interim results presentation - merafe resources · 2019-08-05 · results presentation for the six...

1MERAFE RESOURCESRESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2019

Interim Results presentationfor the six months ended 30 June 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 inmaking an investment decision. Information contained herein has been taken from sources considered by Merafe Resources to be reliable but nowarranty is given that such information is accurate or complete and it should not be relied upon as such. Views and opinions expressed in thispresentation reflect the judgment of Merafe Resources as of the date of this presentation and are subject to change. Merafe Resources will not beresponsible 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 The information contained herein shall not be published, rewritten for broadcast orpublication or redistributed in any medium without prior written consent from Merafe Resources. Prospective investors should take appropriateinvestment advice and inform themselves as to applicable legal requirements, exchange control regulations and tax considerations in the countries oftheir citizenship, residence or domicile. The distribution of the information contained in this presentation in certain countries may be restricted by lawand persons who access it are required to inform themselves and to comply with any such restrictions. This information does not constitute an offer orsolicitation 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 orsolicitation. 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 inexchange rates, market conditions and risks associated with a mining venture.


Agenda

1. KEY FEATURES

2. MARKET REVIEW

3. OPERATIONAL REVIEW

4. FINANCIAL REVIEW

5. DIVIDEND

6. OUTLOOK



1. KEY FEATURES


Tough operating environment leads to depressed results

Safety

• Regrettably, one fatality• TRIFR 30% (from December 2018)

Operational

• Ferrochrome production slowed downin light of weak demand

• Inflationary pressures persist but costs controlled

Market

• Global uncertainty weighs on global economy• Stainless steel production growth subdued• Ferrochrome demand growth slows• Prices under pressure

Financial

• Revenue 3% period on period• HEPS 61% period on period• No interim dividend declared



2. MARKET REVIEW


2019 product price volatility

Source for all charts: CRU

0

20

40

60

80

100

120

2018

/01

2018

/03

2018

/05

2018

/07

2018

/09

2018

/11

2019

/01

2019

/03

2019

/05

2019

/07

0

50

100

150

200

250

300

2018

/01

2018

/03

2018

/05

2018

/07

2018

/09

2018

/11

2019

/01

2019

/03

2019

/05

2019

/07

165154

110

139

118

142 138

124

112

120

104

0

20

40

60

80

100

120

140

160

180

2017

Q1

2017

Q2

2017

Q3

2017

Q4

2018

Q1

2018

Q2

2018

Q3

2018

Q4

2019

Q1

2019

Q2

2019

Q3

UG2 42% (US$/t) Ferrochrome 50% (USc/lb) European benchmarkferrochrome price (USc/lb)


China’s dominant role in the stainless steel and ferrochrome market

5.8

15.4

6.5

50.6

21.8

5.6

14.9

6.0

52.8

20.6

Global Stainless Steel production (%)

4.310.6

5.7

58.8

20.5

4.210.3

5.2

60.4

20.0

Global Ferrochrome demand (%)

Source for both charts: CRU

USAWestern Europe

JapanChinaOther


1.5 1.3 1.4

3.9 3.4 3.9

1.7 1.6 1.6

12.9 13.7 13.6

5.6 5.5 5.3

25.6 25.5 25.8

0

10

20

30

H1 18 H2 18 H1 19

Global Stainless Steel Production (mt)

Market uncertainty curbs growth in stainless steel productionand ferrochrome demand

Source for both charts: CRU

0.3 0.3 0.30.7 0.6 0.70.4 0.4 0.3

3.9 4.0 4.1

1.3 1.4 1.3

6.6 6.6 6.7

0

2

4

6

8

H1 18 H2 18 H1 19

Global Ferrochrome Demand (mt)

USAWestern Europe

JapanChinaOther


2.4 2.8 3.0

2.01.9 2.0

0.60.7

0.60.70.7 0.70.40.4 0.40.40.4 0.46.67.0 7.1

0.0

2.0

4.0

6.0

8.0

H1 18 H2 18 H1 19

Global Ferrochrome Production (mt)

Ferrochrome production growth led by China;Ore imports into China increase in support of production

6.6

7.5 7.4

5.0

5.4

5.8

6.2

6.6

7.0

7.4

7.8

H1 17 H 18 H1 19 **

Chrome Ore Imports into China (mt)

Source for both charts: CRU (except for **)Source for **: Global Trade Atlas

ChinaSouth AfricaKazakhstan

IndiaEuropeOther



3. OPERATIONAL REVIEW


• Regrettably one fatality in the current year• Overall, TRIFR improved to 2.36 from 3.39 in December 2018• Safety of our employees remains a critical focus, the goal is to achieve zero harm• Education and good decision making the key to building a sustainable safety culture• Continued focus on safety campaigns and programs through the period

Safety of our employees is paramount

3.78

3.74

3.65

3.39

2.36

0

1

2

3

4

5

H1 17 FY 17 H1 18 FY 18 H1 19

Total Recordable Injury Frequency Rate (TRIFR)


Managing assets in the face of a soft market

• Reduction in ferrochrome production to 206kt- Installed capacity utilisation of 87%- Production cuts in Q2 to manage inventory levels

• No significant disruptions in electricity supply• Multiple year wage agreements concluded in 2018

216

179

211

196

206

0

50

100

150

200

250

H1 17 H2 17 H1 18 H2 18 H1 19

Ferrochrome production (kt)


33%

15%22%

16%

14%

Controlled costs despite headwinds

Total production costs per tonne increased by 7.2% (from Dec 2018), influenced by:• Increase in reductants prices• Increase in electricity prices, effective 1 April 2019• Higher allocation of fixed costs and standing charges

Below is a breakdown of C3 production costs:

Chrome oreReductants and fluxPowerFixed costsPlant and other

FY 2018

33%

16%21%

16%

14%

H1 2019



4. FINANCIAL OVERVIEW


Revenue and profit

3% increase in revenue period on period to R2.788bn• Ferrochrome revenue increased by 2% to R2.391bn period on period• Chrome ore revenue increased by 5% to R397m period on period• Higher volumes of chrome ore and ferrochrome sold• Lower commodity prices• Significantly lower HEPS by 61% period on period

2,28

2

2,34

2

2,39

1

2,88

1

2,50

6

0

500

1,000

1,500

2,000

2,500

3,000

H1 17 H2 17 H1 18 H2 18 H1 19

Ferrochrome revenue (R’m) Chrome ore revenue (R’m)

298

378

397

428

368

0

100

200

300

400

500

H1 17 H2 17 H1 18 H2 18 H1 19

19.4

16.9

6.6

17.0

10.3

0

5

10

15

20

H1 17 H2 17 H1 18 H2 18 H1 19

HEPS (cents)


EBITDA reconciliation to profit45

4.1

165.2

8.0

18.1

(19.0)

(205

.9)

(90.2)

0

100

200

300

400

500

Merafe's 20.5%EBITDA fromthe Venture

Corporatecosts

Depreciation Net financingincome

Currenttax expense

Deferredtax credit

Profit after tax

EBITDA reconciliation to profit (R’m)


Focus remains on driving efficienciesto counter negative macro influences

Ferrochrome and Chrome ore revenue• Higher due to weaker R:$ exchange

rate and higher volumes but negatively impacted by lower prices

Foreign exchange (loss)/gain• A function of the R:$ exchange rate

Operating expenses• Cost per tonne increased by 7.2% from

31 Dec 2018. Key factors were:› Reductants, ore & power costs

Merafe corporate costs• Inflationary increases

Current tax• Decrease is reflective of lower profits

and taxable income

H1 2019R’m

H1 2018R’m

H2 2018R’m

Ferrochrome revenue 2 391 2 342 2 507

Chrome ore revenue 397 378 369

Foreign exchange (loss)/gain (6) 103 38

Operating expense (2 327) (2 009) (2 338)

Merafe's share of PSV EBITDA 454 814 576

Merafe corporate costs (19) (18) (26)

Merafe's EBITDA 435 796 550

Depreciation (206) (204) (202)

Net financing income/(expense) 8 (3) 7

Current tax expense (90) (184) (107)

Deferred tax credit 18 19 11

Profit after tax 165 424 259

HEPS 6.6 16.9 10.3


Balance sheet weighed on by increased inventory levels

InventoriesIncrease due to: • Higher finished goods on hand

(4 ‐ 5 months)• Higher inventory costs

Trade and other receivablesIncrease due to higher revenues

Cash and cash equivalentsReduction due to:• Dividend payment• Lower profitability• Increased working capital

As at30 Jun 2019

R’m

As at31 Dec 2018

R’m

Current assets

Inventories 2 250 259 2 042 621

Current tax asset ‐ 26 368

Trade, other receivables & tax asset 987 223 920 231

Cash and cash equivalents 208 688 282 037

Total current assets 3 446 170 3 271 257

Total assets 6 717 023 6 579 785


Generation of cash from operations28

0,85

5

204,59

7

197,35

0

3 24

6

(121

,053

)

(150

,642

)

(5,159

)

0

100,000

200,000

300,000

400,000

500,000

Openingcash *

Cash fromoperating activities

Sustainingcapex

Dividend Borrowingsraised

Effect ofexchange ratefluctuations

Closingcash *

Reconciliation of net cash (R’000)

* Includes bank overdraft


Significant headroom on facilities

1. Net cash/debt includes cash and cash equivalents, bank overdraft, working capital loan and debt

2. Merafe's 20.5% of the Venture's $175 million overdraft facilities

3. Merafe's 20.5% of the Venture's $100 million working capital loan

4. Unsecured 3‐year Revolving Credit Facility

As at 30 June 2019Venture

(Merafe’s share)Merafe

head office Merafe total

(R‘m) (R’m)Total(R’m)

Closing net cash/(debt)1 60 145 205

As at 30 June 2019Venture

(Merafe’s share)Merafe

head officeMerafe

total

Cash and overdraft facilities

(R‘m)

Working capitalloan(R’m)

Interest bearing

debt(R’m)

Total(R’m)

Total facilities in place (508)2 (290)3 (200)4 (998)

Total facilities utilised ‐ ‐ ‐ ‐

Headroom (508) (290) (200) (998)



5. DIVIDEND


Interim dividend

• In light of significant market uncertainty, the Board has decided not to declare an interim ordinary dividend

• A final dividend will be considered based on the 31 December 2019 year end results



6. OUTLOOK


Outlook

• Global uncertainty continues to impact markets negatively

• Inflationary pressures persist for South African producers

• Production cuts expected from key markets with surpluses likely to narrow or reverse

• Market expected to respond with some improvements in pricing

• Merafe remains ungeared and well positioned to take advantageof any opportunities

• We will continue sweating our assets and driving efficiencies

• In the absence of any opportunities, we will continue returning cash to shareholdersin line with dividend policy


Thank you

interim results presentation - merafe resources · 2019-08-05 · results presentation for the six...

Documents