Lonmin Plc

Third Quarter 2009 Production Report 

& Interim Management Statement

Lonmin Plc, ("Lonmin" or "the company") today announces its production report and interim management statement for the three and nine months to 30 June 2009 (unaudited). 

Introduction

This production report reflects management's recent actions in eliminating non-contributing ounces and reducing costs. The third quarter of the 2009 financial year has borne the brunt of these actions but it is pleasing to note that, despite the restructuring measures implemented, underground production for the first nine months of the 2009 financial year exceeded that of 2008, with gross operating costs also trending in a positive direction. Challenges remain to be navigated, particularly in our smelting operations which will be a determining factor in achieving our Platinum sales guidance for the 2009 financial year.  

Q3 2009 Production

Total tonnes mined for the third quarter of the 2009 financial year were 2.4 million, a decline of 0.8 million from the third quarter of 2008. Of this reduction, 0.4 million tonnes related to the planned closure of our Marikana opencast operations and 0.1 million tonnes were due to the placing of our Baobab shaft at Limpopo on to a care and maintenance basis.

Our underground Marikana mining operations produced 2.3 million tonnes during the third quarter of the 2009 financial year, a 10% decrease from the same period last year. A number of the causes of this decline were a consequence of the impact of management actions. Firstly, production was affected by the planned closure of a small uneconomic decline shaft and a further five uneconomic half levels at Marikana during the third quarter of the 2009 financial year. Secondly, production was impacted, as expected, by disruption relating to the restructuring programme which was completed at the end of March. Also, the number of shifts available to work in the quarter was down 3% on the prior year due to the timing of Easter and an additional public holiday, the impact being exacerbated by absenteeism and annual leave around these holidays. 

The final major factor was a marked increased in the incidence, severity and impact of Section 54 shutdowns during the year. Lonmin's focus on safety remains undiminished, as evidenced by a 5% improvement in our Lost Time Injury Frequency Rate during the third quarter of 2009, from the end of 2008. In the third quarter of 2009, we lost some 160,000 tonnes due to Section 54 shutdowns, compared to around 107,000 tonnes in the third quarter of 2008. 

Tonnages from our mechanised and hybrid sections increased during the third quarter of 2009 by 41% from the prior year period and by 7% from the previous quarter with both Hossy and Saffy showing marked improvements. 

Total tonnes milled in the quarter declined by 14% year-on-year to 2.8 million tonnes and the concentrators produced 152,878 saleable ounces of Platinum in concentrate for the quarter, a 17% decrease from the third quarter in the 2008 financial year. Total tonnes milled exceeded total tonnes mined due to the milling of the majority of our remaining opencast stock-piles in the period.  

Underground and overall concentrator recoveries declined to 80.5% and 79.0% respectively from the second quarter of the 2009 financial year, when underground and overall recoveries were 81.4% and 80.6% respectively. Overall recoveries were impacted by the milling of low grade opencast stockpiles during the period, whilst underground recoveries were affected by ore mix, a greater proportion of development ore due to the continued ramp-up of Saffy and Hossy shafts, the milling of IRUP material from K3 shaft and some plant maintenance issues.

Underground milled head grade increased marginally to 4.57 grammes per tonne (5PGE+Au) from the prior year period. However overall milled head grade declined 3% year-on-year to 4.37 grammes per tonne (5PGE+Au), as a result of the milling of low grade opencast stockpiles during the quarter. 

On 14 June 2009, we shut down our Number One furnace following a matte run out and started up our Pyromet furnaces to mitigate any potential disruption to production from this incident. Following the repair of the Number One furnace, we tapped matte again on 15 July 2009. However, after this, slag leaks occurred and we subsequently reduced power at the furnace to deal with the cause of these leaks. The furnace is expected to tap matte again in the coming days and, in order to preserve its integrity and maintain safe working practices, it will be operated at reduced power until a re-design of the matte tap hole area can be completed and a re-build initiated. This is currently planned for the first quarter of the 2010 financial year.  

This incident did not impact refined production in the third quarter of the 2009 financial year of 172,574 ounces of Platinum and 321,050 ounces of total PGMs, a decrease of 8% and 13% respectively from the third quarter of the 2008 financial year. 

Refined production was much higher than metal in concentrate production in the period due in the main to a concerted effort to drive down metal-in-process inventories. Metal sales during the third quarter of the 2009 financial year decreased marginally from the prior year period to 178,494 ounces of Platinum and 326,239 ounces of PGMs. 

Nine Month Production

Total tonnes mined during the first nine months of the 2009 financial year were 8.2 million tonnes, a 1.0 million decline from 2008. Of this reduction, 0.8 million tonnes related to the planned closure of our Marikana opencast operations and 0.3 million tonnes were due to the placing of our Baobab shaft at Limpopo on care and maintenance during the first half of the 2009 financial year.

In the first nine months of the 2009 financial year we mined a total of 7.6 million tonnes of ore from our underground Marikana operations, an increase of 1% on the same period last year. This was due to production from our mechanised and hybrid shafts increasing by 40% year-on-year during the first nine months of the 2009 financial year. 

The concentrators produced a total of 491,019 saleable ounces of Platinum in concentrate in the nine months, an 8% year-on-year decline, mainly as a result of the planned production stoppages at our Marikana opencast and Limpopo operations, as mentioned above. Overall concentrator recoveries improved during the first nine months of the 2009 financial year to 79.7%, from 79.2% in the same period in 2008, due to the milling of less oxidised opencast ore from deeper pits during the first nine months of the 2009 financial year compared to the prior year period. However, during the first nine months of the 2009 financial year, underground recoveries fell to 80.7%, from 81.8% in the same period of the 2008 financial year, mainly as a result of undertaking extensive maintenance on some of our Marikana concentrators in the first quarter of the 2009 financial year and due to the issues noted above. Despite this we are making good progress on improving our technical expertise in this area and we continue to target improvements in recoveries.   

Underground milled head grade was 2% lower year-on-year at 4.57 grammes per tonne (5PGE+Au) as a result of an increased proportion of development ore coming from Hossy and Saffy and unplanned dilution on the UG2 reef horizon, as well as a lack of flexibility in face availability on the Merensky reef horizon, where some localised lower grade areas were encountered, particularly during the first quarter of the year. Overall milled head grade increased marginally year-on-year to 4.51 grammes per tonne (5PGE+Au).  

Total refined production for the first nine months of the 2009 financial year was 490,794 ounces of Platinum and 927,194 of total PGMs, up 4% and 2% respectively from the same period in 2008. Final metal sales for the nine months were 490,347 ounces of Platinum and 910,112 ounces of total PGMs, up 4% and 1% respectively on the same period in 2008.

2009 Sales Guidance

On 24 June 2009 we announced the Number One furnace shutdown was expected to impact our ability to fully refine a portion of the concentrate inventory built up during the period of this shutdown by the end of the 2009 financial year. Consequently, as disclosed at that time, we estimate that there could be an increase in metal in process of up to 20,000 ounces of Platinum at 30 September 2009. 

As a result of actions taken during the year, progress was made at our Mining business, however it continues to face a number of challenges. In particular the frequency of industry-wide safety-related Section 54 mine closures remains a significant risk factor in the production of Platinum Group Metals.

Despite these factors, we still expect to achieve sales for the 2009 financial year of between 680,000 and 700,000 ounces of Platinum. This result is dependent on the selling of metal-in-process inventory and on how the Number One furnace performs during the fourth quarter of the year. 

Whilst the US dollar PGM pricing environment during the third quarter of the 2009 financial year improved somewhat the short term outlook for PGM pricing continues to be difficult to predict. The South African Rand strengthened significantly against the US dollar during the third quarter, negatively impacting on our dollar costs. The financial position of the company has however benefited in the period from the extensive restructuring exercise completed in March and we remain on track to meet our gross cost guidance. Also the successful rights issue which resulted in an inflow in June of $458 million net of expenses has significantly reduced our net debt and the gearing of the business.

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