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Looking Forward – Ben Magara

I was appointed Chief Executive of Lonmin Plc on 1 July this year. Under the interim leadership of our Chief Financial Officer, Simon Scott, Lonmin had been strengthening its position. Set against a continuingly tough market, and given the disruptions which defined the beginning of the period, our ramp up quickly exceeded the schedule which was maintained throughout the year. We continued to outperform and achieved 751,000 Platinum metal in concentrate ounces, and sales of 696,000 Platinum ounces by the end of the year.

Whilst proud of our operational achievements we regard our solid performance in 2013 as the foundation to build on. Our sustained hard work to improve relationships with our employees is yielding results, not least around labour relations, but I want to see a step change.

Our safety performance improved and I believe that our “zero harm” aspiration is achievable, that all injuries and fatalities are preventable and that this remains our goal.

We remember with great sadness the loss of our colleagues Elson Ngomane, Gil Macamo and Ayanda Dziliyana during 2013. Their deaths remind us of both the intrinsic dangers of mining and that we must redouble our efforts in this area.

My priority on joining the business was to meet as many employees and stakeholders as possible to begin the task of winning back hearts and minds in the wake of last year’s events at Marikana.

To this end I visited our shafts, plants and the communities around them and went to the areas of South Africa from which most of our employees come. I also visited the families of those who lost their lives during the terrible Events at Marikana last year. All these groups of people expressed to me the shared wish of wanting Lonmin to succeed. This is important and encouraging, given that we regard the support of all our stakeholders as crucial in stripping uncertainty from our business and driving higher performance.

Whilst our hard work has begun to rebuild trust, demonstrated by the fact that we were able to sign a union recognition agreement and attend the Marikana commemoration, we still have much more to do in this regard.

Our stakeholder relationships are business critical. I reject any contention that these are “soft” issues, set against the “hard” issues of operations and finances.

My second step was to make a number of changes and additions to Lonmin’s top executive team. We now have the team in place to focus our resources more strategically and achieve a steady improvement in value for our shareholders.

The Executive team is comprised of the following:

  • Simon Scott –Chief Financial Officer
  • Albert Jamieson – Chief Commercial Officer (to 31 December 2013)
  • Abey Kgotle – Executive Vice President Human Resources
  • Barnard Mokwena – Executive Vice President Transformation
  • Lerato Molebatsi – Executive Vice President Communications and Public Affairs
  • Mark Munroe – Executive Vice President Mining and Group Safety
  • Thandeka Ncube – Shanduka Resources – Business Transformation Manager
  • Natascha Viljoen- Executive Vice President Processing and Sustainability

Looking ahead, I have set out four management pillars for the future which will drive delivery of value to all of our shareholders and stakeholders. Overall they represent evolutionary improvements in those things we do well, and demand more rapid changes in areas where we have been slower to perform. These can be summarised as: continuing to reclaim our role as managers in our relationships with employees and stakeholders; operational credibility and excellence; management of value optimisation; and finally sustainability and social agenda. I will deal with each of these in turn.

Lonmin’s relationships with its employees and stakeholders
As a labour-intensive industry our people are key to our success. In narrow tabular mining, where mechanisation will always be limited, people make the difference and should be a source of competitive advantage. This is absolutely not a “soft” issue. This year has seen significant and very welcome interventions from the South African Government in the context of employment and industrial relations. Lonmin’s greater collaboration with Government and with our colleagues in the South African mining sector will enable steady progress to be made in establishing a renewed stability. Our challenge is to build on this positive start to create a long-term environment where performance increases through a more content and dedicated workforce, removing uncertainty from the business, and in which our success benefits our shareholders and all our stakeholders. This is fundamentally about rebuilding trust.

Operational credibility and excellence
We continue to be cautious about the near and medium-term markets for PGMs. It is vital, then, that we exploit our assets as safely and efficiently as possible. It is absolutely necessary that we only mine profitably and that we maintain a rigorous control over costs. I believe that such discipline is the only way in which to ensure that our shareholders benefit from the eventual improvement in the market when it comes; about which we remain confident. The Lonmin Renewal Plan, which was in operation when I arrived, has proved a success. It enabled us to hit targets and achieve ramp up ahead of expectations. In order to plan more effectively for Lonmin’s future, we must now look strategically and holistically at all our assets and properties and prioritise investment to protect and enhance value accordingly. We will focus on fewer projects at a time. My initial review of our operations led us to decide that continuing to invest in our Saffy shaft is the best use of capital at this stage, optimising efficiencies and enabling growth at the right time. The majority of the investment in Saffy has already been made.

Value optimisation management (VOMA)
It is essential that our drive to work efficiently, profitably and strategically is underpinned by a coherent strategy. In the near-term we must: guarantee a return on the recent and historical investment at Marikana; maximise cash flow in order to self fund capital expenditure; improve profitability by margin focused mining and increased productivity; and continue to improve cost management.  In the medium-term we must also ensure our mining plans and processing capacity are flexible enough to respond to an improving market and continue to work to identify value enhancing opportunities.

We will continue to assess the choices available to us, but already we see an opportunity to improve our commercial sales strategy in line with value optimisation. We are also advancing our exciting PGM Tailings Re-treatment project, where we expect to mine one of our old tailings dams hydraulically for the extraction of both PGMs and chrome. Re-treatment of old tailings is not new in mining and is a great source of medium-term value. This will allow us to tap into a low risk, low cost on surface asset to enhance our overall profitability.

Above all else, we will continue to maximise the conservation and generation of cash and maintain our relentless focus on overheads and fixed costs. Against these priorities, we have already made good progress but there is much more to do.

Sustainability and social agenda
Our relationships with our employees and the communities who live on and around our operations are key to our performance. Pre-eminent amongst the requirements is the need to improve housing, facilitate good health and education and continue to deliver on our environmental responsibilities.

The conversion or upgrade of hostels into family units and single private units is one of the measures we are judged against and to date, we have converted 107 hostel blocks. We expect to achieve completion in 2014.

All the conversion work thus far has been executed by Historically Disadvantaged South African (HDSA) Greater Lonmin Community (GLC) companies which are now able to manage and deliver multimillion Rand projects as a result.

We have also concluded research and scoping projects around Integrated Human Settlements as part of our long-term planning for housing development and supporting infrastructure at Marikana.

Post the year-end, we signed an agreement with the Provincial Department of Human Settlement, whereby, we contributed 50ha of serviced land for immediate development. This land contribution is an integral part of the integrated human settlement plan for the Marikana area and forms part of our commitment to support the Presidential initiatives to improve living conditions. In addition Lonmin will contribute at least R0.5 billion over the next five years towards employee accommodation and bulk services as part of its Social Labour Plan programme.

Social infrastructure cannot be delivered by business alone but this is an area in which Lonmin’s involvement must be accelerated to produce a step change. By the same token, and again in partnership with Government, we will remain committed to our long-held objective of reaching “zero-harm” in everything that we do. We must also ensure that we minimise our use of power and water – both of which are limited.

Finally, this approach supports the goals and initiatives for the business set out by the Board in early 2013 which encompassed employee relations, empowerment, migrant and local labour, use of invested capital and infrastructure and housing and accommodation.

Black Economic Empowerment (BEE)
Our BEE and Mining Charter commitments require Lonmin to increase HDSA ownership in its prospecting and mining ventures by 31 December 2014 to at least 26%. By 30 September 2013, HDSA investors directly and indirectly owned 18% of the share capital of the Company’s subsidiaries that own and operate Marikana and Limpopo and that participate in the Pandora joint venture, as well as 26% of the share capital of its subsidiary that owns Akanani.

We are now deeply engaged in examining ways in which the remaining 8% we need to achieve might be apportioned. There is clearly a balance to be struck between delivering this for our employees and communities and doing so in a way which is sustainable, fair and equitable to our present shareholders. Share ownership schemes are one area of our thinking, although not the only one, and our ability to explore those actively is facilitated by the signing of our recent union recognition agreement.

We have not yet finalised all our proposals, and any future transaction would need to be considered on its merits.

Our safety aim is simple - zero harm. However there still remains a lot to do.

Lonmin believes this objective is achievable, and that every injury or fatality is preventable.

Our Lost Time Injury Frequency Rate (LTIFR) in 2013 continued to improve, this time by 15.9% to reach 3.50. However, improvements become more and more difficult as safety achievements are made. Initially systems, protective equipment and working practices must be evaluated, where after a culture of safe working must be designed and implemented. But after this, safety increasingly rests on the behaviours and mind-sets of individuals which is a much harder challenge to overcome.

Some of our shafts remain industry leaders in safety. 4B/1B, for example, is deemed the safest shaft in the country, achieving seven million fall of ground fatality free shifts during the year. It won the prestigious JT Ryan trophy this year to mark it as South Africa’s safest shaft of its type.

We were deeply saddened by the deaths of three colleagues in falls of ground during the financial period.

Our safety strategy rests on three pillars: fatality prevention; injury prevention; and safe production. Within each of these pillars the strategy focus is on leadership, simplifying systems, creating an enabling environment and creating a safety conscious culture.

We believe that keeping people safe is a team effort and that good working relationships lead to good working practices.

Another feature of our safety initiatives has been the continual empowerment of employees to exercise their right to withdraw from unsafe work areas. We report and analyse these incidents weekly and use the data to address shortcomings and drive improvement.

Finally, safety for Lonmin does not end at the gate to a mine. We work hard with employees, Non-Governmental Organisations and authorities to address concerns about crime, stress and substance abuse away from work.

Labour Relations
The labour relations landscape changed significantly following the events at Marikana in August 2012. The Association of Mineworkers and Construction Union (AMCU) became the new majority union representing 66% of our total workforce. This significant increase in membership resulted in the National Union Mineworkers’ overall membership declining to 14% of the total workforce.

We were legally obliged to terminate our existing union agreements and negotiate new ones as a result of these changes, most significantly in the year our new agreement with AMCU, as largest union. It is unfortunate that this process is formally called “derecognition” in South Africa - a term which is unhelpful and does not reflect events.

We are now actively engaging with minority unions as our view is that every employee’s voice must be heard, regardless of which union, if any, they belong to.
Going forward, our primary focus will remain on rebuilding relations with our employees and strengthening bonds with the representative unions of their choice.

Employee Value Proposition
We have made a good start with the Employee Value Proposition initiative. The main focus of this initiative is to address the needs of our employees and as we work to rebuild relationships. It seeks to go beyond taking an interest in an employee only when he or she is at work and takes a holistic approach. An example of the kind of initiatives we want to see more of in this area is financial literacy training, aimed at addressing the high levels of debt among our employees. More than 11,000 employees participated in this training in the last twelve months and it has now been incorporated into the induction programme.

Judicial Commission of Inquiry
The Farlam Commission into the events of August 2012 at Marikana continues with our full participation. We continue to wholly support the inquiry and expect some of our employees to be asked to give evidence in early 2014.

Given the prevailing labour landscape combined with an uncertain market outlook, we are maintaining sales guidance in excess of 750,000 Platinum ounces with capital spend estimate set at $210 million, in line with our Renewal Plan. Unit cost of production is guided to be less than wage inflation.

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