Lonmin Plc Ian Farmer Chief Executive Officer 28 February 2012 BMO GLOBAL METALS & MINING CONFERENCE
Lonmin Plc
Ian Farmer
Chief Executive Officer
28 February 2012
BMO GLOBAL METALS & MINING CONFERENCE
2
Introduction
2
• Market update – has the cycle turned?
• South Africa – an update on recent events
• Lonmin’s performance and potential
Is the platinum industry a frog in a boiling pot?
Picture source: http://blog.publishingtechnology.com/blogs/burning-platform-boiled-frog-rusting-platform/
3
Market Drivers
3
Macro Demand Investment Supply
Investor maturity
Net long-term growth
SA supply constraints
Weak European
auto market 2012
European debt
uncertainty
Bumpy 2012
Recovery from 2013
Auto rebound,
PGMs are cheap
More positives than negatives – don’t be caught unawares!
4
Automotive Demand
Pent up demand will boost sales upturn – ageing car fleets 4
5
Platinum ETF Investment Demand
5
Source: SFA
Recent ETF volume movements have tracked metal prices
6
Palladium ETF Investment Demand
6
Source: SFA
Recent ETF volume movements have tracked metal prices
7
Operational Challenges to PGM Producers
• Safety
• Labour costs and management
• Skills
• Transformation and equity ownership
• Social pressures
• Resource nationalism
• Power
• Zimbabwe
Increasing supply risk
8
Supply Forecasts – a Regressing Target
Potential for supply to surprise downwards
Source: SFA
9
PGM Supply-Demand Estimates
Markets heading for deficits
Source: Lonmin, SFA
Palladium Rhodium Platinum
-1,000
-800
-600
-400
-200
0
200
400
600
800
1,000
6,000
7,000
8,000
9,000
10,000
11,000
08 10 12 14 16
Balance Supply Demand
Forecast
-1,000
-800
-600
-400
-200
0
200
400
600
800
1,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
08 10 12 14 16
Balance Supply Demand
Forecast
-1,000
-800
-600
-400
-200
0
200
400
600
800
1,000
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
08 10 12 14 16
Balance Supply Demand
Forecast
10 10
Lonmin
View
Opportunities
• Industrial and auto demand recovery
• View changed from balance to deficit in 2012
• Supply incapable of keeping up – growing deficits
in 2013 - 2015 period
• Stronger/earlier demand upswing
• Supply surprising on the downside
• Even tighter market and even higher prices
PGM Market Outlook
Risks
• Euro zone slump/break-up
• China slowdown
• Substitution
Long term fundamentals for PGMs remain attractive
11
Lonmin of the Future
The pillars to building a healthy PGM business
Growth
• LTP
• Leverage Marikana
• Productivity
• HR Development
• Other assets
• B/Sheet Capacity
SCALE, GROWTH, LOW COST, BALANCE SHEET
PGMs
Global
Economy
SA
Environment
Costs
• Productivity
• Growth
• Systems
Social
• Sustainability
• Safety
• SLP / Transformation
•Employee Relations
• Culture / Values
Macro
• Markets
• Global Risks
• Communications
• Energy & Water
12
Safety Performance and Journey
Sustained commitment to our journey
2005 6
2006 6
2007 3
2008 3
2009 3
2010 3
2011 6
2012 YTD 1
Industrial Fatalities
13
Marikana Mining – DMR Safety Stoppages
DMR stoppages remain a feature
84,059 64,849 108,952 37,498 295,357 21,730 47,922 132,030 83,444 285,126 177,074 177,074
4,844 4,710
6,652
2,413
18,619
1,512
3,127
7,962
5,260
17,861
10,695
0 0 0
10,695
0
5000
10000
15000
20000
0
80000
160000
240000
320000
Q1 Q2 Q3 Q4 Total FY
Saleable Pt Ounces Tonnes hoisted
Actual Production lost due to Sect 54 (Quarterly)
Tonnes Hoisted Lost FY10 Tonnes Hoisted Lost FY11 Tonnes Hoisted Lost FY12
Calc Pt oz's Lost FY10 Calc Pt oz's Lost FY11 Calc Pt oz's Lost FY12
14
Labour and Productivity
Labour Relations, productivity and costs
• Structural unit cost inflation in mining
• Deteriorating trend in productivity
• Impact of strikes
Labour Relations, productivity and costs
• Initiatives launched over past few years to
improve delivery and productivity
• Regular dialogue with unions and employees
to enable early identification of issues
• Management of interdependence of socio
factors and productivity
Arresting declining productivity
Issues to Manage Lonmin’s Response
Skills
• Holistic HRD strategy developed
• Attract, develop and retain a skilled workforce
• Investing in education and training
programmes
• Availing opportunities to labour pool in
communities
Skills
• Skills shortage
• Impact of the changing social framework
• Addressing historical legacy
15
Transformation and Equity Ownership
• New targets in the revised Mining Charter
• Differing perceptions of transformation
progress
• Achieving Phase 2 Mining Charter equity
ownership requirements
• 26% BEE equity ownership and credits by
2014
• Transformation sub committee of the Board
• 2014 Social Labour Plan targets aligned
• Accelerated spend and commitment to
community projects, education and health
• HDSA targets remain on track but achieving
WIM and 40% HDSA at all management
levels is challenging
• Roadmap to 26% equity ownership submitted
to DMR
• Broad based equity structure for employees
and communities
• Complete transaction with Shanduka on our
Limpopo Division
• Regular DMR and KPMG audits.
Communications vital
Fundamental element of our licence to operate...the right thing to do
Issues to Manage Lonmin’s Response
16
Social Pressures and Resource Nationalism
Social Pressures
• Socio political business disruptions
• Community expectations are on the
increase
• Potential detractor from the running of
operations
• Impact on morale and productivity
Social Pressures
• Fostering conflict resolution strategies with the
communities where we operate
• Committed to unlocking value for the Bapo
community
• Creating employment for youth in the
community
Disruption and morale risk
Issues to Manage Lonmin’s Response
Resource Nationalism
• Impact of policy uncertainty on valuations
and ability to attract capital and cost
thereof
• 2012 a year of political change
• Policy uncertainty and regulatory treacle
• Rumour of tax changes
Resource Nationalism
• Senior management’s presence in SA enables
better understanding of the issues
• Shanduka partnership
• Keysha – remain confident of our position and
will follow judicial process
• To address conflict of directors interests
17
Marikana Mining Underground production overview
Momentum restored
*
18
Marikana Mining Development
Immediately available ore reserves
Note: In FY09, we changed our reporting methodology for ore reserve development, in line with industry best practice, to exclude partially
developed ore reserves. We have reported on this more conservative basis since then. FY08 and prior years are not restated.
A reserve level that allows confident planning for the future
Centares Months
19
Processing – Smelting
Smelter Performance
• No smelting related incident in the past 21 months
• Running well and stable at 14 MW since design
change in December 2010
Number Two Furnace
• Construction on track – commission scheduled for H2
• 10MW circular pyromet furnace using plate cooler
technology will provide back up capacity
• Providing optionality
Improving furnace reliability driven by an experienced team
20
Processing Division Recoveries
Sustained improvements
70.68%
72.37%
70.40%
79.07%
82.52%
60.00%
65.00%
70.00%
75.00%
80.00%
85.00%
2007 2008 2009 2010 2011
Rec
ove
ry (
%)
Total Recovery
21
Maintaining Ability to Grow
• Continued focus on maximising the value of Marikana asset
• K4, Saffy and Hossy shafts – new generation shafts already developed
• Enhanced production from K3 our largest shaft
• Balancing capital spend on long lead projects – with working capital requirements
• Building capacity to produce 950,000 Platinum ounces
• Near term, retain production flexibility to respond to prevailing market conditions
• Options beyond Marikana
• Pandora – extension of current underground operations
• Akanani – a palladium play
• Limpopo – working in partnership with Shanduka
• Exploration success in North America
Balancing investing for growth, profitable ounces and balance sheet
prudence
22
Conclusion
• Industrial demand recovery in combination with voluntary and involuntary SA supply cuts…..metal price reaction could be acute
• Managing and delivering on issues within management’s control will be key – we are making progress - safety initiatives will remain a focus
• We continue to build on a healthy operating platform – Q1 2012 results are a good start
• Investing for future growth whilst delivering profitable ounces and maintaining a strong balance sheet; and
• Growing down the relative cost curve over time
Building for the future
Lonmin Plc
Questions
24
Disclaimer
This presentation, which is personal to the recipient, has been issued by Lonmin. This presentation includes forward-looking statements. All statements other than statements of historical fact included in this announcement, including without limitation those regarding Lonmin's plans, objectives and expected performance, are forward-looking statements. Lonmin has based these forward-looking statements on its current expectations and projections about future events, including numerous assumptions regarding its present and future business strategies, operations, and the environment in which it will operate in the future. Forward-looking statements generally can be identified by the use of forward-looking terminology such as 'ambition', 'may', 'will', 'could', 'would', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek' or 'continue', or negative forms or variations of similar terminology. Such forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors related to Lonmin, including, among other factors: (1) material adverse changes in economic conditions generally or in relevant markets or industries in particular; (2) fluctuations in demand and pricing in the mineral resource industry and fluctuations in exchange rates; (3) future regulatory and legislative actions and conditions affecting Lonmin's operating areas; (4) obtaining and retaining skilled workers and key executives; and (5) acts of war and terrorism. By their nature, forward-looking statements involve risks, uncertainties and assumptions and many relate to factors which are beyond Lonmin‘ control, such as future market conditions and the behaviour of other market participants. Actual results may differ materially from those expressed in forward-looking statements. Given these risks, uncertainties, and assumptions, you are cautioned not to put undue reliance on any forward-looking statements. In addition, the inclusion of such forward-looking statements should under no circumstances be regarded as a representation by Lonmin that Lonmin will achieve any results set out in such statements or that the underlying assumptions used will in fact be the case. Other than as required by applicable law or the applicable rules of any exchange on which Lonmin's securities may be listed, Lonmin has no intention or obligation to update or revise any forward-looking statements included in this presentation after the publication of this presentation. This presentation is for information only and does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase, any shares in Lonmin or any other securities, nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied upon in connection with, any contract or investment decision related thereto. Information supplied by host presenters may not be used, referenced or published without the prior written consent of the author of the presentations.