results presentation - merafe resources...merafe resources ltd | results presentation for six months...

RESULTS PRESENTATION For the six months ended 30 June 2016

Presented by Zanele Matlala and Kajal Bissessor

Merafe Resources Ltd | Results presentation for six months ended 30 June 2016

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 The information contained herein shall not be published, rewritten for broadcast or publication or redistributed in any medium without prior written consent from Merafe Resources.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.

2


KEY AGENDA

1. Key features

2. Operational review

3. Market review

4. Financial review

5. Outlook

Annexures

3


Key features

4

1


Key features

5

OPERATIONAL • TRIFR of 4.00

• Ferrochrome production of 196kt

• Production costs contained

MARKET • 2.5% increase in global stainless steel

production

• 8.0% decrease in global ferrochrome demand

• 3.9% decrease in global ferrochrome

production

• 6% reduction in chrome ore imports into China

FINANCIAL • Revenue up by 9%

• HEPS of 2.3 cents

• Cash from operating activities of R372m

• Interim cash dividend declared of R20m


Operational review

6

2


Operational review

7

– Marginal increase in ferrochrome production

• optimisation of stock levels

– Production costs contained

– Reduction in TRIFR to 4.00

– Electricity

• Supply (no significant impact)

• Pricing (increase of 9.4% effective 1 April 2016)

– Labour

• Implementation of 3 year agreements

– Communities

• Continuing engagement


Market review

8

3


Global market review (H1 2016/H1 2015)

9

Sales GLOBAL STAINLESS STEEL PRODUCTION

2.5% increase to 21.8mt

0.5% NAFTA

3.9% Japan

5.5% China

4.5% India

2.4% EU

GLOBAL FERROCHROME DEMAND

8.0% decrease to 5.1mt

1.8% NAFTA

7.5% EU

12.7% China

4.1% India

1.4% Japan

GLOBAL FERROCHROME PRODUCTION

3.9% decrease to 5.2mt

1.6% South Africa

17.9% EU

16.7% China

8.0% Kazakhstan

5.9% India

Source: Heinz H. Pariser, Alloy Metals & Steel Market Research – July 2016


Ferrochrome market review

10

Sales

2015 Usc/lb 2016 Usc/lb Change

Q1 108 92 (15%)

Q2 108 82 (24%)

Q3 108 98 (9%)

Average 108.0 90.7 (16%)

European benchmark ferrochrome prices

2015 H1 2016 H1 Change

11.9 15.4 +29%

Average Rand/Dollar exchange rate


Chrome ore imports into China

11

2014 FY 2015 FY H1 2015 H1 2016

Change (H1 2016 vs

H1 2015)

‘000 t ‘000 t ‘000 t ‘000 t %

South Africa 5748 7579 3540 3559 1%

Turkey 1280 1037 432 282 -35%

Oman 489 337 231 55 -76%

Iran 494 392 238 193 -19%

Albania 555 486 203 194 -4%

Pakistan 339 302 163 104 -36%

Madagascar 113 170 85 71 -16%

Philippines 67 31 23 4 -83%

Sudan 40 29 25 1 -96%

India 63 23 0 122 100%

Australia 44 0 0 0 0%

Brazil 12 0 0 0 0%

Kazakhstan 77 8 0 3 100%

Others 63 10 3 56 1767%

TOTAL 9 384 10 404 4 943 4 644 -6%

Source: Chinese customs


Financial review

12

4


Key financial features

13

• Revenue up by 9%

• EBITDA down by 24%

• HEPS down by 54%

• Healthy cash flows from operating activities of R372m

effective working capital management

• Reduced ABSA and Standard Bank debt

R410m balance post reporting period


Revenue

14

14% 19% 29% 9% 5%

Ferrochrome

sales tonnes

Average European

benchmark

ferrochrome price

Average

Rand/US$

exchange rate

Ferrochrome

revenue

Chrome ore

revenue

1230 1469

1991 2223

2413

0

500

1000

1500

2000

2500

3000

H1 2012 H1 2013 H1 2014 H1 2015 H1 2016

Revenue R‘m


Production costs* contained

15

Key contributors

• Cost saving initiatives

• Lion II

• Electricity increases

• Labour increases

Other expense items

• Standing charges – R49.2m

• Foreign exchange losses – R28.8m

*per tonne of ferrochrome


EBITDA Reconciliation to profit

16

275

57 (32)

(19)

(18)

(147)

(2)

0

50

100

150

200

250

300

Merafe's 20.5% ofEBITDA from the

Venture

Corporate costs Depreciation andimpairment

Net financingcosts

Current taxexpense

Deferred taxexpense

Profit

R'm


Balance sheet

17

As at

30 June 2016

As at

31 December 2015

Reviewed R’000 Audited R’000

Total non-current assets 3 239 668 3 258 365

Property, plant and equipment 3 220 116 3 240 370

Deferred tax assets 19 552 17 995

Total current assets 2 188 496 2 099 240

Inventories 1 222 397 1 445 887

Trade and other receivables 530 996 317 454

Current tax asset 22 857 10 773

Cash and cash equivalents 412 246 325 126

Total assets 5 428 164 5 357 605


Balance sheet (continued)

18

As at

30 June 2016

As at

31 December 2015

Reviewed R’000 Audited R’000

Total non-current liabilities 1 327 066 1 378 977

Loans and borrowings 392 246 472 755

Provision for close down and restoration costs 146 757 139 351

Share based payment liability 4 121 3 147

Deferred tax 783 942 763 724

Total current liabilities 658 968 563 939

Loans and borrowings 101 462 101 176

Trade and other payables 554 899 444 314

Share based payment liability 2 578 2 893

Bank overdraft 29 15 556

Total liabilities 1 986 034 1 942 916


Cash and cash equivalents

19

310

412 (30)

(34)

372

(125)

(81)

0

100

200

300

400

500

600

700

800

Net cash at 31 Dec2015

Cash flows fromoperating activities

Capex Dividends Decrease inborrowings

Other Net cash at 30 June2016

R'm


Facilities

20

30 June 2016 31 December 2015

Utilised facility R'm

Headroom R'm

Utilised facility R'm

Headroom R'm

ABSA / Standard Bank Loan

480 220 559 191

Overdraft facilities - 467 16 562

Debtors facility 543 1 411 97

Total 1 023 688 986 850


Outlook

21

5


Conclusion

22

• Well positioned to take advantage of growth in global stainless steel

production

• On track to achieving strategy

Short term

• Reducing Merafe debt

• Paying stable to increasing dividends

2018 onwards

• Free cash flow applied mainly to returning cash to shareholders


Annexures

23


China chrome ore import prices

24

289

310

105

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

2011 2012 2013 2014 2015 2016

in U

S$

/ t

Weighted

Average

© Heinz H. Pariser

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

2011 2012 2013 2014 2015 2016

in U

S$

/ t

Oman

Others

S. Africa

Albania Turkey

© Heinz H. Pariser

Merafe Resources Ltd | Results presentation for six months ended 30 June 2016 25

0

10

20

30

40

50

60

70

80

1950 1960 1970 1980 1990 2000 2010 2020

Ma

rke

t Sh

are

in

%

USAEU

Japan China

© Heinz H. Pariser


Ferrochrome supply and demand balance

26

2013 2014 2015 2016 e 2017 f G.R.

in %

Stainless Steel Production 38,665 41,836 41,531 42,679 44,001 2.8

Real FeCr Demand 10,211 10,978 10,722 10,984 11,018 1.5

Apparent Consumption 10,061 10,922 10,735 10,581 10,971 1.4

Production

- Cr Production 10,356 11,217 10,590 10,636 10,996 0.7

- Capacity 14,243 15,294 16,088 15,945 16,141 3.0

- Ut ilisat ion (in %) 72.7 73.3 65.8 66.7 68.1

Supply 10,275 11,162 10,784 10,538 11,001 0.8

Balance

Supply - AC 214 239 49 -43 29

Supply - Real Demand 64 183 63 -446 -18

Charge Cr Prices in $ / lb 1.16 1.19 1.07 0.93 1.01

© Heinz H. Pariser, Alloy Metals & Steel Market Research

´000 t


Ferrochrome prices differ from region to

region

27

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

2012 2013 2014 2015 2016

Ch

arg

e C

r Pric

es (q

ua

rterly

) in U

S$

/ lbH

C S

po

t P

ric

es

& C

hin

a T

en

de

r P

ric

e

(mo

nth

ly)

in U

S $

/ Ib

Charge Cr

Benchmark (EU)

China Tender50% Cr (excl. 17% VAT)

Europe6-8%C, 60%Cr

Source:China Ferroalloy Industry Association, Metal Bulletin, Heinz H. Pariser

USA6-8%C, 60-65% Cr

China Spot50%Cr (excl. 17% VAT)

© Heinz H. Pariser

Charge Cr

Benchmark (Japan)

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