pgms…..a changing industry - the vault skills shortage •impact of the changing social framework...
TRANSCRIPT
Lonmin Plc
Ian Farmer, Chief Executive Officer
8 February 2012
Mining Indaba – Cape Town
PGMs…..a Changing Industry
2
A Challenging Investment Decision
Investing to exploit PGM demand recovery
Inflection point
is when….not if!
Cashflow negative
Investing for growth
Cost pressures
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Re
al U
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Ca
sh
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Time
Unit Turnover Unit Cost Unit Cost &Capex
Maximising return on
investment
PGM Market – Strategic for South Africa
3
South African Mineral Sales
Contribution to Mining GDP – 2010
Source: Stats SA
World Primary Platinum
Production - 2010
Source: SFA (Oxford)
Structural issues in PGM industry has potential to directly impact
PGM physical availability
4
Operational Challenges to South African PGM
producers
• Safety
• Labour costs and management
• Skills
• Transformation and equity ownership
• Social pressures
• Resource nationalism
• Power
A producer’s ability to manage these factors will drive its performance
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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
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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
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Safety Journey
• Rate of fatalities
• Increase in frequency and length of
S54 safety stoppages
• Consequent impact on production,
margins and SA as an investment
destination
• Best LTIFR for Lonmin – 4.71
• 5 million FFS for Lonmin Mining
• Play a leading role in health and safety
in the industry
• Dupont Leadership training
• Contractor Safety Management
Framework
• Self inflicted operational stoppages
• Ongoing dialogue and collaborative
approach with the DMR and industry
participants
Sustained commitment to safety improvement journey
Issues to Manage Lonmin’s Response
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Labour Relations, Productivity and Costs
• Structural unit cost inflation in mining
• Deteriorating trend in productivity
• Impact of social discontent
• Initiatives launched over past few years
to improve delivery and productivity
• Line of sight management system to
track productivity
• Comprehensive approach to wellbeing of
employees
• Alignment of bonus structures with safe
production
• 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
9
Skills
• Skills shortage
• Impact of the changing social
framework
• Addressing historical legacy
• Holistic HRD strategy developed
• Response aimed at attracting,
developing and retaining a skilled
workforce
• Committed to investing in education and
training programmes to close technical
skills shortage gap
• Artisan training and bursaries for higher
education
• Particular focus on HDSA employees
• Availing opportunities to labour pool in
Lonmin communities
Holistic approach to addressing a historical legacy
Issues to Manage Lonmin’s Response
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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
11
Social Pressures
• Socio political business disruptions
• Community expectations are on the
increase
• Potential detractor from the running
of operations
• Sympathetic NGOs
• Impact on morale and productivity
• Risk to livelihoods, assets and lives
• 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
• Dedicated team focused on Lonmin
communities and accelerated spend
Disruption and morale risk
Issues to Manage Lonmin’s Response
12
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
• Senior management’s presence in SA
enables better understanding and
communication of the issues
• Relationship management
• Involvement in the debates
• Shanduka partnership
• Keysha - remain confident of our
position and will follow judicial process
• Conflict of directors interests to be
addressed
Policy uncertainty is a risk to SA mining’s competitiveness
Issues to Manage Lonmin’s Response
13
Power
• Power – escalating costs
• Working within agreed Eskom
margins
• Creating capacity for the future -
capacity is expected to be
significantly constrained over next two
years
• Optimising use of power within our
margins at our Marikana operations
• Identifying areas in business chain
where further load shedding can be
achieved safely
Sufficient capacity at the Marikana operations
Issues to Manage Lonmin’s Response
14
Supply Forecasts – a Regressing Target
Potential for supply to surprise downwards
Source: SFA
Source: SFA
Key PGM Demand Segments
Platinum Demand, 2011 Palladium Demand 2011.
Auto 48%
Jewellery 26%
Petroleum 3%
Chemical 6%
Electrical 3%
Glass 6%
Medical & Biomedical
3%
Other 3%
Off-road 2%
Auto demand is the primary driver of demand 15
Auto 66%
Jewellery 4%
Chemical 5%
Electrical 17%
Dental 7%
Other 1%
Off-road 0.2%
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Automotive Demand
16 Pent up demand may boost sales upturn
0
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80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Quarterly vehicle sales (rhs '000 oz; lhs '000 units)
Vehicle Sales
Source: SFA (Oxford), Oxford Economics, LMCA
10 quarterdownturn
12 quarterdownturn
5 quarter downturn
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Lonmin
View
Opportunities
PGM Market Outlook
Risks
Long term fundamentals for PGMs remain attractive
• Protracted European recession
• China slowdown
• Substitution
• Possible release of pent-up demand and Euro 6 in 2014
• Supply surprising on the downside, tighter market and
higher prices
• Stationary fuel cell and non-road market positive
• Challenging 2012
• Investor activity will continue to strongly influence
price in the short term
• Industrial demand recovery from 2013
• Supply constraints – growing deficits in 2013-2015
period
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Conclusion
• Managing and delivering on issues within management’s control will be
key – and we are making progress - safety initiatives will remain a focus
• When industrial demand reasserts itself as the price setter….metal price reaction could be acute
• Investing for future growth whilst delivering profitable ounces and maintaining a strong balance sheet
Building for the future
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