Annual Financial Report

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Annual Report and Accounts for the year ended 30 September 2013

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Circular relating to the Annual General Meeting to be held on 30 January 2014

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Forms of Proxy for shareholders on the UK and SA registers

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A statement on the principal risks and uncertainties

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A statement on related party transactions

1) Safety

Description

Impact

Mitigation

Change

At Lonmin we value our people. We try to position ourselves as an employer of choice, and provide safe jobs for both our employees and our contractors. However, inherent to the mining industry are risks due to unsafe events or conditions that can cause fatalities or injuries. These include falls-of-ground, tramming, scraping and rigging incidents, exposure to various gases, fire, molten metal, electrocution and many other hazards.

A failure in safety could result in injury or a loss of life which would have tragic implications for employees, their families and the local communities. It would also severely disrupt operations. In certain situations, these failures could result in safety stoppages instigated by management or the Department of Mineral Resources (DMR) could temporarily suspend part or all of the operations under the Mine Health and Safety Act (commonly referred to as a Section 54 stoppage).

There is a clearly defined employee safety engagement strategy, safety protocols and standards that are set and monitored regularly by the Executive Committee (Exco). The Safety & Sustainability Committee oversees all safety matters. Certain targets in the Balanced Scorecard are designed to incentivise safe behaviour, as discussed in more detail in the Remuneration Implementation Report.

After the strike in 2012, as part of the production ramp up process, the Company invested many hours in safety training before re-opening operations in order to minimise the risk of any safety failures, either underground or in the surface works, as our main focus was on our people. A safe working environment is normally also a more productive one.

During 2013 there has been an improvement in the safety environment at Lonmin. The number of Section 54 stoppages declared at Lonmin decreased and, as a result, so too has the number of shifts lost as a result of these stoppages. We continue to engage with the DMR at various levels of management and our relationship with the DMR continues to improve as a result of this engagement and the various safety initiatives that have been implemented during the course of the year. Lonmin has one of the lowest Lost Time Injury Frequency Rate (LTIFR) in the platinum industry in South Africa, demonstrating the effectiveness of these initiatives. Further information on Lonmin's safety achievements can be found in the Strategic Report and A Deeper Look.

2) Employee Relations

Description

Impact

Mitigation

Change

There have been significant changes in the industrial relations landscape in the South African mining industry in the past year. With the emergence of the Association of Mineworkers and Construction Union (AMCU) as a significant union in the platinum industry and a realignment in employee support in favour of this union, new ways need to be found to engage with employees and unions to ensure a safe and productive working environment in which all stakeholders are winners.

A volatile industrial relations environment characterised by mistrust and strike action could result in disruptions to operations and have a material adverse effect on the Group's financial position and have a negative impact on our employees, their families and the local communities. This was clearly demonstrated by the strike action which occurred in 2012.

A detailed employee relations strategy has been developed and is being implemented. A recognition agreement has been signed with the new majority union, AMCU. Detailed induction plans are in place for AMCU shop stewards as the transition from the National Union of Mineworkers (NUM) to AMCU as the majority union takes place. However, Lonmin also continues to engage with all trade unions including the minority unions to ensure their concerns are heard. Notwithstanding the union engagement, there is an increased focus on rebuilding relations directly with our employees.

The industrial relations environment has improved in 2013 compared to 2012, however, it still remains volatile. Lonmin is working hard to rebuild trust with employees and worker representatives as well as maintain close relationships with all unions. This is evident from Lonmin being a signatory to the Deputy President's framework for Stability & Sustainability in the mining industry and Lonmin's participation in the commemoration of the Events at Marikana in August. The Board has prioritised initiatives aimed at improving the quality of life of our employees and their families and the local communities in the areas surrounding our operations. At the beginning of the year AMCU became the majority union at Lonmin. The rest of our workforce are represented by NUM, Solidarity or UASA or are not unionised. Wage negotiations have historically resulted in a volatile period during which the Company attempts to balance the expectations of employees and the economic realities of an industry under significant margin pressure.

3) Changes to the political, legal, social and economic environment, including

resource nationalism

Description

Impact

Mitigation

Change

The Company is subject to the risks associated with conducting business in South Africa including but not limited to changes to the country's laws and policies in connection with taxation, royalties, divestment, repatriation of capital and resource nationalism. The latter is a broad term that describes the situation where a government attempts to assert increased authority, control and ownership over the natural resources located in its jurisdiction.

Resource nationalism is a global phenomenon, not limited to any country. In South Africa, the threat of nationalisation appears to have dissipated to some extent, however, debate continues regarding future policies relating to South Africa's natural resources. This includes debate regarding the identification of strategic minerals, the extent of beneficiation required, development of a state owned mining company and whether there should be increased taxation of the South African mining industry.

The above issues have all largely been incorporated within the Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill which is currently the subject of Parliamentary debate. In particular, beneficiation is a major consideration with the Bill proposing that the Minister be granted a discretion to declare certain minerals as strategic, that the Minister determine what percentage of strategic minerals are to be made available locally and the developmental price at which strategic minerals are to be sold, as well as the Minister being able to determine the conditions applicable to export permits. In addition, the Davis Commission is currently looking at the current tax regime with a view to determining whether additional taxes should be imposed on mining companies.

The current debates in respect of resource nationalism have created policy uncertainty and this has inevitably led to a decline in investor appetite for South African investment risk. This is reflected in decreased offshore investor appetite for both South African equity and debt exposure.

If some of the issues under consideration are implemented this could have a material adverse effect on the Group's future operational performance and financial position. For example, profits could be negatively impacted by the imposition of additional taxes and revenues could be impacted by the sale of metals at discounted developmental prices. The obligation to sell locally could impact long-term supply agreements with our customers and give rise to concerns about security of supply from South Africa, potentially expediting the growth of the recycling industry.

Bilateral and industry level discussions with the DMR are ongoing with a view to balancing the need for the country to benefit more from its natural resources with the need to attract and retain mining investment and jobs. Mining companies and industry bodies have made representations regarding the content of the draft MPRDA

Amendment Bill with a view to highlighting areas of concern and motivating for amendments to the Bill.

There has been a slight improvement in this risk in 2013 from 2012. The move away from the concept of nationalisation in the resource nationalism debate has been positive. However, many of the issues as described above which the South African government is now trying to implement through the draft MPRDA Amendment Bill require further consideration and, if implemented in their current form, could be negative.

4) Social licence to operate

Description

Impact

Mitigation

Change

There are a number of issues that can affect Lonmin's social licence to operate. These include Lonmin's sustainability performance (such as our impact on the environment in terms of water, air and soil pollution and waste production), our safety record, the contribution we make towards South Africa's transformation agenda and the impact we have on our employees, communities and other stakeholders. The Board supports the view that delivering our transformation and social responsibility obligations are essential, as are our commitments under the Mining Charter and our need to be a good corporate citizen.

Not focusing and delivering appropriately on the issues that give us our social licence to operate could result in deteriorating relationships with our stakeholders and thereby place our ability to operate effectively at risk. Furthermore, to the extent that these issues are covered in our SLP, non-delivery against our targets could impact our mining licences. Withdrawal of our mining licences would have a material adverse effect on the Group's financial position.

Social and community programmes are implemented by our Exco and monitored by the Transformation Committee and the Board. There is a stakeholder engagement programme in place, including ongoing dialogue with the relevant authorities in South Africa and all other stakeholders. Furthermore, the Balanced Scorecard includes specific metrics which have been designed to incentivise delivery against specific targets. During 2013, Lonmin appointed an additional Exco member,

Lerato Molebatsi, Executive Vice President for Communications and Public Affairs, who, amongst other responsibilities, has specific responsibility for Stakeholder management, South African regulatory affairs and community development. Lerato Molebatsi and another Exco member, Barnard Mokwena, who is responsible for transformation, human settlements and mining charter compliance are driving our strategy in these areas.

There has been an increase in this risk for Lonmin in 2013 compared to 2012. The Company's reputation has undoubtedly been damaged following the Events at Marikana in 2012 and this has inevitably had a negative impact on our social licence to operate. We are committed to addressing the underlying issues that were highlighted by last year's events. This is discussed in more detail in the Strategic Report and A Deeper Look. In addition the Farlam Commission of Inquiry is still in progress and the findings of this commission into the Events at Marikana in 2012 may have an impact on Lonmin.

5) Community relations

Description

Impact

Mitigation

Change

Due to the fact that mining is conducted in areas where communities are present this creates a sense of ownership amongst communities which leads to the expectation that they will benefit from mining activities. This expectation is often not met and this may result in conflict and unrest. Affected communities are particularly vulnerable to flawed consultation processes and a lack of access to information.

The environmental, health and social impacts of mining are often felt by those communities who live and work in close proximity to the mine and the living conditions of our employees have a direct influence on their general wellbeing and on their ability to succeed in their working environments.

Deteriorating relationships with our communities as a result of poor services and high unemployment can result in civil unrest which could severely disrupt our operations. As many of our employees also live within these communities, disruptions within these communities and poor living conditions have a direct impact upon our employees, which in turn can impact employee productivity and morale.

The Board has prioritised initiatives aimed at improving the quality of life of our employees, their families and their communities.

A number of projects have been developed as part of the Employee Value Proposition and the Community Value Proposition. These projects are being driven through a stakeholder engagement. There are also many community projects underway, many of which are particularly focused on increasing levels of local recruitment.

Risk in this area remains unchanged from 2012. Our focus during the last year has been on rebuilding trust with our communities following the Events at Marikana. The appointment of the EVP for Communications and Public Affairs and the formation of the stakeholder engagement forum represent two key elements in our strategy to drive improvements in this area.

6) Metal prices and currency volatility

Description

Impact

Mitigation

Change

Commodity price and currency volatility increase the risks in managing a mining business. This is especially because mining requires long planning horizons to plan new mines and make decisions regarding the expansion and contraction of existing operations. These decisions often need to be made based on assumptions regarding future metal prices (which drive revenue) and exchange rates (in our case primarily the USD/ZAR exchange rate as the majority of our cost and capital expenditure are incurred in South African Rand). When these assumptions are wrong and this then results in cash flows being less than anticipated this can have a significant negative financial impact upon the business.

Incorrect metal price and exchange rate assumptions used in long-term planning can lead to incorrect planning decisions and have negative financial consequences. In addition, volatile metal prices may also affect the decisions made by our customers and may result in them considering substituting our products with other alternatives. This could then negatively affect the demand for our products and hence our revenue. Job losses may also be inevitable in order to protect the business during low metal price regimes

Lonmin gathers market information from a number of different sources to better understand the supply and demand dynamics for our key products and the factors that could affect metal price volatility. We do this to try and develop more accurate assumptions in our forecasting. We also enter into longer term volume contracts with key customers to mitigate off-take risk.

Although historically there has been a degree of correlation between the USD/ZAR exchange rate and the PGM basket price, this does not always hold true and can dislocate. Such dislocations can be both positive and negative. Currently it is not our policy to hedge, partially because the cost of hedging the metal prices for the products which Lonmin produces are high and the forward markets in these metals are not very liquid.

Risk in this area remains unchanged from 2012. Metal and currency markets continue to remain very volatile. In particular 2013 has seen lower USD PGM metal prices but these have been off-set by a weaker South African Rand which has meant that cost and capital expenditure increases (as reported in USD) have been contained. This has helped maintain margins. However, the continued volatility and uncertainty in commodity price and currency markets continue to make longer term planning and investment decisions challenging.

7) Uncompetitive costs

Description

Impact

Mitigation

Change

Lonmin measures its costs based on its cash cost per PGM ounce produced. When this is compared to the equivalent costs for our peers, this determines our relative position on the cost curve for the industry. The PGM mining industry is highly concentrated in Southern Africa and as a result all the main producers face very similar cost pressures. In particular, labour is a significant cost driver for both Lonmin and the industry generally due to the large amount of labour required to mine the very narrow PGM reefs predominantly found in Southern Africa. Other important cost drivers include the cost of chemicals, power, water, timber, steel and concrete.

In a poor metal price environment cost increases can result in a margin squeeze which would result in negative financial consequences. Because so much of the PGM industry is concentrated in Southern Africa and therefore most producers are subject to the same cost pressures, this then makes it extremely important to be competitive in respect of costs versus peers.

Lonmin has a clear understating of its competitive position both at a Group level and by operation (including at each shaft) and the productivity improvements that are required to improve this position. These requirements are driven through the budgeting and long-term planning process, with numerous detailed initiatives in place across the business to drive productivity improvements. The Balanced Scorecard measures also incentivise cost control. Ultimately, to grow profitability, productivity must grow at a rate greater than the rate at which margins might otherwise decline as a result of lower metal prices and higher costs.

Risk in this area has improved from 2012. Lonmin believes that its relative unit cost position when compared to its peers is better than in 2012. Already before the Events at Marikana in 2012 a number of key operating initiatives had started to produce good productivity improvements within the business. Following the Events at Marikana these initiatives have continued, together with a focus on cash conservation and a management restructuring exercise to reduce costs and increase effectiveness in the management hierarchy.

8) Utilities

Description

Impact

Mitigation

Change

As a result of historical under investment by South Africa in infrastructure Lonmin faces potential supply constraints in respect of utilities (especially energy and water) together with increased costs in the consumption of these utilities. Electricity supply is likely to be especially at risk in the next two years until Eskom's new power stations, which are currently behind schedule, come on stream. Water availability is particularly problematic in provinces such as the North West and Limpopo where the infrastructural capacity to store and transfer water is limited and where long periods of drought are common. Furthermore, water for mining is increasingly competing with other priorities, such as water for communities, agriculture and other industries.

Supply constraints in respect of energy or water could impact upon our ability to operate effectively and meet our production targets. Furthermore, cost increases in respect of these utilities impact our margins. This is then compounded by the imminent implementation of a carbon tax which would place further pressure on our operational costs.

Lonmin has implemented numerous energy saving initiatives. There are also load shedding and contractual agreements in place with Eskom to manage any supply side constraints from the grid. Trial renewable generation and additional energy saving projects are currently under investigation or implementation. Similarly, with regard to securing water, an Integrated Water Balance project is underway and forms part of the Water Conservation and Demand Management Plan for Marikana. The aim of this strategic project is to optimise water use efficiency, minimise fresh water consumption and improve our long-term access to water.

Risk in this area has increased from 2012. Despite this, 2013 was a successful year in terms of our energy efficiency journey with several initiatives completed and a significant increase in general awareness evident amongst the management teams across our operations was achieved. Further information on our water consumption and conservation measures is available in the Strategic Report and A Deeper Look.

9) Long-term planning

Description

Impact

Mitigation

Change

Difficult geological conditions result in increased complexity in the ability to design a mine. The consequence of this is to risk the production profile which may necessitate the acceleration of underground ore reserve development to generate sufficient replacement ore reserves. Further, as borehole drilling is done in a grid with a spacing of 800 metres between boreholes there is uncertainty in respect of the actual grades and reef thickness that will be encountered when mining. This uncertainty is higher in some reefs than others. As a result of the wide spaced data, grade estimates are often smoothed over large areas, increasing risk.

The result of poor long-term planning due to not properly understanding the geology of a mineral property or poor timing decisions can result in sub optimal capital allocation, which may result in poor value extraction for a shaft over its life. This will then result in shareholder value not being optimised over the long-term.

Borehole drilling, magnetic surveys and 3D seismic surveys are conducted during study work in Concept, Pre-feasibility and Feasibility phases which are aligned to a project pipeline schedule. The mine extraction strategy for the whole property is then revised annually to take into account new data. Conceptual scenario planning is also conducted annually driven by strategy, structural geology and mining shaft hoisting and processing capacities and incorporated into the long-term plan. The revised plan is then managed weekly to deliver against this long-term plan. Further, independent peer reviews of the long-term plan are held before submission to the Board. The technical service function also acts independently of mine management and scrutinises flexibility of working areas. Balanced Scorecard measures also incentivise appropriate reserve development planning.

Risk in this area remains unchanged from 2012. During 2013, surface drilling

of 40,000 metres continued at Marikana with the completion of 34 boreholes as

part of an infill programme to improve the confidence of the mineral resource. In addition, reprocessing of the K4 and K5 seismic surveys has been completed, which resulted in an improved understanding of the geology. This data will be included in the long-term planning process for the 2014 plan.

As a result of the restricted capital available in the LRP, we are using current infrastructure to the maximum in extending current shaft boundaries. A comprehensive capital ranking model was developed in the past year to enable an integrated mining and processing ranking approach that will enable better decision making in terms of capital allocation and spend.

10) Skills shortages

Description

Impact

Mitigation

Change

Increased global investment in mining over the past few years has driven demand for skilled workers around the world. In South Africa, this is compounded by the requirement to increase the proportion of HDSAs represented in management to 40% by the end of 2014.

Lack of appropriate skills could negatively impact safety, production and the ability to deliver against targets. Failure to meet our HDSA targets could also negatively impact Lonmin's mining rights. In order to retain our skilled labour we need to continuously look at market related remuneration packages as compared to the incentive and retention schemes offered by Lonmin. This continuous monitoring of remuneration practices and matching the packages offered by our peers in order to attract and retain employees of a suitable calibre can result in increased costs.

There are processes in place for individual development programmes, succession planning and retention strategies for scarce skills. There is also a particular focus on bursaries, graduate development, mentorship programmes and an Internship programme to assist students who need to complete their practical work in order to obtain a tertiary qualifications. When recruiting, preference is given to HDSA applicants. Lonmin is also launching an artisans college. For mining there are portable skills development training programs to help drive productivity improvements.

Risk in this area remains unchanged from 2012. At the end of 2013 we had 47.6% HDSAs in management, including white women, of which 36% HDSAs are in permanent management positions. Women made up 8% of our workforce at the end of 2013, with 5.1% being in core mining positions. Woman at the mine increased by 1.8%.

More than 50% of the bursaries allocated have originated from the greater Lonmin community. Within the mining and processing divisions the Leadership Staircase programme that maps the route of an employee that is to be fast tracked for management positions has been rolled out.

2013

 $m

2012

 $m

Purchases from joint venture - Pandora

46

44

Amounts due from joint venture - Pandora

9

6

Amounts due from associate - Incwala

2

2

Dividends to minorities - Incwalai

11

14

Interest accrued from HDSA investors in Incwala

17

16

Subscription paid to the Platinum Jewellery Development Associationii

7

14

Purchases made from Glencore Xstrata Plcii

1

1

Sales to Glencore Xstrata Plciii

36

27

Amounts due from Glencore Xstrata Plciii

2

1

Amounts due from HDSA investors in Incwala

399

381

i

A Group company has made a series of non-interest bearing loans to Incwala

Platinum (Proprietary) Limited (IP). IP is a substantial shareholder in the Company's principal operating subsidiaries. In 2013 advanced dividends of R110 million (2012 - R120 million) were made to IP bringing the total advance dividends made between 2009 and 2013 to R493 million. IP has authorised the relevant Group company to recover these amounts by reducing future dividends that would otherwise be payable to all shareholders.

In addition, the Group has committed to provide an additional loan facility to IP of R160 million which they can draw down on to meet their funding obligations in March 2014.

ii

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

iii

Glencore Xstrata Plc has a 24.54% shareholding in Lonmin Plc.

iv

Refer to note 14 for details regarding the amounts due from HDSA investors in Incwala.