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Lonmin’s warning to government

Marikana wage agreement adds 14% to the mine’s wage costs.

PRETORIA – Lonmin’s Chairman Roger Phillimore says in the platinum miner’s annual report that he is confident that government realises that hitting the industry with more costs will only damage the country’s economy.

Lonmin has been at the centre of the news this year with the tragic events at its Marikana operations when 45 people were killed following wildcat strikes at the mine.

In his chairman’s letter Phillimore states that “whilst there are those who attack the mining industry as being to blame for many of South Africa’s ills, and demand it does ever more to address them, I am confident that the government realises that loading more and more costs on to the sector during difficult times can only lead, in the long run, to serious damage to the nation’s economy”

The report also shows that non-executive director, Cyril Ramaphosa, newly elected deputy-president of the ANC, received £62 500 (R856 250) for this position. This includes £50 000 for his directorship and £12 500 for being on the transformation committee. This is 2.2% more than the previous year. In the detail on remuneration for CEO Ian Farmer – it shows that he did not receive a bonus this year, while Simon Scott (who took over as acting CEO after Farmer was hospitalised) received an annual bonus of £130 311 bringing his total pay to £557 268. Farmer’s total pay (without the bonus) comes to £1 220 629.

In addition on September 11 2012 the Remuneration Committee also approved an “exceptional one-off cash retention” award for Scott, to “help provide immediate stability for the company… in the midst of the multiple issues facing the company”. The award of £814 625, 2.5 times Scott’s CFO basic salary, was granted on November 7 2012. He will only receive the award if he stays with the company for three years.

He calls the events at Marikana a “watershed for post-Apartheid South Africa”.

“What is clear, though, is that if South Africa is to deal with the historic issues of poverty and dissatisfaction which underpin much of the unrest we have witnessed, it will require a growing and effective private sector to provide the jobs so desperately needed. It is business which will help to deliver much of the growth which, in turn, will help to provide the economic, educational and social platforms for change. Given the country’s extensive natural resources, mining will be a key part of that,” Phillimore writes.

He concedes that miners have a role to play and that this should perhaps include “greater responsibility than others given the labour-intensive nature of the businesses”.

“Your company accepts that challenge, and that responsibility, but we must also be clear that the change all of us who love South Africa wish to see cannot be delivered by businesses alone,” he says.

Phillimore touches on some financial issues post year-end, including the announcement of the intention to raise approximately US$800m in a rights issue, the prospectus for which was published on November 9 2012.

The fact that this rights issue is fully underwritten is a real vote of confidence in our business, as well as in South Africa’s ability to deal with its short-term problems and move forwards,” Phillimore says.

The events at Marikana also impacted on the costs of operations, raising the operating costs for Lonmin and other companies in the platinum industry, he says.

“Your board believes that the disruption to the South African PGM mining industry is also likely to result in some capacity reductions in the near term as higher cost operations are forced to reduce output or close down, and / or in the longer term as reduced capital expenditure plans today defer the production of replacement or growth ounces in the future,” he said.

The costs of the wage agreement which ended the illegal strike at Marikana will add approximately 14% to the mine’s wage costs in 2013.

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