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MANAGING CONTROLLABLES MANAGING CASH 2018 INTERIM RESULTS PRESENTATION
14 MAY 2018
Executive Committee (Exco)
2
Ben Magara Chief Executive Officer BSc Eng (Hons), ADP (LBS) Ben joined the Company and Board as Chief Executive in July 2013.
Thandeka Ncube EVP : Stakeholder Relations and Regulatory Affairs B.Soc.Sc, MBA (Henley Business School) Thandeka joined Lonmin in August 2017
Khaya Ngcwembe EVP: Human Resources BA (UNISA), MBA (UCT), Khaya joined Lonmin in May 2017
Tanya Chikanza EVP: Corporate Strategy, Investor Relations and Corporate Communications CA Tanya joined Lonmin in April 2010
Mike da Costa EVP Technical Services BSc Engineering, MBA Mike joined Lonmin in September 2008.
Barrie van der Merwe Chief Financial Officer CA (SA) Barrie joined Lonmin and the Board as Chief Financial Officer in May 2016
Con Conclusion
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Agenda
Overview and Key Features 1
Operational Performance 2
Financial Performance
3
Update on the Sibanye-Stillwater Transaction 6
Marketing Update
4
5 Guidance
7
Overview: Managing our Controllables, Managing Cash
4
Sibanye-Stillwater Transaction on schedule
Improved production notwithstanding disruptive nature of Transaction
3
4
Solid operational performance • Lonmin is 10 months fatality free, LTIFR improved 8.6%, S54s minimal • Platinum MIC production up 5.8%, despite disruption from restructuring and Transaction anxiety • Bulk Tailings Retreatment Project (BTT) commissioning on time, to scope and cost • Unplanned smelter outage reduced Platinum sales by 6.3%, ~ 47,000 PGM ounces locked up • All five furnaces now running, lock-up expected to unwind in H2
1
We continue to take decisive action with our "stand alone" business • Removing high cost ounces and putting those shafts on care and maintenance • 1,993 employees impacted with a net movement of 1504 - 3,700 jobs (part of 12,600 jobs over three years)
Net cash positive, but capital constraints limiting ability to invest in the future • Unit cost at R12,983 per PGM ounce 7.7% higher, driven by cost escalations and lock up of metals • Rand basket price of R12,920 almost covering operating cost • Resulting net cash of $17m, normalised to $64m including $47m lock-up
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Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18Net Cash 69 114 91 173 49 75 86 103 63 17
-7
23
53
83
113
143
173
USD
m
$47m
cash lock up
OPERATIONAL PERFORMANCE BEN MAGARA CHIEF EXECUTIVE OFFICER
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Safety
Benefits of our safe, productive engagement, collaboration and relationship we have built with our stakeholders, including: the DMR, the Inspectorate, Employees and Unions
• Our belief is that Zero Harm is achievable
• Lonmin has been fatality free for the last 10 months since July 2017 • All Generation 2 Shafts are currently on millionaire
status (fatality free shifts), notably Saffy Shaft that is on 6.0 million fatality free shifts
• LTIFR improved by 8.6% to 4.13
• Total Injury Frequency Rate (TIFR) improved 13% to 10.39
• Significant reduction in the number and impact of Section 54 stoppages
• In the midst of disruption caused by restructuring and Transaction anxiety
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Comparison of Platinum Industry - Fatality Rate 12 Month Rolling
Lonmin Peer 1Peer 2 Peer 3
Operational Performance - Mining
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• Tonnes mined from Generation 2 shafts up 6.4%
• Generation 1 shafts tonnes down 19.4% as planned
• Continue to reduce high cost production in a low price environment
• IAOR at 17.8 months above industry benchmark • Rowland IAOR of 10.9 months a concern
• Ongoing engagement with potential financiers for partial funding
Tonnes Mined - Core Generation 2 Shafts (excl 4B) Tonnes Mined - Generation 2 Shafts
Tonnes Mined - Generation 1 Shafts
-
5.0
10.0
15.0
20.0
25.0
30.0
K3 Rowland Saffy E32016 2017 HY1 2018 Industry Benchmark
Immediately Available Ore Reserves (months)
Strong Operational Performance in Processing Continues Successful Commissioning of BTT Within Budget
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• Concentrator PGM recoveries up from 86.8% to 87.5%
• Underground milled head grade was marginally higher at 4.57 grammes per tonne from 4.56 grammes per tonne
• No release of Platinum ounces from the smelter clean-up project (expect circa 13,000 PGM ounces in H2 2018)
• Furnace Number One recommissioned
• Furnace Number Two was on planned shut down and is now operating
• The BTT project successfully hot commissioned on 14 February • Expected to ramp-up and reach full throughput in H2 2018 • Once at steady-state, the project is expected to deliver
amongst the lowest cost ounces in the Lonmin portfolio • Expected to produce some 55,000 ounces of PGM and
360,000 tonnes of chrome, for a very attractive market-related chrome contract
Capital Constraints are Driving Job Losses Lonmin’s “Stand Alone" Business Without Consolidation
• Potential retrenchment of approximately 12,600 employees over the next three years primarily as a result of Generation 1 Shafts reaching the end of their economic reserves
• The employees from depleting and closing shafts cannot be redeployed to K4 due to lack of capital to restart K4
• E2, Newman and IB shafts placed on care and maintenance
• Impacts 1,993, with net headcount reduction of 1,504 - on schedule for the 3,700 for this year
• Consolidation has the potential to save 20,000 jobs
As at 30 September 2017 Actual 2018 2019 2020 Cumulative
Total employees and contractors 32,512 28,812 23,512 19,912
Planned head count reduction -3 700 -5 300 -3,600 -12,600
Progress to date
9
Shaft Lifecycle of Marikana Mines
Impacts 1,993 - net reduction of 1,504
MARKETING UPDATE
• Platinum’s contribution to Lonmin’s PGM basket revenues reduced from 65% to 53%, while Palladium improved by 6 points to 27% and Rhodium increased from 9% to 14% of the total revenue basket
Marketing Update
PGMs
• Platinum price recovery lags palladium and rhodium prices
• Palladium trading at a premium to platinum since September 2017
• Reverse substitution may technically benefit platinum prices
• Rhodium recovery benefits Lonmin Basket Price - it contributes 8% to production but at current prices it contributes 14% to the basket price
Chrome
• The legacy chrome contract is not aligned to the current market pricing, is extremely prejudicial to Lonmin and is not sustainable
• This contract constitutes 80% of our chrome production
• Lonmin working with its partner to find an equitable solution
Metal Prices
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Platinum 53%
Palladium 27%
Gold 2%
Rhodium 14%
Ruthenium 2%
Iridium 3%
2018
Platinum 65%
Palladium 21%
Gold 2% Rhodium 9%
Ruthenium 1% Iridium 2%
2017
Relative Contribution to Basket of Each Metal between 2017 and 2018
FINANCIAL PERFORMANCE BARRIE VAN DER MERWE CHIEF FINANCIAL OFFICER
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Key Focus Areas
A Cash position and liquidity 1
Costs and capital expenditure 2
Overall financial performance 3
A Conclusion 4
Cash Position
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103
296 (336)
63
283 (329)
0
100
200
300
400
500
600
700
800
Opening Net Cash Cash inflows fromSales
Cash outflows Net Cash Q1 Cash inflows fromSales
Cash outflows Net Cash Q2 31March 2018
USD
m
FY18 Q1 = Net Outflow = (c$40m)FY17 Q1 = Net Outflow = (c$124m)
FY18 Q2 = Net Outflow (excl. $47m inventory lockup) = (c$46m)FY17 Q2 = Net Intflow = (c$26m)
FY18 Q1 = Net Outflow = (c$40m)FY17 Q1 = Net Outflow = (c$124m)
Sales: 147koz Pt292 koz PGMBasket Price = $968/oz
Sales: 141koz Pt262 koz PGMBasket Price = $1,058/oz
$47m Inventorylockup
64 incl $47m
Liquidity
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Liquidity ($m) • Net cash as at 31 March 2018 was $17m consisting of $167m gross cash and drawn term loan of $150m
• Normalised cash after accounting for the inventory lock-up of $47m would have been $64m in-line with December 2017
• Includes $27m payment for restructuring costs
• Covenant waiver reported on at the 2017 year-end remain in place until 28 February 2019 – conditions apply
• Lonmin continues efforts to find alternative funding to bridge any liquidity requirement
229 237 253 215 167
218 223
47
Mar'17 Jun'17 Sep'17 Dec'17 Mar'18
Gross Cash Undrawn Facilities Inventory Lockup
447 459
253
215 214
Cost
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Units 2018 2017 % Change
Like-for-like Gross costs Rm 7 345 6 818 (7.7)%
Concentrate purchases - not in prior year Rm 173
BTT plant - new operation Rm 75
Restructuring costs Rm 230
Chrome costs Rm 91
Gross costs 7 914 6 818 (16.1)%
Exchange rate on gross costs2 R/$ 12.72 13.54 (6.0)%
Gross costs - PGM Operations1 $m 622 504 (23.5)%
Exchange translation impact $m 37 - n/a
Unit cost of production3 R/oz 12 983 12 059 (7.7)%
1 Excludes inventory movement, group charges and FX2 Average FX for the period
6 months to 31 Mar
3 Cost of production of PGM operations per PGM ounce excluding ore cncentrate and other purchases, Limpopo mining, special costs, shared based payments, inventory movements, FX and group charges
Capital Expenditure (Rm) – Full Year Guidance Reduced
17 Revised Capital Guidance of between R1.2 billion and R1.3 billion
612 -107
-31 -88 36 -11 411
1,089
FY17 H1 Mining Concentrating BTT S&R Other FY18 (H1) H2 Spend toAchieve
Guidance
FY18 OriginalGuidance
Plannedreduction
Revisedguidance
ZARm
1 400 -1 500
1 200 -1 300
Summary of Financial Results - Lonmin Consolidated
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Units 2018 2017 Abs %
Platinum sales koz 288 307 (19) (6.3)%
$ Basket Price $/oz 1,011 797 213 26.7 %
R Basket Price R/oz 12,920 10,852 2,068 19.1 %
Revenue $m 561 486 74 15.2 %
EBITDA $m (26) 0 (26) -
Depreciation and amortisation $m (6) (35) 29 82.9 %
Impairment $m 0 (146) 146 100.0 %
Operating Loss $m (32) (181) 149 82.3 %
Basic LPS Cents (23.3) (64.4) 41.1 63.8 %
6 months to 31 March Variance
Financial Conclusion
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Key Focus Areas
• Cash and Liquidity
• Lenders
• Cost Management
• Transaction Closure
GUIDANCE
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FY 2018 Guidance
Sales guidance of 650,000 to 680,000 Platinum ounces maintained - reversal of metal lock-up and release of smelter clean-up
1
Unit cost guidance maintained at R12,000 to R12,500 per PGM ounce - expected to be at the upper end of the range
2
Capital expenditure guidance range revised to R1,2 billion to R1,3 billion - from our original guidance of between R1,4 billion and R1,5 billion 3
UPDATE ON LONMIN SIBANYE-STILLWATER TRANSACTION
Sibanye-Stillwater Transaction Progressing
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• Long lead time to close – examples of steps between announcement and closure: • Competition Commission approval • Filing submitted to Competition Commission of South Africa on 13 March 2018 • Follow up meetings held with the Commission and further information may be provided • Pre-filing with the Competition and Markets Authority in the UK took place in April 2018 • Extensive Joint Stakeholder Engagement, including Employees, Unions, Communities, BEE Partners,
Ministries of Mineral Resources, Economic Planning and Development, Finance, Trade and Industry
• Benefits of this deal for investors and SA Inc
• Benefits of approving deal earlier is that synergies can be realised earlier, with potential to mitigate some of the 12,600 job losses in Lonmin’s "stand alone" business
• The longer the transaction approval takes, the longer the Company will strive to maintain its operational performance notwithstanding the headwinds of employee anxiety and the continuing challenging operating environment
Benefits of Consolidation: Sibanye-Stillwater and Lonmin
Pre-tax synergies as quantified by Sibanye-Stillwater of circa R1,5bn per annum by 2021 *slide 33 in appendix
The consolidation of Sibanye-Stillwater and Lonmin will increase utilisation of Lonmin’s under-utilised processing capacity. The consolidation of Rustenburg Platinum Mines, Aquarius South Africa and Marikana is the most rational geographic and strategic fit due to the geographical proximity of mines and it will facilitate the rationalisation of the K3/Siphumelele mines boundary. The combination will unlock quantified and unquantified operational synergies and will enable Sibanye-Stillwater to become a fully integrated PGM producer in South Africa.
24 Synergies boosting operational viability
CONCLUSION
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Conclusion: Manage Cash and Close Transaction
Whilst the tough operating environment continues, Lonmin maintains its focus on safe production while continuing with decisive action to preserve the business, restructuring and containing costs. Notwithstanding the challenges, we remain net cash positive at the end of the period (since 2015 Rights Issue), but capital constraints are limiting our ability to invest in the future, with our Rand Basket Price barely covering our operating costs. Consolidation of the Platinum industry provides for sustainability. Urgency is required to close this transaction and provide organisational certainty, so we can start benefitting from the synergies, generate savings and protect 20,000 jobs and deal successfully with the tougher operating environment in a stronger and more diversified Group.
Maintain focus on safe and profitable production • Continued mining delivery • Release of metal lock-up • BTT ramp-up • Smelter clean-up
Control costs and continue with restructuring to preserve the business
Closing of Sibanye-Stillwater transaction
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2
3
QUESTIONS
APPENDICES
Shaft Head Cost per Tonne
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K3 Row Saf E3 Comb Gen 2 4B Hos W1 E1 E2 Gen 1 Under-ground
H1 2018 1,000 1,043 958 1,181 1,014 1,008 1,351 839 901 2,641 1,137 1,047H1 2017 1,032 938 887 920 954 834 950 801 899 1,130 929 951
-
500
1,000
1,500
2,000
2,500
3,000
R/to
nne
Consolidated Income Statement for the Year Ended 31 March
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6 months to 31 March
2018
6 months to 31 March
2017
Total Total$m $m
Revenue 561 486
(LBITDA) / EBITDA (26) -Depreciation and amortisation (6) (35)Impairment - (146)Operating loss (32) (181)Foreign exchange arising on stepped acquisition of Pandora (24) -Finance income 52 19Finance expenses (47) (34)Share of loss of equity accounted investment - (3)Loss before taxation (51) (199)Income tax (charge) / credit (16) (15)Loss for the period (67) (214)
Attributable to:- Equity shareholders of Lonmin Plc (66) (182)- Non-controlling interests (1) (32)
Basic and diluted loss per share (23.3)c (64.4)c
Consolidated Statement of Financial Position at 31 March
31
As at As at31 March 2018 31 March 2018
$m $m
Non-current assetsIntangible assets 18 63Property, plant and equipment 265 1,033Equity accounted investment - 21Royalty prepayment 36 37Other financial assets 43 30Deferred tax assets - -
362 1,184Current assetsInventories 332 276Trade and other receivables 44 59Other financial assets - 61Cash and cash equivalents 167 229
543 625Current liabilitiesTrade and other payables (186) (153)Interest bearing loans and borrowings (150) -Deferred revenue (13) -Tax payable (15) -
(364) (153)Net current assets 179 472Non-current liabilitiesInterest bearing loans and borrowings - (154)Deferred tax liabilities (1) (45)Deferred royalty payment - (1)Deferred revenue (34) (33)Contingent consideration (21) -Provisions (159) (134)
(215) (367)Net assets 326 1,289
Capital and reservesShare capital 586 586Share premium 1,816 1,816Other reserves 88 88Accumulated loss (1,843) (1,002)Attributable to equity shareholders of Lonmin Plc 647 1,488Attributable to non-controlling interests (321) (199)Total equity 326 1,289
Consolidated Statement of Cash Flow
32
6 months to 6 months to31 March 31 March
2018 2017
$m $m
Loss for the period (67) (214)Taxation 16 15Share of loss of equity accounted investment - 3Finance income (52) (19)Finance expenses 47 34Impairment of available for sale financial assets - -Profit on disposal of joint venture 24 -Non-cash movement on deferred revenue - (2)Depreciation and amortisation 6 35Impairment - 146Change in inventories (87) (31)Change in trade and other receivables 29 8Change in trade and other payables 8 (40)Change in provisions 19 2Deferred revenue received 7 26Share-based payments 1 -(Profit) / Loss on disposal of property, plant and equipment - -Prepaid royalties - -Other movements 1 (1)Cash (outflow) / inflow from operations (48) (38)Interest received 2 3Interest and bank fees paid (8) (9)Tax paid (8) (4)Cash (outflow) / inflow from operating activities (62) (48)Cash flow from investing activitiesContribution to joint venture (4) (1)Proceeds on disposal of joint venture - -Additions to other financial assets (3) (8)Purchase of property, plant and equipment (32) (44)Purchase of intangible assets (1) (1)Cash used in investing activities (40) (54)Cash flow from financing activitiesProceeds from non-current borrowings - 4Cash inflow from financing activities - 4Decrease in cash and cash equivalents (102) (98)Opening cash and cash equivalents 253 323Effect of foreign exchange rate changes 16 4Closing cash and cash equivalents 167 229
Synergies from Sibanye
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Marikana Mines Overview
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Disclaimer This presentation, which is personal to the recipient, has been issued by Lonmin. This presentation 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 'ambition', 'may', 'will', 'could', 'would', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek' or 'continue', or negative forms or variations of similar 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‘ 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 may be listed, Lonmin has no intention or obligation to update or revise any forward-looking statements included in this presentation after the publication of this presentation. This presentation is for information only and does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase, any shares in Lonmin or any other securities, nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied upon in connection with, any contract or investment decision related thereto. Information supplied by host presenters may not be used, referenced or published without the prior written consent of the author of the presentations.
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