Annual Financial Report

Principal Risk

Impact

Mitigation

Failure of safety

routines or safety

strategy

Could result in a catastrophic loss of life, severely disrupt operations and have a material adverse effect on the Group's financial position.

Commitment from Board and senior management towards creating a safe culture throughout the Group. The Safety & Sustainability Committee monitors the implementation of the safety strategy on behalf of the Board. Processes in place for safe production include:

• Employee engagement strategy and safety training standards, both of which are monitored regularly;

• Clearly defined safety protocols including safe behaviour observations in place;

• Regular third party audits and peer reviews conducted; and

• Balanced scorecard measures incentivise appropriate safety behaviour.

Resource Nationalism

A negative outcome as a consequence of resource nationalism, which can take many different forms, could have a material adverse effect on the Group's future operational performance and financial position.

Ongoing dialogue with key stakeholders and government at all levels to understand and address concerns.

Skills shortages

Lack of appropriate skills could negatively impact upon safety, production and the ability to deliver against targets.

Processes for individual development programmes, succession planning and scarce skills allowances are in place. There is a focus on bursaries, graduate development and mentorship.

Non-delivery of

Transformation

Could results in deteriorating relationships with stakeholders and place mineral rights at risk.

We engage with all our stakeholders including the South African government. Targets are set and monitored on a regular basis by the Exco, the Safety & Sustainability Committee and the Transformation Committee. The Balanced Scorecard incentivises delivery against certain targets.

Access to secure energy, electricity

and water

Could impact on the ability to run current operations and deliver future expansion plans.

Measurement of energy usage and energy saving initiatives implemented. Load shedding and contractual agreements in place with Eskom (SA energy supplier). Likewise, measurement of water usage and water saving initiatives implemented. Plans aligned with long term strategy. Electricity and water supplies secured for key areas of the business. Active participation in relevant industry bodies.

Failure to deliver on long term capital plans

Shareholder value may not be optimised over the long term.

Strong capital projects department built up to implement long term capital plans. Borehole drilling, magnetic surveys and 3D seismic surveys are conducted to ensure full understanding of the geology on Lonmin properties. Independent peer reviews of the long term plan are carried out. Balanced Scorecard incentivises appropriate reserve development.

US Dollar metal price and currency volatility (specifically US Dollar/ SA Rand)

Significant changes in the supply and demand of PGMs (e.g. if there is product substitution or supply side constraints) can create volatility in PGM prices making long term planning difficult. Likewise, significant fluctuations in exchange rates to which the Group is exposed can also make planning difficult and have a significant effect on the Group's financial position.

Lonmin gathers market information from a number of sources to monitor market segments and trends in the industry. Longer term volume contracts with key customers mitigate off-take risk. Historically there has been a long term correlation between US Dollar/ SA Rand and PGM basket price, although this can dislocate over short periods. Current policy is not to hedge.

Access to cost effective funding

The Group may not be able to obtain cost effective funding when required which could impact the ability of the Group to meet its liabilities as they fall due.

Headroom and key covenants in banking lines are constantly monitored through rolling cash flow forecasts. The current bank debt facilities were re-negotiated during the year allowing greater flexibility.

Uncompetitive gross or unit costs

Could have a material adverse effect on the Group's competitive position.

Lonmin has a clear understanding of its competitive position and required productivity improvement plans are in place. Balanced Scorecard incentivises cost control.

Poor employee relations due to internal and external factors that could result in strike action

Could result in an unstable workforce that severely disrupts operations and has a material adverse effect on the Group's financial position.

A full engagement strategy with the unions and employees is in place, which is governed through a clearly defined Industrial Relations structure. Recognition agreements are in place.

Poor community relations due to internal and external factors that could result in civil unrest.

Civil unrest could severely disrupt operations and have a material adverse effect on the Group's financial position.

A full engagement strategy with community representatives, unions and employees is in place.

Inadequate smelting performance and back-up capacity

Could severely disrupt operations and have a material adverse effect on the Group's financial position.

The Pyromet furnaces provide an element of back-up capacity. Spare capacity in Number One furnace currently gives some ability to catch up. Number One furnace includes improved monitoring and fault detection technology. The Number two furnace is currently under construction and should become operational in May 2012.

Excessive dilution and poorly optimised plant leading to recoveries not in line with plan

Could have a material adverse effect on the Group's financial position.

Grade targets set and reported. Technical service function reviews management information and quality control of data capture and measurement. Third party audits and peer reviews conducted to guide grade target levels. Plant maintenance programmes ensure plant stability to assist in optimising recoveries. Further investments made to enhance metallurgical recoveries. Experienced management teams and clear benchmarks set. Balanced Scorecard incentivises maximisation of recoveries.

Lack of short term ore reserve development planning

Shareholder value not optimised over the long term.

Performance measured against budget and reported through the Exco to the Board. An on shaft independent technical services function provides support to the mining teams. Balanced Scorecard incentivises reserve development. Internal reviews regularly conducted.

Impact of climate change on the business including the impact of a carbon pricing system

Climate change is an international problem that could lead to devastating consequences which are as yet not completely understood. Coupled with the proposed introduction of carbon taxation it is likely that climate change will have a financial impact upon the business.

Lonmin has a comprehensive Response Strategy to Climate Change in place. This includes operational plans to manage and monitor energy, electricity and water efficiencies and includes participation in climate change forums.

Failure in internal controls or accounting processes

Could severely disrupt operations and have a material adverse effect on the Group's financial position.

Lonmin has a clear organisational structure with appropriate segregation of duties and independent internal and external audits with follow up. The Internal Audit work plan is closely aligned to the risk management framework and risk profile of the Group. From an inventory evaluation perspective, grade targets are set and reported against. Samples are analysed at the assay laboratory. Stock counts are carried out every six months, with the oversight of external and internal auditors. Metals are tracked electronically.

2011

 $m

2010

 $m

Purchases from joint venture - Pandora

46

 42

Amounts due from joint venture - Pandora

1

 1

Amounts due from associate - Incwala

2

 2

Dividends to minorities - Incwalai

10

 22

Interest accrued from HDSA investors in Incwala

15

 9

Subscription paid to the Platinum Jewellery Development Associationii

 14

 12

Purchases made from Xstrataiii

1

 2

Sales to Xstrataiii

15

 5

Amounts due to Xstrataiii

-

 2

Amounts due from Xstrataiii

3

 4

Amounts due from HDSA investors in Incwala

351

 342