2nd May 2007 07:01
Lonmin PLC02 May 2007 News Release Interim Results (Part 1 of 2) Embedding Further Growth• A difficult operational first half with positive PGM price movements• Mine production of 450,894 saleable ounces of Platinum and 848,548 saleable ounces of total PGMs in concentrate• New mechanised shafts at Marikana performing ahead of expectations and will continue to ramp up in the second half of the year• Number One furnace rebuild completed successfully and smelter capacity increased• Viable project for around 85,000 Platinum ounces per annum defined at Limpopo phase 2• Akanani potential increased as drill results confirm continuity of mineralogy for entire 9 km strike length of property• Maintaining full year sales guidance of around 980,000 to 1 million ounces of Platinum• Interim dividend increased by 22% to 55 cents per share +--------------------------------+-------+-------------+------------+----------+|Financial highlights - | | | | ||Continuing Operations | | 2007 | 2006 | Variance ||Six Months - 31 March 2007 | | | | |+--------------------------------+-------+-------------+------------+----------+|Turnover | US$m | 631 | 708 | (10.9)% |+--------------------------------+-------+-------------+------------+----------+|EBITDA (i) | US$m | 272 | 342 | (20.5)% |+--------------------------------+-------+-------------+------------+----------+|EBIT (ii) | US$m | 229 | 304 | (24.7)% |+--------------------------------+-------+-------------+------------+----------+|Underlying profit before | | | | ||taxation (iii) | US$m | 235 | 288 | (18.4)% |+--------------------------------+-------+-------------+------------+----------+|Profit before taxation | US$m | 132 | 81 | 63.0% |+--------------------------------+-------+-------------+------------+----------+|Earnings per share | cents | (2.0) | (47.1) | 95.8% |+--------------------------------+-------+-------------+------------+----------+|Underlying earnings per share | | | | ||(iii) | cents | 81.5 | 110.3 | (26.1)% |+--------------------------------+-------+-------------+------------+----------+|Trading cash flow per share (iv)| cents | 107.3 | 122.3 | (12.3)% |+--------------------------------+-------+-------------+------------+----------+|Free cash flow per share (v) | cents | 25.8 | 63.2 | (59.2)% |+--------------------------------+-------+-------------+------------+----------+|Equity shareholders' funds | US$m | 1,658 | 734 | 125.9% |+--------------------------------+-------+-------------+------------+----------+|Net debt (vi) | US$m | 665 | 590 | 12.7% |+--------------------------------+-------+-------------+------------+----------+|Interest cover (vii) | x | 58.5 | 15.9 | 267.9% |+--------------------------------+-------+-------------+------------+----------+|Gearing (viii) | % | 27 | 44 | (38.6)% |+--------------------------------+-------+-------------+------------+----------+ NOTES ON HIGHLIGHTS (i) EBITDA is operating profit before depreciation and amortisation.(ii) EBIT is defined as revenue and other operating expenses before net finance costs and before share of profit of associates and joint ventures.(iii) Underlying earnings are calculated on profit for the period excluding movements in the fair value of the embedded derivative associated with the convertible bond, exchange on tax balances, profits on the sale of Marikana houses and an adjustment to the interest capitalised in prior years as disclosed in note 3 to the accounts.(iv) Trading cash flow is defined as cashflow from operating activities, being the net profit or loss for the period adjusted to eliminate the effects of non cash movements. It reflects the net impact of all operating activity transactions on the cash flow of the Group.(v) Free cash flow is trading cash flow from operating activities less expenditure on property, plant and equipment, intangibles, proceeds from disposal of assets held for sale and dividends paid to minority interests.(vi) Net debt comprises cash and cash equivalents, bank overdrafts repayable on demand, interest-bearing loans and borrowings, and convertible bonds grossed up for capitalised fees.(vii) Interest cover is calculated for the 12 month periods to 31 March 2007 and 31 March 2006 on the underlying operating profit divided by the underlying net interest payable excluding exchange.(viii) Gearing is calculated on the net debt attributable to the Group divided by the total of the net debt attributable to the Group and equity shareholders' funds. Commenting on the results, Brad Mills, Lonmin's Chief Executive said:"Our results reflect the successful conclusion of a difficult operational firsthalf. We have deliberately deferred substantial revenue and earnings into oursecond half to preserve margins otherwise lost on the sale of concentrate. Wehave now completed the rebuild of the Number One furnace and have also addedsubstantially to our smelting capacity with the re-commissioning of the 8 megawatt Merensky furnace. This furnace is running extremely well and we expect toprocess our entire concentrate inventory in the second half of the year. We aremaintaining our guidance for full year sales of around 980,000 to 1 millionounces of Platinum. We continue to build strong production growth into Lonmin.At Akanani, we are pleased that drilling has confirmed mineralisation of asimilar profile at slightly narrower widths for the northern part of the strikelength of the property and we are today announcing a new resource for thesouthern part of the property." Enquiries: Alex Shorland-Ball, Lonmin Plc +44 (0) 20 7201 6060 This press release is available on www.lonmin.com. A live webcast of the interim results' presentation starting at 09.30hrs (London) on 2 May 2007 can be accessed at http://gaia.world-television.com/lonmin/20070502/trunc. There will also be a web question facility available during the presentation. An archived version of the presentation, together with the presentation slides, will be available on the Lonmin website. Chief Executive's Comments Introduction The first half of our financial year was adversely impacted by the shutdown andsubsequent rebuild of the Number One furnace. As a consequence of the accidentwe have deliberately stockpiled concentrate to be processed and sold in oursecond half in order to retain margin otherwise lost on concentrate sales. Therebuild of the furnace has now been completed and normal operations haveresumed. We completed the re-commissioning of our Merensky furnace during theperiod and this furnace is running well, delivering throughput ahead of ourexpectations. In the second half of the year we plan to process all ourconcentrate stocks and we are maintaining our full year sales forecast of around980,000 to 1 million ounces of Platinum. Both our Marikana and Limpopo mining operations experienced a challenging firsthalf. Marikana was impacted by a longer than usual Christmas break and a one daywildcat strike but still delivered 403,860 saleable ounces of Platinum inconcentrate in the period. Our new mechanised mines at Saffy and Hossy shaftshave come into production using the ultra low profile equipment and aredelivering ahead of budget. We will continue to ramp up production from thesenew shafts in the second half of the year. At Limpopo we focused on achievingthe development rate necessary to support sustained mining operations. We continue to build strong growth into Lonmin's portfolio and completed theacquisition of a 74% interest in the Akanani project in February. Akanani isdeveloping into an exceptional PGM ore body and, we believe, can be developedinto a low cost mechanised mine adding to our production from 2013 onwards. AtAkanani we have continued to drill new holes since we completed the acquisitionof the asset. An additional 7 drill holes have been completed in the northernsection of the property, which indicated an arithmetic average grade of 4.57grams per tonne (3PGE + Au) over an average width of 11.59 metres. Theseresults indicate that the mineralisation continues north from the initialinferred resource area along strike and confirm the potential for this project. We have completed the pre-feasibility study for Limpopo phase 2 which indicatesthis asset can be developed into a fully mechanised mine delivering around85,000 attributable ounces of Platinum per annum when it reaches fullproduction. Safety Our safety performance has been broadly flat during the period with our losttime injury frequency rate per million man hours worked down to 12.37 versus12.45 at the end of the last financial year. The severity of injuries hascontinued to reduce, with our severity ratio now running at an average of 10.57days lost per LTI, an improvement of 23.5% on the 13.81 we recorded for the 2006financial year. We regrettably suffered two industrial fatalities during the sixmonths at our Marikana operations. We continue to work to embed the value of safe production within our systems andbehaviours in order to achieve our goal of Zero Harm. We have continued to useDuPont Visible Felt Leadership Training across the operations and are completingthe roll out of our Fatal Risk Protocols. Each operation has now put in place adetailed safety plan to achieve our targeted improvement in performance.Industrial theatre has also proved a useful tool in influencing behaviours andwe will continue to use it throughout the second half of the year. Marikana Mining The Marikana mining operations produced 5.58 million tonnes mined fromunderground operations. This was in line with our performance in the same periodlast year after stripping out the effect of the additional seven days ofproduction which were included in last year's figures in order to align ourproduction month with the calendar month. We have continued to reduce theopencast tonnes mined on Marikana ground with 0.7 million tonnes mined versus0.9 million for the six months to March 2006. During the period we began stoping operations at Saffy and Hossy; our two newdeep shafts. These shafts are being developed on a fully mechanised basis usingour ultra low profile equipment. The start up of these operations has progressedwell and both shafts are currently performing ahead of our expectations. We willcontinue to increase production from these shafts and other mechanised areas inthe second half of the year. We remain confident that we will achieve our targetof 50% mechanised production by 2010. Limpopo Mining Our Limpopo mine produced 18,759 saleable ounces of Platinum and 39,020 saleableounces of total PGMs in concentrate in the period. At Limpopo we continued towork towards our target of achieving steady state production of around 120,000tonnes per month. Our focus during the first six months has been on reaching anoptimal development rate as quickly as possible to give us the flexibility ofsufficient open reserves to sustain this production level. This plan hasprogressed well but will mean a reduced level of production from the mine thisyear. We now forecast around 46,000 to 50,000 saleable Platinum ounces inconcentrate for the 2007 financial year. On our current plan, the mine willreach a steady state of 120,000 tonnes per month by mid 2008. Pandora Joint Venture We continued to mine ore from the Pandora ground during the six months both asan extension of our E3 shaft and an open pit operation. Once mined, Lonminpurchases the ore from the Pandora Joint Venture and these ounces are thenincluded in our tonnes milled and metallurgical figures. We produced 25,600saleable ounces of Platinum and 48,238 saleable ounces of total PGMs inconcentrate in the period. We receive revenue from the Pandora ground both as a42.5% partner in the Joint Venture and from the on sale of the ounces we producefrom our ore purchases. In total Pandora contributed US$38 million to ourrevenue line and US$7 million to our profit before tax in the period. Process Division On 16 December 2006 a leak occurred in the Number One furnace adjacent to one ofthe matte tap holes. We shut down the furnace and after a thorough investigationdetermined that the integrity of the vessel had been compromised and a totalrebuild was required. This rebuild has now been completed and we tapped mattefrom the Number One furnace on 30 April 2007. In the second half of 2006 we took the decision to re-commission our 8 mega wattMerensky furnace to add to our smelting capacity and mitigate the risks of ourreliance on one smelting vessel. The first matte tap from the Merensky furnacetook place on 12 March 2007 and it has been running very well deliveringthroughput in excess of our targeted rate of 200 tonnes per day. With the Merensky furnace, the rebuilt Number One furnace and our three Pyrometfurnaces we now have installed smelting capacity of around 40 mega watts, anincrease of around 25% on last year. We will use a combination of our availablecapacity in the second half of the financial year which will allow us to processthe considerable concentrate stocks which have built up during the first sixmonths. Our Base Metal Refinery and Precious Metal Refinery have seen much reducedlevels of throughput during the period due to the smelter shutdown. We havetaken the opportunity to conduct necessary maintenance and upgrades during theperiod to prepare both plants for the increased throughput in the second half ofthe financial year. We produced 470,015 ounces of total PGMs from our own refineries in the sixmonths. We despatched an additional around 190,000 ounces of total PGMs inconcentrate which we were unable to store for toll refining. Of these, at theend of March, we had received back 44,653 ounces of toll treated PGMs. We willreceive back the remainder of these ounces for sale during the second half ofthe financial year. Concentrate inventory built up for processing within Lonmin,at the end of the six month period, is estimated to contain around 185,000ounces of total PGMs. Metal sales for the period reflect the lower level of throughput with 274,440Platinum ounces and 517,218 ounces of total PGMs sold. Six Sigma Our Six Sigma programme continues to perform well with R175 million of benefitgenerated in the first half of which a large element is currently reflected instock. We remain on track to achieve our target of R400 million of net EBITbenefit in this financial year. Costs and Capital Expenditure Costs in dollar terms were broadly unchanged compared with the same period lastyear. In Rand terms costs increased by US$81 million, around half of which wasdue to planned additional costs, including the increased amount of Pandora orewe purchased (US$14 million), and the other half was due to cost pressurescommon within the industry, including increased labour costs. These increaseswere offset by a currency gain on translating the weaker Rand against the dollarof US$64 million and higher base metal credits of US$28 million. Our Rand C1 costs have been impacted by these cost pressures and by the lowerlevels of throughput in the first half, with C1 costs of own production ofR3,181 per PGM ounce sold net of base metal credits for our Marikana and Limpopooperations combined. We expect to see a significant improvement in our unit cost performance in thesecond half of the year as we return to more normal levels of production. We aremaintaining our full year cost guidance of between R2,650 to R2,700 per PGMounces sold net of base metal credits for Marikana, which translates into ablended C1 cost for the Marikana and Limpopo operations of between R2,900 andR3,000 per PGM ounce sold net of base metal credits. We are revising our forecast for capital expenditure for the full year fromUS$370 million to US$300 million as we experience short delays in some of oursmaller capital projects and a proportion of the spending on these projects willnow fall into the early part of next financial year. Markets The Platinum market has continued to be robust with ongoing strong demandparticularly from the autocatalyst sector as global trends towards stricter andtighter emissions requirements continue. The supply side has remainedconstrained. During the six months the price has moved from US$1,156 per ounceto US$1,246 per ounce, an increase of 7.8%. The Palladium price has risen by 10.6% during the period on the back of bothstrong autocatalyst demand and continued modest interest from the Chinesejewellery market. The Rhodium market is being driven by autocatalyst demand and inelastic supplywith the price at the end of the six months at US$6,225 per ounce, a rise of29.7% over the period. The last six months have seen a strong upward trend in the Ruthenium price whichhas moved from US$185 per ounce to US$700 per ounce an increase of 278.4%. Thisprice increase is driven primarily by demand from manufacturers of hard diskdrives where it is used alongside Platinum to substantially increase the storagecapacity of the disks without increasing the size. Supply response is completelyinelastic as the metal is entirely a by product of Platinum production. The Iridium price has also increased by 15% during the last six months fromUS$400 per ounce to US$460 per ounce on the back of increased demand for theproduction of crucibles used in single crystal growth. Growth - Akanani During the last six months we have continued to consolidate our strong growthprofile with the acquisition of the Akanani project. This acquisition wascompleted at the beginning of February. We are excited about the potential forAkanani which is a unique deposit in the Bushveld and has an ore body of a widthwhich will allow us to develop the project as a low cost fully mechanised mine. At the time we made the acquisition the ore body had only been drilled to anymaterial extent along strike in the southern section of the property. Since weacquired Akanani we have completed nine further drill holes seven of which werealong 6 kilometres of strike in the northern portion of the asset. These sevennorthern holes indicate the ore body continues at a similar width and gradealong the entire 9 km strike. The arithmetic average from these holes in thenorthern area is 4.57 grams per tonne (3 PGE+Au) at a width of 11.59 metres. Asa result of the additional drilling in the southern section of the propertysince the last resource estimate was completed in September 2006, we haverevised our resource estimate to 18.1 million tonnes of indicated resources inthe upper mineralised zone of the Platreef ("P2") section of the reef at 4.88grams a tonne (3 PGE+Au) and P2 inferred resources of 236.6 million tonnes at3.80 grams per tonne (3PGE+Au). For the lower mineralised zone of the Platreef("P1") section of the reef we estimate an initial inferred resource of 109.9million tonnes at a grade of 2.50 grams per tonne (3PGE+Au). The additionalindividual bore holes are as follows: +------------------+----------------+----------------+------------+-----------+| Borehole | Width (metres) | 3PGE+Au (g/t) | Cu (%) | Ni (%) || | | | | |+------------------+----------------+----------------+------------+-----------+| Northern section | | | | |+------------------+----------------+----------------+------------+-----------+| MO007 | 9.44 | 3.88 | 0.13 | 0.23 |+------------------+----------------+----------------+------------+-----------+| MO008 | 12.89 | 5.72 | 0.17 | 0.31 |+------------------+----------------+----------------+------------+-----------+| MO010 | 29.13 | 5.25 | 0.17 | 0.33 |+------------------+----------------+----------------+------------+-----------+| MO011 | 1.97 | 3.52 | 0.03 | 0.12 |+------------------+----------------+----------------+------------+-----------+| MO012 | 3.08 | 3.50 | 0.11 | 0.20 |+------------------+----------------+----------------+------------+-----------+| MO015 | 7.85 | 4.31 | 0.07 | 0.16 |+------------------+----------------+----------------+------------+-----------+| MO018 | 16.75 | 5.83 | 0.13 | 0.23 |+------------------+----------------+----------------+------------+-----------+| Arithmetic | 11.59 | 4.57 | 0.12 | 0.23 || Averages | | | | |+------------------+----------------+----------------+------------+-----------+| | | | | |+------------------+----------------+----------------+------------+-----------+| Southern section | | | | |+------------------+----------------+----------------+------------+-----------+| ZF034 | 2.02 | 2.30 | 0.05 | 0.08 |+------------------+----------------+----------------+------------+-----------+| ZF039 | 39.65 | 4.45 | 0.25 | 0.41 |+------------------+----------------+----------------+------------+-----------+ During the second half of the year we will continue our programme of drilling atAkanani both to increase our confidence in the reserves in the southern sectionof the property and to extend the reserves along strike in the northern section. Growth - Limpopo phase 2 and Pandora We completed our pre-feasibility study on the Limpopo phase 2 project at the endof March 2007. The pre-feasibility study confirms our initial view that thisproject can be developed as a fully mechanised mine. The property will producearound 85,000 Platinum ounces for Lonmin's account when at steady stateproduction. We currently expect first production in 2011. The initial estimatesfor Lonmin's share of the capital for the project are US$350 million. We have also completed the pre-feasibility study for the Pandora project. Due tothe difficult nature of the geologic ground conditions in this area, it is ourview that it is not possible to develop this property as a viable mechanisedmine. This property will however support an economically viable conventionalstyle PGM mine. The development of a new conventional mine is not in line withour operating strategy and we have removed Pandora from our current growthprofile. We are currently reviewing our options around this property with ourJoint Venture partners. Dividend Based on our continued confidence in the outlook for our business against abackdrop of strong PGM markets, the Board has declared an interim dividend of 55cents per share, an increase of 22% on the interim dividend paid last year. Outlook The last six months have been challenging operationally for Lonmin on both themining and processing sides of the business. However, the work we have completedduring the period leaves us well positioned for the second half of the year. Wehave completed the rebuild of the Number One furnace and built furtherflexibility into our smelting operations with the re-commissioning of theMerensky furnace to provide additional capacity. In the remainder of thefinancial year this will allow us to process the concentrate inventory which hasbuilt up in the first half. Our new mechanised shafts at Saffy and Hossy havecome into production and are performing ahead of our expectations. We willcontinue to ramp up production from these shafts in the second half of the year. We continue to execute our strategy to capture and build additional productiongrowth for Lonmin in a robust market for Platinum and the other PGMs. We havecompleted the pre-feasibility study for Limpopo phase 2 and confirmed theviability of a mechanised mine producing around 85,000 Platinum ounces for ouraccount. We have confirmed the potential of the ore body at Akanani withdrilling showing the mineralogy continues along strike at a similar width andgrade to that which we have seen in the southern section of the property. The contribution of Lonmin employees, contractors and community members duringthe last six months and to the ongoing success of Lonmin is highly valued andtheir hard work and dedication is greatly appreciated. Bradford A MillsChief Executive1 May 2007 Financial Review Introduction The financial information presented has been prepared on the basis ofInternational Financial Reporting Standards (IFRSs). Analysis of results Income Statement The key operating factor influencing performance in the period was theoccurrence of a leak in the Number 1 furnace on the 16th December 2006. As aresult of the detailed design review which followed the incident we decided toundertake a full re-build of the furnace to restore it to its original designcondition. The Number 1 furnace was non-operational for the remainder of thefinancial period and re-commenced production on 30th April 2007. During theperiod we ran our three pyromet furnaces but capacity was constrained. As aresult of the above, sales volumes of PGMs at 517 thousand ounces in the periodwere nearly 280 thousand ounces lower than the comparative period. The fall involume was offset by a 31% price increase for the PGMs sold, reflecting thestrong market conditions, and an additional $28 million by-product revenues fromNickel and Copper. The resultant revenue for the period was $631m (2006: $708m). A comparison of the period's total operating profit with the prior period is setout below: $m Total reported operating profit for the 6 months to 31 March 2006 304 PGM volume (222) PGM prices 142 Base metals 28 Foreign exchange 64 Cost changes (81) Sale of houses (special) (6) _____ Total reported operating profit for the 6 months to 31 March 2007 229 ===== Operating profit for the period was adversely impacted by the 35% reduction inPGM sales volumes described above and this had a profit flow effect of $222million. This was offset by $142 million of pricing benefit in PGMs and the $28million benefit in by-products. The average R:$ exchange rate was some 16%weaker than in the prior period and this generated a $64 million benefit as themajority of costs are based in Rand. Underlying costs in Rand increased by $81million. Cost changes (increase) / decrease: $m Safety, health, environment and community ('SHEC') (6) Social and labour plan (4) Capital and strategic planning (3) Depreciation (5) Exploration (including AfriOre) (5) Pandora ore purchases (14) Limpopo costs (4) Labour escalation (17) Commodity / other escalation (13) Plant running (3) Royalties (4) Other (3) _____ (81) ===== The Group continues to invest to develop the business and to meet ourobligations under the South African mining charter. Particular areas of focushave been in the areas of safety and people development and in this period wehave embarked on a substantial adult education and training programme as part ofour social and labour plan. We have also enhanced our capital and strategicplanning departments to support the significant projects portfolio beingdeveloped including projects such as metallurgical expansion and the newgeneration platinum mines. We continue to be active in the area of exploration and have increased ourinvestment levels modestly. This increase also reflects the work beingundertaken through the acquisition of AfriOre. At the EBIT level costs have increased by $14 million reflecting ore purchasesfrom the Pandora joint venture. This arises as a result of an arm's-lengthtransaction at market rates and therefore includes a profit element in the jointventure and also generates additional margin on downstream processing. Labour costs rose $17 million in the period. In other cost areas we experiencedhigh levels of increases, particularly for commodities such as steel, zinc,chemicals and cement which gave rise to an additional $13 million of cost. Asreported at the prior year end we continue to incur higher plant running costsin the Process Division. Due to the Number 1 furnace outage we have continued torun our pyromet furnaces which have high running costs. We are also operatingnew plant required to meet environmental requirements. The C1 cost per PGM ounce sold net of by-product credits on own production fromthe combined Marikana and Limpopo operations amounted to R3,181 for the periodcompared with an equivalent R2,533 in 2006, an increase of 26% reflecting theoperational issues and cost increases described above. This equated to a 8%increase in dollar terms. Net finance costs in 2007 were $107 million compared with $226 million in 2006.In 2007 this includes a $104 million charge for the fair value movement of theembedded derivative in the convertible bond (2006: $235 million). On 15 November2006 we gave notice to force redemption of all outstanding convertible bonds attheir principal amount. This led to the issuance of 10,576,944 shares and areduction in non-current financial liabilities of $211 million. Interest cover(calculated on a 12 month rolling basis) at 58.5 times (2006: 15.9 times)remains very strong. Reported profit before tax in 2007 increased by $51 million to $132 million. Atan underlying level however, profit before tax fell by $53 million with theprincipal difference being the lower charge from the fair value movement ofconvertible bonds in the period. The 2007 tax charge was $112 million compared with $110 million in 2006. Thecorporate tax rate in South Africa has remained at 29% during the year. Theeffective tax rate, excluding the effects of exchange, and special items was 36%compared with 33% in the comparative period mainly due to a higher level ofdividends remitted this period. The overall tax charge includes a cost of $22million (2006: $12 million) arising on the translation adjustment of thedeferred tax balance. This resulted from a 7% appreciation of the Rand:$exchange rate from the abnormally high year end rate which stood at R7.77:$1. The loss for the period attributable to equity shareholders amounted to $3million (2006: $67 million loss) and loss per share was 2.0 cents compared with47.1 cents in 2006. Underlying earnings per share, being earnings excludingspecial items, amounted to 81.5 cents per share, a decrease of 28.8 cents versusthe comparable period. Balance sheet Equity interests were $1,658 million at 31 March 2007 compared with $734 millionat 31 March 2006. This increase over the 12 month period principally reflectedthe recognised income attributable to equity shareholders of Lonmin Plc of $467million and $587 million arising on the conversion of the bond and associatedequity derivative offset by dividends paid of $149 million. AfriOre Limited was acquired on 26 January 2007 for a gross consideration of$413 million with a compulsory acquisition of the remaining shares on 16February 2007. The provisional fair value assessment on the acquisition ofAfriOre Limited was undertaken during the period and resulted in the recognitionof net assets of $382 million being driven by intangible assets and theassociated deferred tax required under IAS. There was no goodwill onacquisition. Net debt amounted to $665 million at 31 March 2007 which is an increase of $207million since 30 September 2006. The debt increase for the six months was $423million, which included $393 million (net of cash acquired) on the acquisitionof AfriOre. This was offset through the cancellation of debt when the bond wasconverted. Cash flow The following table summarises the main components of the cash flow during theperiod: _______________________________________________________________________________ March March 2007 2006 Total Total $m $m_______________________________________________________________________________Operating profit 229 304Working capital 44 (68)Other items (mainly depreciation and amortisation) 49 38_______________________________________________________________________________Cash flow from operations 322 274Interest and finance costs (11) (23)Tax (149) (77)_______________________________________________________________________________Trading cash flow 162 174Capital expenditure (105) (85)Proceeds from disposal of assets held for sale 3 19Dividends paid to minority (21) (18)_______________________________________________________________________________Free cash flow 39 90Acquisitions (net of cash acquired) (393) (14)Financial investments (3) (33)Shares issued 19 12Equity dividends paid (85) (60)_______________________________________________________________________________Cash inflow / (outflow) (423) (5)Opening net debt (458) (585)Foreign exchange 3 -Debt of convertible bond converted to equity 213 -_______________________________________________________________________________Closing net debt (665) (590)_______________________________________________________________________________ Trading cash flow (cents per share) 107.3c 122.3c_______________________________________________________________________________Free cash flow (cents per share) 25.8c 63.2c_______________________________________________________________________________ The reduction in operating profit was more than compensated for by animprovement in working capital giving a $48 million increase in cash flow fromoperations in the period. The working capital flow was driven by a $225 millionimprovement in debtors, reflecting the collection of the high level ofconcentrate sales which occurred in the final quarter of 2006. This more thanoffset the increase in stocks of $121 million which arose due to the limitedprocessing capacity. Had this stock been sold as concentrate we estimate EBITwould have increased by $80 million. We believe that with Number 1 furnace backon stream, and with the recent recommissioning of the Merensky furnace,sufficient capacity exists to process the processing backlog in the second halfof the year. Therefore, we decided not to sell the concentrate stock in theperiod as we expect that processing the backlog will generate $120 million ofEBIT ie an incremental $40 million. Net debt decreased through most of the period both through cash generation andthe conversion of the bond, and only increased again at the end of the periodwith the acquisition of AfriOre. This led to a decrease in interest paid versusthe prior period. Conversely tax paid was high at $149 million reflecting thestrong profits in the second half of last year. The net effect was a tradingcash flow of $162 million marginally below the prior period with a tradingcash flow per share of 107.3 cents (2006: 122.3 cents). Capital expenditure of $105 million was incurred during the period (2006: $85million). Minority dividends paid represented dividends to Incwala. Free cashflow amounted to $39 million with free cash flow per share at 25.8 cents (2006 -63.2 cents). The free cash inflow of $39 million becomes an overall cash outflow of $423million largely through the acquisition of AfriOre at $393 million and theequity dividends paid. Dividends As dividends are accounted for on a cash basis under IFRS the dividend shown inthe accounts represents the 2006 final of 55.0 cents. In addition the Boardrecommends an interim dividend of 55.0 cents (2006 - 45.0 cents). John RobinsonChief Financial Officer1 May 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Lonmin