lonmin plc morgan stanley basic metals conference 2005 · cost per pgm ounce before by product...

Lonmin Plc FINAL RESULTS 2006

Final Results - 2006

2

Lonmin Strategy

• Capture and build growth to supply robust market demand for PGMs

• Create a culture of safe production, operational excellence and innovation

• Focus on the long term sustainability of communities impacted by our operations


3

Highlights

• Record EBIT of US$842 million up 141% and underlying EPS up 163% to 312.1 cents

• Record mine production and sales

• Marikana C1 costs of own production net of by product credits of R2,441 up 8.8%

• Limpopo C1 costs per PGM ounce in concentrate of R3,891 down 5.1%

• Six Sigma programme continues to deliver with R330 million of net EBIT benefit

• First Platinum major to successfully convert old order mining rights

• Full year dividend increased by 39% to US$1.00 per share (final dividend 55 cents)

Acquisition of AfriOre


5

Acquisition of AfriOre

•AfriOre core asset is 74% of Akanani PGM deposit

•Entered into binding agreement with AfriOre under which the Board of AfriOre agrees to support and recommend a cash offer by Lonmin for AfriOre at C$8.75 per share

•Definitive agreement subject to

• Satisfactory due diligence

• Regulatory approvals

• AfriOre shareholder approval

•Offer values AfriOre at US$441 million

•Current Timetable

• Complete due diligence – December 2006

• Complete offer – January 2007

•Finance through existing debt facilities


6

Akanani Project Location

Lonmin Operations and Projects

Limpopo

Marikana

NorthamAmandelbult

Union

Crocodile River

Pretoria

RustenburgImpala

Bafokeng - Rasimone

Waterval

Blue Ridge

Marula

Kennedy’s Vale

Der BrochenSheba’s Ridge

PPRust

Kroondal

BooysendalEverest SouthTwo Rivers

Modikwa

Twickenham

Paschaskraal

Lebowa

Loskop

Pandora

Millennium

Mphatlele

Grootboom

Pilanesburg

Akanani

N 0 100 km


7

Project Resources

Akanani Mineral Holdings

Platreef Outcrop

Fault

Drill Hole in Progress

Drill Hole Complete,

Proposed Drill Hole

LEGEND

INFERRED RESOURCE ESTIMATE*(September 2006)

800 to 2,000 metres - P2 Unit of the SPAWidth Tonnes 3PGM+Au Ni Cu(m) (Mt) (g/t) M.oz (%) (%)

19.0 249.1 4.2 33.7 0.24 0.14

*Source: Snowden Mining Industry Consultants

INFERRED RESOURCE

AREA

Amplats PPRustOperations

Grades:Platinum – 1.8 g/tPalladium – 2.0 g/tRhodium – 0.2 g/tGold – 0.2 g/t3PGE+Au – 4.2 g/t


8

Lonmin Conceptual Project

•Low cost mechanised mine producing 250,000 ounces Platinum and 500,000 ounces total PGMs per annum

•Approximately 5 million tonnes hoisted per annum

•Estimated workforce of 1,500

•First production targeted for 2013

•Initial estimates of around US$600 to 700 million of attributable capital for mine and concentrator

•26% BEE owned - new order prospecting rights granted in June 2006

•2 year feasibility and engineering study at cost of around US$25 million per year

Operations


10

0

5

10

15

20

25

2003 2004 2005 2006 20070

2

4

6

8

10

12

14

16

18

20

LTIF Severity Rate

Marikana

Industrial Fatalities

2003 12

2004 8

2005 6

2006 4

Safety – Significant Improvement

LTIF

R p

er m

illion

man

hou

rs w

orke

d

Target

Severity R

ate (Days)

Note – 2 industrial fatalitiesat Limpopo in 2006


11

0

24

6

8

1012

14

16

2004 2005 2006 2007

Underground Opencast

0

200

400

600

800

1000

1200

1400

1600

2005 2006 2007

FORECAST

Limpopo Production (Tonnes Mined Thousands)

FORECAST

NB includes Pandora JV tonnes

Record Mine Production

Marikana Production (Tonnes Mined Million)


12

Process Division

• Planned Smelter rebuild in February completed in record 27 days at cost of US$8 million

• 11 day Smelter shutdown in April to repair leak

• PMR fire in September

• PMR refined production of 1.4 million ounces of total PGMs

• Smelter outages and reduced throughput had significant impact on Process Division unit costs (R80 per PGM ounce sold)


13

New Generation Platinum Mines

.

• Mechanisation and Automation

• Safe Production

• Integrated logistics and maintenance planning systems

• Teamwork

• Employee friendly facilities


14

New Generation Platinum Mine Development

Tonn

es H

oist

ed (‘

000)U

S$ m

0

2000

4000

6000

8000

10000

12000

14000

2006 2007 2008 2009 2010 2011 20120

20

40

60

80

100

120

140

160

180

200

Hossy Saffy K4 Rowland ARM Other ULP mechanisation DDT jigs/hybrid methods Limpopo Capex

11.9 million tonnesTotal capex spend - US$490 million


15

Modern Mining Methods

.


16

Increased Productivity and Lower Costs

Ran

d pe

r ton

neA

verage tonnes per person

CONVENTIONAL

180.0

190.0

200.0

210.0

220.0

230.0

240.0

250.0

260.0

270.0

280.0

2006 2007 2008 2009 2010 2011 20120

50

100

150

200

250

Average tonnes per underground employee - mechanised Rand cost per tonne

Financial Results

John RobinsonFinance Director


18

Summary of Operating Results

12 months to30 Sept 2006

US$m


US$m

Revenue 1,855 1,128

EBIT 842 350

Underlying EBIT 830 362

Underlying EBIT margin (%) 45% 32%

Profit before tax 633 319

Underlying profit before tax 827 339

Attributable profit 313 158

Basic EPS (cents) 219.5 111.5

Underlying attributable profit 445 168

Underlying EPS (cents) 312.1 118.5


19

EBIT Variances

350 12 (22) 340 12

579 37 (126)

842

0

100

200

300

400

500

600

700

800

900

1,000

1,100

2005Reported

EBIT

2005Re-orgCosts

2005Smelter

Insurance

2005Base

2006HouseSales

2006Price

2006Volume

2006Costs

2006Reported

EBIT

$m


20

Cost Analysis

Voluntary total $48m

Involuntary total $61m26

14 8

59

18 7

8 6 (37)

17 126

0

20

40

60

80

100

120

140

160

SHEC Exploration& Tech Dev

Changeof

CostingBasis

Inflation /Other Costs

EmployeeBenefitsStructure

ProcessDivision

Pyromets

ProcessDivision

New Plant

Royalties ForeignExchange

Impact

Dep'n Total

$m


21

Cost per PGM Ounce Sold

12 months to 30 Sept 06

Rand per ounce sold

12 months to 30 Sept 05

Rand per ounce sold

Variance%

Marikana:MiningProcess Division (including smelter re-build)Shared Business ServicesMovement in physical stock

2,030384460(33)

1,889261347(11)

Cost per PGM ounce before by product creditsBase metal credits

2,841(400)

2,486(243)

14.3%

C1 cost per PGM ounce sold net of by product creditsAmortisationOther items

2,441227

-

2,243253(28)

8.8%

C2 cost per PGM ounce sold own production 2,668 2,468 8.1%

Limpopo:C1 costs per PGM ounce sold net of by product credits 3,891 4,102 (5.1)%


22

Free Cash Generated


US$m


US$m

Operating Profit 842 350

Working Capital - Debtors- Other

Depreciation and other items

(249)4782

(22)(22)

71

Net cash inflow from operating activitiesInterest and finance costsTax paid

722(31)

(185)

377(27)(79)

Trading cash flowCapital expenditureProceeds from asset held for saleAssociate dividend received Minority dividends paid

506(182)

28-

(62)

271(190)

-2

(27)

Free cash flow 290 56

Trading cash flow per share (cents)Free cash flow per share (cents)

354.9c203.4c

191.2c39.5c


23

Free Cash Utilised

12 months toSept 2006

US$m

12 months toSept 2005

US$m

Free cash flow

Acquisition of subsidiary/minority interest

Purchase of other financial assets

Dividends paid to Lonmin shareholders

Issue of ordinary share capital

290

(14)

(36)

(124)

15

56

(212)

1

(102)

6

Decrease/(increase) in net debt

Opening net debt

Effect of exchange rate changes

Net borrowings in subsidiaries acquired

131

(585)

(4)

-

(251)

(272)

(2)

(60)

Closing net debt (458) (585)


24

Balance Sheet Summary

30 September2006

US$m

30 September2005

US$m

Equity

Minority

Net debt

Gearing

1,089

223

458

27%

838

166

585

41%


25

Pro-forma Debt Estimate


US$m

Net debt as at 30 September 2006 458

Convertible bond (216)

242

Abnormal debtors (200)

42

AfriOre 441

Pro-forma net debt 483

Markets

Ian FarmerChief Strategic Officer


27

PGM Market Overview

• Market in fundamental deficit for 6 years• Underpinned by legislated autocatalyst

demand• Jewellery demand keeps tension on price• Demand growth at circa 5% CAGR through

2010• Few mine expansion opportunities globally

• Market continues in surplus• Scope for demand growth

Palladium

Platinum

• Niche illiquid market• > 90% autocat demand• Demand forecast to grow

Rhodium

California Dreamin’


28

Evolution of Pt Demand - 1995 to 2010

0

1000

2000

3000

4000

5000

6000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

000'

s ozs

Autocat Jewellery Industrial

Price Pivot onAutocat focus

Jewellery absorbsMarket surplus

Diesel momentumReinforces industrialemphasis (5% p.a. CAGR)


29

Medium-Term Supply Considerations

• SA (and Zimbabwe) recognised as the principal sources of new mine supply

• Challenging economics of new and replacement mines/expansions (higher capex, costs and lead times)

• SA social & licensing implications

• Inducement price of at least US$1000 per Platinum ounce is required to bring on new 20 year life of mine production

• Smelting capacity constraints may limit ‘Junior’ project development in the long term

Project (new entry) Based Pt Price

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

R 5.000 R 6.000 R 7.000 R 8.000 R 9.000

Exchange Rate

USD

/ oz

P

West limb East limb Shallow East limb Deap


30

Platinum Potential Scenarios - 2010

+ Supply

Demand

+Industrial demanddominates

-

-

Tug of war

Jewellery demanddominates Supply shrinks

2000

2005

1995

2010?

DEMAND > SUPPLY

DEMAND > SUPPLY

DEMAND = SUPPLY

DEMAND < SUPPLYGrowth of Jewellery

Market

Brownfields low cost supply

expansion and rapid growth of

autocatalyst market

Expensive new capacity

required to meet demand growth

Building Growth

Brad MillsChief Executive Officer


32

800

850

900

950

1000

1050

1100

2005 2006 2007 2008 2009 2010 2011 20120

50

100

150

200

250

300

Marikana Base Profile Pt oz (000) Limpopo Phase 1 Pt oz (000) Marikana base capex US$m Marikana and Limpopo base capex US$m

Base Profile

100% Marikana and Limpopo production and capex numbers in today’s money to take the Platinum production to a sustainable 1 million ounces from Marikana and 75,000 ounces from Limpopo

Plat

inum

oun

ces

(000

’s)

Capital spend (U

S$ m)


33

0

20

40

60

80

100

120

140

160

180

200

2007 2008 2009 2010 2011 20120

20

40

60

80

100

120

140

Marikana Growth Pt oz (000) Limpopo Phase 1 Growth Pt oz (000)Marikana Growth Capex (07 money) US$m Limpopo growth phase 1 capex (07 money) US$m

Plat

inum

oun

ces

(000

’s)

Capital expenditure (U

S$ m

)

Marikana and Limpopo Growth Profile

MARIKANAGrowth – 175,000 Pt oz paTotal capex spend - US$250 millionLIMPOPOGrowth – 12,000 Pt oz paTotal capex spend - US$27 million


34

Metallurgical Expansion to 1.4m Ounces

Capital expenditure (U

S$ m

)Pl

atin

um o

unce

s (0

00’s

)

0

50

100

150

200

250

300

350

400

450

2005 2006 2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

70

80

Metallurgical Capacity Growth Pt oz (000) Metallurgical Expansion Capex (07 money) US$m Metallurgical Sustaining Capex (07 money) US$m

Capacity Growth – 400,000 Pt oz paTotal capex spend - US$148 million


35

800

850

900

950

1000

1050

1100

1150

1200

1250

1300

2005 2006 2007 2008 2009 2010 2011 20120

50

100

150

200

250

300

350

400

Marikana Base Profile Pt oz (000) Limpopo Phase 1 Base Pt oz (000) Marikana Growth Pt oz (000)Limpopo Phase 1 Growth Pt oz (000) Sustaining Capex US$m Total Committed Capex US$m

Committed Growth Profile

Growth – 300,000 Platinum oz paTotal growth capex - US$830 mSustaining capex – US$112m pa


36

Growth Projects

• Expect to completing pre-feasibility studies on Limpopo phase 2 and Pandora by end

March 2007

• Limpopo 2

• Lonmin effective interest 75%

• Currently estimate in 2011 at full production will add around 93,000 Platinum ounces

per annum to Lonmin account

• Pandora

• Lonmin interest 42.5% and manager of project

• Currently estimate in 2012 at full production will add around 55,000 Platinum ounces

per annum to Lonmin account

• Capital estimates for these projects will be released at the completion of the pre-feasibility

tollgate and approval to commence full feasibility


37

Production Growth Profile

Plat

inum

oun

ces

(000

’s)

Committed Projects and Pre-feasibility Projects

800

850

900

950

1000

1050

1100

1150

1200

1250

1300

1350

1400

1450

2005 2006 2007 2008 2009 2010 2011 2012

Marikana Base Profile Pt oz (000) Limpopo Phase 1 Pt oz (000) Marikana Growth Pt oz (000)Limpopo Phase 1 Growth Pt oz (000) Limpopo Phase 2 (attributable) Pt oz (000) Pandora (attributable) Pt oz (000)


38

Opportunity Capture and Value Creation

NPV

Time

CAPTURE & DISCOVER BUILD OPERATE

EXPLORATIONLoskopSudbury

LuwumbuMibango

Monts de Cristal

Platmin(22%) Southern

Platinum

IncwalaImpala buyoutAfriOre

Exploration risk Development risk Operations risk

A Unique Investment


40

Unique Commodity Sector

• Strong Medium and Longer term market fundamentals

• Current demand underpinned by EU and US Clean Air legislation

• Longer term demand underpinned by the rapidly growing global middle class’s demand for PGM related products

• clean fuel efficient cars

• flat screen TVs

• hard disk drives for computers

• energy (petroleum catalysis and fuel cells)

• Platinum jewellery

• Supply growth fundamentally constrained by scarcity of resources and technical barriers to entry into the business

• Consolidated industry with 3 major primary producers


41

Lonmin - A Unique Investment Choice

• Capture and build strong growth to supply robust market demand for PGMs• Targeting growth to 1.4 million ounces in 2012

• Developing options to grow to 2 million ounces Platinum per annum

• High quality investment and exploration portfolio

• Create a culture of safe production, operational excellence and innovation• Commitment to safe production – DuPont training, Fatal risk protocols, ICAMs

• Maintain and improve our low cost position – Six Sigma and Shared Business Services

• Create a new generation of Platinum mines – mechanisation, Sandvik partnership

• Employee alignment – New Era Labour Agreement, Gainshare programme

• Focus on the long term sustainability of communities impacted by our operations• New Order Mining Licence, ICMM standards, Social and Labour Plans

Appendix


43

2007 Targets

• Production of around 1.02 to 1.04 million saleable ounces of Platinum

• C1 cost of own production at Marikana per PGM ounce sold of around R2,450 to R2,500 net of by product credits

• C1 cost per ounce in concentrate for Limpopo of around R3,000 to R3,250 per PGM ounce

• Capital expenditure expected to be around US$370 million

• Exploration spend of around US$20 million

• Additional net EBIT benefit from Six Sigma programme of R400 million

• Start up of mechanised stoping at both Hossy and Saffy shafts


44

C1 and C2 Costs

C1Cash operating costs per Platinum Group Metal ounce sold for own production, including mining, smelting and refining, shared services (including overheads), net of by product credits

C2C1 costs plus non recurring cash costs, one off accounting refinements, amortisation and other non cash items

Limpopo C1

Cash operating costs per saleable Platinum Group Metal ounce contained in concentrate, including mining and shared services

Marikana


45

EBIT Reconciliation

2006 2005$m $m

Revenue from C1 / C2 Refined PGM metal sales 1,229 954

C1 / C2 Ounces (m) 1.3 1.5C2 cost (Rand / ounce) 2,668 2,468Total C2 cost (Rand m) 3,423 3,683

6.48 6.28 Total C2 cost ($m) (528) (586)

C1 / C2 refined metal sales EBIT 701 368

Net contribution from concentrate / toll sales / other 176 17

877 385


46

Green Legislation Penetration 2006 - 2010

17

3

Euro 3 or equivalent or less

Euro 4 or equivalent

Euro 5 or equivalent or greater

16

2

2219

2 3

3

106

10 11

2

Autocat PGM Demand1995-2010

The chart on the left shows evolvingemissions standards across theworld and the figures in each circlerepresent millions of vehicles sold

0

1000

2000

3000

4000

5000

6000

'000

ozs

1995 1997 1999 2001 2003 2005 2007 2009

Platinum Palladium RhodiumSource: Lonmin


47

Autocatalyst Demand

•Driven by globally legislated emissions controls- progressively broader and tighter

• Diesel is the PLATINUM story- 50% of Pt autocat demand- 9% growth 2004 on 2005, 17% growth in EU- Diesel Loadings : EU 8g Pt; initial US

10-15g Pt vs. Petrol 1g Pt & 4g Pd- 50% of car sales in Europe are diesel- US fuel purity improved 2006- BMW/Ford launch high performance diesel

in the US- Current US diesel 4% vs EU 50%, increase

to 10% creates 300k oz. Pt.- Trucks being legislated (US : 2006)

: - Off road/marine diesels to follow post 2010(similar market size to on road)

- Global roll-out of US/EU standards

0.000.200.400.600.801.001.201.401.601.802.00

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

g/bh

p ho

ur

US Heavy Diesel

Emission Legislation


48

Platinum Outlook Beyond 2010

0

100

200

300

400

500

2000 2005 2010 2015 2020 2025 2030 2035 2040

China

India

UnitedStates

29

21

55

Per 100peoplein 2040

Source: Economist/Goldman Sachs

Forecasts of car ownership, m


49

Platinum Outlook Beyond 2010

Middle-class bulgeChinese urban households by annual income

% of total

Source : McKinsey0%

20%

40%

60%

80%

100%

1985 1995 2005 2015* 2025*

Poor Lower-middle class Upper-middle class Mass affluent Global affluent

* Forecasts

66 109 191 280 373Urban households, m


50

Disclaimer

•This presentation, which is personal to the recipient and has been issued by Lonmin, comprises slides for a presentation in relation to the proposed recommended acquisition of AfriOre by Lonmin, and is solely for use at such presentation.•This presentation includes forward-looking statements. Information contained in this presentation relating to AfriOre has been compiled from public sources. 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) the risk that the businesses of Lonmin and AfriOre will not be integrated successfully; (2) material adverse changes in economic conditions generally or in relevant markets or industries in particular; (3) fluctuations in demand and pricing in the mineral resource industry and fluctuations in exchange rates; (4) future regulatory and legislative actions and conditions affecting Lonmin's and AfriOre's operating areas; (5) obtaining and retaining skilled workers and key executives; and (6) 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's 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 AfriOre or 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.

lonmin plc morgan stanley basic metals conference 2005 · cost per pgm ounce before by product...

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