Dear Fellow Shareholder,
I am pleased to be able to report that Lonmin has delivered a solid operational and financial performance for 2011. While production failed to meet our original expectations, the outturn was nevertheless satisfactory and increased sales of refined metal allowed your Company to report a worthwhile increase in profitability. Net earnings attributable to equity shareholders grew from $112 million to $273 million.
Markets, Operations and Costs
Our 2011 financial year was hallmarked by the instability of world economies. Lacklustre economic growth, coupled with the increasing burden of undigested debt, and the devastating earthquake in Japan all contributed to the substantial volatility and subsequent weakness in Platinum Group Metals (PGMs) prices and in our core currencies. Against that background, your Board’s adherence to a policy of prudent balance sheet management was appropriate.
The two major operating challenges for your Company in 2011 were safety and labour relations. Lonmin and its management remain absolutely committed to ensuring the safety of our employees which is defined in our stated “Zero Harm” core value. Very regrettably, during the year we experienced six fatalities at our mines. We have subsequently reviewed and refocused our safety strategy and recent safety statistics have shown a significant improvement. Constant vigilance remains the watchword.
Labour relations also presented challenges during the year with ten production days lost because of an illegal strike at our Karee operations. This incident was the result of an internal union leadership dispute, not through any difference with management. Nevertheless the incident had severe adverse consequences for a large part of our workforce. We are determined to maintain a positive and constructive relationship with our entire workforce. Community relationships have also been challenging and considerable management effort is going into building a more effective rapport with community leaders.
Cost increases have continued to be an issue, driven by inflationary factors including wage increases and electricity, to mention just two, and by the costs of increasing production and development. Managing our cost performance will remain a key area of focus for both management and Board in 2012.
Industry Challenges
The mining industry worldwide has experienced a growing number of external challenges in recent months. Windfall gains in some commodities from the explosive growth in China particularly, accompanied in some producing nations elsewhere by poor standards of living and unemployment, have fanned the political winds of change in resentment of perceived inequality. Governments are increasingly being pressured to take action to retain a greater proportion of the benefit of natural resources for local inhabitants. “Resource nationalism” is being debated in many countries and some of the South African expressions of these sentiments I discuss below. Responsible mining companies that operate according to best international corporate social responsibility standards, as defined by the International Council on Mining and Metals (ICMM), have a great deal to offer their host nations. It is imperative that in considering resource nationalism an appropriate balance is maintained between the distribution of the wealth that mining companies are able to create and the competitive nature of the world that they operate in.
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