Q2 2019 Production Report and Business Update

LEI No: 213800FGJZ2WAC6Y2L94

REGULATORY RELEASE

10 May 2019

Second Quarter 2019 Production Report and Business Update

Lonmin operating profit buoyed by higher PGMs basket price and weaker Rand

Lonmin Plc ("Lonmin" or "the Company"), today announces its production results for the second quarter and for the six months ended 31 March 2019. The Company also provides a business update, both on an unaudited basis.

Overview

· Regrettably, Mr G Sonamzi was fatally injured during Q2 2019, resulting in a total of two fatalities in the first six months. We extend our deepest condolences to their families and friends.

· The twelve-month rolling Lost Time Injury Frequency Rate ("LTIFR") to 31 March 2019 increased by 9.6% to 4.56 year on year.

· Operating profit for the first six months of FY 2019 was $70 million compared to H1 2018 operating loss of $32 million, driven by higher PGM prices and a weaker Rand:Dollar exchange rate. Unaudited earnings before interest, tax and depreciation (EBITDA) for the first six months of FY 2019 was $78 million compared to H1 2018 Loss before interest, tax and depreciation (LBITDA) of $26 million.

· Liquidity or gross cash at 31 March 2019 increased to $247 million, compared to $167 million at 31 March 2018, with the new Pangaea Investment Management Limited (PIM) facility in place. Net cash at 31 March 2019 was $71 million compared to $17 million at 31 March 2018.

· The US Dollar basket price (including base metal revenue) for Q2 2019 of $1,214 per ounce was up 14.7% on Q2 2018, while the corresponding Rand basket price of R17,068 per ounce was up 34.8% on Q2 2018. The US Dollar basket price (including base metal revenue) for the first six months of FY 2019 of $1,148 per ounce was up 13.6% on H1 2018, while the corresponding Rand basket price of R16,268 per ounce was up 25.9% on H1 2018.

· Platinum sales for Q2 2019 of 146,459 ounces were 4.2% higher than Q2 2018, while Platinum sales of 286,947 ounces for the first six months of FY 2019 were broadly flat on H1 2018.

· Refined Platinum production for Q2 2019 of 142,260 ounces was 16.0% higher than Q2 2018, while refined Platinum production for the first six months of FY 2019 of 286,911 ounces was 1.0% higher than H1 2018. The comparison is affected by the fact that refined production in H1 2018 was negatively impacted by the lock-up of 47,000 PGM ounces, because one of the furnaces was down in H1 2018.

· Total cost of production for the first six months was confined to an increase of 5.6%, from R7.3 billion to R7.7 billion. However, unit cost for the first six months was R14,994 per PGM ounce, 15.5% higher than H1 2018, on the back of the lower mining production, lower grades and lower recovery rate.

· In line with our strategy to reduce high cost production, our workforce has been reduced year on year by 4% to 29,812 at 31 March 2019, from 31,040 at 31 March 2018. The Section 189 process initiated in March 2019 is ongoing.

· Historically production during the first half has always been lower than the second half, however, this year our operational performance for the first six months was heavily impacted by, inter alia, low morale and high management turnover due to the extended timeline to close the Sibanye-Stillwater transaction caused by AMCU's appeal to the Competition Appeal Court (CAC), which affected both safety and production, safety stoppages and power outages due to Eskom.

· Accordingly, mining production for Q2 2019 was 2.1 million tonnes, down 8.4% on Q2 2018, while mining production for the first six months of FY 2019 was 4.3 million tonnes or 7.7% down on H1 2018.  

· Total Platinum production (metals-in-concentrate) for Q2 2019 was 125,803 ounces, down 12.3% on Q2 2018, while total Platinum production (metals-in-concentrate) for the first six months of FY 2019 was 276,020 ounces, down 10.3% on H1 2018, on the back of reduced mining tonnes, lower grades and lower recoveries. For the month of March 2019, the underground mill head grade started to improve.

· Traditionally, we expect our second half output to exceed that of the first half. However, given the extent of production losses suffered during the first half as well as finalising the transaction with Sibanye-Stillwater, we expect sales for the full year to be at the lower end of our sales guidance range of between 640,000 and 670,000 Platinum ounces, assuming a stable electricity supply during winter and absent any unforeseen interruptions to our mining production.

· Our capital expenditure guidance for the year is maintained at between R1.4 billion and R1.5 billion.

· Ordinarily the stronger performance of the second half would assist in containing unit cost increases on a full year basis. In light of the sales guidance trending towards the lower end of our range and the high unit costs for the first half of the year, we are revising our unit cost guidance range to between R13 600 and R14 400 per PGM ounce produced, from between R12,900 and R13,400 per PGM ounce.

Ben Magara, Chief Executive Officer, said: "Lonmin generated unaudited operating profit of $70 million in the first six months of the year, compared to an operating loss of $32 million in the prior year period. This was driven by higher PGMs basket prices and a favourably weaker Rand:Dollar exchange rate, on the back of broadly flat refined metal production volumes, despite lower mining output. The return to profitability and the new $200 million forward metal sale facility has improved Lonmin's liquidity in the short term, with the early settlement of the term loan of $150 million in full and cancellation of all our other pre-existing undrawn facilities. However, despite the progress made, this does not provide a long-term solution to the capital structure challenges faced by Lonmin, as it is still inadequate to invest in the new projects necessary to avoid shaft closures and job losses and maintain our production profile. The Company's available liquidity is also still vulnerable when considering its working capital requirements and continuing exposure to volatile currency and metal markets. Accordingly, we remain convinced that consolidation through the announced Offer from Sibanye-Stillwater creates the best way forward for our shareholders and all our stakeholders."

Safety

Our safety strategy is centred on the belief that Zero Harm is achievable and important contributions are required from all stakeholders to achieve it.

· Regrettably, Mr G Sonamzi was fatally injured during Q2 2019, resulting in a total of two fatalities in the first six months.

· The twelve-month rolling LTIFR to 31 March 2019 was 4.56 per million man hours, a deterioration of 14.0% on September 2018 at 4.00. Year on year, the twelve-month rolling LTIFR increased by 9.6%.

· The twelve-month rolling Total Injury Frequency Rate ("TIFR") to 31 March 2019 was 10.11 per million man hours, an improvement of 0.3% on September 2018 at 10.14. Year on year, the twelve-month rolling TIFR increased by 1.9%.

· Saffy Shaft achieved 7 Million Fatality Free Shifts on 22 January 2019 - a notable achievement. It took the shaft almost six fatal free years of operation to achieve this.

Production Losses

Tonnes lost due to Section 54 and management induced safety stoppages increased to 58,000 tonnes in Q2 2019 and 174,000 tonnes in the first six months of FY 2019, compared to 20,000 tonnes in Q2 2018 and 77,000 tonnes in H1 2018, due to the fatalities and a management induced stoppage at Saffy due to bad ground conditions.

Mining Operations

Overall, our performance has been impacted by low morale and high management turnover, instability and uncertainty, due to the extended timeline to close the Sibanye-Stillwater transaction caused by AMCU's appeal to the CAC, which affected both safety and production. Additionally the indirect impact of the extended wage strike in the gold sector caused concern among our employees about the potential impact of the secondary strike extending to the Platinum belt. The Marikana mining operations including Pandora (100%) produced 2.1 million tonnes during the quarter, down 8.4% or 189,000 tonnes, on Q2 2018. This decline was also affected by the safety stoppages, challenging adverse ground conditions at Saffy and our strategy to reduce production from our Generation 1 shafts.

Generation 2

Tonnes mined from our Generation 2 shafts were 1.5 million tonnes, a decrease of 9.4% on Q2 2018. In addition to the overall reasons for production challenges outlined above, commentary on the individual shafts is as follows:

· K3, our biggest shaft, produced 592,000 tonnes, a decrease of 8.0% or 51,000 tonnes on Q2 2018, as a result of the fatality, and the consequential halt to production to install additional support due to poor ground conditions and rolling reef.

· Saffy shaft produced 430,000 tonnes, a decrease of 13.7% or 68,000 tonnes on Q2 2018, as a result of geological complexity which resulted in challenging adverse ground conditions.

· Rowland shaft produced 369,000 tonnes, a decrease of 11.6% on Q2 2018, due to adverse ground conditions requiring additional support.

· The combined E3 shaft and Pandora area produced 155,000 tonnes, an increase of 5.9% or 9,000 tonnes on Q2 2018, a good performance overall.

Generation 1

The performance of our Generation 1 shafts is in line with our plan to reduce high cost production. Tonnes mined from our Generation 1 shafts (4B, Hossy, W1 and E1) were 0.5 million tonnes, a decrease of 1.9%, or 10,000 tonnes on Q2 2018, which also included E2 in 2018. 4B produced 278,000 tonnes, a decrease of 4.3%, or 12,000 tonnes on Q2 2018. Hossy shaft produced 132,000 tonnes, an increase of 3.0%, or 4,000 tonnes on Q2 2018, as we maximized sweepings of old workings, to maximize cash harvesting before final placement on care and maintenance at the end of the financial year.

W1 and E1, which are contractor operated shafts, are now rapidly reaching the end of their economic reserve lives with mining occurring in remnant areas only. E1 shaft and Hossy shaft are currently scheduled for closure by the end of the financial year. These form part of the Section 189 consultation process which was launched in March 2019 and is currently underway.

Ore Reserve Development and Immediately Available Ore Reserves (IAOR)

The IAOR position of our Generation 2 shafts at 31 March 2019 was equivalent to 20 months average production for the year. The reserve position remains adequate to provide operational flexibility.

Processing Operations

Concentrator production - Mining

Total tonnes milled from underground mining operations in Q2 2019 were 2.0 million tonnes, a decrease of 11.0% on the prior year period, reflecting the reduced mining tonnes and an increase in surface stocks, as critical unplanned maintenance was conducted at some of the concentrators and power outages due to Eskom.

The different concentrators are optimized to take feed from either UG2 or Merensky ore. However, in Q1 2019, the feed contained a higher ratio of Merensky ore than UG2 as a result of the inclusion of stockpiles into the ore mix arising from the unavailability of fresh ore. In addition, the increased dilution in the tonnes produced during the quarter due to bad ground conditions and our efforts to increase backlog sweeping and vamping tonnes to make up for fresh ore production also adversely impacted the mill grade and concentrator recoveries. As we started reverting to the optimal ore feed mix during Q2 2019, there was an associated increase in recoveries, and hence the concentrator recoveries from underground mining for Q2 2019 at 86.8% were in line with the 86.8% achieved in Q2 2018. Notwithstanding this, the feed still contained a higher ratio of Merensky ore than UG2 during this quarter, which continued to impact the mill grade adversely. Consequently, underground mill head grade at 4.26 grammes per tonne (5PGE+Au) in Q2 2019, was a 5.5% reduction on the 4.51 grammes per tonne achieved in Q2 2018. For the month of March 2019, the underground mill head grade started to improve.

The combination of a reduction in underground mining production, lower grade and load shedding in Q2 2019 resulted in Platinum production (metals-in-concentrate) from mining of 116,745 ounces, a decrease of 15.0% on Q2 2018, whilst total PGMs production (metals-in-concentrate) from mining was 224,136 ounces, a decrease of 15.3% on Q2 2018. This had an adverse impact on the unit costs achieved in the quarter.

Bulk Tailings re-Treatment Project ("BTT")

The BTT project, commissioned in February 2018, milled a total of 816,000 tonnes for the quarter, with a head grade of 1.16 grammes per tonne and a recovery rate of 22.8%, producing metals-in-concentrate of 3,374 Platinum ounces and 6,605 PGM ounces. The project was in ramp up mode during the comparative prior year period.

Concentrate purchases

Concentrate purchase for the quarter contained metals-in-concentrate of 5,684 Platinum ounces and 9,998 PGM ounces (an increase of 8.3% and 10.8% respectively).

Smelting and Refining

Total saleable refined Platinum production of 142,260 ounces in Q2 2019, was 16.0% higher than Q2 2018 and total saleable refined PGMs produced were 271,821 ounces, an increase of 15.9% on Q2 2018. The refined production in Q2 2018 and H1 2018 was impacted by the lock-up of 47,000 PGM ounces, because Furnace Number One was out of operation for the period December 2017 to February 2018.

There was no release of Platinum ounces from the smelter clean-up project during Q2 2019 or during Q2 2018, however, this is expected in the second half of the year.

Sales and Pricing

Sales of refined Platinum for Q2 2019 were 146,459 ounces, an increase of 4.2% on Q2 2018. Refined PGMs sales were 280,474 ounces, an increase of 6.9% on Q2 2018.

The US Dollar basket price (including base metal revenue) at $1,214 per ounce during Q2 2019 was up 14.7% on Q2 2018 while the corresponding Rand basket price of R17,068 per ounce was 34.8% higher than Q2 2018, driven mainly by the higher Palladium and Rhodium prices.

The average Rand:US Dollar exchange rate was 17.2% weaker at 14.01 in Q2 2019 compared to 11.95 in Q2 2018.

While the Company benefitted from these improved trading conditions, both currency and metal markets remain very volatile and are not controllable factors.

Business and Operating Environment Update

Cost of Production

Our unaudited total cost of production for the first six months of FY 2019 increased by 5.6% from R7.3 billion to R7.7 billion, notwithstanding wage increases in excess of 7% being granted in July 2018. Our unit costs for the first six months of FY 2019 were R14,994 per PGM ounce (6E basis), an increase of 15.5% on H1 2018, as a result of the safety stoppages, lower production, the lower grade in the period and the lower recovery rates seen in Q1 2019.

EBITDA

Unaudited EBITDA for the first six months of FY 2019 was $78 million compared to H1 2018 LBITDA of $26 million, driven by higher PGM prices and a weaker Rand:Dollar exchange rate.

The financial performance in the first half of 2019 reflects how highly geared Lonmin is to the PGM prices, Rand:Dollar exchange rate, production and unit costs.

Capital Expenditure

Our strategy has been to minimise capital expenditure whilst ensuring compliance with regulatory and safety standards and ensuring that the IAOR position is maintained at the level flexible enough to support planned production at the Generation 2 shafts. However, it is becoming increasingly difficult to maintain the production profile, whilst using capital expenditure as a lever to protect the cash position. Accordingly, Lonmin has not been able to fund the significant investment required to maintain its production profile, hence the previously announced shaft closures and job losses.

Capital expenditure in the first six months of FY 2019 was limited to R377 million ($27 million) compared with R411 million ($33 million) in the prior year period as we continue to use capital expenditure as a cash management lever. Accordingly, the stay-in-business capital which is considered low risk, was deferred.

Summary of Capital Expenditure:

Capital spent at the Concentrators was mainly on construction of the new stormwater dam and at the smelter and refinery on upgrading the smelter to comply with air emissions' legislation.

Capital invested in the period included R10 million for the Rowland MK2 project which, as planned is due to ramp up its development in H2 FY 2019. This is in line with the slower development which commenced in 2018 to contain the capital spending in a constrained cash environment and whilst the Company attempts to secure external funding. At the Rowland Merensky project, development continues unconstrained.

Phase 4 on the Infill Apartments was completed during the period.

Capital expenditure at the smelter and refinery was delayed, mainly due to design and supplier delays. As in previous years, capital expenditure will be weighted in favour of the second half of FY2019.

Balance Sheet and Liquidity

As announced on 22 October 2018, Lonmin refinanced its debt arrangements by entering into the Pangaea Metal Purchase Agreement, a US$200 million forward metal sale agreement with PIM, an associate company of Jiangxi Copper, among others, pursuant to which such upfront payment would be amortised over three years to October 2021. Lonmin consequently settled and cancelled its pre-existing term loan of $150 million and cancelled all its other pre-existing undrawn facilities. The new facility has improved Lonmin's short-term liquidity and has removed certain restrictive conditions contained in the previous debt facilities (notably the tangible net worth covenant). This new facility is not a long-term solution to the challenges faced by Lonmin and does not offer the ability to avoid announced retrenchments and shaft closures.

The net improvement in liquidity from the new facility, after fees of $8 million and a further $8 million to collateralise guarantees, was $34 million. Capital expenditure of $27 million and working capital requirements during the first half that is funded from EBITDA, as well as funding repayments and interest of $38 million and proceeds from sale of Wallbridge and Petrozim of $13 million explains the company's cash position of gross cash of $247 million at 31 March 2019 being some $17 million lower than the 30 September 2018 balance of $264 million. Gross cash was $167 million at 31 March 2018. Net cash at 31 March 2019 was $71 million compared to $17 million at 31 March 2018.

Outlook and Guidance

Whilst typically our second half production is stronger, particularly quarter four, absent any unforeseen interruptions to our mining production, the first half of the year's production means we now expect to achieve sales at the lower end of our guidance range, between 640,000 and 670,000 Platinum ounces.

Ordinarily the stronger performance of the second half would assist in containing unit cost increases on a full year basis. In light of the sales guidance trending towards the lower end of our range and the high unit costs for the first half of the year, we are revising our unit cost guidance range to between R13 600 and R14 400 per PGM ounce produced, from between R12,900 and R13,400 per PGM ounce.

Our capital expenditure guidance for the year is maintained at between R1.4 billion and R1.5 billion. As in previous years, capital expenditure will be weighted in favour of the second half of FY2019.

Profit Estimate

This announcement contains the following wording which constitutes a profit estimate as it represents profit for a financial period which has expired and for which audited results have not yet been published (the "Profit Estimate") under Rule 28 of the City Code on Takeovers and Mergers (the "Code"):

"Operating profit for the first six months of FY 2019 was $70 million."

"Unaudited Earnings before interest, tax and depreciation (EBITDA) for the first six months of FY 2019 was $78 million."

Basis of Preparation

The Profit Estimate has been properly compiled on the basis stated below and on a basis consistent with the accounting policies of Lonmin, which are in accordance with IFRS and are those which Lonmin is applying in preparing its Interim results for the six months to 31 March 2019 ("Interim Results").

The Profit Estimate has been prepared on the basis of the unaudited management accounts of the Lonmin Group for the six months to 31 March 2019 including adjustments made to date during the ongoing preparation and audit review of the Interim Results for the six months to 31 March. 2019.

Directors' Confirmation

The directors of the Company confirm that the Profit Estimate continues to be valid as at the date of this announcement and has been properly compiled on the basis of the assumptions stated within the paragraph above and that the basis of accounting used is consistent with the accounting policies of the Company.

In accordance with Rule 30.4 of the Code, a copy of this announcement will be made available on our website at www.lonmin.com/investors/sibanye-stillwater-offer

All-share Offer by Sibanye Stillwater

On 25 April 2019, Lonmin announced that it had reached agreement with Sibanye-Stillwater on the terms of an increased recommended all-share offer by which Sibanye-Stillwater will acquire the entire issued and to be issued ordinary share capital of Lonmin (the "Increased Offer") on the basis that:

Lonmin Shareholders will be entitled to receive:

one New Sibanye-Stillwater Share for each Lonmin Share

Further details of the Increased Offer (together with the full terms and conditions of the Scheme) are contained in the Scheme Circular which was published on 25 April 2019.

The Scheme requires the approval of Lonmin Shareholders at the Court Meeting and the passing of a special resolution at the General Meeting, and then the approval of the Court.

The Scheme Circular contains notices convening the Court Meeting and the Lonmin General Meeting in relation to the Scheme for 11:30 a.m. and 11:45 a.m. (UK time) (or as soon thereafter as the Court Meeting is concluded or adjourned), respectively, on 28 May 2019 are contained in the Scheme Circular. The meetings will be held at The Royal Society, 6-9 Carlton House Terrace, London, SW1Y 5AG, United Kingdom.

Forward-looking Statements

All statements other than statements of historical facts in this announcement may be forward-looking statements. Forward-looking statements also often use words such as "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances and should be considered in light of various important factors, including those set forth in this disclaimer. Readers are cautioned not to place undue reliance on such statements.

These forward-looking statements speak only as of the date of publication of this announcement. Lonmin expressly disclaims any obligation or undertaking to update or revise any forward-looking statement (except to the extent legally required).

- ENDS -

Investors / Analysts:

Andrew Mari (Investor Relations) +27 14 571 2070 /+27 60 564 6419

Media:

Notes to editors

Lonmin, which is listed on both the London Stock Exchange and the Johannesburg Stock Exchange, is one of the world's largest primary producers of PGMs. These metals are essential for many industrial applications, especially catalytic converters for internal combustion engine emissions, as well as their widespread use in jewellery.

Lonmin's operations are situated in the Bushveld Igneous Complex in South Africa, where more than 70% of known global PGM resources are found.

The Company seeks to create value for shareholders through mining, refining and marketing PGMs and has a vertically integrated operational structure - from mine to market. Underpinning the operations is the Shared Services function which provides high quality levels of support and infrastructure across the operations.

For further information, please visit our website: http://www.lonmin.com

1. Reporting of shafts are in line with our operating strategy for Generation 1 and Generation 2 shafts.

2. E3 Shaft and Pandora underground tonnes mined are reported as E3 Shaft Combined since 1 December 2017 when Lonmin acquired 100% of Pandora.

3. Ounces mined have been calculated at achieved concentrator recoveries and with Lonmin standard downstream processing recoveries to present produced saleable ounces.

4. Tonnes milled excludes slag milling.

5. As from 1 December 2017 Lonmin owns 100% of Pandora joint venture and there will be no ore purchases thereafter.

6. Head Grade is the grammes per tonne (5PGE + Au) value contained in the tonnes milled and fed into the concentrator from the mines (excludes slag milled).

7. Recovery rate in the concentrators is the total content produced divided by the total content milled (excluding slag).

8. The BTT (Bulk Tailings Treatment) project was commissioned in February 2018.

9. Metals-in-concentrate are calculated at Lonmin standard downstream processing recoveries to present produced saleable ounces.

10. Corresponds to contained base metals in concentrate.

11. Saleable refined production includes production associated with BMR concentrate sales.

12. Nickel is produced and sold as nickel sulphate crystals or solution and the volumes shown correspond to contained metal. Copper is produced as refined product but typically at LME grade C. Chrome is produced in the form of chromite concentrate and volumes shown are in the form of chromite.

13. Includes saleable refined production associated with BMR concentrate sales.

14. Basket price of PGMs is based on the revenue generated in Rand and Dollar from the actual PGMs (5PGE + Au) sold in the period based on the appropriate Rand / Dollar exchange rate applicable for each sales transaction.

15. As per note 14 but including revenue from base metals.

16. Exchange rates are calculated using the market average daily closing rate over the course of the period.