Lonmin : Q1 2017 Production Report and Update

REGULATORY RELEASE

26 January 2017

First Quarter 2017 Production Report and Update

Lonmin Plc ('Lonmin' or 'the Company'), one of the world's largest primary Platinum producers, today announces its unaudited production results for the three months to 31 December 2016 and provides an operational update.

Safety

Our safety strategy is centred on the belief that Zero Harm is achievable and important contributions are required from all stakeholders to achieve it.

· We achieved significant milestones in the journey towards Zero Harm at the following operations:

o Saffy shaft achieved 4 million fatality free shifts on 14 December 2016;

o Newman shaft achieved 3 million fatality free shifts on 28 October 2016;

o Rowland shaft exceeded 1 million fatality free shifts on 13 January 2017; and

o The Precious Metal Refinery achieved one year without a lost time injury as of 30 December 2016 and one year without a medical treatment as of 27 October 2016.

· The twelve month rolling LTIFR to 31 December 2016 was 4.99 per million man hours, a marginal increase of 0.4% on September 2016 at 4.97.

· Regrettably, and as announced at the time, one of our colleagues, Mr Joao Fernando Macamo, a Production Team Leader at E1 Shaft, was fatally injured following a tramming incident on Thursday 10 November 2016. We extend our deepest condolences to his family and friends.

· We are addressing the root causes of safety incidents, and ensuring that the lessons learnt from each incident are implemented and shared across operations.

Mining Operations

The Marikana mining operations including Pandora produced 2.3 million tonnes during the quarter, down 7.8% or 0.2 million tonnes on the comparative period partly due to the planned decline from the closing of our high cost shafts. While the first quarter of our financial year is historically our lowest producing quarter, the mining performance was disappointing with production at our Generation 2 shafts down 5.2% from the prior year period. The implementation of initiatives to improve productivity is taking longer than we planned, particularly in respect to improving absenteeism; however we remain committed to delivering sustained productivity improvements at our operations to ensure the long-term viability of the business.

The reduction in Section 54 stoppages has continued, with tonnes lost due to Section 54 safety stoppages down by 71% in the quarter.

Generation 2

Tonnes mined from our Generation 2 shafts were 1.8 million tonnes, a decrease of 5.2%, or 0.1 million tonnes on the comparative period as K3's underperformance predominantly weighed down the overall performance.

· K3, our biggest shaft, produced 590,000 tonnes, a disappointing decrease of 13.8% on the prior period. This shaft was most impacted by the reorganisation from 2016 and during the quarter experienced high management induced safety stoppages resulting in 60,000 tonnes of lost production. Overall, the relationship between operational management and unions at this shaft is not working as effectively as we expected and the yielding of results from the implementation of business improvement initiatives at this shaft is taking longer than we would have liked to see. As a result, we are deploying additional stoping and vamping crews to the shaft to take advantage of the immediately available ore reserves and improve production. This may have an adverse impact on the shaft head cost per tonne which we would seek to mitigate by further reducing our overhead costs.

· Rowland shaft produced 424,000 tonnes, an increase of 9.6% on the prior year period as this shaft is now starting to gain the production benefits from improved safety performance.

· Saffy shaft produced 493,000 tonnes, broadly in line with prior year period, demonstrating that the shaft is maintaining its steady state performance.

· 4B produced 336,000 tonnes, a decrease of 10.7% on the prior year period as a result of higher than planned frequency of intersecting geological features and changes in middle management.

Generation 1

The performance at the Generation 1 shafts is in line with our plan and we are executing successfully the strategy to reduce high cost production in a low price environment. Tonnes mined from our Generation 1 shafts (1 B, Hossy, Newman, W1, E1, E2, E3 and Pandora (100%)) were 0.5 million tonnes, a decrease of 21.8%, or 0.1 million tonnes on the prior year period, reflecting the planned decline in production. Most of these shafts are run by contractors, which provide better flexibility to retain or close them.

Hossy shaft remains on track for planned care and maintenance closure by the end of this financial year and, as reported, at Newman, contract mining is being used to extract the remaining ore reserves.

Production Losses

We have been encouraged that the number and duration of Section 54 stoppages has continued to improve, as experienced during the final quarter of FY2016. This resulted in a 71% improvement in lost production due to Section 54 safety stoppages of 139,000 tonnes. This was partially offset by an increase in management induced safety stoppages which illustrate our non-negotiable stance on safety. Most of these stoppages were at K3 shaft where 60,000 tonnes were lost. Overall total tonnes lost in the quarter reduced to 147,000 tonnes, compared to 204,000 tonnes lost in Quarter 1 2016.

Update on Business Improvement Initiatives

In light of the Quarter 1 performance, we are deploying additional stoping and vamping crews to Generation 2 shafts during Quarter 2 in order to provide support for the achievement of planned output, enabled by our healthy ore reserve position.

In addition, we continue our drive to implement the initiatives announced at the time of our 2016 full year results to improve productivity and these include:

· Establishing a labour skills buffer;

o Following a successful trial of the labour skills buffer concept during the first quarter of FY2017, a decision has been made to introduce labour buffers to all high producing half levels on Generation 2 shafts during Quarter 2.

· Addressing employee absenteeism;

o This project continues with dedicated teams assigned to each operation to analyse absenteeism trends and to ensure that appropriate action is taken to address the behaviour of employees who repeatedly absent themselves from work.

· Introducing a programme aimed at the empowerment of frontline supervisors; and

o All planning and preparatory work has been completed during Quarter 1 and the roll out of the programme will start at the beginning of February at K3 and Saffy shafts.

· Implementing the Theory of Constraints framework in order to improve the optimisation of half levels at Generation 2 shafts.

o With the de-bottlenecking exercises mostly completed, the implementation of theory of constraints started during December 2016 with an optimisation crew being deployed to underperforming half level at each Generation 2 shaft.

Processing Operations

Underground milling production in the quarter of 2.4 million tonnes was affected by lower than planned ore availability from the mining operations and was 10.0% lower than in the prior year period.

Underground milled head grade at 4.56 grammes per tonnes (5PGE+Au) increased by 2.0% when compared to the 4.47 grammes per tonne achieved in the prior year period and the overall milled head grade was also 4.56 grammes per tonne, up 2.4% on the prior year period, due to improved ore mix and also better mining head grades.

Concentrator recoveries in the quarter remained excellent at 87.0%, marginally up from 86.8% in the prior year period.

Platinum production (Metals-in-Concentrate) was 152,925 ounces, which was 8.4% lower than the prior year period and PGM production (Metals-in-Concentrate) was 292,726, which was 8.6% lower than the prior year period as relatively, we milled more than we mined in the prior year period.

Total refined Platinum production of 137,123 ounces in the first quarter, was 20.0% lower than the prior year period. There were no refined platinum ounces from the smelter clean-up project in both periods. Total PGMs produced were 263,283 ounces, a decrease of 20.5% on the prior year period.

Sales and Pricing

Platinum sales for the quarter were 134,954 ounces, 10.3% lower than the prior year period sales of 150,420 ounces as a result of the lower mined tonnes. PGM sales were 289,962 ounces, marginally down (0.2%) on the prior year period sales of 290,475; there was a release of built up stocks of Ruthenium, as a result of a change in the Ruthenium refining process. In addition, converse to Q1 2016, the Palladium to other metal sales ratio was brought in line with the normal production ratio which cushioned the impact of the decrease on PGM sales down.

The increased sales of Ruthenium in the quarter had an adverse impact on the basket price. As such, the US Dollar basket price (including base metal revenue) at $739 per ounce during the quarter was down 3.8% on Q1 2016 while the corresponding Rand basket price of R10,372 per ounce was 4.5% lower than the Q1 2016. Since the period end, Ruthenium sales have returned to normalised levels.

The average Rand to US Dollar exchange rate was 2.3% stronger at 13.90 compared to 14.22 in Q1 2016.

Business and Operating Environment Update

The operating environment has remained challenging as the Company strives to balance the economic, social and environmental imperatives. Management continues to participate in strategic multi-stakeholder engagements to address these challenges.

Unit Costs

The distorting impact of the holidays in December typically results in unit costs peaking in the first quarter of the financial year. An additional public holiday declared in December by the President of The Republic of South Africa extended the Christmas break period in the quarter and impacted production and costs.

Unit costs of R12,296 per PGM ounce were 12.3% higher on the prior year period, in part reflecting the increase in labour costs as set in the multi-year agreement, signed at the end of October 2016, but also reflecting the weak mining performance. As stated at the time of the 2016 Final Results in November 2016, unit costs will remain under pressure until we see a sustained improvement in production throughput from mining. We remain vigilant in containing our costs and continue to work to reduce our operating costs in order to preserve the achievement of our unit cost guidance in the range of R10,800 to R11,300 per PGM ounce for the full financial year.

Capital Expenditure

We are maintaining our focus on Generation 2 shafts but we are reviewing the capital expenditure profile and expect to provide an update in due course.

Balance Sheet and Liquidity

Lonmin is highly geared to PGM prices and at current levels, would not be cash neutral. We continue to proactively manage our cashflows and balance sheet through initiatives such as seeking ways of containing our capital spend.

Net cash at 31 December 2016 was $49 million, after working capital and capital expenditure investment of $106 million during the quarter. The working capital impact is typically greater in the first quarter of our financial year due to the December holidays and the nature of our sales profile, which is weighted towards the second half of our financial year. Total liquidity at 31 December 2016 was $414 million.

Ore Reserves

Operational flexibility was preserved with the immediately available ore reserve position of 3.7 million square metres at the end of the quarter, or 22 months average production.

Excess Processing Facility Initiatives

Our processing facilities have excess capacity and we are continuing with various initiatives to fill the pipeline and utilise the excess capacity.

Pandora Acquisition Update

On 11 November 2016, we announced that Lonmin had reached agreement to acquire Anglo American Platinum's 42.5% interest in the Pandora Joint Venture. Since then we have received Northam's consent for this transaction and have submitted the Merger Notification to the Competition Authorities and requisite application for section 11 consent to the DMR. We expect the transaction to complete in late 2017.

FTSE4Good Index Series

Lonmin is pleased to advise that it has been confirmed a constituent of the FTSE4Good Index Series and FTSE Russell ESG Rating following the review of our strong environmental, social and governance practices.

Outlook and Guidance

We have been disappointed by the Quarter 1 production at our Generation 2 shafts. With the initiative of deploying additional stoping and vamping crews, as well as the expected Platinum ounces from the smelter clean-up project, our sales guidance for the 2017 full year is maintained at between 650,000 and 680,000 Platinum ounces. At this stage we still expect unit costs to remain in the range of R10,800 to R11,300 per PGM ounce for the full year subject to seeing sustained improvement in production during the year. We will be reviewing our capital expenditure and will provide an update on guidance in due course.

- ENDS-

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Notes to editors

Lonmin, which is listed on both the London Stock Exchange and the Johannesburg Stock Exchange, is one of the world's largest primary producers of PGMs. These metals are essential for many industrial applications, especially catalytic converters for internal combustion engine emissions, as well as their widespread use in jewellery.

Lonmin's operations are situated in the Bushveld Igneous Complex in South Africa, where more than 70% of known global PGM resources are found.

The Company creates value for shareholders through mining, refining and marketing PGMs and has a vertically integrated operational structure - from mine to market. Underpinning the operations is the Shared Services function which provides high quality levels of support and infrastructure across the operations.

For further information, please visit our website:http://www.lonmin.com

Notes

1. Reporting of shafts are in line with our operating strategy for Generation 1 and Generation 2 shafts.

2. Pandora underground tonnes mined represents 100% of the total tonnes mined on the Pandora joint venture of which 42.5% for October and November 2014 and 50% thereafter is attributable to Lonmin.

3. Ounces mined have been calculated at achieved concentrator recoveries and with Lonmin standard downstream processing recoveries to present produced saleable ounces.

4. Tonnes milled exclude slag milling.

5. Lonmin purchases 100% of the ore produced by the Pandora joint venture for onward processing which is included in downstream operating statistics.

6. Head Grade is the grammes per tonne (5PGE + Au) value contained in the tonnes milled and fed into the concentrator from the mines (excludes slag milled).

7. Recovery rate in the concentrators is the total content produced divided by the total content milled (excluding slag).

8. Metals-in-concentrate have been calculated at Lonmin standard downstream processing recoveries to present produced saleable ounces.

9. Corresponds to contained base metals in concentrate.

10. Nickel is produced and sold as nickel sulphate crystals or solution and the volumes shown correspond to contained metal. Copper is produced as refined product but typically at LME grade C. Chrome is produced in the form of chromite concentrate and volumes shown are in the form of chromite.

11. Basket price of PGMs is based on the revenue generated in Rand and Dollar from the actual PGMs (5PGE + Au) sold in the period based on the appropriate Rand / Dollar exchange rate applicable for each sales transaction.

12. As per note 11 but including revenue from base metals.

13. Exchange rates are calculated using the market average daily closing rate over the course of the period.