www.lonmin.com Annual Report and Accounts Lonmin Plc Annual Report and Accounts for the year ended 30 September 2009 For the year ended 30 September 2009 Preparing for recovery… Lonmin Plc Lonmin Plc Registered in England, Company Number 103002 Registered Office: 4 Grosvenor Place, London SW1X 7YL 01 Lonmin at a Glance 02 2009 Features 04 Chairman’s Letter 06 Chief Executive’s Review 10 Operational Review 16 Reserves and Resources 18 Financial Review 26 Internal Controls and Risk Management 30 Key Performance Indicators 32 Sustainable Development Review 52 Board of Directors 54 Executive Committee 55 Directors’ Report – Governance 72 Remuneration Committee Report 90 Independent Auditors’ Report 91 Responsibility Statement of the Directors in respect of the Annual Report and Accounts 92 Consolidated Financial Statements 95 Notes to the Accounts 130 Company Accounts and Notes 137 Consolidated Group Five Year Financial Record 138 Operating Statistics 140 Shareholder Information 141 Corporate Information 142 Financial Calendar for 2010 143 Lonmin Charter 2009 Annual Report and Accounts / Lonmin Plc LONMIN IS THE WORLD’S THIRD LARGEST PRIMARY Directors’ Report – Business Review PRODUCER OF PLATINUM GROUP METALS. Lonmin at a Glance Directors’ Report – Governance • World’s 3rd largest primary producer of Platinum and Platinum Group Metals (PGMs) and one of only three such mine-to-market PGM producers • Marikana – key operating asset with 12 shafts and inclines, supported by concentrating, smelting and refining capability Financial Statements • Total attributable resources of 178 million PGM ounces, including total attributable reserves of 45 million PGM ounces • Around 22,000 full time employees as at 30 September 2009 • Listed on the London and Johannesburg Stock Exchanges Operating Statistics Shareholder Information www.lonmin.com 01 2009 Features • Safety performance continues to improve – Lost Time Injuries fell 8% • Platinum sales of 682,955 ounces, PGM sales of 1,268,918 ounces • Metal in concentrate production of 663,101 ounces of Platinum and 1,249,214 ounces of total PGMs • Revenue of $1.1 billion • Rand gross operating costs of R8.8 billion – lower than market guidance • Underlying Loss Before Interest and Tax of $(93) million • Underlying loss per share of (59.2) cents • Successful completion of $458 million Rights Issue • Net debt reduced by $190 million to $113 million Platinum sales Underlying EBITi 1,000 1,000 963 940 910 800 800 830 796 794 727 683 600 600 $m 400 400 Ounces (000’s) 362 200 200 0 0 (93) 05 06 07 08 09 Financial year 05 06 07 0908 Financial year Revenue LTIFRii 2,300 20 2,231 18.10 1,840 1,941 16 1,855 1,380 12 12.50 $m 10.80 1,128 920 1,062 8 6.27 6.21 460 Per million hours worked 4 0 0 05 06 07 08 09 05 06 07 08 09 Financial year Financial year i Underlying EBIT is calculated on profit for the period excluding special items, as noted on page 92 of this Report ii Lost time injury frequency rate, as measured per million hours worked, is a key safety performance indicator 02 2009 Annual Report and Accounts / Lonmin Plc 2009 SAW SIGNIFICANT STEPS IN ACHIEVING OUR OBJECTIVE OF Directors’ Report – Business Review RESTORING LONMIN’S OPERATIONAL HEALTH. FULLY ACHIEVING THIS OBJECTIVE WILL ENSURE WE ARE WELL POSITIONED TO DELIVER FUTURE GROWTH. Preparing for recovery Directors’ Report – Governance Management actions taken in 2009: • Non-value adding ounces eliminated; • Major cost restructuring programme completed; • Improvements to the operational health of the business; • Balance Sheet strengthened; and • Operational headquarters and executive management team to be relocated to South Africa. Financial Statements Key focus areas in 2010 and beyond: • Completing the restoration of Lonmin’s operational health; • Delivering safe organic growth; • Ensuring balance between capital investment requirements and the need to maintain a strong balance sheet; and • Improving our position on the cost curve. Operating Statistics Shareholder Information “THE DIRECTION OF TRAVEL IS POSITIVE – LONMIN IS WELL POSITIONED FOR THE MARKET RECOVERY” www.lonmin.com 03 Chairman’s Letter Dear Shareholders, government. In this context it is however inescapable that the economic realities imposed by metal pricing, currency Overview of the year exchange rates and general financial conditions – none My first year as Chairman of Lonmin Plc has been an of which the Company can control – can have profound eventful and challenging one. The business has operated effects on the rate at which mutual aspirations can in an extremely difficult pricing and currency environment be realised. with the average US Dollar basket price per PGM ounce Relations with our employees are of paramount sold some 49% lower than last year. As a result, our importance, and we put on record our appreciation of revenues declined dramatically by over 50% or $1.2 billion. the constructive behaviour of our employees, the trade The first signs that this revenue collapse was a unions, and indeed government, in the extensive and possibility occurred very early in the year and management painful restructuring exercise conducted in the early took immediate decisive action through the closure of months of the year. Constructive engagement also forms unprofitable operations, the reduction of costs and the the basis of our current wage negotiations: industry restriction of capital expenditure. This was followed by settlements to date have been in excess of inflation the strengthening of our funding position and then our despite the harsh revenue environment and lack of balance sheet to position us to weather the storm. profitability. The long term health of the industry generally, Overall, under Ian Farmer’s leadership, the and Lonmin in particular, depends on an appropriate management team has made good progress in the drive balance being reached between increased wage awards, to restore the operational health of the business. The productivity improvements and the imperative of strong focus on operational stability and discipline has profitability to enable the business to invest for growth brought increased rigour to the setting of targets and the and earn appropriate shareholder returns. monitoring of performances against them. It is pleasing Lonmin believes that it can, and should, operate as a to report that in the 2009 financial year we were largely zero-harm business and strives in every way to improve successful in delivering against our key targets: continuously its safety performance, acknowledging that • Marikana platinum sales: were only 2% below our its business is inherently hazardous. It is a matter of the target set at the start of the year; deepest regret that three employees lost their lives during • Costs: Rand gross operating costs were lower than the year and I would like to convey our sincerest our original guidance as well as our updated and condolences to their families. The very considerable more challenging guidance set in May 2009, and improvement in our safety performance achieved over crucially were lower than in the previous financial year; recent years slowed slightly in 2009, partly due to the • Restructuring: we achieved $64 million of cost disruption to operations caused by the extensive savings in the second half of 2009 as a result of the restructuring exercise, which reduced employment levels restructuring programme, ahead of our initial by some 20%. annualised target of $90 million; We support fully the attention paid by the Department • Productivity and production: by the end of the year of Mineral Resources to enforcing improvement in the at our Mining business, Hossy and Saffy had both design and application of safety standards in the industry. achieved their published productivity and production Our operations have been much affected during the year targets and we made good progress in restoring ore by this increased attention, and production stoppages as reserve development. At our Process Division, a result of Section 54 safety notifications caused the loss monthly recoveries improved materially; and of some 30,000 Platinum ounces, or 5% of underground • Balance sheet: capital expenditure for 2009 and year production, in 2009. This is a high economic cost end net debt were both within market guidance. specifically to the Company but no less to the nation, due to the reduction in foreign exchange and tax receipts. While so much has been achieved in a short time, it There is an argument for the Department of Mineral was disappointing that difficulties were again experienced Resources to sponsor and lead a co-operative process with the Number One furnace, which was taken out of with PGM producers and organised labour to agree operation for a period towards the end of the financial procedures to achieve a consistent application of year and subsequently operated at reduced capacity. monitoring measures and remedies, without jeopardising There is much to be done before the operational the pursuit of improved safety and reasonable economic health of Lonmin is fully restored. This must however be returns. achieved in conjunction with an increase in safe As it currently stands, Lonmin is a UK-domiciled production and an improvement in our position on the company with the vast majority of its operating assets in cost curve. All efforts will be directed towards these South Africa. Your Board has therefore concluded that achievements in 2010 and beyond in order to position the location of executive management should reflect this Lonmin to maximise benefit as the market recovers. reality and accordingly has taken the decision to relocate Rights Issue our operational headquarters and executive management A successful $458 million Rights Issue was completed team from London to Johannesburg. We believe that this in June 2009. As a result, Lonmin now enjoys greater will enhance day to day management and communications, financial headroom, with enhanced balance sheet and performance improvements will flow from greater flexibility and an improved ability to withstand potential efficiencies.