Lonmin transfer pricing claims “misleading”

[miningmx.com] – LONMIN labelled an article last week that detailed how the UK-listed platinum producer sold refined metal from its operations in South Africa to international clients through a Bermuda-registered marketing firm “false and misleading”.

The structure, known as transfer pricing, is not strictly-speaking illegal, but according to researchers at the Farlam Commission, it denied Lonmin’s South African operations the revenue from which it could have paid higher salaries to workers.

Said Lonmin today: “Lonmin pays tax fully and properly in all jurisdictions, in which it operates”. Allegations it shifted amounts so as not to meet wage demands and social labour commitments, or be included in taxable income, were “… false and mischievous”, the platinum producer said.

The Farlam Commission is investigating the events the led to the killing of mineworkers at Lonmin’s Marikana mine on August 16, 2012.

The Mail and Guardian showed in an article, published on September 19, that Lonmin paid R1.2bn in commission to the Bermuda-headquartered marketing company, called Western Metal Sales which was created to take ownership of refined metal and oversee its sale and delivery to clients.

The process sees Lonmin pay Western Metal Sales 2% of its turnover as sales commission, equal to about R200m a year. This information emerged at the Farlam Commission and was not disputed by Lonmin, the Mail & Guardian said.

However, Lonmin said the practice of paying Western Metal Sales sales commission was discontinued in 2012 and retrospectively backdated to 2008 – although the Mail & Guardian said attempts to stop the practice was opposed by Incwala Resources, the platinum firm’s empowerment structure.

Shanduka Resources became a shareholder of Incwala Resources in 2010 when Cyril Ramaphosa was then chairman of Shanduka. He resigned from Shanduka in 2013 after rejoining party politics, but the Mail & Guardian said Ramaphosa opposed Lonmin’s attempts to discontinue the transfer pricing in 2012.

Said Lonmin: “Claims made about Lonmin’s empowerment partner, Incwala Resources, are incorrect … At no point did Shanduka resist changes to these structures”.

Lonmin added that its lengthy response to questions by the Mail & Guardian was not included in the newspaper’s article.