Letter from the Chief Executive Officer

Ben Magara

Dear stakeholder

When I took up my position at Lonmin in July, many of the challenges facing our Company and our industry had been spoken about widely. I would like to refer our stakeholders to our Marikana information portal on our website which provides more detail on the events of 2012, as well as our deliberations on, and planning of a way forward. In particular, I encourage reading our pledge, made by former acting CEO Simon Scott, which remains valid, and describes our 2013 change initiatives.
Download Lonmin’s Pledge

When Lonmin sat down after the events of Marikana to plot the way forward, the enormity of the challenge that lay before the Company in terms of rebuilding relationships with our stakeholders could not be underestimated. In that context, the success of the start-up phase of the Lonmin Renewal Plan is a welcome and valuable achievement. Following the implementation of the start-up phase and the Renewal Plan our focus shifted towards long-term and this reflection gave rise to the five Board Initiatives, which mark the path that our journey to sustainability will take over the next few years.

Our primary purpose may be the production of PGMs, but our ultimate purpose is to create and sustain stakeholder value. Finding solutions that benefit and satisfy all of our stakeholders depends on determining fair value for all, and then working together in partnership to achieve it. To achieve this, we need to engage with our stakeholders.

Stakeholder engagement

Stakeholder engagement cannot be done without openness, trust and mutual respect. When we started this year, our relationships with our employees, our unions and our communities had all suffered major setbacks. The way we have started to restore fruitful engagement has been through individual relationships, allowing the trust and respect between people slowly to accumulate into trust and respect between groups. Through many hours of discussion with as many individuals and representatives as possible, I believe we have started to make progress in this regard. Slowly but surely, it will be possible to build sound bridges between our organisation and all of our stakeholders again, creating a strong network of communication lines and support through which we will be able to grow.

The programme we have put in place to ensure a good education for the children of our employees who died during the Marikana tragedy has been a helpful start, and I believe the compassion and sincerity of our participation in the commemoration ceremony also restored some faith in our integrity, but we know we must do more.

Reclaiming our relationship with employees

During the last few years, mining companies in South Africa have steadily delegated more and more employee communication responsibilities to human resources practitioners and union leaders. The result, in the eyes of employees, has been an effective abdication of our role as managers. We need to reclaim that role. Regardless of which union our employees choose to join, they are first and foremost Lonmin employees. We want our employees to identify with the Company. We therefore have a duty to reach out to them directly, to act as a reliable source of the information that they need, to listen to them and to inform them adequately and accurately of our progress in terms of the challenges we face and how they are likely to be affected and how they can assist in improving our performance. This is one of the most important priorities that we have endeavoured to focus on this year.

Another critical aspect to regaining trust is actually delivering the change that we promise. A key feature of the Employee Value Proposition that came out of the Lonmin Renewal Plan is the proposed introduction of an employee share ownership plan (ESOP). Not only will this be pivotal from the point of view of increasing our BEE ownership, in line with Mining Charter requirements, and retaining our social licence to operate, but it also provides us with a new vehicle to deliver real value that will be tangible to our employees.

The new recognition agreement was also an important step forward in terms of stabilising the labour environment. The agreement followed extremely complex negotiations. The signing of the recognition agreement with our majority union, the Association of Mineworkers and Construction Union (AMCU) paved the way for the ongoing constructive engagements with all unions to find a winwin solution for our business to thrive and all voices to be heard.

Successes

It is important not to lose sight of the fact that there are several areas of our sustainability performance where we have much to be proud of, and the improvement in our lost time injury frequency rate (LTIFR) is an area where Lonmin has consistently performed well. The biggest driver of this performance is a belief that is evident across the organisation that zero harm is achievable. I am very proud to be associated with this, and commend the achievements of all our employees and contractors.

These efforts are still met with the ever present threat of falls of ground, which account for most serious accidents in underground mines. We were deeply saddened to record three fatalities during the year, all as a result of falls of ground. We extend our condolences to the families of those who died at work, their friends and their colleagues. We have a comprehensive strategy for minimising these incidents, which we re-examine for possible improvement after every accident.

The work that we are doing around community education is also an area to which I would like to draw attention. A high percentage of our bursaries are now going to recipients from local communities, which in my opinion, makes a noticeable impact. Our peer educators and HIV/Aids awareness programmes have also become recognisable parts of the fabric of the Greater Lonmin Community (GLC), and are aligned with our aim of zero harm.

I am encouraged by our collaboration efforts with like-minded organisations, through our participation in the International Council for Mining and Minerals (ICMM) and the United Nations Global Compact.

Risks and opportunities

The greatest risks to sustainability are the challenges that are the most complex to deal with and that face the industry as a whole. The living conditions of employees and the challenge of providing adequate housing and accommodation will receive more attention as we move forward. We have acknowledged this as a priority through our Board Initiatives and we are committed to finding a sustainable solution, in collaboration with our industry peers and with local, regional and national government.

A stable, peaceful and predictable environment is critical not only for social development, but also for business to thrive. Profitable businesses make it possible to alleviate our social challenges. The scarcity of water amid rising demand is another concern to both the sustainability of our operations and for the living standards of our communities. Investing in the reticulation infrastructure and bulk services to ensure that water is accessible to communities will mean little if the country does not have the water to deliver to them.

Finally we need to acknowledge the challenges of the platinum market as a whole, which has undergone structural changes in a way that the markets of other commodities have not. The tough economic conditions in Europe and the rise in recycled platinum make for a challenging environment into which primary producers need to sell PGMs. The rising costs of labour, electricity, utilities and materials does not make this any easier, especially as our mines get deeper and the geology, more complex.

I am encouraged by our collaboration efforts with like-minded organisations through our participation in the International Council for Mining and Minerals (ICMM).

The future of platinum

So does this mean that the future of a market for PGMs is at risk? No, it does not. One need only compare the pollution levels in cities that have higher EURO legislation versus ones without, to see the difference that PGMs can make. There can be no doubt of their value as catalysts, in vehicles, and for a cleaner future in general. I would like to see Lonmin as a catalyst in a similar way.

Acknowledging the consequences of the events at Marikana, acknowledging our challenges, we need to find a way to become that catalyst for change. By building bridges with our stakeholders, and growing our people to be their best, I believe we can fill that role.

The future of Lonmin

Our current estimation is that Lonmin’s life of mine will extend at least for the next 50 years. The work we are doing in respect of safety and health at work and in our communities will have an impact on the communities of the future; the rehabilitation and closure planning, and responsible use of resources will create the environment in which our children and their children will live; the infrastructure we develop today – roads, water projects, housing – must be able to endure and establish and sustain the communities of the future.

But, while our aim is to leave a positive legacy after the closure of our operations, this does not negate our responsibility to ‘be the change we want to see, today’. Ours is an industry and business and community in flux. It is incumbent on us – as a board, as management, as union leaders – to review, revise and adapt our plans going forward. So, those seeking for us to report a static strategy in the year ahead will be disappointed. Our strategy will be shaped to meet the needs of our stakeholders, and this is already happening.

The Lonmin Renewal Plan and Board Initiatives that were embarked on in 2013, and which are reported on, were designed to guide Lonmin in a challenging and changing environment. In the past months, I have spent much time engaging with stakeholders to understand their understanding, and to re-build bridges of trust. We have spoken to stakeholders but, more importantly we have heard them. In later 2013, we announced four focus areas for the coming year based on our feedback from stakeholders. These are: people and relationships; operational excellence; value optimisation management; and sustainability and social agenda. We will continue to develop plans for these during the coming year and will no doubt report against these in a year’s time.

Ben Magara [signature]

Ben Magara
CEO

16 December 2013

GRI
1.1
Statement from the most senior decision maker
1.2
Description of key impacts, risks and opportunities