14th Dec 2009 17:48
14 December 2009
Lonmin Plc ("Lonmin" or the "Company")
Annual Report and 2010 Annual General Meeting
On 16 November 2009 Lonmin announced its Final Results for the year ended 30 September 2009. The announcement made on that date included inter alia a condensed set of financial statements and a management report, as required by DTR 4.1.
Lonmin has today posted to shareholders and, in accordance with LR 9.6.1 R, has submitted to the Financial Services Authority printed copies of the following documents:
• Annual Report and Accounts for the year ended 30 September 2009 (the "Annual Report")
• Circular relating to the Annual General Meeting to be held on 28 January 2010
• Forms of Proxy for shareholders on the UK and SA registers
These documents will shortly be available for inspection at the Document Viewing Facility (from 9:00 am to 5.30 pm on every weekday except bank holidays) which is situated at the following address:
UK Listing Authority
The Financial Services Authority 25 The North ColonnadeCanary WharfLondon E14 5HS
As required by DTR 6.3.5 R (3), the Company confirms that the Annual Report and the Circular relating to the Annual General Meeting are now available to view or download in pdf format from the Lonmin website, www.lonmin.com.
Pursuant to DTR 6.1.2 R, Lonmin confirms that one of the resolutions to be proposed at the Annual General Meeting is the adoption of new Articles of Association. A description of the material changes is contained in the circular relating to the Annual General Meeting, which contains the Notice of Meeting. In accordance with its obligations under LR 13.8.10 R, Lonmin confirms that copies of the blacklined articles of association showing the proposed changes will shortly be lodged with the Document Viewing Facility and are available from the Company Secretary's Office, Lonmin Plc, 4 Grosvenor Place, London SW1X 7YL and, on the date of the Annual General Meeting, at the Church House Conference Centre, Dean's Yard, Westminster, London SW1P 3NZ from at least 15 minutes before the commencement of the meeting until its conclusion.
The appendix to this announcement contains additional information which has been extracted from the Annual Report and Accounts for the year ended 30 September 2009 (the "Annual Report and Accounts") for the purposes of compliance with the Disclosure and Transparency Rules and should be read together with the Final Results Announcement, which can be downloaded from the Company's website at www.lonmin.com. This announcement should be read in conjunction with and is not a substitute for reading the full Annual Report and Accounts. Together these constitute the information required by DTR 6.3.5. which is required to be communicated to media in full unedited text through a Regulatory Information Service. Page and note references in the text below refer to page numbers and notes in the Annual Report and Accounts.:
• A statement on internal control and the principal risks and uncertainties
• A statement on related party transactions
• Certain financial statements
APPENDIX
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.
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 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 groups risks into strategic, financial, external and operational risks. The key risks faced by Lonmin, 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.
Strategic Risk
Impact - Ineffective or poorly executed strategy fails to create shareholder value or fails to meet shareholder expectations.
|
Risk |
Impact |
Mitigation |
|
Corporate & Social Responsibility* |
Non-delivery of our Social and Labour plan could result in the withdrawal of our Mining Licence. |
Social and community programmes are monitored by the Executive Committee and the Safety and Sustainability Committee. Clear KPIs set and measured on a regular basis. Ongoing dialogue with the relevant authorities. |
|
Failure to comply with Black Economic Empowerment (BEE) codes in relation to mining e.g. failure to achieve BEE equity participation of 26% by 2014 |
Results in a deteriorating relationship with the Department of Mineral Resources (DMR) in South Africa. |
Full engagement with the DMR in South Africa and further engagement with all other stakeholders to ensure compliance. |
|
Investment and business decisions fail to deliver shareholder value |
Shareholder value not optimised. |
Review of strategy and financial returns at Board level on an annual basis. Consistent investment appraisal process applied 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 supply of water |
Could impact on the ability to run current operations and deliver future expansion plans. |
Measurement of water usage and water saving initiatives implemented. Plans aligned with long term strategy of the Company and additional water suppliers for key areas to be secured accordingly. |
|
Access to a secure supply of electricity |
Could impact on the ability to run current operations and deliver future expansion plans. |
Measurement of energy usage and energy saving initiatives implemented. Load shed and contractual agreements in place with Eskom (SA energy supplier). Continuity planning in place and additional supply for key areas to be secured accordingly. |
* see Sustainable Development Review in Annual Report and Accounts 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 (specifically US Dollar/ SA Rand) |
Significant fluctuations in exchange rates to which the Group is exposed could have a material adverse effect on the Group's future financial condition. |
Current policy is not to hedge this currency pair. There is a long term correlation between US Dollar / SA Rand and PGM basket price, although this can dislocate over the shorter term. |
|
Commodity price risk |
Significant fluctuations in commodity prices to which the Group is exposed could have a material adverse effect on the Group's future financial condition. |
Current policy is not to hedge PGM basket prices. There is a long term correlation between US Dolla r/ SA Rand and PGM basket price, although this can dislocate over the shorter term. Hedging of base metals is undertaken under the remit of the Price and Risk Committee. |
|
Uncompetitive gross and / or unit costs |
Could have a material adverse effect on the Group's competitive position and future financial condition. |
High cost per ounce assets put on care and maintenance. Cost base tailored to fit the current environment through the recent restructuring programme. Clear understanding of our competitive position and required productivity improvement plans in place. |
|
Access to cost effective funding** |
The Group may not be able to obtain cost effective funding when required which could impact on the ability of the Group to meet its liabilities as they fall due. |
Tenure of debt extended. Rights issue completed this year to strengthen the balance sheet, key covenants in banking lines constantly monitored through rolling cash flow forecasts with appropriate covenant waivers in place for FY10. Regular contact with our banking group. |
** see Financial Review in Annual Report and Accounts for more detailed disclosure 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 landscape in any of the countries in which we operate negatively impacts the business |
The occurrence of such a change could have a material adverse effect on the Group's future operational performance and financial condition. |
Ongoing dialogue with the relevant government at all levels and other key stakeholders. Effective communications programmes with key stakeholders. Other PGM mining companies would face the same issue. |
|
PGM supply & demand volatility |
Significant changes to either / both the supply and demand side in the PGM industry (e.g. production substitution or supply side constraints) could have a material adverse effect on the Group's future operational performance and financial condition. |
Gathering market information from customers and other sources. Monitoring market segments and trends in the industry. Continue to support initiatives to develop existing and new markets for PGMs. Longer term volume contracts with key customers. |
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 quality ore 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 conducted under the supervision of specialist geologists coupled with independent audits of reserves. Quality in-house technical team with multiple internal review processes. |
|
Lack of long term ore reserve depletion planning |
Shareholder value not optimised over the long term. |
Independent peer review of Long Term Plan before submission to the Board. |
|
Lack of short term ore reserve development planning |
Could severely disrupt operations and have a material adverse effect on the Group's financial condition. |
Technical Services functions acting independently of mine management located at mine shafts scrutinising flexibility and working areas. Performance measured and reported to the Board. |
|
Recoveries throughout operations not maximised |
Could have a material adverse effect on the Group's financial condition. |
Grade targets set and measured by assay and sampling in Mining. In Processing, plant maintenance programmes ensure plant stability to assist in optimising recoveries. Technical Services functions acting independently of operational management scrutinise management information. Experienced management teams and clear benchmarks set. |
|
Inadequate backup smelting capacity |
Could severely disrupt operations and have a material adverse effect on the Group's financial condition. |
Pyromets provide an element of back-up capacity. Spare capacity in No. 1 furnace currently gives ability to catch up. 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 piece of equipment |
Could severely disrupt operations and have a material adverse effect on the Group's financial condition. |
Plant maintenance programmes coupled with an on-site stock of critical spares. |
|
Contamination and / or emissions impacting on the surrounding environment and communities |
Could lead to health concerns in local communities, withdrawal of relevant licences and potential litigation. |
Emissions monitored by regular sampling. Scrubber systems in place. Long term disposal strategy for calcium sulphite established. Re-lining of tailings dams to prevent groundwater pollution. |
|
Fraud and / or theft of product |
Could have a material adverse effect on the Group's financial condition. |
Fraud awareness training and security reviews supported by a code of ethics and whistle blowing programme. Security and Investigations department operations in key areas on the business. |
|
Failure of safety routines and / or safety strategy |
Could put lives at risk, severely disrupt operations and have a material adverse effect on the Group's financial condition. |
Safety & Sustainability Committee oversees all safety matters. Safety standards set and monitored regularly throughout the 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 relations and / or union disruption |
Could severely disrupt operations and have a material adverse effect on the Group's financial condition. |
Full engagement strategy with the unions and employees supported by our other external relationships. |
|
Failure of internal controls |
Could severely disrupt operations and have a material adverse effect on the Group's financial condition. |
Clear organisational structure with appropriate segregation of duties. Independent internal and external audits with follow up of outstanding action points. |
Related Party Transactions
Pursuant to DTR 4.2.8 R Lonmin confirms that it is not party to any related party transactions, either entered into during the year ended 30 September 2009, or prior to that period.
Statement of Directors' responsibility
The following responsibility statement is repeated here solely for the purpose of complying with Disclosure and Transparency Rule 6.3.5. This statement relates to and is extracted from page 91 of the Annual Report and Accounts. Responsibility is for the full Annual Report and Accounts not the extracted information presented in this announcement or the Final Results Announcement.
"Responsibility statement
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
Chairman
Alan Ferguson
Chief Financial Officer"
Ends
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