ANNUAL REPORT AND 2018 ANNUAL GENERAL MEETING

1 FAILURE TO COMPLETE TRANSACTION WITH SIBANYE-STILLWATER

Description

The Group's loan facility agreements require it to test two covenants related to its tangible net worth (TNW) every six months. At 30 September 2017 the TNW of the Group, after recognising impairment charges in the year of $1,053 million was $674 million some $426 million below the TNW covenant threshold of $1,100 million. After the year end the Company's lenders have agreed to a waiver of the TNW covenants for the period from 30 September 2017 to 28 February 2019 on the condition that the Company cancels $66m of its undrawn credit facilities and leaves the remainder undrawn. The waiver is conditional on, among other things, the completion of the acquisition of the Group by Sibanye-Stillwater. The long stop date of this acquisition is 28 February 2019. The conditions to the transaction in South Africa and other jurisdictions include receipt of the relevant clearances from the competition and regulatory authorities; approval from Lonmin and Sibanye-Stillwater shareholders following all regulatory approvals; and court approval of the scheme of arrangement to implement the transaction. The outcome of these approvals and the risk that the Group net cash position could be materially impacted by a significant economic downturn or operational factors represents a material uncertainty to the completion of the transaction going concern assumption.

Impact

The potential impact of failure of the acquisition of the Group by Sibanye- Stillwater could give rise to a breach in its financial covenants and the potential loss of its banking facilities. These factors together represent a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern such that the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

Mitigation

In the event that the deal does not complete the covenant waivers allow for a 4 week grace period whilst other options are pursued. During the 4 week grace period a default will not occur provided that the Company engages with the lenders and, in addition to the possibility of negotiating further waivers form the lending banks, the feasibility of an asset sale to Sibanye- Stillwater, as contemplated in the 2.7 announcement , as well as any other alternative transactions will have to be assessed by the Board.

Change

This risk was not included in the risk profile published in the FY16-17 annual report.

2 LIQUIDITY - THE AVAILABILITY OF FUNDS TO MEET BUSINESS NEEDS CAN AFFECT THE GROUP'S ABILITY TO CONTINUE AS A GOINGCONCERN AND/OR CAUSE A BREACH OF CERTAIN BANK COVENANTS

Description

The availability of funds to meet business needs can affect the Group's ability to continue as a going concern and/or cause a breach of certain bank covenants. Key factors affecting the Group's liquidity position are weak metal prices, a stronger USD/ZAR exchange rate, lower than planned production and escalation in operating cost.

Impact

The impact on the balance sheet has been a reduction in net cash resources from $173 million at 30 September 2016 to a net debt position $103 million at 30 September 2017.

Mitigation

· Regular engagement with banks at principal and lower levels;

· Identification of impact of risks and opportunities on cash flow forecasted period;

· Sensitivity testing based on exchange rate changes or production losses;

· Liquidity dashboard monitoring as part of the Price Risk Committee;

· Detailed monitoring of covenants;

· Analysis of cashflow variances to the prior forecast period;

· Diversification of funding partners.

Change

Exposure to this risk remains unchanged as more challenges are experienced in terms of the liquidity status of the Company.

KPI

Free Cash Flow

3 PRICE AND MARKET VOLATILITY - FLUCTUATIONS IN THE USD/ZAR

EXCHANGE RATE MAY RESULT IN UNFAVOURABLE CASH FLOWS

Description

Flat commodity prices and strong ZAR currency contributed to the uncertainty in managing the financial risks associated with our business. This is especially because mining requires long term planning for the development of new mines and the decisions regarding the expansion and contraction of existing operations whilst seeking value creation for stakeholders. 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 whilst revenue is earned in US Dollars). The impact of unforeseen adverse movements can have a significant negative financial impact on the business.

Impact

The inherent uncertainty relating to the 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 lead to structural changes to the supply and demand fundamentals whereby customers seek substitution. Sustained low prices continue to impact the Company's revenues and profitability.

Mitigation

· Adopting conservative planning metrics under Operational Review - ZAR basket prices forecast to remain depressed in the short to medium term;

· Quarterly review of supply and demand dynamics of key products and the factors that could affect metal price volatility & forecasting processes;

· Long-term relationships and contracts with key customers to mitigate off-take risk;

· Weekly short term cash flow forecasts to manage liquidity and pro-actively flag negative cash flow impacts;

· Management of overall costs;

· Monthly Price Risk Committee Meetings;

· Implementation of selective hedging strategy to reduce the cash flow uncertainty;

· Use of an in-house market intelligence portal to assist in price forecasting methodologies; and

· Refocus on market development strategy to focus on areas with maximum potential.

Change

Risk in this area remains unchanged from 2016 although it has dropped in ranking as a result of the new risk number 1. Metal and currency markets remain volatile. Increases in PGM prices were more than offset by a weaker Rand (refer to Financial Review).

KPI

Pt $ Price, R/$ FX, Basket Price

4 SAFETY PERFORMANCE - A POOR SAFETY PERFORMANCE CAN RESULT

IN LOSS OF LIFE AND SERIOUS INJURY TO OUR EMPLOYEES. IT CAN

ALSO NEGATIVELY IMPACT PRODUCTION, AFFECT COSTS, CAUSE

REPUTATIONAL DAMAGE AND RESULT IN UNFAVOURABLE REGULATORY

INTERVENTION

Description

Safety incidents can cause loss of life and injuries to employees. Work stoppages and Section 54 stoppages will impact the Company's ability to achieve production and financial targets.

Impact

A failure in safety processes could result in injury or loss of life, which would have tragic implications for employees, their families and the communities. It would also severely disrupt operations and could result in safety stoppages which have a direct impact on the people, cost and reputation. The failures in safety procedures may be caused by employees or poor management practices. Work stoppages and Section 54 stoppages have an impact on the working rhythm, cost, production at the operations and could result in suspension of Lonmin's operating licence.

Mitigation

· Focus by the operations on leading indicators that trigger risk awareness and proactive action;

· Lonmin life rule monitoring and safety key performance indicators established per mine manager

· Management interaction with the workforce through Visible Felt Leadership;

· OPSCO weekly engagement of overall organisation wide safety performance;

· Enforcement of contractor safety management protocols;

· Behaviour based intervention focussing on employee behaviour;

· Implementation of Incident Cause Analysis Method findings post-investigation;

· Ongoing cross site and compliance audits that measure the safety maturity of each operational business unit and learnings are shared across operations;

· General Manager Safety led Improvement Plans implemented with an enhanced focus on accident analysis and pro-active preventive measures;

Change

The Company lost five employees due to fatal accidents during the year. Lost Time Injury Frequency Rate (LTIFR) improved by 9% from 4.97 in FY16 to 4.52. There were 373 Lost Time Injuries (LTI) (FY16:409) in 2017 and 509 medical treatment cases (FY16:657). The number of Section 54 stoppages has decreased during the year, as did the number of shifts lost due to these stoppages. (42 vs 50 section 54 stoppages in FY16).

KPI

LTIFR

5 OPERATIONAL EXECUTION - THE ABILITY TO DELIVER REQUIRED

OPERATIONAL PERFORMANCE (PRODUCTION AND EFFICIENCY) COULD

ADD OR DESTROY VALUE TO COMPANY SHAREHOLDERS

Description

Failure to deliver against production and cost targets can result from a variety of reasons, including poor productivity, high absenteeism, safety stoppages, industrial action, difficult geological conditions as well as ineffective control of operational expenditure.

Impact

Poor operational delivery can lead to not achieving the Business Plan deliverables which includes a decline in profitability and cash generation, which in turn poses a threat to our liquidity position and impacts profitability. Covenants in the existing debt facilities specify minimum liquidity levels, increasing the significance of this risk.

Mitigation

· Enhanced focus on improving operational attendance levels which includes the root cause analysis and mitigation of absenteeism;

· Operations Co-ordinator ("OPSCO") monitoring of sick leave and absent without official permission ("AWOP") dashboards;

· Implementation of the Labour Management Programme;

· Empowerment of frontline supervisor intervention;

· Implementation of an Operational Turn Around Plan and operational reviews;

· Rigorous performance monitoring against Business Plan targets (cost and production);

· A cost restructuring review process has also been initiated;

· Continued Department of Mineral Resources (DMR) engagement to address safety stoppages and increased operational focus to improve overall safety performance and culture; and

· Operational oversight was improved through rigorous tracking of crew performance by the Business Support Office.

Change

This risk has reduced relative to the prior year's ranking. We have seen a significant reduction in the number of Section 54 stoppages (FY16:50 vs. FY17:42) as well as the days lost (FY16:164 vs. FY17:86). The DMR has issued localised Section 54 stoppages which means only sections of a shaft or plant are stopped and not the whole operations.

Other factors which can affect production execution include community unrest, poor productivity, absenteeism, safety stoppages, industrial action, difficult geological conditions and operational expenditure.

KPI

LTIFR

6 COMMUNITY RELATIONS - A SOUND RELATIONSHIP WITH SURROUNDING

COMMUNITIES WILL ENHANCE RELATIONS AND ORGANISATIONAL

REPUTATION WHILST A FAILURE TO DO SO COULD RESULT IN

DISRUPTION OF OPERATIONS OR COMMUNITY UNREST

Description

There may be occasions where expectations by a host community cannot be met and may result in conflict and unrest. The relationship with host communities is particularly vulnerable due to differences in the leadership structures of the stakeholders that the mine engages with. This results in different splinter groups engaging the mine with different and unrealistic expectations.

Impact

This might result in failure to deliver Social and Labour Plan (SLP) commitments which impact the Company's licence to operate and may trigger protests or cause corporate reputational damage. Lonmin acknowledges the important role of communities as a critical stakeholder and has implemented various engagement platforms and development initiatives to ensure appropriate upliftment. Procurement and employment have become focus areas as communities view them as opportunities to improve their livelihood through improved income. Lonmin has identified this need and has introduced procurement and employment opportunities for the communities.

Mitigation

· Revised SLP Project implementation plans have been shared with the DMR. The regulator has been engaged regarding the backlog in the commitments that will not be delivered as per originally agreed time frames;

· A structured process for employment opportunities was made available to surrounding communities;

· Continuous engagement of Municipal leadership and capacitation (support on technical matters related to SLP);

· Structured Greater Lonmin Community ward councillors (Bapo and Non Bapo) engagements;

· Community Value Proposition being rolled out to address infrastructure requirements and education requirements;

· Implementation of revised project risk management process which incorporates stakeholder requirements; and

· Greater consultation with stakeholders which includes upliftment measures being initiated. This approach will increase community ownership of both the challenges facing communities and the solutions provided as part of the SLP implementation plan.

Change

Our relationships with local communities that surround our operations improved prior to the 2014 transaction, however, have deteriorated to some extent due to tensions within the Bapo community. The socio-economic challenges that face the Bojanala district in which Lonmin operates have placed increased pressure on the community and its leadership. The procurement opportunities given to the Bapo community, particularly the visible bus service, have given hope to the communities but profitability is under threat.

KPI

SLP Expenditure: Health, Education and Social Infrastructure, Stakeholder Engagement and Management

7 CHANGES TO THE POLITICAL, LEGAL, SOCIAL AND ECONOMIC

ENVIRONMENT, INCLUDING RESOURCE NATIONALISM

Description

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 regarding 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. The Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill is currently anticipated to be published in the first half of 2018. Beneficiation is a major consideration as it is likely that the Minister will be granted discretion to declare certain minerals as strategic, to determine the percentage of strategic minerals that are to be made available locally, determine the developmental price at which strategic minerals are to be sold, and determine the conditions applicable to export permits. In addition, the Davis Commission continues to look at the current tax regime with a view to determining whether additional taxes including a carbon tax should be imposed on mining companies. The mining industry is also awaiting clarity of the interpretation of the applicability of the "Once Empowered Always Empowered" (OEAE) principle which was argued before the High Court in November 2017 and where judgement is awaited. Finally, a High Court review application will be heard in February 2018 to consider the contents and applicability of Charter III. Pressure remains on the DMR to demonstrate that it is taking action to monitor compliance with undertakings made in the SLPs submitted by mining companies. Lonmin received a s93 notice in respect of its SLP obligations and continues to negotiate with the DMR in an attempt to reach a constructive solution. In addition, the Department of Trade and Industry is attempting to legislate a policy of creating black industrialists.

Impact

The ongoing disputes in respect of the applicability of Mining Charter III and the pending introduction of an amended MPRDA have created policy uncertainty, leading to a significant decline in investor appetite for South African investment. The amended MPRDA may lead to additional taxes and sale of metals at discounted developmental prices. The obligation to sell locally could impact long-term supply agreements with our customers. The implications of a judgement in favour of the DMR in relation to Mining Charter III include the imposition of additional royalties based on revenue streams; increased equity empowerment, procurement and employment equity levels; the writing off of loans owed by BEE investors in the event that they are not repaid via dividends received from the relevant mining company; 1% of turnover being payable to BEE shareholders; participation of BEE shareholders in the trading and marketing of the proportionate share of production they will be entitled to; and BEE owned companies being granted a right to match any sale of mining assets.

Mitigation

· The declaratory order application brought by the Chamber of Mines on behalf of the industry to determine the validity of the OEAE principle in respect of which judgement is awaited;

· The review application being brought in February 2018 to determine the reasonableness and applicability of Charter III;

· Chamber communications strategy to make the public aware of the implications of Charter III;

· Appropriate governance structures in the form of Executive and Board Committees have been established to ensure ongoing reporting of progress against agreed SLP targets.

Change

The risk in this area has increased due to continued uncertainty regarding certain policy decisions i.e. BEE requirements and strategic minerals. There remains a DMR focus on SLP compliance and Lonmin is currently subject to a s92 Notice in this regard. Cyril Ramaphosa was elected as the new party president at The African National Congress ("ANC") Elective Conference held in December 2017. It is uncertain whether there will be a change in policy following this conference and the election of the new ANC president.

KPI

Not applicable

8 EMPLOYEE AND UNION RELATIONS - OPTIMAL RELATIONS CAN

SIGNIFICANTLY ENHANCE OPERATIONAL EXECUTION AND IMPROVE

EMPLOYER-EMPLOYEE RELATIONSHIPS, WHILST A BREAKDOWN IN

RELATIONS COULD RESULT IN PRODUCTION STOPPAGES AS WELL AS

A BREAKDOWN OF TRUST

Description

The industrial relations environment has stabilised over the last 12 months as evidenced by the improved dialogue between unions and company management. Whilst the environment has remained stable, the potential for volatility remains, which could result in disruptions to operations and have a material adverse effect on the Company's financial position. A major concern is internal differences or rivalry within Association of Mineworkers Construction Union (AMCU) resulting in infighting and lack of cohesiveness in leading their members and engagement with Lonmin management.

Impact

Various internal as well as external factors could influence the employee relations space and could lead to a breakdown of employer-union relations. A key contributor to this is current internal AMCU challenges that have a risk of being violent and could result in loss of life and potentially impact on production.

Mitigation

· Structured engagement forums with unions across all levels e.g. Senior leadership and Shaft forums;

· Legally required Future forum established;

· Pertinent issues being discussed with organised labour at present are poor operational performance, future of the mine, absenteeism and sick leave abuse, over-complement labour and dealing with this, rental payments for infill apartments as well as rationalisation of union branch structures ahead of union leadership elections;

· Engagement with AMCU at all levels, and with relevant authorities to enhance safety and security in the area; and

· As part of improving employer relations, the established relationship building programme and charter to govern relations between unions and the Company are also under review.

Change

Despite improvement experienced in terms of engagement processes with the major union, the industrial relations environment still remains a challenge due to new union leadership elections being conducted.

KPI

ER structures (Number of meetings)

9 UTILITIES - ACCESS TO SECURE ENERGY AND WATER AS WELL AS THE

OPTIMAL USE OF THE INPUT RESOURCES ARE CRITICAL FOR MINING

OPERATIONS

Description

The higher than inflation tariff based increases in electricity and water are set to continue. Efforts are continuing to improve efficiency of the use of these utilities to ensure that costs are contained as best as possible year on year. A stable electricity environment, in terms of pricing, is critical in ensuring long term sustainability. The deteriorating financial position of ESKOM and the potential cost impacts to industry in an attempt to try and claw back revenue lost, due to lower power sales and the increasing burden of expansion program interest charges, remains a real concern and cost threat. Near term uncertainty is set to continue with continued pressure for above inflationary increases. Water utilization has also been challenging, both from an infrastructure point of view as well as availability. Capacity deterioration within local municipalities is also adding to this challenge. The establishment of informalsettlements resulted in communities requesting water and electricity supply as a basic need and keeps adding to the burden of local municipalities and industries for service delivery. Reduced dependency on Rand Water Board (RWB) supply, to the Lonmin operations, is set to be an ongoing strategic drive.

Impact

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. Water availability is becoming a critical component of any business to survive and still remains a basic human need. The risk associated with water is higher than the risk associated with electrical supply. RWB supply is forecasted to run dry in Gauteng during 2019. ESKOM is currently in an oversupply, and with the continued low to no economic growth, this is set to continue. The risk regarding electricity is the potential spiralling cost escalations to try and compensate for less power sales year on year. Changes in peak and non-peak power rates are also a real threat and peak power rates could be increased significantly going forward.

Mitigation

Ongoing implementation of the electricity conservation programme as well as water optimisation through demand management. An integrated water management plan for Lonmin has been developed with the goal to reduce RWB reliance as far as possible, within the operations, and to maximise the recovery and re-use of all other sources of water. Longer term plans to treat some streams of these alternative sources to potable level to make the business more independent of RWB. Lonmin is exploring further opportunities to supply communities out of such streams. As part of ensuring optimal electricity usage, Lonmin is a member of the ESKOM energy intensive user groups ("EIUG"), as well as conducting monthly and daily electricity consumption and reporting. Additional initiatives to ensure optimal usage are the electricity conservation programme and loadshedding contractual agreements to manage supply side constraints. As part of ensuring appropriate continuity during an outage, the Company has implemented risk based scenario planning based on available ESKOM capacity. From a water optimisation perspective, the Company has implemented water conservation and demand management initiatives. The process as to how water is being monitored and managed is aligned with how power is being managed in the business. Substitution of RWB with other water sources will remain an ongoing focus, so to reduce the reliance on this supply.

Change

Current supply constraints and proposed tariff increases in respect of energy and water have a significant impact on the Company's ability to operate effectively and to meet our production targets. From an energy perspective, the risk in this area remains unchanged due to aging municipal infrastructure that could result in an increase in the amount of unplanned outages, however from a water perspective it has increased due to lower precipitation levels and ongoing impact of climate change. The expectations of surrounding communities especially on water supply and services, are ever increasing and the inability of local and provincial governments structures to address the expectations will continue to transfer the pressure on mining operations to step into this gap and supply their requirements in various ways and forms in communities around their operations.

KPI

Water and Electricity usage

10 LACK OF GEOGRAPHICAL AND PRODUCT DIVERSIFICATION

Description

Lonmin's principal operating subsidiaries are concentrated in one geographical location, which increases the level of risk of localised disruptions having an impact on the majority of our operations. In addition, Lonmin is a platinum-group metals ("PGM") producer and does not have exposure to other commodities or sectors.

Impact

Local events in the vicinity of Marikana have the potential to disrupt Lonmin's operations in this area, which represent all of the Company's operating mines as well as the majority of our processing operations. Such a disruption could significantly impact the Group's operating and financial performance. The Group is also a focused PGM producer and has limited exposure to other commodities. When the PGM market is depressed, the Company's financial performance is likely to be negatively impacted as it does not have material exposure to alternative commodities that may have a different economic cycle and offset this PGM pricing weakness.

Mitigation

· Recommended • offer by Sibanye-Stillwater will provide geographical and commodity diversification

· The Company continues to review its portfolio of projects and opportunities.

Change

The risk has reduced due to the recommended offer by Sibanye-Stillwater.

KPI

Not applicable

11 LOSS OF CRITICAL SKILLS

Description

The loss of critical skills remains a challenge for the Company. The uncertainties related to the Company's financing and sustainability remain and these are amplified by the continued uncertainty in the mining sector. Under these conditions, the loss of key skills is a significant risk to the organisation.

Impact

The loss of critical skills in key positions could play a significant role in our ability to deliver against production and financial targets. In order to retain our skilled labour, we continuously review our remuneration packages and the incentive and retention schemes. This allows our pay structures to remain in line with the packages offered by our peers. An inherent risk of attracting and retaining employees of the required calibre is that it can result in increased costs.

Mitigation

· Individual Development Plans, succession planning and retention strategies for scarce skills have been established as part of ensuring the development and retention of critical skills;

· Ongoing monitoring of remuneration practices which matches Lonmin peers;

· Retention programmes for key skills

· Categorisation of skills, establishment of promotional pools and career paths reviews to remain relevant to the organisation have been established; and

· Graduate development, mentorship programmes and internship programmes have also been established to ensure development of existing and future human resources capacity.

Change

The retention of critical skills remains a key risk to the organisation. One of the key safeguards at the moment is the fact that a large part of the mining sector is experiencing similar challenges to the ones that Lonmin is experiencing which has limited the number of opportunities that are available. The risk for Lonmin is that it may not always be able to replace the critical skills understanding the business and the environment with resources available in the market.

KPI

Employee relations

2017

$m

2016

$m

Transactions in the year:

Purchases from joint venture - Pandora

33

30

Amounts due from joint venture - Pandora

6

5

Amounts due from associate - Incwala

1

1

Interest accrued from HDSA investors in Incwala

26

27

Subscription paid to the Platinum Jewellery Development Associationi

5

7

Balances at 30 September:

Amounts due from HDSA investors in Incwalaii

416

376