Lonmin’s AGM, held in London on Monday morning, was not a quiet affair. A small group of people protested outside, and many more – in the form of shareholders – protested just as passionately inside the building.
Besides lively debates and difficult questions, shareholders demonstrated in no uncertain terms that they are unhappy with management’s performance when asked to approve a few resolutions, including the report on executive directors’ remuneration.
A vote to approve last year’s remuneration is a purely administrative issue and would normally be quick and uneventful. Shareholders are voting only to pass or reject the report itself, in this case a report on the remuneration Lonmin paid its executive directors in the year ended September 2018. The vote is not to approve or reject the salaries, bonuses and benefits paid to executive directors per se.
However, it seems shareholders used the opportunity to show that they are not pleased with the performance of the executive directors.
Votes representing 190.3 million shares – nearly 74% of the shares held by investors who attended the meeting in person or voted by proxy – were cast against Resolution 2: To approve the directors’ remuneration report. Just under 50 million shares were voted in favour of adopting the report, equal to 26% of the shares held by investors who bothered to vote.
A quick look at the voting results published after the AGM shows that Lonmin’s biggest shareholder, the Public Investment Corporation (PIC), most probably voted against the resolution. Lonmin disclosed that 67% of the issued shares of the company were voted on this particular resolution, either in person or by proxy. It is likely that the 32% of issued shares that did not vote belong to small shareholders in SA who could not attend the AGM in London and did not choose to vote by proxy.
The fact that only 50 million shares voted for the resolution on directors’ remuneration indicates that the PIC did not support it. The PIC holds an interest of 29.2% in Lonmin, which works out to more than 82.5 million shares.
Moneyweb was still waiting for confirmation from the PIC at the time of publication, but Lonmin confirmed that the PIC did indeed vote against the resolution: “It is there in the figures,” according to Lonmin.
It is obvious why shareholders are unhappy. The Directors’ Remuneration Report, published on pages 91 to 101 of the annual report, shows that executive directors are earning massive salaries.
CEO Ben Magara earned a fixed salary equal to £625 817 and performance pay of £825 133 during the financial year. His total package of nearly £1.4 million is equal to more than R25.66 million at the average exchange rate of R17.66 per British pound (taken from notes to the financial statements in the annual report).
More telling is that Magara’s remuneration has more than doubled since the 2013 financial year, from £703 167 to last year’s £1.45 million, while Lonmin’s operations have actually worsened year after year, except for a sharp improvement in the 2015 financial year.
Chief financial officer Barrie van der Merwe earned a fixed salary of £318 469 and performance pay of £418 799 for a total of £737 268 (R13 million). Van der Merwe earned the equivalent of £547 729 in the previous financial year. The report states that Van der Merwe is paid in rands. The annual report discloses his remuneration in terms of British pounds to comply to UK legislation because Lonmin is based in London.
Lonmin’s non-executive directors are also paid handsomely. In 2018, the five non-executive directors earned total fees of £494 231 (R8.7 million). Non-executive directors earn a basic fee of £55 000 (R971 000), but are paid extra when they serve as chairperson of a committee or on more than two committees. There is also an extra £2 000 per day to attend meetings in addition to the normal scheduled meetings.
The remuneration report states that non-executive directors are “paid at levels we believe to be market competitive for a comparable London-listed company, while reflecting the international travel commitment expected.”
It will be interesting to know what shareholders say to this, given that Lonmin is a smallish SA mine with a market capitalisation of less than R4.5 billion at current share prices.
Lonmin counters this by saying that it has to offer remuneration to retain good people. “Last year was an extremely difficult year. Management faced frustrating challenges, a difficult operating environment and the work and responsibility of the pending merger with Sibanye-Stillwater,” says management.
It seems another resolution upset shareholders too. Resolution 13, directors’ authority to allot shares, sought approval from shareholders to allow directors to “generally and unconditionally” allot shares, grant rights to subscribe for, or to convert any security into shares up to an amount of $9 410 (R135 000). Although the value of such decisions is quite low, the resolution barely passed, with just less than 98 million shares in support (51.5% of the votes) against 92.4 million shares (48.5%) opposed to granting directors the authority.
Once again, it looks likely that the PIC cast its 82 million shares against the resolution. An analysis of the voting numbers on all 15 resolutions put to the meeting shows that a large block of at least 80 million shares influenced the outcomes of the two contentious resolutions.
It is significant that the PIC voted as it did. The PIC buffed its armour and rode its white horse to Lonmin’s rescue in December 2015 when it acted as underwriter to Lonmin’s huge rights issue in December 2015 and ended up with an interest of more than 30%.
Luckily for Magara, Van der Merwe and the non-executive directors who stood for re-election at the AGM, the PIC has not lost all faith in their abilities.
The PIC obviously voted for them. The directors would have survived without this support, but by a nerve-wracking margin.