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1MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Annual Results presentationfor the year ended
31 December 2019
2MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
2MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Legal notice/disclaimer
This presentation is published solely for informational purposes and does not constitute investment, legal, tax or other advice nor is it to be relied upon in
making an investment decision. Information contained herein has been taken from sources considered by Merafe Resources to be reliable but no warranty
is given that such information is accurate or complete and it should not be relied upon as such. Views and opinions expressed in this presentation reflect the
judgment of Merafe Resources as of the date of this presentation and are subject to change. Merafe Resources will not be responsible for any liability for
loss or damage of any kind which arises, directly or indirectly, and is caused by the use of any of the information provided. The entire presentation is subject
to copyright with all rights reserved. The information contained herein shall not be published, rewritten for broadcast or publication or redistributed in any
medium without prior written consent from Merafe Resources. Prospective investors should take appropriate investment advice and inform themselves as
to applicable legal requirements, exchange control regulations and tax considerations in the countries of their citizenship, residence or domicile. The
distribution of the information contained in this presentation in certain countries may be restricted by law and persons who access it are required to inform
themselves and to comply with any such restrictions. This information does not constitute an offer or solicitation in any jurisdiction in which such an offer or
solicitation is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Past performance is not a guarantee of future
performance. The price of shares can go down as well as up and may be affected by change in exchange rates, market conditions and risks associated with a
mining venture.
3MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
3MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
KEY FEATURES 1
MARKET REVIEW 2
OPERATIONAL REVIEW 3
FINANCIAL REVIEW 4
DIVIDEND 5
OUTLOOK 6
Agenda
4MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
4MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
5MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
5MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Disappointing performance reflecting difficult market conditions
SAFETY OPERATIONAL
• Lower ferrochrome production
• Costs under pressures,
especially from administered prices
MARKET
• Global uncertainty persists dampening market
sentiment
• Stainless steel production holds up
• Chrome supply exceeds demand
• Depressed prices
FINANCIAL
• Regrettably, 1 fatality
• TRIFR improved by 24% year on year
• Revenue down by 4% year on year
• Headline loss per share of 1.8 cents
• Final dividend declared
6MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
6MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
7MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
7MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
0
50
100
150
200
250
300
Jun17
Sep17
Dec17
Mar18
Jun18
Sep18
Dec18
Mar19
Jun19
Sep19
Dec19
0
20
40
60
80
100
120
Jun17
Sep17
Dec17
Mar18
Jun18
Sep18
Dec18
Mar19
Jun19
Sep19
Dec19
0
30
60
90
120
150
180
20
17
Q1
20
17
Q2
20
17
Q3
20
17
Q4
20
18
Q1
20
18
Q2
20
18
Q3
20
18
Q4
20
19
Q1
20
19
Q2
20
19
Q3
20
19
Q4
20
20
Q1
2019 prices under pressure
UG2 Merchant prices
(USD/t)
Ferrochrome Merchant prices 49% - 70%
(USc/lb)
European benchmark ferrochrome price
(USc/lb)
Source for all charts: CRU
8MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
8MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
China’s market dominance entrenched
4,8
13,2
5,6
56,5
19,8
Global stainless steel production (%)
USA Western Europe Japan China Other
Global ferrochrome demand (%)
Source for both charts: CRU
2019
5,5
14,4
6,3
52,1
21,6
2018
3,8
9,0
4,8
64,2
18,2
2019
4,2
9,9
5,5
60,3
20,1
2018
9MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
3,0 2,8 2,5
7,4 7,4 6,8
3,2 3,2 2,9
25,8 26,6 29,3
9,211,0 10,3
48,551,1 51,9
0
10
20
30
40
50
60
FY 2017 FY 2018 FY 2019
Global stainless steel production (mt)
Growth in stainless steel production and ferrochrome demand
Source for both charts: CRU
0,6 0,6 0,5
1,3 1,3 1,2
0,7 0,7 0,7
7,5 8,0 8,8
2,12,7
2,512,2
13,313,7
0
2
4
6
8
10
12
14
FY 2017 FY 2018 FY 2019
Global ferrochrome demand (mt)
USA Western Europe Japan China Other
10MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Ferrochrome production responded to demand;Ore imports into China also increased
4,9 5,3 6,0
3,73,9
3,6
1,31,3
1,41,31,3
1,30,60,7
0,70,9
1,00,912,6
13,614,0
0
4
8
12
16
FY 2017 FY 2018 FY 2019
Global ferrochrome production (mt)
10,0 10,912,6
1,11,0
0,9
0,50,3
0,3
0,40,7
0,71,8
1,4
1,513,9 14,3
15,9
0
3
6
9
12
15
18
FY 2017 FY 2018 FY 2019
Chrome ore imports into China (mt)
China South Africa Kazakhstan
India Europe Other
South Africa Turkey Albania
Zimbabwe Other
Source for both charts: CRU
11MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
11MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
12MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
The safety of all employees remains paramount
• Regrettably one fatality during 2019
• TRIFR improved to 2.56 from 3.39 in December 2018
• Safety of our employees remains a critical focus
area with the goal of achieving zero harm
• Education and good decision making are key to
building a sustainable safety culture
• Continued focus on safety campaigns and programs
through the period
• Subscribe to the CEOs-led Minerals Council of SA
initiative – Khumbul’ekhaya
4,1
7
4,1
5
3,7
4
3,3
9
2,5
6
0
1
2
3
4
5
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Total Recordable Injury Frequency Rate (TRIFR)
13MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Several operational disruptions
• Negative growth of 9% in ferrochrome production
to 371kt
• Electricity curtailments disrupted operations
• Community protests led to production stoppage
• Cut-backs due to market conditions
37
7 39
3
39
5 40
7
37
1
0
100
200
300
400
500
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Ferrochrome production (kt)
14MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Total production costs per tonne increased by 12%, influenced by:
• Increase in reductants prices
• Increase in labour costs, effective 1 July 2019
• Increase in electricity prices, effective 1 April 2019
• Lower production tonnages
The following helped keep costs increasesunder control:
• Reduced winter production
• Decrease in UG2 prices
• Lower royalty taxes, arising from lower chrome ore prices
• Ongoing operational cost control initiatives
Post year end, S189 notice issued at Rustenburg smelter employees
The Venture remains the lowest cost producer in South Africa. Industry developments and market dynamics have however impacted its cost position globally
Costs continue to rise
15MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
15MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
16MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Revenue
4% decrease in revenue from prior year to R5.379bn
• Ferrochrome revenue decreased by 8% to R4.455bn from prior year
• Chrome ore revenue increased by 22% to R910m from prior year
• A significant increase in chrome ore tonnes sold and a marginal decrease in ferrochrome volumes sold
• Lower ferrochrome and chrome ore prices. Weaker average R/US$ exchange rate
4 4
55
4 9
23
5 1
63
4 8
49
0
2 000
4 000
6 000
FY 2016 FY 2017 FY 2018 FY 2019
Ferrochrome revenue (R’m)
91
0
77
8
72
6
74
7
0
200
400
600
800
1 000
FY 2016 FY 2017 FY 2018 FY 2019
Chrome ore revenue (R’m)
17MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Earnings
• Headline loss per share of 1.8c for the year
• Commodity prices key contributor to the loss
8
14
21
36
27
(2)
(10)
0
10
20
30
40
FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
HEPS full year (cents)
18MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
EBITDA under pressure
10
0%
31
%
8%
16
%
2%
1%
(65
%)
(16
%)
(9%
)
(5%
)
(1%
)
0%
20%
40%
60%
80%
100%
120%
EBITDA 2018 Volume - CrOre
Revenue prices Inflation Inventory NRVadj
Foreignexchange
Standingcharges
Carbon tax Royalty tax Other EBITDA 2019
Reconciliation EBITDA from Venture: 2018 vs 2019
19MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
EBITDA reconciliation to profit
392 (467)
(1 846)
(3)
(2 000)
(1 500)
(1 000)
(500)
0
500
Merafe's share ofEBITDA @20.5%
Depreciation Impairment Net financeincome
Currenttax
Deferredtax
Net lossafter tax
EBITDA reconciliation to profit (R’m)
55
508
(1 362)
20MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Focus remains on driving efficiencies to counter negative macro influences
Ferrochrome revenue• Driven by lower prices and sales volumes
Chrome ore revenue• Driven by lower prices and higher sales volumes
Foreign exchange gain/(loss)• A function of the R/$ exchange rate
Operating expenses• Production cost per tonne increased by 12%
• Key factors were:
- Standing charges, inventory impairment, reductants, labour & power costs
Merafe corporate costs• Lower due to no short term incentives
Depreciation & impairment• Due to capex for the year
• Impairment loss of R1.85bn recognised
Current tax• Decrease due to lower taxable income
Deferred tax• Increase due to impairment losses
2019R’m
2018R’m Variance
Ferrochrome revenue 4 455 4 849 (8%)
Chrome ore revenue 910 747 22%
Other revenue 15 11 36%
Foreign exchange (loss)/gain (14) 141 nmf
Operating expense (4 937) (4 357) (13%)
Merafe’s share of PSV EBITDA 428 1 390 (69%)
Merafe’s corporate costs (36) (44) 18%
Merafe’s EBITDA 392 1 346 (71%)
Depreciation & impairment (2 314) (406) (463%)
Net financing income 55 4 1 275%
Current tax expense (3) (291) 99%
Deferred tax credit 508 30 1 593%
(Loss)/profit after tax (1 362) 683 nmf
Headline (loss)/earnings per share (cents)
(1.8) 27.2 nmf
21MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Balance sheet weighed on by increased inventory levels
Inventories
Decrease due to:
• NRV adjustment of R133 million for the year
• Closing FeCr finished goods of 131kt represent 4-5 months stock
Trade and other receivables
Decrease due to:
• Strengthening of the Rand against US$
• Lower sales in Q4
Cash and cash equivalents
Increase due to:
• Reduction in working capital levels
• Reduced dividend payment
Total assets
Include:
• Property, plant and equipment which has been impaired by R1.85bn
As at31 Dec 2019
R’m
As at31 Dec 2018
R’m
Current assets
Inventories 2 008 799 2 042 621
Trade and other receivables¹ 675 334 968 998
Current tax asset 18 635 26 368
Cash and cash equivalents 354 181 282 037
Total current assets 3 056 959 3 320 024
Total assets 4 559 293 6 628 552
1. Excludes the derivatives balances which, in prior years, was deducted from this balance
22MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Generation of cash from operations
* Includes bank overdraft
28
0 8
55
35
4 1
81
76
1 0
43
(53
1 4
73
)
(15
0 6
42
)
(4 2
28
)
(1 3
74
)
0
250 000
500 000
750 000
1 000 000
1 250 000
Openingcash *
Cash fromoperating activities
Sustainingcapex
Dividend Repaymentof borrowings
Other Closingcash
Reconciliation of net cash (R’000)
23MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
Significant headroom on facilities
1. Merafe's 20.5% of the Venture’s
increased $175 million overdraft
facilities
2. Merafe's 20.5% of the Venture's
$100 million working
3. Unsecured three-year Revolving
Credit Facility
As at 31 December 2019
Venture(Merafe’s share)
R’m
Merafehead office
R’m
MerafetotalR’m
Closing cash 143 211 354
As at 31 December 2019
Cash and overdraft facilities
R’m
Working capital loanR’m
Interest bearing debtR’m
Total(R’m)
Total facilities in place (502)¹ (286)² (300)³ (1 088)
Total facilities utilised - – – -
Headroom (502) (286) (300) (1 088)
24MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
24MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
25MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
• The Board has declared a gross cash final ordinary
dividend of R100m
• Final dividend amounts to 4c per share
• Total dividend for the year is R100m (2018: R351m)
• As a headline loss was generated, dividend based on
availability of excess cash and solvency & liquidity
considerations
Dividend declarations
26MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
26MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
27MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
• Global uncertainty persists
• Modest growth in stainless steel
• No major expansionary projects planned
• Capex budget earmarked for sustaining capex
to maintain asset integrity and meet compliance
requirements
• Balance sheet remains ungeared with facilities
headroom in excess of R1bn
• Focus on
- Cash preservation
- Cost control
- Efficient capital allocation
Outlook
28MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019
28MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019