Annual Financial Report

Principal Risk

Impact

Mitigation

1) Failure of safety routines or safety strategy

Could result in a catastrophic loss of life, severely disrupt operations (either operationally or through the issuance of Section 54 notices) and have a material adverse effect on the Group's financial position and if severe could result in Lonmin's

Mining Licence being revoked.

Commitment from the Board and 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.

2) Poor employee relations influenced by internal and external factors

Could result in an unstable workforce that severely disrupts operations (such as through strikes and inter-union rivalry) and have a material adverse effect on the Group's financial position.

Following the strike in August and September 2012 Lonmin is rebuilding relationships with employees. This includes at Company level a full engagement strategy with all unions and at an industry level, discussions on moving to collective bargaining for the platinum sector. Rebuilding solid relationships and trust will take time but is something that the Board and management are committed to.

3) Poor community relations influenced by external factors

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. The Board and management are committed to building solid relationships with local communities to the benefit of all stakeholders.

4) Access to cost effective funding (strong balance sheet) and treasury related risks

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, as are treasury related risks such as interest rate and counter-party risks. As announced in October 2012 Lonmin is looking to restructure its balance sheet through a rights issue to improve its financial strength. This includes amending the current bank debt facilities to remove EBITDA covenants and replace these with Tangible Net Worth and Capex related covenants. These covenants will more accurately reflect the solid asset underpin of Lonmin and remove covenant risk due to market volatility.

5) Social licence to operate and reputational risk (including Social & Labour Plan)

Poor performance in meeting Social & Labour plan targets and a weak reputation could result in deteriorating relationships with stakeholders and place mineral rights at risk should Lonmin's Mining Licence be revoked.

Following the strike in August and September 2012 Lonmin's reputation has been damaged. We are co-operating fully with the Farlam Commission to better understand the tragic events that occurred at Marikana so that we can address those issue we are responsible for to ensure we never again see a repeat. We are also engaged with all our stakeholders including employees, unions, communities, suppliers and the South African government. For the Social & Labour Plan targets are set and monitored on a regular basis by the Executive Committee, the Safety & Sustainability Committee and the Transformation Committee. The Balanced Scorecard incentivises delivery against these targets.

6) 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.

7) USD 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 USD / SA Rand and PGM basket price, although this can dislocate over short periods. Current policy is not to hedge.

8) 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. Balanced Scorecard targets incentivise cost control.

9) 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 with Eskom (SA energy supplier). 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.

10) 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.

11) Theft of explosives, copper cable and product

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

Continuous security vulnerability assessments, a code of ethics, whistle blowing procedures and compliance audits are in place. We work closely with relevant government agencies as well as with key stakeholders at all levels to minimise.

12) Failure to deliver on long-term capital plans and failure to deliver shareholder value

Shareholder optimised over the long-term.

We have a strong capital projects department to manage and implement long-term capital plans. Borehole drilling, magnetic surveys and 3D seismic surveys are done to ensure full understanding of the geology on Lonmin properties. Independent peer reviews of the long-term plan. Balanced Scorecard incentivises appropriate reserve development.

13) 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 carried out every six months, with the oversight of external and internal auditors. Metals are tracked electronically

14) Ineffective contractor management

Could lead to a loss of life, health concerns in local communities, stoppage of operations and the possibility of the withdrawal of relevant licences and potential litigation.

There is a contractor hub, management procedures and basic terms and conditions of service for all service providers in place. There is also an established Steercom Committee as well as internal and external audits.

15) Bad ground conditions - Loss of reserves

Significant changes to our assessment of the quality and extent of our ore reserves could have a material adverse effect on the Group's future operational performance and financial condition.

Bore hole sampling and seismic surveys are conducted under the supervision of specialist geologists coupled with independent audits of reserves. Quality in-house technical internal review processes.

2012

 $m

2011

 $m

Purchases from joint venture - Pandora

44

46

Amounts due from joint venture - Pandora

6

1

Amounts due from associate - Incwala

2

2

Dividends to minorities - Incwalai

14

10

Interest accrued from HDSA investors in Incwala

16

15

Subscription paid to the Platinum Jewellery Development Associationii

14

14

Purchases made from Xstrataiii

1

1

Sales to Xstrataiii

27

15

Amounts due to Xstrataiii

1

3

Amounts due from HDSA investors in Incwala

381

351