results presentation - merafe resources · ensuring the safety of all our employees remains key to...

Merafe Resources Ltd | Results presentation for the year ended 31 December 2017i

PRESENTED BY ZANELE MATLALA (CEO) AND KAJAL BISSESSOR (FD)

RESULTS

PRESENTATIONFOR THE SIX MONTHS ENDED 30 JUNE 2018

Presented by Zanele Matlala (CEO) and Kajal Bissessor (FD)2

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 Limited 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 Limited 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The information contained herein shall not be published, rewritten for broadcast or publication or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 Limited. 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.

KEY AGENDA

Merafe Resources Ltd | Results presentation for the six months ended 30 June 20183

1. Key highlights

2. Market review

3. Operational review

4. Financial review

5. Dividends

6. Outlook


Key highlights1

Pleasing performance within the context of a volatile operating environment


Safety

• 2.4% improvement in TRIFR* from

December 2017;

• Safety remains priority and a critical focus

area.

Operational

• 2.3% period on period decrease in

production;

• Production equivalent to installed

capacity of 88%;

• Production cost per tonne increase

managed to 4.8%.

Market

• Global stainless steel production grew

by 10% to 25.6m tonnes, period on

period;

• Volatile pricing environment as market

readjusts;

• Growth in stainless steel production

underpins industry outlook.

Financial

• 5.5% period on period increase in revenue;

• 12.9% decrease in HEPS to 16.9 cents;

• Declared interim cash dividend of R200m;

• Net cash balance of R331m.**

* Total recordable injury frequency rate.

** Net cash includes cash and cash equivalents, bank overdraft and working capital loan.


Market review2

China remains the key player in stainless steel, accounting for 50% of global production and 58% of global ferrochrome demand


Source: CRU

Global Stainless Steel Production

(H1 2018)

Global Ferrochrome Demand

(H1 2018)

58%

11%

5%

5%

20%

China Europe Japan USA Other

50%

15%

6%

6%

22%

China Europe Japan USA Other

Sector fundamentals remain strong


Source: CRU

1.5 1.4 1.5

3.9 3.5 3.9

1.6 1.6 1.6

12.1 13.7 12.8

4.2

5.0 5.7

0

5

10

15

20

25

30

H1 2017 H2 2017 H1 2018

Global Stainless Steel Production(mt)

USA Western Europe Japan China Other

23.2 mt

25.2 mt25.6 mt

0.3 0.3 0.3

0.7 0.7 0.7

0.3 0.4 0.4

3.5 4.0 3.7

0.9

1.2 1.3

0

1

2

3

4

5

6

7

H1 2017 H2 2017 H1 2018

Global Ferrochrome Demand(mt)

USA Western Europe Japan China Other

5.8 mt

6.5 mt 6.5 mt

Ferrochrome production reacted to market conditions; Ore imports into China increased in the first five months


Source: CRU

2.2

2.72.4

2.0

1.6 2.0

0.60.7 0.6

0.30.2

0.4 0.60.7

0.6 0.40.3

0.4

0

1

2

3

4

5

6

7

H1 2017 H2 2017 H1 2018

Global Ferrochrome Production (mt)

China South africa India Europe Kazakhstan Other

6.0 mt6.3 mt

6.6 mt

5.8 mt

6.5 mt

0

1

2

3

4

5

6

7

First 5 months 2017 First 5 months 2018

Chrome Ore Imports into China (mt)

2018 Ferrochrome price environment characterised by some volatility


UG2 Metal Bulletin 42%

(USD/t)

Metal Bulletin Chinese charge

chrome 50% (USc/lb)European Benchmark

Ferrochrome Price (USc/lb)

-

40

80

120

160

200

Jan

-17

Fe

b-1

7M

ar-

17

Ap

r-17

Ma

y-1

7Jun

-17

Jul-1

7A

ug-1

7S

ep-1

7O

ct-

17

Nov-1

7D

ec-1

7Jan

-18

Fe

b-1

8M

ar-

18

Ap

r-18

Ma

y-1

8Jun

-18

Jul-1

8 -

50

100

150

200

250

300

350

400

450

Jan

-17

Fe

b-1

7M

ar-

17

Ap

r-17

Ma

y-1

7Jun

-17

Jul-1

7A

ug-1

7S

ep-1

7O

ct-

17

Nov-1

7D

ec-1

7Jan

-18

Fe

b-1

8M

ar-

18

Ap

r-18

Ma

y-1

8Jun

-18

Jul-1

8

-

30

60

90

120

150

Jan

-17

Fe

b-1

7M

ar-

17

Ap

r-17

Ma

y-1

7Jun

-17

Jul-1

7A

ug-1

7S

ep-1

7O

ct-

17

Nov-1

7D

ec-1

7Jan

-18

Fe

b-1

8M

ar-

18

Ap

r-18

Ma

y-1

8Jun

-18

Jul-1

8


Operational review

3

Ensuring the safety of all our employees remains key to building a sustainable production environment


• Overall, TRIFR improved by 2.4% to 3.65 compared to December 2017;

• Safety remains the number one priority for the Venture with a goal of achieving zero harm;

• Education and good decision making are key to building a sustainable safety culture.

4.00 4.15

3.78 3.74 3.65

-

1

2

3

4

5

H1 2016 FY 2016 H1 2017 FY 2017 H1 2018

/ m

illi

on

ho

urs

wo

rke

d

Total Recordable Injury Frequency Rate (TRIFR)

Reaping rewards of initiatives undertaken to drive efficiency


• Ferrochrome production decreased by 2.3% period on period to 211kt;

• The production for the period is equivalent to an installed capacity of 88%;

• Venture’s operations were not significantly impacted by the electricity supply constraints;

• Wage negotiations

▪ East - successfully implemented

▪ West - ongoing

196 197

216

179

211

-

50

100

150

200

250

H1 2016 H2 2016 H1 2017 H2 2017 H1 2018

Total Ferrochrome Production (kt)

Total costs well managed within a high mining inflation environment


• Total costs per tonne of ferrochrome produced increased by 4.8% compared to 31 December

2017 with key contributors being:

− Increase in reductant prices due to change in mix;

− Increases in electricity prices of 5.3%, effective 1 April 2018.

• C3 Production costs can be broken down into the following main categories:

35%

14%22%

16%

13%

H1 2018

33%

13%23%

16%

15%

FY 2017


Financial overview

4

Increase in revenue and healthy profit


27.1% Chrome ore revenue

+ Higher prices

- Lower sales volumes

- Stronger Rand

260

518

298

428

378

0

100

200

300

400

500

600

H1 2016 H2 2016 H1 2017 H2 2017 H1 2018

Chrome Ore RevenueR'm

2.3

18.919.4

17.0 16.9

0

5

10

15

20

25

H1 2016 H2 2016 H1 2017 H2 2017 H1 2018

HEPS(cents)

2153

2770

2282

2881

2342

0

500

1000

1500

2000

2500

3000

3500

H1 2016 H2 2016 H1 2017 H2 2017 H1 2018

Ferrochrome Revenue R'm

5.5% increase in total revenue period on period to R2.7bn

2.6% Ferrochrome revenue

+ Higher sales volumes

- Stronger Rand

- Lower prices

EBITDA reconciliation to profit


814

425

(18)(204)

(3) (184)

19

0

100

200

300

400

500

600

700

800

900

1000

Merafe's 20.5%EBITDA from the

Venture

Corporate costs Depreciation Net financing cost Current taxexpense

Deferred taxincome

Profit

R'm

illio

n

Continue to drive efficiencies


H1 2018 H1 2017 H2 2017

R’m R'm R’m

Ferrochrome revenue 2 342 2 282 2 881

Chrome ore revenue 378 298 428

Foreign exchange gain/(loss) 103 (50) (23)

Operating expenses (1) (2 009) (1 643) (2 468)

Merafe EBITDA 814 887 818

Merafe corporate costs (2) (18) (22) (18)

Depreciation (3) (204) (165) (203)

Net financing (costs)/income (4) (3) (24) 5

Current tax expense (5) (184) (282) (129)

Deferred tax income/(expense) (6) 19 92 (45)

Profit after tax 424 486 428

HEPS (cents) 16.9 19.4 17.0

(1) Other operating expenses

• Higher sales volumes and increase in operating costs.

(2) Merafe corporate costs

• Decrease due to lower CSI spend in 2018.

(3) Depreciation

• Driven by accelerated depreciation arising from the

scrapping of assets and the reassessment of residual values

to zero in the second half of 2017.

(5) Current tax

• Current tax decrease reflects lower taxable income.

(6) Deferred tax

• Deferred tax income due to temporary and timing

differences on property, plant and equipment, the embedded

derivative and provisions.

H1 2018 versus H1 2017:

(4) Net financing (costs)/income

• Driven by lower debt levels.

• Includes unwinding of discount on rehabilitation provision.

Strengthening of the balance sheet enables greater flexibility in the future


As at As at

30 June 31 December

2018 2017

R'000 R'000

Current assets

Inventories (1) 1 881 387 1 497 798

Trade and other receivables (2) 1 167 839 883 249

Cash and cash equivalents 341 232 671 655

Total current assets 3 390 458 3 052 702

Total assets 6 635 375 6 355 447

(1) Inventories

• Increase mainly due to higher finished goods on hand

as result of production being higher than sales and

higher production costs;

• Finished goods on hand is about four to five months of

sales.

(2) Trade and other receivables

• Driven by weaker closing Rand/USD exchange rate;

• Earlier than expected receipts in December 2017.

-800

-600

-400

-200

-

200

400

600

800

H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018

Historical Venture working capital movements(Merafe’s portion)

R’million

• Significant volatility in working capital arising from

• Exchange rate fluctuations;

• Pricing;

• Volumes;

• Seasonality;

• Composition of sales (Chinese versus non-Chinese)

Reconciliation of net cash


* Cash from operating activities plus movement of working capital loan.

600

331

159* (174)

(226)

(28)

0

100

200

300

400

500

600

700

800

Opening Cash from operatingactivities

Sustaining capex Dividend Exchange ratefluctuations

Closing

R'm

illio

n

Remarkable reduction in debt levels over three year period


(1,200)

(1,000)

(800)

(600)

(400)

(200)

-

200

400

600

800

2015 H1 2015 H2 2016 H1 2016 H2 2017 H1 2017 H2 2018 H1

¹Merafe’s 20.5% of the Venture’s $120 million overdraft facility

²Merafe’s 20.5% of the Venture’s $100 million working capital loan

³Unsecured, 3 year Revolving Credit Facility at Merafe level concluded with ABSA in H2 2017.4Net cash/(debt) includes cash and cash equivalents, bank overdraft, working capital loans and debt.

Merafe and

Venture Cash

Working

Capital loan

Merafe Head

Office debtTotal

R'm R'm R'm R'm

Closing net cash/(debt)4 331 - - 331

Total facilities (337)¹ (281)² (200)³ (818)

Total facilities utilised 10 - - 10

Headroom (327) (281) (200) (808)

At 30 June 2018

Net cash/(debt)⁴

R’million


Dividends5

Record interim dividend


25 30 20

100

75

226

200

-

50

100

150

200

250

H1 2015 H2 2015 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018

R m

illio

n

16%

23%

33%

47%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2015 2016 2017 H1 2018

Dividend as a percentage of profit

Dividend guidelines


• At least 30% of headline earnings;

• Special dividend/share buy-backs dependent on cash position;

• Excess cash above R50m at Merafe level to be distributed to shareholders;

▪ R50m retained to fund head office costs;

• Merafe portion of the cash in the venture of between R100m and R200m

retained to fund working capital and sustaining capex.


Outlook6

Outlook


• Stainless steel production is currently forecast to grow in excess of

3.5% per annum over the next 3 years;

• Volatile pricing and exchange rate environment continue;

• Remain committed to maximising shareholder returns.

Source: CRU

Merafe Resources Ltd | Results presentation for the year ended 31 December 2017i

QUESTIONS?

results presentation - merafe resources · ensuring the safety of all our employees remains key to...

Documents