossy shaft, resizing of concentrator capacity and 
                   all overheads; 
 
 
              *    In addition, the Company has embarked on developing 
                   an in-house market intelligence portal to assist in 
                   improving its ability to forecast prices; and 
 
 
              *    The Company is refocusing its market development 
                   strategy to focus on areas with maximum potential. 
 
 
 
             Change 
             Risk in this area remains unchanged from 2016 
             as metal and currency markets continue to remain 
             volatile accompanied by the significant decline 
             in the platinum price.This was more than offset 
             by the weakening of the Rand. 
------------------------------------------------------------------------ 
      3 EMPLOYEE AND UNION RELATIONS 
------------------------------------------------------------------------ 
            Description 
             The industrial relations environment has stabilised 
             over the last 12 months as evidenced by the improved 
             dialogue between unions and Company management. 
             Whilst the environment has remained stable, the 
             potential for volatility remains, which could 
             result in disruptions to operations and have 
             a material adverse effect on the Company's financial 
             position. 
 
             Impact 
             Various internal as well as external factors 
             could influence the employee relations space 
             and could lead to disruption of operations and 
             breakdown of employer-union relations. 
 
             Mitigation 
             To ensure open and transparent dialogue, appropriate 
             structures have been established to enable effective 
             union engagement across all levels. These structures 
             includes a Future Forum which enabled the consultation 
             process for voluntary severance as well as the 
             Section 189 process. A relationship building 
             programme and charter to govern relations between 
             unions and the Company have been established. 
             As part of enhancing employee ownership, a Employee 
             Profit Share Scheme has been established. 
 
             Change 
             The Industrial Relations environment has improved 
             as the Company concluded a three-year wage agreement. 
------------------------------------------------------------------------ 
      4 SAFETY PERFORMANCE 
------------------------------------------------------------------------ 
            Description 
             Employee injuries and / or work stoppages due 
             to Section 54's will impact the Company's ability 
             to achieve production and financial targets. 
 
             Impact 
             Poor safety performance has a direct impact on 
             the life of employees, contractors and their 
             families and risks such as fall-of-ground, tramming, 
             working at heights, scraping and rigging incidents, 
             exposure to gases, fire, molten metal, electrocution 
             and many other hazards have to be controlled 
             to reduce and eliminate fatalities and injuries. 
             A failure in safety processes could result in 
             injury or loss of life, which would have tragic 
             implications for employees, their families and 
             the communities. It would also severely disrupt 
             operations and could result in safety stoppages 
             which have a direct impact on the people, cost 
             and reputation. The failures in safety procedures 
             may be caused by employees or poor management 
             practices. DMR could also temporarily suspend 
             part or all of the operations under the Mine 
             Health and Safety Act (commonly referred to as 
             a Section 54 stoppage) and this have an impact 
             on the working rhythm, cost and production. This 
             suspension could potentially result in Lonmin's 
             Operating licence becoming under scrutiny by 
             the regulator. 
 
             Mitigation 
             Safety awareness and training such as rollout 
             of the Du Pont leadership programme, called the 
             Lonmin Safety Leadership DNA programme. This 
             programme develops individual's safety competencies, 
             knowledge of the safety theory, how to apply 
             it and practise 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 16 'train the trainers' candidates. 
             Safety Improvement Plans are being implemented 
             with an enhanced focus on accident analysis and 
             pro-active preventive measures. Visible Felt 
             Leadership (VSL) is such a pro-active measure 
             which has been accelerated during this year. 
             VSL is senior management being visible in the 
             operational areas confirming that safety is a 
             core belief and showing passion to work safely. 
             Safety audits are also conducted and include 
             internal and external audits that measure the 
             safety maturity of each operational business 
             unit. Cross-site safety audits support learnings 
             across the operations and the sharing of best 
             practices. 
 
             Change 
             Collaboration between Lonmin, the regulator and 
             unions have started to show results, as we have 
             experienced a reduction in the duration and frequency 
             of Section 54 stoppages and more localised application 
             of the stoppages in the fourth quarter on the 
             year. 
------------------------------------------------------------------------ 
      5 COMMUNITY RELATIONS 
------------------------------------------------------------------------ 
            Description 
             Mining is conducted in areas where communities 
             are present and the communities have various 
             expectations of the mines, such as employment 
             opportunities, socio-infrastructure support and 
             business opportunities. When these expectations 
             are not met, it may result in conflict and unrest. 
 
             Impact 
             As many of our employees live locally, any disruptions 
             within the communities can have a direct impact 
             upon production. The failure to deliver social 
             upliftment projects, triggering protests or violence 
             and corporate reputational damage can result, 
             if the relationship with these stakeholders is 
             not managed effectively. Lonmin has acknowledged 
             the important role of communities as a critical 
             stakeholder and has implemented various engagement 
             platforms and development initiatives to ensure 
             appropriate upliftment. Procurement has become 
             another focus area as communities view it as 
             an opportunity to improve their livelihood through 
             improved income. Lonmin has identified this need 
             and has introduced procurement opportunities 
             for communities. 
 
             Mitigation 
             The development of a revised stakeholder strategy 
             with emphasis on continuous engagement at all 
             levels and all communities (Bapo and non-Bapo 
             communities) as well as involvement of the communities 
             in the implementation of the SLP. Greater consultation 
             with stakeholders which includes upliftment measures 
             to be initiated. This approach has increased 
             community ownership of both the challenges facing 
             communities and the solutions provided as part 
             of the SLP implementation plan. 
 
             As part of enhancing relations with communities, 
             the Company has reviewed its engagement process 
             and implemented a revised stakeholder management 
             process. In order to improve governance and project 
             execution of community related investments, a 
             procurement framework with appropriate project 
             management office capabilities have been established. 
 
             Other aspects of community investment included 
             the establishment of a Cadette Training programme 
             as part of the Company enhancing its potential 
             future employment capacity. Formal engagement 
             structures have also been established in the 
             form of bilateral forums with Bapo, Madibeng 
             and Rustenburg communities. The engagement meetings 
             addresses employment, economic development, community 
             infrastructure programmes and the SLP status. 
             The transaction with Bapo Ba Mogale resulted 
             in community trusts being entitled to a minimum 
             of R5 million per annum and the provision of 
             R1.65 billion worth of procurement contracts. 
 
             Change 
             Our relationships with local communities that 
             surround our operations have improved tremendously 
             since the 2014 transaction. However, the socioeconomic 
             challenges that face the Bojanala district in 
             which Lonmin resides, have put a lot of pressure 
             on the community and its leadership to an extent 
             that the gains seem to be eroded by the challenges. 
             The procurement opportunities given to the Bapo 
             community, particularly the visible bus service, 
             have given hope to the communities that Lonmin 
             is keeping its promises. The level of trust between 
             the communities and Lonmin has improved significantly. 
             Despite this, Lonmin strives for improvement 
             with pressure from the regulator as well as access 
             to opportunities through local procurement. Lonmin 
             needs to develop and implement a clear strategy 
             around this, to meet local and DMR expectations. 
------------------------------------------------------------------------ 
      6 UTILITIES 
------------------------------------------------------------------------ 
            Description 
             The higher than inflation tariff based increases 
             in electricity and the Company's inability to 
             reduce this cost any further, have impacted the 
             operating costs of Company operations. A stable 
             electricity environment, in terms of pricing 
             is critical in ensuring its long-term sustainability. 
             Water utilisation has also been challenging, 
             both from an infrastructure point of view as 
             well as availability. Capacity deterioration 
             within local municipalities is also adding to 
             this challenge. The establishment of informal 
             settlements resulted in communities requesting 
             water and electricity supply as a basic need 
             and keeps adding to the burden of local municipalities 
             and industries for service delivery. 
 
             Impact 
             Supply constraints in respect of energy or water 
             could impact upon our ability to operate effectively 
             and meet our production targets. Furthermore, 
             cost increases in respect of these utilities 
             impact our margins. Water availability is becoming 
             a critical component of any business to survive 
             and still remains a basic human need. 
 
             Mitigation 
             Ongoing implementation of the electricity conservation 
             programme as well as water optimisation through 
             demand management. An integrated water management 
             plan for Lonmin has been developed with the goal 
             to reduce Rand Water reliance as far as possible, 
             within the operations, and to maximise the recovery 
             and re-use of all other sources of water. Longer 
             term plans to treat some streams of these alternative 
             sources to potable level to make the business 
             more independent of Rand Water. Explore further 
             opportunity to supply communities out of such 
             streams. As part of ensuring optimal electricity 
             usage, Lonmin is a member of the Eskom energy 
             intensive user groups, as well as conducts Monthly 
             and Daily electricity consumption and reporting. 
             Additional initiatives to ensure optimal usage 
             is the Electricity conservation programme and 
             loadshedding contractual agreements to manage 
             supply side constraints. As part of ensuring 
             appropriate continuity during an outage, the 
             Company has implemented risk based scenario planning 
             based on available Eskom capacity. From a water 
             optimisation perspective, the Company has implemented 
             water conservation and demand management initiatives. 
             The process as to how water is being monitored 
             and managed is aligned with how power is being 
             managed in the business. 
 
             Change 
             Current supply constraints and proposed tariff 
             increases in respect of energy and water have 
             a significant impact on the Company's ability 
             to operate effectively and to meet our production 
             targets. From an energy perspective the risk 
             in this area remains unchanged due to aging power 
             stations that could result in an increase in 
             the amount of unplanned outages, however from 
             a water perspective it has increased due to lower 
             precipitation levels and ongoing impact of climate 
             change. 
------------------------------------------------------------------------ 
      7 CHANGES TO THE POLITICAL, LEGAL, SOCIAL AND 
       ECONOMIC ENVIRONMENT 
------------------------------------------------------------------------ 
            Description 
             The Company is subject to the risks associated 
             with conducting business in South Africa, including 
             but not limited to changes to the country's laws 
             and policies regarding taxation, royalties, divestment, 
             repatriation of capital and resource nationalism. 
             The latter is a broad term that describes the 
             situation where a government attempts to assert 
             increased authority, control and ownership over 
             the natural resources located in its jurisdiction. 
 
             The MPRDA Amendment Bill currently remains the 
             subject of Parliamentary debate. In particular, 
             beneficiation is a major consideration with the 
             Bill proposing that the Minister be granted a 
             discretion to declare certain minerals as strategic, 
             that the Minister determine what percentage of 
             strategic minerals are to be made available locally 
             and the developmental price at which strategic 
             minerals are to be sold, as well as the Minister 
             being able to determine the conditions applicable 
             to export permits. In addition, the Davis Commission 
             is currently looking at the tax regime with a 
             view to determining whether additional taxes 
             including a carbon tax should be imposed on mining 
             companies. The mining industry is also awaiting 
             clarity of the interpretation of the applicability 
             of the "Once Empowered Always Empowered (OEAE)" 
             principle. Currently engagements on not only 
             the OEAE principle, but the new Mining Charter 
             are taking place. The DMR has also recently come 
             under pressure to demonstrate that it is taking 
             action to monitor compliance with undertakings 
             made in the SLP's submitted by mining companies. 
             This has led to the DMR issuing s93 Notices to 
             mining companies on a more regular basis. Lonmin 
             has received s93 notices in respect of its Housing 
             and Living Conditions obligations and continues 
             to engage with the DMR to reach a constructive 
             solution. In addition, the Department of Trade 
             and Industry is attempting to legislate a policy 
             of creating black industrialists. 
 
             Impact 
             The ongoing debates in respect of resource nationalism 
             have created policy uncertainty and this has 
             inevitably led to a decline in investor appetite 
             for South African investment risk. If some of 
             the issues under consideration are implemented, 
             this could have a material adverse effect on 
             the Group's future. For example, profits could 
             be negatively impacted by the imposition of additional 
             taxes and revenue could be impacted by the sale 
             of metals at discounted developmental prices. 
             The obligation to sell locally could impact long-term 
             supply agreements with our customers and give 
             rise to concerns about security of supply from 
             South Africa, potentially expediting the growth 
             of the recycling industry and increasing substitution 
             concerns. 
 
             Mitigation 
             Lonmin participation in the Chamber of Mines 
             process to engage the DMR with regards to concerns 
             regarding the revised Mining Charter, as well 
             as broad engagement with government regarding 
             this exposure. Appropriate governance structures 
             in the form of Executive and Board Committees 
             are being established to ensure ongoing reporting 
             of progress against agreed SLP targets. Bilateral 
             and industry level discussions with the DMR and 
             other government agencies are ongoing. Lonmin 
             and other mining companies are continuing to 
             engage with the South African government and 
             the broader community in order to raise awareness 
             of the risks associated with resource nationalism. 
 
             Change 
             The risk in this area has increased due to uncertainty 
             regarding certain policy decisions i.e. BEE requirements 
             and strategic minerals. Other factors include 
             the impact of political party actions, as well 
             as the lack of clarity in terms of our social 
             licence to operate. 
------------------------------------------------------------------------ 
      8 LACK OF GEOGRAPHICAL AND PRODUCT DIVERSIFICATION 
------------------------------------------------------------------------ 
            Description 
             Lonmin's principal operating subsidiaries are 
             concentrated in one geographical location, which 
             increases the level of risk of localised disruptions 
             having an impact on the majority of our operations. 
             In addition, Lonmin is a PGM producer and does 
             not have exposure to other commodities or sectors. 
 
             Impact 
             Local events in the vicinity of Marikana have 
             the potential to disrupt Lonmin's operations 
             in this area, which represent all of the Company's 
             operating mines as well as the majority of our 
             processing operations. Such a disruption could 
             significantly impact the Group's operating and 
             financial performance. 
 
             The Group is also a focused PGM producer and 
             is not exposed to other commodities. In times 
             when the PGM market is depressed the Company's 
             financial performance is likely to be negatively 
             impacted as it does not have exposure to alternative 
             commodities that may have a different economic 
             cycle and offset this PGM pricing weakness. 
 
             Mitigation Plans 
             The Company continues to review its portfolio 
             of projects, which includes Limpopo and Akanani. 
             These projects are located in other parts of 
             South Africa and if developed would provide some 
             degree of geographic diversification. Other opportunities 
             that could mitigate the risk arising from lack 
             of geographical and product diversification are 
             also reviewed from time to time. 
 
             Change 
             The risk remain unchanged due to concentration 
             risk of Marikana Operations. 
------------------------------------------------------------------------ 
      9 LOSS OF CRITICAL SKILLS 
------------------------------------------------------------------------ 
            Description 
             Due to the depressed mining sector, the risk 
             of the loss of critical skills remains high. 
             Uncertainties related to a Company's financing 
             and sustainability following the recapitalisation 
             of the business earlier this year contributed 
             to employees looking for new opportunities. 
 
             Impact 
             The loss of critical skills could negatively 
             impact safety, production and the ability to 
             deliver against targets. In order to retain our 
             skilled labour, we continuously review market 
             related remuneration packages as compared to 
             the incentive and retention schemes offered by 
             Lonmin. This continuous monitoring of remuneration 
             practices and matching the packages offered by 
             our peers in order to attract and retain employees 
             of a suitable calibre can result in increased 
             costs. 
 
             Mitigation 
             Implementation of a scheme to retain key critical 
             skills. Ongoing review and analysis of our remuneration 
             practices in order to ensure that we remain competitive 
             and are able to attract and retain the skills 
             required during this challenging time. We also 
             use counter-offers selectively in order to retain 
             the most critical employees. The implementation 
             of an employee value proposition which focuses 
             on employee wellbeing. 
 
             As part of ensuring the development and retention 
             of critical skills Individual Development Plans, 
             succession planning and retention strategies 
             for scarce skills have been established. Ongoing 
             monitoring of remuneration practices which matches 
             Lonmin peers are monitored in an ongoing manner. 
             Graduate development, mentorship programmes and 
             internship programmes have also been established 
             to ensure development of existing and future 
             human resources capacity. 
 
             Change 
             The risk remains high despite a general high 
             number of job losses in the mining sector. One 
             is not always able to replace critical skills 
             who understand the business and the environment 
             with resources available in the market and therefore 
             it remains a key risk to the organisation. 
------------------------------------------------------------------------ 
 

TRANSACTIONS WITH RELATED PARTIES

The Group has a related party relationship with its Directors and key management (as disclosed in the Remuneration Report and in note 5) and its equity accounted investments (note 13).

The Group's related party transactions and balances are summarised below:

 
 
                                     2016    2015 
                                      $m      $m 
---------------------------------  ------  ------ 
 Transactions: 
 Purchases from joint venture 
  - Pandora                         15      30 
 Amounts due from joint 
  venture - Pandora                 5       8 
 Amounts due from associate 
  - Incwala                         1       1 
 Dividends to minorities 
  - Incwala(i)                      19      37 
 Interest accrued from 
  HDSA investors in Incwala         20      18 
 Subscription paid to the 
  Platinum Jewellery Development 
  Association(ii)                   10      9 
 Balances: 
  Amounts due from HDSA 
  investors in Incwala(iii)           409     417 
=================================  ======  ====== 
 
 

All related party transactions are priced on an arm's length basis.

Footnotes:

i These advance dividend payments were made by a Group company, WPL, to Incwala Platinum (Proprietary) Limited (IP) as explained in note 9.

ii The subscription paid by Lonmin is material to the Platinum Jewellery Development Association of which Lonmin is a member.

iii Refer to note 14 for details regarding the amounts due from HDSA investors in Incwala. This amount is before deducting the accumulated

impairment charge of $307 million.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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