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Annual Report and Accounts For the year ended 30 September 2009 Preparing for recovery… Lonmin Plc 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. Directors' Report – Governance Lonmin at a Glance • 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 Ounces (000's) 727 683 600 600 $m 400 400 362 200 200 0 0 (93) 05 06 07 08 09 Financial year 05 06 07 08 09 Financial year Revenue LTIFRii 2,300 20 2,231 18.10 1,840 1,941 16 Per million hours worked 1,855 1,380 12 12.50 $m 10.80 1,128 920 1,062 8 6.27 6.21 460 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. Directors' Report – Governance Preparing for recovery 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. The decision reflects our commitment to adverse movements in the PGM pricing environment South Africa and our willingness to continue to play and / or the Rand / US dollar exchange rate. We are a full part in the national transformation process. grateful to our shareholders for their over-whelming The Board's key functions of management oversight, support for this fund raising. strategic direction, decision making and corporate governance will remain in London, where the majority of Lonmin in the South African landscape Lonmin's shareholders are located. Lonmin greatly values Our ability to operate effectively as an investor in South its UK domicile and primary listing in London and will Africa is a function of our behaviour as a responsible continue to maintain a Board with the blend of corporate citizen. Lonmin embraces the tenets of the backgrounds, skills and experience required to provide Mining Charter and seeks in its actions to advance the effective leadership appropriate for a FTSE100 company. transformation agenda prescribed by the South African 04 Roger Phillimore Chairman Sivi's insights to the political and social dimensions of our Directors' Report – Business Review South African business have been invaluable. The Company's Chief Financial Officer, Alan Ferguson, has confirmed that he will not relocate to South Africa as part of the relocation of our operational headquarters and will therefore relinquish his position and resign from the Board at a future date. Alan has committed to remain in his present role and continue as a Board Director until 31 December 2010 at the earliest. We have commenced a recruitment process for Alan's successor, who will be based in South Africa. Outlook PGM markets are likely to improve gradually in 2010, supported by a slow steady recovery in the automotive and industrial sectors. During that year, we anticipate that Directors' Report – Governance Marikana mined production will grow, enabling us to achieve sales of around 700,000 Platinum ounces. "We have the utmost confidence in the long term quality of In 2011, we expect to see the start of a more Lonmin's asset base and the robust long term fundamentals significant upturn in PGM market demand, supported by increased momentum in the automotive and industrial of PGM markets." sectors, with a more pronounced rebound in the following Roger Phillimore year. In those years, we anticipate that our production will increase steadily through the delivery of profitable ounces so that, by 2013, we expect to produce sustainably around 850,000 ounces of Platinum per annum from Marikana, including the Pandora joint venture. This anticipated production growth, and supporting capital investment, is subject to market conditions. Incwala Resources Current stresses notwithstanding, we have the utmost confidence in the long term quality of Lonmin's asset Financial Statements During the year, discussions commenced regarding the future of Incwala Resources (Pty) Ltd, (Incwala), our Black base and the robust long term fundamentals of PGM Economic Empowerment partner. These discussions are markets. Looking further ahead, our Akanani and on-going and involve Lonmin, the Historically Disadvantaged Limpopo properties will provide us with the optionality to South African (HDSA) shareholders of Incwala and the supplement our short to medium growth from Marikana. HDSAs' providers of finance. We will update the market Dividend on these discussions, once they have been fully Despite our confidence in the future and the measures concluded. In pursuing these discussions, our objective is being taken by management to improve the health of the to ensure that Lonmin has a relationship of mutual trust business, our profitability and cash flows remain under with its partner and that its partner has both leadership pressure. Consequently, given our continuing focus on capacity and financial independence without further cash conservation and balance sheet management, the recourse to Lonmin's balance sheet. Board continues to take a conservative but appropriate Board Changes stance towards the distribution of dividends. The Board has therefore taken the decision not to declare a final Operating Statistics At our 2009 AGM on 29 January 2009, Sir John Craven retired as a Non-executive Director and Chairman of the dividend for the 2009 financial year. This follows the Board. John was Chairman for some twelve years and Board's decision to pass the final dividend for the 2008 we are extremely grateful to him for his ingenuity, strong financial year and the interim dividend for the 2009 leadership and wise counsel which contributed so much financial year. to the transformation of Lonmin from a highly-leveraged The Board will keep the matter of dividend diverse conglomerate into the third largest Platinum distributions under constant review and will resume producer in the world. As a measure of this, it is payments as soon as conditions allow. Our policy noteworthy that despite the market upsets at the beginning remains that dividend distributions will be based on the of the year, the market capitalisation of Lonmin when he reported earnings for the year, but take into account the retired was some ten times greater than when he first projected cash requirements of the business. joined the Board. Employees We also bid a grateful farewell to Peter Godsoe who, Shareholder Information Finally, I would like to thank all Lonmin employees for after nine years on the Board, has decided not to seek their commitment and dedication, without which the re-election as a director. Lonmin has benefited important changes achieved during the year would not handsomely from Peter's knowledge, experience and have been possible. ability to identify the keystone of an issue and the logic of its resolution. On 4 June 2009, the Board appointed Jonathan Leslie as a Non-executive director. Jonathan has many years' experience of the mining industry at both operational and executive levels, as well as a strong knowledge of the business landscape in South Africa. Roger Phillimore On 16 October 2009, we announced that Dr Sivi Chairman Gounden had resigned as a Non-executive director, in light 13 November 2009 of the significant time commitments associated with his other business interests. We are extremely grateful to Sivi for his contribution to the Company over the last four years. www.lonmin.com 05 Chief Executive's Review Dear Shareholders, 2. Industry-wide supply challenges: The significant factors currently impacting the South Introduction African PGM industry are likely to continue into 2010. Lonmin produced a satisfactory performance in 2009, despite some significant challenges and the completion PGM industry continues to be cash constrained of a major restructuring programme during the year. South African mining inflation remains relatively high, Production at our core Marikana underground operations putting pressure on industry margins and capital was in line with 2008 levels and we achieved our revised investment. Recent improvements in US dollar-based 2009 sales guidance by selling 682,955 ounces of PGM pricing have been largely offset by South Platinum. African Rand strength, which has resulted in capital Whilst there is still some way to go before we achieve shortages and new projects being delayed. Cash flow our goal of fully restoring the operational health of the management remains a high priority in the industry. business, 2009 saw significant steps in achieving this objective, enabling us to provide guidance for 2010 sales Labour environment remains challenging of 700,000 Platinum ounces, implying a slight increase The labour environment continues to be a significant from 2009. Whilst the increment is only modest, it is a influence on the performance of producers, from both significant turning point. Importantly, improving the a productivity and cost perspective. Industry wage operational health of the business will also ensure that we settlements for 2010 have once again been above are well positioned to capitalise on the investments we inflation. Lonmin's negotiations take place late in the have made over recent years as we look to deliver further year and, at the time of writing this report, we remain growth into the robust market fundamentals we foresee in discussions with our recognised unions on this in 2011 and beyond. matter. Furthermore, the shortage of key skills remains an issue for the mining industry in general. 1. Significant management actions taken: With these challenges in mind, Lonmin recognises At the end of 2008, we reacted swiftly to the global the importance of employee engagement strategies. economic downturn, taking a number of significant actions. Section 54 safety stoppages increasing in frequency We support the Department of Mineral Resources' Non-value adding production eliminated increased focus on safety. This focus was evidenced Firstly, we took an immediate decision to eliminate in 2009 by an increase in prevalence and severity non-value adding production. We placed our of Section 54 safety stoppages throughout the uneconomic Baobab shaft at Limpopo on to care industry. Lonmin lost over half a million tonnes of and maintenance for the foreseeable future. We also ore production as a result of these stoppages during closed our opencast operations at Marikana, as well the 2009 financial year, representing some 30,000 as rationalising certain areas of high cost production Platinum ounces or 5% of total underground at the underground operations there. In total, these production. These stoppages are likely to continue actions have removed around 75,000 Platinum in 2010 and beyond. Our challenge is to improve on ounces from the market place. our industry-leading safety record in order to reduce the impact of these stoppages on our operational Major cost restructuring programme completed and financial performance. Alongside that exercise, we completed a major Producers who are able to deliver the strongest restructuring programme across our operations, with safety performances should benefit from fewer all personnel levels affected and around 20% of our interruptions and higher productivity. Our safety total workforce leaving the business during the year. performance remains strong and improved slightly This was a significant, but essential, exercise as we in 2009. However, it was with regret that we reported right sized the organisation and reduced costs. the death of three of our employees during the year. Understandably the restructuring programme impacted employee morale and caused some Increasingly difficult and more complex geology disruption to production for a large part of the year. The Bushveld Complex is a mature geological environment and mines in the area will continue Balance sheet strengthened to deepen over time, with many of the easier to We negotiated with our lending banks the re-financing access reserves becoming steadily depleted. This of a significant portion of our debt facilities during the is expected to have a consequent impact on industry year, with the tenure of these facilities being extended costs, grades and recoveries in the future. Lonmin beyond short term horizons. In addition, we then is in the fortunate position of having access to successfully strengthened our balance sheet by relatively shallow reserves and resources. raising $458 million through the completion of a Rights Issue in June. Furthermore, we successfully Outlook for supply and cost of electricity remains negotiated the waiving of all EBITDA covenants uncertain relating to our debt facilities until September 2010. Challenges in the supply and cost of electricity in South Africa remain. Electricity pricing tariffs are Operational headquarters and executive management expected to increase by over 45% in 2010 and team relocated there will be similar power price increases in the In October 2009, we announced plans to relocate subsequent years. In addition, there is a possibility our operational headquarters from London to that security of supply could again come under Johannesburg. This will place executive management pressure in the medium term, adding to the supply in a single location close to our operations and will side challenges outlined above. therefore enhance day-to-day management and communications. It will also enable us to engage more effectively with our South African stakeholders. 06 Ian Farmer Chief Executive Officer 4. Key Focus Areas for 2010 & beyond: Directors' Report – Business Review Lonmin needs to be well prepared for the opportunity presented by the prospect of an improvement in the market environment. As such, our focus in 2010 and beyond is on completing the restoration of the operational health of the business, growing our unit throughput and, through this, improving our position on the cost curve. a) Restoring operational health: In the Mining business, we have implemented several productivity improvement initiatives and cost-control programmes, as well as increasing our focus on employee relations. We reorganised our senior operational management team to ensure a greater emphasis on long term Directors' Report – Governance operational health, with a specific focus on long term planning. Our Process Division benefited "Lonmin will be well placed to capitalise on the investment made from stability throughout the value chain, assisted in recent years as we deliver growth into the robust market by our increased investment in plant maintenance. I am confident that we now have a strong fundamentals we foresee in 2011 and beyond." management team in place across the business, Ian Farmer supported by improving morale within the business. Further details on these initiatives can be found in the Operational Review. b) Delivering organic growth: We expect to deliver several years of steady growth from our core Marikana operations 3. The possibility of a positive surprise in the PGM through production from our three new shafts, Financial Statements pricing: Saffy, Hossy and K4. The majority of the capital The Rand PGM basket price throughout 2009 needed to initiate and ramp-up production at continued to squeeze industry profitability and cash these shafts has already been invested. Capital flow, restricting capital investment. If this continues, expenditure is now predominantly focused on ore further short term under-investment will be the natural body development to support the production consequence. We therefore anticipate that supply ramp-up of these shafts. will struggle to keep up with recovering demand from 2010 onwards and, as demand returns, there should Short to medium term growth in mined production – be a recovery in PGM profit margins. from Saffy, Hossy and K4 At Saffy shaft, we made good progress during the Short to medium term outlook for Platinum demand year in converting our mining method from fully Looking at Platinum specifically over the next few mechanised to hybrid mining. There is still some work years, we expect demand to improve gradually to be done before this process is completed, but we in 2010. This will be supported by a steady recovery achieved our target of 80,000 tonnes per month, up Operating Statistics in the automotive and industrial sectors with the from 45,000 tonnes at the end of the 2008 financial market being in balance for the year. The behaviour year. In 2010, we expect Saffy to continue to ramp-up of investors in the Exchange-Traded Funds will towards its production capacity of 200,000 tonnes continue to influence short term price movements. per month. More details on the progress being made In early to mid 2011, we expect to see the start of at Saffy can be found in a case study on page 11 of a more significant upturn in demand, supported this report. by increasing momentum in the automotive and A year ago, we took the decision to continue to industrial sectors followed by a more pronounced run Hossy shaft on a fully mechanised basis. At that market rebound, with the market moving back time, we set a productivity target for Hossy for the into deficit. end of the 2009 financial year of an average of 1,500 Long term outlook for Platinum and PGM demand square metres per month per suite of equipment. I In the longer term, the future of PGM market am delighted to say that this target was achieved in Shareholder Information fundamentals remains strong, primarily as a result September 2009, with the best performing suites at of the unique characteristics of PGMs and their Hossy reaching productivity of around 1,800 square applications in autocatalysts. This is underpinned metres per suite per month during that month. by the various emissions legislation being introduced Furthermore, the shaft achieved monthly production in the coming years to combat global climate change. of over 60,000 tonnes at that time, from 20,000 In addition, PGMs are expected to be critical in the tonnes per month in September 2008. Whilst this application of fuel cell technology, which continues performance does not yet make production costs to advance in a number of sectors, including a competitive with conventional mining methods, it is growing number of commercial applications for encouraging to see what can be done once the stationary fuel cells. The Platinum market, in appropriate degree of focus is applied. Consequently, particular, is also expected to be supported by we have taken the decision to continue with a fully continuing demand from the Asian jewellery market. mechanised mining method at Hossy for the As a result of these factors, we firmly believe that the foreseeable future and we are now targeting to reach Platinum and other Platinum group metal markets 2,200 square metres per suite of equipment per continue to be structurally compelling over time. month by September 2011. www.lonmin.com 07 Chief Executive's Review (continued) The development of K4 remains on track and we 5. Outlook anticipate initial production will take place in the first Our Marikana operations remain at the heart of the half of the 2012 financial year, although development Lonmin business and our focus remains on improving ounces will be produced in 2011. By the time K4 safety, reducing costs and growing production, ramps up to full production of around 225,000 tonnes through delivery of profitable ounces, from what is per month, we expect these three shafts will be a high quality, sizeable ore body. In this regard it is contributing over 50% of our total underground pleasing to see a reported 20% increase in our production at Marikana. resource base at Marikana, more detail on which can This organic growth from our Mining business be found on pages 16 and 17 of this Report. will be supplemented by a number of projects at our We anticipate Marikana mined production will Marikana property, from which we expect to deliver increase in 2010, more than offsetting the reduction further value. This includes the extraction of chrome in opencast tonnes and ounces from Pandora, as these from our mined production and the re-treatment of pits are now closed. This should allow metals in tailings following the processing of this chrome. concentrate production to increase by around 5% and, as a result, we expect to achieve 2010 sales of around Medium term requirement to increase smelting 700,000 Platinum ounces, slightly ahead of 2009. capacity and reduce risk To support this growth, we anticipate that capital It is crucial that the growth in mined production expenditure for the 2010 financial year will be up to is supported by processing capacity and reliability, $270 million. This will predominantly be focused on particularly at our smelting facility. Saffy and Hossy, as well as on declines in our two From a reliability perspective, we experienced largest conventional shafts and the continued a matte run-out at the Number One furnace in June development of K4. We will of course continue to 2009, following which we acted quickly to mitigate maintain a balance between the investment the impact on production. Our knowledge of the requirements of the business and the imperative of workings of the furnace has improved as a result of maintaining a strong balance sheet. the incident and we have a highly competent team Beyond 2010, the ramp-up of the three newer running it. Smelting will always be a high risk aspect shafts will more than offset the decline in production of our industry, however, we are confident that we will from some of our smaller shallower shafts which are be able to improve further our management of this expected to come to the end of their lives over the unit in the future and therefore improve the vessel's next few years. As a result, we expect to steadily reliability. grow metal in concentrate production from our From a capacity perspective, our Number One Marikana operations and the Pandora joint venture and Pyromet furnaces have the requisite capacity so that by 2013 we expect to deliver sustained, to support current and medium term levels of profitable production of around 850,000 ounces of production. However, taking into account our longer Platinum per annum. This will be supported by capital term growth ambitions, and the need to mitigate the expenditure of between $300 million and $350 million risk of Smelter disruptions, we anticipate a per annum from 2011. This anticipated production requirement for increased Smelter capacity in the growth and capital investment is of course subject to coming years. We have therefore started to market conditions, and our planning in this regard will investigate options for additional backup capacity. be regularly reviewed by management, as market c) Improving our position on the cost curve circumstances unfold. The focus on restoring the operational health of Our growth projects at Akanani and Limpopo give the business and delivering organic growth is us longer term growth optionality to supplement the critical to improving our position on the industry short to medium term growth to be delivered from our cost curve. core operations at Marikana. Actions taken to support this included the Achieving this growth, supported by the completion of a major restructuring programme restoration of the operational health of the business, at our operations, through which we anticipated is a significant challenge but one which will restore $90 million of annualised cost savings. During the market's view of Lonmin as the quality asset in the second half of 2009 we estimate that we the sector. In January we will commence the process actually saved $64 million and so we are well of consolidating the executive team in Johannesburg, on our way to beating this target. This helped thereby enhancing day-to-day management and us to report Rand gross operating costs below communication within the business. our initial, as well as our revised and more Employees' contribution challenging, cost guidance target communicated We cannot achieve our short term and long term goals during the year. without the support of our employees, contractors and In addition we have implemented a number of community members. 2009 has been a very challenging productivity improvement programmes and cost- year especially given the disruptive impact of the cutting initiatives across the business to ensure restructuring programme. I would like to thank everybody that our position on the cost curve continues to for their contribution, support, and hard work during move in the right direction. Details on these the year. initiatives are outlined in the Operational Review. The continued inflationary environment in South Africa, including an anticipated increase in real wages for the majority of our workforce, means that strict cost control allied to growth in productivity is paramount next year. In 2010, we are targeting to manage the increase in South Ian Farmer African Rand gross operating costs to be below Chief Executive Officer local inflation. 13 November 2009 08 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review Case Study: 1B Shaft – By September 2009, no Lost Time Injuries for over two years Directors' Report – Governance Hendrik Swanepoel Mine Overseer, 1B Shaft At 1B Shaft, which produced around 325,000 tonnes in the 2009 financial year, we have maintained our strong safety record through disciplined planning of the mining cycle of drilling, bolting, blasting and cleaning. This is supported by regular, open communication between shaft management and crew members – at the start of each shift, we have a "changeover" meeting between day and night shift management teams, followed Financial Statements by a meeting with each crew, which includes a discussion of relevant safety issues. We also maintain a high quality of mining, through consistent cleaning and generally good house- keeping underground, which helps our crew members to remain well prepared and focussed on the task in hand. As a consequence of all these factors, our 14 man crews are settled, stable and extremely well organised, and each crew member is acutely aware of their role and daily responsibilities. This guarantees the Operating Statistics close-knit teamwork necessary to maintain a controlled, organised and, ultimately, safe mining environment. "SAFE MINING PRACTICES ARE INGRAINED Shareholder Information IN LONMIN'S CULTURE" Hendrik Swanepoel www.lonmin.com 09 Operational Review A PRIMARY AREA OF FOCUS FOR THE MINING MANAGEMENT TEAM CONTINUES TO BE ORE RESERVE DEVELOPMENT. BY THE END OF SEPTEMBER 2009, UNDERGROUND ORE RESERVE DEVELOPMENT AT MARIKANA HAD INCREASED TO 2.0 MILLION SQUARE METRES OF IMMEDIATELY AVAILABLE ORE RESERVES. Market overview All of this reduction related to our decision to close PGM prices declined significantly during the first three production units which were unprofitable. Of the months of our 2009 financial year, with Platinum production shortfall, 1.2 million tonnes related to the falling to a low of $756 per ounce in October 2008 closure of opencast operations at Marikana and and Rhodium declining to a low of $1,000 per ounce Pandora whilst 0.4 million tonnes were due to placing of the following month. The steep decline in these the Baobab shaft at Limpopo on care and maintenance prices was almost entirely as a result of a dramatic during the first half of the 2009 financial year. deterioration in automotive demand during the period, During the year, we took the opportunity to exacerbated by automotive companies de-stocking, restructure our senior operational management team, the selling of inventories and investor reaction to the in order to create a Technical Services function. This economic downturn. function is responsible for, amongst other things, the PGM prices started to improve in the second life of mine plan, based on input from all areas of the quarter of the year, stabilizing in the following quarter, business, group wide capital expenditure and on the back of strong jewellery and investment providing an important check and balance with regard demand. Tentative signs of automotive recovery to the technical health of the business. Chris became evident during the fourth quarter of the 2009 Sheppard, previously EVP Mining, has taken on the financial year, supported by the potentially short term role of EVP Technical Services, and Mark Munroe, impact of the various fiscal stimulus and scrappage who played a crucial role in the implementation of the schemes introduced by governments around the restructuring programme, has been appointed EVP world. Consequently, further pricing recovery Mining. Mark is now responsible for safely delivering occurred in that period, with the Platinum price growth in production and the necessary productivity closing at $1,280 per ounce and Rhodium closing improvements from our Marikana mining operations. at $1,650 per ounce on 30 September 2009. Biographical details on Chris and Mark, as well as on However, the strength of the South African Rand the other members of our Executive Committee, can largely offset these improvements in US dollar-based be found on page 54 of this report. PGM prices, and continued to put pressure on A primary area of focus for the Mining industry margins and cash flows. Furthermore, the management team continues to be ore reserve South African cost environment remains challenging, development, building on the recent progress made with continued inflation across the mining sector. at Marikana. At the end of September 2009, Consequently Lonmin management will carefully underground ore reserve development at Marikana balance the need to invest in growth ahead of the reached 2.0 million square metres of immediately upturn whilst at the same time remaining focused on available ore reserves. Most of our shafts at Marikana maintaining strong financial discipline. now have appropriate levels of development, but there remains scope for improvement at certain shafts, Mining particularly K3. It is likely to take another twelve to Our focus on safety remains undiminished. Our safety eighteen months before we achieve acceptable levels performance continued to improve in 2009, with of available ore reserves, as higher extraction rates actual Lost Time Injuries reported down 8% from will require even greater levels of development 2008 and our Lost Time Injury Frequency Rate replacement. improving slightly to 6.21 per million man hours A number of productivity programmes were worked. However, it is with regret that we report the instigated by the Mining management team in 2009 death of three of our employees during 2009. Further which are expected to start to show benefits in 2010. details on our safety performance during the year as These include: well as information on the programmes currently in place to maintain and improve on our historically • Initial steps to revise incentive programmes for strong safety performance can be found in the our productive employees to increase the element Sustainable Development Review of this Report. of variable pay; Total tonnes mined during the 2009 financial year • Labour management improvement programmes, were 10.8 million, a 1.6 million decline from 2008. including a number of projects to tackle absenteeism; 10 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review Case Study: Saffy Shaft – production target of 80,000 tonnes per month by September 2009 achieved Johan Raaths Nicci Engelbrecht Mine Overseer, Saffy Shaft Technical Assistant, Saffy Shaft A year ago, management took the decision to change the mining method at Saffy from fully mechanised to hybrid mining, Directors' Report – Governance which entails conventional stoping with mechanised development. This conversion process has come with some challenges. Firstly, the shaft's development footprint was specifically designed for mechanised mining. We are rectifying this by upgrading the infrastructure of the shaft, including the installation of ore passes and drop raises. The mining layout was also designed for mechanised mining, so we are re-aligning it to better suit conventional mining methods. Finally, we have faced challenges in the recruitment and training Financial Statements of skilled crews to adapt to the change in mining method. We have built team-work and trust within these new crews, thereby ensuring that Saffy's workforce remains stable and maintains the shaft's strong safety culture, and we are proud to have achieved our year end production target of 80,000 tonnes per month. Operating Statistics "IN 2010 WE EXPECT SAFFY TO CONTINUE TO RAMP-UP TOWARDS PRODUCTION CAPACITY" Shareholder Information Johan Raaths www.lonmin.com 11 Operational Review (continued) Case Study: Merensky Concentrator – achieved 97% plant availability in 2009 Ali Mogale Engineering Manager, Merensky & UG2 Concentrators We have two key performance improvement objectives at the Concentrators – firstly, to increase our understanding of the potential of ore being supplied to us by the mines and, secondly, to consistently optimise recoveries. The first objective is crucial in supporting the second objective. This year at the Merensky Concentrator we made good progress to achieving these dual objectives, partly through the facilitation of Mission-Directed Work Teams within each area of operation. A better understanding of the ore potential is being driven by our metallurgical team at the plant to improve management of ore delivery schedules and ultimately to ensure we continue to create the appropriate blend feed for the Smelter. However, the achievement of this objective is dependent on plant availability and stability, as well as increased spend on plant maintenance. In 2009, the engineering team at the plant achieved sustained high plant availability, based on consistent equipment reliability and high maintenance standards. Also at the plant, our production team introduced a number of initiatives during the year to optimise recoveries, including modifying the flow sheet, rationalising the concentrate cleaning process and altering the reagent mix at the flotation stage. As a result of these initiatives, the plant achieved consistently high underground recoveries during 2009. "WE REMAIN FOCUSED ON ANALYSING ORE POTENTIAL AND OPTIMISING RECOVERIES AT OUR CONCENTRATORS" Ali Mogale 12 2009 Annual Report and Accounts / Lonmin Plc A NUMBER OF PRODUCTIVITY PROGRAMS WERE INSTIGATED BY THE MINING MANAGEMENT TEAM IN 2009 WHICH ARE EXPECTED TO START TO SHOW BENEFITS IN 2010. Directors' Report – Business Review • Initiation of consultations with the recognised At the end of the 2009 financial year, there were 31 unions to increase the number of shifts worked; stoping crews at Saffy and, by April 2010, we expect • Removing technical bottlenecks through our to have 45 crews operating at the shaft. As a result, Half Level Optimisation programme and the we expect production to continue growing towards implementation of operating systems at each shaft capacity of around 200,000 tonnes per month, shaft; and which we aim to achieve in 2014. By that time, we anticipate Saffy's current workforce complement of • Implementation of several initiatives to assist us around 2,300 will have increased to approximately in better managing inspections by the Department 4,000. Further details on the transition to hybrid Directors' Report – Governance of Mineral Resources, including a review of mining at Saffy shaft can be found in a case study relevant procedures and the roll-out of a union on the shaft on page 11. consultation and communication plan relating to Hossy also had a good year, achieving average Section 54 stoppages. productivity of around 1,500 centares per month per We are continuing to run a number of cost-cutting suite of equipment at the end of the 2009 financial initiatives within the Mining business and strict cost year, in line with our initial targets set in November management is embedded at each of our shafts at 2008. During the year, production at Hossy continued Marikana. One such example is the bill of materials to ramp-up to over 60,000 tonnes per month by project, introduced in 2009 at every shaft at Marikana. September 2009, from around 20,000 tonnes in The project tracks and monitors the purchase and October 2008. usage of key consumables against what is expected The improvement in productivity at Hossy shaft for the proposed level of production, ensuring greater was a result of substantial management effort and control of the procurement of these consumables and a focus to deliver an improved performance during the year. We made some important upgrades to the way Financial Statements better understanding of purchasing and usage patterns. we implement mechanised mining at the shaft. Firstly, Marikana Mining we increased our focus on equipment availability, with Total Marikana underground production during the better maintenance and quicker repair times being 2009 financial year was the same as 2008 at 10.2 achieved, supported by improved mining standards million tonnes. The ramp-up in production from our and conditions. Secondly, we made improvements in mechanised and hybrid shafts was offset by, amongst the utilisation of the extra-low profile equipment, other things, an increase in prevalence and severity focusing on improving operator and supervisors' of Section 54 safety shutdowns at our Marikana skills, as well as upgrading management operating operations. In 2009, we lost around 0.5 million tonnes systems. Thirdly, we made some significant changes as a result of these shutdowns, compared to around to the shaft's mining layout and, as a result, we are 0.2 million tonnes in 2008. starting to see an increase in stoping panels per fleet In 2009 we mined 8.5 million tonnes from our and we expect that to continue in 2010. Finally, we Operating Statistics conventional underground Marikana operations, a upgraded the shaft's infrastructure, implementing a decline of 0.6 million tonnes from 2008. Around half new communication network backbone, installing new of this decline was due to the increase in Section 54 strike conveyors and constructing a new maintenance shutdowns, as outlined above with 80% of the total workshop at the shaft. tonnes lost due to Section 54 safety shutdowns in 2009 Costs for the 2009 financial year at our core occurring at K3 and Rowland, our two largest shafts. In underground conventional operations at Marikana addition, around 0.1 million tonnes were lost at our Mining were R466 per tonne, up 14% from 2008. If Marikana conventional underground operations following we adjust for the additional tones lost due to Section the planned closure of a small uneconomic decline shaft 54's the year on year increment would be 10%. Costs and a further five half levels at Marikana during the third at our mechanised and hybrid operations at Marikana quarter of 2009. Finally tonnes were lost during 2009 as for the 2009 financial year were R630 per tonne, a direct result of disruption relating to the restructuring up 3% from 2008. It should be noted in this context Shareholder Information programme completed in March, when a total of 7,000 that the wage inflation for 2009 was 12.5%. Capital full time employees and contractors left the business. expenditure during 2009 at our Marikana Mining Production from our mechanised and hybrid division was R1,293 million, the majority of which shafts increased 49% year-on-year to 1.7 million was allocated to Hossy, Saffy and K4. tonnes. Saffy performed extremely well, despite the multiple challenges faced by shaft management in Pandora joint venture converting from fully mechanised to hybrid mining Our share of production from the Pandora joint during the year, with the shaft achieving its year end venture ground during the year was 298,000 tonnes monthly hoisting target of 80,000 tonnes in mined, a decline of 25% from 2008, as a result of the September 2009. It will take a further 18 months for planned stoppage of opencast production at the joint the full transition to hybrid mining, but we are taking venture. The underground operations at Pandora the appropriate action to deliver this project safely, produced 142,000 tonnes, a 15% increase from 2008. on time and within budget. To support us in the production ramp-up in 2010, we plan to increase the number of crews during the first half of the year. www.lonmin.com 13 Operational Review (continued) Lonmin purchases 100% of the ore from the Pandora We also have a number of inventory management joint venture and this ore contributed 46,421 saleable initiatives in place to ensure we optimise the value ounces of Platinum in concentrate and 85,168 of stock in the system, which is important in a cash saleable ounces of total PGMs in concentrate to our constrained environment. production. Pandora joint venture activities made a Smelter loss of $1 million after tax for our account in the On 14 June 2009, we shut down our Number One financial year. furnace following a matte run out. From our We are at the final stages of a feasibility study investigations, we identified a design weakness in the on the underground extension of the Pandora Joint furnace, around the matte tappe hole area, which, Venture, subject to approval by the joint venture when allied with other factors, including the level at partners, which is planned to come into production which the electrodes operate in the furnace, caused in 2013. this incident. The furnace was subsequently run at Process Division reduced power for most of the fourth quarter of 2009. At the Process Division, management remains Production was supported by the running of our focused on plant maintenance, efficiency, and stability Pyromet furnaces. in order to maximise recoveries. In 2009, we made Following a re-design of the matte tappe hole good progress on a number of fronts at each of the area at the furnace, a re-build commenced on operating units within the division. 10 October 2009. On inspection, we were pleased Costs for the year in the Process Division were with the condition of the interior of the furnace as R1,508 per PGM ounce, up 4% from 2008, and this is a good indication that the changes we made capital expenditure was R539 million. to management of electrodes had the desired effect. The rebuild has been completed, with matte being Concentrators tapped on 9 November 2009. As a result of the The concentrators produced a total of 663,101 rebuild, refined production during the first quarter of saleable ounces of Platinum in concentrate during the the 2010 financial year will be well below that of the 2009 financial year, a 9% year-on-year decline, mainly prior year period. as a result of closing production at the Marikana and Whilst the Number One furnace has had a Pandora opencast operations, as well as at Limpopo. number of run outs since it came into commission in Overall concentrator recoveries improved during the 2002, our analysis shows that it has performed in line 2009 financial year to 79.8%, from 79.2% in 2008, with other smelters in the industry. We mitigated the partly due to the milling of less oxidised opencast financial impact of the June run out and the cost ore from deeper pits compared to the prior year. impact in the year was not significant, at around $5 Underground recoveries fell to 81.0%, from 81.7% in million, given the short term catch up capacity we 2008, mainly as a result of undertaking extensive have in place. Our knowledge of the workings of the maintenance on some of our Marikana concentrators Smelter has improved significantly and we have an in the first quarter of the 2009 financial year and due experienced Smelter team. For further details on how to ore mix. However, performance against our internal we are improving our management of the Smelter, models, which take account of ore mix issues, see the case study on the following page. showed a significant improvement during the year as We have initiated a study to look at increasing a result of a strong management team, investment in smelter capacity in the longer term. Additional maintenance to improve plant availability, and our capacity will also enable us to mitigate further the risk concentrator optimisation project. As evidence of this and impact of future Smelter disruptions as improvement in performance, overall recoveries at production increases. Marikana improved to 82.3% for September 2009, Management is also focused on managing the compared to 79.5% in October 2008. base metal feed through the Smelter. Lonmin Underground milled head grade was 1.7% lower predominantly mines UG2 ore, with around 20% of year-on-year at 4.57 grammes per tonne (5PGE+Au) the ore we mine being base metal-rich Merensky ore. mainly as a result of an increased proportion of Following the placing of the Limpopo operation, with development ore coming from Hossy and Saffy and a its base metal-rich ore, on care and maintenance, we general increase in development ore throughout the require a moderate increase in the proportion of operations. On the UG2 horizon, we mined a larger Merensky material in the short term to maintain the proportion of ore from some of the slightly lower grade correct blend composition for feed into the Number areas of the Marikana ore body and there was some One furnace. To resolve this issue, we plan to re-open unplanned dilution, partially as a result of localised one of our Merensky opencast pits in 2010, from geological conditions. There is still a lack of flexibility which we expect to produce around 25,000 Platinum in face availability on the Merensky reef horizon, and ounces during the year. As a result of revised some localised lower grade areas were encountered, contractor terms, these ounces will be profitable. particularly during the first quarter of the year. Overall In the meantime we are purchasing some low grade milled head grade decreased marginally year-on-year Merensky type concentrate from a third party, a from 4.52 to 4.50 grammes per tonne (5PGE+Au). portion of which is expected to remain in stock at the We are working on a number of ways to extract end of 2010. We expect to achieve the optimal value from the treatment of our tailings. This involves Merensky content in our feed once K4 shaft, which is the extraction of chrome for onward sale, leaving relatively high in Merensky ore, commences production. the retreated tailings in a form such that PGMs can be extracted. This will also enhance recoveries. 14 2009 Annual Report and Accounts / Lonmin Plc PROCESS DIVISION MANAGEMENT REMAINS FOCUSED ON PLANT MAINTENANCE, EFFICIENCY, AND STABILITY IN ORDER TO MAXIMISE RECOVERIES. Directors' Report – Business Review Case Study: Smelter Wet Section – regular communication between the Concentrator and the Smelter teams is vital Kiran Chaitram Wet Section Manager The role of the Wet Section at the Smelter is to maintain an optimal blend of feed which goes to the Smelter's furnaces, run by the Hot Section. Specifically, the key Directors' Report – Governance challenge for the Wet Section team is to maintain the right level of base metal content in the feed, in order to sustain appropriate heat levels in the furnaces and to deliver the requisite volume of smelter matte to the refineries. In 2009, this challenge has been exacerbated by a reduced proportion of base metal-rich Merensky ore delivered from the mines to the Concentrators. To support us in maintaining the appropriate blend feed, we therefore had to ensure a careful balance between concentrate deliveries from the Concentrators and feed from our slag plant. We also bought in a limited amount of third party concentrate as an insurance policy. At the same time, we have faced and successfully tackled the challenge of Financial Statements managing and reducing inventory levels at the Smelter. We were particularly successful in processing the inventory built up following the matte run-out incident at the Number One furnace in June, including 3,000 tonnes of furnace and converter bricks, which are extremely difficult to process. Our inventory management has remained robust during the year. Operating Statistics "AT THE WET SECTION OF THE SMELTER, KEY FOCUS AREAS ARE BLEND FEED OPTIMISATION AND INVENTORY MANAGEMENT" Kiran Chaitram Refineries the closure of opencast operations at Marikana and Shareholder Information Our refineries performed consistently throughout the Pandora and the placing of Limpopo operations on year. At the Base Metal Refinery (BMR), we were care and maintenance, 2009 total refined production successful in completing a major project to release would have been flat compared to 2008. Final metal locked up metal-in-process at one of the storage sales for 2009, including the sale from the BMR of tanks at the facility. This will help lower average stock 25,062 Platinum ounces of metal-in-process levels in the refinery. Total refined production for 2009 inventory in the fourth quarter of the year, were in line was 657,317 ounces of Platinum and 1,244,709 of with our revised sales guidance at 682,955 ounces total PGMs, down 6% and 7% respectively from the of Platinum and 1,268,918 of total PGMs. same period in 2008. However, taking into account www.lonmin.com 15 Reserves and Resources During 2009, Lonmin has reviewed its Mineral Resource and Reserves and certain areas have been re-estimated where necessary. The major changes are as follows: • Continued extension drilling of the Marikana Mineral Resource area provided an additional 10 Moz 3PGE+Au in Resource; • A 7% increase in the overall Marikana Mineral Resource grade resulted from extension drilling into high grade Merensky Reef areas and enhanced Merensky Mineral Resource estimation techniques; The Marikana Mineral Reserve grade increased by 2% overall; • Optimisation of planned Resource extraction below the K4 Vertical Shaft Block has demonstrated that value is enhanced by combining the Sub Incline Resources with the K5 Resources, rather than with K4. The re-designation of the Sub Incline area resulted in a reduction of approximately 5 Moz 3PGE+Au in Probable Mineral Reserves, which remain as Mineral Resources in the inventory. The Reserves are expected to be re-instated once the necessary Pre-Feasibility work has been completed over the combined K5 and K4 Sub-Incline blocks; • The total Mineral Resource content increased by 15% and the 3PGE+Au grade increased by 3%. This was largely realised in the Inferred Resource at both the Schaapkraal Prospecting Area at Marikana and the Limpopo Baobab Mine Block; • Continued diamond drilling at Akanani resulted in a higher proportion of P2 Indicated Mineral Resources, further increasing the confidence of this Mineral Resource; and • The Pandora Plan 4 area has been fully included in the Mineral Reserve resulting in an additional 0.4 Moz of 3PGE+Au in the Probable Reserve category attributable to Lonmin. A summary of the changes in both the Lonmin Mineral Resources and Reserves is shown in the following tables and should be read in conjunction with the Key Assumptions outlined below. The complete 2009 Mineral Resources and Reserves statement can be found on our website: www.lonmin.com. Mineral Resources (Total Measured, Indicated & Inferred)1,4 30-Sep-2009 30-Sep-2008 Mt 5 3PGE+Au Pt Mt 5 3PGE+Au Pt Area g/t Moz Moz g/t Moz Moz Marikana 750.7 5.01 120.8 71.1 672.0 4.68 101.1 59.3 Limpopo2 144.7 4.22 19.6 10.0 138.1 4.23 18.8 9.5 Limpopo Baobab shaft 46.1 3.91 5.8 3.0 28.6 4.00 3.7 1.9 Akanani 176.6 3.96 22.5 9.4 154.4 4.42 21.9 9.3 Pandora JV 54.9 4.29 7.6 4.7 55.5 4.30 7.7 4.7 Loskop JV3 10.1 4.04 1.3 0.8 10.1 4.04 1.3 0.8 Total 1,183.1 4.67 177.6 98.9 1,058.8 4.54 154.5 85.6 Mineral Reserves (Total Proved & Probable)1 30-Sep-2009 30-Sep-2008 Mt 5 3PGE+Au Pt Mt 5 3PGE+Au Pt Area g/t Moz Moz g/t Moz Moz Marikana 297.5 4.11 39.3 23.8 332.6 4.03 43.1 25.9 Limpopo2 40.1 3.23 4.2 2.1 40.1 3.23 4.2 2.1 Limpopo Baobab shaft 9.4 3.16 1.0 0.5 9.4 3.16 1.0 0.5 Pandora JV 3.1 4.25 0.4 0.3 0.5 4.28 0.06 0.04 Total 350.1 3.98 44.8 26.6 382.5 3.93 48.3 28.5 Notes 1) All figures are reported on a Lonmin Plc attributable basis, the relative proportions of ownership per project being shown in the Key Assumptions outlined below. 2) Limpopo2 excludes Baobab shaft. 3) Loskop JV3 excludes Rh, due to insufficient assays, and therefore 2PGE+Au is reported. 4) Resources are reported Inclusive of Reserves. 5) Quantities have been rounded to one decimal place and grades have been rounded to two decimal places, therefore minor computational errors may occur. 16 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review Key assumptions regarding the 2009 Lonmin Mineral Resource and Reserve Statement • Mineral Resources are reported inclusive of Mineral Reserves. Resources that are converted to Reserves are also included in the Mineral Resource statement. • All quoted Resources and Reserves include Lonmin's attributable portion only. There have been no changes in the percentage attributable to Lonmin during the year. The following percentages were applied to the total Mineral Resource and Reserve for each property: Limpopo – Limpopo – Baobab, Marikana Dwaalkop JV Doornvlei, Zebediela Akanani Pandora Loskop Lonmin Attributable 82% 41% 82% 74% 34.85% 41% • Incwala Resources, Lonmin's BEE partner, owns 18% of both Western Platinum Limited and Eastern Directors' Report – Governance Platinum Limited and 26% of Akanani. • Limpopo includes Dwaalkop JV which is a Lonmin managed JV between Mvelaphanda Resources (50%) and Western Platinum (50%). • Pandora JV: Eastern Platinum Limited has an attributable interest of 42.5% in the Pandora Joint Venture together with Anglo Platinum (42.5%), Mvelaphanda Resources (7.5%) and the Bapo Ba Mogale Mining Company (7.5%). • Loskop JV: Western Platinum Limited has an attributable interest of 50% in the Loskop Joint Venture with Boynton Investments. • Grades are reported as 3PGE+Au, which is a summation of the Platinum, Palladium, Rhodium and Gold grades. Available assay information, obtained from concentrate and drillhole core, indicates that the proportion of 3PGE+Au contained in 5PGE+Au is approximately as follows: UG2 Merensky Platreef Financial Statements Marikana 0.82 0.93 – Limpopo 0.86 0.93 – Akanani – – 0.95 Pandora 0.81 – – • Mineral Resources are reported as "in-situ" tonnes and grade and allow for geological losses such as faults, dykes, potholes and Iron Rich Ultramafic Pegmatite (IRUP). • Mineral Resources are estimated using a minimum true width of at least 90 cm and therefore may include some diluting material. • Proved and Probable Mineral Reserves are reported as tonnes and grade expected to be delivered to the mill, are inclusive of diluting materials and allow for losses that may occur when the material is mined. Operating Statistics • Mine tailings dams are excluded from the above Mineral Resource summary. • For economic studies and the determination of pay limits, consideration was made of both short and long term revenue drivers. The following long term assumptions were used: Pt $1,600, Pd $400, Rh $3,000, Ru $150, Ir $430, Au $700 per ounce and Ni $15,000, Cu $4,000 per tonne, using an average exchange rate of $1 to R9. • Unless otherwise stated, the Lonmin Mineral Resources and Reserves estimates were prepared or supervised by various persons employed by Lonmin. Shareholder Information www.lonmin.com 17 Financial Review WE TOOK SIGNIFICANT STEPS DURING THE YEAR TO STRENGTHEN OUR BALANCE SHEET AND REDUCE OUR COST BASE. Introduction • Balance sheet management: during the year The 2009 financial year was impacted by four significant steps have been taken to strengthen significant factors: the balance sheet. In May the Group undertook • PGM Pricing: as a result of the global economic a Rights Issue which was over 96% subscribed downturn, and its impact on PGM customers, the and raised $458 million after costs and foreign pricing environment was significantly weaker than exchange charges in line with expectations given the prior year with the average US Dollar PGM in the prospectus. In addition $575 million of basket price nearly 50% lower. This had a major existing credit facilities have been re-negotiated, impact on our revenues during 2009, down $1.2 extending the debt maturity profile, and agreement billion or 52.4%. Pricing has, however, improved has also been reached with the Group's during 2009 with the PGM basket increasing by bankers to waive all EBITDA related covenants 23% from $699 per ounce in half one to $861 per at 30 September 2009 and 31 March 2010 ounce in half two; and the net debt / EBITDA related covenant at • Foreign exchange: The average daily exchange 30 September 2010. The volatility in PGM prices rate for the Rand to the US Dollar weakened from and the Rand to US Dollar exchange rate mean R7.45/$ in 2008 to R9.00/$ in 2009 which has that our EBITDA margins could remain low and had a benefit of $179 million on operating profit difficult to predict. Both of these matters are with the vast majority of the effect being in the discussed in further detail below. first half. The exchange rate during 2009 has, Basis of preparation however, been far more volatile trading across a The financial information presented has been prepared range of more than R4/$. From a closing rate of on the same basis and using the same accounting R8.27/$ at the end of 2008 the Rand quickly policies as those used to prepare the financial weakened to a rate of around R10/$ where it statements for the year ended 30 September 2008. remained for much of half one (with a peak of R11.59/$ on 22 October). The second half of Analysis of results 2009 has seen a substantial strengthening of the Income Statement Rand with rates falling to as low as R7.27/$ and The underlying operating profit for the year to an average of around R8/$. This strengthening of 30 September 2008 of $963 million has fallen to a the Rand has effectively offset all the second half loss of $93 million in the year to 30 September 2009. US Dollar pricing gains noted above; An analysis of the movement between the years is • Restructuring: a major restructuring programme given below: was carried out in the year which resulted in the $m closure of unprofitable operations and a reduction in the cost base for ongoing operations. This Year to 30 September 2008 reported restructuring programme has incurred a one-off operating profit 764 cost of $49 million, but is expected to deliver Year to 30 September 2008 special items 199 annualised cost benefits of approximately $90 Year to 30 September 2008 underlying million. In the second half cost savings from operating profit 963 the above totalled $64 million with foreign PGM price (1,037) exchange rates enhancing the US Dollar impact. PGM volume (203) In Rand terms savings were ahead of the initial PGM mix 98 expectations. As a result of the actions taken total Base metals (27) South African gross operating costs at R8.8 billion Cost changes (including foreign were R0.6 billion lower than 2008 despite a exchange impact) 113 12.5% pay award effective throughout the year; Year to 30 September 2009 underlying operating loss (93) Year to 30 September 2009 special items (49) Year to 30 September 2009 reported operating loss (142) 18 Alan Ferguson Chief Financial Officer Directors' Report – Business Review Platinum recovered to $1,280 per ounce by the end of 2009 with an average for the year of $1,079 per ounce. In a similar manner Rhodium recovered to $1,650 per ounce by the end of 2009 with an average for the year of $1,478 per ounce. The decline in pricing versus 2008 has led to a reduction in revenue of just over $1 billion. The PGM sales volume for the year at 1,268,918 ounces were 132,453 below the prior year (of which Directors' Report – Governance approximately 103,000 ounces can be attributed to closed operations) resulting in an adverse revenue "We completed a major restructuring program in the year which impact of $203 million (based on 2008 pricing as all eliminated unprofitable ounces and reduced the most significant price effects are included in the price variance element of our cost profile." described above). The mix of metals sold resulted in a favourable impact to revenue of $98 million due to the Alan Ferguson mix of Platinum and Rhodium. The contribution from base metals fell by $27 million, or one-third, with Nickel prices falling by 33.5%. Cost changes (increase) / decrease $m Revenue Marikana conventional underground mining (30) Financial Statements The PGM market was generally strong in the 2008 Hossy and Saffy shafts (35) financial year enabling the Group to achieve a PGM Concentrating and processing (18) basket price of $1,529 per ounce for this year (with Overhead costs 74 Platinum at $1,655 per ounce and Rhodium at Savings from closed operations 76 $7,614 per ounce). The economic downturn following the credit Operating costs 67 crunch impacted the last quarter of financial year Pandora ore purchases 41 2008 and had a significant effect on financial year Metal stock movement (176) 2009 as a whole. Vehicle manufacturers are the Foreign exchange 179 principal customers for PGM metals, in particular Depreciation 2 Rhodium, and it has been one of the most affected Total 113 sectors in the downturn. The market for PGMs was also significantly impacted by destocking and some Operating Statistics Marikana conventional underground mining costs selling of inventories by vehicle manufacturers. In in the year increased by only $30 million or 7.1% over addition there was a significant reduction in the the year to 30 September 2009, despite wage investment holdings of Exchange Traded Funds inflation of 12.5% and increased ore reserve (ETFs) which had fallen from nearly 500,000 Platinum development costs, mainly due to the restructuring ounces during July 2008 to circa 280,000 Platinum benefits in half two estimated at $33 million. ounces at September 2008. During 2008 the new shafts, Hossy and Saffy, first Between March 2008 and July 2008 Platinum became fully operational and began to incur working and Rhodium traded consistently above $2,000 per costs. In 2009 the shafts were fully operational during ounce and $9,000 per ounce respectively. There the whole year and production increased by nearly was then a sharp decline with Platinum falling to 50%. These factors gave rise to an increase in costs a low point of $756 per ounce on 27 October 2008 for these shafts of $35 million or 46.5% as planned. Shareholder Information and Rhodium falling to a low point of $1,000 per Processing and concentrating costs increased by ounce on 25 November 2008. Pricing remained at $18 million reflecting incremental utility costs, costs low levels during the first calendar quarter of 2009 due to the Smelter rebuild, additional toll fees, but subsequently there have been some signs of investments in plant maintenance and additional recovery. Global light vehicle sales volumes have staff to improve plant stability and recoveries. been increasing since the start of 2009, supported by stimulus measures in a number of countries, and vehicles stocks are at historically low levels. The ETFs have been restocking indicating growing confidence in price improvements with holdings recovering to 560,000 Platinum ounces at the year end and the Chinese jewellery market has grown significantly. www.lonmin.com 19 Financial Review (continued) Overhead costs are $74 million lower than 2008. In summary Rand costs at R8.8 billion are Approximately $30 million of this saving has been R0.6 billion lower than 2008 despite a 12.5% wage generated by lower royalties (which are profit related) increase and are below our guidance issued at the and a decline in share-based payments and half year. This reflects ongoing benefits of the associated taxes. However, the remaining $44 million restructuring programme as well as the benefit of of saving has been created through specific actions. closed operations. In 2010 the Directors expect Rand The scope of exploration activities has been reduced gross costs to increase by less than local inflation, significantly with expenditure less than half that of the despite anticipated mining volume increases, due to prior year. The London Head Office has been a full year's benefit arising from the restructuring and refocused with a reduction of approximately one-third ongoing cost control measures. of the staff and central costs in South Africa have Restructuring programme been reduced. Training and consulting costs have In total the restructuring undertaken in the year also been reduced. resulted in a headcount reduction in excess of 7,000 Costs have also reduced by $76 million following as per our guidance at the interims. Around 4,800 the cessation of production at unprofitable operations. employees left the Group, with 3,600 of these leaving Opencast operations ceased on 31 December 2008 as part of the restructuring programme (of which less with subsequent costs incurred only with respect to than 300 were as a result of compulsory redundancy) rehabilitation. The intention to close the Limpopo and a net reduction of 1,200 through natural attrition. Baobab shaft was announced in November 2008. Nearly 2,300 contractor positions were removed. After a 21 day wage related strike in December effective The programme was substantially implemented at the operations, and therefore production, ceased. From end of the first half. In comparison to the anticipated December to March, when the operation was closed, annualised labour cost benefit of $90 million (R900 Limpopo operating costs have been treated as a million) announced at the interims the Group has special item. After March the ongoing care and saved $64 million (R525 million) in the second half. maintenance costs have been treated as underlying This means that we have outperformed our initial costs but are a fraction of the full operating costs. expectations even allowing for the strengthening of The cost of ore purchased from the Pandora joint the Rand and also that a payback on the $49 million venture is $41 million lower than the prior year with one-off restructuring cost has already been achieved. volume falling due to the cessation of opencast operations and the fall in metal prices which Cost per PGM ounce determine the bought-in price. The cost per PGM ounce produced by Marikana Movements on metal stock inventory were very operations for the year to 30 September 2009 at different between 2008 and 2009. During 2008 stock R6,590 was 7.4% higher than 2008. Whilst overall levels increased by $128 million from a low point at Rand costs were well controlled given the 12.5% pay September 2007, due to escalating costs and an award, as described above, the reduction in inventory build up. Conversely in 2009 the metal production volumes impacted unit costs negatively. inventory value has reduced by $48 million with A key factor was the frequency and severity of safety reduced inventories, despite the Smelter operating at related shutdowns in the year which caused an low power levels at the end of the year. These two increase of circa R200 per PGM ounce. movements in aggregate have caused a $176 million Further details of unit costs analysis can be found adverse effect. in the operating statistics table on page 139. It should Foreign exchange has been an extremely positive be noted that with the restructuring of the business factor with a $189 million benefit arising on the the cost allocation between business units has been translation of costs with the average Rand to US Dollar changed and therefore whilst the total is on a like-for- rate of exchange for costs weakening by 18%. This like basis individual line items are not totally was partially offset by a $10 million adverse movement comparable. arising from the translation of working capital. 20 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review Special operating costs The Rights Issue had a major impact on reported In FY08 special costs had a significant impact on net finance costs in the year with three factors operating profit with $199 million being charged. This contributing all of which have been treated as special largely related to the impairment of assets related to items in the income statement: Limpopo, together with bid defence costs and a • The Group undertook forward currency hedges to pension settlement. In 2009 the one-off costs of $49 fix the US Dollar value from Sterling receipts arising million related to costs associated with the reduction from the fully underwritten Rights Issue and as a in employees together with the abnormal operating result received $458 million net of expenses and costs for Limpopo operations, subsequent to the exchange differences in line with the $457 million Directors' Report – Governance announcement of closure, and the cost of the estimated in the prospectus. However, Sterling restructuring programme itself. More details can be strengthened prior to the Rights Issue proceeds found in note 3 to the accounts. being received and if no cover had been taken the Group would have received an additional Impairment of available for sale financial assets $33 million. This fair value loss is taken through The Group holds listed investments which are marked the income statement under IFRS with the to market. In financial year 2008 the market value of corresponding offset increasing share premium. certain of these investments fell below the original acquisition cost and this resulted in a $19 million • Rights Issue proceeds were received over the impairment which was taken to the income offer period in Sterling or Rand and were statement. In 2009 further mark to market losses recognised at spot rates on the date of receipt. were incurred resulting in $39 million further charges The retranslation of these balances prior to the being recognised at the interim results. Subsequent closing of the offer resulted in a loss of $4 million to March 2009 the value of these investments have recognised in exchange on net debt. Financial Statements recovered by $9 million however, under IFRS, these • There is a $36 million loss arising as a result of gains are reflected directly in equity. IAS 32 as adopted by the EU recognising a derivative liability in respect of the Rights Issue. Summary of net finance (costs) / income This loss does not impact cash and, as it is Year to 30 September effectively reversed in retained earnings, has no overall impact on the balance sheet and financial 2009 2008 $m $m position of the Group. IAS 32 was amended in October 2009 such that, once adopted by the Net bank interest and fees (20) (18) EU, the Rights Issue would be treated more Capitalised interest payable appropriately as an equity transaction. In this case and fees 23 23 the $36 million loss would not arise. Note 29 to Exchange (20) (2) the Accounts gives more detail in this regard. Rights Issue impacts (73) – Operating Statistics Other (2) 4 The total net finance cost of $92 million for the year was therefore $99 million adverse to the prior Net finance (costs) / income (92) 7 year of which $73 million related to special items arising from the treatment of the Rights Issue (see Net interest charges and fees were little changed note 29 to the Accounts). in 2009 and correspondingly capitalised interest was also similar. The volatility and significant weakening Share of profit of associate and joint venture of the Rand against the US Dollar at times during the The share of profit has decreased by $26 million in year to 30 September 2009 had a marked impact the period reflecting the reduced profitability of the on Rand cash balances held for operational and Pandora joint venture, which has been impacted by funding purposes resulting in $23 million of exchange the reduction in metal prices in a similar manner to losses which was the main component of the the Group, and by reduced income in the Incwala Shareholder Information $20 million charge. associate as a result of significantly reduced minority dividends paid by the Group's operating subsidiaries. www.lonmin.com 21 Financial Review (continued) (Loss) / profit before tax and earnings Cash flow Reported losses before tax for the year to The following table summarises the main components 30 September 2009 at $272 million are $1,051 million of the cash flow during the year: worse than the prior year. This has been driven by the Year to 30 September $906 million decline in reported operating profit, the $99 million adverse movement on net finance costs, 2009 2008 the decrease of $26 million in the Group's share of $m $m profit from associates and joint ventures and the further Operating (loss) / profit (142) 764 $20 million loss on available for sale financial assets. Depreciation and amortisation 94 96 Reported tax for the current year was a charge of Impairment – 174 $51 million. Current tax in the year effectively reflects the secondary tax on dividends with negligible corporate Operating profit before taxation in the year. A net $38 million adverse depreciation, amortisation exchange loss arose on the retranslation of Rand tax and impairment (48) 1,034 liabilities which is treated as special. In comparison to Change in working capital 110 (84) the $213 million charge for reported tax in the prior Other 1 (3) year this resulted in a $162 million benefit. Cash flow from operations 63 947 Loss for the year attributable to equity shareholders Interest and finance costs (31) (12) amounted to $285 million (2008 – profit $455 million) Tax (48) (229) and the loss per share was 163.7 cents compared with earnings per share of 277.8 cents in 2008. Underlying Trading cash (outflow) / inflow (16) 706 loss per share, being earnings excluding special Capital expenditure (234) (378) items, amounted to 59.2 cents (2008 – underlying Proceeds from disposal of earnings per share 335.8 cents). The loss and assets held for sale – 1 earnings per share figures have been adjusted to Dividends paid to minority (21) (65) reflect the effect of the Rights Issue. Free cash (outflow) / inflow (271) 264 Balance sheet Investment in joint venture / A reconciliation of the movement in equity shareholders' disposals (5) 3 funds for the year to 30 September 2009 is given below. Financial investments – (17) Net proceeds from rights $m shares issued (before foreign Equity shareholders' funds exchange loss on advance as at 1 October 2008 2,147 cash held) 462 – Recognised income and expense (280) Other shares issued 16 6 Shares issued 508 Equity dividends Reversal of fair value movements received / (paid) 3 (186) on Rights Issue derivative liability 36 Cash inflow 205 70 Share-based payments and other 6 Opening net debt (303) (375) Equity shareholders' funds Foreign exchange (27) 2 as at 30 September 2009 2,417 Unamortised fees 12 – Closing net debt (113) (303) Equity shareholders' funds were $2,417 million at 30 September 2009 compared with $2,147 million Trading cash (outflow) / inflow at 1 October 2008, an increase of $270 million. (cents per share) (9.2)c 431.0c This was due to the recognition of $280 million of Free cash (outflow) / inflow attributable losses being more than offset by the total (cents per share) (155.6)c 161.2c increase in share capital and share premium of $508 million from the issue of shares, of which $491 million Note: Trading cash flow per share and free cash flow per share arose on the Rights Issue (net of costs) and the have been restated for the effects of the Rights Issue. reversal of the $36 million loss on the Rights Issue derivative liability loss as described above. Cash flow generated from operations in the year Net debt at $113 million has decreased by $190 was positive, at $63 million, despite being impacted million since the 2008 year end mainly due to the by the restructuring programme which caused a cash benefit of the Rights Issue. outflow of $49 million. Compared to the prior year, Gearing, calculated on net borrowings attributable cash flow generated from operations was down by to the Group divided by those attributable net $884 million due to the adverse impact of the fall in borrowings and the equity interests outstanding at the operating profit before depreciation, amortisation and balance sheet date, was 2% at 30 September 2009 impairment of $1,082 million being offset to a limited and 12% at 30 September 2008. extent by the $194 million turnaround in the working capital position. This change in working capital 22 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review reflected a substantial improvement in trade debtors, Dividends partly through lower metal prices but also through The Board's policy remains that dividends are based the achievement of improved credit terms, together upon reported earnings for the year with due regard for with the favourable relative movement on the stock the projected cash requirements of the business. As a position being offset by a reduction in creditors which result of our financial results for the year and with 2010 was impacted by a Rand translation effect. After still potentially challenging for PGM prices and exchange interest and finance costs of $31 million and tax rates the Board has decided not to declare a dividend in payments of $48 million, trading cash outflow for the respect of the year to 30 September 2009. year amounted to $16 million against a $706 million Directors' Report – Governance Financial risk management inflow in the prior year. The cash flow on interest and The main financial risks faced by the Group relate to finance costs increased due to the payment of the availability of funds to meet business needs (liquidity arrangement fees on the renegotiation of bank risk), the risk of default by counterparties to financial facilities. The tax payments in 2009 represented the transactions (credit risk), fluctuations in interest and final on account payment in respect of 2008 profits foreign exchange rates and commodity prices. The and a limited outflow of secondary taxes in respect Group also has a number of contingent liabilities. of the dividend. The trading cash outflow per share was These factors are the critical ones to take into 9.2 cents in the year to 30 September 2009 against a consideration when addressing Going Concern. As 431.0 cents inflow in the year to 30 September 2008 is clear from the following paragraphs, we are in a as restated for the Rights Issue. strong position. There are, however, factors which Capital expenditure cash flow at $234 million was are outside the control of management, specifically, $144 million below the prior year with the Group volatility in the Rand / US Dollar exchange rate and reducing expenditure in the current difficult economic PGM commodity prices, which can have a significant environment. In Mining the expenditure was focused Financial Statements impact on the business and sensitivities are disclosed on development of the operations at Hossy and Saffy, in this regard. equipping at K4 and investment in sub-declines at K3 as well as securing some water resources at Akanani. Liquidity risk In the Process Division we invested mainly in the The policy on overall liquidity is to ensure that the Smelter upgrade and in improvements at the Group has sufficient funds to facilitate all ongoing Concentrators. This expenditure was below our market operations. guidance of $250 million reflecting strict controls on As part of the annual budgeting and long term this area of spend. For 2010 our guidance for capital planning process, the Group's cash flow forecast is expenditure is up to $270 million. This reflects the reviewed and approved by the Board. The cash flow need to invest ahead of the expected market upturn forecast is amended for any material changes in order to deliver more ounces from 2011 onwards identified during the year e.g. material acquisitions which will also assist in improving unit cost performance. and disposals. Where funding requirements are Operating Statistics We will, however, always balance the need to invest identified from the cash flow forecast, appropriate with the requirement to maintain a strong balance measures are taken to ensure these requirements can sheet and will manage spend accordingly. be satisfied. Factors taken into consideration are: Dividends paid to minorities in the year at $21 • the size and nature of the requirement; million were $44 million lower than the prior year. The • preferred sources of finance applying key criteria dividend paid in the year largely related to profits of cost, commitment, availability, security / generated in 2008. covenant conditions; Free cash outflow at $271 million was $535 million adverse to the prior year with free cash inflow • recommended counterparties, fees and market per share of 161.2 cents deteriorating to an outflow conditions; and of 155.6 cents. As reported at the 2008 final results • covenants, guarantees and other financial and 2009 interims the Directors decided not to commitments. Shareholder Information declare a dividend. Consequently no dividend cash In the year Lonmin completed the refinancing outflow occurred in the year. of $575 million of existing committed facilities In the second half, Lonmin Plc undertook a Rights comprising, in the UK, a $250 million revolving Issue which raised $462 million of equity net of credit facility and a $150 million amortising term transaction costs and the loss on forward currency loan (both now maturing in 2012) and, in South hedges. The transaction also gave rise to a $4 million Africa, a $175 million revolving credit facility maturing loss on the exchange on net borrowings and in November 2010 (together the "New Facilities"). therefore resulted in a $458 million inflow, in line with This refinancing has significantly lengthened the the prospectus. In addition the International Finance tenure of the Company's banking facilities. In June Corporation exercised an option in the year to subscribe 2009, the Company successfully completed a 2 for for Lonmin share capital and this represented the 9 Rights Issue which raised net proceeds of $458 majority of the remaining equity issuance. million and further strengthened the balance sheet. The overall cash inflow for the year to 30 September Some of these proceeds were used to pay down was $205 million which decreased net debt accordingly. debt in the UK, the remainder being held on deposit. www.lonmin.com 23 Financial Review (continued) In addition the Company agreed with its banks to • Originally, key covenants for this facility, which are waive all EBITDA covenants at September 2009 and to be tested at the WPL / EPL level in South March 2010 as well as the net debt to EBITDA Africa, included a minimum EBITDA / net interest covenants at September 2010. Our relationship ratio of 3.5 times, and a maximum net debt / banks have shown clear confidence in our business EBITDA ratio of 2.75 times; these covenants are by agreeing to these New Facilities and covenant to be tested on a rolling 12 month basis every 6 waivers and we fully expect this support to continue. months on 31 March and 30 September. These As at 30 September 2008, Lonmin had net debt covenants are consistent with our $300 million of $303 million. At 30 September 2009, Lonmin's net term loan which expires in mid 2013. We have debt had decreased to $113 million, comprising $407 successfully secured a covenant waiver for the million of drawn down facilities net of $282 million of net debt / EBITDA ratio at 30 September 2009, cash and equivalents and $12 million of unamortised 31 March 2010 and 30 September 2010 and the bank fees. This represents a decrease in net debt EBITDA / net interest ratio at 30 September 2009 from 30 September 2008 of $190 million. and 31 March in both the $175 million multi- Lonmin has $875 million of committed facilities in currency revolving credit facility and the $300 place, with $575 million of these comprising new million term loan. As a consequence of this, the facilities. The main elements of the new facilities can margin on the $300 million term loan has be summarised as follows: increased from 100bps to 300bps. • For the period commencing April 2009, Lonmin • One-off up-front arrangement and lending fees has agreed a new $250 million revolving credit associated with the debt refinancing amount to facility in the UK, which will expire in November $14 million and will be amortised over the life of 2012. the facilities they relate to. • For the period commencing August 2009, Lonmin With the commencement of the New Facilities has agreed a new $150 million forward-start and the re-pricing of the $300 million term loan, amortising loan facility in the UK, which will expire interest payable will increase and an effective funding in November 2012. The amortisation of this facility rate of circa 6% is anticipated. consists of $20 million payable every six months starting in July 2010, with a final repayment of Credit risk $50 million in November 2012. Banking counterparties • The margin on both these facilities is 400 basis Banking counterparty credit risk is managed by points up to 31 March 2011, and will thereafter spreading financial transactions across an approved be determined by reference to net debt / EBITDA list of counterparties of high credit quality. Banking and will be in the range 250bps to 400bps. counterparties are approved by the Board. • The key covenants in these facilities originally Trade receivables included a maximum net debt / EBITDA ratio of The Group is exposed to significant trade receivable 4.0 times, to be first tested in March 2010; a credit risk through the sale of PGM metals to a limited minimum EBITDA / net interest ratio of 4.0 times, group of customers. to be first tested in March 2010; and a maximum This risk is managed as follows: net debt / tangible net worth ratio of 0.75 times, • aged analysis is performed on trade receivable to be tested in September 2009 and March 2010, balances and reviewed on a monthly basis; and moving to 0.7 times on a semi-annual basis • credit ratings are obtained on any new customers thereafter. We have successfully secured a and the credit ratings of existing customers are covenant waiver for the net debt / EBITDA ratio at monitored on an ongoing basis; 31 March 2010 and 30 September 2010 and the EBITDA / net interest ratio at 31 March 2010. • credit limits are set for customers; and • In South Africa, Lonmin has secured an extension • trigger points and escalation procedures are to the maturity of the existing $175 million multi- clearly defined. currency revolving credit facility to November Interest rate risk 2010; this facility was previously due to mature Currently, all outstanding borrowings are in US Dollars in October 2009. The margin is 141bps over and at floating rates of interest. Given current market JIBAR until 30 September 2009 if drawn in Rand, rates, this position is not considered to be high risk at with pricing on US Dollar draw downs being this point in time. This position is kept under constant negotiated at the time. The margin from review in conjunction with the liquidity policy outlined 1 October 2009 will be 350bps over JIBAR. above and the future funding requirements of the business. 24 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review Foreign currency risk Fiscal risk Most of the Group's operations are based in South The South African Government originally intended to Africa and the majority of the revenue stream is in US introduce a new Mining Royalty in 2009, but this has Dollars. However, the bulk of the Group's operating now been deferred until 1 March 2010. The Royalty costs and taxes are paid in Rand. Most of the cash Bill has now been enacted, the Royalty being received in South Africa is in US Dollars and is calculated based on a percentage of Gross Sales. normally remitted to the UK on a regular basis. Most The percentage is calculated using a formula of the Group's funding sources are in US Dollars. depending on whether the Company sells The Group's reporting currency remains the US concentrate, ore or refined products. The Royalty Directors' Report – Governance Dollar and the share capital of the Company is based formula is subject to a minimum royalty rate of 0.5%, in US Dollars. which will be applicable if the formula calculation Our current policy is not to hedge Rand / US results in a rate of less than 0.5%. Dollar currency exposures and therefore fluctuations The formula for refined products is: in the Rand to US Dollar exchange rate can have a significant impact on the Group's results. A % of Gross Sales = Adjusted EBIT* x 100 strengthening of the Rand against the US Dollar has Gross Sales x 12.5 an adverse effect on profits due to the majority of operating costs being paid in Rand. * Adjusted EBIT for the purpose of the Royalty calculation is statutory EBIT adjusted for, amongst other things, depreciation The approximate effect on the Group's results of a and a capital deduction based on Mining Tax rules. 10% movement in the Rand to US Dollar 2009 year average exchange rate would be as follows: Contingent liabilities At the balance sheet date indemnities given by EBIT ± $91m Lonmin to Impala Platinum Holdings Limited (Impala) Financial Statements Profit for the year ± $53m of R618 million ($83 million) were shown as EPS (cents) ± 30.4c contingent liabilities. These indemnities were in respect of any non-payment by any HDSA of the These sensitivities are based on 2009 prices, vendor financing amounts arising on the sale of the costs and volumes and assume all other variables 9.11% interest in Western Platinum Limited and remain constant. They are estimated calculations only. Eastern Platinum Limited on the relevant due date. Lonmin has a counter indemnity claim for the full Commodity price risk amount which is secured on the relevant HDSA Our policy is not to hedge commodity price exposure investor's shares in Incwala. After the balance sheet on PGMs and therefore any change in prices will have date, R294 million ($39 million) has been called by a direct effect on the Group's trading results. Impala and was paid on 7 October 2009 resulting in On base metals, which are by-products of PGM the recognition of a HDSA receivable (which is Operating Statistics production, hedging is undertaken where the Board backed by the counter indemnity). A further R147 determines that it is in the Group's interest to hedge a million ($20 million) is exercisable on 16 December proportion of future cash flows. Policy is to hedge up 2009. Of the remaining indemnity, R118 million to a maximum of 75% of the future cash flows from ($16 million) is enforceable on 30 September 2011 the sale of Nickel and Copper looking forward over and R59 million ($8 million) is enforceable on the next 12 to 24 months. The Group has undertaken 16 December 2011. a number of hedging contracts on Nickel and Copper Further contingent liabilities are explained in detail sales using outright forward contracts. in note 25 to the Accounts. The approximate effects on the Group's results of a 10% movement in the 2009 financial year average metal prices achieved for Platinum (Pt) ($1,086 per ounce) and Rhodium (Rh) ($1,571 per ounce) would Shareholder Information be as follows: Alan Ferguson Pt Rh Chief Financial Officer EBIT ± $74m ± $15m Profit for the year ± $44m ± $9m 13 November 2009 EPS (cents) ± 25.2c ± 5.1c The above sensitivities are based on 2009 volumes and assume all other variables remain constant. They are estimated calculations only. www.lonmin.com 25 Internal Controls and Risk Management This section explains the Group's internal control environment, how we assess its effectiveness and how we identify, evaluate and manage risk. There is also a discussion of the principal risks and uncertainties facing the Group, the consequences if these are not managed and the mitigations currently relied upon by management. Internal controls The Company complied throughout the year under review and continues to comply with the provisions of the Combined Code on internal controls and the relevant parts of the Turnbull and Smith guidance. While the Board has overall responsibility for the Company's system of internal control, management is responsible for implementing agreed Board policies. It is important to recognise that systems of internal control can only be designed to manage, rather than eliminate, the risk of failure to achieve the business objectives and cannot provide absolute assurance against material mis-statement or loss. Key features of the Company's internal control framework, which supports the financial reporting process, include: • a schedule of matters reserved for the Board's decision; • detailed terms of reference for the Board Committees; • a Code of Business Ethics and external whistle-blowing hotline; • Human Resources policies which establish a consistent set of values and standards for managing employees and contractors throughout the group; • a document summarising the delegation of authority cascade from the Board to the various levels of Group management; • documented policies and procedures for certain key group-wide matters, including treasury, capital investment, risk management, human capital and procurement, supported by local policies and procedures as necessary; • the Group strategy and Life of Business Plan, supported by the mineral resource database and model, and annual technical and financial budgets; • systems including the SAP enterprise resource planning system, a bespoke metallurgical tracking system and a detailed mine planning system; • management reporting against plans, budgets and forecasts; • external audit and other assurance, including a biennial audit of mineral reserves and resources; and • internal audit and other in-house review processes. To ensure that the Audit and Risk Committee has full oversight of the work of the internal audit function, the Head of Internal Audit reports to the Chairman of the Audit and Risk Committee, with a joint reporting line to the VP, Treasury and Risk. The Audit and Risk Committee meets regularly with both the internal and external auditors to discuss internal control and other matters arising from the assurance process. The Board is responsible for reviewing the effectiveness of the system of internal control, including financial, operational and compliance controls and systems for the identification and management of risk. This task is carried out on behalf of the Board by the Audit and Risk Committee, which has undertaken a review of the internal control environment following the year end. To do so, the Committee assessed the following: • responses provided by circa eighty senior managers in management confirmation letters completed at the end of the financial year, designed to provide assurance on the effectiveness of internal controls and compliance with Group policies and procedures; • a number of external parties providing assurance on different parts of the business and its control environment; • progress made by management in identifying and mitigating the key risks facing the Group; • routine management reporting on business performance and results; and • reports provided to the Audit and Risk Committee by both internal and external auditors and other specialist advisors in relation to the Group's risk and control environments. Action has been, or is being, taken where necessary to address as far as practicable any significant failings and weaknesses identified in the reviews of effectiveness of internal controls whether they are financial, operational or compliance. 26 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review Risk management There is an ongoing process in place for identifying, evaluating and managing the significant risks facing the Group that has been in place throughout the year under review and to the date of approval of the accounts. This process has been reviewed regularly by the Audit and Risk Committee on behalf of the Board, and accords with the guidance appended to the Combined Code. The approach taken is systematic and combines both a "top-down" and a "bottom-up" review and approval process. All senior managers are responsible for managing and monitoring risks that could impede the achievement of business objectives and these are recorded in a risk register. It is mandatory for this process to take place at least once a year, but in practice a more frequent review takes place in most business areas. For each risk identified, management also assesses the root causes, consequences and mitigating controls in relation to the risk. An assessment is then made of the maximum risk exposure and the effectiveness of the controls in place to mitigate that risk. A numerical scoring matrix is used to derive a risk score and priority after Directors' Report – Governance taking account of mitigating controls. Where the risk score and priority remain high after mitigating controls are taken into account, action plans are devised to reduce these risks further and progress against these plans is regularly reviewed. Each of the business areas is supported by an Operational Risk Champion who co-ordinates all risk management activity in that business area and ensures that actions are implemented appropriately. Progress against action plans is also reviewed regularly by the Audit and Risk Committee and reported to the Board. Lonmin Plc Board Financial Statements Executive Committee Audit and Risk Committee Integrated strategic, business and operational risk management Identification & Evaluation Mitigation Reporting KPIs Operating Units Capital Projects Support Functions Operating Statistics Lonmin groups risks into strategic, financial, external and operational risks. The key risks faced by Lonmin, Shareholder Information based on our current understanding, along with their potential impact and the mitigation strategies developed are detailed on the following pages. There is no implied ranking in the order of disclosure. The Company's strategy takes into account these known risks, but risks will exist of which we are currently unaware and the severity or probability of the occurrence of known risks may change from time to time. www.lonmin.com 27 Internal Controls and Risk Management (continued) Strategic Risk Impact – Ineffective or poorly executed strategy fails to create shareholder value or fails to meet shareholder expectations. Risk Impact Mitigation Corporate & Social Non-delivery of our Social and Labour Social and community programmes are monitored by the Responsibility* plan could result in the withdrawal of Executive Committee and the Safety and Sustainability our Mining Licence. Committee. Clear KPIs set and measured on a regular basis. Ongoing dialogue with the relevant authorities. Failure to comply with Results in a deteriorating relationship Full engagement with the DMR in South Africa and further Black Economic with the Department of Mineral Resources engagement with all other stakeholders to ensure compliance. Empowerment (BEE) (DMR) in South Africa. codes in relation to mining e.g. failure to achieve BEE equity participation of 26% by 2014 Investment and business Shareholder value not optimised. Review of strategy and financial returns at Board level on an decisions fail to deliver annual basis. Consistent investment appraisal process applied shareholder value to new capital spend. Opportunities have been taken to restructure the business by stopping production of unprofitable ounces to maximise shareholder value. A comprehensive defence strategy is in place. Access to a secure Could impact on the ability to run Measurement of water usage and water saving initiatives supply of water current operations and deliver future implemented. Plans aligned with long term strategy of the expansion plans. Company and additional water suppliers for key areas to be secured accordingly. Access to a secure Could impact on the ability to run Measurement of energy usage and energy saving initiatives supply of electricity current operations and deliver future implemented. Load shed and contractual agreements in place expansion plans. with Eskom (SA energy supplier). Continuity planning in place and additional supply for key areas to be secured accordingly. * see Sustainable Development Review for more detailed disclosure Financial Risk Impact – Asset performance and / or excessive leverage results in the Group not being able to meet its financial obligations. Risk Impact Mitigation Foreign exchange risk Significant fluctuations in exchange Current policy is not to hedge this currency pair. There is a long (specifically rates to which the Group is exposed term correlation between US Dollar / SA Rand and PGM basket US Dollar / SA Rand) could have a material adverse effect on price, although this can dislocate over the shorter term. the Group's future financial condition. Commodity price risk Significant fluctuations in commodity Current policy is not to hedge PGM basket prices. There is a prices to which the Group is exposed long term correlation between US Dollar / SA Rand and PGM could have a material adverse effect on basket price, although this can dislocate over the shorter term. the Group's future financial condition. Hedging of base metals is undertaken under the remit of the Price and Risk Committee. Uncompetitive gross Could have a material adverse effect on High cost per ounce assets put on care and maintenance. Cost and / or unit costs the Group's competitive position and base tailored to fit the current environment through the recent future financial condition. restructuring programme. Clear understanding of our competitive position and required productivity improvement plans in place. Access to cost The Group may not be able to obtain Tenure of debt extended. Rights Issue completed this year to effective funding** cost effective funding when required which strengthen the balance sheet, key covenants in banking lines could impact on the ability of the Group to constantly monitored through rolling cash flow forecasts with meet its liabilities as they fall due. appropriate covenant waivers in place for FY10. Regular contact with our banking group. ** see Financial Review for more detailed disclosure 28 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review External Risk Impact – The political, industry or market environment may negatively impact on the Group's ability to independently manage and grow its business. Risk Impact Mitigation Changing political The occurrence of such a change could Ongoing dialogue with the relevant government at all levels and landscape in any of the have a material adverse effect on the other key stakeholders. Effective communications programmes countries in which we Group's future operational performance with key stakeholders. Other PGM mining companies would operate negatively and financial condition. face the same issue. impacts the business PGM supply & Significant changes to either / both the supply Gathering market information from customers and other demand volatility and demand side in the PGM industry sources. Monitoring market segments and trends in the Directors' Report – Governance (e.g. production substitution or supply side industry. Continue to support initiatives to develop existing constraints) could have a material adverse and new markets for PGMs. Longer term volume contracts effect on the Group's future operational with key customers. performance and financial condition. Operational Risk Impact – Operational event impacting staff, contractors, communities or the environment leading to loss of revenue and / or reputation or increased costs. Risk Impact Mitigation Inadequate and / or poor Significant changes to our assessment of Bore hole sampling and seismic surveys conducted under the quality ore reserves the quality and extent of our ore reserves supervision of specialist geologists coupled with independent could have a material adverse effect on audits of reserves. Quality in-house technical team with multiple the Group's future operational performance internal review processes. and financial condition. Financial Statements Lack of long term ore Shareholder value not optimised over the Independent peer review of Long Term Plan before submission reserve depletion planning long term. to the Board. Lack of short term ore Could severely disrupt operations and have Technical Services functions acting independently of mine reserve development a material adverse effect on the Group's management located at mine shafts scrutinising flexibility and planning financial condition. working areas. Performance measured and reported to the Board. Recoveries throughout Could have a material adverse effect on Grade targets set and measured by assay and sampling in Mining. operations not maximised the Group's financial condition. In Processing, plant maintenance programmes ensure plant stability to assist recoveries. Technical Services functions acting independently of operational management scrutinise management information. Experienced management teams and clear benchmarks set. Inadequate backup Could severely disrupt operations and have Pyromets provide an element of back-up capacity. Spare Operating Statistics smelting capacity a material adverse effect on the Group's capacity in No. 1 furnace currently gives ability to catch up. financial condition. Re-design of No. 1 furnace includes improved monitoring and fault detection technology. Study initiated into how this risk could be further mitigated. Major fault on key Could severely disrupt operations and have Plant maintenance programmes coupled with an on-site stock piece of equipment a material adverse effect on the Group's of critical spares. financial condition. Contamination and / or Could lead to health concerns in local Emissions monitored by regular sampling. Scrubber systems emissions impacting on communities, withdrawal of relevant in place. Long term disposal strategy for calcium sulphite the surrounding licences and potential litigation. established. Re-lining of tailings dams to prevent groundwater environment and pollution. communities Shareholder Information Fraud and / or theft Could have a material adverse effect on Fraud awareness training and security reviews supported by a of product the Group's financial condition. code of ethics and whistle blowing programme. Security and Investigations department operations in key areas on the business. Failure of safety routines Could put lives at risk, severely disrupt Safety & Sustainability Committee oversees all safety matters. and / or safety strategy operations and have a material adverse Safety standards set and monitored regularly throughout the effect on the Group's financial condition. Company. Clearly defined safety protocols including Safe Behaviour Observations. Plant maintenance programmes supported by critical spares inventory. Regular independent safety audits and inspections by the DMR. Deteriorating industrial Could severely disrupt operations and Full engagement strategy with the unions and employees relations and / or union have a material adverse effect on the supported by our other external relationships. disruption Group's financial condition. Failure of internal Could severely disrupt operations and Clear organisational structure with appropriate segregation of controls have a material adverse effect on the duties. Independent internal and external audits with follow up Group's financial condition. of outstanding action points. www.lonmin.com 29 Key Performance Indicators 1,000 940 910 800 794 Ounces (000's) 727 683 600 Sales – platinum ounces sold. Platinum ounces sold are those ounces we produce either 400 as refined ounces or recoverable ounces sold in concentrate. 200 0 05 06 07 08 09 Financial year 1,000 963 800 830 796 600 Underlying EBIT (Earnings Before Interest and Taxation). $m For any business the ultimate aim is to grow underlying EBIT 400 and deliver value to shareholders. We track our performance by looking at our EBIT from continuing operations. Underlying EBIT 362 is calculated on profit for the year and excludes the effect of 200 one-off and non-trading items. 0 (93) 05 06 07 08 09 Financial year 400 380 300 290 264 200 100 Free cash flow. US$m 56 We believe that a key metric of how successful we are as a 0 business is ultimately the amount of cash we generate before (271) dividends and acquisitions. -100 -200 -300 05 06 07 08 09 Financial year 30 2009 Annual Report and Accounts / Lonmin Plc 7,000 6,630 6,271 Rand per PGM oz produced 5,600 Directors' Report – Business Review 4,200 Lonmin Costs – C1 costs of own production. 4,168 Cost per unit is key to allowing us to operate profitably for far longer through any down cycle. C1 costs are defined as cash operating 2,800 3,057 costs per PGM ounce produced. 2,541 1,400 0 05 06 07 08 09 Financial year Directors' Report – Governance 3.0 2.4 2.5 Centares (000,000's) Development – Immediately Available Ore Reserves. We have placed a renewed focus on mine development, using 1.8 2.0 2.0* a metric of immediately available ore reserves in square metres or centares. 1.7 * (We have changed our reporting methodology for ore reserve development, in 1.2 line with industry best practice, to exclude partially developed ore reserves. We have reported on this more conservative basis for FY09 and will continue to do so going forward. FY08 and prior years are not re-stated). 0.6 Financial Statements 0 06 07 08 09 Financial year 20 18.10 16 Per million hours worked Safety – Lost Time Injury Frequency rate per million man hours worked. 12 As a company we are committed to Zero Harm to our employees 12.50 and contractors. We also regard safety performance as a lead 10.80 Operating Statistics indicator of the health of any business. Lost time injury frequency 8 rate is measured per million man hours worked and reflects all injuries sustained by employees which mean that the injured party 6.27 6.21 is unable to return to work on the next shift. 4 0 05 06 07 08 09 Financial year 6.0 Shareholder Information 4.8 5.22 5.03 Gigajoules per PGM oz 4.80 3.6 4.10 Electricity efficiency. 3.50 We continue to closely monitor and measure our electricity usage and efficency. We are running a number of initiatives across our 2.4 operations to ensure energy efficiency levels are improved. 1.2 0 05 06 07 08 09 Financial year www.lonmin.com 31 Sustainable Development Review GIVEN ITS IMPACT ON DIVERSE AUDIENCES, SUSTAINABLE DEVELOPMENT IS OF CRITICAL IMPORTANCE TO LONMIN, OUR EMPLOYEES, THE COMMUNITIES IN WHICH WE OPERATE AND OUR KEY STAKEHOLDERS. Sustainable development is of critical importance to This summary is derived from our more detailed Lonmin, our employees, the communities in which we Web-based Sustainable Development Report, located operate, and our key stakeholders, given its impact on our website, www.lonmin.com, which provides on these diverse audiences. We remain committed in-depth information including details on our to reporting on the progress of our sustainable sustainable development strategy and profile, development performance. In this section of the 2009 management approach, performance and case Annual Report and Accounts, we publish a summary studies. The Web-based Sustainable Development of sustainable development performance during the Report contains all the disclosures required in line year, focusing on our key sustainable development with the various sustainability reporting criteria and risks: includes an assurance statement by KPMG. • The global economic downturn; • Fatalities, serious injuries and unsafe behaviour; • Empowering Historically Disadvantaged South Africans (HDSA's); • Skilled work force; • Housing of our employees; • Noise Induced Hearing Loss (NIHL); • HIV / AIDS and tuberculosis; • Water resources; • Energy resources; • Minimising closure costs and environmental risks through integrated environmental management and closure planning; • Stakeholder engagement; and • Local economic development. 32 2009 Annual Report and Accounts / Lonmin Plc Governance of Sustainable Development Directors' Report – Business Review THE BOARD OF LONMIN IS COMMITTED TO ACHIEVING AND MAINTAINING THE HIGHEST STANDARDS OF CORPORATE GOVERNANCE AND TO UPHOLDING ETHICAL BUSINESS PRACTICES. WE BELIEVE THAT THIS HELPS CREATE THE BUSINESS INTEGRITY NEEDED TO DELIVER ROBUST AND SUSTAINABLE BUSINESS RESULTS. incidents. We have adopted an industry-standard Directors' Report – Governance The Board has a Safety and Sustainability Committee, which is charged with monitoring the Company's rating scale which grades incident severity, and use performance in this area. Full details of its activities the Incident Cause Analysis Method to investigate are reported on pages 69 to 72. incidents which are rated as level three (equating to the loss of a limb) to level five (this would equate to Our commitments and policies multiple fatalities). The aim is to identify root causes The governance of the Company is underpinned by and appropriate corrective and preventative actions. the values set out in the Lonmin Charter and our The outcomes of all level three and higher investigations commitments in terms of sustainable development are presented to the Executive Committee and the are defined in the Lonmin Safety and Sustainable Safety and Sustainability Committee of the Board. Development Policy. As a member of the International In 2009, all our operations remained ISO 14001 Council on Mining and Metals (ICMM) and the United certified, other than the Assay Laboratory whose Nations Global Compact (UNGC), their principles certification has expired, although we expect this to have been integral to the development of our be reinstated by December 2009. The PMR and the sustainable development approach. Financial Statements Training Academy are ISO 9001 certified. We intend Implementation of our commitments and policies to achieve OHSAS 18001 certification of our The Lonmin Charter and the Lonmin Safety and management systems by 2011. Sustainable Development Policy set out our goals Auditing and assurance and values, and make certain high-level commitments. The Audit and Risk Committee of the Board approves These are implemented through Safety and Sustainable the annual Company-wide internal and external audit Development Management Standards, which outline plan. Audit findings are updated regularly and progress the minimum operating requirements for the Company on mitigation plans is reviewed by the Executive and drive us to deliver on policy commitments in a Committee on a monthly basis and regularly by the methodical and consistent way. They are aligned with Audit and Risk Committee. External auditing of ISO the requirements of South African National Standards 14001, ISO 9001 and OHSAS 18001 management and relevant international standards, particularly systems, and our Environmental Management ISO 14001 and ISO 9001 and OHSAS 18001. Operating Statistics Programme Reports (which form part of the annual Management systems external Environmental Performance Assessment Our management systems are designed to help us audits) are used to drive continuous improvement. manage the business in a systematic and controlled We engage assurance providers who are way, with the aim of delivering robust, consistent and independent from the Company, have the necessary sustainable business performance in all areas, individual and organisational competence and including safety and sustainability. operate in line with best practice guidelines. External The business faces risk, the successful assurance is provided on selected data in this report, management of which enables us to create a return the alignment of our policies and business practices on investment for our shareholders. However, we can with the ICMM principles and our reporting against never operate in a risk-free way and among the key the Global Reporting Initiative's 2006 Sustainability constituents of our management system are risk Reporting Guidelines (GRI) reporting principles. In Shareholder Information management and incident reporting and investigation preparation for this report, we have conducted an processes, under which operational management are internal audit on selected key sustainability indicators. responsible for reporting, rating and investigating www.lonmin.com 33 Governance of Sustainable Development (continued) External organisations and public policy positions Stakeholder engagement and reporting We are proud to be included in the FTSE4 Good We view our stakeholders as those individuals, Index and Johannesburg Stock Exchange Responsible communities or groups that influence our operations Investment Index. We engage in external groups or are affected by our existence. Identifying and where we believe this will assist our performance or responding to stakeholders' expectations and enable us to influence policy or decision making at incorporating their feedback into our decision-making national and international levels. The key groups in processes is an important strategic commitment. which we participate are: Our approach to engagement varies with the nature • ICMM – we have been members of the ICMM of the stakeholder and the specific matters at hand, since 2004 and continue to value our membership. ranging from legally-mandated formal engagement This is a CEO-led organisation representing to ad hoc informal meetings. We engage actively leading international mining and metals companies. with those directly affected by our operations, either As a voluntary member of the ICMM, we support through the nature of our business or through proximity their vision for the mining and metals industry to our locations, and with those stakeholders who being respected, widely recognised as essential demonstrate an interest in our business. Our aim is for modern living and a key contributor to to improve relations by understanding stakeholders' sustainable development. Through our ICMM perspectives and expectations and then participation we also implicitly endorse the communicating our vision, strategies and plans, Extractive Industries Transparency Initiative; and explaining how these have been influenced by • UNGC – we remain a signatory to the UNGC and previous feedback. continue to support the principles of this voluntary initiative, which require us to align our operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption. We are also members of and participate in the International Platinum Association, International Chamber of Commerce, South African Chamber of Mines, the Institute of Business Ethics and a number of forums in a local context applicable to our individual operations. We continue to participate in the Carbon Disclosure Project. 34 Directors' Report – Business Review Case Study: Planning Project Team – A multi-disciplined team, consisting of geologists, mining and engineering specialists, metallurgists and financial analysts Bernabé Kloppers Planning Systems Manager, Mining Engineering Centre of Excellence Building and maintaining a robust Life of Mine Plan, based on Directors' Report – Governance current mining projects, planned capital programmes and future concept studies, is vital in laying the foundations for the future success of the business. In collaboration with the various disciplines across the business, we have modelled and analysed a multitude of scenarios, using the Lonmin economic model for each operating asset, including different mining methods and various recovery rate and pricing sensitivities. This has helped us to understand what impact each scenario would have on the Plan, and ultimately on the value of our asset base and future cashflows. At K4 shaft, for example, a significant building block in our future growth profile, we worked with the Planning Project team to enhance the value of the asset by seeking to achieve optimal future production whilst maintaining the planned low cost profile of the Financial Statements shaft. Simultaneously, we modelled scenarios with the Process Division team regarding the right balance of ore hoisted from the shaft needed to achieve an optimal mix for downstream processing once the shaft reaches full production. At steady state, K4 will contribute around 20% of our total Marikana production, so it is clearly vital that the planning and modelling supporting the development of the shaft are accurate and robust. Operating Statistics "A ROBUST LIFE OF MINE PLAN IS CRITICAL IN MAXIMISING THE VALUE OF OUR ASSET BASE" Shareholder Information Bernabé Kloppers www.lonmin.com 35 Summary of our Performance against our Targets The table below summarises our performance against our key targets and outlines our targets going forward, with ' indicating ' not achieved and '' indicating achieved. Issue Progress Targets for 2009 and beyond Performance and additional targets Human capital We will comply with the principles embodied in the In 2009, there has been no reported United Nations Declaration for Human Rights incident of violation of the principles. (recurring target). We will increase the literacy rate of our employees to 50% by 2009. We have increased the literacy rate of our employees to 47%. We will aim to improve the literacy rates of our employees by 2% in 2010 based on our performance in 2009. We will ensure that 40% of senior and middle management comprise employees from In 2009, 41.3% of senior and middle management comprised employees from designated groups by 2009. designated groups. We will increase the participation of employees from designated groups within senior and middle management to 53% by 2014. Not on track We will increase women in mining to 10% by 2012. In 2009, we have increased the number of female employees at the mine to 6.8% and have increased the number of women in mining to 2.9%. Although we were not on track to achieve our targets in 2009, we have implemented initiatives to enhance the participation of women in our workforce and thus believe that we will achieve our targets in 2012. We will increase female participation at the mine to 11.6% in 2012. Procurement We will increase our total discretionary spend with HDSA suppliers to 60%1 by 2009. In 2009, we have increased our total discretionary spend with HDSA suppliers to 66.6%. We aim to maintain at least 65% of our total discretionary spend with HDSA suppliers by 2012. On track We will have 63% of our total discretionary spend with HDSA suppliers by 2010. Safety We will achieve zero fatalities at our operations each year. In 2009, regrettably three fatalities occurred at our operations. We will improve our LTIFR by 15% by 30 September 2009 (baseline year 2008). As at the end of September 2009, we have improved our LTIFR by 0.96%. We will improve our LTIFR by 10% by 30 September 2010 (baseline year 2009). 1 The target of 50% stated in the 2008 Web-based Sustainable Development Report was incorrect and has been rectified to 60% by 2009. WE ARE COMMITTED TO CONTINUAL IMPROVEMENT IN OUR PERFORMANCE THROUGH A FRAMEWORK OF SETTING AND REVIEWING OUR POLICIES, OBJECTIVES AND TARGETS. 36 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review Issue Progress Targets for 2009 and beyond Performance and additional targets Health We will increase participation of patients in our wellness programme by 20% by 2009. In 2009, the participation of patients in our wellness programme decreased by 51%, this partially being attributed to the restructuring and reorganisational process that was undertaken in 2009, with 17% of patients exiting as a result of restructuring, 28% defaulting from the programme and 6% commencing with ART. We aim to increase participation of patients in our wellness programme by 20% in 2010 Directors' Report – Governance (2009 baseline year). We will train one workplace peer educator for every 75 employees by 2009. In 2009, we have one trained workplace peer educator for every 71 employees. In 2010, we aim to maintain one active workplace peer educator for every 75 employees. We will reduce our number of new NIHL cases by 30% by 2009 (2008 baseline year). In 2009, we have reduced our new diagnosed NIHL cases by 80.9% from our 2008 baseline year. We will reduce our number of new NIHL cases by 10% in 2010 (2009 baseline year). All operations to implement a baseline survey on occupational exposure hazards and establish All operations have implemented baseline surveys on occupational exposure Financial Statements occupational hygiene monitoring and health hazards and have established surveillance programmes by 2009. occupational hygiene monitoring and health surveillance programmes. Environment On track We will reduce our aggregate fresh water intake We have reduced our aggregate fresh by 15% per unit of production (2007 baseline year) water intake by 12.16% per unit of by 2012. production since 2007. Not on track We will reduce our aggregate energy consumption We have increased our aggregate energy per unit of production by 10% by 2012, thereby consumption by 3.77% per unit of reducing greenhouse gas emissions by 5% production and our greenhouse gas (2007 baseline year). emissions by 10.32% per unit of production since 2007. Operating Statistics On track We will reduce our quantities of waste disposed We have increased our quantities of waste of to landfill by 15% (2008 baseline year) by 2012. disposed of to landfill by 23.4% since 2008. This increase can be attributed to the increased disposal of calcium sulphite at landfill until such a time that alternative disposal options are implemented. Excluding the contribution of calcium sulphite, we have reduced our waste disposal to landfill by 2% in 2009. Housing We will convert five hostel complexes into bachelor We remain committed to the ultimate Shareholder Information and / or family accommodation in 2010. construction of 5,500 houses within the GLC. However due to financial constraints the target date for completion of these houses is under review and will be discussed with the Department of Mineral Resources. Community We will spend 41% of our five year financial commitments on local economic development We have spent 41.1% of our five year financial commitments on local economic projects as per the Social and Labour Plan development projects as per the Social by 2009. and Labour Plan. We aim to spend 58% of our five year financial commitments on local economic development projects as per the Social and Labour Plan by 2010. www.lonmin.com 37 Case Study: External Affairs team – Rekopane Development Forum established to ensure better collaboration between stakeholders Minah Yalezo External Affairs Consultant In recent years, we have introduced a number of programmes to support our key stakeholders, including traditional authorities, local government and organised labour. These programmes include the development of communication channels between Lonmin and these stakeholders, the provision of educational and health services to local communities and the facilitation of infrastructure support to those lacking the necessary administrative resources. These programmes are run in partnership with other related stakeholders – a good example of this approach is the Rekopane Development Forum, established by Lonmin, in conjunction with the International Finance Corporation, last year. We invited a number of stakeholders to the forum, including traditional authorities, local government, organised labour and other mining companies, with a view to creating a platform to ensure improved stakeholder collaboration on local community development projects. Our objectives included collaborative project planning and mapping, information gathering and sharing around new possible projects, and regular identification of potential future areas of collaboration. The forum is starting to make progress in establishing a strong multi-stakeholder platform for collaboration – since its establishment, members of the forum are now co-ordinating and implementing 24 collaborative development projects. "WE ARE TAKING A PARTNERSHIP APPROACH IN SUPPORTING OUR KEY STAKEHOLDERS" Minah Yalezo 38 2009 Annual Report and Accounts / Lonmin Plc Economic Directors' Report – Business Review DESPITE THE IMPACT OF THE GLOBAL ECONOMIC DOWNTURN ON OUR FINANCIAL FLEXIBILITY, WE HAVE NOT DEVIATED FROM OUR BELIEF IN THE BUSINESS CASE FOR SUSTAINABLE DEVELOPMENT AND THE ASSOCIATED BUSINESS BENEFITS. In 2009, Lonmin's profitability and cashflows were Despite the impact of the global economic negatively impacted by the global economic downturn on our financial flexibility, we have not Directors' Report – Governance downturn. Consequently, management initiated a deviated from our belief in the business case for major restructuring programme during the year, sustainable development and the associated business resulting in the voluntary separation and forced benefits. Furthermore, we remain fully committed to retrenchments of employees. This impacted our the values of our Charter and our commitments within progress towards increasing the number of HDSA the Safety and Sustainable Development Policy. and female employees within the Company and Further information on the effect of the economic retaining key skills within the workforce. Furthermore, downturn on each of these sustainable development due to the adverse change in our financial situation, aspects have been provided within the body of this we will not achieve our targets to construct houses report. and undertake hostel conversions by 2011. Additionally, the completion deadlines for a number of environmental and social projects have been extended in an attempt to reduce operational expenditure. However, we have taken steps to ensure Financial Statements that this will not have a material impact on the business, our compliance or effect on the environment or communities where we operate. Operating Statistics Shareholder Information www.lonmin.com 39 Safety WE REMAIN COMMITTED TO THE SAFETY AND WELLBEING OF OUR EMPLOYEES AND CONTRACTORS. WE AIM TO MAINTAIN OUR STRONG CULTURE OF SAFE BEHAVIOUR, WITH ZERO HARM TO OUR EMPLOYEES AND CONTRACTORS BEING A CORE VALUE OF THE BUSINESS. Safety remains a major risk factor and mitigating the Through the implementation of these standards, risk of fatalities and serious injuries at our operations we continually strive to eliminate fatalities, reduce resulting from fall of ground, use of track bound injuries and near miss incidents, encourage positive mobile equipment, scraping and rigging remain key behaviour and enhance our training and awareness areas of focus. programmes. The impact of our safety programmes, Our approach to safety is based on a number of management and leadership on our performance is key standards, implemented across our property, reflected by the number of fatalities, LTIFR and including: severity rate, as key safety performance indicators. • Visible leadership: which is crucial to our success Work related fatalities in 2009 in safety and a powerful aid in creating an It is with regret that we report the death of three of interdependent safety culture; our employees during 2009 as a result of fatal injuries • Safe behaviour observations: are carried out as a sustained from the following incidents: lead indicator to our safety performance and we • Mr Mantelana Mvela succumbed to his injuries conduct continuous risk assessments to minimise on 16 February 2009 as a result of a collision unsafe behaviour or situations; involving a loaded locomotive with a stationary • Safety training and awareness campaigns: form an locomotive at K3 Shaft at our Marikana operations; important component of our safety management • Mr Lorenzo Joseppe Myburgh succumbed to his systems; injuries on 10 March 2009 as a result of being in • Incident Cause Analysis Method: through which contact with an unguarded electricity cable we investigate incidents and near-miss incidents, resulting in an electrical flash and subsequent with the objective of root causes being identified burn wounds to his body at K4 Shaft at our and preventative actions taken. Findings from Marikana operations; and these incidents are critical to our efforts in • Mr Clement Tshidiso Motlotla succumbed to his eliminating fatalities and are communicated injuries on 15 July 2009 as a result of a fall of across our operations; and ground at K3 Shaft at our Marikana operations. • Incident reporting: we report safety incidents We extend our sincere condolences to the families to the Department of Mineral Resources as and friends of these three men. required by the Mine Health and Safety Act 29 In 2009, our Company wide fatality frequency rate of 1996, which is aligned with the International amounted to 0.04, which is the equivalent of our Labour Organisation's Code of Practice on 2008 rate and is aligned with international trends as Recording and Notification of Occupational determined and monitored by the Department of Accidents and Diseases. We remain committed Mineral Resources. to achieving OHSAS 18001 certification for all our operations by 2011. 40 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review Directors' Report – Governance Lost Time Injuries Notifications in terms of the Mine Health and The Company completed a restructuring programme Safety Act 29 of 1996 across our operations resulting in the reduction of our In 2009, we were issued with 35 notifications in workforce by approximately 20%. This exercise relation to the Mine Health and Safety Act 29 of 1996, inevitably impacted employee morale and created a including section 54 notifications of the Act. These significant distraction amongst the organisation. The notifications are evidence of a stance by the reduction in headcount occurred mainly in 'low safety government on safety in the mining industry, risk' areas and hence there was no real reduction in which we support. the number of employees in the "higher risk" areas Awards of the organisation, such as the working faces. While In 2009, we were acknowledged by the Association the actual number of LTIs reduced by 7.8%, the of Mine Managers of South Africa for our leading significant reduction in the total number of employees industry safety performance. In June 2009, the and therefore man hours worked affected the association issued seven awards, of which the calculation of LTIFR, which consequently only showed Company won four, as follows: Financial Statements a reduction of 0.96% from our 2008 rate of 6.27 to a rate of 6.21. The severity rate for 2009 was 249.1, • Four million fatality free shifts was awarded to a 28% increase from the previous year. In 2009, Lonmin Marikana; 33% of our LTIs were as a result of material handling, • Three million fatality free shifts was awarded to followed by 15% as a result of fall of ground. In 2010, 4 Belt Shaft; we are committed to reducing our LTIFR by 10% • Three million fatality free shifts was awarded to from our 2009 baseline. K3 Shaft (UG2 section); and • Three million fatality free shifts was awarded to East 1 Shaft. During the year we were also recognised for our leading safety practice with regards to zero harm and K3 Shaft and Rowland Shaft were acknowledged for Operating Statistics two million fatality free shifts and E2 Shaft for one million fatality free shifts. LTIFR and fatalities in 2009 20 7 18 6 16 5 Number of fatalities Incidents per million 14 hours worked 12 4 Shareholder Information 10 3 8 6 2 4 1 2 0 0 05 06 07 08 09 Financial year LTIFR Fatalities www.lonmin.com 41 Our Employees WE ARE SUCCESSFUL WHEN OUR EMPLOYEES LIVE AND WORK SAFELY AND EXPERIENCE THE PERSONAL SATISFACTION THAT COMES WITH HIGH PERFORMANCE AND RECOGNITION. In November 2008, given the impact of the global participation by HDSAs in Lonmin. Incwala has an economic downturn on our profitability and 18% holding in the share capital of our Marikana and cashflows, we commenced a major restructuring Limpopo operations and a 26% stake in our Akanani and reorganisation programme across the business. project. Our other business partners include Consultation with the recognised trade unions and Mvelaphanda Resources, which own 7.5% of the the relevant government authorities was extensive Pandora Joint Venture and 50% of the Dwaalkop and encompassed the identification of areas of Joint Venture; and the Bapo Ba Mogale Mining improvement and cost saving initiatives, with the Company which owns 7.5% of the Pandora Joint consideration of compulsory retrenchment of Venture. During the year, discussions commenced employees as a last option. The restructuring regarding the future ownership of Incwala Resources programme was undertaken as prescribed by the Pty Limited involving the HDSA shareholders of Labour Relations Act 66 of 1995 and in accordance Incwala Resources Pty Limited and their providers with the Restructuring Framework Agreements as of finance and Lonmin. approved by trade unions in respect of Marikana, Preferential procurement Akanani and our Limpopo operations. In 2009, We continue to work towards enhancing the 3,427 voluntary separation applications were approved, participation of HDSA companies in the procurement 258 employees were successfully redeployed and chains of our operations, in terms of goods, services 306 employees were affected by compulsory and consumables. As part of our Social and Labour retrenchments. Plan, we have set targets to increase our total The empowerment of designated groups, the procurement spend with HDSA suppliers to 60% by retention of a skilled workforce and the provision of 2009 and to 63% by 2010. In 2009, we achieved and affordable housing to our employees remain our key exceeded our target for the year with a 66.6% HDSA sustainable development focus areas. Designated procurement spend. In 2009, our HDSA procurement groups refers to persons, disadvantaged by unfair spend was US$523 million and our spend from 2007 discrimination before the Constitution of the Republic totals US$1,310 million. Our procurement strategy of South Africa Act 200 of 1993, came into operation. targets HDSA companies and where this is not The definition of designated groups includes possible, we encourage existing suppliers to form employees who are disabled, women or employees partnerships with HDSA companies. Aligned with our classified as African, Asian or Coloured and who have vision to create stable and economically independent South African citizenship status and who are based communities, we are also focusing on developing in South Africa. supplier opportunities for local HDSA community Empowering Historically Disadvantaged members residing in the greater Lonmin community South Africans (GLC), a term referring to communities situated within We remain committed to implementing the principle a 15 kilometre radius of our operations. of equal opportunity and employment equity while Employment equity maintaining an appropriately skilled and diverse We promote the participation and development of workforce. In line with the Constitution of South employees from designated groups within our Africa, the legislative requirements and our Charter, workforce. In 2009, as a result of the restructuring we are committed to providing the necessary programme completed during the year and the results resources to deliver the requirements of the South of an audit which was undertaken by the Department African Broad-based Socio-economic Mining Charter. of Labour, our employment equity plan has been Ownership and joint ventures revised with the targets from the plan and from the The Mining Charter of South Africa requires that at Social and Labour Plan as follows: least 15% of the equity of mining companies (or • 53% participation in management by designated equivalent units of production) must be owned by groups by 2014; and HDSAs at May 2009, and at least 26% by May 2014. • 10% of women in mining (at our core mining and Incwala Resources (Proprietary) Limited is a South processing operations and applicable to certain African registered company specifically incorporated employment categories) by 2012 and 11.6% of for the purposes of enabling broad-based equity women at the mine Company wide by 2010. 42 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review Designated groups Percentage employees from designated groups in management In 2009, 41.3% of our management employees comprised employees from designated groups, ahead 60 of our target of 40% by 2009. Additionally a number of initiatives have been taken in 2009 to manage and 50 expedite our performance Employment of women 40 We are committed to the employment of women at Percentage our operations, retaining current female employees 30 and to creating a culture that empowers women in the workforce. We have not achieved our 2009 targets of female participation in the Company. We 20 Directors' Report – Governance have 6.8% women at the mine and 2.9% women in mining at our operations. In 2009, 268 women exited 10 the Company, primarily as a result of voluntary separation relating to the restructuring programme. Although we have not reached our target for the 0 05 06 07 08 09 10 11 12 13 14 employment of women at the Company, we have Financial year made progress in our attraction and retention programmes focused on the employment of women Actual Target in the last few years. Since 2007, there has been a 46% increase in the number of women employed by the Company and a total of 15 projects have been Percentage women at the mine implemented to expedite the employment of women in the Company. 16 Financial Statements Disabled persons 14 In 2009, 0.6% of our workforce comprised people with disabilities, which is equivalent to 2008. In 2009, 12 we have further refurbished facilities to cater for disabled employees. 10 Attracting and Retaining a skilled Workforce % 8 Impact of restructuring programme on employee numbers 6 As at 30 September 2009, we employed a total of 21,623 employees, a reduction of 16.7% from 2008, 4 as a result of the restructuring programme. Additionally, 2 as at 30 September 2009, a total number of 10,497 Operating Statistics contractor personnel were registered on our database. 0 Due to improvements in data capturing systems, 06 07 08 09 10 11 12 our contractor figures in 2009, includes all contractor Financial year personnel registered on our database, including ad Actual Target Revised employment hoc contractors, external consultants, labour brokers, equity target service providers and volume contractors. In previous years, a portion of these personnel were not registered on our database. Retaining our employees We are committed to retaining employees with talent, those who deliver high performance and especially Shareholder Information HDSA employees in management positions. In 2009, as a result of the restructuring programme, the Company's net labour loss was 4,121, a significant decrease in labour from levels prevailing in 2007 and 2008. www.lonmin.com 43 Our Employees (continued) Availability and Affordability of Housing for our Group labour turnover (permanent employees) Employees 2009 2008 2007 2006 Our approach to housing is centred around the delivery of affordable houses which impact positively New recruits 1,136 3,815 2,831 1,424 on our employees' quality of life in terms of reuniting Resignations (322) (506) (471) (363) employees with their families, enhanced security and Deaths providing sustainable community living. (not work related) (208) (223) (237) (231) In recognition of the shortage of available and Dismissals (942) (780) (956) (887) affordable housing and the social imbalances that the Retirements (52) (126) (147) (80) legacies of single sex hostels pose, we have committed Retrenchments (3,733) (2) (15) (133) to addressing these shortfalls through the conversion Net gain / loss (4,121) 1,729 1,005 (270) of all our 114 hostel blocks into family and bachelor accommodation and the construction of 5,500 houses within the GLC. Employee development We have extensive employee development Marikana hostel conversions programmes in place encompassing both personal Hostels are not an acceptable form of accommodation and professional development requirements, including for our employees, and we have therefore made a talent management and extensive training programmes. commitment that no employee of the Company will All supervisors, management and professionally reside in hostels in the future. No new hostels will be qualified employees are subject to an annual constructed and in terms of existing hostels, we are performance review process that guides performance committed to converting all our 114 single sex hostel management and identifies employee development complexes into 1,500 family and / or bachelor areas. In 2009, this accounted for 1,367 or 6.3% of accommodation units for category 3-8 employees. our employees of whom 46.5% were employees from Given the impact of the global economic downturn on designated groups. Career development plans are our financial flexibility, our target to convert all existing reviewed annually and are based on career pathways hostels by 2011 will not be achieved. This target is in for various disciplines, outlining qualifications and the process of being reviewed with the Department experience required for employees to progress in their of Mineral Resources. To date, phase one of the chosen careers. To date, 6.3% of employees have conversions has been completed by a consortium completed this process. of GLC women contractors, with a total of 29 hostels In 2009, 47% of our employees were considered converted into 412 bachelor or family accommodation functionally literate and numerate, thus not achieving units at a total cost of US$5.6 million. In 2010, we our target of 50%. In 2010, we aim to increase the expect to recommence our hostel conversion functional literate and numerate rate by 2%. In 2009, programme. 667 full time employees, 60 community members, Marikana housing 173 contractors and 299 part time employees We remain committed to the ultimate construction attended ABET courses and 28 supervisors of 5,500 houses within the GLC. However, due to successfully completed the Front Line Supervisory financial constraints, the target date for the completion Development Programme. In 2009, transition training of these houses by 2011 will not be achieved. programmes, focusing on portable skills have proven Although the target is under review and will be to be successful, with 1,658 exit employees registering discussed with the Department of Mineral Resources, for the training. The training has been made available it is expected that the rate of construction of these to all employees who exit the Company due to houses will be based on employee demand for home retrenchments. In 2009, US$9.3 million was spent ownership. In 2009, show houses of varying designs on training Company wide. were constructed and will be exhibited to potential Employee engagement home owners and other stakeholders. In March 2009, Employee engagement continues to be a key focus the Marikana Housing Development Corporation, a for the Group. Employees are kept well informed of Lonmin Group company passed a resolution to sell the performance and objectives of the Group through the 1,149 houses owned by the Corporation to legal team briefings, consultation with union representatives, occupants of the houses. weekly bulletins from the Chief Operating Officer, all of which is supplemented by local communications on a shaft and plant specific basis. In addition, the Company operates an internal television network at our K3 Shaft, reaching a target audience of approximately 5,000 of our employees. 44 2009 Annual Report and Accounts / Lonmin Plc Health Directors' Report – Business Review WE ARE COMMITTED TO HONOURING OUR HEALTH AND SAFETY VALUES AND SUSTAINING AN ENVIRONMENT THAT PROMOTES THE SAFETY, HEALTH AND WELLBEING OF OUR EMPLOYEES AND THEIR FAMILIES, CONTRACTORS AND THE COMMUNITIES WHERE WE OPERATE. The health and well-being of our employees and the In 2009, we initiated six monthly checks on communities where we operate is an integral part selected high risk employees so as to further Directors' Report – Governance of our success as a Company, and one of the enhance the early detection of hearing loss. We cornerstones of our strategy. have management systems in place to enable us In 2009, we implemented a baseline survey on to understand the relationships between each occupational health hazards and used this to refine employee's exposure levels, health records and our occupational hygiene monitoring and health employment history, thus assisting with diagnosis surveillance programmes. We continue to assess and treatment. and monitor exposure to occupational diseases such We have achieved our target of reducing our as pneumoconiosis, occupational asthma, silicosis, number of new NIHL cases by 30% by September occupational dermatitis and platinosis and these 2009. In 2009 we reduced our number of new incidents within our workforce remain low. The diagnosed and submitted cases with NIHL from 236 principal employee health risks remain NIHL, in 2008 to 45 in 2009 this representing an 80.9% HIV / AIDS and tuberculosis. reduction in cases diagnosed with NIHL. The total Eliminating Noise Induced Hearing Loss number of cases compensated in 2009 amounts to In common with the rest of the platinum mining industry, 45, including outstanding cases from previous years, Financial Statements NIHL is one of the most significant occupational which is a 80.4% decrease from 2008. Seven cases health risks faced by our employees and contractors, from 2009 are pending qualification by Rand Mutual. having far reaching effects on the quality of life of Managing HIV / AIDS in the Workplace and in the those affected. Greater Lonmin Communities By the very nature of mining operations, HIV / AIDS is a serious and debilitating condition that employees and contractors are exposed to high has widespread social and economic consequences levels of noise, but we have committed to eliminating across South Africa and in the communities where exposure to noise levels exceeding 85 decibels we operate which we term the 'Greater Lonmin (dB(A)). Our current focus is to reduce noise levels in Community' (GLC). We estimate that about one the work place through engineering interventions and in five of our workforce is HIV positive, which is to better utilise personal protective equipment. More potentially a serious risk to our business. specifically: We continue to respond to the HIV / AIDS epidemic Operating Statistics • We continued to address equipment noise levels in a responsible, non-discriminatory and supportive exceeding 110dB(A). As a first step, we identified manner with the aim of minimising the social and the equipment generating the most noise, and economic implications within our business and within assessed the potential of noise reduction through the GLC. Our strategic approach to managing HIV / re-engineering or sourcing alternative equipment, AIDS is two-fold, prevention and treatment of the taking into consideration factors of efficiency, practicality, costs and reliability. During the year Number of NIHL cases compensated we completed the research and development associated with fitting silencers to stoping rock 600 drills, purchased 4,000 silencers at a cost of circa US$450,000 and will complete the fitting of these 500 Shareholder Information to the drills by December 2009; and • We continued our extensive area noise and personal noise exposure monitoring programmes. 400 Number Hearing protection devices are mandatory in work places with noise levels exceeding 85dB(A), which 300 are clearly demarcated. Our approach to training and awareness is geared towards changing the 200 behaviour of each employee and instilling a culture of responsibility for their own health, and we offer our employees and contractors custom 100 fit hearing protection devices. All employees and contractors exposed to noise risk are screened 0 annually to allow early detection of hearing loss. 05 06 07 08 09 Financial year www.lonmin.com 45 Health (continued) disease. In 2009 we continued our partnership with Our wellness programme is designed to cater global mining companies to finance the research and for the physical and emotional needs of HIV positive development of a new HIV therapeutic vaccine, employees. We offer and resource an Anti-Retroviral VIR 201, which is in stage three of research and Treatment (ART) programme, funded by the development. employee's medical aid insurance at no cost to the Free education, awareness and testing individual. We have committed that free ART will be programmes are in place across the Company in offered to the employee for life, regardless of whether an effort to prevent the spread of the disease, to or not they remain employed by the Company, this address the associated social stigma and to provide being particularly relevant during the recent employees with sensitive, accurate and up to date restructuring and reorganisation processes. In 2009, information. These programmes are implemented 276 employees joined our wellness programme, through Voluntary Counselling and Testing (VCT), taking the active participation to 518 employees, a mine induction programmes and ongoing awareness 51% decrease since 2008. At 30 September 2009, campaigns by peer educators. In 2009, 4,680 of our we have 962 patients on ART, a 3% decrease from employees participated in our VCT programmes, of 2008. The reduction in the participation in both our whom 13% were tested as HIV positive. To date, we wellness and ART programmes is partially as a result have 380 trained peer educators for the workforce, of the restructuring and reorganisational process and one for every 71 employees which exceeds our target employees who have defaulted from the programme. of one peer educator for every 75 employees. In 2009, Of concern to us are the circa 10% of patients who 206 active peer educators held 4,008 education left the ART programme in 2009. Although the sessions and numerous one on one meetings reaching treatment is voluntary, we continuously strive to over 78,000 people. In addition to our robust reduce defaulting through education and awareness. workplace programme we have intensive community Tuberculosis testing, prevention and care programmes in place at Tuberculosis is one of the principal illnesses associated our Marikana, PMR and Limpopo operations. In 2009, with HIV / AIDS. We have a tuberculosis control 1,999 community members were counselled and programme in place, comprising early identification tested for HIV of whom 18% tested positive. To date and appropriate treatment with quality drugs and we have 75 active peer educators, who have held over lifestyle management through directly observed 3,500 education sessions and numerous one on one treatment – this is a World Health Organisation meetings, reaching almost 50,000 community members intervention to improve adherence to tuberculosis on issues such as HIV / AIDS, tuberculosis and treatment. In 2009, the Company's Tuberculosis cholera. In 2009, we have continued with our home- Policy was reviewed and amended. We continue to based care programme in our communities, where be vigilant with the identification and treatment of volunteers visit and care for terminally ill patients and extreme and multi-drug resistant tuberculosis through orphans. Currently over 1,200 patients and 640 our tuberculosis control programme. In 2009, 472 of orphans are being cared for on a regular basis, with our employees were diagnosed with tuberculosis, an over 50,000 visits made in the past year. 11.4% decrease from 2008. Of the 472 cases, 374 cases were pulmonary tuberculosis and 19 multi-drug resistant tuberculosis. No new cases of extreme drug resistant tuberculosis were identified in 2009. Multi- drug resistant tuberculosis is exhibiting an increasing trend in our workforce. ART and wellness programme participation Number of tuberculosis cases 2,500 600 500 2,000 400 1,500 Number Number 300 1,000 200 500 100 0 0 05 06 07 08 09 05 06 07 08 09 Financial year Financial year Patients on ART Patients on Wellness 46 2009 Annual Report and Accounts / Lonmin Plc Environment Directors' Report – Business Review WE ARE COMMITTED TO OUR GOAL AND VALUE OF ZERO HARM TO THE ENVIRONMENT. ALL MINING AND PROCESSING ACTIVITIES WILL HAVE AN IMPACT ON THE ENVIRONMENT, BUT MINIMISING THIS AND USING RESOURCES MORE EFFICIENTLY IS AT THE CORE OF THE COMPANY'S APPROACH TO SUSTAINABLE DEVELOPMENT. Directors' Report – Governance We face a number of environmental risks, of which In 2009, our total energy use, of which all is non- the most important relate to energy, water resources renewable, amounted to 6,613TJ which is an 11% and closure costs, which we aim to minimise through decrease from our consumption in 2007. Our energy integrated environmental management and closure efficiency has increased by 3.77% on our 2007 planning. consumption to 5.22GJ / PGM oz. Although our total energy use has improved since 2007, our consumption Accessing and Managing Energy Resources and efficiency since 2008 has deteriorated. In 2009, Energy is vital to our operations, with electrical power in terms of our initiatives to improve energy efficiency of particular importance. We seek to play our part in at existing operations, we have continued our focus addressing a number of risks in this area, including: on demand control management by shifting on-peak • The low level of availability of uncommitted electrical energy use to off-peak periods; exploring options power in South Africa, which culminated in the regarding geothermal energy use and bio-energy load-shedding and consequent project deferral generation and further replaced low energy efficiency experienced by the mining industry in 2008; and motors with high energy efficiency motors and other Financial Statements • The carbon emissions associated with electricity initiatives such as extending the use of solar water generation in South Africa, the vast majority of heaters and the disconnection of geysers where which originates in coal-fired power stations. possible. We are committed to promoting the sustainable Greenhouse gas emissions use of natural resources, responding to climate change We have set targets to improve our greenhouse gas and driving the reduction of greenhouse gases by efficiency by 5% by 2012. In 2009, we emitted adopting best practice technology, alternative energy 1,594,827 tonnes CO2 equivalent of greenhouse sources, improved control systems and management gases, in accordance with our 2007 scope of practices. Our approach to climate change remains activities. Although we have decreased our greenhouse aligned with that of the ICMM and as a member gas emissions by 4.7% and 3.9% since 2007 and company we recognise the significance of climate 2008 respectively, our greenhouse gas emissions per change on a global, national and local scale. unit of production since both 2007 and 2008 have Operating Statistics deteriorated, primarily as a result of lower production. Energy use In 2009 our greenhouse gas emissions efficiency We have a target to improve our energy efficiency by amounted to 1.26 tonnes CO2 equivalent / PGM oz. 10% by 2012, based on our efficiency in 2007. Total energy use Total greenhouse gas emissions 8,000 6 1,800 1.4 1,750 Kilotonnes CO2 equivalent/PGM oz 7,000 1.2 5 Kilotonnes CO2 equivalent 1,700 6,000 1.0 Shareholder Information 1,650 4 5,000 GJ/PGM oz 1,600 0.8 TJ 4,000 3 1,550 0.6 3,000 1,500 2 1,450 0.4 2,000 1,400 1 0.2 1,000 1,350 0 0 1,300 0 05 06 07 08 09 05 06 07 08 09 Financial year Financial year Total energy Total energy efficiency Total greenhouse gas emissions Total greenhouse gas emissions efficiency www.lonmin.com 47 Environment (continued) Accessing and Managing Water Resources Ground and surface water resources Our mining operations are located in water-scarce We aim to prevent pollution and environmental regions of South Africa. Access to adequate water degradation to surface and groundwater resources, resources remains essential for our mining operations. mitigate and remediate where contamination has Our management of water resources is an integrated historically taken place and to continue monitoring the three-fold approach to secure the availability of sufficient impacts of our operations on water resources and the water for our current and future mining operations; to effects of our remediation efforts. Our water licences reduce our fresh water consumption by improving provide the regulatory framework for the management water use efficiencies and water recycling; and to of our water resource qualities. We have proactive prevent the contamination of ground and surface management programmes in place which aim to water resources in the regions where we operate. reduce the possibility of pollution and provide us with early warning of any incident, so that we can take Securing water for our operations appropriate mitigating actions. In 2009, as part of our We have currently secured access to water resources storm water management control plan, the storm which we expect to be sufficient for our current and water storage facilities were constructed at the UG2 planned mining and processing needs at our Concentrator, BMR and at the Smelter at a total cost Marikana operations, assuming no major divergence of US$3.1 million. Additionally in 2009, the new from expected rainfall patterns. We continuously Wonderkop waste water treatment plant was seek opportunities to reduce fresh water commissioned at a cost of US$3.2 million. consumption further through securing access to In order to monitor our impact on the receiving waste water or water of poorer quality. We are in the water resources, we have 135 surface and in excess process of securing further water resources for our of 260 ground water monitoring boreholes in place Akanani operations in the Limpopo Province. at all operations. The results of the monitoring Reducing fresh water consumption programmes and annual groundwater modelling are Fresh water for our operations in Marikana and at our interpreted to monitor the impact of our operations PMR is sourced from the regional water utility, while on the receiving environment. our Limpopo operations access freshwater from a regional well-field. Ground water usage is limited to Total freshwater intake exploration activities. We have set a target to reduce our aggregate fresh water consumption by 15% per 14,000,000 9 unit of production by September 2012 as at the baseline consumption in 2007. In line with this target, 8 12,000,000 in 2009 we further implemented measures to enforce 7 the zero surface discharge policy to maximise water 10,000,000 recycling through closed system reticulation and 6 m3/PGM oz are establishing a Company wide real time water 8,000,000 5 balance model. In 2009, we completed a study of the m3 availability, sustainability and practicality of utilising 6,000,000 4 contaminated groundwater from our tailings facilities at Marikana to reduce reliance on fresh water 3 consumption. This study indicated good potential for 4,000,000 2 the water source in terms of availability, sustainability and practicality. 2,000,000 1 In 2009, our total fresh water intake from the regional water utility and from the well-field in 0 0 05 06 07 08 09 Limpopo amounted to 8,885,360m3 which is a Financial year decrease by 24.7% and 4.0% from total intake in 2007 and 2008 respectively. The total fresh water Total freshwater intake efficiency has improved by 12.16% from 7.98m3 / Total freshwater intake efficiency PGM oz in 2007 to 7.01m3 / PGM oz in 2009. 48 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Business Review Minimising Closure Costs and Environmental Risks Financial closure provisions for unscheduled and through Integrated Environmental Management and scheduled closure are reviewed annually against the Closure Planning. progress made in implementing the integrated mine We are committed to integrated land use management closure strategy and plans. These provisions are also and biodiversity conservation by applying a risk-based audited annually by third parties and amended precautionary approach during all phases of our accordingly to ensure sufficient financial resources are operational life, including mine closure. available at any given time to implement rehabilitation measures as required by the management programmes Mine closure planning and closure planning. At 30 September 2009, we had In 2009, we established an integrated mine closure a provision covering the costs of site closures of strategy and plan for our operations, to be reviewed US$67 million, compared to US$50 million in 2008. every two years, which provides a strategic framework This provision is partly funded by Rehabilitation Trust within which all closure planning for our operations Directors' Report – Governance Fund deposits with the balance supported by bank can be managed. The strategy informs all guarantees. All new projects undertaken consider environmental management programmes at our closure measures. Furthermore, the associated operations so as to ensure alignment with best closure costs are integral to the environmental impact practice and legislation and comprises conceptual assessments undertaken for the activities. land use, spatial development plans and consolidated environmental plans which are based on risk assessments. This gives rise to enhanced application of pollution prevention principles and reduced long- term financial risk. Integral to the development of the strategy and plan were extensive stakeholder consultations which enabled us to obtain feedback into the sustainable use and management of our natural resources. Financial Statements Operating Statistics Shareholder Information www.lonmin.com 49 Communities WE ARE COMMITTED TO EMPOWERING OUR HOST COMMUNITIES AND IMPROVING THEIR QUALITY OF LIFE BY CONTRIBUTING TO THEIR LONG-TERM SOCIAL, ECONOMIC AND INSTITUTIONAL DEVELOPMENT AND PROMOTING THE BENEFICIATION OF OUR MINERALS. The business case for empowering the GLC, a term Community Development describing the communities within a 15 kilometre Since 2006, we have focused our community radius of our operations and improving their quality development programmes on the commitments of life is straightforward, given that the success of outlined in the Social and Labour Plans for Marikana. the business is dependent on the stability of these Our key focus areas are infrastructure development, communities. To this end, we contribute to our educational support, health support and local business communities' long-term economic development development, including commercial agriculture. These and promote the beneficiation of our minerals. projects have been selected and developed in close Additionally, stakeholder engagement improves collaboration with local authorities and government to Company-community relations, and guides us in ensure that we complement local development plans. taking decisions that affect the community. Our In 2009, US$5.7 million was spent on community community initiatives in terms of development and development projects and of this amount US$3.2 engagement are focused on the GLC and our million was spent on local economic development community development initiatives are also focused as per the Social and Labour Plans. To date, we on our labour sending areas in Eastern Cape Province. have spent 41.1% of our total five year financial commitments for local economic development as per Community Engagement the Social and Labour Plans, thus slightly exceeding The key objectives for community engagement our target of spending 41% by 2009. Baseline socio- are to understand community concerns and guide economic and quality of life indicators enable us to expectations; plan and manage community track our impact on sustainable development. The development projects; and encourage community key community development projects and spend in self-reliance, governance and skills development. 2009 are outlined below. Over the past couple of years we have learnt through our annual perception surveys that our approach to community engagement often lacked inclusiveness Key community development projects in 2009 and structure. In 2009, we refocused our community Project Spend in 2009 (US$000) engagement initiatives on the quarterly Rekopane Development Forum and GLC area meetings which Community skills development US$10 take place monthly. These meetings are project Madibeng capacity building programme US$67 orientated and provide platforms for discussion of Local supplier development programme US$593 challenges, successes and progress of various North West water and sanitation project US$782 projects. Community members are also provided with Water and sanitation the opportunity to become a part of the projects in (Eastern Cape Province) US$61 their areas. Community matters are channelled Silindini Bridge (Eastern Cape Province) US$337 through our Human Capital and External Affairs Health care delivery US$35 Department to the respective departments where Rustenburg hospice US$95 they are addressed in direct consultation with HIV / AIDS peer education and home applicable community members. We also have a based care US$62 formal complaints register that is easily accessible Post matric bridging course US$62 with the option to remain anonymous. Saturday School programme US$94 Personal computer laboratories US$15 Early childhood development US$30 School infrastructure upgrade US$770 Curriculum support software US$13 Annual career exhibition US$34 School nutrition programmes US$641 Permaculture and eco-schools US$40 Agisanang farming project US$533 Itireleng community co-operative US$24 Total US$4,298 50 2009 Annual Report and Accounts / Lonmin Plc Sustainability Performance Indicators Directors' Report – Business Review Measurement 2005 2006 2007 2008 2009 Employees Employees Number 21,228 23,804 24,122 25,967 21,623 Contractors Number 5,306 6,932 8,580 7,758 10,4971 Designated employed in management Percentage 25.8 36 37.9 42.3 41.3 on a permanent basis Women employed on a permanent basis Percentage N.D.A 1.4 1.4 1.8 2.9 in mining operations Women employed on a permanent basis Percentage N.D.A 4.1 4.9 6.1 6.8 at the mine Directors' Report – Governance Employee turnover rate Percentage 15.9 1.1 4.1 6.6 23.3 Employees and contractors trained in ABET Number N.D.A 1,681 1,389 2,866 1,139 Occupational Health and Safety Fatalities Number 6 6 3 3 3 LTIFR Incidents / million 18.102 12.50 10.80 6.27 6.21 hours worked NIHL cases compensated Number 278 570 490 229 45 Tuberculosis cases3 Number 286 338 504 533 472 HIV / AIDS Patients on ART (excludes PMR)4 Number 407 587 836 989 962 Patients on the wellness Programme Number N.D.A N.D.A N.D.A 1150 518 Financial Statements Environment Total freshwater intake m3 9,500,000 10,858,464 11,795,482 9,256,244 8,885,360 Total freshwater intake efficiency m3 / PGM oz 5.60 6.00 7.98 6.77 7.01 Energy Terajoules 5,813 7,348 7,434 6,555 6,613 Energy efficiency GJ / PGM oz 3.50 4.10 5.03 4.80 5.22 Greenhouse gas Kilotonnes CO2 1,489 1,775 1,673 1,659 1,595 equivalent Greenhouse gas efficiency Kilotonnes CO2 0.89 0.98 1.13 1.21 1.26 equivalent / PGM oz Tailings disposed to tailings facilities Kilotonnes 12,832 15,519 14,487 12,649 17,068 Operating Statistics Waste rock disposed to rock dumps Kilotonnes 1,415 1,376 1,203 1,128 1,343 Hazardous waste disposed of to landfill Tonnes N.A N.A N.A 42,857 55,906 and incineration General waste to landfill Tonnes N.A N.A N.A 8,279 7,199 Average tonnes of SO2 emitted per day Tonnes / day 3.4 7.4 11.3 9.1 11.1 from point and non-point sources5 Communities Percentage spend of our financial Percentage N.A N.A N.D.A 24 41 commitments on local economic Shareholder Information development projects as per the Social and Labour Plan by 2009 N.D.A – No data available. Where it is indicated that no data is available, this is primarily as a result of low confidence in the accuracy of the data or an absence of measurement of the data. N.A. – Not applicable 1. Due to improvements in data capturing systems, our contractor figures in 2009, includes all contractor personnel registered on our database, including ad hoc contractors, external consultants, labour brokers, service providers and volume contractors. In previous years, a portion of these personnel were not registered on our database. Not all of these contractors are employed on a full time basis. 2. The figure for LTIFR for financial year 2005 was identified during the 2005 assurance process to have the potential of being underestimated by 10%. 3. This was incorrectly published prior to 2009 – the data represents total tuberculosis cases and not only pulmonary tuberculosis cases. 4. PMR patients access ART through their private medical aid schemes. 5. The data for 2007, 2008 and 2009 represents emissions from both point and non-point sources. www.lonmin.com 51 Board of Directors 1. 2. 3. 4. 5. 6. 7. 8. 9. 52 2009 Annual Report and Accounts / Lonmin Plc 1. Roger Phillimore (60) Chairman 2. Ian Farmer (47) Chief Executive 3. Alan Ferguson (51) Chief Financial Directors' Report – Business Review Appointed Chairman in March 2009, Officer Officer having joined the Company as an Appointed a director in 2001 and as Appointed as Chief Financial Officer independent Non-executive Director Chief Executive Officer in September and a director in June 2007. Prior to in 1997. Roger is also Chairman of the 2008, following seven years as Chief joining Lonmin, he was Group Finance Nomination Committee. Formerly joint Strategic Officer. A chartered accountant, Director of The BOC Group until late managing director of Minorco, he is he joined the Company in 1986 and 2006, following the Linde Group's currently a Non-executive Director of transferred to a Group Company in acquisition of BOC. Before joining BOC Harry Winston Diamond Corporation. Zambia in 1990. In 1995 he was in 2005, he worked for Inchcape Plc for Roger holds both South African and appointed Finance Director of Lonmin 22 years in a variety of roles including British nationality. Platinum in South Africa, which position Group Finance Director from 1999 until he relinquished upon his transfer to his departure. Alan is a Chartered London in 2001. Ian has both South Accountant and is a British national. African and British nationality. Directors' Report – Governance 4. Jonathan Leslie (58) 5. Peter Godsoe (71) 6. David Munro (54) Appointed an independent Non- A chartered accountant and banker Appointed an independent Non- executive Director on 4 June 2009. with an MBA from Harvard, he was executive Director in August 2007. He is a member of the Remuneration, appointed an independent Non- David is currently Executive Director, Nomination and Safety & Sustainability executive Director in 2001. He is a Development of Kazakhmys Plc, having Committees. Jonathan spent 26 years member of the Nomination and previously been Strategy Director. He with Rio Tinto, including 9 years' Remuneration Committees. Formerly joined the board of Kazakhmys in 2005 service on the board. His roles at Rio Chairman and Chief Executive Officer as a non-executive Director. Before Tinto included Mining Director and of The Bank of Nova Scotia, he is joining Kazakhmys, David was Chief Chief Executive of two of Rio's Product currently a Non-executive Director Executive Officer of RMC Group Plc, Groups, respectively Copper, and of Barrick Gold, Onex Corporation, Chief Development Officer of BHP Diamonds and Gold. He left Rio Tinto Rogers Communications Inc and Billiton Plc and an executive director Financial Statements in 2003 to become Chief Executive Ingersoll-Rand Company. Peter is of Billiton Plc responsible for its of Sappi Ltd, a SA-based producer of a Canadian national. global aluminium and base metals coated fine papers. In 2006 he became businesses. David is a British national. Executive Chairman of AIM-listed Nikanor Plc until the merger with Katanga Mining Limited in 2008. Jonathan has an MA in Jurisprudence from Oxford University and is a qualified barrister. He is a British national. Operating Statistics 7. Jim Sutcliffe (53) 8. Karen de Segundo (62) 9. Michael Hartnall (67) Senior Appointed an independent Non- Appointed an independent Non- Independent Director executive Director in August 2007 executive Director in April 2005 and Appointed an independent Non- and is Chairman of the Remuneration a member of the Audit and Risk, executive Director in May 2003. He Committee and a member of the Safety & Sustainability and Nomination is the Chairman of the Audit & Risk Nomination Committee. Formerly Chief Committees. Formerly Chief Executive Committee and is a member of Executive of Old Mutual Plc, a post Officer of Shell International Renewables the Remuneration and Nomination which he assumed in November 2001 and Chief Executive of Shell's global Committees. A chartered accountant after acting as Chief Executive of the gas and power business. Karen is and former finance director of Rexam Old Mutual Group's life assurance currently a Non-executive Director of Plc, he is also a Non-executive Director business since January 2000. Before British American Tobacco Plc and of BAE Systems Plc. Michael is a joining Old Mutual, Jim was Chief Ensus Holdings Limited, a Member British national. Executive UK of Prudential Plc. In 2009 of the Supervisory Boards of E.on AG Jim was appointed to the Board of the and Koninklijke Ahold N.V. and a Shareholder Information Financial Reporting Council and is member of the board of Pöyry Oyj. Chairman of the UK Board for Actuarial Karen is a Dutch national. Standards. He is also a director of Liberty Group Ltd, Liberty Holdings Ltd, Sun Life Assurance Company of Canada and Sun Life Financial Inc. Jim is a British national. www.lonmin.com 53 Executive Committee 1. 2. 3. 4. 5. 6. 7. 8. 1. Ian Farmer (47) Chief Executive Officer 6. Mark Munroe (40) EVP, Mining Biography included in Board of Directors section on Mark joined Lonmin in March 2008 in the Mining page 53. business and subsequently became VP Capital Projects & Engineering, before being appointed EVP Mining in June 2009. Mark joined Lonmin from 2. Alan Ferguson (51) Chief Financial Officer DRDGold, where he held a number of senior Biography included in Board of Directors section on management positions during his six years there, page 53. including General Manager of DRDGold and CEO of DRDCapital. Prior to that, he worked for Anglo Gold for 12 years. 3. Mahomed Seedat (53) Chief Operating Officer Mahomed joined Lonmin in September 2007. He was previously with BHP Billiton where he was most recently 7. Theuns de Bruyn (40) EVP, Process Division President of their Energy Customer Sector Group and a Theuns joined Lonmin in November 2006, having member of BHP Billiton's Executive Committee. Prior to worked for BHP Billiton for nearly 20 years, where that, he held several positions there, including President he was most recently Business Development and Chief Operating Officer of Ingwe Coal, and Manager for their Strategy and Business President and Chief Operating Officer Aluminium Development function. Prior to that, he held a Southern Africa as well as a number of roles in their number of other roles at BHP Billiton, including Aluminium Customer Sector Group. Before joining BHP General Manager of the Tubatse Ferro-chrome Billiton, Mahomed worked for Anglo Coal. facility as well as other positions in the ferro-chrome and aluminium sectors. 4. Albert Jamieson (51) Chief Commercial Officer Albert joined Lonmin in 1989 after 8 years at Impala 8. Barnard Mokwena (45) EVP, Human Capital Platinum, where he was responsible for their & External Affairs concentrator operations. At Lonmin, he has held a Barnard joined Lonmin in October 2005, having number of senior management and executive positions previously worked in senior management positions in the mine production and commercial areas of the in a range of sectors for a number of companies business. The commercial portfolio currently consists of including Sentech and the South African Rail business development, strategy, marketing and sales, Commuter Corporation. exploration and legal. 5. Chris Sheppard (50) EVP, Technical Services Chris joined Lonmin in October 2007, initially as EVP Mining, and subsequently appointed EVP Technical Services in June 2009. He was previously Head of Mining Technical Services with Anglo Platinum Limited, having worked for that company since March 2001, where he held a number of positions, including General Manager Rustenburg Mines from 2004 until 2007. Prior to joining Anglo Platinum Chris worked for Anglo Gold. 54 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Governance This report combines the Directors' Report required to be produced by law and the corporate governance statement required by Directors' Report – Business Review the Disclosure & Transparency Rules. It also includes sections reporting on the role and work of the Audit and Risk Committee and the Nomination Committee, respectively required by the Disclosure & Transparency Rules and the Combined Code. The Directors' Remuneration Report is contained in the Remuneration Committee Report on pages 72 to 89. 1. Governance of the Company The Company is led and controlled by the Board of Directors. The Board is fully committed to the highest standards of corporate governance which it believes create the foundation of business integrity needed to deliver robust and sustainable business results. As an English-incorporated company with a primary listing on the London Stock Exchange, Lonmin is subject to The Combined Code on Corporate Governance published by the Financial Reporting Council (FRC). For the year under review, we were subject to the version of the Combined Code published in June 2008 and the revised version of the Turnbull Guidance published in October 2005, both of which are available from the FRC website, www.frc.org.uk. During the year to 30 September 2009 and to the date of this report, the Company has in all respects complied with Directors' Report – Governance the provisions of section 1 of the Combined Code. Substantially the whole of the Company's business is based in South Africa, and we will also be subject to the provisions of the King Report on Governance for South Africa 2009, more commonly known as 'King III'. Consideration of the principles espoused in King III will be a key task for the new financial year. 2. How does the Board of Directors operate? 2.1 Appointments to the Board The Company's Articles of Association specify that there shall be between four and fifteen directors at all times, and confer power to fill a 'casual vacancy' on the directors. To ensure a formal, rigorous and transparent procedure for the appointment of new Directors to the Board, a Nomination Committee has been created. Its work is more fully described in section 7 of this report. Appointments are made on merit and against objective criteria. In the case of candidates for non-executive directorships, care is taken to ascertain whether they have sufficient time available to meet their Board and, where relevant, Committee responsibilities. As part of this process, candidates disclose all other time commitments and, on appointment, undertake to inform the Board of any changes. The terms and conditions of appointment of non-executive Directors are available for public inspection and a sample letter of appointment is provided on the Company's website. Financial Statements 2.2 The Board of Directors The Board currently has nine members, comprising a non-executive Chairman, six non-executive Directors, each of whom the Board judges to be independent, and two executive Directors. The names of the current directors and short biographical details are set out on page 53. All served throughout the year, save for Jonathan Leslie who was appointed to the Board as a non-executive director on 4 June 2009. In addition, Brad Mills served as a Director until 9 October 2008 and Sir John Craven as a non-executive Director and Chairman of the Board until 29 January 2009. Dr Sivi Gounden resigned as a non-executive Director on 16 October 2009. 2.3 Board balance and independence The Board believes that it has sufficient members to contain a balance of experience and skills and to manage succession issues, but without being so large as to be unwieldy. The quality of the individual Directors and the Board's composition is a key Operating Statistics contributor to the Board's effectiveness, with no one individual or group of individuals being able to dominate the decision-taking. The Board keeps the membership of its Committees under review, to ensure gradual refreshing of skills and experience. It is satisfied that all Directors have sufficient time to devote to their roles and that it is not placing undue reliance on key individuals. All of the Non-executive Directors are regarded as independent by the Board, as was the Chairman on his appointment. The experience and international diversity of the non-executive Directors in office at the date of this report can be summarised as follows: Industry sector Number Country of residence Number Banking and Financial Services 2 Canada 1 Manufacturing 1 South Africa 1 Natural Resources 4 United Kingdom 5 Shareholder Information Total 7 Total 7 2.4 Leadership of the Board At the Company's Annual General Meeting on 29 January 2009, Sir John Craven announced that he would not be seeking re-election as a non-executive Director and Chairman of the Board, his retirement being effective at the end of the meeting. Roger Phillimore, then Deputy Chairman, was appointed acting Chairman until a permanent successor was identified. During the search process, Mr Phillimore's other commitments changed, allowing him to become a candidate. Although a number of other high quality individuals were identified, the Board concluded that Mr Phillimore was the most appropriate individual to take the Board forward. The Board was satisfied that he continued to demonstrate complete independence in character, judgement and action at the time of his appointment, notwithstanding the length of his tenure on the Board. The Company announced Mr Phillimore's appointment as Chairman on 23 March 2009. www.lonmin.com 55 Directors' Report – Governance 2. How does the Board of Directors operate? (continued) 2.5 How do we assess and refresh the Board? There are three key mechanisms by which we attempt to ensure that the Directors continue to provide suitable leadership and direction to the Company: 1. Performance evaluation; 2. Succession planning; and 3. Periodic re-election by shareholders. 1) Performance evaluation The Company has previously implemented a Board performance evaluation process which is designed to identify whether the Board possesses the relevant skills, knowledge and experience to fulfil its mandate, so enabling it to manage succession issues. The review in May 2008 had identified two areas where improvements could be made. These were addressed during the year as follows: Issue Resolution Improve the degree of interaction between Board Site visits, lunches and dinners during the two Board visits to South members and key executives and senior managers Africa were designed to provide informal opportunities to meet a wide range of managers. Working meetings with the Executive Committee were held during the September 2009 Board visit, and members of the Executive Committee attended part of the Board meeting Create additional opportunities for informal A number of dinners were held during the year at which the discussion of key business issues between Directors could debate business issues informally Board members. The Board recognises that externally facilitated evaluations can provide a useful and impartial feedback mechanism. However, since both the Chairman and the Chief Executive have only been in post for a matter of months, the Board decided that it would not be appropriate to have such a review at this time. Instead, Mr Phillimore held individual discussions with each of the Directors to assess their views on a wide range of issues, including the effectiveness of the Board Committees, using set questions to structure the debate. Feedback from each of those discussions was provided to the Board. The most material conclusion was that executive management should be based in South Africa, close to the mining operations with the aim of enhancing day- to-day management and communications, as well as enabling the Company to engage more effectively with its South African stakeholders. It was also decided to add a third day to each of the bi-annual Board visits to South Africa in order to afford more time with local senior managers. The Board is considering the appointment of an external facilitator during the course of 2010. In September 2009, under the chairmanship of the Senior Independent Director and without the Chairman being present, the Board also assessed the effectiveness of the Chairman. The unanimous conclusion was that the Chairman was effective in the role, in large part because of his length of tenure and intimate knowledge of the business. 2) Succession planning The Board aims to review formally succession plans for all key management roles including executive directorships, on an annual basis. The purpose of this is twofold – to mitigate the risk of key roles not having one or more identified successors and to review potential development opportunities and career plans for talented individuals. 3) Re-election of Directors All Directors are required by the Company's Articles of Association to submit themselves for re-election by shareholders after first appointment and thereafter by rotation at least once every three years. Where a non-executive Director (save for the Chairman) has served more than three three-year terms, they are obliged to do so on an annual basis. Sufficient biographical and other information (including, in the case of a non-executive Director seeking re-election, a statement as to his or her continued effectiveness and commitment) is provided to enable shareholders to make an informed decision. At the 2010 AGM, six directors will retire under these arrangements, all of whom are seeking re-election: Director Reason for retirement Contractual arrangements Executive directors Ian Farmer Retirement by rotation Service agreement (see page 89) Alan Ferguson Retirement by rotation Service agreement (see page 89) Non-executive directors Jonathan Leslie Retirement following first appointment Letter of appointment only David Munro Retirement by rotation Letter of appointment only Roger Phillimore Retirement by rotation Letter of appointment only Jim Sutcliffe Retirement by rotation Letter of appointment only The Nomination Committee has carried out formal performance evaluations of each of the non-executive Directors seeking re-election and has concluded that each is effective and demonstrates commitment to his respective role. Further information on those seeking re-election is contained in the Directors' biographies on page 53 and in the Annual General Meeting circular accompanying this document. 56 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Governance 2. How does the Board of Directors operate? (continued) Directors' Report – Business Review 2.6 What is the role of the Board? The Board provides the entrepreneurial leadership, direction and control of the Company; is the custodian of the Company's strategic aims, vision and values; and assesses whether the necessary financial and human resources are, and will continue to be, in place to enable the Company to meet its objectives. All Directors are free to express their views and may ask that these be recorded in the minutes where appropriate. The Board has a formal schedule of matters reserved for its decision, the most material of which fall into the key areas listed below: • Strategy and management; • Financial reporting and control; • Social, environmental and ethical matters; • Contracts and financial commitments; • External communications; • Corporate governance; Directors' Report – Governance • Remuneration; and • Board composition and membership. Subject to legislation, the Company's Memorandum and Articles of Association and any directions given by special resolution, the business of the Company is managed by the Directors, who may exercise all powers of the Company including the power to authorise the issue and buy back of the Company's shares (subject to the authority being given to the Directors by shareholders in general meeting). Whilst all Directors have equal responsibility in law for managing the Company's affairs, it is the role of executive management to run the business within the parameters laid down by the Board and to produce clear, accurate and timely reports to enable the Board to monitor and assess management's performance. The executives make full use of the expertise and experience that the non-executive Directors bring from their business careers. The Chairman routinely holds discussions with non-executive Directors without the executive Directors being present. The non-executive Directors have access to the management team through working sessions with the Executive Committee and with the operational management team reporting to the Executive Committee. Financial Statements 2.7 What are the roles of the Chairman and Chief Executive Officer? The roles of Chairman and Chief Executive Officer are clearly separated and set out in writing. The Chairman is responsible for leadership of the Board, ensuring its effectiveness and setting its agenda, and for facilitating the effective contribution of all Directors, ensuring that there is a constructive relationship between the executive and non-executive Directors. The Chairman also has primary accountability for providing strategic guidance to the executive team and monitoring the performance of the business, and for ensuring that there is effective communication with all shareholders. The role of the Chief Executive Officer is to provide leadership to the executive team in running the business, to develop proposals for the Board to consider in all areas reserved for its judgement and to oversee the efficient and effective implementation of Board-approved actions. Executive management, led by the Chief Executive Officer, are responsible for developing strategy for consideration by the Board, the implementation of that strategy once approved and furnishing the Board with all information reasonably Operating Statistics required to monitor the efficient and effective conduct of the business. 2.8 What is the role of the non-executive Directors? The non-executive Directors are expected to contribute individually and collectively to: • The selection, appointment, pay and, where appropriate, removal of the executives leading the business and the succession planning necessary to support this; • The consideration and approval of strategy; • The setting of targets and the subsequent monitoring of performance; • Assessment of the management of risk and the strength of the internal control environment; and • Effective governance (in terms of (1) compliance with applicable Codes, (2) ensuring stakeholders' needs are adequately considered and addressed and (3) in overseeing the internal management arrangements of the Company) to ensure shareholders' interests are protected. Shareholder Information www.lonmin.com 57 Directors' Report – Governance 2. How does the Board of Directors operate? (continued) 2.9 How often does the Board meet, and who attends? The Board met formally on eleven occasions during the year, including two three-day trips to South Africa. Attendance at these meetings was as follows: Number of meetings Number of Director held during time in office meetings attended Sir John Craven 4 2 Ian Farmer 11 11 Alan Ferguson 11 11 Peter Godsoe 11 9 Sivi Gounden 11 10 Michael Hartnall 11 11 Jonathan Leslie 3 3 David Munro 11 8 Roger Phillimore 11 11 Karen de Segundo 11 10 Jim Sutcliffe 11 10 A further four ad hoc meetings of a committee of the Board were held to issue formal approvals or deal with other matters. In addition to these meetings, the Non-executive Directors make themselves available to management whenever required and there are numerous regular contacts outside the Board meeting schedule. 2.10 What Committees support the Board in its work? The Board has established four formal Committees and provides sufficient resources to enable them to undertake their duties. Membership of these Committees during the year to 30 September 2009 and to the date of this report (except where stated otherwise) is shown below. Safety and Remuneration Audit and Risk Nomination Sustainability Non-executive directors Peter Godsoe Member Member Sivi Gounden Member1,2 Chairman2 Michael Hartnall Member Chairman Member Jonathan Leslie Member3 Member4 Member3 Roger Phillimore Member5 Member6 Chairman Karen de Segundo Member Member1 Member David Munro Member7 Member1 Member Jim Sutcliffe Chairman8 Member Member1 Executive director Ian Farmer Member 1 From 6 March 2009 2 To 16 October 2009 3 From 2 July 2009 4 From 4 June 2009 5 Chairman to 6 March 2009, Member to 31 March 2009 6 To 28 January 2009 7 To 6 March 2009 8 Member from 28 January 2009, Chairman from 6 March 2009 58 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Governance 2. How does the Board of Directors operate? (continued) Directors' Report – Business Review 2.10 What Committees support the Board in its work? (continued) The roles of each of the Board Committees can be found later in this report, or in the separate Remuneration Committee Report. The interaction between the Board, its Committees and the management of the Company can be summarised as follows: Board of Directors Safety and Chief Executive Audit and Risk Nomination Remuneration Sustainability Directors' Report – Governance Officer Committee Committee Committee Committee Executive Operations Price and Risk Committee Committee Committee (Executive Directors, (Executive Committee (Executive Directors, Chief Operating Officer, members, operational Chief Commercial Officer, Chief Commercial Officer & functional VPs and VP Treasury & Risk, VP and three Executive certain executives and Finance (UK), VP Finance (SA), Vice Presidents) senior managers) Executive Manager, Marketing) Board Committees Financial Statements Management Committees 2.11 How does the Board manage any conflicts of interest? Directors have a statutory duty to avoid a situation in which they have, or can have, a direct or indirect conflict of interest or possible conflict of interest with the company. Shareholders approved amendments to the Company's Articles of Association at the Annual General Meeting in January 2009 which implemented certain provisions of the Companies Act 2006, including a general power enabling the Board to authorise such conflicts (the Act provides that there is no breach if the relevant matter has been authorised in advance). A review of the Directors' interests and other appointments was carried out in March 2009 and procedures for managing conflicts were agreed. Should a Director become aware that he or she has an interest in an existing or proposed transaction, he or she is required to notify the Board in writing or at the next Board meeting. Directors are not counted in the quorum for the authorisation of their own actual or potential conflicts. Authorisations that are granted are recorded by the Operating Statistics Company Secretary in a register of conflict authorisations. Directors have a continuing duty to update the Board on any changes to these conflicts and in any event the Board will carry out reviews annually. No Director had a material interest in any contract of significance in relation to the Company's business at any time during the year. The interests of the Directors who held office at the end of the year, and to the date of this report in the Company's shares are shown in the Remuneration Committee Report on pages 72 to 89. No Director held any beneficial interest in the share capital of any other Group company at any time during the year or at the year end. 2.12 How do we support the Board? The Board is supplied with regular and timely information in a form and of a quality that enables it to discharge its duties. All Directors are encouraged to make further enquiries as they feel appropriate of the executive Directors or management. The Chairman advocates that all Directors continually update their skills and knowledge, and develop the familiarity with Shareholder Information the Company's operations needed to fulfil their role. The Company provides the necessary resources for developing and updating all Directors' knowledge and capabilities, both on appointment and subsequently as necessary. This includes a full, formal and tailored induction programme, briefings on the legal, regulatory, financial and competitive environments in which the Company operates and, when appropriate, the opportunity to meet a range of major shareholders and external advisors. Copies of sell-side analysts' notes on the Company are circulated to all Directors and senior executives, as are summaries of analysts' opinions collected anonymously by the Company's financial PR advisors and summaries of shareholders' views collated by the Company's joint brokers. All Directors have access to the services of the Company Secretary who is responsible for information flows to the Board, facilitating induction and assisting with professional development as required, ensuring compliance with Board procedure and applicable laws and regulation and advising the Board on corporate governance matters. The appointment or removal of the Company Secretary is a Board decision. There is a procedure in place for Directors to take independent professional advice, if they judge this to be necessary, at the Company's expense. Board Committees are provided with sufficient resources, plus the power to co-opt such additional support as they may require from time to time, to undertake their duties. www.lonmin.com 59 Directors' Report – Governance 2. How does the Board of Directors operate? (continued) 2.13 What remuneration do the Directors receive? While the Board is ultimately responsible for all Directors' remuneration, the Remuneration Committee, which consists solely of independent non-executive Directors, is responsible for: • determining the remuneration and conditions of employment of the executive Directors and certain senior executives (collectively known as the 'RemCo Purview Group'); • monitoring the remuneration and conditions of employment of certain senior managers below the RemCo Purview Group; and • Making recommendations to the Board on the fees offered to the non-executive Directors, after taking professional advice. A report on Directors' remuneration, including a more detailed description of the role and activities of the Remuneration Committee is set out on pages 72 to 89. The terms and conditions of appointment of all Directors are available for inspection at the Company's registered office and will be available for inspection at the Annual General Meeting. 2.14 What protection do we offer to Directors? In law, Directors are responsible for most facets of the Company's dealings. As a consequence, they carry significant personal liability under criminal and civil law and under the UK Listing, Prospectus, Disclosure and Transparency Rules, and face a range of penalties including, potentially, private or public censure, fines and / or imprisonment. The Company believes that it is appropriate to protect the individuals prepared to serve on its Board from the consequences of innocent error or omission, and that it is in the Company's best interests to do so, as it enables us to attract individuals of suitable calibre and character to act as Directors. The Company maintains, at its expense, a directors' and officers' liability insurance policy to afford an indemnity in certain circumstances for the benefit of Directors and other Group personnel. The insurance policy does not provide cover where the Director or officer has acted fraudulently or dishonestly. In accordance with the Company's Articles of Association and to the extent permitted by law, Deeds of Indemnity have been issued to protect all past, present and future Directors and officers of the Company from all costs and expenses incurred in the defence of any civil or criminal proceedings in which judgement is given in their favour or the proceedings are otherwise disposed of without a finding of fault or the successful application to court for relief from liability. Under the terms of the indemnities, the Company is permitted to advance funds to meet a Director's defence costs which, should the Director not be exonerated, would be repayable to the Company. The indemnities are expressed to operate only to the extent that the directors' and officers' liability insurance policy fails to respond to a claim. 3. Relations with shareholders 3.1 Who owns the Company? Lonmin Plc has a primary listing on the London Stock Exchange and our UK share register has circa 16,500 registered shareholders. We also have a secondary listing on the JSE Securities Exchange, South Africa and our South African branch register has approximately 2,000 beneficial shareholders, including those who hold their shares in dematerialised form in STRATE. We also have a sponsored Level I American Depositary Receipts programme, with around 750 participants. Like most listed companies, ownership of the Company's shares is concentrated in a small number of institutional and other corporate shareholders. The Company had been notified pursuant to DTR5 of the following interests in 3% or more of the Company's total voting rights up to 13 November 2009: Percentage of the Company's Number of total shares shares and and voting Nature of voting rights rights 1 Holding Ameriprise Financial Inc and group companies2 7,677,367 4.91 Indirect Legal & General Group Plc 7,706,524 3.99 Direct Prudential plc and group companies 26,174,708 13.55 Direct Vanguard Precious Metals and Mining Fund2 5,916,435 3.78 Direct Xstrata Plc 47,592,625 24.67 Direct 1 Percentages as at date of notification. 2 Disclosed data was provided prior to the Rights Issue. The rights attaching to the ordinary shares of the Company held by these shareholders are identical in all respects to the rights attaching to all the ordinary shares of the Company. 60 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Governance 3. Relations with shareholders (continued) Directors' Report – Business Review 3.2 How do we communicate with our institutional shareholders? The Combined Code encourages dialogue with institutional shareholders based on the mutual understanding of objectives. The executive Directors have regular discussions with institutional shareholders where they believe this to be in the Company's best interests, but no information is shared which is not available to shareholders generally. Detailed feedback from these visits is shared with the Board and a summary of the views expressed is presented to the next Board meeting. In addition, the Chairman routinely offers key shareholders the opportunity of meetings with either himself or the Senior Independent Director to discuss governance, strategy or any other matters shareholders wish to raise. The Chairman of the Remuneration Committee, having been appointed during the year, and our HR Director met with several institutional shareholders and representative bodies during the year to discuss the Company's policy on remuneration and how this is implemented in practice. The Senior Independent Director, Michael Hartnall, is available to shareholders if they have concerns which contact through the normal channels has failed to resolve or for which such contact would be inappropriate. Directors' Report – Governance 3.3 How do we communicate with our private shareholders? The Combined Code urges boards to use the Annual General Meeting to communicate with private investors and to encourage their participation. The Board has followed these principles for many years. The Notice of Meeting is sent to all shareholders at least one month in advance. At the meeting, a business presentation is made by the Chief Executive Officer and all Directors are available to answer questions both during the meeting and informally afterwards. We give shareholders the opportunity to vote on every substantially different issue by proposing separate resolutions and use electronic poll voting on all resolutions, with the results of those votes being announced to the markets and displayed on our website. This enables the votes of all shareholders to be taken into account, whether they are able to attend the meeting or not, as well as providing a more discreet and democratic method of voting at the meeting. The Company has taken advantage of the ability in law to move to a default route of electronic communications with shareholders, both to save cost and to avoid the use of paper, ink and other resources that would be entailed in printing and distributing large numbers of documents. However, individual shareholders can opt to receive paper documents should they so wish. In recognition of the needs of private shareholders, the Company's website contains a range of investor relations materials, including up-to-date information on the Group's activities, copies of all presentation materials given to institutional Financial Statements investors and copies to read or download of all our public reporting documents. 3.4 What is the purpose of the Annual General Meeting? The Annual General Meeting is an important event in the corporate year, and is the point at which the Directors place their report on the previous year's events and results before the shareholders, and seek certain approvals and authorisations. As seen above, these include the re-election of each board member on a regular basis. Poll voting allows the views of all shareholders to be taken into account, and votes are routinely cast by those owning more than 70% of the Company's shares. The 2010 AGM will be held at 11.00 a.m. on Thursday, 28 January 2010 at The Assembly Hall, Church House Conference Centre, Dean's Yard, Westminster, London SW1P 3NZ. A separate circular containing the Notice of Meeting, together with an explanation of the items of special business, is enclosed with this Annual Report and is available on the Company's website. Among the resolutions to be proposed at the AGM will be ones seeking shareholders' authority for the Directors to be Operating Statistics empowered to allot equity securities, a limited dis-application of the statutory pre-emption rights and an authority for the Company to make market purchases of its own shares. A special resolution will also be proposed seeking shareholders' consent to the adoption of new Articles of Association. Further details of all of these matters are set out in the AGM circular. 3.5 Are we paying a Dividend to shareholders? As noted in the Chairman's Statement on page 5, the Board does not recommend the payment of a final dividend given the conservative stance adopted in the light of the continuing pressure on our profitability and cash flows. The total dividend for the year ended 30 September 2009 is therefore nil (total dividend 2008 (interim only) – 59 US cents). 4. The Company's business and statutory disclosures 4.1 What is Lonmin's business? The principal activities of the Group during the year continued to be mining, refining and marketing of Platinum Group Metals. Shareholder Information Analyses of revenue, operating profit, principal activities and geographical origins appear in note 2 to the accounts and a list of the principal subsidiary undertakings, indicating their main activities, appears in note 34. Detailed information on the Group's activities can be found in the Chief Executive's Review and the Operational Review on pages 6 to 15. Lonmin Plc operates in South Africa as a branch which is registered in that country as an overseas company, in addition to the business conducted by its subsidiary undertakings. www.lonmin.com 61 Directors' Report – Governance 4. The Company's business and statutory disclosures (continued) 4.2 Business Review The Companies Act 2006, Section 417 requires that the Directors present a Business Review in this report to inform shareholders of the Company and help them assess how the Directors have performed their duty to promote the success of the Company. The information that fulfils this requirement can be found in the sections set below and is incorporated by reference into this report: • The Chairman's Letter on pages 4 and 5; • The Chief Executive's Review (including discussion of the main trends and factors likely to affect the future development, performance and position of the Company's business) on pages 6 to 8; • The Operational Review on pages 9 to 15; • The Financial Review on pages 18 to 25; • The discussion of Internal Controls and Risk Management on pages 26 to 29; • The Key Performance Indicators on pages 30 and 31 together with the Operational Statistics on pages 138 and 139; and • The Sustainable Development Review on pages 32 to 51. This Business Review has been prepared to provide the Company's shareholders with a fair review of the business of the Company and a description of the principal risks and uncertainties facing it. It may not be relied upon by anyone, including the Company's shareholders, for any other purpose. This Business Review and other sections of this report contain forward-looking statements. By their nature, forward- looking statements involve a number of risks, uncertainties and future assumptions because they relate to events and / or depend on circumstances that may or may not occur in the future and could cause actual results and outcomes to differ materially from those expressed in or implied by the forward looking statements. No assurance can be given that the forward looking statements in this Business Review will be realised. Statements about the Directors' expectations, beliefs, hopes, plans, intentions and strategies are inherently subject to change and they are based on expectations and assumptions as to future events, circumstances and other factors which are in some cases outside the Company's control. The information contained in this Business Review has been prepared on the basis of the knowledge and information available to Directors at the date of its preparation and the Company does not undertake any obligation to update or revise this Business Review during the financial year ahead. It is believed that the expectations set out in these forward looking statements are reasonable, but they may be affected by a wide range of variables which could cause actual results or trends to differ materially. The forward looking statements should be read in particular in the context of the specific risk factors for the Company identified in this Business Review. The Company's shareholders are cautioned not to place undue reliance on the forward-looking statements. Shareholders should note that this Business Review has not been audited or otherwise independently verified. 4.3 Principal events of the year The principal events of the year are covered in detail in the Chief Executive's Review and in the remainder of the Business Review. However, from a statutory perspective the key events were as follows: • On 1 October 2008 (being the first day of the period under review) Xstrata plc announced that, in light of uncertainty in the financial markets and due to certain terms of their finance arrangements, it would not proceed with an unsolicited, proposed pre-conditional offer for the entire issued share capital of the Company at a price of £33 per share first mooted on 6 August 2008. Xstrata subsequently acquired an additional 22,232,940 shares in the Company which, together with those shares already held, totalled 38,939,421 shares and represented 24.9% of the then issued share capital of the Company; • On 11 May 2009, the Company announced a 2 for 9 underwritten Rights Issue of 35,072,129 New Shares at 900 pence per New Share and, in the case of shareholders registered on the South African branch register, at ZAR 113.04 per New Share. On 3 June 2009, being the latest date of receipt of valid acceptances, the Company had received acceptances in respect of 33,801,585 New Shares, representing approximately 96.38% of the total number of New Shares offered to shareholders. Citigroup and JPMorgan Cazenove, being the Company's underwriters, were able to procure subscribers for the remaining 1,270,544 New Shares at an average price of 1433.01 pence per New Share. The net proceeds of the Rights Issue raised approximately US$458 million and as a result significantly strengthened the Company's overall financial position. There were no material changes from 30 September 2009 to the date of this report. 4.4 Employees The Group employs around 22,000 people in South Africa. Information on the Group's policies on employee recruitment and engagement can be found in the Sustainable Development Review on pages 32 to 51. 4.5 Research and development Group companies continue to be actively involved in research and development projects in the areas of mineral extraction and refining. 4.6 Policy on the payment of creditors The Company complies with, and has registered its support of, the Better Payment Practice Code, available from the Better Payment Practice Group website, www.payontime.co.uk. The Company has a consistent policy and practice of paying its bills in accordance with contracts by settling the terms of payment with its suppliers when agreeing the terms of each transaction, either by accepting suppliers' standard terms of payment or by proposing alternative terms but, in either case, then abiding by the agreed payment terms. Trade creditors of the Company at 30 September 2009 represented 11 days (2008 – 5 days) of its annual purchases. 62 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Governance 4. The Company's business and statutory disclosures (continued) Directors' Report – Business Review 4.7 Charitable and political donations No political donations were made during the year. Lonmin has an established policy of not making donations to any political party, representative or candidate in any part of the world. Charitable donations made by the Group during the year in the United Kingdom amounted to £34,659 ($50,868) (2008 – £33,083 ($65,470)). During the year, the Group funded a number of long-term social welfare and community development projects. The Group's funding for these projects for the year amounted to R4 million ($0.5 million) (2008 – R5.2 million ($0.7 million)). These amounts are in addition to amounts expensed by the Group as the normal costs of the operation of its corporate social responsibility programme. A fuller explanation of this expenditure will be contained in the Web-based Sustainable Development Report for the year ended 30 September 2009 which can be downloaded from the Company's website. 4.8 Share capital and reserves The authorised and issued share capital of the Company at 30 September 2009 is set out in note 26 to the accounts. The Directors' Report – Governance rights and obligations attaching to the Company's ordinary shares and the provisions relating to the transfer of the ordinary shares are governed by law and the Company's Articles of Association. The holders of ordinary shares are entitled to receive all shareholder documents, to receive notice of any general meeting, to attend, speak and exercise voting rights, either in person or by proxy and are entitled to participate in any distribution of income or capital. There are no restrictions on the transfer of shares or on the exercise of voting rights attached to them except where the Company has exercised its rights to suspend voting rights or to prohibit transfer. The share capital comprises 50,000 sterling deferred shares in addition to the ordinary shares. These shares were created in 2002 and issued to a nominee company by the capitalisation of reserves, in order to comply with the requirement that a public limited company must have a minimum share capital of £50,000 in sterling. These shares do not rank pari passu with the ordinary shares of the Company. The holders of such shares are not entitled to receive notice of any general meeting or to attend, speak or vote at any general meeting, nor are they entitled to participate in any distribution of income or capital. The trustee of the Lonmin Employee Share Trust does not seek to exercise voting rights on the ordinary shares held in Financial Statements trust. The total share capital and reserves attributable to the Group amounted to $2,417 million at 30 September 2009. This compares with $2,147 million at 30 September 2008. 4.9 Use of authorities granted at the 2009 Annual General Meeting At the AGM held on 29 January 2009, shareholders approved an authority for the Company to make market purchases of its own shares, up to a maximum of 15,700,000 shares (being approximately 10% of the issued share capital) at prices not less than the nominal value of each share (being $1) and not exceeding 105% of the average mid-market price for the preceding five business days. The Company made no purchases of its own shares during the year and no shares were acquired by forfeiture or surrender or made subject to a lien or charge. During the year, the Company allotted 36,671,027 ordinary shares of $1 each, for cash, following the 2 for 9 Rights Issue, to satisfy the exercise of the final tranche of an option granted to the International Finance Corporation, to satisfy the exercise of options or the vesting of awards granted under the Company's share schemes and to provide the Company's Operating Statistics employee benefit trust with sufficient shares to meet its obligations in connection with employees' share schemes. 4.10 Amendment of the Articles of Association The Company's Articles of Association may only be amended by a special resolution at a general meeting of the shareholders. As noted above, a special resolution proposing the adoption of new Articles of Association to accommodate the final provisions within the Companies Act 2006 will be proposed at the Annual General Meeting. Further details are set out in the circular accompanying the Annual Report and Accounts. 4.11 Essential contractual arrangements Certain Group companies are party to contracts and other arrangements which the Board judges are essential to the business of the Company. For any mining company, its mineral rights and mining licences are of crucial importance and therefore the New Order Shareholder Information Mining Licence granted by the South African government's Department of Minerals and Energy to certain Group companies in respect of the Marikana operations falls into this category, as do the old order mining rights in respect of the Limpopo operations and the various prospecting rights held by Group companies. The remaining essential contractual arrangements can be summarised as follows: • Contracts for the purchase of inputs – while most of the supplies needed to operate the Group's mines and refining facilities are secured through competitive tendering in the open market, the Group is heavily dependent on Eskom for the supply of electricity, and Rand Water in respect of the supply of water. The Company does not believe that it has any debt facilities which could not be replaced in the open market. • Contracts relating to labour and services – the principal arrangements essential to our business are collective agreements with trade unions representing the majority of the Group's employees, most notably with the National Union of Mineworkers in South Africa • Contracts for the sale of goods – certain Group companies are party to separate contracts with BASF and Mitsubishi, under which substantially the whole of the Group's production of finished metal for the period under review was sold. www.lonmin.com 63 Directors' Report – Governance 4. The Company's business and statutory disclosures (continued) 4.12 Significant Agreements – change of control A number of agreements take effect, alter or terminate upon a change of control of the Company following a takeover bid, such as debt facilities and employee share plans. None of these are deemed to be significant except for the Company's banking facilities in the amount of $875 million spread across three separate facilities with the counterparties generally being syndicates of different banks. These facilities contain provisions which, in the event new terms to continue the facility are not agreed within 25 days of a change of control, the lender is entitled to give notice cancelling the facility and declaring all outstanding loans together with accrued interest to become payable within 15 days of such notice. The Company does not have agreements with any Director or employee that would provide compensation for loss of office or employment resulting from a takeover except that certain provisions in some of the Company's share plans may be triggered. These are briefly described below and further information on these plans and on the Directors' service agreements can be found in the Remuneration Committee report on pages 72 to 89. Awards made under the Stay & Prosper Plan crystallise immediately following a change of control, although they vest and become payable on their normal maturity date (three years from the date of grant) and subject generally to continued employment of the participant. Directors of the Company are not permitted to hold awards under this Plan. Awards under the remainder of the share plans will vest to the extent specified by the Remuneration Committee, who will generally take into account the extent to which the performance targets have been met and such other factors as they believe to be appropriate in line with the rules of the relevant plans. 5. Accountability and Audit 5.1 What are the Directors' responsibilities in this area? The Directors are responsible for preparing the Annual Report and Accounts and the Group and parent company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law, they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the EU ('IFRSs') and applicable law and they have elected to prepare the parent company financial statements in accordance with the UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the Directors are required to: • select and maintain suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; • for the parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent Company will continue in business. The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities and to establish and maintain principles, policies and procedures relating to financial risk management. Under applicable law and regulations, the directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors' Responsibility Statement can be found on page 91. 64 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Governance 5. Accountability and audit (continued) Directors' Report – Business Review 5.2 How have the Directors discharged their responsibilities in this area? • The Lonmin Group financial statements are presented in accordance with the IFRSs as adopted by the EU. The Group adopted the US Dollar as its reporting currency in 1998. • Details of the Group's financial risk management are described in the Financial Review on pages 18 to 25 and in the Statement on Internal Controls and Risk Management on pages 26 to 29 of this report. • The Directors consider that the Group has adequate financial resources to continue operating for the foreseeable future and that it is, therefore, appropriate to adopt the going concern basis in preparing the financial statements. The Directors have satisfied themselves that the Group is in a sound financial position and that it has access to sufficient borrowing facilities and can reasonably expect those facilities to be available to meet the Group's foreseeable cash requirements. Please refer to the going concern disclosure in the Financial Review on pages 18 to 25 of this report. 5.3 Relationships with the external auditors The external auditors are appointed by shareholders to provide an opinion on the financial statements and certain other Directors' Report – Governance disclosures prepared by the Directors. KPMG Audit plc acted as the external auditors to the Lonmin Group throughout the year. The lead audit partner is based in London and supported by a second audit partner based in Johannesburg. As required under section 418 of the Companies Act 2006, so far as each current Director is aware, there is no information relevant to the audit of which the Company's auditors are unaware, and each Director has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any such information and to ensure that the Company's auditors are aware of that information. A resolution for the re-appointment of KPMG Audit Plc as auditors of the Company will be proposed at the Annual General Meeting. 6. The Audit and Risk Committee 6.1 What is the role of the Audit and Risk Committee? The Audit and Risk Committee is a formal Committee of the Board and has powers delegated to it under the Articles of Association. Its terms of reference were reviewed by the Board in January 2007 and are compliant with the provisions of the Combined Code. A copy of the terms of reference is available on the Company's website and sets out the primary purposes of the Audit and Risk Committee, which are: Financial Statements • To monitor the integrity of the Company's financial statements and announcements relating to its financial performance and reviewing significant financial reporting judgements; • To keep under review the effectiveness of the Company's internal controls and risk management systems; • To monitor the effectiveness of the internal audit function and review its material findings; and • To oversee the relationship with the external auditors, including agreeing their remuneration and terms of engagement, monitoring their independence, objectivity and effectiveness and ensuring that policy surrounding their engagement to provide non-audit services is appropriately applied. The Committee is authorised to investigate any matters within its terms of reference, access all Group documents and information, seek information from any Director or employee of the Group and co-opt any resources (including external professional assistance) it sees fit in order to fulfil its duties. However, the Committee has no executive function and its primary objective is to review and challenge rather than assume responsibility for any matters within its remit. Minutes of all Operating Statistics meetings of the Committee (save those recording private discussions with either the internal or external auditors) are circulated to all Directors and supplemented by a written or verbal update from the Committee Chairman at the next Board meeting, identifying any matters in respect of which action or improvement is required and making recommendations where appropriate. The Committee presents a summary of its activities to shareholders and other interested parties by means of this report and the Committee Chairman attends all general meetings of the Company's shareholders to answer any questions on the Committee's activities. 6.2 Who are the members of the Audit and Risk Committee? All independent Directors, with the exception of the Chairman of the Board, are eligible to become members of the Committee, which comprised the following members, any two of whom form a quorum, during the year and to the date of this report. All members of the Committee must be financially literate. • Michael Hartnall: an independent Director and a chartered accountant, Mr Hartnall was formerly the finance director of Shareholder Information Rexam plc, a multinational manufacturer of consumer packaging. He was also a member of the Hampel Committee which produced the first version of the Combined Code in 1998. The Board has judged that he has the significant, recent and relevant financial experience necessary to chair the Committee. • Karen de Segundo: an independent Director and a member of the Audit and Risk Committee since 2005. • Jim Sutcliffe: an independent Director who joined the Committee in 2007. Mr Sutcliffe is also a director of the Financial Reporting Council. www.lonmin.com 65 Directors' Report – Governance 6. The Audit and Risk Committee (continued) 6.2 Who are the members of the Audit and Risk Committee? (continued) Biographical details of each Director are set out on page 53 of this document. Each member receives an annual fee of £10,000 for serving as a member of the Committee, or £17,500 in the case of the Chairman. These fees are included in the table of Directors' remuneration on page 77. All members of the Committee are provided with appropriate induction into the role of the Committee and the operation of its terms of reference on appointment. Access to training is provided on an ongoing basis to ensure that members are able to discharge their duties. Meetings of the Committee are attended by the Chief Executive, the Chief Financial Officer, the VP Finance (UK), the VP Treasury and Risk, the Head of Internal Audit and the Assistant Company Secretary (who acts as secretary to the Committee), none of whom do so as of right. The internal and external auditors attend all Committee meetings and a private meeting is routinely held with them to afford the opportunity of discussions without the presence of management. 6.3 How often did the Committee meet, and who attended? The Committee met six times during the year. Attendance at these meetings was as follows: Number of meetings Number of Director held during time in office meetings attended Michael Hartnall 6 6 Karen de Segundo 6 6 Jim Sutcliffe 6 6 6.4 Activities of the Audit and Risk Committee The Committee reports its material findings and decisions to the next Board meeting, and copies of the minutes are circulated to all Directors. The principal business of these meetings was: November: • review of the annual reporting documents (including the accounts) and consideration of whether to recommend the same to the Board; • assessment of any material exercises of judgement by management; • consideration of the 'going concern' statement; • consideration of the letter of representation from management to the external auditors relating to the accounts; • receipt of a report from the external auditors following their review of the full year accounts; • review of the independence, objectivity and effectiveness of the external auditors and formulation of a recommendation to the Board as to whether or not their reappointment should be proposed to shareholders; • review of non audit services provided by the external auditors during the year and approval of the fees for the year; • private meeting with the external auditors; • review of the effectiveness of internal controls and risk management systems during the year prepared by management, including a review of outstanding external and internal audit actions; • review of a report on the internal controls environment prepared by the external auditors; • review feedback from management confirmation letters completed by senior management; • review of matters reported to the external whistleblowing hotline. March (in South Africa): • review of matters arising from the prior year audit; • review external auditors' plan for the half year review and full year audit and approve the fees and engagement letter for the same; • review internal audit report including an overview of performance against the internal audit plan for the year; • private meeting with the internal auditors; • review of risk management report including results of the "bottom-up" and "top-down" risk reviews; • review management assessment of the internal control framework. May: • review of the interim report (including the accounts) and consideration of whether to recommend the same to the Board; • assessment of any material exercises of judgement by management; • consideration of the letter of representation from management to the external auditors relating to the interim accounts; • receipt of a report from the external auditors following their review of the interim accounts; • private meeting with the external auditors; • review of risk management report; • review of outstanding internal and external audit points; • review of non audit services provided by the external auditors year to date; • receive an update on the insurance renewal. 66 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Governance 6. The Audit and Risk Committee (continued) Directors' Report – Business Review 6.4 Activities of the Audit and Risk Committee (continued) September (in South Africa): • review internal audit report including an update on outstanding internal and external audit points; • approval of the scope and focus of the internal audit programme and internal audit budget for the forthcoming financial year; • further review and final confirmation of the external auditors' plan for the year end audit; • review of a report on the internal controls environment prepared by the external auditors; • review of risk management report including key risks facing the Group following 'top down' and 'bottom up' risk reviews and assessment of internal control framework; • feedback on issues identified during the prior year's Management Confirmation Letter; • review and approve the renewal terms and scope of cover of the Group's insurance programme; • review of matters reported to the external whistleblowing hotline; • review of investigations report; • consider the effectiveness of the internal auditors; Directors' Report – Governance • consider the effectiveness of the Committee and the Committee's Chairman. The other two scheduled meetings are held solely to approve the quarterly and half year production reports, which incorporate the Company's interim management statements. In addition to the routine business described above, the Committee also undertook the following activities during the year and in the period to the date of this report: • review of treasury procedures and approval of a treasury operational manual, after evaluation of assessment of these by the external auditors; • review of a report on compliance with legal and regulatory issues; • review of cash flow and working capital forecasts. 6.5 Is the Committee effective? The Committee assessed its effectiveness at a meeting in September 2009. To do so, a questionnaire was circulated to members of the Committee, the internal and external auditors and members of the management team who assist the Audit Financial Statements and Risk Committee in their work, which then formed the basis of a discussion. The questionnaire focused on the effectiveness of the Committee, the flow of information, relationships with management and advisors, appropriateness of the terms of reference and the composition of the Committee. All of these views were summarised into a formal report to the Board by the Chairman. The Committee separately discussed the effectiveness of the Chairman of the Committee (in his absence) which also formed part of the report to the Board. Whilst no material issues were identified during this process, the Committee believed that it may be appropriate to consider appointing an additional member with mining experience. A preference was also expressed for continuing engagement with management, to improve their detailed understanding of certain highly technical aspects of the business. On balance, the Committee concluded that it was effective. 6.6 How does the Company address internal audit? The recently-appointed Head of Internal Audit recruited a team of four in-house auditors during the year, all of whom are based in South Africa. In addition, PwC have been appointed to provide specialist internal audit services. The Head of Internal Audit reports to the Chairman of the Audit and Risk Committee, with a joint reporting line to the VP, Treasury and Operating Statistics Risk. A total of 34 assignments were undertaken during the year across a broad cross-section of activities identified by both management and the Committee. Internal audit reports are reviewed with operational management and then delivered to the executive management team, including the Chief Financial Officer. Material findings and recommendations are summarised to the Committee, who receive regular updates on progress in addressing the matters raised by internal audits. The Head of Internal Audit is also responsible for the Company's whistle-blowing programme and heads up the investigations unit comprising 11 investigators. A review of the effectiveness of the internal audit function was carried out during the year by way of a questionnaire circulated to the senior management team. Having considered the results of this survey and a number of other factors, including the communication and impartiality of the internal audit function, the Committee concluded that the internal audit function was in all respects effective. 6.7 How does the Committee manage the external auditors? Shareholder Information The external auditors, KPMG Audit Plc, may not be engaged on any material non-audit work without the prior approval of the Audit and Risk Committee who are responsible for the annual work plan and fee budget for the auditors. As policy, the Committee would not allow the external auditors to perform any work that they may subsequently need to audit or which might otherwise either create a conflict of interests or affect the auditor's objectivity and independence. The Committee also monitors the balance between audit and non-audit related spend to ensure that auditor independence can be shown to be maintained. The Chief Financial Officer is permitted to engage the external auditors on matters that do not create such conflicts or otherwise compromise the audit firm subject to an annual fee ceiling of $100,000. Non-audit fees incurred during the year amounted to $1.0 million (2008 – $1.5 million) and relate primarily to the Rights Issue. The Committee is satisfied that the overall level of non-audit fees is not material relative to the income of the audit offices and firm as a whole, and that the nature of the services provided are appropriate and in line with the Company's policies in this area. The Audit and Risk Committee appraised the independence and objectivity of KPMG and also reviewed their effectiveness as external auditors before reaching the recommendation to the Board that their re-election should be proposed to shareholders. In arriving at its decision, consideration was also given to the expertise, resources and the professional standing of KPMG within the market. www.lonmin.com 67 Directors' Report – Governance 7. Nomination Committee Report 7.1 What is the role of the Nomination Committee? The Nomination Committee is a formal Committee of the Board and has powers delegated to it under the Articles of Association. Its remit is set out in terms of reference that were formally adopted by the Board in November 2006. These are available from the Company and are displayed on its website. The primary purposes of the Committee are: • To ensure that a regular, rigorous and objective evaluation of the structure, size, composition, balance of skills, knowledge and experience of the Board is undertaken; • In consultation with the Chairman, to recommend any proposed changes to the composition of the Board and to instigate and manage the recruitment process; • To ensure the Company's adherence to applicable legal and regulatory requirements in relation to the above; and • To oversee compliance with the Combined Code and other applicable corporate governance regulation. 7.2 Who are the members of the Nomination Committee? During the time the Board was considering the appointment of a successor to Sir John Craven, two policy decisions were taken. Firstly, the Board felt strongly that it was important for all non-executive Directors to have equal input into appointment decisions as they ultimately affected the performance and dynamics of the Board as a whole. As a result, all non-executive Directors were invited to become (and duly became) members of the Committee. Secondly it was expected that the Chairman of the Board should always chair the Committee, save when matters pertaining to himself or his successor were under consideration. The quorum for a meeting of the Committee remains two members. The members of the Committee are considered to be wholly independent. Each member receives an annual fee of £7,500 and the Chairman £12,500. These fees are included in the table of Directors' remuneration on page 77 and a detailed breakdown is provided on the same page. Biographical details of each Director are set out on page 53 of this document. The Committee is supported by the services of the Company Secretary who acts as secretary to the Committee and it has full access to the Chief Executive Officer. It is also empowered to appoint search consultants, legal, tax and other professional advisors as it sees fit to assist with its work and to co-opt such resources as it requires in fulfilling its duties. 7.3 How often did the Committee meet, and who attended? The Committee met six times during the year. Attendance at these meetings was as follows: Number of meetings Number of Director held during time in office meetings attended Sir John Craven 3 01 Karen de Segundo 3 2 Peter Godsoe 6 6 Sivi Gounden 3 3 Michael Hartnall 6 6 Jonathan Leslie 1 02 David Munro 3 2 Roger Phillimore 6 52 Jim Sutcliffe 3 3 1 The prime focus of these meetings was to discuss matters relating to the succession to the Chairmanship. In line with best practice, Sir John recused himself from these meetings. 2 Each chose to recuse himself from one meeting, the sole purpose of which was to consider matters relating to his own appointments. 7.4 Activities of the Nomination Committee The Committee reports its material findings and decisions to the next Board meeting and copies of the minutes are circulated to all Directors. During the year, the Committee undertook the following: • reviewed the Committee's report within the 2008 Annual Report and Accounts and recommended approval of this to the Board; • approved extensions to the terms of office for Karen de Segundo and Sivi Gounden following their re-election by shareholders, to expire when they next submit themselves for re-election in January 2011; • commenced and oversaw a formal process to search for a successor to Sir John Craven as Chairman of the Board; • reviewed Roger Phillimore's committee appointments in the light of best practice, and accepted his offer to step down as a member of the Audit and Risk and Remuneration Committees; • recommended to the Board that Jim Sutcliffe be appointed as a member and subsequently chairman of the Remuneration Committee and • recommended to the Board that Jonathan Leslie be appointed as a director and to membership of the Nomination, Remuneration and Safety and Sustainability Committees. Normally, the Committee would assess the effectiveness of those who were seeking re-election at the AGM. However, as the three directors retiring at the 2009 AGM were at that time also the sole members of the Committee, the Board was asked to undertake this task. Each of Sir John Craven, Michael Hartnall and Roger Phillimore was found to be fully effective, to demonstrate commitment to their roles and to have retained independent judgement in all respects. 68 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Governance 7. Nomination Committee Report (continued) Directors' Report – Business Review 7.5 Policy on appointments to the Board All recommendations for Board appointments are made on merit and against objective criteria. A job specification is drawn up which includes, in the case of non-executive appointments, an estimate of the time commitment required. Generally, the Committee will engage executive search consultants to assist in ensuring a comprehensive listing of potential candidates for the Committee's consideration. 7.6 Is the Committee effective? In November 2009 the Committee assessed its effectiveness and, in his absence, that of the Chairman of the Committee. The views expressed were summarised to the Board and there were no matters arising which the Committee or the Board felt necessitated change. 8. Safety and Sustainability Committee Report 8.1 What is the role of the Safety and Sustainability Committee? The Safety and Sustainability Committee is a formal committee of the Board and has powers delegated to it under the Directors' Report – Governance Articles of Association. Its terms of reference were most recently reviewed by the Board in March 2008 and are available on the Company's website. The primary purposes of the Committee are: • To have oversight of and provide advice to the Board and, as necessary to the Audit and Risk Committee, on safety and sustainability including health, environment and community matters, and particularly as pertaining to the risk and management of these issues within the Group; • To have oversight of and provide advice to the Board on the Group's compliance with applicable legal and regulatory requirements associated with safety and sustainability; • To assess the effectiveness of management's attitudes and approach towards, and activities in, managing safety and sustainability related risk; • To assess periodically the effectiveness of the Group's policies, standards and systems for identifying and managing safety and sustainability related risk; • To review significant safety and environmental incidents and consider causative factors, consequences and actions including the impact on employees and third parties and reputational risk; Financial Statements • To review the Group's performance indicators in connection with safety and sustainability matters; • To review the Group's public disclosures on safety and sustainability matters and approve these as necessary; and • To report to the Board on developments, trends and / or forthcoming significant legislation on safety and sustainability matters which may be relevant to the Group's operations, its assets or employees. The Committee is authorised by the Board to investigate any matter within its terms of reference, to seek any relevant information that it requires from any Director or employee of the Group and to co-opt any resources it may require to undertake its duties. The Committee is also authorised to obtain independent legal or other professional advice if it considers this necessary. In line with the other Committees of the Board, the Safety and Sustainability Committee does not have any executive power and the Directors and operational managers retain their full responsibility and accountability for the management of safety and sustainability matters in the Group. Operating Statistics Minutes of all meetings of the Committee are circulated to all Directors and supplemented by a verbal update from the Committee's chairman at the next Board meeting, identifying any material matters which arose from the Committee's work. The Committee presents a summary of its activities to shareholders and other interested parties by means of this section of the Directors' Report. More detailed information concerning the Group's sustainability related activities are set out on pages 32 to 51, are available on the Company's website and in the Web-based Sustainable Development Report. 8.2 Who are the members of the Safety and Sustainability Committee? The terms of reference for this Committee require a minimum of two independent Non-executive Directors, one of whom shall be the Chairman of the Committee, and one executive Director. The Board may, on the recommendation of the Nomination Committee, appoint or remove members of the Committee, subject to there being at least three members at all times. At the request of the Committee's Chairman, certain senior executives attend all meetings of the Committee. The Committee comprised the following members during the year and to the date of this report, except where stated Shareholder Information otherwise: • Sivi Gounden: an independent Director who has been a member of the Committee and its Chairman since November 2006. Dr Gounden, a South African national resident in that country, has significant experience of the mining industry globally, and in South Africa in particular. Dr Gounden resigned as a Director on 16 October 2007. • Karen de Segundo: an independent Director who has been a member of the Committee since January 2007. Formerly Chief Executive Officer of Shell International Renewables and Chief Executive of Shell's global gas and power business. • David Munro: an independent Director who joined the Board in August 2007 and was appointed to the Safety and Sustainability Committee on 21 September 2007. Mr Munro is a mining engineer with significant experience of the mining sector, both internationally and in South Africa. www.lonmin.com 69 Directors' Report – Governance 8. Safety and Sustainability Committee Report (continued) 8.2 Who are the members of the Safety and Sustainability Committee? (continued) • Jonathan Leslie: an independent Director who joined the Board in June 2009 and was appointed to the Safety and Sustainability Committee on 2 July 2009. Mr Leslie has significant experience of the mining industry, having spent twenty six years with Rio Tinto in a variety of operational management roles. • Ian Farmer: an executive Director and Chief Executive of the Company who has been a member of the Committee since September 2008. Biographical details of each of the Directors are set out on page 53. Each of the Non-executive Directors on this Committee receives an annual fee of £7,500 for serving as a member or, in the case of the Chairman, £12,500. These fees are included in the table of Directors' remuneration on page 77 of this document. All members of the Committee are provided with appropriate induction into the role of the Committee and the operation of its terms of reference on appointment. Members are also offered opportunities to visit the operations and community projects with which the Company is involved. Meetings of the Committee are attended by the Chief Operating Officer, the Executive Manager, Technical Services (previously by the VP Exploration and Business Development) and the Assistant Company Secretary (who acts as secretary to the Committee), none of whom do so as of right. 8.3 How often did the Committee meet and who attended? The Committee met five times during the year. Attendance at these meetings was as follows: Number of meetings Number of Director / senior executives held during time in office meetings attended Sivi Gounden1 5 4 Jonathan Leslie2 1 1 David Munro 5 5 Karen de Segundo 5 5 Ian Farmer 5 4 Chief Operating Officer 5 5 VP Exploration and Business Development3 1 1 Executive Manager, Technical Services4 2 2 1 To 16 October 2009 2 From 2 July 2009 3 To 31 January 2009 4 From 1 July 2009 8.4 Activities of the Safety and Sustainability Committee The Committee reports its material findings and decisions to the next Board meeting and copies of the minutes are circulated to all Directors. Although the Committee met five times during the year, one of these meetings was specifically to review the ICAM findings from a fatal incident. The business at the scheduled meetings was: November: • review of safety statistics and trend analysis; • review of environmental statistics and trend analysis; • review key environmental risks; • review feedback from external auditors on the Sustainable Development Reports; • review and approve the summary and full Sustainable Development Reports and recommend the same to the Board; • review and approve Safety and Sustainability Committee report contained within the 2008 Annual Report and Accounts and recommend the same to the Board. March (South Africa): • review of safety statistics and trend analysis; • review of environmental statistics and trend analysis; • review of health indicators and update on community health issues; July: • review of safety statistics and trend analysis; • review of environmental statistics and trend analysis. September (in South Africa): • review of safety statistics and trend analysis; • review of environmental statistics and trend analysis; • review performance against Social and Labour Plan targets; • review expenditure and progress on community projects. 70 2009 Annual Report and Accounts / Lonmin Plc Directors' Report – Governance 8. Safety and Sustainability Committee Report (continued) Directors' Report – Business Review 8.4 Activities of the Safety and Sustainability Committee (continued) In addition to the routine business described above, the Committee also undertook the following activities during the year and in the period to the date of this report: • Reviews of ICAM reports on all serious incidents, including fatalities (being a detailed analysis of factors contributing to these incidents and the corrective and preventative measures that were taken to prevent recurrence) presented by the executive responsible for the relevant parts of the Group's business; • Review of a report on changes to the environmental and regulatory regime and impact on the Company; • Review results of the Presidential Safety Audit; • Review update on the Mine Health and Safety Bill; • Community visits to local school to see first hand the refurbishment and school nutrition programme and meet members of the community who receive home based care visits provided by the Company; and • Review feedback from a survey commissioned by the International Platinum Association to develop best practice guidelines. Directors' Report – Governance 8.5 Is the Committee effective? The Committee assessed its effectiveness in November 2009 and concluded that it was in all respects effective. 9. Executive Committee The members of the Executive Committee are the Executive Directors and those key senior executives whose biographical details are set out on page 54. The Chief Executive is Chairman of the Committee. The Committee meets once every month and holds weekly phone calls and its responsibilities include the following key areas: • review the operational and financial performance of the Group and the achievement of business plans; • prioritise initiatives and allocate resource; • identify and drive efficiencies across the Group; • approve capital expenditure proposals within the authority levels delegated by the Board and otherwise refer to Board; • develop the Group's policies and practices in respect of all health, safety and environmental issues in compliance with local legal requirements, regulation and best practice; • identify risks and monitor progress of action plans to mitigate those risks; Financial Statements • review the adequacy of the internal control framework; and • develop and implement Group wide evaluation, training, reward and remuneration practices. 10. Operations Committee The members of the Operations Committee are members of the Executive Committee and a wider group of operational and functional executives and senior managers across the Group. The Chief Operating Officer is Chairman of the Committee. The Committee meets once every month and its primary responsibilities are to: • assess operational and financial performance across a number of areas including mining, processing, technical services, human capital, safety, environment and health; • monitor progress of various initiatives; and • provide a forum to debate business issues between various parts of the business value chain. 11. Price and Risk Committee Operating Statistics The Price and Risk Committee is chaired by the Chief Executive and the members are the Chief Financial Officer, Chief Commercial Officer, VP Treasury & Risk, VP Finance (UK), VP Finance (SA) and the Executive Manager, Marketing. The primary purpose of this Committee is to review and agree proposals in relation to the forward sale of by-products, for example nickel and copper. The Committee meets as and when required. For and on behalf of the Board Rob Bellhouse Company Secretary 13 November 2009 Shareholder Information www.lonmin.com 71 Remuneration Committee Report for the year ended 30 September 2009 The report below has been prepared by the Remuneration Committee and approved by the Board. KPMG Audit Plc have audited the following items stipulated in law for their review: • The table of Directors' remuneration and associated footnotes on page 77, and the disclosure of the items comprising the Directors' benefits in kind. • The disclosure of Directors' defined contribution pension arrangements on page 79. • The table of Directors' share options and awards and associated footnotes on pages 87 and 88. Remuneration Committee Role of the Remuneration Committee The Remuneration Committee is a formal committee of the Board and has powers delegated to it under the Articles of Association. Its remit is set out in terms of reference formally adopted by the Board which were last reviewed in November 2005. A copy of the terms of reference is available on the Company's website. The Committee's main responsibilities are to: • Make recommendations to the Board on the Company's executive remuneration policy; • Determine individual remuneration packages within that policy for the executive Directors and certain senior executives; • Oversee the operation of the Company's incentive schemes; • Review Directors' expenses; and • Oversee the Company's executive pension arrangements, all of which it carries out on behalf of the Board. The Committee is authorised to seek information from any Director or employee of the Group and co-opt any resources (including external professional assistance) it sees fit in order to fulfil its duties. Minutes of Committee meetings are circulated to all Directors and supplemented by a verbal update from the Committee Chairman at the next Board meeting, identifying any material matters which arose from the Committee's work. The Committee presents a summary of its activities to shareholders and other interested parties by means of this report and the Committee Chairman attends the Annual General Meeting to answer any questions on the Committee's activities. Composition of the Remuneration Committee All independent Directors, with the exception of the Chairman of the Board, are eligible to become members of the Committee. The Board is empowered to appoint or remove members. Any two members of the Committee form a quorum. The Committee comprised the following independent Directors during the year and to the date of this report: Member From To Roger Phillimore (Chairman to 6 March 2009) 20 September 2002 31 March 2009 Peter Godsoe 20 September 2002 To date Jonathan Leslie 2 July 2009 To date Michael Hartnall 8 May 2003 To date David Munro 21 September 2007 6 March 2009 Jim Sutcliffe (Chairman from 6 March 2009) 28 January 2009 To date Given their diverse backgrounds and experience, the Board believes that the Committee members are able to offer a balanced view on executive remuneration issues. The Company Secretary acts as secretary to the Committee. Meetings of the Committee are attended by the Chief Executive, the HR Director and the Company Secretary, none of whom do so as of right and who do not attend when their own remuneration is being discussed. Advisors to the Remuneration Committee Throughout the year, the Committee was assisted in its work by the London office of PricewaterhouseCoopers LLP, an independent firm of remuneration consultants who were appointed by, and report to, the Committee but who also supported management in developing and implementing remuneration proposals, and in providing IFRS2 valuations for the Company. During the year the South African practice of PricewaterhouseCoopers was engaged by the Company to provide specialist support to the internal audit function. The Committee is confident that this does not generate a conflict of interest for either party and that the sums payable in respect of each service would not compromise the objectiveness and impartiality of the other. In making its decisions, the Committee consults with the Chief Executive and HR Director in relation to remuneration of executive Directors and senior executives. In addition, the following advisors have been retained on behalf of the Company, and provide information to the Committee on relevant matters being considered by the Committee: Herbert Smith LLP – legal services in respect of employment law and company share schemes. Allen and Overy LLP – legal services in respect of pensions advice. AIBJerseytrust Limited and Killik Employee Share Services – respectively, trustee services and administrative support on various share schemes. 72 2009 Annual Report and Accounts / Lonmin Plc Remuneration Committee Report for the year ended 30 September 2009 Remuneration Committee (continued) Directors' Report – Business Review Activities of the Remuneration Committee The Committee normally meets four times annually and reports its material findings to the next Board meeting. It has a standing calendar of items within its remit and in addition discusses matters arising relating to the operation of the remuneration policy. During the year, the Committee met seven times and discussed, amongst other things, the issues set out below: Meeting Standing Agenda items Other Agenda items October • Approval of vesting of 2005 LTIP and S&P awards. • Termination of Brad Mills' contract of employment. • Approval of remuneration for new CEO, Ian Farmer. Directors' Report – Governance November • Review and approval of changes to or affecting • Approval of treatment of share awards by those within the Committee's purview. reason of redundancy as a result of the • Approval of prior year's annual bonus payments. restructuring programme. • Review and approval of design of current year's annual bonus plan. • Approval of offer of Deferred Annual Bonus Plan (DABP) awards including setting the performance condition. • Approval of DABP vesting. • Review of status of performance conditions attaching to outstanding awards. • Approval of the Remuneration Committee Report and any relevant Annual General Meeting business. • Review of Directors' expenses for the quarter Financial Statements to end September. March • Review and approval of changes to or affecting those within the Committee's purview. • Review of projected short-term incentives for the current year. • Review of status of performance conditions attaching to outstanding awards. • Review of Directors' expenses for the quarter to end December. May • Approval of principle of adjustment to outstanding option and share awards following Operating Statistics possible launch of Rights Issue. • Approval of choices to be offered in connection with proposed Rights Issue to holders of invested shares under the DABP. June • Approval of actual adjustment to outstanding options and share awards following Rights Issue. July • Review and approval of changes to or affecting • Review of Non-executive Directors' fees. those within the Committee's purview. • Review of projected short-term incentives for the current year. • Approval of awards to be made under the Long Term Shareholder Information Incentive Plan (LTIP) and Stay & Prosper Plan (S&P) including setting of performance condition. • Approval of LTIP and S&P vesting. • Review of status of performance conditions attaching to outstanding awards. • Review of Directors' expenses for the quarter to end March. www.lonmin.com 73 Remuneration Committee Report for the year ended 30 September 2009 Remuneration Committee (continued) Activities of the Remuneration Committee (continued) Meeting Standing Agenda items Other Agenda items September* • Review and approval of changes to or affecting • Review and approval of incentive arrangements those within the Committee's purview. for London office employees and Alan Ferguson, • Salary review for executive Directors and and relocation expenses for Ian Farmer, as a senior executives. result of relocation of operational headquarters • Review of projected short-term incentives from London to Johannesburg. for the current year. • Review of remuneration strategy for the new financial year including design of the short-term incentive plan. • Review of status of performance conditions attaching to outstanding awards. • Review of Directors' expenses for the quarter to end June. • Review of the effectiveness of the Committee and its Chairman. * For diary reasons, this meeting was actually held on 5 October 2009. Attendance at the Committee meetings was as follows: Number of meetings Number of Member held during time in office meetings attended Peter Godsoe 7 7 Michael Hartnall 7 7 Jonathan Leslie 1 1 David Munro 4 4 Roger Phillimore 4 4 Jim Sutcliffe 5 5 The Combined Code The Directors consider that the Company has, throughout the year, complied with all of the provisions relating to Directors' remuneration set out in the Combined Code. Relations with shareholders The Committee is strongly committed to open and transparent dialogue with shareholders on remuneration matters. The Committee consults extensively with key institutional investors and various representative bodies to obtain their views on, and support for, proposed changes to the remuneration packages of the Directors and senior executives. During August 2009 a number of meetings were held with key institutional shareholders and with a representative body, the Association of British Insurers. The Chairman of the Remuneration Committee and the Company's HR Director attended these meetings at which the Company's remuneration policy was outlined. Feedback from these meetings was provided to the Committee and will be factored into the Committee's future deliberations. REMUNERATION POLICY AND PRACTICE Non-executive Directors The Board, with the benefit of independent professional advice, determines the fees of the Non-executive Directors. When deciding an appropriate level of fee for the responsibilities taken on by the Non-executive Directors, the Board considers the responsibility and time commitment required to fulfil the role, taking into account the number of meetings required to be attended, the time required for reading Board and other papers, the duties associated with membership or chairmanship of Board Committees or (in the case of Roger Phillimore) chairmanship of the Board, and the overseas travel required of all Non-executive Directors by the Company. Executive Directors and senior executives The Committee's remuneration policy is geared towards providing a level of remuneration which attracts, retains and motivates Directors and senior executives of a suitable calibre to execute the Company's strategic plans but, at the same time, ensures remuneration is consistent with best practice and aligned with the interests of the Company's shareholders. Importantly, no Director plays any part in setting his own remuneration. In setting remuneration within this framework, the Committee seeks to give the individuals every encouragement to enhance the Company's performance whilst ensuring that they are fairly, but responsibly, rewarded for their personal contributions. It also takes into account levels of pay and rates of annual increase elsewhere in the Group. The Committee's strategy is a carefully balanced blend of fixed and performance-related pay geared to deliver over the short, medium and long-term. The Committee also has regard to the significant level of competition for experienced, talented managers in the mining industry, both globally and specifically within South Africa, and the need to ensure that the Company maintains an adequate 'retention hold' over its key executives. 74 2009 Annual Report and Accounts / Lonmin Plc Remuneration Committee Report for the year ended 30 September 2009 Remuneration Committee (continued) Directors' Report – Business Review Executive Directors and senior executives (continued) The structure of the remuneration offered to the executive Directors and senior executives and the underlying principles on which the package is predicated are detailed below. Policy Basis of Delivery Base salary • Benchmarked against other UK listed companies of • Monthly in cash. comparable size and (where appropriate) a peer group • Reviewed annually in September, with changes taking effect of international companies in the mining sector. 1 October. • Reflects market median levels based on role and individual skill and experience. • Linked to performance as measured in the annual Directors' Report – Governance performance review (APR) process. Pension • Provides a market competitive level of provision with • Defined contribution funding or cash-settled salary good flexibility while minimising risk to the Company. supplement at executive's choice. Annual Bonus • Incentivises achievement of annual objectives • Balanced scorecard based on combination of corporate and consistent with the short to medium term strategic personal objectives (further details on pages 79 and 80). needs of the business. • Annually. For 2009 50% is paid in cash and 50% compulsorily • Deferral into shares creates alignment with shareholders' deferred in to shares (with no match). interests by requiring executives to put value at risk. • Retention incentive. DABP • Incentivises stretch performance. • Matching element of the DABP was not operated for 2009 Financial Statements • Forces alignment with shareholders' interests by (refer Annual Bonus plan above). requiring executives to put value at risk through • For earlier years, DABP was used with half of award subject to compulsory deferral. stretching RTSR targets and half subject to demanding EBIT or • Retention incentive. absolute share price targets (further details on page 81) and measured over a 3 year period. Maximum reward will only occur for upper quartile performance. LTIP • Intended to incentivise long-term value creation, align • Annual awards in restricted shares. with shareholder interests through delivery in shares • For 2009, half of award subject to RTSR targets and half and to aid retention of key personnel. subject to absolute share prices targets (further details on • Upper quartile performance should lead to potential page 82) and measured over a 3 year period. Maximum reward upper quartile total reward. will only occur for top decile performance. Operating Statistics Other benefits • Provided on a market competitive basis. • Car or cash car allowance • Fuel • Private Medical plan • Income continuance insurance • Life assurance 2009 Summary For 2009, in order to support a focus on important short-term operating goals, the annual bonus opportunity was increased, together with a mandatory deferral into shares. In order to ensure that there was no change in the overall incentive opportunity, Shareholder Information executives were not eligible to earn matching awards on their deferred bonus. EBIT targets have been replaced by absolute share price targets in view of the desire to focus on a clear measure of absolute shareholder value and given the uncertainties around future EBIT as a result of the current economic climate. The face value of LTIP awards for executive Directors were unchanged; however an additional performance condition was applied to the final 25% of the award. Planned future policy changes The Company does not anticipate any changes to the structure of executive Directors and senior executives remuneration packages in 2010. In order to support a continuing focus on crucial short-term operating imperatives, the same annual bonus opportunity will apply as for 2009, coupled with the same 50% compulsory deferral into shares. Executives will not be eligible to earn any matching shares on their deferred bonus, in order to ensure that there is no increase in the overall incentive opportunity. The LTIP policy will be unchanged. www.lonmin.com 75 Remuneration Committee Report for the year ended 30 September 2009 Remuneration Committee (continued) Benchmarking methodology The Committee routinely analyses remuneration practices in two groups of comparable companies, the first being UK listed businesses of comparable size and scope to Lonmin, the second (where appropriate to the role being assessed) being direct international peers in the mining sector with whom the Company is in direct competition in the recruitment of experienced executive talent. The aim of the Remuneration Committee is to ensure that our remuneration framework is competitive with the latter without being out of step with the former. In this way, the Committee aims to avoid generating excessive reward for Lonmin's Directors and senior executives whilst ensuring that the Company's reward structures are capable of reaching top quartile levels, where justified by performance. Full details of each element of the Directors' remuneration packages are set out on page 77 together with an analysis on page 78 showing the various elements of remuneration as a percentage of base salary. Performance graphs The primary role of the Directors is to deliver value to shareholders and it is against this backdrop that their remuneration must be assessed. The graphs below show the value, at 30 September 2009, of £100 invested in Lonmin's shares five years previously, compared with the current value of the same amount invested at the same date in the FTSE 100 index, the FTSE All Share index and the FTSE Mining Sector, assuming dividends are reinvested in each case. The Company is a constituent of all these indices and the Board believes that these comparisons most fairly illustrate the Company's performance in delivering value to shareholders relative to both the market as a whole and its UK listed peers. TSR v FTSE 100 TSR v FTSE All-Share 400 400 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep 04 05 06 07 08 09 04 05 06 07 08 09 Lonmin – net total return FTSE 100 – net total return Lonmin – net total return FTSE All-Share – net total return TSR v FTSE Mining 400 350 300 250 200 150 100 50 0 Sep Sep Sep Sep Sep Sep 04 05 06 07 08 09 Lonmin – net total return FTSE Mining – net total return 76 2009 Annual Report and Accounts / Lonmin Plc Remuneration Committee Report for the year ended 30 September 2009 Directors' remuneration Directors' Report – Business Review The following table shows an analysis of remuneration settled in cash or at a cash cost for the individual Directors for the year ended 30 September 2009. In addition, the executive Directors received long-term share incentives as detailed elsewhere in this report. A reconciliation of total remuneration for each executive Director serving at the end of the year is shown in the charts on the following page. Pension / cash Payment on Total for Total for Salary Benefits payment in lieu Short term termination of year to year to or fees1 in kind2 of pension3 incentives4 employment5 Other6 30.09.097 30.09.08 £ £ £ £ £ £ £ Executive Directors Ian Farmer 551,538 29,372 198,900 759,981 155,432 1,695,223 1,509,901 Alan Ferguson 487,600 17,356 146,280 673,757 – 1,324,993 932,439 Directors' Report – Governance Non-Executive Directors Sir John Craven 68,635 68,635 207,500 Karen de Segundo 71,769 71,769 67,500 Peter Godsoe 67,500 67,500 67,500 Sivi Gounden 66,769 66,769 62,500 Michael Hartnall 88,750 88,750 89,433 Jonathan Leslie 22,885 22,885 – David Munro 66,115 66,115 67,500 Roger Phillimore 226,972 226,972 125,000 Jim Sutcliffe 75,269 75,269 60,000 Former Director Brad Mills 12,720 1,365,491 1,378,211 1,901,695 Total 5,153,091 5,090,968 Financial Statements 1 Fees disclosed for Sir John Craven relate to the period 1 October 2008 to 29 January 2009 and for Jonathan Leslie to the period 4 June 2009 to 30 September 2009. 2 Benefits in kind comprise cars, fuel, healthcare and medical. The costs of life assurance and income continuance insurance are not reflected as the Company is the named beneficiary of these policies, and they do not form part of the taxable pay of the Director concerned. 3 The figures disclosed relate to cash payments made in lieu of participation in the Company's pension arrangements. 4 50% of the net bonus is subject to compulsory deferral into shares and the executive Directors have voluntarily decided to defer a further 25% into shares. 5 Brad Mills' employment was terminated on 7 October 2008. In accordance with his service agreement, he received a payment of £1,365,491. He also received a further payment of £386,880 in respect of bonus for the year ended 30 September 2008 which was reported in last year's table of Directors' remuneration. Full details are disclosed on page 89. 6 Other comprises gross proceeds following vesting of share awards and options and also dividend equivalents. 7 The Directors' total emoluments for the year do not include any fair value share option / award charges. 8 Although the Group's reporting currency is US Dollars, these figures are stated in Sterling as the Directors' emoluments are paid in this currency. Operating Statistics 9 No Director received any expense allowances during the year. Non-executive Directors' fees The fees payable to the Non-executive Directors are set by the Board and are designed to ensure the Company attracts and retains individuals of the highest calibre and is in line with recognised best practice. The Board commissions an independent review of Non-executive Directors' fees every two years, the most recent of which was conducted in June 2009. Following the 2009 review, no change was made to the Non-executive Directors' base fees or the committee chairmanship and membership fees. However, with effect from 1 July 2009, the Chairmanship Fee was increased to £200,000 per annum and a fee was introduced for the Senior Independent Director of £15,000 per annum. A detailed breakdown of the fees paid to Non-executive Directors during the year is provided below: Safety and Shareholder Information Non-Executive Directors Directorship Chairmanship Remuneration Audit and Risk Nomination Sustainability Total fees Sir John Craven 16,538 C 49,616 M 2,481 68,635 Karen de Segundo 50,000 M 10,000 M 4,269 M 7,500 71,769 Peter Godsoe 50,000 M 10,000 M 7,500 67,500 Sivi Gounden 50,000 M 4,269 C 12,500 66,769 Michael Hartnall 50,000 S 3,750 M 10,000 C 17,500 M 7,500 88,750 Jonathan Leslie 16,154 M 2,462 M 2,423 M 1,846 22,885 David Munro 50,000 M 4,346 M 4,269 M 7,500 66,115 Roger Phillimore 50,000 C 149,808 C 7,607 M 3,308 C 12,500 226,972 D 3,096 M 653 Jim Sutcliffe 50,000 C 9,962 M 10,000 M 4,269 75,269 M 1,038 Key: C = Chairman, D = Deputy Chairman, S = Senior Independent Director, M = Member www.lonmin.com 77 Remuneration Committee Report for the year ended 30 September 2009 Make up of executive Directors' remuneration The remuneration attributable to each of the two executive Directors serving at the year end in respect of the year was comprised of the following broad elements: Ian Farmer Alan Ferguson 9% 1% 8% 1% 23% 24% 28% 32% 34% 40% Base salary £551,538 Base salary £487,600 Annual bonus £759,981 Annual bonus £673,757 Long-term incentive plan £737,480 Long-term incentive plan £399,298 Pension £198,900 Pension £146,280 Benefits-in-kind £29,372 Benefits-in-kind £17,356 Notes to the charts 1. Benefits in kind are stated at their taxable value or the cost incurred by the Company where not taxable. 2 The cash bonus amount is the pre-tax amount payable in respect of the year and is stated before deferral. 3 The LTIP is stated at fair value in a manner consistent with IFRS. However, if the threshold conditions noted elsewhere in this report are not obtained, no payment will be made. 4 Pension is cash amounts paid to the executive. Fixed pay for executive Directors and senior executives Base salary Whilst the Remuneration Committee tends to have regard to total compensation, including performance-related elements, individuals inevitably focus on headline base salary, especially at the point of recruitment, as this forms the major part of the guaranteed reward. For this reason, the Company needs to offer salaries at around median market levels so that it is able to attract and retain suitable directors and executives but without paying more than is necessary. Salaries are reviewed once annually, as at 1 October, taking into account annual performance review data. Following his appointment as CEO, Ian Farmer's salary was increased by 57% with effect from 28 September 2008. Alan Ferguson's salary was increased by 6% at 1 October 2008. The salaries of senior executives and individuals in the United Kingdom increased by 5%. The salaries of our general workforce in South Africa increased by 12.5% (compared to inflation of 13.8%). Senior executives and managers based in South Africa are offered a wage equating to the market norm of 'total cost to company' (TCTC), with all benefits in kind converted into a cash allowance within this structure. Participation in short and long- term incentive schemes is in addition to TCTC. Not including the executive Directors, at the end of 2009 the remuneration of 14 other senior executives, the majority of whom are employed in South Africa, fall within the purview of the Remuneration Committee (compared to 26 executives at the end of 2008). This reduction in numbers is as a result of the restructuring programme undertaken during 2009. The base salaries of those individuals based in the United Kingdom and the TCTC remuneration of individuals employed in South Africa fall within the following bands: Salary band £000 Number of executives £100 to £150 3 £150 to £200 3 £200 to £250 6 £250 to £300 1 £300 to £350 1 These executives also participate in the same long-term and short-term incentive arrangements as the executive Directors although with lower grant levels. Benefits in kind Benefits in kind for the executive Directors variously comprise the provision of a fully-expensed car, or cash car allowance, the provision of annual health checks and private medical insurance for the individual and his dependants. Executive Directors and senior executives are provided with life assurance and access to a limited amount of independent financial planning and tax advice. Finally, the Company purchases income continuance insurance in respect of all employees in the London office, including the UK- based executive Directors. 78 2009 Annual Report and Accounts / Lonmin Plc Remuneration Committee Report for the year ended 30 September 2009 Pensions Directors' Report – Business Review Pensions in context of total compensation The Committee wishes to provide executives with access to market-competitive pension provision, without exposing the Company to the potentially open-ended obligations associated with defined benefit pension provision. The UK final salary pension plan, the Lonmin Superannuation Scheme (the Scheme) was closed to new entrants in April 2006 and for the future accrual of benefits in July 2007. The Scheme commenced an orderly winding-up process in 2008, which is effectively complete. It is expected that the trust which constituted the Scheme will be dissolved before the end of calendar year 2009. Following the closure of the Scheme, UK-based executives have been provided with a pension supplement, expressed as a percentage of their base salary, which may be paid at the executive's choice as a pension contribution or an additional taxable cash payment. Ian Farmer and Alan Ferguson have elected for their entitlements of 30% of base salary to be paid in cash. All employees with a final salary link in force at the date of closure of the Scheme have been provided with a salary supplement for five years from that date, in partial compensation for the loss of the link to future salary growth for their accrued benefits. Ian Farmer benefits from this provision and currently receives a non-pensionable and non-bonusable salary supplement of £33,900 per annum. The contractual lump sum death in service cover has been increased from four times salary to eight times Directors' Report – Governance salary for this group, to reflect the loss of value associated with the removal of the previous spouse's pension, and income continuance insurance was extended to all employees in recognition of the withdrawal of the facility to claim an ill-health early retirement pension. Defined contribution arrangements The Company operates a defined contribution pension scheme, the Lonmin Retirement Plan, for the benefit of all its UK employees. This is a registered arrangement structured as a group personal pension scheme. The two executive Directors are not members of this scheme. In South Africa the employing companies in the Group participate in an industry-wide defined contribution pension plan. Pensions generally No element of any Director's remuneration other than base salary is pensionable. Except as disclosed above, the Company has given no undertakings to arrange or bear the cost of any other pension benefits for any Director. No former Director enjoys pension benefits in excess of those provided, in accordance with the provisions of the trust deeds and rules, to all members of the relevant scheme. Financial Statements Life assurance From 1 July 2007, as a former member of the UK defined benefit pension scheme, Ian Farmer has been provided with life assurance benefits of eight times salary, as noted above, as a contractual benefit. Alan Ferguson is entitled to life assurance benefits of four times annual salary under his contract of employment. The Company has secured all of these benefits through life assurance policies written as excepted life arrangements. Performance-related pay for executive Directors and senior executives Short-term incentive arrangements The Committee believes that participation in a short-term incentive scheme enhances the focus of the executive Directors and key senior executives by providing a meaningful incentive to outperform and ensures that the management team is appropriately focused on business-critical outcomes. The Company provides the opportunity to earn an annual cash bonus through a balanced scorecard approach, assessing performance under three broad headings, being as follows (the weighting generally attaching to Operating Statistics each component is quoted as a percentage of overall bonus opportunity): % of bonus opportunity on Actual payment for the offer for target performance year (% of bonus opportunity) SHEC (20%) • Safety: improvement in lost time injury frequency rate 10.0% 0.00% • Community: improvement on Social & Labour Plan targets 10.0% 10.00% Production and Growth (60%) • Platinum sales: 6 mth Pt oz target 10.0% 20.00% • Platinum sales: 12 mth Pt oz target 12.5% 0.00% • Capital development index 5.0% 8.24% Shareholder Information • Gross operating costs 10.0% 17.00% • Operating unit costs1 12.5% 0.00% • Metal in Progress inventory management 10.0% 10.00% Personal objectives (20%) 20.0% 17.50%2 Total 82.74% 1 Due to focus on cost savings in the year, the executive Directors had a one-off potential opportunity to double % in respect of Operating unit costs metric. 2 Average for Ian Farmer and Alan Ferguson. www.lonmin.com 79 Remuneration Committee Report for the year ended 30 September 2009 Performance-related pay for executive Directors and senior executives (continued) Short-term incentive arrangements (continued) As explained earlier in this report, the Company's remuneration policy is designed to provide a robust link between reward and performance. This is clearly demonstrated by the corporate balanced scorecard result of 65.24%. The bonus elements and relative weightings detailed above were selected as these best captured the steps needing to be taken to improve the delivery of value to shareholders and all were capable of objective measurement and independent verification. The Directors and senior executives also had the opportunity to earn bonus from achievement of personal objectives (comprising 20% of the total bonus opportunity). The average total bonus pay-out for Ian Farmer and Alan Ferguson was 82.74% of target. For each individual element, three levels of attainment are set. For 2009 these were: Threshold: the minimum level of attainment for which the Committee felt payment could be warranted, with generally 50% of the 'target' amount for that element being payable. Target: normally based on the Company's budget, at which 100% of the bonus for that element becomes payable. Stretch: representing a significant level of outperformance and also acting as a cap on the bonus due for that element, with 200% of the 'target' amount for that element being payable. This was a one-off widening of the range applied to each element in previous years, which was 75% (threshold), 100% (target) and 150% (stretch) and was approved by the Committee in the light of the significant operational challenges facing the company in a difficult trading environment. Although stretch for each element was 200%, the "total" overall bonus payable was capped at 150% of target. The scheme design provides for payment for the year ending 30 September 2009 of 167% of base salary to executive Directors for overall performance at the target level with the maximum stretch bonus therefore being capped at 250% of base salary. All results have been independently reviewed (including, where appropriate, scrutiny by the external auditors) and the Committee has subjected the scorecard to a detailed assessment before authorising payment. At the beginning of the financial year, it was agreed that of the resulting net bonus 50% would be settled in cash and 50% would be deferred in to shares. Both executive Directors have however voluntarily decided to defer a further 25% of their net bonus. Therefore, of the actual resulting net bonus 25% is being settled in cash and 75% is being deferred in to shares for three years. Of necessity, the design of bonus plans will evolve from year to year, in line with the Company's strategic needs. The Committee monitors the competitive environment and will devise amended or new plans in future years to ensure that the Company can continue to recruit, retain and motivate the most able senior executives, and that they are given the clearest possible incentive to deliver exceptional value to shareholders. After consideration, the Committee have decided that the same approach should operate for 2010 except that the range between threshold and stretch for each element will revert to 75% to 150%. Deferred Annual Bonus Plan (DABP) In 2008 and earlier years, executive Directors were offered the opportunity to participate in the DABP, pursuant to which a minimum of one-third of the net cash bonus due to each executive was invested in the DABP, with the ability to elect to invest any greater amount up to the whole of their net bonus. The funds invested were used to buy Lonmin shares in the open market via the Company's employee benefit trust. At the date the shares are purchased, the trustees make a 'Matched Award' to the executive which, subject to the attainment of performance conditions, could enable matching of the number of shares bought by the executive of up to one for one (for 2007, two for one), on an after tax basis. The two performance conditions are RTSR and Earnings before Interest and Tax (EBIT) for awards up to 2007 and are RTSR and absolute share price for 2008. These measures were chosen because the Committee felt they best reflected both the key imperatives on management at the relevant time and also provided an equal focus on the delivery of value to shareholders over the longer term. Further discussion of how the Committee implements the EBIT performance condition is given on page 84. 80 2009 Annual Report and Accounts / Lonmin Plc Remuneration Committee Report for the year ended 30 September 2009 Performance-related pay for executive Directors and senior executives (continued) Directors' Report – Business Review Deferred Annual Bonus Plan (DABP) (continued) The performance conditions are summarised below: % of Basis of component of Year of award performance conditions Performance conditions Performance award released 2005 50% RTSR TSR relative to a group of Threshold (median) 50% 15 comparator companies Target (60th percentile) 75% Stretch (75% percentile 100% 50% EBIT EBIT: growth targets (%) Threshold 50% FY2005-2008 Target 75% Stretch 100% 2006 50% RTSR TSR relative to a group of Threshold (median) 50% Directors' Report – Governance 20 comparator companies Target (62.5th percentile) 75% Stretch (75th percentile) 100% 50% EBIT EBIT: audited profit for FY2009 Threshold 50% Target 75% Stretch 100% 2007 50% RTSR TSR relative to a group of Threshold (median) 20% 20 comparator companies Target (75th percentile) 70% Stretch (90th percentile 100% 50% EBIT EBIT: audited profit for FY2010 Threshold 20% Target 60% Stretch 100% 2008 50% RTSR TSR relative to a group of Threshold (median) 20% Financial Statements 20 comparator companies Target (75th percentile) 70% Stretch (90th percentile) 100% 50% Share Price Lonmin Plc share price on Threshold 20% London Stock Exchange Stretch 100% Following the 2007 Annual General Meeting, to improve the retention characteristics of the Plan, a mandatory bonus deferral of bonuses was introduced, commencing with those paid in November 2007. Where there is a mandatory bonus deferral, such an amount is forfeitable should the executive leave during the three year performance period, other than for 'good leaver' reasons. In return, the Matched Award is made on the basis of two shares for each Invested Share acquired. Half of the shares subject to the Matched Award will normally vest at the end of the performance period, subject to the employee remaining with the Group and to the extent that the related Invested Shares are retained. One quarter of the shares subject to a Matched Award Operating Statistics will vest subject also to satisfaction of a Relative TSR performance condition and a further quarter subject to an EBIT target. The employee will also be able to apply the remainder of their bonus to acquire Invested Shares (without risk of forfeiture) that will be matched on a 1:1 basis, subject to satisfaction of the same RTSR and EBIT performance conditions. For bonuses in 2008, the Remuneration Committee determined that the DABP would be operated based solely on a voluntary deferral on the terms set out above, save that the Committee determined that an absolute share price target would be substituted for the EBIT target. As reported above, the matching element of the Plan is not being used for bonuses in respect of the year ending 2009. The Committee does not disclose the EBIT or share price targets, where applicable, for reasons of commercial sensitivity and because of regulatory constraints but will do so retrospectively at the conclusion of the relevant performance period. It believes the profit growth targets and the new share price target to be stretching, yet realistic. On 2 December 2008, awards were made under this Plan to the executive Directors and to a number of senior executives. The mid-market closing share price on that date was 647p. Details of the awards are included in the table of Directors' interests. Shareholder Information On 17 December 2008, 50% of the Matched Awards granted on 15 December 2005 vested (being the half of the award subject to the EBIT test). The outcome of the EBIT half was linked to the underlying audited EBIT for the year ended 30 September 2008 of $963m. Based on this EBIT, growth in EBIT relative to 2005 was above the 60% level required at stretch resulting in 100% vesting for this part of the award. For the RTSR half of the award, Lonmin finished below threshold and therefore 0% of that half of the award vested. www.lonmin.com 81 Remuneration Committee Report for the year ended 30 September 2009 Performance-related pay for executive Directors and senior executives (continued) Co-Investment Plan (CIP) The CIP was adopted by shareholders at the 2007 AGM. In summary, this plan permits the Committee to invite selected executives to invest in Lonmin shares in return for the grant of a Matched Award over twice the number of Invested Shares. There has only ever been one participant, Brad Mills, who made an investment of £2.5m in May 2007. The Matched Award vested in part in October 2008 within the overall settlement made on termination of his employment, as detailed in the table of directors share interests on page 87. It is not currently felt appropriate to operate the CIP in respect of any other executives, but the plan may be re-activated should the Committee judge this to be appropriate. Long Term Incentive Plan (LTIP) The LTIP is designed to ensure that the Company can offer long-term incentives to executive Directors and senior executives. The Committee believes that it is vital to be able to offer such incentives to ensure that those best placed to deliver value for shareholders have a direct personal interest in so doing. The annual granting of LTIP awards is intended to provide participants with the opportunity to earn sufficient reward, by delivering value to shareholders, such that they are motivated to stay in the Group's employment. An award under this Plan entitles the recipient to receive shares at no cost, subject to attainment of stretching performance conditions which are detailed further below. The two performance conditions are RTSR and Earnings before Interest and Tax (EBIT) for awards up to 2008 and are RTSR and absolute share price for 2009. The Committee believes that the two components of the performance condition provide an appropriate incentive to focus on the short and longer term drivers of shareholder value. As with the DABP the Committee feels unable to publish the EBIT or share price targets, however, it is satisfied that they should prove stretching, yet realistic, and there will be full retrospective disclosure. Further discussion of how the Committee implements the EBIT performance condition is given on page 84. The performance conditions are summarised below: % of Basis of component of Year of award performance conditions Performance conditions Performance award released 2006 50% RTSR TSR relative to a group of Threshold (median) 35% 20 comparator companies Target (75th percentile) 60% Stretch (90th percentile) 100% 50% EBIT EBIT: audited profit for FY2008 Threshold 35% Target 63% Stretch 100% 2007 50% RTSR TSR relative to a group of Threshold (median) 20% 20 comparator companies Target (75th percentile) 70% Stretch (90th percentile) 100% 50% EBIT EBIT: audited profit for FY2009 Threshold 20% Target 60% Stretch 100% 2008 50% RTSR TSR relative to a group of Threshold (median) 20% 20 comparator companies Target (75th percentile) 70% Stretch (90th percentile) 100% 50% EBIT EBIT: audited profit for FY2010 Threshold 0% Stretch 100% 2009 50% RTSR TSR relative to a group of Threshold (median) 20% 20 comparator companies Target (75th percentile) 70% Stretch (90th percentile) 100% 50% Share Price Lonmin Plc share price on Threshold 20% London Stock Exchange Stretch 100% For 2009, awards were made to the executive Directors and a number of senior executives on 14 September 2009 when the closing mid-market share price was 1732p. The Committee determined that the face value of the Awards made to each of the executive Directors should be maintained, to provide the maximum possible incentive to deliver the Company's performance improvement. However, the final 25% of base salary (the Incentive Award) should only be payable if the price of Lonmin shares exceed the stretch level applicable to the Base Award. The award made to Ian Farmer was equivalent to 150% of base salary (125% Base Award and 25% Incentive Award) and Alan Ferguson received an award equivalent to 100% of base salary (75% Base Award and 25% Incentive Award). The Base Award is subject to the performance conditions as described in the table above. The Incentive Award is subject only to absolute share price targets which are more stretching than those applied to the Base Award. Details of the awards are included in the table of Directors' interests. Whilst the awards to executive Directors are 100% subject to performance conditions, the awards made in 2009 below board only were 50% subject to performance conditions and 50% subject to continued employment on the third anniversary of the date of grant in line with common market practice in South Africa. 82 2009 Annual Report and Accounts / Lonmin Plc Remuneration Committee Report for the year ended 30 September 2009 Performance-related pay for executive Directors and senior executives (continued) Directors' Report – Business Review Long Term Incentive Plan (LTIP) (continued) An additional award of 15,000 shares was also made to Ian Farmer on 7 January 2009. The same performance targets apply to this award as for the 2008 DABS. An award was also made to one senior executive on 28 September 2009. The closing mid-market share price on this date was 1703p. On 18 November 2008, awards made under the LTIP on 30 September 2005 vested. Lonmin finished 8th in the comparator group of 16 companies and therefore 38% of the award vested. On 18 August 2009, awards made under the LTIP on 17 August 2006 vested. For the RTSR half of the award, Lonmin finished below threshold and therefore 0% of that half of the award vested. For the EBIT half of the award, 61% vested. The outcome of the EBIT half of the award was linked to the underlying audited EBIT for the year ended 30 September 2008 of $963m and share of joint venture profits of $18m. The vesting scale required a threshold of $775m (at which 35% would vest), target of $1,000m (at which 63% would vest) and stretch of $1,250m (at which 100% would vest) with straight-line interpolation between these points. Brokers' EBIT forecasts at the time the performance targets were set ranged from $695m to $1,490m with an average Directors' Report – Governance consensus of $980m. Stay & Prosper Plan The Committee regularly reviews the incentive arrangements offered to managers, particularly in South Africa where there has historically been severe competition for talent in the mining sector, to ensure the Group is able to provide an appropriate level of reward and incentive whilst remaining consistent with current UK best practice. The Stay & Prosper Plan was implemented in 2005 to provide a significant retention tool whilst also providing sufficient incentive opportunity to align the interests of managers with those of shareholders. The Plan consists of two components: a performance award which is subject to satisfaction of specific performance conditions and a retention award which is subject to continued employment on the third anniversary of the date of grant. Vesting of the performance award in good leaver situations is subject to the discretion of the Committee whilst the retention award will normally lapse but the Committee may exercise its discretion. Awards are linked to a notional number of shares which are awarded at nil cost and participants receive shares or cash (based on the prevailing market value of that proportion of the total award that vests) at the end of three years. Initially, the plan was operated on a cash-settled basis only, but since the January 2009 AGM, awards may at the discretion of Financial Statements the Committee be settled in newly-issued shares. All awards vesting in 2009 were share-settled and this remains the Committee's policy. The executive Directors are not permitted to participate in this Plan. The performance conditions for the performance award are summarised below: Year of award Retention / performance Performance condition Performance % of performance award released 2006 50% / 50% EBIT: audited profit for FY2008 Threshold 20% Target 54% Stretch 100% 2007 50% / 50% EBIT: audited profit for FY2009 Threshold 20% Target 60% Stretch 100% Operating Statistics 2008 – February 50% / 50% EBIT: audited profit for FY2009 Threshold 20% Target 60% Stretch 100% 2008 – March 50% / 50% Matrix based on saleable platinum 0% – 100% ounces and direct unit cost per platinum ounces for FY2010 2008 – July 50% / 50% EBIT: audited profit for FY2010 Threshold 0% Stretch 100% 2008 – November 50% / 50% EBIT: audited profit for FY2010 Threshold 0% Shareholder Information Stretch 100% 2009 – September 50% RTSR TSR relative to a group of Threshold (median) 20% 20 comparator companies Target (75th percentile) 70% Stretch (90th percentile) 100% 50% Share Price Lonmin Plc share price on Threshold 20% London Stock Exchange Stretch 100% The main award was made on 14 September 2009 to senior managers based in South Africa on terms substantially unchanged from those of the prior year. An award was also made on 26 November 2008 to 7 managers who had mistakenly been omitted from the July 2008 award. www.lonmin.com 83 Remuneration Committee Report for the year ended 30 September 2009 Performance-related pay for executive Directors and senior executives (continued) Stay & Prosper Plan (continued) On 16 August 2009, awards made under the Stay & Prosper Plan on 16 August 2006 vested. 51% of the performance award (with an EBIT performance condition) vested which together with the retention award gave an overall vesting of 76% of the total award. The outcome of the performance award was linked to the underlying audited EBIT for the year ended 30 September 2008 of $963m and share of joint venture profits of $18m. The vesting scale required a threshold of $775m (at which 20% would vest), target of $1,000m (at which 54% would vest) and stretch of $1,250m (at which 100% would vest) with straight-line interpolation between these points. Brokers' EBIT forecasts at the time the performance targets were set ranged from $695m to $1,490m with an average consensus of $980m. Scarce Skills Retention Plan This plan was used for a one-off award made in 2006 to 74 key individuals below board level who were identified as having rare and valuable skills necessary to the Company's future vision and who were felt to be at significant risk of poaching by our global competitors. The vast majority of participants were based in South Africa. Awards comprised a notional share-based award which was settled in cash provided the individual was still employed by the Company three years after the award. There was no performance condition and no good leaver provisions. The awards made in 2006 vested on 14 July 2009 and cash totalling R5.139m (net) was paid to the remaining 31 participants. The executive Directors did not participate in this Plan and, other than in 2006, there have not been and the Committee does not envisage that there will be, any further awards made under this Plan. Performance condition philosophy The Committee considers the appropriateness of proposed performance conditions prior to approving the grant of each award. With the exception of awards made under the Stay & Prosper and the Scarce Skills Retention Plans, each of the Plans mentioned above uses relative total shareholder return as part or the whole of the performance condition. The Committee believes that this measure links the actual returns delivered to shareholders with the remuneration earned by the executives through the successful delivery of our strategy. In addition, the Committee believes that this test provides a measurable and objective reflection of true performance for shareholders in light of the variability introduced into reported results by metal prices and exchange rates (particularly between the South African Rand and the US Dollar). Prior to 2009, in order to provide an effective and robust link between the business' needs and the remuneration of the Company's executives and managers, the EBIT test was introduced for awards made under the CIP, DABP, LTIP and the Stay & Prosper Plan. The Committee believes that growth in EBIT is a key operational metric by which the business is measured. The EBIT targets used are based on audited numbers shown in the published accounts of the Company and so provide total transparency and a link between performance and pay. Where the Group acquires new businesses, the EBIT impact would normally be excluded from the assessment of performance conditions by the Committee, unless the targets had previously been adjusted specifically to include acquired profits or losses. The Committee would also have regard to the cost of capital associated with such acquisitions, to ensure that shareholder value was properly taken into account in this context. During 2009 the significant dislocations in the financial and PGM markets made forecasting EBIT three years forward exceptionally challenging. The Committee perceived that there was a significant risk that any forecasts could prove to be materially incorrect and either result in excessive reward or gross unfairness to the plan participants (and by extension, shareholders). After considering a range of possible performance conditions, the Committee decided to introduce an absolute share price target. The Committee is aware from the meetings with key institutional shareholders that some do not like the use of absolute share price targets. These views have been taken into consideration but the Committee still views an absolute share price target as both the fairest metric, and the one most appropriate to the Company's needs. For reasons of commercial sensitivity, the threshold and stretch targets are not being published, but there will be full retrospective disclosure. The Committee is confident that the targets are stretching yet realistic, and that shareholders will have achieved an attractive return of their investment should the share price reach the threshold level at which any executive reward would become payable. Performance conditions are assessed using independently verified data. Relative TSR is assessed by PricewaterhouseCoopers LLP, acting on behalf of the Committee, using data normalised into US Dollars sourced from Datastream or other independent providers. EBIT assessment utilises the audited financial results of the Company. Grant price methodology The price used to determine the number of shares awarded under the DABP, LTIP and Stay & Prosper Plan is calculated using the average Lonmin share price on the FTSE 100 for the final twenty working days of the last complete calendar month before the date of award. 84 2009 Annual Report and Accounts / Lonmin Plc Remuneration Committee Report for the year ended 30 September 2009 The comparator group of companies Directors' Report – Business Review The Remuneration Committee regularly reviews the comparator group used for the Company's long-term incentive arrangements to ensure that it remains relevant to the Company's stated strategy and therefore aligns executives appropriately with shareholders. Since 2006, the Committee has used a group of twenty metals and mining companies to provide a more statistically sound and broadly based comparator group. These companies are as follows: African Rainbow Minerals Gold Fields Limited Anglo American plc Impala Platinum Holdings Limited Anglo Gold Ashanti Limited Johnson Matthey plc Anglo Platinum Ltd MMC Norilsk Nickel Antofagasta plc Rio Tinto plc Aquarius Platinum Stillwater Mining BHP Billiton plc Teck Cominco Exxaro Resources Umicore Directors' Report – Governance First Quantum Minerals Vale Gold Corp Xstrata plc Executive Share Option Schemes (ESOS) These legacy schemes expired in March 2007 and, although an ESOS is contained within the rules of the Shareholder Value Incentive Plan, the Committee has not made, and does not intend to make, any grants under that scheme. Awards made since 1994 have been subject to performance conditions. Details of these conditions for the Company's various tranches of executive share options that remain outstanding are as follows: • Options granted in or after 1998 but before 2002: total return to shareholders must be greater than the total return on the Mining Sector of the FTSE Actuaries Share Indices over any consecutive thirty six month period. • Options granted in or after 2002: total return to shareholders must be greater than that on the Mining Sector of the FTSE Actuaries Share Indices in one of the periods of three, four, five or six years following the date of grant, in each case relative to a fixed base year. Financial Statements The performance conditions attaching to all outstanding options have been attained and these options duly became exercisable. Sharesave The Company historically offered an HMRC approved Savings Related Share Option Scheme to all UK-remunerated employees, including the executive Directors. Under this Scheme, the participant enters into a savings contract and in return is granted an option over the Company's shares to be funded by the balance on their savings account at the end of the contractual savings period. The option price may, at the Committee's discretion, be at a discount of up to 20% to the prevailing mid-market price at the date of invitation. With the exception of the 2005 awards, the Company has historically granted all such options with a 20% discount, including those held by Ian Farmer. The Sharesave Scheme expired in March 2007 although options granted prior to that date continue to subsist. Share schemes generally Except under the Sharesave Scheme, no options have been granted that have an exercise price at a discount to the market price at the time the exercise price was set. No options or awards of any kind have been granted to Non-executive Directors. Directors Operating Statistics are strongly encouraged to hold the shares issued to them upon the exercise of options and awards. Dilution Options granted under ESOS and Sharesave (with the exception of the December 2005 award) are satisfied with new-issued shares. Awards under the CIP, LTIP or DABP are satisfied either with shares purchased in the market by the Company's offshore employee benefit trust or the issue of new shares. Awards under the Scarce Skills Retention Plan were cash-settled. Awards under the Stay & Prosper Plan can be settled in shares or cash at the Committee's discretion. The table below shows the Company's current commitment to issue new shares in respect of its long-term incentive schemes assuming (1) all performance conditions are met, (2) all award holders remain in employment to the vesting date and (3) the Committee continues to settle Stay & Prosper awards in shares in line with its current policy: % of % of Shareholder Information issued share issued share 30.09.08 capital 30.09.09 capital Undiluted issued share capital (refer to note 26 to the accounts) 156,383,233 193,054,260 The Lonmin Executive Share Option Scheme 249,736 0.16 200,044 0.10 The Lonmin Share Option Scheme 12,834 0.01 10,721 0.01 The Lonmin Savings Related Share Option Scheme 1994 19,696 0.01 17,914 0.01 Co-Investment Plan Matched Award 126,360 0.08 – – Co-Investment Plan Invested Shares 95,505 0.06 – – Long Term Incentive Plan 499,972 0.32 644,085 0.33 Deferred Annual Bonus Plan 73,193 0.05 87,928 0.05 Stay & Prosper Plan (cash settled in 2008) – – 1,566,499 0.81 Sub-total: contingent obligation to allot shares 1,077,296 0.69 2,527,191 1.31 Total diluted issued share capital 157,460,529 n/a 195,581,451 n/a www.lonmin.com 85 Remuneration Committee Report for the year ended 30 September 2009 Directors' shareholding obligation Ultimately, the Committee believes that the most powerful way to ensure that the actions of the Directors are best aligned with shareholders' interests is for the Directors to build up and retain personally significant holdings of the Company's shares. As a matter of policy, the Board expects all Directors to maintain a shareholding (including vested but unexercised share incentives) equal in value to 100% of their base salary (or, in the case of Non-executive Directors, base fees) and 150% in the case of the Chief Executive. In this way, shareholder value becomes a paramount principle underlying all Board decisions, since real personal wealth will be at stake. Failure to achieve these targets may result in exclusion from participation in some or all of the incentive schemes that the Company operates. At the end of the year, by reference to the share price at that date (1674p) directors' share ownership levels were as follows: Shareholding at 30 September 2009 Guideline Shareholding policy as a % of base salary / fees Ian Farmer 150% of base salary 180 Alan Ferguson 100% of base salary 58 Karen de Segundo 100% of base fees 71 Peter Godsoe 100% of base fees 137 Sivi Gounden 100% of base fees 281 Michael Hartnall 100% of base fees 126 Jonathan Leslie 100% of base fees – David Munro 100% of base fees 258 Roger Phillimore 100% of base fees 152 Jim Sutcliffe 100% of base fees 152 Directors' shareholdings The beneficial interests of the Directors in office during the year are shown below: 30.09.091 30.09.08 Executive Directors Ian Farmer 58,985 35,821 Alan Ferguson 17,007 5,790 Non-Executive Directors Sir John Craven 30,000 30,000 Karen de Segundo 2,108 1,725 Peter Godsoe 4,106 3,360 Sivi Gounden 8,384 6,860 Michael Hartnall 4,888 4,000 Jonathan Leslie 0 – David Munro 7,700 6,300 Roger Phillimore 22,750 3,614 Jim Sutcliffe 4,536 3,712 Former Director Brad Mills 260,596 260,596 Notes 1. 30.09.09 or earlier date of retirement from the board. 2. There were no changes in the serving directors' interests from 30 September 2009 to the date of this report. 86 2009 Annual Report and Accounts / Lonmin Plc Remuneration Committee Report for the year ended 30 September 2009 Directors' options and awards Directors' Report – Business Review The options and awards held by Directors over ordinary shares of the Company are set out in the table below: During year Exercise Price (p) Date from Market Market (adjusted which price at Notional value Perfor- for Rights exercisable / Date of date of pre-tax as at mance Date of rights As at Issue Exercised / As at vesting Expiry exercise / exercise gain 30.09.09 2 Scheme Condition grant issue) 30.09.08 adjustment Granted Vested Lapsed 30.09.09 date date vesting (p) (£) 1 (£) Executive Directors Ian Farmer SAYE (a) 05.01.05 673.00 2,343 112 – – – 2,455 01.02.10 01.08.10 – – – 24,575 Directors' Report – Governance DABP MA (b) 15.12.05 – 2,273 – – 1,136 1,137 – 15.12.08 15.12.08 17.12.08 715.00 8,122 – DABP MA (c) 22.12.06 – 2,152 103 – – – 2,255 22.12.09 22.12.09 – – – 37,749 DABP MA (d) 05.12.07 – 2,076 98 – – – 2,174 05.12.10 05.12.10 – – – 36,393 DABP MA (e) 02.12.08 – – 425 8,871 – – 9,296 02.12.11 02.12.11 – – – 155,615 LTIP3 (f) 30.09.05 – 23,000 – – 8,740 14,260 – 30.09.08 18.11.08 18.11.08 836.32 73,094 – LTIP (c) 17.08.06 – 12,200 584 – 3,899 8,885 – 17.08.09 17.08.09 18.08.09 1,374.42 53,589 – LTIP (c) 22.08.07 – 9,106 436 – – – 9,542 22.08.10 22.08.10 – – – 159,733 LTIP (c) 29.07.08 – 10,879 521 – – – 11,400 05.12.10 05.12.10 – – – 190,836 LTIP (e) 07.01.09 – – 718 15,000 – – 15,718 07.01.12 07.01.12 – – – 263,119 LTIP (g) 14.09.09 – – – 57,152 – – 57,152 14.09.12 14.09.12 – – – 956,724 Alan Ferguson DABP MA (d) 05.12.07 – 1,783 84 – – – 1,867 05.12.10 05.12.10 – – – 31,254 DABP MA (e) 02.12.08 – – 727 15,186 – – 15,913 02.12.11 02.12.11 – – – 266,384 LTIP (c) 22.08.07 – 10,857 520 – – – 11,377 22.08.10 22.08.10 – – – 190,451 Financial Statements LTIP (c) 29.07.08 – 14,299 685 – – – 14,984 29.07.11 29.07.11 – – – 250,832 LTIP (g) 14.09.09 – – – 33,779 – – 33,779 14.09.12 14.09.12 – – – 565,460 Former Executive Director Brad Mills4 CIP MA (h) 21.05.07 – 126,360 – – 62,946 63,414 – 21.05.10 21.05.10 18.11.08 842.513 530,328.23 – DABP MA (b) 15.12.05 – 17,897 – – 8,915 8,982 – 15.12.08 15.12.08 18.11.08 842.513 75,110.03 – DABP MA (c) 22.12.06 – 16,690 – – 8,314 8,376 – 22.12.09 22.12.09 18.11.08 842.513 70,046.53 – DABP MA (d) 05.12.07 – 5,153 – – 2,570 2,583 – 05.12.10 05.12.10 18.11.08 842.513 21,652.58 – LTIP (f) 30.09.05 – 67,500 – – 33,625 33,875 – 30.09.08 18.11.08 18.11.08 842.513 283,295.00 – LTIP (c) 17.08.06 – 44,100 – – 21,968 22,132 – 17.08.09 17.08.09 18.11.08 842.513 185,083.26 – LTIP (c) 22.08.07 – 24,429 – – 12,169 12,260 – 22.08.10 22.08.10 18.11.08 842.513 102,525.41 – LTIP (c) 29.07.08 – 29,095 – – 14,493 14,602 – 29.07.11 29.07.11 18.11.08 842.513 122,105.41 – Operating Statistics 1 The notional pre-tax gain is the taxable value based on the number of shares under award that vested and the market price on the date of vesting, regardless of whether the shares were actually sold on that date or not. The total notional pre-tax gains made by current directors in respect of awards which vested during the year was £134,805. 2 The value is calculated using the closing middle market quotation for Lonmin shares at 30 September 2009 (1674p) and is stated (where relevant) net of exercise costs. 3 Due to Model Code restrictions, the vesting of this award was deferred until the Company was not in a close period. 4 Mr Mills resigned as a director of the Company on 9 October 2008. There were no changes in the serving directors' interests from 30 September 2009 to the date of this report. 5 The closing middle market quotation for the Company's ordinary shares, as derived from the London Stock Exchange Daily Official List, was 1674p on 30 September 2009, and the price ranged between 527p and 1831p during the financial year. Shareholder Information The schemes under which these awards / options were granted are: SAYE – Options granted under the Lonmin Savings Related Share Option Scheme DABP MA – Deferred Annual Bonus Plan Matched Awards made under the Shareholder Value Incentive Plan LTIP – Long Term Incentive Plan Awards made under the Shareholder Value Incentive Plan CIP MA – Co-Investment Plan Matched Award made under the Shareholder Value Incentive Plan www.lonmin.com 87 Remuneration Committee Report for the year ended 30 September 2009 Directors' options and awards (continued) The performance conditions are fully explained in earlier narrative, but are briefly: (a) No performance condition is attached to SAYE options. (b) 50% of awards linked to TSR exceeding TSR of comparator companies over 3 years with vesting schedule as described and remaining 50% of award linked to growth in EBIT. (c) 50% of award linked to TSR exceeding TSR of comparator companies with vesting schedule as described and remaining 50% of award linked to EBIT performance. (d) One for one performance award of which 50% is linked to TSR exceeding TSR of comparator companies with vesting schedule as described and remaining 50% of award linked to EBIT performance. There is also a one for one retention award on the first 1/3rd of the deferred bonus as described earlier. (e) 50% of awards linked to TSR exceeding TSR of comparator companies over 3 years with vesting schedule as described and remaining 50% of award linked to absolute share price. (f) TSR exceeds TSR of comparator companies over three years with vesting schedule as described. (g) TSR exceeds TSR of comparator companies over three years with vesting schedule as described and absolute share price. (h) 75% of 5/6 of award linked to TSR exceeding TSR of comparator companies over 3 years and remaining 25% of 5/6 of award linked to EBIT. The performance conditions are the same as for the 2007 LTIP. Value at risk Based on the shares and share options and awards held at 30 September 2009 (assuming full vesting and having accounted for any relevant exercise costs), the following table illustrates the value each executive Director has at risk and how this component of personal wealth has fluctuated during the year, using the lowest, highest and closing share prices for the year of 527p, 1831p and 1674p respectively, for illustrative purposes: Executive Director Number of Shares Low (£) High (£) Closing (£) Ian Farmer 58,985 310,851 1,080,015 987,409 Alan Ferguson 17,007 89,627 311,398 284,697 Executive Director Number of options / awards Low (£) High (£) Closing (£) Ian Farmer 1 109,992 566,720 1,997,431 1,824,744 Alan Ferguson 77,920 410,638 1,426,715 1,304,381 1 Ian Farmer's interests comprise 2,455 shares under option at an exercise price of 673p. Non-Group directorships No executive Director holds any executive directorship or appointment outside the Group. It is both the Company's policy and generally a requirement of the individual's contract of employment that no executive Director may take up such an appointment without the approval of the Board. The Board believes that, in the right circumstances, the holding of non-executive directorships and similar appointments by executive Directors can be useful and appropriate if they help those involved gain additional skills and experience or promote the interests of the Group and do not necessitate an excessive time commitment. The Board would not normally agree to an executive Director taking on more than one non-executive directorship of a FTSE 100 company or the chairmanship of such a company. Whilst it would be considered on a case-by-case basis, any individual holding such a role outside the Group would generally be permitted to retain any fees or other payments relating to that appointment. Service contracts The Company complies fully with the provisions of the Combined Code relating to service contracts. The Remuneration Committee is responsible for settling any payment to be made when an executive Director's employment ends and has full regard to the provisions of the Combined Code and other components of best practice in this area. One-off arrangement On 22 October 2009 the Company announced that it intended to move its operational headquarters from London to Johannesburg. Alan Ferguson has confirmed that he will not relocate to South Africa as part of this move and will therefore relinquish his position and resign from the Board at a future date. He has committed to remain in his present role until at least 31 December 2010 and the Committee believed it was appropriate and in the Company's best interests to offer him a one-off non-pensionable cash retention payment of up to 125% of his current base salary subject to satisfactory individual performance through the period of transition from London to Johannesburg. Half of the retention payment will be paid at the date of termination with the remaining half payable as soon as practicable after the first full year or interim announcement of results following the termination date. He will not be eligible to receive an LTIP award in 2010. 88 2009 Annual Report and Accounts / Lonmin Plc Remuneration Committee Report for the year ended 30 September 2009 Severance arrangements Directors' Report – Business Review As disclosed last year, Brad Mills' employment with the Company terminated on 7 October 2008 and he ceased to be a Director on 9 October 2008. Under the termination provisions of his contract of employment, Mr Mills received a payment of £1,365,491 (less legally required deductions) on the termination of his employment and a further payment of £386,880 (less legally required deductions) in respect of bonus for the financial year ended 30 September 2008. These payments were made in lieu of those which would have been received by Mr Mills during his contractual notice period and, as such, the Company was bound to make these payments without reduction. Mr Mills also participated in a number of share-settled incentive and retention schemes. Following extensive discussions, and taking into account the performance of the Company and the length of time that awards had been held, the Remuneration Committee resolved that Mr Mills would receive 165,000 shares in the Company and a cash payment of £191,000, in each case subject to applicable taxation and other deductions. These amounts represented the vesting proportions applied to each of Mr Mills' awards and a cash payment in respect of dividend equivalents on the shares which vested and other cash-settled matters. Mr Mills requested, and the Remuneration Committee agreed, that the cash sum in lieu of dividends be reduced and the number of shares increased by an equivalent amount, and these variations are included in the figures above. The agreed vesting levels Directors' Report – Governance resulted in Mr Mills forfeiting over half of the awards which had been made to him under the incentive and retention schemes. Full details of Mr Mills' share awards are set out in the table on page 87. Directors' service contracts and letters of appointment Director Date of contract / letter Unexpired term Termination arrangements Executive Directors Ian Farmer 6 April 2006 Rolling contract Contract terminable on 364 days' prior Alan Ferguson 20 February 2007 Rolling contract written notice given by either the Company or the individual (182 days in the case of notice given by Mr Ferguson) except for gross misconduct or in certain other circumstances which may result in dismissal. In the event that employment is terminated Financial Statements by the Company without notice and not for reasons of gross misconduct, the Directors are entitled to receive a payment equivalent to the value of the annual base salary and contractual benefits which would have been earned during this unworked notice period. Non-executive Directors Sir John Craven 24 January 2007 Karen de Segundo 22 April 2005 Letters of appointment generally provide for Peter Godsoe 23 January 2008 a fixed term to the first AGM following Sivi Gounden 28 September 2005 appointment, and then subject to re- Michael Hartnall 12 January 2007 election by shareholders) a term running Operating Statistics Jonathan Leslie 4 June 2009 until the AGM three years from that date, David Munroe 19 August 2007 subject to the Company's Articles of Roger Phillimore 23 January 2007 Association. No compensation is payable to Jim Sutcliffe 11 August 2007 non-executive Directors for loss of office. Former executive Director Brad Mills 4 February 2004 Rolling contract Contract terminable on expiry of 12 months' (Amended 19 November 2004) notice from the Company and 6 months' notice from Brad Mills. The contract also contained provisions for "gardening leave" and payment in lieu of notice (being salary and benefits for one year at the rate then in Shareholder Information force plus an estimate of any bonus due from that year) at the discretion of the Company. This report was approved by the Board on 13 November 2009. Jim Sutcliffe Chairman, Remuneration Committee www.lonmin.com 89 Independent Auditors' Report to the Members of Lonmin Plc We have audited the financial statements of Lonmin Plc for the year ended 30 September 2009 set out on pages 92 to 136. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). This report is made solely to the company's members, as a body, in accordance with sections 495, 496 and 497 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors' Responsibilities Statement set out on page 91, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB's web-site at www.frc.org.uk/apb/scope/UKP. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 30 September 2009 and of the group's loss for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; • the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice; • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group financial statements, Article 4 of the IAS Regulation. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors' remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • the directors' statement, set out on page 65, in relation to going concern; and • the part of the Corporate Governance Statement relating to the company's compliance with the nine provisions of the June 2008 Combined Code specified for our review. Lynton Richmond (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants London 13 November 2009 90 2009 Annual Report and Accounts / Lonmin Plc Responsibility Statement of the Directors in respect of the Annual Report and Accounts Directors' Report – Business Review We confirm that to the best of our knowledge: • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and • the directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Roger Phillimore Alan Ferguson Chairman Chief Financial Officer 13 November 2009 Directors' Report – Governance Financial Statements Operating Statistics Shareholder Information www.lonmin.com 91 Consolidated Income Statement for the year ended 30 September 2009 Special items 2009 2008 Special items 2008 Underlying i (note 3) Total Underlying i (note 3) Total Continuing operations Note $m $m $m $m $m $m Revenue 2 1,062 – 1,062 2,231 – 2,231 EBITDA / (LBITDA)ii 1 (49) (48) 1,059 (25) 1,034 Depreciation, amortisation and impairment (94) – (94) (96) (174) (270) Operating (loss) / profitiii 4 (93) (49) (142) 963 (199) 764 Impairment of available for sale financial assets 14 – (39) (39) – (19) (19) Finance income 6 6 – 6 13 – 13 Finance expenses 6 (25) (73) (98) (6) – (6) Share of profit of associate and joint venture 13 1 – 1 27 – 27 (Loss) / profit before taxation (111) (161) (272) 997 (218) 779 Income tax (expense) / incomeiv 7 (18) (33) (51) (322) 109 (213) (Loss) / profit for the year (129) (194) (323) 675 (109) 566 Attributable to: – Equity shareholders of Lonmin Plc (103) (182) (285) 550 (95) 455 – Minority interest (26) (12) (38) 125 (14) 111 (Loss) / earnings per share (restated)v 8 (59.2)c (163.7)c 335.8c 277.8c Diluted (loss) / earnings per share (restated)v, vi 8 (59.2)c (163.7)c 334.7c 276.9c Dividends paid per share (restated) v 9 – 113.6c Consolidated Statement of Recognised Income and Expense for the year ended 30 September 2009 2008 Total Total Note $m $m (Loss) / profit for the year (323) 566 Change in fair value of available for sale financial assets 14 9 (127) Net changes in fair value of cash flow hedges 5 16 Gains on settled cash flow hedges released to the income statement (24) (4) Foreign exchange on retranslation of associate and joint venture 13 6 5 Deferred tax on items taken directly to the statement of recognised income and expense 6 16 Total recognised (expense) / income for the year (321) 472 Attributable to: – Equity shareholders of Lonmin Plc 28 (280) 352 – Minority interest 28 (41) 120 28 (321) 472 Footnotes: i Underlying (loss) / earnings are based on (loss) / profit for the year excluding one-off restructuring and reorganisation costs, impairment of available for sale financial assets, foreign exchange on tax balances, exchange losses on Rights Issue proceeds and the movement in fair value of the derivative liability in respect of the Rights Issue. For prior years, underlying also excludes profits on disposal of subsidiaries, impairment of goodwill, intangibles and property, plant and equipment, takeover bid defence costs, pension scheme payments relating to scheme settlements and effects of changes in corporate tax rates as disclosed in note 3 to the accounts. ii EBITDA / (LBITDA) is operating profit / (loss) before depreciation, amortisation and impairment of goodwill, intangibles and property, plant and equipment. iii Operating (loss) / profit is defined as revenue less operating expenses before impairment of available for sale financial assets, finance income and expenses and share of profit of associate and joint venture. iv The income tax expense substantially relates to overseas taxation and includes net exchange losses of $38 million (2008 – exchange gains of $88 million) as disclosed in note 7. v During the year the Group undertook a Rights Issue of shares. As a result the 2009 LPS and diluted LPS and the 2008 EPS and diluted EPS and dividends per share figures have been adjusted to the date of issue to reflect the bonus element of the Rights Issue as disclosed in note 8. vi Diluted (loss) / earnings per share are based on the weighted average number of ordinary shares in issue adjusted by dilutive outstanding share options. For the year ended 30 September 2009 outstanding share options were anti-dilutive and so have been excluded from diluted loss per share in 92 accordance with IAS 33 – Earnings Per Share. 2009 Annual Report and Accounts / Lonmin Plc Consolidated Balance Sheet as at 30 September 2009 2008 Directors' Report – Business Review Note $m $m Non-current assets Goodwill 10 113 113 Intangible assets 11 964 949 Property, plant and equipment 12 2,036 1,893 Investment in associate and joint venture 13 159 163 Available for sale financial assets 14 68 96 Other receivables 14 25 19 3,365 3,233 Current assets Inventories 16 271 319 Trade and other receivables 17 287 326 Directors' Report – Governance Assets held for sale 18 6 6 Tax recoverable 1 5 Derivative financial instruments 21 1 20 Cash and cash equivalents 33 282 226 848 902 Current liabilities Trade and other payables 19 (337) (346) Interest bearing loans and borrowings 20 (58) – Tax payable (10) (55) (405) (401) Net current assets 443 501 Financial Statements Non-current liabilities Employee benefits 15 (11) (21) Interest bearing loans and borrowings 20 (349) (529) Deferred tax liabilities 23 (579) (540) Provisions 24 (67) (50) (1,006) (1,140) Net assets 2,802 2,594 Capital and reserves Share capital 193 156 Operating Statistics 28 Share premium 28 776 305 Other reserves 28 89 100 Retained earnings 28 1,359 1,586 Attributable to equity shareholders of Lonmin Plc 28 2,417 2,147 Attributable to minority interest 28 385 447 Total equity 28 2,802 2,594 The financial statements were approved by the Board of Directors on 13 November 2009 and were signed on its behalf by: Shareholder Information Roger Phillimore Chairman Alan Ferguson Chief Financial Officer www.lonmin.com 93 Consolidated Cash Flow Statement for the year ended 30 September 2009 2008 Note $m $m (Loss) / profit for the year (323) 566 Taxation 7 51 213 Share of profit after tax of associate and joint venture 13 (1) (27) Finance income 6 (6) (13) Finance expenses 6 98 6 Impairment of available for sale financial assets 3 39 19 Depreciation and amortisation 94 96 Other impairment 3 – 174 Change in inventories 48 (133) Change in trade and other receivables 59 12 Change in trade and other payables (9) 37 Change in provisions 12 – Profit on sale of subsidiary – (2) Share-based payments (1) 6 Other non cash expenses / (income) 2 (7) Cash flow from operations 63 947 Interest received 3 11 Interest and bank fees paid (34) (23) Tax paid (48) (229) Cash (outflow) / inflow from operating activities (16) 706 Cash flow from investing activities Investment in joint venture 13 (5) – Dividend received from associate 3 – Proceeds from disposal of subsidiary – 3 Purchase of property, plant and equipment (221) (354) Purchase of intangible assets (13) (24) Purchase of available for sale financial assets – (17) Proceeds from disposal of assets held for sale – 1 Cash used in investing activities (236) (391) Cash flow from financing activities Equity dividends paid to Lonmin shareholders 28 – (186) Dividends paid to minority 28 (21) (65) Proceeds from current borrowings 33 58 – Repayment of current borrowings 33 – (237) Proceeds from non-current borrowings 33 225 170 Repayment of non-current borrowings 33 (405) – Proceeds from Rights Issue 29 516 – Costs of Rights Issue 28, 29 (21) – Loss on forward exchange contracts in respect of Rights Issue 3, 29 (33) – Issue of other ordinary share capital 28 16 6 Cash from / (used in) financing activities 335 (312) Increase in cash and cash equivalents 33 83 3 Opening cash and cash equivalents 33 226 221 Effect of exchange rate changes 33 (27) 2 Closing cash and cash equivalents 33 282 226 94 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 1 Statement on accounting policies Directors' Report – Business Review Reporting entity Lonmin Plc (the "Company") is a company incorporated in the UK. The address of the Company's registered office is 4 Grosvenor Place, London, SW1X 7YL. The consolidated financial statements of the Company as at and for the year ended 30 September 2009 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in associates and jointly controlled entities. Basis of preparation Statement of compliance The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (adopted IFRSs). The Company has elected to prepare its parent company financial statements in accordance with UK GAAP; these are presented on pages 130 to 136. The parent company financial statements present information about the Company as a separate entity and not about its Group. Directors' Report – Governance The financial statements were approved by the Board of Directors on 13 November 2009. Basis of measurement The financial statements are prepared on the historical cost basis except for the following: • Derivative financial instruments are measured at fair value. • Available for sale assets are measured at fair value. • Liabilities for cash-settled share-based payment arrangements are measured at fair value. • Non-current assets held for sale are stated at the lower of their carrying amount and fair value less cost to sell. No changes in the accounting policies have had any effect on the consolidated financial statements. The accounts have been prepared on a going concern basis. Management's review of the factors likely to affect its future development, performance and position of the business and the approach to financial risk management are given in the Financial Review on pages 18 to 25 and in the Internal Controls and Risk Management section on pages 26 to 29. Functional and presentation currency Financial Statements The consolidated financial statements are presented in US Dollars, which is the functional currency of the Company and its principal operations. Use of estimates and judgements The preparation of financial statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The primary areas in which estimates and judgements are applied are as follows: The carrying value of goodwill, intangible assets and property, plant and equipment for which the key assumptions, and management approach for determining these, is described in the policy on Impairment. Reserves and resources are determined by Competent Persons and audited bi-annually according to the South African Operating Statistics code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (SAMREC). The determination of resources and reserves requires a wide variety of assessments regarding the geology of the ore body, the mining plans and economic viability which are all subject to inherent uncertainties. Inventory is held in a wide variety of forms across the value chain reflecting the stage of refinement. Prior to production as final metal the inventory is always contained within a carrier material. As such inventory is typically sampled and assays taken to determine the metal content and how this is split by metal. Measurement and sampling accuracy can vary quite significantly depending on the nature of the vessels and the state of the material. Management judgement, therefore, is also applied. The nature of the mining and processing operations of the Group gives rise to environmental obligations which are reflected in the rehabilitation provision. The level of provision needs to reflect the present value of the future remediation costs. Estimating the future remediation costs involves significant judgments including for example the local geography and geology, whether contamination has occurred and, if so, the nature of contaminants involved and the remediation approach to be Shareholder Information taken and the likely costs which would be incurred. Such judgments are made using advice from expert advisors. In addition, the outflows in respect of rehabilitation are generally far into the future. Judgment is therefore also involved in estimating the timing of the cash flow and in the discounting factors to determine the present value. Significant accounting policies The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements, and have been applied consistently by Group entities. www.lonmin.com 95 Notes to the Accounts 1 Statement on accounting policies (continued) Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Group. Control is achieved where the Company has the power to govern the financial and operating policies of an entity in order to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable are taken into account. The results of subsidiaries acquired or disposed of during the year are consolidated from the effective date of acquisition at which date control commences or up to the effective date of disposal, as appropriate, at which date control ceases. Where necessary, adjustments are made to the financial statements of subsidiaries, associates and joint ventures to bring the accounting policies used into line with those used by the Group. Associates An associate is an entity in which the Group has an equity interest and over which it has the ability to exercise significant influence but not control over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50% of the voting power of another entity. Associates are accounted for using the equity method and are initially measured at cost. The Group's investment includes goodwill identified on acquisition, net of any impairment losses. The consolidated financial statements include the Group's share of the income and expenses and equity movements of any associates, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. Joint ventures The Group undertakes a number of business activities through joint ventures. Joint ventures are established through contractual arrangements which result in the strategic, financial and operating policies of the venture being jointly controlled. Such joint ventures are treated as jointly controlled entities and are accounted for using the equity method. Transactions eliminated on consolidation Intra-Group balances and transactions, and any unrealised income and expenses arising from intra-Group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates and joint ventures are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Foreign currency Transactions denominated in foreign currencies are translated into the respective functional currency of the Group entities using the exchange rates prevailing at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rates of exchange ruling at the balance sheet date. Non-monetary assets and liabilities are translated at the historic rate. Foreign currency differences arising on retranslation are recognised in the income statement, except for differences arising on the retranslation of available for sale financial assets which are recognised directly in equity. Foreign currency gains and losses are reported on a net basis. Revenue Revenue is derived from the sale of metal inventories and is measured at the fair value of consideration received or receivable, after deducting discounts, volume rebates, value added tax and other sales taxes. A sale is recognised when: the significant risks and rewards of ownership have passed to the buyer (this is generally when title and insurance risk have passed to the customer, and the goods have been delivered to a contractually agreed location); recovery of the consideration is probable; the associated costs and possible return of goods can be estimated reliably; there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. All third-party metal sales are recognised as revenue. The Group does not credit capitalised development costs with income arising from production in development phases but rather recognises such metal as inventory (see Inventories policy). Finance income and expenses Finance income comprises interest on funds invested (including available for sale financial assets), dividend income, gains on the disposal of available for sale financial assets net of costs of disposal, expected returns on pension scheme assets, and gains on hedging instruments that are recognised in the income statement. Interest income is accrued on a time basis, by reference to the principle outstanding and the effective interest rate applicable. Dividend income from investments is recognised when the Group's rights to receive payment have been established. Finance expenses comprise interest expense on borrowings, bank fees (which are capitalised and amortised over the life of the facility), unwinding of discount on provisions, interest costs of pension scheme liabilities, and losses on hedging instruments that are recognised in the income statement. All borrowing costs are recognised in the income statement using the effective interest method except for borrowing costs which are directly attributable to the acquisition, or construction of an asset. Such costs are capitalised to property, plant and equipment or intangible assets during the period of construction provided that future economic benefit is considered probable. Capitalised interest is shown as interest paid in the consolidated cash flow statement. 96 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 1 Statement on accounting policies (continued) Directors' Report – Business Review Expenditure Expenditure is recognised in respect of goods and services received. Research and development Research expenditure is charged to the income statement in the period in which it is incurred. Development expenditure which meets the recognition criteria for an intangible asset under IAS 38 – Intangible Assets, is capitalised and then amortised over the useful economic life of the developed asset, otherwise it is charged to the income statement as incurred. Borrowing costs related to the development of qualifying assets are capitalised. Capitalised development expenditure is recognised at cost, and subsequently carried at cost less any accumulated impairment losses, where it can be demonstrated that the expenditure will result in completion of an asset which, when available for use or sale, will result in future economic benefit arising for the Group. Exploration and evaluation expenditure Exploration and evaluation expenditure relates to costs incurred on the exploration for and evaluation of potential mineral Directors' Report – Governance reserves and includes costs relating to the following: acquisition of exploration rights; conducting geological studies; exploratory drilling and sampling; and evaluating the technical feasibility and commercial viability of extracting a mineral resource. Expenditure incurred on activities that precede exploration for and evaluation of mineral resources, being all expenditure incurred prior to securing the legal rights to explore an area, is expensed immediately. Expenditure towards in-house exploration for and evaluation of potential mineral reserves for each area of interest is expensed until it is considered probable that future economic benefit will arise through further exploration and subsequent development of the area of interest or, alternatively, by its sale. Pre-feasibility studies involve the review of one or more potential development options with the aim of moving forward to the more detailed feasibility study stage. Expenditure related to such studies is expensed in full as there is insufficient certainty that future economic benefit will be generated at this stage of a project. Expenditure relating to feasibility studies which support the technical feasibility and commercial viability of an area is capitalised under exploration and evaluation assets. Where a feasibility study reaches a favourable conclusion, accumulated exploration and evaluation costs are transferred to Financial Statements mineral rights within intangibles or capital work in progress within property, plant and equipment as appropriate on commencement of the development phase of the related project. Where the feasibility study reaches an adverse conclusion, any previously capitalised exploration and evaluation expenditure is written off immediately. Expenditure on purchased exploration and evaluation assets is capitalised at fair value at the time of purchase. Subsequent expenditure may be capitalised at cost. Carrying values are subject to impairment reviews as per the Group's policy. Exploration and evaluation expenditure is classified as property, plant and equipment or intangible depending on the nature of the expenditure. Capitalised exploration and evaluation expenditure is a class of assets which are not available for use. Therefore amortisation is not provided on such assets. Mineral mining rights, which are obtained following the completion of a feasibility study, are not included within exploration and evaluation expenditure. They are capitalised at cost under IAS 38 – Intangible Assets and are amortised on a units of production basis over the life of the mine. Operating Statistics Share-based payment From the grant date the fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the shares. The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period that the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as a personnel expense in the income statement. The fair value of each option or share appreciation right is determined using either a Black-Scholes option pricing model or a Monte Carlo projection model, depending on the type of the award. Market related performance conditions are reflected in the fair value of the share. Non-market related performance conditions are allowed for using a separate assumption about the number of awards expected to vest; the final charge made reflects the numbers actually vested on the basis that non- Shareholder Information market conditions are met. Business combinations and goodwill At the date of acquisition of a subsidiary undertaking, associate or joint venture fair values are attributed to the acquired identifiable assets, liabilities and contingent liabilities. Any provisional fair values are finalised within twelve months of the acquisition date. Goodwill represents the difference between the fair value of the purchase consideration and the acquired interest in the fair values of those net assets. Goodwill is initially recognised at fair value. Any negative goodwill is credited to the income statement in the year of acquisition. If an undertaking is subsequently sold, the amount of goodwill carried on the balance sheet at the date of disposal is charged to the income statement in the period of disposal as part of the gain or loss on disposal. Goodwill in respect of subsidiaries and joint ventures which are equity accounted for is included within the Group's investments. Goodwill relating to associates is included within the carrying value of the associate. www.lonmin.com 97 Notes to the Accounts 1 Statement on accounting policies (continued) Intangible assets Intangible assets, other than goodwill, acquired by the Group have finite useful lives and are measured at cost less accumulated amortisation and accumulated impairment losses. Where amortisation is charged on these assets, the expense is taken to the income statement through operating costs. Amortisation of mineral rights is provided on a units of production basis over the remaining life of mine to residual value (20 to 40 years). All other intangible assets are amortised over their useful economic lives subject to a maximum of 20 years and are tested for impairment at each reporting date when there is an indication of a possible impairment. Property, plant and equipment Recognition Property, plant and equipment is included in the balance sheet at cost and subsequently less accumulated depreciation and any accumulated impairment losses. Costs include expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and any other costs of dismantling and removing the items and restoring the site on which they are located. Cost may also include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Borrowing costs incurred on the acquisition or construction of qualifying assets are capitalised to the cost of the asset. Gains and losses on disposals of an item of property, plant and equipment are determined by comparing the proceeds on disposal with the carrying value of property, plant and equipment and are recognised net in the income statement. Componentisation When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised upon replacement. The costs of the day-to-day servicing of property, plant and equipment are recognised in the income statement as incurred. Capital work in progress Development costs are capitalised and transferred to the appropriate category of property, plant and equipment when available for use. Capitalised development costs include expenditure incurred to develop new operations and to expand existing capacity. Costs include interest capitalised during the period up to the level that the qualifying assets permit. Depreciation Depreciation is provided on a straight-line or units of production basis as appropriate over their expected useful lives or the remaining life of mine, if shorter, to residual value. The life of mine is based on proven and probable reserves. The expected useful lives of the major categories of property, plant and equipment are as follows: Method Rate Shafts and underground Units of production 2.5% – 5.0% per annum (20 – 40 years) Metallurgical Straight line 2.5% – 7.1% per annum (14 – 40 years) Infrastructure Straight line 2.5% – 2.9% per annum (35 – 40 years) Other plant and equipment Straight line 2.5% – 50.0% per annum (2 – 40 years) No depreciation is provided on surface mining land which has a continuing value and capital work in progress. Residual values and useful lives are re-assessed annually and if necessary changes are accounted for prospectively. Impairment The Group's principal assets are property, plant and equipment, intangibles and goodwill associated with exploration and evaluation, mining and processing activities. For the purpose of assessing recoverable amount, these assets are grouped into cash generating units ("CGUs"). Recoverable amount is the higher of fair value less costs to sell and value in use. At each balance sheet date, the Group assesses whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment (if any). An intangible asset with an indefinite useful life is tested for impairment annually regardless of whether an indication of impairment exists. Items of property, plant and equipment that are not in use are reviewed annually for impairment on a fair value less costs to sell basis. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. Any impairment is recognised immediately as an expense. 98 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 1 Statement on accounting policies (continued) Directors' Report – Business Review Impairment (continued) Value in use In assessing value in use, the estimated future cash flows, based on the most up to date business forecasts, are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets for which estimates of future cash flows have not been adjusted. The key assumptions contained within the business forecasts and management's approach to determine appropriate values is set out below: Key Assumption Management Approach PGM prices Projections are determined through a combination of the views of the Directors, market estimates and forecasts and other sector information. Production volume Projections are based on the capacity and expected operational capabilities of the mines, the grade of the ore, and the efficiencies of processing and refining operations. Directors' Report – Governance Production costs Projections are based on current cost adjusted for expected cost changes as well as giving consideration to specific issues such as the difficulty in mining particular sections of the reef and the mining method employed. Capital expenditure requirements Projections are based on the operational plan, which sets out the long-term plan of the business and is approved by the Board. Foreign currency exchange rates Projections are made using external sources of information. Reserves and resources of the CGU Projections are determined through surveys performed by competent persons and the views of the Directors of the Company. Management uses past experience and assessment of future conditions, together with external sources of information in order to assign values to the key assumptions. Management has projected cash flows over the life of the relevant mining operation which is significantly greater than 5 years. Projecting cash flows over a period longer than 5 years is in line with industry practice and is supported by the Group's Financial Statements history of the resources expected to be found being proven to exist. Management does not apply a growth rate because a detailed life of mine plan is used to forecast future production volumes. For each CGU a risk-adjusted pre-tax discount rate based on the weighted average cost of capital for Group is used for impairment testing. The key factors affecting the risk premium applied are the relevant stage of the development of the asset in the CGU (extensions to existing operations having significantly lower risk than evaluation projects for example), the level of knowledge and consistency of the ore body and sovereign risk. The real weighted average cost of capital applied to goodwill in the Marikana CGU was 8% (2008 – 8%). Fair value less costs to sell Fair value less costs to sell has been determined by reference to the best information available to reflect the amount that the Group could receive for the CGU in an arm's length transaction. When comparable market transactions or public valuations of similar assets exist these are used as a source of evidence. However, the Group believes that mining CGUs tend to be unique and have their value determined largely by the nature of the Operating Statistics underlying ore body. The fair value therefore is typically determined by calculating the value of the CGU using an appropriate valuation methodology such as calculating the post-tax net present value using a discounted cash flow forecast (as described in value in use). This approach has been used in determining the value of the Akanani CGU based on the most up to date detailed mine and operating plans, modified as appropriate to meet the requirements of IAS 36. The resources at Akanani include the exploration and evaluation asset, a deferred tax liability and tax goodwill. The exploration and evaluation asset includes an amount for tax amortisation benefit. A deferred tax liability was created on acquisition but because deferred tax liabilities are not discounted and the tax amortisation benefits are, a 'tax goodwill' balance was created. This tax goodwill balance represents the effect of not discounting the deferred tax liability. This is reviewed for impairment as required under IAS 36 as well as under IFRS 6. In preparing the financial statements, management has considered whether a reasonably possible change in the key assumptions on which management has based its determination of the recoverable amounts of the CGUs would cause the Shareholder Information units' carrying amounts to exceed their recoverable amounts. For the Marikana CGU, because of the forecast for long-term PGM prices and the very significant reserves and resources in the ground, management do not believe that a reasonably possible change in any of the key assumptions would lead to impairment. For the Akanani CGU management's assessment of mineral resources and reserves is higher than that at acquisition and there has been limited change in anticipated long-term metal prices since this time. For the Akanani CGU management do not believe there are relevant market transactions which can be used to consider the asset on a fair value less costs to sell basis. Management do not believe there are any current indicators of impairment. Given the Akanani CGU is at the exploration and evaluation stage it is reasonably possible that the completion of that stage will result in changes to indicated and inferred reserves of PGM ounces and the quantity of resources is also sensitive to the long-term metal prices. Adverse changes in reserves and resources or long-term metal prices might cause the recoverable amount to fall below the carrying amount of the CGU. Any adverse impact on the Akanani exploration and evaluation asset could have a direct impact on the carrying value of the tax goodwill which has to be assessed under IAS 36 – Impairment of Assets. As the PGM ounces are only indicated and inferred, and plans for the extraction of the mineral resource are not that far advanced, it is considered impractical to provide quantified sensitivities and an estimate of what headroom, if any, exists. www.lonmin.com 99 Notes to the Accounts 1 Statement on accounting policies (continued) Impairment (continued) Goodwill The recoverable amount of goodwill, as allocated to relevant CGUs, has been tested for impairment annually, or when such events or changes in circumstances indicate that it may be impaired. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Impairment losses within a CGU are allocated first to goodwill and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis. Exploration and evaluation assets Under IFRS 6 exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount. When this occurs, any impairment loss is immediately charged to the income statement. Reversal of impairment At each balance sheet date, the Group assesses whether there is any indication that a previously recognised impairment loss has reversed. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is only reversed to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortisation, had the impairment not been made. A reversal of impairment is recognised as income immediately. Leases Assets held under finance leases are capitalised and included in property, plant and equipment at the lower of the present value of the minimum lease payments or the fair value of the leased asset as determined at the inception of the lease. The obligations relating to finance leases, net of finance charges in respect of future periods, are included within bank loans and other borrowings, with the amount payable within 12 months included in bank overdrafts and loans within current liabilities. The interest element of the rental obligation is allocated to accounting periods during the lease term to reflect the constant rate of interest on the remaining balance of the obligation for each accounting period. Rentals under operating leases are charged to the income statement on a straight-line basis. Assets held for sale When an asset's carrying value will be recovered principally through a sale transaction, to take place within twelve months of the balance sheet date, rather than through continuing use it is classified as held for sale and stated at the lower of carrying value and fair value less costs to sell. No depreciation is charged in respect of non-current assets classified as held for sale. Immediately prior to sale the assets are remeasured in accordance with the Group's accounting policies. Inventories Inventories are valued at the lower of cost (which includes the applicable proportion of production overheads) and net realisable value. Platinum Group Metals (PGMs) inventory is valued by allocating costs, based on the joint cost of production, apportioned according to the relative sales value of each of the PGMs produced. By-product metals are valued at the incremental cost of production from the point of split-off from the PGM processing stream. In the process of initially developing the ore reserve it is common that metal is produced, although not at normal operating levels. Development is split into different phases according to the mining method used with differing levels of production expected in each phase. The Group recognises the metal produced in each development phase in inventory with an appropriate proportion of cost as operating costs. This allocation is calculated by reference to the produced volumes in relation to the total volumes expected from the development. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and current balances with banks and similar institutions, which are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value and have an original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts as the bank overdraft is repayable on demand and forms an integral part of the Group's cash management. Pensions and other post-retirement benefits The Group operates a number of defined contribution schemes in accordance with local regulations. A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate legal entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in the income statement when they are due. For current UK employees, the Group either makes payments on behalf of employees into a defined contribution scheme which the Group has set up, or makes direct payments to employees who may then make their own arrangements. 100 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 1 Statement on accounting policies (continued) Directors' Report – Business Review Taxation Income tax expense comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax to be paid or recovered on the taxable income for the year, using the tax rates enacted or substantively enacted at the reporting date during the periods being reported upon, and any adjustments to tax payable in respect of previous years. Current tax also includes secondary tax charges on dividends remitted which are recognised upon the declaration of relevant dividends. Deferred tax as directed by IAS 12 – Income Taxes is recognised in respect of certain temporary differences identified at the balance sheet date. Temporary differences are differences between the carrying amount of the Group's assets and liabilities and their tax base. A deferred tax liability is recognised in a business combination in respect of any identified intangible asset representing the difference between the fair value of the acquired asset and its tax base. Recognition of a deferred tax liability in respect of such a difference gives rise to a corresponding increase in goodwill recognised in the consolidated balance sheet. Directors' Report – Governance Deferred tax liabilities are offset against deferred tax assets within the same taxable entity or qualifying local tax Group where the entities have the right to settle current tax liabilities net. Any remaining deferred tax asset is recognised only when, on the basis of all available evidence, it can be regarded as probable that there will be suitable taxable profits, within the same jurisdiction, in the foreseeable future against which the deductible temporary difference can be utilised. Deferred tax is provided on temporary differences arising in relation to investments in subsidiaries, jointly controlled entities and associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax relating to the secondary tax charges on the remittance of overseas earnings is provided to the extent that such remittance of earnings can reasonably be foreseen. Rehabilitation costs Rehabilitation costs are provided in full based on estimates of the future costs to be incurred, calculated on a discounted basis. As the provision is recognised, it is either capitalised as part of the cost of the related mine or written off to the income statement if utilised within one year. Where costs are capitalised the impact of such costs on the income statement is spread Financial Statements over the life of mine through the accretion of the discount of the provision and the depreciation over a units of production basis of the increased costs of the mining assets. Provisions Provision is made when a present or legal obligation exists for a future liability in respect of a past event and where the amount of the obligation can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Financial instruments The Group's principal financial instruments (other than derivatives) comprise bank loans, available for sale financial assets, trade and other receivables, cash and cash equivalents, trade and other payables and short-term deposits. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through the income statement, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial Operating Statistics instruments are measured as described below. Cash and cash equivalents comprise cash balances and call deposits. These also comprise bank overdrafts that are repayable on demand, for the purpose of the cash flow statement only. Investments are classified into loans and receivables, held-to-maturity and available for sale. The classification depends on the purpose for which the investments were acquired, the nature of the investments and whether the investment is quoted or not. The classification of investments is determined at initial recognition. Loans and receivables Loans and receivables and investments classified as held-to-maturity are carried at amortised cost and gains or losses are recognised in the income statement when the investments are derecognised or impaired, as well as through the amortisation process. Shareholder Information Available for sale financial assets The Group's investments in equity securities and certain debt securities are classified as available for sale financial assets. Subsequent to initial recognition they are measured at fair value and any changes are recognised directly in equity except when market value has fallen below original cost when the losses are taken to the income statement together with any foreign exchange gains or losses arising whilst the asset is impaired. When an investment is written off or sold, any cumulative gains or losses in equity are recycled into the income statement. Fair value is determined by using the market price at the balance sheet date where this is available. Where market price is not available the Directors' best estimates of market value are used. Bank loans Bank loans are recorded at amortised cost, net of transaction costs incurred, and are adjusted to amortise transaction costs over the term of the loan. www.lonmin.com 101 Notes to the Accounts 1 Statement on accounting policies (continued) Financial instruments (continued) Derivative financial instruments Derivative financial instruments are used by the Group to manage exposure to market risks from treasury operations and commodity price risks on by-products. The principal derivative instruments used are foreign currency swaps, interest rate swaps, forward foreign exchange contracts and forward price agreements on by-products. The Group does not hold or issue derivative financial instruments for trading or speculative purposes. Derivative financial instruments are initially recognised in the balance sheet at fair value. Attributable costs are recognised in profit or loss when occurred and then remeasured at subsequent reporting dates to fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. Hedging derivatives are classified on inception as fair value hedges or cash flow hedges. The effective portion of changes in the fair value of derivatives designated as cash flow hedges is recognised directly in equity if effective. Any gain or loss relating to the ineffective portion is recognised immediately in the income statement. Changes in the fair value of derivatives designated as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement. Segmental reporting A segment is a distinguishable component of the Group that is engaged in either providing products or services (business segment), or is providing products or services within a particular economic environment (geographical segment) which is subject to risks and rewards that are different from those of other segments. The Group's primary format for segment reporting is based on business segments. The business segments are determined based on the Group's management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill, and any capitalised interest. New standards and amendments in the year There were no new standards, interpretations or amendments to standards issued and effective for the period which materially impacted the Group's financial statements. A number of new standards, amendments to standards and interpretations to IFRS as adopted by the EU are not yet effective for the year ended 30 September 2009, and have not been applied in preparing these consolidated financial statements. The following are of relevance to the Group: • IFRS 8 – Operating Segments (effective 1 January 2009) introduces the "management approach" to segment reporting. IFRS 8, which becomes mandatory for the Group's 2010 financial statements, will require the disclosure of segment information based on the internal reports regularly reviewed by the Group's Chief Operating Decision Maker in order to assess each segment's performance and to allocate resources to them. The Group does not expect significant changes to be implemented. • IAS 1 (amendment) – Presentation of Financial Statements (effective 1 January 2009) affects the presentation of owner changes in equity (with the requirement to present in a statement of changes in equity for all owner changes in equity) and to present comprehensive income. It does not change the recognition, measurement or disclosure of specific transactions and other events required by other IFRSs. • IFRS 7 (amendment) – Financial Instruments: Disclosure (effective 1 January 2009) improves the disclosure requirements relating to fair value measurements and reinforces existing principles regarding disclosures of liquidity risk associated with financial instruments. • IAS 23 – Borrowing Costs (effective 1 January 2009) requires that an entity shall capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. This is in-line with the Group's existing policy regarding the capitalisation of borrowing costs. • IFRS 3 – Business Combinations (effective 1 July 2009) is a comprehensive revision of IFRS 3 which will have an impact on future acquisitions and the impact on the accounting policies of the group will be assessed. • IFRS 2 – (amendment) Group Cash-settled Share-based Payment Transactions (effective 1 January 2010). In addition to the above the IASB has issued IAS 32 (amendment) – Classification of Rights Issues (effective 1 February 2010) which allows Rights Issues which will exchange an entity's own equity for a fixed amount of cash in any currency to be treated as equity if the rights have been offered pro-rata to all existing equity holders. The Rights Issue undertaken by the Group meets this criteria however, as explained in note 29, as the amendment has not been adopted by the EU and cannot be applied by the Group. If the amendment is adopted by the EU the Group may restate the 2009 results in the 2010 financial statements. 102 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 2 Segmental analysis Directors' Report – Business Review The Group's primary operating segment is the mining of Platinum Group Metals. The majority of the Group's operations are based in South Africa. 2009 Platinumii Corporateiii Explorationiv Total Analysis by business group $m $m $m $m Revenue – external sales 1,062 – – 1,062 Operating loss (81) (50) (11) (142) Segment total assets 3,262 183 768 4,213 Segment total liabilities (1,216) (24) (171) (1,411) Capital expenditurei 229 – 29 258 Depreciation and amortisation 94 – – 94 Directors' Report – Governance Impairment losses (note 3) 39 – – 39 Share of profit of associate and joint venture 1 – – 1 Share of net assets of associate and joint venture 159 – – 159 2008 Platinumii Corporateiii Explorationiv Total Analysis by business group $m $m $m $m Revenue – external sales 2,231 – – 2,231 Operating profit / (loss) 892 (101) (27) 764 Segment total assets 3,369 25 741 4,135 Segment total liabilities (1,100) (267) (174) (1,541) Capital expenditurei 389 – 36 425 Depreciation and amortisation 96 – – 96 Financial Statements Impairment losses (note 3) 193 – – 193 Share of profit of associate and joint venture 27 – – 27 Share of net assets of associate and joint venture 163 – – 163 2009 South Africa UK Other Total Analysis by geographical location $m $m $m $m Revenue – external sales 1,062 – – 1,062 Segment total assets 4,023 164 26 4,213 Capital expenditurei 258 – – 258 Operating Statistics 2008 South Africa UK Other Total Analysis by geographical location $m $m $m $m Revenue – external sales 2,231 – – 2,231 Segment total assets 4,091 10 34 4,135 Capital expenditurei 425 – – 425 Footnotes: i Capital expenditure includes additions to property, plant and equipment (including capitalised interest), intangible assets and goodwill in accordance with IAS 14 – Segment Reporting. ii The Platinum segment includes all operational activities together with direct overheads, plus investments in mining related assets. Shareholder Information iii The Corporate segment consists of the London head office and the Johannesburg office. iv The Exploration segment comprises the investment in the Akanani deposit and various exploration sites around the world. Revenue by destination is analysed by geographical area below: 2009 2008 $m $m The Americas 227 580 Asia 296 798 Europe 417 349 South Africa 122 496 Zimbabwe – 8 1,062 2,231 www.lonmin.com 103 Notes to the Accounts 3 Special items 'Special items' are those items of financial performance that the Group believes should be separately disclosed on the face of the income statement to assist in the understanding of the financial performance achieved by the Group and for consistency with prior years. 2009 2008 $m $m Operating loss: (49) (199) – Restructuring and reorganisation costsi (49) – – Profit on disposal of subsidiaryii – 2 – Pensionsiii – (9) – Defence costsiv – (18) – Impairment lossv – (174) Impairment of available for sale financial assetsvi (39) (19) Finance costs: (73) – – Loss on forward exchange contracts in respect of Rights Issue (note 29) (33) – – Exchange difference on holding Rights Issue proceeds received in advance (note 29) (4) – – Movement in fair value of derivative liability in respect of Rights Issue (note 29) (36) – Loss on special items before taxation (161) (218) Taxation related to special items (note 7) (33) 109 Special loss before minority interest (194) (109) Minority interest 12 14 Special loss for the year attributable to equity shareholders of Lonmin Plc (182) (95) Footnotes: i During the year the Group incurred $49 million in restructuring and reorganisation costs (2008 – $nil) primarily comprising employee exit costs together with abnormal non-productive operating costs at Limpopo following announcement of its closure. ii During 2008 the Group disposed of a subsidiary, Southern Era Mining Exploration South Africa (Pty) Limited, for consideration of $3 million resulting in a profit before tax of $2 million. iii During 2008 the Group settled the Lonmin Superannuation Scheme (LSS) and incurred a $9 million charge. iv In 2008 the Group incurred $18 million of defence costs relating to a takeover bid that occurred. v In 2008 impairment charges primarily comprised the write down of property, plant and equipment of $89 million for the Baobab shaft at Limpopo together with $73 million of smelting synergies recognised as goodwill recognised at acquisition and $7 million relating to the remaining carrying value of the Messina concentrate off-take contract. This impairment arose as a result of reduced reserves and weaker short-term pricing anticipated. vi During the year certain available for sale financial assets were marked to market and have fallen below original acquisition costs resulting in $39 million of impairment charges being taken to the income statement (2008 – $19 million). In the current year $9 million subsequent gain on financial assets has been recognised in the statement of recognised income and expense (2008 – $127 million loss). 104 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 4 Group operating (loss) / profit Directors' Report – Business Review Group operating (loss) / profit is arrived at as follows: 2009 2008 $m $m Revenue 1,062 2,231 Cost of sales (1,088) (1,121) Gross (loss) / profit (26) 1,110 Administration expenses (56) (120) Exploration (note 2) (11) (27) Special costs (note 3) (49) (199) Group operating (loss) / profit (142) 764 Directors' Report – Governance Group operating (loss) / profit is stated after charging / (crediting): 2009 2008 $m $m Operating lease charges – land and buildings 1 1 Depreciation charge – property, plant and equipment 80 80 Amortisation charge – intangible assets 14 16 Employee benefits of key management excluding share-based paymentsi 10 15 Special items (note 3) 49 199 Share-based payments 4 6 Foreign exchange gains (3) (13) Footnote: i Included within employee benefits of key management excluding share-based payments is $5 million (2008 – $9 million) in respect of Directors. Financial Statements Fees payable to the Company's auditor and its associates included in operating costs: 2009 2008 $m $m UK Overseas Total UK Overseas Total Fees payable to the Company's auditor for the audit of the Company's annual accounts 0.2 – 0.2 0.3 – 0.3 Fees payable to the Company's auditor and its associates for other services: The audit of the Company's Operating Statistics subsidiaries pursuant to legislation 0.3 0.8 1.1 0.3 1.2 1.5 Other services pursuant to legislation 0.1 0.1 0.2 0.1 0.1 0.2 Tax services – – – – 0.2 0.2 Sustainability assurance services – 0.1 0.1 – 0.1 0.1 IT assurance services – – – – 0.5 0.5 Accounting and other advice 0.1 – 0.1 0.4 0.1 0.5 0.7 1.0 1.7 1.1 2.2 3.3 In addition fees of $0.6 million in relation to the Rights Issue have been deducted from the share premium account. Shareholder Information www.lonmin.com 105 Notes to the Accounts 5 Employees The average number of employees and Directors during the year was as follows: 2009 2008 No. No. South Africa 21,944 25,274 Europe 31 36 Rest of world 25 52 22,000 25,362 The aggregate payroll costs of employees, key management and Directors were as follows: 2009 2008 Employee costs $m $m Wages and salaries 455 501 Social security costs 9 14 Pension costs 33 36 Share-based payments 4 6 501 557 2009 2008 Key management compensation $m $m Short-term employee benefits 9 9 Termination payments – 5 Post-employment benefits 1 1 Key management costs excluding share-based payments 10 15 Share-based payments 1 3 11 18 The key management compensation analysed above represents amounts in respect of the Executive Committee (Exco) which comprised the two executive Directors and five other senior managers (2008 – three executive Directors and eight other senior managers). The sterling equivalents of total Directors' emoluments and emoluments of the highest paid Director together with full details of Directors' remuneration, pensions and benefits in kind are given in the Remuneration Committee report on pages 72 to 89. 106 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 6 Net finance costs Directors' Report – Business Review 2009 2008 $m $m Finance income: 6 13 Interest receivable 3 5 Movement in fair value of other receivables (note 14) 3 1 Other interest receivable – 7 Finance expenses: (25) (6) Interest payable on bank loans and overdrafts (15) (22) Bank fees (8) (1) Capitalised interesti 23 23 Unwind of discounting on provisions (note 24) (5) (4) Exchange differences on other receivables (note 14) 3 (4) Directors' Report – Governance Exchange differences on net debtii (23) 2 Special items: (73) – Loss on forward exchange contracts in respect of Rights Issue (notes 3 and 29) (33) – Exchange difference on holding Rights Issue proceeds received in advance (notes 3 and 29) (4) – Movement in fair value of derivative liability in respect of Rights Issue (notes 3 and 29) (36) – Total finance expenses (98) (6) Net finance (expense) / income (92) 7 Footnotes: i Interest expenses incurred have been capitalised on a Group basis to the extent that there is an appropriate qualifying asset. The weighted average Financial Statements interest rate used by the Group for capitalisation is 4.8% (2008 – 4.7%). ii Net debt is defined by the Group as cash and cash equivalents, bank overdrafts repayable on demand and interest bearing loans and borrowings less unamortised bank fees. Operating Statistics Shareholder Information www.lonmin.com 107 Notes to the Accounts 7 Taxation 2009 2008 $m $m United Kingdom: Current tax expense at 28% (2008 – 28%) 33 126 Less amount of the benefit arising from double tax relief available (33) (126) Total UK tax expense – – Overseas: Current tax expense at 28% (2008 – 28%) excluding special items 11 261 Corporate tax expense 1 224 Tax on dividends remitted 10 37 Deferred tax expense: 7 61 Origination and reversal of temporary differences 7 49 Prior year adjustment 12 – Tax on dividends unremitted (12) 12 Special items – UK and overseas (note 3): 33 (109) Reversal of utilisation / (utilisation) of losses from prior years to offset deferred tax liabilityi 1 (2) Exchange on current taxationii (5) (19) Exchange on deferred taxationii 43 (69) Tax on restructuring and reorganisation costs (6) – Change in South African corporate tax rate from 29% to 28%iii – (19) Actual tax charge 51 213 Tax charge excluding special items (note 3) 18 322 Effective tax rate (19)% 27% Effective tax rate excluding special items (note 3) (16)% 32% A reconciliation of the standard tax charge to the actual tax charge was as follows: 2009 2009 2008 2008 $m $m Tax (credit) / charge at standard tax rate 28% (76) 28% 218 Special items as defined above (12%) 33 (14%) (109) Tax effect of impairment relating to Baobab shaft at Limpopo – – 6% 49 Tax effect of impairment of available for sale financial assets (4%) 11 1% 5 Tax effect of temporary differences relating to prior years (4%) 10 6% 49 Tax effect of losses in respect of Rights Issue (7%) 20 – – Tax effect of unutilised losses (7%) 18 – – Foreign exchange impacts on taxable profits (13%) 35 – 1 Actual tax charge (19%) 51 27% 213 The Group's primary operations are based in South Africa. Therefore, the relevant standard tax rate for the Group is the South African statutory tax rate of 28% (2008 – 28%). The secondary tax rate on dividends remitted by South African companies is 10% (2008 – 10%). Footnotes: i The Group holds a number of available for sale financial assets which are marked to market. In the current and prior year most of the investments decreased in value resulting in the unwind of the associated deferred tax balances which had accumulated on the previous increases in fair value of the investments. Losses below initial carrying value have not created deferred tax assets because future profits arising in relevant statutory entities are not considered sufficiently certain. In the prior year one of the investments increased in value resulting in a deferred tax balance arising on setting off unutilised tax losses against the gain. In the current year this investment decreased in value resulting in part of the previously recognised deferred tax balance reversing and the reversal of related utilised losses. ii Overseas tax charges are predominantly calculated based on Rand financial statements. As the Group's functional currency is US Dollar this leads to a variety of foreign exchange impacts being the retranslation of current and deferred tax balances and monetary assets, as well as other translation differences. The Rand denominated deferred tax balance in US Dollars at 30 September 2009 is $412 million (30 September 2008 – $373 million). iii The corporation tax rate for the year was 28% (2008 – 28%). The corporation tax rate changed to 28% in the prior financial year which resulted in a net release of deferred tax liabilities of $19 million. This tax saving was reported as special. 108 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 8 (Loss) / earnings per share Directors' Report – Business Review (Loss) / earnings per share have been calculated on the loss attributable to equity shareholders amounting to $285 million (2008 – profit $455 million) using a weighted average number of 174,116,102 ordinary shares in issue (2008 – 163,803,041 ordinary shares). During the year the Group undertook a capital raising by way of a Rights Issue. As a result the (LPS) / EPS figures have been adjusted retrospectively as required by IAS 33 – Earnings Per Share. On 4 June 2009, 35,072,129 ordinary shares were issued with two new ordinary shares issued for every existing nine ordinary shares held. For the calculation of the (LPS) / EPS, the number of shares held prior to 4 June 2009 have been increased by a bonus factor of 1.048 to reflect the bonus element of the Rights Issue. Diluted (loss) / earnings per share is based on the weighted average number of ordinary shares in issue adjusted by dilutive outstanding share options in accordance with IAS 33 – Earnings Per Share. In the 12 months to 30 September 2009 outstanding share options were anti-dilutive and so have been excluded from diluted loss per share in accordance with IAS 33 – Earnings Per Share. Directors' Report – Governance 2009 2008 (restated) Loss for Per share Profit for Per share the year Number of amount the year Number of amount $m shares cents $m shares cents Basic (LPS) / EPS (285) 174,116,102 (163.7) 455 163,803,041 277.8 Share option schemes – – – – 520,181 (0.9) Diluted (LPS) / EPS (285) 174,116,102 (163.7) 455 164,323,222 276.9 2009 2008 (restated) Loss for Per share Profit for Per share the year Number of amount the year Number of amount $m shares cents $m shares cents Financial Statements Underlying (LPS) / EPS (103) 174,116,102 (59.2) 550 163,803,041 335.8 Share option schemes – – – – 520,181 (1.1) Diluted Underlying (LPS) / EPS (103) 174,116,102 (59.2) 550 164,323,222 334.7 Underlying (loss) / earnings per share has been presented as the Directors consider it important to present the underlying results of the business. Underlying (loss) / earnings per share is based on the (loss) / earnings attributable to equity shareholders adjusted to exclude special items (as defined in note 3) as follows: 2009 2008 (restated) (Loss) / profit Per share Profit for Per share for the year Number of amount the year Number of amount Operating Statistics $m shares cents $m shares cents Basic (LPS) / EPS (285) 174,116,102 (163.7) 455 163,803,041 277.8 Special items (note 3) 182 – 104.5 95 – 58.0 Underlying (LPS) / EPS (103) 174,116,102 (59.2) 550 163,803,041 335.8 Headline (loss) / earnings and the resultant headline (loss) / earnings per share are specific disclosures defined and required by the Johannesburg Stock Exchange. These are calculated as follows: Year ended Year ended 30 September 30 September 2009 2008 Shareholder Information $m $m (Loss) / earnings attributable to ordinary shareholders (IAS 33 earnings) (285) 455 Less profit on sale of subsidiary (note 3) – (2) Add back loss on disposal of property, plant and equipment 4 – Add back impairment of assets (note 3) 39 193 Tax related to the above items – 1 Headline (loss) / earnings (242) 647 www.lonmin.com 109 Notes to the Accounts 8 (Loss) / earnings per share (continued) 2009 2008 (restated) Loss for Per share Profit for Per share the year Number of amount the year Number of amount $m shares cents $m shares cents Headline (LPS) / EPS (242) 174,116,102 (139.0) 647 163,803,041 395.0 Share option schemes – – – – 520,181 (1.3) Diluted Headline (LPS) / EPS (242) 174,116,102 (139.0) 647 164,323,222 393.7 9 Dividends 2009 2008 (restated)i $m Cents per share $m Cents per share Prior year final dividend paid in the year – – 94 57.3 Interim dividend paid in the year – – 92 56.3 Total dividend paid in the year – – 186 113.6 Interim dividend paid in the year – – 92 56.3 Proposed final dividend for the year – – – – Total dividend in respect of the year – – 92 56.3 Footnotes: i During the year the Group undertook a Rights Issue. As a result, the dividend per share figures have been adjusted retrospectively by applying a factor of 1.048 in order to adjust for the bonus element of the Rights Issue. 10 Goodwill 2009 2008 $m $m Cost: At 1 October 186 186 As at 30 September 186 186 Impairment: At 1 October 73 – Charge in the year – 73 At 30 September 73 73 Net book value at 30 September 113 113 There are two cash generating units (CGUs) in the Group relevant for the purposes of evaluating goodwill. The Marikana CGU operates as a single business and mines and processes substantially all of the ore produced by the Group. The Akanani CGU is located in a separate geographic area and includes the Akanani asset acquired on the purchase of AfriOre Limited. The recoverable amounts of the CGUs have been determined using the higher of value in use and fair value less costs to sell. In determining the recoverable amounts for the Marikana and Akanani CGUs the key assumptions have been set out in the Group's impairment policy (see note 1). At 30 September 2009 and 30 September 2008 goodwill is allocated as follows: – $40 million is allocated to the Marikana CGU. This arose on the acquisition of a further 9.11% of the principal mining operations of the Group in 2004. – $73 million 'tax goodwill' is allocated to the Akanani CGU. In 2008 a review was carried out on the carrying value of the $73 million of smelting synergies allocated to the Marikana CGU that arose on the acquisition of Messina Platinum Mines Limited in 2005. This goodwill was fully impaired in 2008 as explained in note 3. 110 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 11 Intangible assets Directors' Report – Business Review 2009 2008 Exploration Exploration and Mineral and Mineral evaluation rights Other Total evaluation rights Other Total $m $m $m $m $m $m $m $m Cost: At 1 October 666 337 47 1,050 630 337 47 1,014 Additions 29 – – 29 36 – – 36 At 30 September 695 337 47 1,079 666 337 47 1,050 Amortisation: At 1 October – 73 28 101 – 64 14 78 Directors' Report – Governance Charge for the year – 7 7 14 – 9 7 16 Impairment – – – – – – 7 7 At 30 September – 80 35 115 – 73 28 101 Net book value: At 30 September 695 257 12 964 666 264 19 949 The net book value of other intangible assets at 30 September 2009 represented capitalised software development costs $12 million (2008 – $19 million). In the prior year, the Messina off-take contract was impaired ($7 million) following the impairment of the Baobab shaft at Limpopo (as explained in note 3). Additions to exploration and evaluation assets include $16 million of capitalised interest (2008 – $12 million). The Group has exploration and evaluation assets of $695 million (2008 – $666 million) relating to the exploration Financial Statements operations at Akanani. $611 million arose at acquisition in February 2007. The Group has no indefinite life intangible assets other than goodwill (see note 10). The Group's approach to assessing the intangible assets, including exploration and evaluation assets, for impairment is set out in the accounting policies (see note 1). Operating Statistics Shareholder Information www.lonmin.com 111 Notes to the Accounts 12 Property, plant and equipment Capital work Leasehold Shafts and Other plant in progress short term underground Metallurgical Infrastructure and equipment Total $m $m $m $m $m $m $m Cost or deemed cost: At 1 October 2008 382 1 1,184 536 371 93 2,567 Additions 187 – 15 16 11 – 229 Transfers (295) – 229 35 24 7 – Other – – (4) (4) – (1) (9) At 30 September 2009 274 1 1,424 583 406 99 2,787 Depreciation: At 1 October 2008 – – 350 154 154 16 674 Charge for the year – – 36 21 21 2 80 Other – – (3) – – – (3) At 30 September 2009 – – 383 175 175 18 751 Net book value: At 30 September 2009 274 1 1,041 408 231 81 2,036 At 30 September 2008 382 1 834 382 217 77 1,893 Capital work Leasehold Shafts and Other plant in progress short term underground Metallurgical Infrastructure and equipment Total $m $m $m $m $m $m $m Cost or deemed cost: At 1 October 2007 310 1 975 503 312 77 2,178 Additions 226 – 105 7 35 16 389 Transfers (154) – 104 26 24 – – At 30 September 2008 382 1 1,184 536 371 93 2,567 Depreciation: At 1 October 2007 – – 243 134 113 15 505 Charge for the year – – 36 20 23 1 80 Impairment charge – – 71 – 18 – 89 At 30 September 2008 – – 350 154 154 16 674 Net book value: At 30 September 2008 382 1 834 382 217 77 1,893 At 30 September 2007 310 1 732 369 199 62 1,673 Interest capitalised during 2009 amounted to $7 million (2008 – $11 million). In accordance with the Group accounting policies no depreciation has been provided on surface mining land having a book value of $13 million (2008 – $13 million). As explained in note 3, in the prior year impairment reviews of the Baobab shaft at Limpopo operations resulted in impairment charges to property, plant and equipment of $89 million. The remaining assets that relate to the Baobab shaft at Limpopo which have a carrying value of $35 million were not impaired because they can be used in the business. 112 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 13 Associate and Joint Venture Directors' Report – Business Review The Group owns 23.56% of its associate, Incwala Resources (Pty) Limited which is incorporated in South Africa. The functional currency of Incwala Resources (Pty) Limited is the South African Rand. As a result any foreign exchange translation gains or losses on the net assets of the company are recognised in the consolidated statement of recognised income and expense. The Group also owns 42.5% of the Pandora joint venture whose operations are in South Africa. The Group equity accounts for the joint venture as a jointly controlled entity. The functional currency of the Pandora joint venture is the South African Rand. As a result any foreign exchange translation gains or losses on the net assets of the entity are recognised in the consolidated statement of recognised income and expense. 2009 2008 Group Group share of share of net assets Goodwill Total net assets Goodwill Total Directors' Report – Governance $m $m $m $m $m $m Net book value at 1 October 157 6 163 125 6 131 Share of profit / (loss) 1 – 1 27 – 27 Distribution of profits (16) – (16) – – – Capital contributions 5 – 5 – – – Foreign exchange 6 – 6 5 – 5 Net book value at 30 September 153 6 159 157 6 163 Our share of the associate and joint venture net assets comprises the following: 2009 2008 Associate Joint venture Total Associate Joint venture Total Financial Statements $m $m $m $m $m $m Non-current assets 142 18 160 137 11 148 Current assets 4 36 40 6 44 50 Current liabilities (5) (9) (14) (1) (12) (13) Non-current liabilities (27) (6) (33) (25) (3) (28) Net assets 114 39 153 117 40 157 Amounts recognised by the Group in respect of the associate and joint venture comprised: 2009 2008 Operating Statistics Associate Joint venture Total Associate Joint venture Total $m $m $m $m $m $m Share of net assets 114 39 153 117 40 157 Goodwill 6 – 6 6 – 6 120 39 159 123 40 163 Our share of the associate and joint venture profit / (loss) comprises the following: 2009 2008 Associate Joint venture Total Associate Joint venture Total Shareholder Information $m $m $m $m $m $m Revenue / income 4 21 25 15 42 57 Expenses including taxation (2) (22) (24) (6) (24) (30) Profit / (loss) 2 (1) 1 9 18 27 www.lonmin.com 113 Notes to the Accounts 14 Non-current financial assets Available Other for sale receivables Total $m $m $m At 1 October 2008 96 19 115 Movement in fair value 9 3 12 Impairment loss (39) – (39) Exchange differences 2 3 5 At 30 September 2009 68 25 93 Available Other for sale receivables Total $m $m $m At 1 October 2007 226 22 248 Additions 17 – 17 Disposals (1) – (1) Movement in fair value (127) 1 (126) Impairment loss (19) – (19) Exchange differences – (4) (4) At 30 September 2008 96 19 115 Available for sale financial assets are held at fair value using the market price where available. Where market price is not available the Directors' best estimates of market value are used. Other receivables at 30 September 2009 represents loans advanced to fellow investors in Incwala Resources (Pty) Limited. These loans expire in less than two years. 2009 2008 $m $m Listed investments 55 85 Listed investments include a 5% shareholding in Platmin Limited (2008 – 21%) which was listed on the Alternative Investment Market on 10 August 2006. 15 Employee benefits The Group operates defined contribution schemes in the UK and South Africa. The UK defined benefit scheme, the Lonmin Superannuation Scheme (LSS) was settled in the prior year (see note 3). There were no accrued obligations under defined contribution plans at 30 September 2009 and 2008. The total pension cost for the Group was $33 million (2008 – $36 million), $32 million of which related to overseas schemes (2008 – $34 million). Liabilities in respect of cash settled share option schemes The Group runs a number of employee benefit share scheme plans. The balances held on the balance sheet as employee benefits at the year end were as follows: 2009 2008 $m $m Liabilities in respect of cash settled share schemes (10) (13) Social security on share options (1) (8) (11) (21) 114 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 16 Inventories Directors' Report – Business Review 2009 2008 $m $m Raw materials and consumables 36 36 Work in progress 230 276 Finished goods 5 7 271 319 The cost of inventories recognised as an expense and included in cost of sales amounted to $994 million (2008 – $1,041 million). 17 Trade and other receivables 2009 2008 Directors' Report – Governance $m $m Amounts falling due within one year: Trade receivables 173 249 Other receivables 99 74 Prepayments and accrued incomei 15 3 287 326 Footnote: i Prepayments include $12m of unamortised bank fees relating to undrawn facilities (2008 – $nil). 18 Assets held for sale 2009 2008 Financial Statements $m $m At 1 October 6 7 Disposals – (1) At 30 September 6 6 Assets held for sale represent houses the Group is selling to employees, within twelve months of the balance sheet date, to encourage home ownership. These assets are held in the Platinum business segment and the South African geographical region. 19 Trade and other payables 2009 2008 Operating Statistics $m $m Trade payables 170 149 Accruals 42 98 Indirect taxation and social security 3 4 Other payables 122 95 337 346 20 Interest bearing loans and borrowings 2009 2008 Shareholder Information $m $m Short-term loans: Bank loans – unsecured 58 – Long-term loans: Bank loans – unsecured 349 529 407 529 The maturity profile of interest bearing loans and borrowings is disclosed in note 22c. www.lonmin.com 115 Notes to the Accounts 21 Derivative financial instruments 2009 2008 Cash flow hedges $m $m Derivative financial instruments (asset) 1 20 The Group does not undertake trading activity in financial instruments. Forward sales may be undertaken where the Board determines that it is in the Group's interests to hedge a proportion of future cash flows as they mitigate exposure to future price fluctuations. For both 2009 and 2008 such forward sales contracts have only been made to hedge the prices of nickel and copper by-products and such contracts are typically settled within one year. 22 Financial risk management For the narrative policies regarding financial risk management refer to the Financial Review on pages 18 to 25. 22a Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: 2009 2008 $m $m Non-current assets: Other receivables 25 19 Current assets: Trade receivables 173 249 Other receivables 99 74 Derivative financial instruments 1 20 Cash and cash equivalents 282 226 580 588 The maximum exposure to credit risk for trade receivables at the reporting date by geographic location was: 2009 2008 $m $m The Americas 2 123 Asia 5 58 Europe 157 28 South Africa 9 40 173 249 116 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 22 Financial risk management (continued) Directors' Report – Business Review 22b Credit risk – Trade receivables The ageing of trade receivables at the reporting date was as follows. No provision has been made for trade receivables that are past their due date. 2009 2008 Gross Provision Net Gross Provision Net $m $m $m $m $m $m Not past due 173 – 173 246 – 246 Past due 0-30 days – – – – – – Past due 31-60 days – – – – – – Past due 61-90 days – – – 13 10 3 173 – 173 259 10 249 Directors' Report – Governance The movement in the provision in respect of trade receivables during the year was as follows: 2009 2008 $m $m Opening balance at 1 October 10 – New provision recognised – 10 Provision utilised (5) – Reversal of previous provision (5) – Closing balance at 30 September – 10 Financial Statements 22c Liquidity risk – Maturity of financial liabilities The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements: Carrying Contractual <1 1 to 2 2 to 5 >5 amount cash flows year years years years 30 September 2009 $m $m $m $m $m $m Non-derivative financial liabilities Unsecured bank loans 407 (443) (78) (260) (105) – Trade and other payables 337 (337) (337) – – – Carrying Contractual <1 1 to 2 2 to 5 >5 Operating Statistics amount cash flows year years years years 30 September 2008 $m $m $m $m $m $m Non-derivative financial liabilities Unsecured bank loans 529 (577) (17) (286) (274) – Trade and other payables 346 (346) (346) – – – Shareholder Information www.lonmin.com 117 Notes to the Accounts 22 Financial risk management (continued) 22d Currency exposures Lonmin's operations are based predominantly in South Africa with the majority of income stream arising in US Dollars. Cash held in South Africa is mostly in US Dollars and is normally remitted on a regular basis to the UK. When short-term working capital facilities are required in South Africa these are in US Dollars or South African Rand as appropriate. The table below shows the extent to which Group companies have monetary assets and liabilities in currencies other than the functional currency. Foreign exchange differences on retranslation of such assets and liabilities are taken to the income statement. 2009 2008 SA rand Sterling Other Total SA rand Sterling Other Total $m $m $m $m $m $m $m $m Non-current assets: Available for sale financial assets 12 – 56 68 11 – 85 96 Other receivables 25 – – 25 19 – – 19 Current assets: Trade and other receivables 104 – – 104 40 2 – 42 Cash and cash equivalents 62 33 – 95 34 – – 34 Tax recoverable 1 – – 1 5 – – 5 Current liabilities: Trade and other payables (283) (14) – (297) (262) (19) – (281) Tax payable (10) – – (10) (55) – – (55) (89) 19 56 (14) (208) (17) 85 (140) 22e Interest rate risk Based on contracted maturities the following amounts are exposed to interest rate risk over future years as shown below: Weighted average interest rate in 2009 2010 2011 2012 2013 % $m $m $m $m Liabilities Non-current Loansi 5.6 349 195 105 – Non-interest bearing At floating interest rates 2008 2009 (restatedii) 2009 2008 $m $m $m $m Financial assets US Dollar 168 299 187 192 SA Rand 142 75 62 34 Sterling – 2 33 – Other 56 85 – – 366 461 282 226 Non-interest bearing At floating interest rates 2008 2009 (restatedii) 2009 2008 $m $m $m $m Financial liabilities US Dollar 30 10 300 529 SA Rand 293 317 107 – Sterling 14 19 – – 337 346 407 529 Footnotes: i Figures are based on facilities outstanding at the balance sheet date. ii Prior year figures have been restated to include tax recoverable within financial assets and to correct the allocation of financial assets and financial liabilities between currencies. 118 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 22 Financial risk management (continued) Directors' Report – Business Review 22f Fair values The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows: 2009 2008 Carrying Fair Carrying Fair amount value amount value $m $m $m $m Available for sale financial assets 68 68 96 96 Other non-current receivables 25 25 19 19 Trade and other receivables 272 272 326 326 Cash and cash equivalents 282 282 226 226 Derivative financial instruments 1 1 20 20 Directors' Report – Governance Financial assets 648 648 687 687 Trade and other payables (337) (337) (346) (346) Unsecured bank loans (407) (407) (529) (529) Financial liabilities (744) (744) (875) (875) Net financial liabilities (96) (96) (188) (188) Available for sale financial assets and derivative financial instruments are marked to market. Other non-current receivables are carried at fair value as described in note 14. For bank overdraft and cash and cash equivalents the carrying value is equal to fair value. Financial Statements For trade and other receivables and trade and other payables these are typically due within one month and therefore the carrying amount is fair value. For unsecured bank loans there is considered to be no material difference between the carrying amount and fair value. 23 Deferred tax assets / (liabilities) Deferred Deferred Net Deferred Deferred Net tax assets tax liabilities balance tax assets tax liabilities balance 2009 2009 2009 2008 2008 2008 $m $m $m $m $m $m Exploration and evaluation assets – (167) (167) – (167) (167) Property, plant and equipment – (474) (474) – (393) (393) Provisions 31 – 31 31 – 31 Operating Statistics Deferred tax on unrealised gains on available for sale financial assets – – – – – – Deferred tax on dividends payable – – – – (12) (12) Deferred tax on derivatives – – – – (5) (5) Trading losses 25 – 25 – – – Share-based payments 6 – 6 6 – 6 62 (641) (579) 37 (577) (540) Shareholder Information www.lonmin.com 119 Notes to the Accounts 23 Deferred tax assets / (liabilities) (continued) Movement in temporary differences during the year Recognised in income At 1 At 30 October Exchange Special Recognised September 2008 movements items Underlying in equity 2009 $m $m $m $m $m $m Exploration and evaluation assets (167) – – – – (167) Property, plant and equipment (393) (47) – (34) – (474) Provisions 31 4 – (4) – 31 Deferred tax on unrealised gains on available for sale financial assets – – (1) – 1 – Deferred tax on dividends payable (12) – – 12 – – Cash flow hedges (5) – – – 5 – Trading losses – – 6 19 – 25 Share-based payments 6 – – – – 6 (540) (43) 5 (7) 6 (579) Recognised in income At 1 At 30 October Exchange Special Recognised September 2007 movements items Underlying in equity 2008 $m $m $m $m $m $m Exploration and evaluation assets (173) – 6 – – (167) Property, plant and equipment (414) 71 14 (64) – (393) Provisions 19 (2) (1) 15 – 31 Deferred tax on unrealised gains on available for sale financial assets (21) – 2 – 19 – Deferred tax on dividends payable – – – (12) – (12) Cash flow hedges (2) – – – (3) (5) Share-based payments 6 – – – – 6 (585) 69 21 (61) 16 (540) Unrecognised deferred tax assets / (liabilities) Deferred tax assets / (liabilities) have not been recognised in respect of the following items: 2009 2008 Unrecognised Unrecognised deferred tax deferred tax Temporary assets / Temporary assets / differences (liabilities) differences (liabilities) $m $m $m $m Capital losses carried forward 675 189 779 215 Trading and other losses carried forward 175 49 146 41 Unredeemed capital expenditure 196 55 211 59 Share-based payments 4 1 21 6 Unremitted profits of overseas subsidiaries (1,314) (131) (1,418) (142) (264) 163 (261) 179 The temporary differences above, except for the unremitted profits from overseas subsidiaries, are subject to the local tax rate in the United Kingdom at 28% (2008 – 28%), South Africa at 28% (2008 – 28%) and Canada at 18% (2008 – 18%). The unrecognised deferred tax assets generated by the timing difference relating to unremitted profits of overseas subsidiaries has been calculated using the South African secondary tax rate of 10% (2008 – 10%). At 30 September 2009, the Group had an amount of $113 million (2008 – $126 million) of surplus Advanced Corporation Tax (ACT) available, subject to certain restrictions, for set-off against future United Kingdom corporation tax liabilities. 'Shadow ACT' amounted to $256 million (2008 – $286 million) and must be set-off prior to the utilisation of surplus ACT. No deferred tax assets have been recognised in respect of the operating losses and the capital losses as management believe the chances of recovery are low. Deferred tax is provided on unremitted foreign profits when it is probable that the temporary difference will reverse in the foreseeable future. Generally retained profits arising in South Africa that have arisen in prior years are retained there in order to fund capital expenditure requirements. 120 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 24 Provisions Directors' Report – Business Review 2009 2008 $m $m At 1 October 50 46 Charge for the year 6 8 Unwinding of discount (note 6) 5 4 Exchange differences 6 (8) At 30 September 67 50 Provisions represent site rehabilitation liabilities with the cash flows occurring at the end of the life of the mine. 25 Contingent liabilities Directors' Report – Governance 2009 2008 $m $m Third party guaranteesi 5 7 Indemnitiesii 83 74 Preference share capital put optionsiii 23 18 Vantage Capital Investmentsiv 20 18 Outstanding legal claims – 2 Contingent liabilities 131 119 Footnotes: i Third party guarantees relate to guarantees provided by the Group in connection with the sale of certain subsidiaries in 1996, 1997 and 1998 for which amounts have been reasonably estimated but the liabilities are not probable and therefore the Group has not provided for such amounts in the accounts. Financial Statements ii Indemnities represent the vendor financing indemnity given by Lonmin following the purchase of the additional 9.11% in Eastern Platinum Limited (EPL) and Western Platinum Limited (WPL) and the investment in Incwala Resources (Pty) Limited (Incwala). Lonmin agreed to indemnify Impala Platinum Holdings Limited (Impala) against any non-payment on the relevant due date of any principal amount owing to Impala by any HDSA (historically disadvantaged South African) investor in relation to loans made by Impala to HDSA investors for their purchase of shares in EPL and WPL. The total value of the indemnity granted was the US Dollar equivalent of R618 million ($83 million of which $39 million became due after 30 September 2009, $20 million becomes due after 16 December 2009, $16 million becomes due after 30 September 2011 and $8 million becomes due after 16 December 2011). A counter-indemnity has been given by each HDSA investor which is secured on that HDSA investor's shares in Incwala. For events after the balance sheet date see note 35. iii Various preference share capital put option agreements were entered into by Lonmin with a number of banks who subscribed for preference shares in HDSAs investing in Incwala. These options, which amount to the US Dollar equivalent of R173 million ($23 million), can be put upon Lonmin by the banks in the event that the HDSAs default on payment. A counter-indemnity has been given by each HDSA investor which is secured on that HDSA investor's shares in Incwala. iv Vantage Capital Investments: 1) In 2006, pursuant to a reorganisation of the HDSA shareholdings in Incwala, Lonmin Plc granted Standard Chartered Bank Johannesburg Operating Statistics Branch a put option in respect of 96 preference shares in Vantage Capital Investments (Pty) Ltd. During the year ended 30 September 2007 the bank sold 48 of these put options to Thelo Incwala Investments (Pty) Limited (Thelo). The value of the put option granted by Lonmin Plc outstanding at 30 September 2009 was the US Dollar equivalent of R114 million ($15 million), (2008 – $13 million). 2) The Lonmin Employee Masakane Trust (LEMT) has a 25% shareholding in Thelo. Lonmin Plc has provided a guarantee to Sanlam Capital Markets Limited, on behalf of LEMT, over their 25% share of the Thelo funding to acquire 48 preference shares in Vantage Capital. The value of this guarantee at 30 September 2009 was the US Dollar equivalent of R35 million ($5 million), (2008 – $5 million). Shareholder Information www.lonmin.com 121 Notes to the Accounts 26 Called up share capital and share premium account Number $m Ordinary shares of $1 each: Authorised – 2009 and 2008 252,735,000 253 Issued and fully paid – 2009 193,054,260 193 Issued and fully paid – 2008 156,383,233 156 Deferred shares of £1 each: Authorised, issued and fully paid – 2009 and 2008 50,000 – Issued and Paid up Share fully paid amount premium Number $m $m At 1 October 2008: Ordinary shares of $1 each 156,383,233 156 305 The issue of shares: (i) to satisfy the exercise of share options and awards 341,253 1 – (ii) to the Employee Benefit Trust 85,062 – – (iii) to satisfy the exercise of the International Finance Corporation option agreement 1,172,583 1 15 (iv) pursuant to the 2 for 9 Rights Issue (note 29) 35,072,129 35 456 At 30 September 2009: Ordinary shares of $1 each 193,054,260 193 776 The rights and obligations attaching to the Company's shares can be found on page 63 of the Directors' Report – Governance. 122 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 27 Share plans Directors' Report – Business Review At 30 September 2009, the following options and awards were outstanding: Weighted average Weighted Weighted exercise average average price of remaining fair value Number outstanding contracted of options of shares options (pence) life (years) granted (£) Share Plans Executive Share Option Scheme Outstanding at 30.09.08 249,736 1,064.51 – – Granted during the year – – – – Rights Issue adjustment 10,690 – – – Directors' Report – Governance Exercised during the year 34,337 999.52 – – Lapsed during the year 26,045 1,040.71 – – Outstanding at 30.09.09 200,044 1,022.21 3.23 2.07 Exercisable at the end of the year 200,044 – – – Lonmin Share Option Scheme Outstanding at 30.09.08 12,834 1,150.00 – – Granted during the year – – – – Rights Issue adjustment 611 – – – Exercised during the year 2,724 1,098.00 – – Lapsed during the year – – – – Outstanding at 30.09.09 10,721 1,098.00 2.75 2.07 Exercisable at the end of the year 10,721 – – – Financial Statements Savings Related Share Option Scheme Outstanding at 30.09.08 19,696 827.30 – – Granted during the year – – – – Rights Issue adjustment 846 – – – Exercised during the year 1,704 723.32 – – Lapsed during the year 924 1,303.66 – – Outstanding at 30.09.09 17,914 773.39 0.36 3.18 Exercisable at the end of the year – – – – Long Term Incentive Plan Outstanding at 30.09.08 499,972 – – – Granted during the year 511,668 – – – Operating Statistics Rights Issue adjustment 10,703 – – – Exercised during the year 178,912 – – – Lapsed during the year 199,346 – – – Outstanding at 30.09.09 644,085 – 2.59 19.32 Exercisable at the end of the year – – – – Deferred Annual Bonus Plan Outstanding at 30.09.08 73,193 – – – Granted during the year 67,747 – – – Rights Issue adjustment 4,192 – – – Exercised during the year 28,937 – – – Lapsed during the year 28,267 – – – Shareholder Information Outstanding at 30.09.09 87,928 – 1.92 12.33 Exercisable at the end of the year – – – – Co Investment Plan (Matched Award) Outstanding at 30.09.08 126,360 – – – Granted during the year – – – – Rights Issue adjustment – – – – Rolled over during the year – – – – Vested during the year 62,946 – – – Lapsed during the year 63,414 – – – Outstanding at 30.09.09 – – – – Exercisable at the end of the year – – – – www.lonmin.com 123 Notes to the Accounts 27 Share plans (continued) Weighted average Weighted Weighted exercise average average price of remaining fair value Number outstanding contracted of options of shares options (pence) life (years) granted (£) Stay & Prosper Plan* Outstanding at 30.09.08 1,241,814 – – – Granted during the year 663,562 – – – Rights Issue adjustment 48,038 – – – Exercised during the year 92,251 – – – Lapsed during the year 294,589 – – – Outstanding at 30.09.09 1,566,574 – 2.11 16.74 Exercisable at the end of the year – – – – Cash Settled Plans Scarce Skills Retention Plan Outstanding at 30.09.08 82,000 – – – Granted during the year – – – – Rights Issue adjustment 2,825 – – – Exercised during the year 61,278 – – – Lapsed during the year 23,547 – – – Outstanding at 30.09.09 – – – – Exercisable at the end of the year – – – – * Awards granted pursuant to the Stay & Prosper Plan may be share settled or cash settled. Further information about each of the above plans including the performance conditions can be found in the Remuneration Committee Report in pages 72 to 89. Lonmin Employee Benefit Trust (the "Trust") At 30 September 2009 the Trust held 53,636 shares (beneficially and as bare trustee) (2008 – 103,661 shares). The market value of these shares at the year end was £897,867. Where not waived, dividends payable on these shares are held by the Trust on behalf of the participants. Each of the executive Directors are deemed to have a beneficial interest, to the extent disclosed in the table of Directors' share interests, and a non-beneficial interest in the balance. Details of options granted in period The fair value of both equity-settled and cash-settled options granted in the period have been measured using the weighted average inputs below and the following valuation models: LTIP Monte Carlo DABP Monte Carlo Stay and Prosper Monte Carlo 2009 2008 Range of share price at date of grant (£) 6.79 – 17.32 23.92 – 34.08 Exercise price (£) – – Expected option life (years) 3 3 Volatility 60 – 73% 23 – 65% Dividend yield 4.4% 2.7% Risk free interest rate 1.1 – 2.4% 2.9 – 3.0% Volatility was calculated with reference to the Group's historic share price volatility up to the grant date. The number of years of historic data used is equal to the term of each option. The liability in respect of the cash-settled elements of the schemes shown above and reported within non-current employee benefits at 30 September 2009 is $10 million (2008 – $13 million). 124 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 28 Total equity Directors' Report – Business Review Equity shareholders' funds Called Share up share premium Other Retained Minority Total capital account reservesiv earnings Total interestsv equity $m $m $m $m $m $m $m At 1 October 2008 156 305 100 1,586 2,147 447 2,594 Total recognised income and expense – – (11) (269) (280) (41) (321) Dividends – – – – – (21) (21) Share-based payments – – – 2 2 – 2 Share capital and share premium recognised Directors' Report – Governance on Rights Issueii 35 477 – – 512 – 512 Rights Issue costs charged to share premiumii – (21) – – (21) – (21) Exchange gain on shares to be issuedii – – – 4 4 – 4 Reversal of fair value movements of derivative liability recognised in respect of Rights Issueii – – – 36 36 – 36 Shares issued under the IFC option agreementiii 1 15 – – 16 – 16 Shares issued on exercise of share optionsi 1 – – – 1 – 1 At 30 September 2009 193 776 89 1,359 2,417 385 2,802 Financial Statements At 1 October 2007 156 299 96 1,417 1,968 392 2,360 Total recognised income and expense – – 4 348 352 120 472 Dividends – – – (186) (186) (65) (251) Share-based payments – – – 7 7 – 7 Shares issued on exercise of share optionsi – 6 – – 6 – 6 At 30 September 2008 156 305 100 1,586 2,147 447 2,594 Operating Statistics Footnotes: i During the year 426,315 share options were exercised (2008 – 231,338) on which $1 million of cash was received (2008 – $6 million). ii During the year the Group undertook a Rights Issue in which 35,072,129 shares were issued as disclosed in note 29. iii During the year 1,172,583 shares were issued under the International Finance Corporation agreement. As the shares were issued at a discount to market value only $15 million of cash was received. iv Other reserves represent the capital redemption reserve of $88 million (2008 – $88 million) and a $1 million hedging reserve net of deferred tax (2008 – $12 million). v Minority interests represent an 18% shareholding in Eastern Platinum Limited, Western Platinum Limited and Messina Limited and a 26% shareholding in Akanani Mining (Pty) Limited. Shareholder Information www.lonmin.com 125 Notes to the Accounts 29 Rights Issue (i) Overview of the Rights Issue offer. On 11 May 2009, Lonmin announced a fully under-written 2 for 9 Rights Issue of 35.1 million new ordinary shares at £9.00 per new share for shareholders on the London Stock Exchange and at R113.04 per new share for shareholders on the Johannesburg Stock Exchange. The offer period commenced on 15 May 2009 and closed for acceptance on 4 June 2009. In the prospectus Lonmin anticipated raising $477 million proceeds in total which, net of expenses of $20 million, would raise funds of $457 million. The issue was successful with a take-up of more than 96% of the shares on offer. The Company actually raised net proceeds of $458 million which was in line with the expectations given in the prospectus, with 97% of the funds raised in the UK. (ii) Accounting for the Rights Issue. The Rights Issue proceeds were received over the offer period and were credited to a shares to be issued account at the prevailing spot exchange rates at the date of receipt resulting in the recognition of a cash inflow of $516 million before the impact of the hedging arrangements. The retranslation of these advance receipts at the spot rate on closing resulted in a $4 million exchange loss recognised through finance costs as a special charge. There was a corresponding gain recognised directly in equity of $4 million for exchange movements on the shares to be issued. Share capital and share premium of $512 million was recognised on the balance sheet utilising the prevailing spot exchange rates on the issuance date of 4 June 2009, except for the Xstrata proceeds which were received in Dollars on 2 June 2009 (as explained further below). $21 million of issue costs were also recognised and charged against share premium and resulted in a cash outflow in the year to give a net increase in share capital and share premium of $491 million. In order to minimise the risk of the exposure to currency fluctuations on the net Sterling funds expected the Group undertook two hedging arrangements in synchronisation with the Rights Issue process. The net expected proceeds were hedged because the bulk of the issue costs were in Sterling. – Net Sterling amounts expected, with the exception of monies due from Xstrata plc in its capacity as a Lonmin Plc shareholder, were covered by forward exchange contracts executed over the week prior to the announcement and due for settlement on 4 June 2009. – In respect of the Sterling monies due from Xstrata it was agreed that settlement would be made directly in US Dollars and the amount was set using forward market rates on the date of announcement and for settlement on 2 June 2009. As the Dollar weakened considerably over the offer period the Sterling proceeds received translated into $516 million were higher than due under the forward exchange contracts. This therefore resulted in the recognition of foreign exchange losses under the forward hedging arrangements of $33 million. This $33 million fair value loss cannot be offset against equity (which it was effectively hedging for economic purposes) as, under IFRS, hedge accounting can only be applied to cash flows which ultimately affect profit and loss. The $33 million loss on the forward hedges has therefore been shown as a special charge in finance costs in the income statement (see note 3) and therefore reduces retained earnings and distributable reserves. The offset is effectively in the recognition of a higher credit to the share premium account. As noted above the actual net proceeds were in line with the expectations on the announcement of the Rights Issue. A summary of the above transactions is as shown below: $m Cash proceeds received at spot rates 516 Foreign exchange loss on retranslation of advance cash proceeds (note 3) (4) Gross increase in share capital and share premium (note 28) 512 Costs of issue charged to share premium (note 28) (21) Net increase in share capital and share premium 491 Loss on settlement of forward exchange contracts (note 3) (33) Net proceeds 458 126 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 29 Rights Issue (continued) Directors' Report – Business Review (iii) IAS 32 – Financial Instruments: Presentation as adopted by the EU. Under IAS 32 – Financial Instruments: Presentation as adopted by the EU, a rights issue can only be classified as an equity instrument if the contract is settled by exchanging a fixed number of shares for a fixed amount of cash. As Lonmin is listed on both the LSE and the JSE it has raised equity from the Rights Issue in both Sterling and Rand. However, as the Company's functional currency is US Dollar, this has resulted in a variable amount of cash being raised for accounting purposes via the Rights Issue. Therefore, in applying IAS 32 Lonmin recognised a derivative liability of $307 million with a corresponding charge to retained earnings on announcement of the Rights Issue. The fair value of the derivative liability increased by $36 million to the point of exercise with $25 million of this being due to differences in exchange rates and $11 million due to changes in share price. This loss was charged to finance costs in the income statement as a special item (see notes 3 and 6). On the exercise of the rights the derivative liability was extinguished and the cumulative $343 million liability was reversed to retained earnings creating a net gain of $36 million in reserves (see note 28). There was, therefore, no overall impact on retained earnings at the end of financial year 2009 and no net impact on distributable reserves or equity. A summary of the impact is given in the table below. Directors' Report – Governance Retained Derivative Income earnings liability statement Debit / (credit) $m $m $m Initial recognition of liability for offer of rights 307 (307) – Movements in fair value of rights (note 3, 6) – (36) 36 Exercise of rights (343) 343 – Transfer to retained earnings 36 – (36) Effect of Rights Issue on retained earnings Nil The IASB has recognised that the above accounting treatment was not the intended outcome for equity issues which raise proceeds which are not in the functional currency. An amendment to IAS 32 was issued in October 2009. Financial Statements Under IAS 32 as amended, no derivative liability would be recognised in the balance sheet and no fair value movements on remeasurement would be recognised in the income statement. The amendment to IAS 32 has, however, not yet been adopted by the EU. Unendorsed standards cannot be applied by companies under the IAS Regulation if they conflict with extant endorsed standards and therefore IFRS as adopted by the EU has to be applied unless a fair presentation override under IAS 1 – Presentation of Financial Statements is considered appropriate. The Directors noted that there were divergent practices in the market in relation to this issue. The Directors decided that, on balance, whilst under a more principles based approach the Group would account for the transaction entirely as equity and would not recognise the $36 million loss, a fair presentation override could not be justified. Nevertheless, the Directors have provided additional disclosures below to ensure the users of the Accounts have full information about the transaction as recorded and the impact on the Group under the alternative equity treatment as summarised below. The amendment to IAS 32 is expected to be adopted by the EU before 1 February 2010. Therefore, in the 2010 financial statements the Group may restate the 2009 results in respect of the amendment with the effect being as follows: Operating Statistics 2009 2009 Income Income statement statement (as reported) (if restated) $m $m Net finance costs (92) (56) Loss before tax (272) (236) Loss after tax (323) (287) Earnings (285) (249) Loss per share (cents) (163.7) (143.0) Shareholder Information www.lonmin.com 127 Notes to the Accounts 30 Related party transactions The Group's related party transactions are summarised below: 2009 2008 $m $m Purchases from joint venture – Pandora 39 99 Amounts due from / (to) joint venture – Pandora 15 (5) Amounts due from associate – Incwala 2 – Royalties payable to Bapo tribei – 14 Amounts due to Bapo tribei – 11 Subscription paid to the Platinum Jewellery Development Associationii 12 12 Amounts due from Historically Disadvantaged South African investors in Incwala 25 19 All related party transactions are priced on an arm's length basis. Footnotes: i The Bapo ba Mogale tribe own the land on which the Eastern Platinum mine is based. ii The subscription paid by Lonmin is material to the Platinum Jewellery Development Association. 31 Capital commitments 2009 2008 $m $m Contracted for but not yet provided 47 73 32 Operating and finance leases The full aggregate lease payments of the Group under non-cancellable operating leases are set out below: Land and buildings 2009 2008 $m $m Operating leases which expire: Within one year 1 1 Between one and five years 1 2 2 3 128 2009 Annual Report and Accounts / Lonmin Plc Notes to the Accounts 33 Net debt as defined by the Group Directors' Report – Business Review Foreign As at exchange As at 1 October and non cash 30 September 2008 Cash flow movements 2009 $m $m $m $m Cash and cash equivalents 226 83 (27) 282 Current borrowings – (58) – (58) Non-current borrowings (529) 180 – (349) Unamortised bank fees – – 12 12 Net debt as defined by the Group (303) 205 (15) (113) Foreign Directors' Report – Governance As at exchange As at 1 October and non cash 30 September 2007 Cash flow movements 2008 $m $m $m $m Cash and cash equivalents 222 2 2 226 Overdrafts (1) 1 – – 221 3 2 226 Current borrowings (237) 237 – – Non-current borrowings (359) (170) – (529) Net debt as defined by the Group (375) 70 2 (303) Net debt as defined by the Group comprises cash and cash equivalents, bank overdrafts repayable on demand and interest Financial Statements bearing loans and borrowings less unamortised bank fees. 34 Principal Group companies The following companies have been consolidated in the Group accounts and materially contributed to the assets and / or results of the Group and are classified according to their main activity. Interest in ordinary Country of share capital Company incorporation % Principal activities Eastern Platinum Ltd South Africa 82.0 Subsidiary Platinum mining Western Platinum Ltd South Africa 82.0 Subsidiary Platinum mining and refining Messina Platinum Mines Ltd South Africa 82.0 Subsidiary Platinum mining Operating Statistics Akanani Mining (Pty) Ltd South Africa 74.0 Subsidiary Mineral exploration A full list of Group companies will be included in the annual return registered with Companies House. 35 Events after the balance sheet date During 2009 Lonmin has been engaged in discussions with the Historically Disadvantaged South African ("HDSA") shareholders of Incwala and the HDSAs' providers of finance regarding the future ownership of Incwala. These discussions were in progress at the balance sheet date and are continuing. Subsequent to the balance sheet date Impala Platinum Holdings Limited called on Lonmin with respect to the R294 million ($39 million) indemnity which fell due after 30 September and this amount has been paid. As explained in note 25, Shareholder Information Lonmin has a counter indemnity secured on the HDSAs' shares in Incwala. www.lonmin.com 129 Lonmin Plc Company Balance Sheet as at 30 September 2009 2008 Note $m $m Fixed assets Tangible assets 37 1 1 Investments: 1,434 1,452 Shares in subsidiary undertakings 38 1,406 1,427 Other investments 39 28 25 Fixed assets 1,435 1,453 Current assets Deferred tax assets 40 5 – Debtors 41 550 403 Cash at bank and in hand 164 15 Total current assets 719 418 Creditors: amounts falling due within one year 42 (698) (721) Net current assets / (liabilities) 21 (303) Total assets less current liabilities 1,456 1,150 Creditors: amounts falling due after more than one year 42 (6) (243) Bank loans and overdrafts – (230) Other creditors (6) (13) Net assets 1,450 907 Capital and reserves Called up share capital 43 193 156 Share premium account 43 776 305 Capital redemption reserve 43 88 88 Profit and loss account 43 393 358 Total shareholders' funds (equity) 43 1,450 907 The financial statements were approved by the Board of Directors on 13 November 2009 and were signed on its behalf by: Roger Phillimore Chairman Alan Ferguson Chief Financial Officer 130 2009 Annual Report and Accounts / Lonmin Plc Notes to the Company Accounts 36 Accounting policies Directors' Report – Business Review Basis of preparation The Lonmin Plc (the Company) balance sheet and related notes have been prepared in accordance with United Kingdom generally accepted accounting practice (UK GAAP) and in accordance with UK company law. The financial information has been prepared on a historic cost basis as modified by the revaluation of certain financial instruments. The accounts have been prepared on a going concern basis, as detailed in note 1 to the Group financial statements. The following principal accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company's financial statements. The Company's functional currency is the US Dollar. The reporting currency is also the US Dollar. The Company has taken advantage of the exemption contained in Section 408 (4) of the Companies Act 2006 from presenting its own profit and loss account. The Company has taken advantage of the exemption under FRS 1 – Cash Flow Statements and has not prepared a cash flow statement. Directors' Report – Governance Fixed asset investments The Company's investment in Platmin Ltd is measured at fair value and any changes are recognised directly in equity except when market value has fallen below original cost, when impairment losses are taken to the income statement. Fair value is determined by using the market price at the balance sheet date when this is available. For fixed asset investments for which market price is not available the Directors' best estimate of market value is used. Investment in subsidiaries The Company's investment in shares in Group companies are stated at cost less any provision for impairment. The principal subsidiaries of the Company are LSA (UK) Limited and AfriOre Limited. LSA (UK) Limited holds the investments in Western Platinum Limited, Eastern Platinum Limited and Messina Platinum Mines Limited. AfriOre Limited holds the investment in Akanani (Pty) Limited. For more information see note 34 to the Group financial statements. Tangible fixed assets Tangible fixed assets are recorded at cost or valuation, which are not updated under the transitional arrangements of FRS 15 – Tangible Fixed Assets, less depreciation. Depreciation on fixed assets is provided on a straight-line basis. Assets are Financial Statements depreciated over their estimated useful economic lives to residual value. Depreciation rates for the principal assets of the Company are as follows: Method Rate Short-term leasehold property Straight line Over the life of the lease (3 – 5 years) Fixtures and Fittings Straight line 10% – 33% per annum (3 – 10 years) Tangible fixed assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. When a review for impairment is conducted, the recoverable amount is assessed by reference to the net present value of expected future cash flows of the relevant income generating unit or disposal value if higher in accordance with FRS 11. Operating Statistics Financial instruments The Company's principal financial instruments (other than derivatives) comprise bank loans, investments, cash and short-term deposits. Bank loans were initially recorded at fair value, and have subsequently been recorded at amortised cost using the effective interest rate method. Leases Operating lease rentals are charged to the profit and loss account on a straight-line basis over the period of the lease. Current tax The charge for taxation is based on the profit for the year and takes account of the taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Shareholder Information Deferred tax Deferred tax is provided for on timing differences that have originated but not reversed by the balance sheet date on a non- discounted basis. Deferred tax assets are recognised only to the extent that it is more likely than not that there will be suitable taxable profits from which future reversal of the underlying timing differences can be deducted. Pension costs and other post-retirement benefits For current employees, the Company either makes payments on behalf of employees into a defined contribution scheme which the Company has set up, or makes direct payments to employees who may then make their own arrangements. A defined contribution scheme is a post-employment benefit plan under which the Company pays fixed contributions into a separate legal entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in the income statement when they are due. The Company previously operated a defined benefit scheme which was settled during 2008. www.lonmin.com 131 Notes to the Company Accounts 36 Accounting policies (continued) Share-based payments From the grant date the fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the shares. The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period that the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as a personnel expense in the income statement. The fair value of each option or share appreciation right is determined using either a Black-Scholes option pricing model or a Monte Carlo projection model, depending on the type of the award. Market related performance conditions are reflected in the fair value of the share. Non-market related performance conditions are allowed for using a separate assumption about the number of awards expected to vest; the final charge made reflects the numbers actually vested on the basis that non- market conditions are met. Share options and own shares held In accordance with Urgent Issues Task Force Abstract 25 – National Insurance Contributions on Share Option Gains (UITF 25), the Company provides in full for the employer's national insurance liability estimated to arise on the future exercise of share options granted. As required under Urgent Issues Task Force Abstract 38 – Accounting for ESOP Trusts (UITF 38), the cost to the Company of own shares held is shown as a deduction from shareholders' funds within the profit and loss account. Consideration paid or received for the purchase or sale of the Company's own shares in the ESOP trust is shown separately in the reconciliation of movements in shareholders' funds. Dividend reinvestment program Under the Company's Dividend Reinvestment Plan, shareholders can elect for the whole of their cash dividends to be reinvested in Lonmin Plc shares which are purchased on their behalf in the market. All cash dividends are paid to the Registrars who use the dividends of participants in the plan to fund these purchases. Accordingly, no new shares are issued, dividends are paid and accounted for in the normal way, and there are no special accounting requirements for the programme. Foreign currency Transactions denominated in foreign currencies are translated into the functional currency of the Company using the exchange rates prevailing at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rates of exchange ruling at the balance sheet date. Non-monetary assets and liabilities are translated at the historic rate. Foreign currency differences arising on retranslation are recognised in the income statement, except for differences arising on the retranslation of available for sale financial assets which are recognised directly in equity. Foreign currency gains and losses are reported on a net basis. Exploration and evaluation expenditure All exploration expenses relate to pre-feasibility work and, in line with Group policy, are expensed as incurred. 132 2009 Annual Report and Accounts / Lonmin Plc Notes to the Company Accounts 37 Tangible fixed assets Directors' Report – Business Review Fixtures and fittings $m Cost: At 1 October 2008 and 30 September 2009 3 Depreciation: At 1 October 2008 and 30 September 2009 2 Net book value: At 1 October 2008 and 30 September 2009 1 Directors' Report – Governance 38 Investments in subsidiary undertakings $m Cost: At 1 October 2008 1,528 Additions – At 30 September 2009 1,528 Provisions: At 1 October 2008 101 Increase 21 At 30 September 2009 122 Net book value: Financial Statements At 30 September 2009 1,406 At 1 October 2008 1,427 $m Cost: At 1 October 2007 1,527 Additions 1 At 30 September 2008 1,528 Operating Statistics Provisions: At 1 October 2007 89 Increase 12 At 30 September 2008 101 Net book value: At 30 September 2008 1,427 At 1 October 2007 1,438 Shareholder Information www.lonmin.com 133 Notes to the Company Accounts 39 Fixed asset investments Investments Loans receivable Total $m $m $m At 1 October 2008 6 19 25 Movement in fair value 2 3 5 Impairment (5) – (5) Exchange gain – 3 3 At 30 September 2009 3 25 28 Investments Loans receivable Total $m $m $m At 1 October 2007 7 22 29 Additions 17 – 17 Movement in fair value (5) 1 (4) Impairment (13) – (13) Exchange loss – (4) (4) At 30 September 2008 6 19 25 2009 2008 $m $m Listed investments 3 6 The listed investment is in Platmin Limited which was listed on the Alternative Investment Market on 10 August 2006. 40 Deferred tax assets 2009 2008 $m $m Amounts falling due after one year: Deferred tax assets 5 – 5 – 41 Debtors 2009 2008 $m $m Amounts falling due within one year: Amounts owed by subsidiary companies 536 397 Tax recoverable 1 1 Other debtors – 4 Prepayments and accrued income 13 1 550 403 Prepayments include $12 million of unamortised bank fees relating to undrawn facilities (2008 – $nil). 42 Creditors 2009 2008 $m $m Amounts falling due within one year: Amounts due to subsidiary companies 678 697 Other creditors 4 5 Accruals and deferred income 16 19 698 721 134 2009 Annual Report and Accounts / Lonmin Plc Notes to the Company Accounts 42 Creditors (continued) Directors' Report – Business Review 2009 2008 $m $m Unsecured bank loans falling due within 1 to 2 years – 230 Other creditors falling due after more than one year 6 13 6 243 Details of the loans are shown in note 20 to the Group accounts. 43 Reconciliation of movements in equity shareholders' funds Directors' Report – Governance Called up Share Capital share premium redemption Profit and capital account reserve loss account Total $m $m $m $m $m At 1 October 2008 156 305 88 358 907 Loss for the financial year – – – (9) (9) Change in fair value of available for sale financial assets – – – 2 2 Share-based payments – – – 2 2 Share capital and share premium recognised on Rights Issueii 35 477 – – 512 Rights Issue costs charged to share premiumii – (21) – – (21) Exchange gain on shares to be issuedii – – – 4 4 Reversal of fair value movements on derivative liability Financial Statements recognised in respect of Rights Issueii – – – 36 36 Shares issued under the IFC option agreementiii 1 15 – – 16 Shares issued on exercise of share optionsi 1 – – – 1 At 30 September 2009 193 776 88 393 1,450 Called up Share Capital share premium redemption Profit and capital account reserve loss account Total $m $m $m $m $m At 1 October 2007 156 299 88 275 818 Profit for the financial year – – – 267 267 Change in fair value of available for sale financial assets – – – (5) (5) Operating Statistics Dividends – – – (186) (186) Share-based payments – – – 7 7 Shares issued on exercise of share optionsi – 6 – – 6 At 30 September 2008 156 305 88 358 907 Footnotes: i During the year 426,315 share options were exercised (2008 – 231,338) on which $1 million of cash was received (2008 – $6 million). ii During the year the Company undertook a Rights Issue which resulted in the issuance of 35,072,129 shares. Under UK GAAP this followed the accounting treatment prescribed by FRS25 – Financial Instruments: Presentation which corresponds to the accounting treatment under IAS 32 as adopted by the EU in the Group Accounts. Further details can therefore be found in note 29 of the Group Accounts. Subsequent to the balance sheet signing date the Accounting Standards Board issued an Exposure Draft which mirrors the Amendment to IAS 32 referred to in note 29 of the Shareholder Information Group Accounts. If this amendment is made to UK GAAP there will be no restatement of the Company results as there is no impact on the balance sheet position of the Company and the Company has taken advantage of the exemption under Section 408 (4) of the Companies Act 2006 not to present its own profit and loss account. iii During the year 1,172,583 share options were exercised under the International Finance Corporation agreement. As the shares were issued at a discount only $15 million of cash was received. The audit fee in respect of the parent company was $0.2 million (2008 – $0.3 million). Further details can be found in note 4 to the Group accounts. The loss of the Company for the 2009 financial year amounted to $9 million (2008 – profit of $267 million). Further details of called up share capital and share premium can be found in note 26 to the Group accounts. Details of shares held in the employee share ownership plan (ESOP) can be found in note 27 to the Group accounts. www.lonmin.com 135 Notes to the Company Accounts 44 Other information Employees The average number of employees of the Company during the year was 31 (2008 – 39). Total staff costs, excluding charges for share options, were $11 million (2008 – $19 million). The staff costs are made up of wages and salaries $7 million (2008 – $12 million), social security costs $1 million (2008 – $2 million), pension payments $1 million (2008 – $2 million), and termination payments $2 million (2008 – $3 million). Total directors' emoluments were $6 million (2008 – $13 million). These emoluments were paid for their services on behalf of Lonmin Plc Group. No emoluments related specifically to their work in the Company. For further details, see the Remuneration Committee Report on pages 72 to 89. Pensions For details of the Company's pension scheme, refer to note 15 of the Group accounts. Related party transactions The Company has taken advantage of the exemption under FRS 8 – Related Party Disclosures, not to disclose related party transactions between subsidiary companies. The Group's related party transactions are disclosed in note 30 to the Group accounts. The Company also has a related party relationship with its directors and key management as disclosed in the Remuneration Committee report. Dividends No dividends were paid in the year as stated in note 9 to the Group accounts. Share-based payments For details of the Company's share plan and share option schemes, refer to note 27 to the Group accounts. Deferred tax asset The Company had a deferred tax asset of $5m (2008 – $nil) relating to the South Africa branch, from which management believes that there will be sufficient future taxable profits to justify carrying the asset. Unrecognised tax balances The Company had an unrecognised deferred tax asset of $68 million at 30 September 2009 based on timing differences of $243 million (2008 – $82 million based on timing differences of $293 million). No unrecognised deferred tax assets have been disclosed in respect of United Kingdom operations, as management believe the chances of utilising future United Kingdom taxable profits are low. The Company had $67 million of unrecognised surplus ACT at 30 September 2009 (2008 – $74 million). The Company had $256 million of unrecognised shadow ACT at 30 September 2009 (2008 – $286 million). Contingent liabilities Details of the contingent liabilities of the parent company are included in note 25 to the Group accounts. Events after the balance sheet date Subsequent to the balance sheet date, the Company paid R294 million ($39 million) under indemnity to Impala Platinum Holdings Limited (see note 25 to the Group accounts), as further discussed in note 35 to the Group accounts. 136 2009 Annual Report and Accounts / Lonmin Plc Consolidated Group Five Year Financial Record for the year ended 30 September Continuing operations Directors' Report – Business Review 2009 2008 2007 2006 2005 IFRS IFRS IFRS IFRS UKGAAP i $m $m $m $m $m Income statement: Revenue 1,062 2,231 1,941 1,855 1,128 Operating profit (excluding associate and joint venture) (142) 764 794 842 350 Underlying operating profit (excluding associate and joint venture) (93) 963 796 830 362 Profit before taxation (272) 779 705 633 319 Underlying profit before taxation (111) 997 811 827 339 Attributable profit for the year (285) 455 314 313 158 Underlying attributable profit for the year (103) 550 453 445 168 Directors' Report – Governance Basic earnings per share (cents)ii (163.7) 277.8 195.7 209.5 106.4 Underlying earnings per share (cents)ii (59.2) 335.8 282.4 297.8 113.1 Balance sheet: Non-current assets – property, plant and equipment 2,036 1,893 1,673 1,463 1,339 Non-current assets – other 1,329 1,340 1,501 677 559 Net current assets 443 501 200 279 40 Net debt (113) (303) (375) (458) (585) Equity shareholders' funds 2,417 2,147 1,968 1,089 838 Equity shareholders' funds per share (cents)ii 1,252 1,310 1,226 729 564 Cost of dividend paid – 186 171 124 102 Dividends per share paid (cents)ii – 113.6 105.0 83.0 68.7 Dividend for the year per share (cents)ii – 56.3 109.7 95.4 68.7 Cashflow: Financial Statements Cash flow from operating activities (trading cash flow) (16) 706 692 506 279 Free cash flow (271) 264 380 290 56 Trading cash flow per share (cents)ii (9.2) 431.0 431.3 338.7 182.5 Free cash flow per share (cents)ii (155.6) 161.2 236.8 194.1 37.7 Footnotes: i The balance sheet as at 30 September 2005 has been restated following the finalisation of fair values arising on the acquisition of Southern Platinum Corporation. ii During the year the Group undertook a Rights Issue. As a result all amounts per share have been adjusted retrospectively by applying a factor of 1.048 in order to adjust for the bonus element of the Rights Issue. Operating Statistics Shareholder Information www.lonmin.com 137 Operating Statistics 5 year review Units 2009 2008 2007 2006 2005 Tonnes mined Marikana Underground – conventional 000 8,472 9,076 10,574 10,883 10,241 Underground – M&A1 000 1,710 1,150 638 601 680 Underground – total 000 10,182 10,226 11,212 11,484 10,921 Opencast 000 234 1,300 1,597 1,583 2,653 Limpopo Underground 000 87 523 757 857 212 Opencast 000 – – – 14 – Pandora attributable2 Underground 000 142 124 128 100 54 Opencast 000 156 275 286 176 – Lonmin Platinum Underground 000 10,411 10,875 12,096 12,441 11,187 Opencast 000 389 1,575 1,883 1,772 2,653 Total 000 10,801 12,449 13,979 14,213 13,840 % tonnes mined from UG2 reef % 77.7 73.1 72.0 71.2 74.3 Tonnes milled3 Marikana Underground 000 10,148 10,206 11,216 11,502 10,975 Opencast 000 622 1,163 1,469 1,854 2,444 Limpopo Underground 000 92 534 781 887 214 Opencast 000 – – – 14 – Pandora4 Underground 000 335 293 301 236 127 Opencast 000 430 595 649 394 – Ore Purchases5 Underground 000 – – 75 14 – Opencast 000 – 30 20 18 – Lonmin Platinum Underground 000 10,576 11,033 12,373 12,639 11,316 Opencast 000 1,053 1,788 2,138 2,280 2,444 Total 000 11,628 12,821 14,511 14,919 13,760 Milled head grade Marikana Underground g/t 4.57 4.71 4.98 5.00 4.98 Opencast g/t 2.63 3.06 4.11 4.25 4.88 Limpopo Underground g/t 3.66 3.47 3.50 4.09 3.84 Opencast g/t – – – 3.29 – Pandora Underground g/t 4.84 5.11 4.88 5.05 4.54 Opencast g/t 5.23 5.04 5.33 4.92 – Ore Purchases Underground g/t – – 3.92 3.92 – Opencast g/t – 2.90 5.16 4.14 – Lonmin Platinum Underground g/t 4.57 4.66 4.88 4.94 4.95 Opencast g/t 3.70 3.70 4.39 4.36 4.88 Total g/t 4.50 4.52 4.80 4.85 4.94 Metals in Lonmin Platinum Platinum oz 663,101 732,125 869,832 964,958 908,972 concentrate6 Palladium oz 308,758 342,081 404,535 447,894 397,546 Gold oz 15,013 18,932 25,030 31,973 22,269 Rhodium oz 91,920 99,173 114,601 125,379 115,436 Ruthenium oz 140,106 152,772 182,326 198,491 187,967 Iridium oz 30,315 31,562 41,157 41,284 38,465 Total PGMs oz 1,249,214 1,376,645 1,637,481 1,809,979 1,670,655 Nickel7 MT 2,794 3,549 4,636 5,120 4,042 Copper7 MT 1,763 2,216 2,814 3,104 2,498 Metallurgical Lonmin refined Platinum oz 655,291 699,942 695,842 799,070 796,082 production metal production Palladium oz 297,415 330,209 318,758 369,859 348,681 Gold oz 18,277 20,257 20,485 20,955 17,059 Rhodium oz 95,596 91,063 88,469 115,453 87,632 Ruthenium oz 146,506 158,424 135,873 174,639 172,610 Iridium oz 23,908 31,599 30,430 40,836 25,110 Total PGMs oz 1,236,992 1,331,493 1,289,857 1,520,812 1,447,174 Toll refined Platinum oz 2,025 – 93,609 – 46,354 metal production Palladium oz 941 – 43,274 – 21,115 Gold oz 58 – – – 731 Rhodium oz 1,532 – 12,966 – 7,133 Ruthenium oz 2,647 – 20,439 – 11,524 Iridium oz 513 – 4,090 – 2,263 Total PGMs oz 7,717 – 174,378 – 89,120 Total refined PGMs Platinum oz 657,317 699,942 789,451 799,070 842,436 Palladium oz 298,356 330,209 362,032 369,859 369,796 Gold oz 18,335 20,257 20,485 20,955 17,790 Rhodium oz 97,128 91,063 101,435 115,453 94,765 Ruthenium oz 149,153 158,424 156,312 174,639 184,134 Iridium oz 24,420 31,599 34,520 40,836 27,373 Total PGMs oz 1,244,709 1,331,493 1,464,235 1,520,812 1,536,294 Base metals Nickel8 MT 3,244 3,483 4,522 4,342 4,187 Copper8 MT 1,988 2,009 2,466 2,452 2,547 Capital Rm 2,106 2,816 1,923 1,207 1,180 expenditure9 $m 234 378 276 182 190 138 2009 Annual Report and Accounts / Lonmin Plc Operating Statistics Units 2009 2008 2007 2006 2005 Directors' Report – Business Review Sales Refined metal sales Platinum oz 659,703 706,492 786,552 803,471 838,859 Palladium oz 305,332 329,460 362,077 373,303 364,080 Gold oz 18,910 20,151 24,449 22,133 18,122 Rhodium oz 94,160 93,337 102,916 116,281 93,453 Ruthenium oz 146,009 158,477 162,853 179,557 183,372 Iridium oz 23,522 32,140 37,858 38,092 26,676 Total PGMs oz 1,247,636 1,340,057 1,476,705 1,532,837 1,524,562 Concentrate Platinum oz 23,253 20,425 7,032 136,183 71,396 and other10 Palladium oz (2,848) 11,888 3,232 61,110 37,003 Gold oz 13 117 201 4,641 2,362 Rhodium oz 175 889 1,008 15,965 21,552 Ruthenium oz 303 26,205 1,942 26,137 20,517 Iridium oz 387 1,789 64 5,291 2,548 Total PGMs oz 21,282 61,313 13,479 249,327 155,377 Lonmin Platinum Platinum oz 682,955 726,918 793,584 939,654 910,255 Directors' Report – Governance Palladium oz 302,485 341,348 365,309 434,413 401,083 Gold oz 18,922 20,268 24,650 26,774 20,484 Rhodium oz 94,335 94,227 103,924 132,246 115,005 Ruthenium oz 146,312 184,682 164,795 205,694 203,889 Iridium oz 23,909 33,929 37,922 43,384 29,224 Total PGMs oz 1,268,918 1,401,371 1,490,184 1,782,164 1,679,939 Nickel MT 3,318 3,338 5,308 4,604 3,892 Copper MT 2,045 1,978 2,474 2,974 2,481 Average prices Platinum $/oz 1,086 1,655 1,213 1,091 852 Palladium $/oz 224 372 339 300 185 Gold $/oz 912 867 647 571 425 Rhodium $/oz 1,571 7,614 5,757 3,971 1,684 Ruthenium $/oz 97 340 404 134 66 Iridium $/oz 388 414 402 233 153 Basket price of PGMs $/oz 786 1,529 1,196 972 668 Nickel $/MT 15,006 22,556 26,461 17,975 12,527 Financial Statements Copper $/MT 6,291 7,212 6,971 7,882 3,168 Cost per PGM ounce sold11 Group: Mining – Marikana R/oz 4,468 3,880 2,306 1,700 1,606 Mining – Limpopo R/oz 7,404 6,363 4,463 3,740 3,587 Mining (weighted average) R/oz 4,490 3,979 2,430 1,827 1,636 Concentrating – Marikana R/oz 808 724 470 330 283 Concentrating – Limpopo R/oz 1,820 1,743 1,506 847 814 Concentrating (weighted average) R/oz 815 761 526 361 291 Process division R/oz 693 686 600 406 269 Shared business services R/oz 632 845 612 463 345 C1 cost per PGM ounce produced R/oz 6,630 6,271 4,168 3,057 2,541 Stock movement R/oz 112 (863) 28 (9) 14 Operating Statistics C1 cost per PGM ounce sold before base metal credits R/oz 6,742 5,408 4,196 3,048 2,555 Base metal credits R/oz (440) (482) (762) (400) (242) C1 cost per PGM ounce sold after base metal credits R/oz 6,302 4,926 3,434 2,648 2,313 Amortisation R/oz 516 420 360 272 252 Other EBIT items R/oz – – – – (28) C2 costs per PGM ounce sold R/oz 6,818 5,346 3,794 2,920 2,537 Pandora mining cost: C1 Pandora mining cost (in joint venture) R/oz 3,371 3,223 2,453 1,795 N/C Pandora JV cost / ounce to Lonmin (adjusting Lonmin share of profit) R/oz 5,956 6,200 4,225 3,110 N/C Exchange rates Average rate for period R/$ 9.00 7.45 7.14 6.63 6.28 £/$ 0.64 0.51 0.51 0.55 0.54 Shareholder Information Closing rate R/$ 7.47 8.27 6.83 7.77 6.36 £/$ 0.62 0.56 0.50 0.53 0.57 Footnotes: 1 M&A comprises ore produced by our fully mechanised shafts and from Saffy shaft, which is being transitioned to hybrid mining. 2 Pandora attributable tonnes mined includes Lonmin's share (42.5%) of the total tonnes mined on the Pandora joint venture. 3 Tonnes milled excludes slag milling. 4 Lonmin purchases 100% of the ore produced by the Pandora joint venture for onward processing which is included in downstream operating statistics. 5 Relates to the tonnes milled and derived metal in concentrate from third-party ore purchases. 6 Metals in concentrate includes slag and has been calculated using industry standard downstream processing losses. 7 Corresponds to contained base metals in concentrate. 8 Nickel is produced and sold as nickel sulphate crystals or solution and the volumes shown correspond to contained metal. Copper is produced as refined product but typically at LME grade C. 9 Capital expenditure is the aggregate of the purchase of property, plant and equipment and intangible assets as shown in the consolidated cash flow statement. 10 Concentrate and other sales have been adjusted to a saleable ounces basis using standard industry recovery rates. During the fourth quarter of 2008 financial year, 25,000 oz of refined Ruthenium and 1,500 oz of refined Iridium were bought and sold to meet contractual commitments. The metallurgy section of the above table excludes these transactions as they relate to third-party mined and processed metals but they are included in the sales section. 11 It should be noted that with the restructuring of the business in 2009 the cost allocation between business units has been changed and, therefore, whilst the total is on a like-for-like basis, individual line items are not totally comparable. N/C Not calculated www.lonmin.com 139 Shareholder Information Lonmin's shares are quoted on the London and Johannesburg Lonmin Corporate Individual Savings Account (ISAs) stock exchanges and ADRs representing Lonmin shares are Rensburg Sheppards Investment Management Limited offers also traded in an over-the-counter market in the USA. the Lonmin Corporate Stocks & Shares ISA for the investment of Lonmin Plc shares. UK share register information UK registered shareholders may subscribe to the Lonmin All holdings of the Company's shares are maintained on the Corporate ISA up to a maximum currently of £7,200 in cash Company's UK share register, with the exception of those held or by direct transfer of eligible employee shares within 90 days on the South African branch register. The register is administered of the release from a Sharesave Scheme. However, from by Equiniti Registrars (formerly known as Lloyds TSB Registrars). 6 October 2009, investors aged 50 or over on or before You can access information about your shareholding 5 April 2010 may invest up to £10,200 in the current tax year. including balance movements and dividend payments on From 6 April 2010, the new allowance of £10,200 will apply Shareview, an electronic communications service provided by to all investors. Equiniti. It also allows you to change your registered address Contact details can be found in Corporate Information details, set up a dividend mandate, vote at general meetings on the following page. Rensburg Sheppards Investment and register to receive Company communications Management Limited is regulated by the FSA. This is not a electronically. recommendation that shareholders should subscribe to the To register for this free service, visit www.shareview.co.uk ISA. The advantages of holding shares in an ISA vary and follow the simple instructions. You will need your according to individual circumstances and shareholders who shareholder reference number, which can be found on your are in any doubt should consult their financial adviser. share certificate, dividend tax voucher or proxy card. ShareGift South African branch register information Lonmin is proud to support ShareGift, an independent charity The South African branch register is administered by Link share donation scheme administered by the Orr Mackintosh Market Services South Africa (Pty) Ltd. Foundation (registered charity number 1052686). Those Contact details for both the UK and South African shareholders who hold only a small number of shares, the registrars can be found in Corporate Information on the value of which make them uneconomic to sell, can donate next page. the shares to ShareGift who will sell them and donate the Dividends proceeds to a wide range of charities. Further information As noted in the Chairman's Statement on page 5, the Board about ShareGift can be obtained from their website at does not recommend the payment of a final dividend. www.ShareGift.org and a ShareGift transfer form can be downloaded from the Company's website. American Depository Receipts (ADRs) The Company has a sponsored Level 1 ADR programme for Warning to shareholders which The Bank of New York Mellon acts as the depository. A survey by the Financial Services Authority (FSA) has Each ADR represents one ordinary share of the Company. reported that an increasing number of shareholders of UK The ADRs trade in the over-the-counter (OTC) market under listed companies are being targeted by individuals the symbol LOMNY. When dividends are paid to shareholders, purporting to be legitimate brokers or financial advisors. the depository makes the equivalent payment in US Dollars Shareholders are advised to be very wary of any to ADR holders. unsolicited advice, offers to buy shares at a discount or Contact details can be found in Corporate Information on offers of free reports on the Company. page 141. If you receive any unsolicited investment advice: Further information for UK-domiciled shareholders • Make sure you get the correct name of the person and Capital Gains Tax organisation and make a record of any other information For Capital Gains Tax purposes, shareholders disposing of shares they give you, e.g. telephone number, address, etc. in either Lonmin Plc or Lonrho Africa Plc after 7 May 1998, • Check that they are properly authorised by the FSA who held shares prior to that date, should apportion the base before getting involved. You can check at cost of their original Lonmin Plc shares between the two www.fsa.gov.uk/register. companies. Based on the closing share prices on 7 May 1998 • The FSA also maintains on its website a list of of Lonmin Plc and Lonrho Africa Plc, this apportionment would unauthorised overseas firms who are targeting, or have be 80.498% for Lonmin Plc and 19.502% for Lonrho Africa Plc. targeted, UK investors and any approach from such The Company's capital reduction was completed on organisations should be reported to the FSA so that 22 February 2002. For the purposes of assessing any liability this list can be kept up to date and any other to capital gains tax, UK shareholders should apportion 13.33% appropriate action can be considered. of the base cost of their original shareholding to the capital If you deal with any unauthorised firm, you reduction and the balance to their new holding of ordinary would not be eligible to receive payment under shares of $1 each. the Financial Services Compensation Scheme. The market price of Lonmin Plc ordinary shares at 31 March The FSA can, preferably, be contacted by 1982 was 38.9 pence (as adjusted for subsequent capitalisation completing an on-line form at www.fsa.gov.uk/ issues), 155.6 pence as adjusted for the consolidation of the pages/doing/regulated/law/alerts/overseas.shtml Company's shares on 24 April 1998, 125.3 pence as adjusted or, if you do not have access to the internet, for the de-merger of Lonrho Africa Plc on 7 May 1998 and on 0845 606 1234. 266.1 pence as adjusted for shareholders who took up their • Inform the registrars on the relevant telephone numbers full entitlement of ordinary shares in the Rights Issue in June listed on the following page. They are not able to 2009. Shareholders who did not take up their full entitlement in investigate such incidents themselves but will record the Rights Issue but who instead sold some or all of their the details and pass them on to the FSA. rights may be required to adjust their base cost in their Lonmin plc ordinary shares and should seek independent tax advice as to their liability for capital gains tax in the event they sell 140 their Lonmin plc ordinary shares. 2009 Annual Report and Accounts / Lonmin Plc Corporate Information Company Secretary Stockbrokers Link Market Services South Africa Directors' Report – Business Review Rob Bellhouse BSc FCIS United Kingdom: (Pty) Ltd JPMorgan Cazenove Limited Postal address: Registered Office 20 Moorgate PO Box 4844 Lonmin Plc London Johannesburg 2000 4 Grosvenor Place EC2R 6DA South Africa London United Kingdom SW1X 7YL Physical address: Tel: +44 (0)20 7588 2828 United Kingdom 16th Floor Fax: +44 (0)20 7155 9000 Tel: +44 (0)20 7201 6000 11 Diagonal Street Fax: +44 (0)20 7201 6100 Citigroup Global Markets Limited Johannesburg 2001 E-mail: firstname.lastname@example.com Citigroup Centre Tel: +27 (0)11 630 0800 Website: www.lonmin.com 33 Canada Square Fax: +27 (0)860 674 4381 Canary Wharf Registered in England and Wales Website: www.linkmarketservices.co.za Directors' Report – Governance London Company number 103002 E14 5LB ADR Depository Investor Relations United Kingdom BNY Mellon Shareowner Services Rob Gurner Tel: +44 (0)20 7986 4000 PO Box 358516 Head of Investor Relations Fax: +44 (0)20 7986 2266 Pittsburgh PA 15252-8516 External Auditors South Africa: KPMG Audit Plc JPMorgan Equities Limited US Callers: 8 Salisbury Square 1 Fricker Road Tel: 1 877 353 1154 (toll free) London Illovo International Callers: EC4Y 8BB Johannesburg 2196 Tel: +1 201 680 6825 United Kingdom South Africa E-mail: email@example.com Tel: +44 (0)20 7311 8317 Tel: +27 (0)11 507 0430 Fax: +27 (0)11 507 0503 ISA Provider Fax: +44 (0)20 7311 8257 Rensburg Sheppards Investment Financial Statements Registrars Management Limited Equiniti Corporate ISA Department Aspect House The Plaza Spencer Road 100 Old Hall Street Lancing Liverpool West Sussex L3 9AB BN99 6DA United Kingdom United Kingdom Tel: +44 (0)151 237 2160 Fax: +44 (0)151 255 1742 UK Callers: Tel: +44 (0)871 384 2052 Fax: +44 (0)871 384 2100 International Callers: Operating Statistics Tel: +44 (0)121 415 7047 Fax: +44 (0)1903 833371 Website: www.shareview.co.uk Shareholder Information www.lonmin.com 141 Financial Calendar for 2010 January AGM and Q1 Production Report May Interim Results including Q2 / H1 Production Report July Q3 Production Report November Final Results including Q4 / Full year Production Report Please note that the Production Reports for Q1 and Q3 incorporate the Company's Interim Management Statements for the respective half-year 142 2009 Annual Report and Accounts / Lonmin Plc Lonmin Charter We are Lonmin, a primary producer of Platinum Group Metals. We create value by the discovery, acquisition, development and marketing of minerals and metals. We respect the communities and nations that host our operations and conduct business in a sustainable, socially and environmentally responsible way. Our Mission We are successful Our Values when To grow and build our Our employees live and work Zero Harm portfolio of high quality assets. safely and experience the We are committed to zero personal satisfaction that harm to people and the To deliver the requirements comes with high performance environment. of the South African broad- and recognition. based socio-economic Mining Integrity, Honesty & Trust Charter and we welcome the Our shareholders are realising We are committed ethical opportunity to transform our a superior total return on their people who do what we say business. investment and support our we will do. corporate sustainability values. To build a value-based Transparency culture, which is founded The communities in which we Open, honest communication on safe work, continuous operate value our relationships. and free sharing of information. improvement, common We are meeting our Respect For Each Other standards and procedures, commitments to all business Embracing our diversity community involvement and partners and our suppliers, enriched by openness, one that rewards employees contractors, partners and sharing, trust, teamwork for high performance. customers support our and involvement. Charter. High Performance Stretching our individual and team capabilities to achieve innovative and superior outcomes. Employee Self-Worth To enhance the quality of life for our employees and their families and promote self esteem. Roger Phillimore Ian Farmer Chairman Chief Executive May 2009 www.lonmin.com 143 The paper used in this report is made from 50% FSC recycled fibre, 20% virgin ECF (Elemental Chlorine Free) pulp and 30% mill broke. The mill generates a proportion of its renewable power from water turbines. It is fully recyclable and is manufactured within an ISO 14001 certified mill in the UK. This has been printed using an alcohol free process and the printing inks are made from vegetable oil and are non-hazardous from renewable sources. Over 90% of solvents and developers are recycled for further use and recycling initiatives are in place for all other waste associated with this production. The printers are FSC and ISO 14001 certified with strict procedures in place to safeguard the environment through all their processes and are working on initiatives to reduce their Carbon Footprint. Designed and produced by MAGEE www.magee.co.uk Photography by Roger Bull and Mike Ellis Printed by CTD www.lonmin.com Lonmin Plc Registered in England, Company Number 103002 Registered Office: 4 Grosvenor Place, London SW1X 7YL
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