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Sustainable Development Report for the year ended 30 September 2012

03/People, Planet, Profit

(verb) make happen; carry into effect

Creating and distributing value

Cash distributed 2012

Our value-added statement accounts for the Company’s contribution to the creation of wealth (in terms of net cash generated), and the resulting rewards disbursed to labour, capital (shareholders, banks and others) and the state. By far the most significant beneficiary of the Company’s wealth creation efforts were employees, who received R6,078 million ($755 million) in salaries and wages (79.81% of net cash distributed) during the year. Please refer to our Annual Report and Accounts for revenue.

Value-added statement for Lonmin Plc as at 30 September 2012
  2012 2011 $ Variance
  US$m US$m %
Net cash generated      
Customers, consumers and investment income      
Cash received for products 1,663 2,226 (25)
Cash returns on investment 4 3 33
Cash payments for materials and services purchased (690) (641) 8
Cost of borrowings (31) (39) (21)
Net cash flows 946 1,549 (39)
Cash distributed      
Salaries & benefits 755 796 (5)
Social capital 10 8.8 14
Donations 0.4 1.1 100
Other community projects 9.6 7.7 25
Government taxes 30 40 (25)
Directors’ remuneration 4 7 (43)
Shareholders’ distribution 31 30 3
Cash retained for growth 116 667 (83)
Net cash distributed 946 1,549 (39)

Creating and sustaining value requires both effort and ingenuity, along with required capital investment

Factors critical to Lonmin are:

  • Safely resuming operations and the re-building of a climate of constructive engagement. This will take time and we will take the necessary time to build mutual trust between employees and management.
  • Managing costs and protecting margins – see the Annual Report and Accounts for further details.
  • Optimising our assets and processes to essentially recover more from our value chain – see below.
  • Conserving capital to secure the viability of our operating base. On 26 July 2012, Lonmin announced that, in light of the weak price environment, some capital expenditure at the K4, Hossy and Saffy shafts were being deferred so as to reduce capital expenditure in 2013 and 2014 to R2,012 million (US$250 million) per annum. Further to that, and in support of this initiative, the Company announced that from 17 October 2012, that the K4 shaft would be placed on care and maintenance.

Business optimisation programmes

At the beginning of the financial year we implemented several business and asset optimisation plans and initiatives in areas of the business. These were aimed at supporting our two most significant long-term objectives, namely to achieve our production targets despite rising costs and to move with the industry towards our goal of mining with zero harm.

Team effectiveness training

A new team effectiveness training programme has been rolled out during the year, focused on improving the effectiveness of the individuals who make up our work teams by helping them with their general wellbeing and opportunities for personal growth. We believe this can contribute to better communication overall, and to adapting to the external factors that have an impact on our business.

Each working team was taken off shift for three days, with individuals taking turns to examine different aspects of their working and personal lives. Training elements included financial planning and management, the importance of decent nutrition and sleep and ways to cope when supporting family living with HIV/AIDS. Work elements focussed on going back to basics to ensure that these were refreshed in people’s minds. They covered the Standard Operating Procedures and the cycle of mining, with a specific component dedicated to safety risk identification and response. Finally, a module on the Lonmin Values was included to discuss what each person understood them to mean. The recently updated Lonmin Code of Business Conduct was also discussed and each employee was asked to sign a copy of it, and to hold themselves and their colleagues accountable for upholding it.

Approximately 70% of our workforce had undergone this training at the time this report went to print, and we are aiming to complete the training for our full employee complement by December 2012. A second phase is planned for 2013, with more technical aspects being considered this time.

Rewards and recognition for hard work

We have implemented a new bonus system across the mining division to motivate and reward people for improvements in areas of performance which are within their control. So, the core incentive for employees is based on three main drivers: production, safety and attendance. The incentive for miners includes stopping and quality indicators as additional sweeping percentages and further parameters in terms of efficiency and cost controls are incorporated for shift bosses.

The bonus system is in place with the safety incentive currently being revised, following an external audit where it was suggested that it could be amended to encourage even better safety improvements. Any revisions to this aspect of the system will be implemented in 2013.

Leadership development and improved communication

We place significant emphasis on leadership development at Lonmin as we believe that it is up to the leaders and management teams of a company to shape its csulture. Investment in the skills and competencies of our leaders is an investment towards achieving higher safety performances and improved output efficiencies.

The participation of our leadership teams in a DuPont training intervention during the year was viewed as just such an investment and the exposure to a superior culture of safety, best practice and leadership style has given us a renewed common vision.

Another significant focus area in terms of leadership development has been the improvement of our employee-supervisor communications. We recognised that communication as part of line supervision had been somewhat neglected at our shafts in the past and we wanted to better equip our supervisors to do their jobs more effectively. We brought in independent communications specialists to assist us with a review and updated employee communications plan for the mining division, which was integrated into our overall corporate communications strategy. It was implemented during the last quarter of the year.

We also initiated several other communication improvement initiatives several months prior, such as back to basics training on Standard Operating Procedures and industrial best practice so that every team leader, miner, shift boss and supervisor would have the necessary information and the skills to answer questions from their teams effectively, to lead constructive team meetings and to effect discipline while retaining respect.

Line of Sight reporting system

The Line of Sight reporting system was implemented last year but full roll out took place in 2012 and it is during this year that the full benefits of the system have begun to be felt.

The Line of Sight concept is based on keeping production and safety performances against targets uppermost in the minds of our employees and supervisors by literally keeping them in their daily line of sight. It includes monthly and daily production and safety planning charts and updates per team, which are displayed outside the entrances of each shaft, updated and discussed by team leaders and supervisors at the start of every shift.

This simple addition has already begun delivering positive results and is the backbone of our shift towards simplifying our management systems across the mining division and trying to base them on a model that combines care with growth.

Managing external influences

As a mining company operating in South Africa, we are well aware that factors external to our organisation can have major influences on our performance. We do our best to manage this influence by conducting surveys that examine concerns that may arise outside the business, working together with our Human Capital and Sustainability departments. These surveys are on-going, and many of the programmes initiated during the year and discussed in the People section of this report, such as the GLC waste disposal service and our focus on community health clinics, came out of these surveys and bear witness to our belief that an investment in the communities is an investment in our business.

Keeping the GLC clean

CASE STUDY: Keeping the GLC clean

Recognising the growing problem of waste in the GLC – an issue raised at various stakeholder meetings Lonmin has partnered with the innovative waste management company, TedCor, to offer a reliable waste removal service to the residents of the GLC. Read case study

Improved efficiency through mining strategy changes

Other more direct adjustments that were made during the year included the introduction of systems for half-level optimisation, increasing the number of crews working at the face lengths on each level, and ongoing research and development to examine the tried and tested methods used in the Company and applying new strategies where fit for purpose.

These initiatives were implemented during 2012 and full roll out will take place over the next three years. We are already examining additional strategies for implementation after 2015.

Research and development

Group companies continue to focus on research and development in the areas of mineral extraction, processing and refining to unlock new technology opportunities and to extract optimal value from our assets. Good progress has been made on these projects across the business, including:

  • on-going work on the characterisation of ores, leading to improved specifications for processing equipment and reagents aimed at improving PGM recovery at our concentrators;
  • improved stability and availability of the smelting furnaces through new sensor technologies, better mineralogical understanding and design improvements which has been evident in the performance of our smelting operations in 2012;
  • on-going work on a new process aimed at significantly upgrading the PGM concentrates from the BMR leading to an overall reduction in waste, reduction in residue tolling costs and improved PMR efficiencies; and
  • significant progress has been made on the development of a new process for the production of finished metals at the PMR following extensive and successful pilot plant trials.

Most of our research is conducted by third party institutions, such as Mintek, and we make extensive use of universities, such as the universities of Cape Town, Stellenbosch and Pretoria via their post-graduate programmes. This provides us with cost-effective research and also provides a stream of highly qualified potential future employees who understand the Lonmin working environment.

Current research involves new technologies for heap leaching for Akanani, improving Rhodium and Iridium recovery at the PMR and a novel process route that will integrate the BMR and PMR more closely, thereby reducing cost, improving recovery and reducing inventories.

Notable Research and Development achievements in recent years have revolved around tonne concentrator benchmark recoveries, smelting technology recoveries and resolving many of the issues associated with Furnace No 1 and its sustainable smelting of high chrome and UG2 concentrate.

Capital to sustain and grow

Capital expenditure (R million)

During the past five years, Lonmin had capital expenditure of more than R13 billion (US$1.7 billion), representing a significant investment and vote of confidence in the Company’s future. In 2012, capital expenditure amounted to R3,296 million (US$408 million), of which R2,286 million or US$270 million (69.6%) was spent by the Mining Division and R1,014 million or US$127 million (30%) by the Processing Division. Capital expenditure in 2013 is expected to be around R 1,409 million (US$175 million). See the graph alongside for a five-year comparison.

Exploring for the future

Given the current market circumstances, Lonmin’s exploration is currently funded at minimum expenditure levels to ensure that work programmes and expenditures are sufficient to satisfy joint venture commitments and retain permits in good standing. In the prospective Sudbury region in Ontario, Canada, the Company is carrying out exploration in Joint Ventures (JV) with Vale and Wallbridge, and has the opportunity to earn-into these ventures as exploration proceeds. During the year we completed a positive prefeasibility study on a PGM open pit on the Vale JV, and Wallbridge’s exploration located significant extensions of offset dykes – know to be prospective for PGMs in Sudbury. We also elected to exercise an option to form a second JV with Wallbridge covering 14 North Range properties.

Lonmin’s Greenfield exploration venture in Northern Ireland continues with geophysics and preliminary drilling.

In South Africa Lonmin will be carrying out follow up drilling on targets on Vlakfontein where historically PGMs were found associated with discrete, massive nickel copper sulphide bodies.


In June 2010, government’s Beneficiation Policy Framework was approved by parliament paving the road for the implementation plans for the five key value chains identified. While these implementation plans have not yet been released to parliament Lonmin has engaged with the DMR’s beneficiation department, holding monthly meetings to continue the development and discussions around Lonmin’s co-operation agreements with our existing customer base and expansive global relationships. The key focus remains the exploration of opportunities for technical skills development and general upliftment of South Africans through PGM beneficiation.

During 2012 Lonmin made 19% of its PGM production available to the South African catalyst manufacturing industry, 60% of our Nickel Sulphate production was made available for local beneficiation into stainless steel and 88% of our Chrome concentrate production was made available for local beneficiation into ferrochrome.

Payments to government

Transparency through open and honest communication is one of our key values. Lonmin fully supports and endorses the Principles and Criteria of the Extractive Industries Transparency Initiative (EITI), and has been a Supporting Company of the EITI through its membership of the ICMM since 2008. The EITI is a voluntary process whose membership is government-led. Neither of the governments of South Africa nor the United Kingdom are signatories to the EITI. Lonmin would be fully supportive of their becoming members, should they consider doing so.

Lonmin did not receive any financial assistance from its host governments during the reporting period.

Lonmin does not participate, directly or indirectly, in party politics. We do not make any payments or donations to any political party of individual politician.

Our indirect economic impacts are significant, yet difficult to accurately quantify. To assess and understand our impacts, we engage our stakeholders in surveys and carry out baseline assessments, needs analyses, as well as environmental and social impact assessments.

Royalties paid

Lonmin pays royalties to the Bapo Ba Mogale (Bapo) tribe in respect of ore that is mined from tribal land. These royalties are based on the taxable income generated from PGMs mined from ground owned by EPL as well as from the Wonderkop surface area. Funds are paid to the Department of Finance, North West Provincial Government which retains this money in trust on behalf of the Bapo Community. For over 18 years, we have paid royalties into a trust on behalf of the Bapo Ba Mogale community. The amount of funds contributed to date is approximately R371 million.

Royalty payments in 2012
  R million US$ million
State Royalties 64.89 8.06
Royalties payable to Bapo 3.28 0.4
Total 68.17 8.46

Indirect economic impact

Indicators of our indirect economic impact include