INTERIM RESULTS 2015 Lonmin Plc - The Vault Lonmin Plc 11 MAY 2015 1757885-001.pttx INTERIM RESULTS...
Transcript of INTERIM RESULTS 2015 Lonmin Plc - The Vault Lonmin Plc 11 MAY 2015 1757885-001.pttx INTERIM RESULTS...
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Lonmin Plc 11 MAY 2015
1757885-001.pttx
INTERIM RESULTS 2015
INTRODUCTION BEN MAGARA CHIEF EXECUTIVE OFFICER
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Overview A tough operating environment
• Long term PGM fundamentals remain strong but we are planning on the basis that lower prices persist
We are managing what we can control
• Maintaining our grip on cost discipline
• Reducing costs in all areas
• Constructive dialogue with unions for voluntary separation and early retirement packages
• Target c.10% cost cut and 3,500 headcount reduction
• EXCO already reduced by 22%
• Capex further reduced to $160m while maintaining 750,000 Pt ounces, $150m for 2016 & 2017
Funding
• Net debt of $282m well within available debt facilities of $563m – Net debt would have been $170m lower without the 200,000 PGM oz stock lock up
• Unwind of stocks to reduce debt levels in H2 2015
Operational Performance
• Safety - 18 months fatality free
• Solid operational performance in a tough environment
• No.1 & No.2 furnaces back on line & fully operational
• Proactively managing ESKOM power situation well
Transformation momentum – 26% effective BEE equity achieved
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Key Performance Features
Safety performance
• Zero harm is achievable and we remain vigilant
• Increase in LTIFR 4.51 incidents per million man hours compared to 3.23
• Safety improvement plan in place
Production momentum sustained
• 5.7 million tonnes mined, up 72% on PY (strike impacted), broadly in line with H1 2013
• Saleable MIC of 381,984 Platinum ounces highest H1 production since 2007 and understandably up 78% on H1 2014
• Saffy on track to reach full production in FY 2015, Hossy & Newman to combine following review
• Industry leading concentrator recoveries maintained at 87.0%
• Immediately available ore reserve position maintained at 3.9 million centares
• Operational flexibility intact and scalable
Cost savings program delivering ahead of plan despite S54’s limiting productivity
• PGM unit cost contained to R10,516 per PGM oz vs. full year guidance of R10,800 per PGM oz
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More colours Main colours Top Tier PGM Mining Assets and World Class Processing Facilities
5 Strong mineral resource base, supported by long term mining rights, instilling confidence in scalable production for decades
Ge
ne
rati
on
Tw
o
Long life, large scale but high cost
Saffy
Hossy & Newman
Ramp-up
Positive build up and cost reduction
K4 Early mining and
operational readiness
Optimise hoisting capacity
Improving half level and crew efficiency
Improve unit costs
Long life, large scale, low cost & cash generative
K3
Rowland
4B/1B
Consistent operational performance
Shafts Focus Key Drivers
Gen
erat
ion
O
ne
Old depleting shafts but cash
generative
Manage for closure
E1
E2
E3
Open cast
Cash generating
Value proposition
Migrating to commercial contract & extending life
Focus on cash
Increased value
W1
Strong ore reserve position (20.5 months production) - provides flexibility and competitive advantage
Excess smelting capacity allows for responsive planning and alternative sources of revenue
Exceptional process recovery rate remains a core strength
11 underground shafts, 8 concentrators, 5 furnaces, BMR & PMR producing c. 12 million tonnes, 750koz Pt annually Opencast Operations Run by contractors Pandora Joint Venture c. 0.6 million tonnes produced annually from Pandora – a JV with Anglo
Operational Strategy
Old depleting shafts but cash
generative
Manage for closure
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More colours Main colours On Track to Deliver Over R2.0bn Value Benefits Over Three Years (2015 – 2017)
6
Reducing operating costs by R600m over three years
Strategy execution has already yielded cost savings of c.R376 million to date – ahead of schedule
Lonmin headcount reduction of 1,128 since March 2014 and contractor headcount reduced by 618 since September 2014
Improve productivity by 15%
H1 2015 Productivity at Gen 2 shafts 5.6 m2/person in line with H1 2013
Production at Saffy up 58% on H1 2013 – on schedule to reach full production
Productivity at Gen 1 shafts 14% lower than H1 2013 at 4.4 m2/person – in line with tail management
Generation 1 shafts being converted to ore purchase agreements with contract mining to extract further value & extend life
Improve value derived from the process operations by 5%
OPM (other precious metals) project to improve recoveries of Rh, Ru and Ir
Improve process recoveries
Reducing metal in process pipeline
Progress is ahead of plans - c.R376 million already captured in H1 2015
Value benefits being achieved with unit costs at R10,516 PGMoz in H1 – full year guidance maintained
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Lonmin Versus Peers
7
2,319 1,303
747
284 194 190
Peer 1 Peer 2 Lonmin Peer 3 Peer 4 Peer 5
koz
Quartile 1 Quartile 2 Quartile 3 Quartile 4
6
8
10
12
14
16
18
Lonmin
3 3
5
Source: SFA (Oxford) Note: Pt production from broker reports (Calendared to Dec); Safety is a 12 month rolling average Note: 4E resources are on attributable and inclusive of reserves (Latest available from company reports)
2015 South African Platinum Production
Net total cash costs (2015F, ZAR/4E oz)
ZAR thousands
Industry Safety Leader
1 2
1 1 1 1 2 1 1
Peer 1 - 1 Peer 2 - 2 Peer 3 - 3 Peer 4 - 4 Peer 5 - 5
6
11
15
33
42
205
0 100 200
Peer 4
Peer 5
Peer 3
Peer 2
Lonmin
Peer 1
Moz
African PGM 4E Reserves
“Lonmin is stealing a march on peers from Q4 in 2011 to Q2/3” SFA (Oxford)
Lonmin is well positioned relative to its peers and we have a focused program to become the best conventional intensive miner sitting well in Q2 using our best in class employee relations
Quartile 1 Quartile 2 Quartile 3 Quartile 4
2
0.000
0.050
0.100
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Jan
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0
Jul-
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Oct
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Jan
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Jul-
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Oct
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Jan
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Jul-
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Oct
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r-1
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Jul-
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Oct
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Jul-
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Oct
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Jan
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Comparison of Platinum Industry – Fatality Rate 12 Month Rolling
Lonmin Peer 1 Peer 2 Pt Industry
No. of fatalities
4 4
2011
OPERATIONAL REVIEW BEN MAGARA CHIEF EXECUTIVE OFFICER
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9
Generation Two Shafts
Ge
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Tw
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Saffy
K4
Hossy & Newman
K3
Rowland
4B/1B
Shafts Operational Strategy
Long life, large scale but high cost
Long life, large scale, low cost & cash
generative
Our Actions
New operating model & supporting structures
Empower our operational teams
• Work and authority at appropriate level
• Clear roles and responsibilities
Direct relationship building program with employees &
unions to improve “The Way We Work”
Saffy ramping up to full production on schedule
Hossy review complete
• Merging Hossy & Newman to extract synergies
Theory of Constraints yielding benefits
• Optimising half levels & improving crew efficiencies
• Stores constructed & stocked underground
increasing working capital as we gear up
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10
Contractor Model for Mines that are Uneconomical for Lonmin to Mine at end of Mining Life
Lonmin is not selling its old mines, we have reviewed and enhanced our contractor model…which extends their life with commercially driven Ore Purchase Agreements
Future Status Contractor takes full responsibility for the
operation that is uneconomical for Lonmin to
operate
Current Status
Contractor responsible for
mining & Lonmin for engineering and
maintenance
Transition W1, E1, E2
Tonnes (FY15) Contractor Arrangement
Lonmin Employees Contractor Labour
Status
Opencast 140,000 Contract mining 5 309 Done by Dec 2015
W1 174,000 Ore Purchase 45 526 Contracting out
E1 100,000 Ore Purchase 131 428 December 2016
E2 424,000 Contract Mining 251 857 December 2017
E3 incl. JV 765,000 JV Ore Purchase 1949 220 Lonmin operated
Strictly manage shafts on a commercial basis for maximum margins and cash generation through ore purchase agreements
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Case Study: Saffy Shaft Productivity Improvement Interventions
11
Grout plant upgraded to increase pumping capacity in order to reduce lost blasts
Renegotiating current Rosond contract to reduce fixed elements
Installed in stope nets in all panels
Additional winches purchased and installed & buffer stock established on surface
Theory of Constraints stores constructed and stocked underground
Rosond Grout Plant
0
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Oct-13 Mar-14 Oct-14 Mar-15
No. of Stoping Crews
Operational team strengthened and shaft on track to reach full production
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Case Study: Saffy Cost & Production Improvement
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8,495
-
-
10,126
-
- -
7,077
-
2,000
4,000
6,000
8,000
10,000
12,000
FY13 (H1) CPI (6% pa) Labour above CPI Sub Total Grade / Recovery Volume Cost increase FY15 (H1)
Ran
d p
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Ou
nce
Saffy (Shaft Head cost - Rand per PGM ounce)
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0
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600
700
800
FY
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FY
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FY
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FY
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FY
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SAFFY - Ore Reserves
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
FY09Avg
FY10Avg
FY11Avg
FY12Avg(N)
FY13Avg
FY14Avg
Oct 14 Nov14
Dec14
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Mar15
FY15YTDAvg
Saffy - Tonnes Hoisted
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Case Study: Hossy Shaft Production
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6,775
7,940
7,643
4,500
5,000
5,500
6,000
6,500
7,000
7,500
8,000
8,500
FY13 (H1) CPI (6% pa) Labour above CPI Sub Total Grade / Recovery Volume Cost Increase FY15 (H1)
Ran
d p
er
oz
Hossy Shaft (Shaft Head Cost per PGM ounce)
Stope Crews 23 conventional and 2 XLP crews. 8 hybrid stoping crews in training centre
Ore Reserves are adequate going forward 17.9 months of ore reserve sufficient to maintain required stoping extraction
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FY
10
FY
11
FY
12
FY
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40,000
60,000
80,000
100,000
120,000
FY10Avg
FY11Avg
FY12Avg
FY13Avg
FY14Avg
Oct14
Nov14
Dec14
Jan15
Feb15
Mar15
FY15YTDAvg
Hossy - Tonnes hoisted
FINANCIAL REVIEW SIMON SCOTT CHIEF FINANCIAL OFFICER
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15
Summary of Financial Results
Financial impact of solid operational performance impacted by lower Platinum price
2015 2014 Abs %
Platinum Sales koz 266 264 2 0.9%
Platinum Price $/oz 1,187 1,400 (213) (15.2)%
Basket Price $/oz 988 1,056 (68) (6.5)%
Revenue $m 508 578 (70) (12.0)%
Underlying EBITDA $m 8 103 (95) (92.7)%
Underlying (LBIT)/EBIT $m (70) 34 (104) >100%
Special Costs $m (14) (165) 151 91.7%
LBIT $m (84) (131) 47 35.6%
Underlying (LPS)/EPS cents (10.5) 3.5 (14.0) >100%
Basic LPS cents (13.6) (35.5) 21.9 61.7%
6 months to 31 March Variance
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(131)
230 (33)
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LBIT (H1 FY14) Stockmovement
including FX
PGM volumesold
PGM price Base metals PGM Mix Costs & depn(like-for-like)
FX on SA costs LBIT (H1 FY15)
16
LBIT Variance Analysis
Increased volumes produced but stock lock-up due to smelter shutdowns
Favourable foreign
exchange impact.
Rand weakened
from R10.54 to
R12.13.
• $125m metal stock
build-up in H1 2015 due
to smelter shutdowns
• $105m stock decrease
in H1 2014.
Volume increase
following the strike
in 2014.
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17
Costs and Cost per PGM Ounce
CAGR 8.3% over 2 years despite two years of labour increases of 12.9% and 8.8%
• Achieved unit costs of R10,516 per PGM ounce - 2.6% below annual guidance of R10,800
• Demonstrates the progress made with the value benefits projects despite production bottlenecks due to the smelter downtime
• H1 2015 unit cost was 19.5% lower than the strike impacted prior year period
• A compound annual increase of only 8.3% since H1 2013 despite two years of labour increases of 12.9% and 8.8%
% Change CAGR
Units 2015 2014 2013 2015 v 2014 2015 v 2013
PGM Operations underlying cost of sales Rm 7,255 3,868 6,291 (87.6)% 7.4 %
Exchange rate (on cost of sales) R/$ 11.44 10.12 8.84 13.0 %
PGM Operations underlying cost of sales $m 634 382 712 (65.9)%
SA exchange translation impact $m (82) - - n/a
Cost of production (PGM operations) R/oz 10,516 13,058 8,960 19.5 % 8.3 %
6 months to 31 March
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18
Net Debt
Smelter shutdowns have impacted debt by around $170 million
(29)
(6) 1 (31)
(124)
(65)
(8)(10)
(19)9
(282)
170
(350)
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OpeningNet Debt
EBITDA Debtors Creditors Stock Capex Netfinancing
cost
Deferredrevenue
Minoritydividends
Other Closing NetDebt
Impact ofsmelter
incident
Volume variance $(223) millonFX variance $99 million
Working capital increase$(154) million
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19
Capital Expenditure
Proactively scaling back capex to manage cashflows & in reaction to persisting low PGM prices
H1 2015 capex limited to $65 million
• H1 2014 impact by cash conservation measures during the strike
FY15 capex reduced to $160 million from $250 million
• Mining - non-critical path items deferred at some shafts
• Concentrators - Bulk tailing treatment project deferred
H1
2014
$m
H1
2015
$m
FY15
Original
Guidance
$m
FY15
Revised
Guidance
$m
Mining 36 45 136 98
Concentrators 5 4 62 22
Smelting & refinining 3 12 33 29
Housing & other 2 4 19 11
Total 46 65 250 160
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Balance Sheet Focus Maintained
Continued focus on cash conservation in persisting low price environment
Costs
• We continue to focus on the value creation initiatives around cost savings
• H1 unit cost contained to R10,516 per PGM ounce
• 19.5% lower than H1 2014 which was distorted by the strike
• Compound annual increase of 8.3% on H1 2013 achieved despite two years of labour increases of 12.9% and 8.8%
• Early success of the value benefit projects
Capex
• H1 capital expenditure limited to $65 million
• Full year guidance reduced to $160 million (from $185 million guided at Q1)
• We are planning on the basis that low PGM prices persist for at least 2 years and are scaling back capex for FY16 and FY17 to $150 million per annum
Net debt at 31 March of $282 million well within debt facilities of $563 million
• Impact of stock build up arising from smelter downtime estimated at $170 million
• Net debt level to reduce by year end.
MARKET OVERVIEW BEN MAGARA CHIEF EXECUTIVE OFFICER
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PGMs Enjoy Strength in their Diversity of Markets, Both by End-Use and by Region
Automotive Production – global growth trajectory supports PGM demand
• Total global vehicle production up 2% to 87m units vs. 2013 – Improved output in Western Europe, US & China
• Annual light vehicle production expected to grow from 89.9m units per year in 2015 to 122m
per year in 2025
• Imperative for cleaner air in developed and emerging markets (incl. BRICS) - represents significant upside ahead
Recent anti-diesel sentiment targeting older Euro 3,4 & 5 vehicles – not Euro 6 compliant diesel vehicles
• Unwarranted negative press
Fuel Cell Vehicles represent a significant long-term growth market
• Stationary and vehicle fuel cells will see increasing adoption over the next decade
• Adoption of fuel cells as base load and back up power is expected to grow significantly in Asia and Africa
• Lonmin in final stages of evaluating 400 KW base load natural gas fed fuel cell at PMR
Jewellery remains a key contributor to demand at around 36% of total consumption over the next decade
ETFs remain sticky – Driving World Platinum Investment Council to grow investment demand
Recycling is a growing part of the mix – expanding as overall demand grows
Euro3
Euro5
Euro6
500g/km
180g/km
80g/km
Max NOx for Diesel
Typical Fuel Cell Stack
Pt Jewellery in India growing
Pollution in China
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Western Europe Diesel Sales – Little Threat to on-going Sales; Platinum Upside with Euro 6 Purchase
Source: SFA (Oxford), LMC Automotive
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Long term PGM Fundamentals Remain Attractive
24
Vehicle Units Legislation
Heavy Duty Fuel Cells
Jewellery Investment
Substitution
Engine size
Thrifting
Net
Gro
wth
in D
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PGM demand Other Industrial
Recycling
OPERATING ENVIRONMENT BEN MAGARA CHIEF EXECUTIVE OFFICER
25
WE DIG TO IMPROVE LIVES
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Housing and Living conditions
• Phase I of construction on 50 hectares donated by Lonmin
• Infill apartment project commenced
Financial literacy programme
• 44,000 employees and family members trained
Education projects
• 22,500 learners up from 18,500 in 2013 in GLC schools - Lonmin transports more than 1,000 daily
• Additional class rooms built in GLC schools and commencing building new school in Marikana
• Educator training workshops and learner Saturday school in place
• Matric pass rate at 95% vs. 76% national average
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Corporate Citizenship Agenda
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Community Infrastructure development
• 11 new high mast lights in Wonderkop village & Nkaneng settlement – improved visibility and security along with creating additional power supply to electrify 160 additional houses
• Upgraded road into Wonderkop village and Nkaneng settlement - improved mobility and access
• Opening new school Mxekazi JSS in the Eastern Cape
Enterprise development
• 43 business enrolled - R64 million worth of contracts already secured and signed by GLC businesses
Community Health
• HIV/AIDS Care and Education
• Health Infrastructure
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Corporate Citizenship Agenda
P1 New Masts
Repaired Masts
P2 New Masts
CONCLUSION BEN MAGARA CHIEF EXECUTIVE OFFICER
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Decisive Action Taken to Protect Liquidity and Embed Resilience Through Shared Interest
Operational Excellence
• Record safety performance – 18 months fatality free
• Cost reduction plans yielding benefits ahead of plans
• Saffy ramping up to full production on schedule, Hossy review complete & shaft combined with Newman
People
• Process underway to reduce headcount and cut labour bill by 10%
• Culture change program underway to improve “The Way We Work”
Commercial Strategy
• Optimised business plan to navigate prolonged low price environment
• Robust funding strategy in place to support the business
Corporate Citizenship Agenda
• Strengthening stakeholder relationships, currently advancing collaboration & partnerships
• Increased community participation, empowerment and economic development
Creating a shared interest to see Lonmin succeed
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Full year guidance maintained of saleable MIC of around 750,000 Platinum ounces. Smelter complex operating at normal levels and we are utilising surplus furnace capacity to maintain our sales guidance of around 730,000 Platinum ounces…
…We have seen pleasing results from our cost savings programme and we maintain our unit cost guidance at R10,800 per PGM ounce for the full year despite current S54 stoppages
…We are planning on the basis that the current depressed pricing environment persists and as a result we have reduced our 2015 capital expenditure from $185m to $160m
…Capex of $150m per annum planned for 2016 and 2017 with c.750,000 ounces production of Platinum per annum
…We are managing our working capital requirements through rigorous cash conservation measures and capital discipline to keep borrowings and debt covenants well within our committed facilities
…Solid progress made in a tough operating environment
…We are managing our controllables and taking the tough decisions required to navigate the prevailing environment
30
Outlook and Guidance
Questions
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Strong and Experienced Management Team
Lerato Molebatsi
EVP Communications & Public Affairs BA Phil, (SMDP)
Lerato joined Lonmin in September 2013 having worked at the Department of Labour since September 2011 as their Deputy Director General: Corporate Services. She holds a Bachelor of Arts degree in Psychology from the University of Johannesburg and a Post Graduate Diploma in Rural Policy Development Policy and Management from the University of Witwatersrand.
Simon Scott
Chief Financial Officer CA (SA)
Simon joined Lonmin and the Board in September 2010, became CFO in November 2010 and was Acting CEO during the period 24 August 2012 to 30 June 2013. He is a graduate with accounting and commerce degrees from the University of the Witwatersrand. A South African registered chartered accountant, he has held a number of financial management roles in South Africa with local and global employers, including over eight years with Anglo American.
Abey Kgotle
EVP Human Resources B.Soc.Sc, EDP, M.Dip HRM Abey joined Lonmin in April 2008 as Senior Manager Human Resources. He holds a Bachelor of Social Sciences from the University of the North West and a Masters Diploma in Human Resource Management. Prior to joining Lonmin, he worked in executive human resources roles at GrafTech South Africa, City of Johannesburg, Samancor Manganese and Denel.
Ben Moolman
Chief Operating Officer BSc Engineering (Mining)
Ben joined Lonmin to head the Business Support Office. Ben is a mining engineer by profession and holds a BSc in Engineering (Mining) from the University of the Witwatersrand. Ben joined Lonmin from Glencore where he initially joined them as General Manager of their Alloys business before becoming Managing Director of their platinum division.
Thandeka Ncube
Business Transformation Manager, Shanduka Resources
B.Soc.Sc, MBA
Thandeka works with Shanduka’s investee companies advising on transformation and broad based empowerment. She holds a social sciences degree from the City University of New York and an MBA from Henley Business School. She began her career working at various government institutions, developing strategy and policy for SMEs and then joined the retail banking side of Standard Bank.
Ben Magara
Chief Executive Officer BSc Eng (Hons), ADP (LBS)
Ben joined the Company and Board as Chief Executive on 1 July 2013. He is a graduate Mining Engineer from the University of Zimbabwe. Ben was the Chief Executive Officer of Anglo Coal South Africa and the Executive Head responsible for Engineering and Capital Projects at Anglo Platinum. Ben was previously a director of Anglo American South Africa (2006-2013), was Chairman of Richards Bay Coal Terminal and the Eskom 2008 Coal Working Group.
32 32
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Costs
2015 2014
Revenue (reported) $m 508 578
Metal stock movement (like-for-like) $m 223 (105)
Cost SA (reported) Rm (7,255) (3,868)
Like-for-like FX R/$ 10.12 10.12
Costs (like-for-like SA) $m (717) (382)
Costs (like-for-like RoW) $m (10) (6)
Costs (like-for-like) $m (727) (388)
Exchange (total) $m 4 18
Cost of sales (reported) $m (500) (475)
EBITDA (underlying) $m 8 103
Depreciation (reported) $m (78) (69)
EBIT (underlying) $m (70) 34
Cost of production (PGM operations) R/oz 10,516 13,058
6 months to 31 March
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Direct Shaft Head Cost per Tonne
-
200
400
600
800
1 000
1 200
K3
4B/1B
Ro
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New
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Hossy
Saffy
Gen
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en 2
Ran
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Special Cost
Special Costs Rm $m
BEE transaction costs 167 15
Lock-in premium 149 13
Legal and consulting costs 18 2
Other (10) (1)
Total 158 14
6 months to March 2015
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FY15 LOBP Shaft Lifecycle of Marikana Mines
W1
E1
E2
`
Newman
End of life Steady State Study Capital Project
Reef
Pro
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cti
on
% o
f C
ap
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Karee Easterns Pandora Westerns
0%
100%
Reef
Pro
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Build-up Steady-state Wind down
High Cost & Capital Requirement Low Unit Cost Increased Unit Cost
Lonmin Marikana Shaft Life Cycle
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Marikana Mines Overview
37
Total Lonmin Resources and Reserves
3PGE + Au
Pt Moz Mt g/t Moz
Measured, Indicated & Inferred 1,241.4 4.49 179.1 100.5
Proved & Probable 356.4 3.7 42.4 25.3
Source: Lonmin