FINANCIAL CAPITAL Creating and distributing value

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1 FINANCIAL CAPITAL Creating and distributing value Distributing value Value added statement US$ million 2012 US$ million US$ variance Net cash generated Customers, consumers and investment income Cash recieved for products 1,529 1,663 (8) Cash returns on investment 1 4 (75) Suppliers 2 Cash payments for materials and services purchased (443) (690) (36) Cost of borrowings (34) (31) 10 Net cash flows 1, Cash distributed Human capital (salaries and benefits) (2) Social capital (21) Donations Other community projects (20) Government taxes (23) Directors remuneration 3 4 (25) Shareholders distribution 31 (100) Cash retained for growth Net cash distributed 1, Figures in this table are shown in US dollars (US$), with a conversion rate to South African Rands of R9.24/US$. 2. We have a 30 day payment policy on services and procurement. 3. This includes the expenses related to our Social and Labour Plan (SLP) community projects, donations and other community investments. 4. This includes salaries and administrative costs. 150 Lonmin PLC Sustainable Development Report for the year ended 30 September 2013

2 Cash distribution breakdown 2013 Destination US$ million Cents in the dollar Payments to employees (incl Directors) Payments to suppliers* Payments to governments 37 2 Payments to/for communities 8 1 Payments to bank lenders 34 2 Cash retained for investment Reconciling to: cash earned in the year 1, A significant proportion of this would be for the wages paid to contractors' employees. Payments to government and political donations Lonmin did not receive any financial assistance from our host governments during the reporting period, nor did we make any payments to local or foreign political parties or politicians. Royalties paid For over 18 years, we have paid royalties into a trust established for the benefit of the Bapo Ba Mogale Community. These royalties are based on the taxable income generated from the PGMs mined from the property owned by EPL, as well as from the Wonderkop surface area. Funds are paid to the Department of Finance of the North West Provincial Government, which retains this money in trust on behalf of the Bapo Community. The amount of funds contributed to date is approximately R371 million. Royalty payments in 2013 R million State royalties 76.6 Royalties payable to Bapo* 0.5 Total The royalties payable to the Bapo Community were at a minimum rate as calculated based on taxable income. Indirect economic impacts Lonmin s indirect economic impacts are delivered mostly through the employment opportunities created by our activities and the financial benefits that then accrue to employees and their dependants, the infrastructure development projects our Company invests in, and the enabling environment that this kind of development creates, the skills development and training programmes that we offer, which open a variety of economic opportunities for recipients and our supply chain policies that arise as a result of our activities and our policies of empowering black-owned and locally based suppliers where possible. Lonmin PLC Sustainable Development Report for the year ended 30 September

3 Supply contracts are in place with community based suppliers who might otherwise struggle for business. Although difficult to quantify, the impact of this stimulus on the local economy is also important. More detail on our performance this year in terms of procurement is provided in the section: Empowerment through preferential procurement. We measure our impact on state revenue, and by extension the South African economy, by the contributions we make through royalties and taxes to the South African Revenue Services (SARS). In 2013, this amounted to R76.6 million. Financial Value Proposition Business optimisation and the Lonmin Renewal Plan: Financial Value Proposition From a business perspective, the challenges we faced in the aftermath of Marikana were unprecedented both in their nature and their scale. We lost approximately 110,000 ounces of PGMs value as a result of the six-week shut down, and the damage to our reputation and to the reputation of the industry and the country as a whole was immeasurable. Added to that are the persistent mining input cost increases related to escalating electricity, labour and consumables prices in South Africa, the continued slow-down in global demand for PGMs and the poor economic conditions that have prevailed in 2013 generally, all of which combine to threaten our drive to optimise value. The Lonmin Renewal Plan was devised to account for this environment and incorporate a strategy not only to rebuild trust among our people but also to consider a new path for cementing the sustainability of the business as a whole. The Employee and Community Value Propositions are therefore complemented by the Financial Value Proposition within the Lonmin Renewal Plan and the supporting Board Initiatives. The Financial Value Proposition includes the following cost management and productivity enhancement initiatives: Cost management initiatives Operating model review: management restructuring. Total cost of ownership. Productivity drives De-bottlenecking of operations Improving our use of invested capital and infrastructure (See Board Initiative 4) Cost management initiatives Management restructuring At the end of 2012, after a thorough review of operational structures and their associated costs, we put plans in place to restructure some of our teams, and this resulted in the regrettable retrenchment of 183 employees, including 53 from management, 46 officials, 10 union men and 49 Cat 4 9 employees. We engaged the services of experts in the relevant fields to assist affected employees by providing counselling, 152 Lonmin PLC Sustainable Development Report for the year ended 30 September 2013

4 financial planning advice and access to employment advisors, see the section Employees and contractors: Employee turnover. The restructuring is anticipated to realise annualised cost savings of around R200 million from the 2014 financial year. Total cost of ownership As part of the maturity curve of our supply chain environment, we embarked upon a procurement initiative called Total cost of ownership. Total cost of ownership is an approach to procurement that places a single value on the complete lifecycle of a capital purchase, looking at the overall cost of owning and using that equipment, instead of simply considering the price at the time of purchase. In this way, we can more accurately determine which products and services offer better value in the long term. This is expected to deliver R100 million in annual procurement savings with savings of R85 million realised in Productivity drives De-bottlenecking of operations The theory of constraint (TOC) is a well-known management philosophy based on the idea that any system s throughput is limited by at least one constraint. It is in use at several other mining operations in South Africa. A pilot project based on the theory of constraints was conducted at Rowland Shaft this year. The programme has delivered promising results, with production at Rowland increasing towards the end of the year to achieve an 11.4% increase from last year. For more information see Case study: Improving productivity at Rowland. If the Rowland Shaft pilot is successful, another pilot phase will begin at Saffy Shaft, to be followed by full roll-out across our Marikana operations. The best practice teams have also undergone extensive training in this, and will assist with the roll-out. Investing in our future Research and development Our 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: Ongoing 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 sensor technologies, better mineralogical understanding and design improvements which has been evident in the performance of our smelting operations in Ongoing 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 as well as improvements made on the NiSO4 crystalliser that has given us the ability to operate at higher and more stable throughputs at the PMR. Lonmin PLC Sustainable Development Report for the year ended 30 September

5 Significant progress has been made on the development of a new process for the production of finished metals at thepmr following extensive and successful pilot plant trials. Our research efforts remain pragmatic and cost-effective and are conducted in collaboration with the Universities of Stellenbosch, Cape Town and Pretoria under the leadership of Lonmin management. This has the added benefit of generating a pool of highly competent and industry-focused graduates for the future. Total expenditure on research and development in 2013 amounted to R9.2 million. Capital to sustain and grow Lonmin s combined capital expenditure over the last five years has amounted to R11.4 billion. In 2013 capital expenditure was R1.5 billion, which was divided in the following way: Mining Division: R930.1 million (62%) Processing Division: R462.5 million (31%) Other: R107.7 million (7%) Beneficiation We add significant value to the minerals that we mine by putting our mined ore through the full value chain, and producing refined ingots/sponge for sale, with each step of the process designed to increase the grade (concentration) of the valuable components of the original ore. Milled ore is treated in our surface Concentrators before being fed into the Smelter, where granulated matte is produced. The granulated matte is treated hydro-metallurgically to separate the base metals from the precious metals at the Base Metal Refinery (BMR) in Marikana, being processed to a PGM concentrate of grades of between 60 and 70%. The concentrate is then transported for final refining into pure precious metals at the Precious Metals Refinery (PMR) in Brakpan, Gauteng. We support local downstream beneficiation of minerals still further through the local autocatalytic convertor coating industry and continue to explore opportunities with international customers on how we can cooperate and increase value addition of precious metals locally. In FY2013, 11.6% of our PGM production was supplied to local catalyst component manufacturers, 64.6% of our nickel sulphate production was delivered to a local refiner who beneficiated the material into nickel briquettes, used for the production of stainless steel and 87.4% of our chrome ore production was sold to a local ferrochrome producer. We will continue to engage with industry and the South African government on developing a beneficiation framework in South Africa that supports local beneficiation, while still providing primary producers with the competitive pricing needed to ensure the long-term growth of the local mining and beneficiation industries. 154 Lonmin PLC Sustainable Development Report for the year ended 30 September 2013