results presentation - merafe resources · results presentation for the six months ended 30 june...

Results PResentation

for the six months ended 30 June 2014

Zanele Matlala (CEO) and Ditabe Chocho (CFO)

Merafe Resources Results presentation for the six months ended 30 June 2014 2

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 The information contained herein shall not be published, rewritten for broadcast or publication or redistributed in any medium without prior written consent from Merafe Resources.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

Merafe Resources Results presentation for the six months ended 30 June 2014

Results PresentationFor the six months ended 30 June 2014

Zanele Matlala (CEO) and Ditabe Chocho (CFO)Zanele Matlala (CEO) and Ditabe Chocho (CFO)


Key features

01


1. Key features

2. Operational review

3. Market review

4. Strategic focus

5. Financial review

6. Outlook

Annexures

Key agenda


Operational review

02


Key features

5

OPERATIONAL• Ferrochrome production of

168kt• Five-month platinum strike over• Strong cost performance

MARKET• 10.5% increase in global stainless steel

production• 15% increase in global ferrochrome

demand • 20% increase in global ferrochrome

production• 15% reduction in chrome ore imports

into China

PROJECTS• Flagship Project Lion II in

production• Good safety performance

FINANCIAL• Revenue up by 35%• HEPS up by 134%• Cash from operating activities of

R265m• Cash dividend declared of R28m


Operational review (continued)

Project Lion II – safe and successful completion

• 9.6m continuous man hours worked without a lost time injury

• Currently producing above 60% of design capacity

• Expected variance of 7% above budget

• Ramp-up to full capacity expected within a year

8


Operational review

Increase of 16% in ferrochrome production• stronger market• non-recurring Eskom buy backs• higher furnace capacity utilisation

Employee relations and safety• Regrettably one fatality• TRIFR of 4.41• Platinum industry strike impacted

– chrome ore costs– chrome ore sales volumes

• Wage negotiations successfully concluded in the eastern mines and smelters

7


Global market review

10

Source: Heinz Pariser / July 2014

GLOBAL STAINLESS STEEL PRODUCTION

10.5% increase to 21.1mt (H1 2013: 19.1mt)

17% NAFTA

7% Japan

14% China

15% India

GLOBAL FERROCHROME DEMAND

15% increase to 5.71mt (H1 2013: 4.98mt)

17% NAFTA

5% EU

22% China

16% India

GLOBAL FERROCHROME PRODUCTION

20% increase to 5.72mt (H1 2013: 4.75mt)

36% South Africa

16% EU

12% China

26% Kazakhstan


Marketreview

03


Chrome ore imports into China

12

South Africa South

Africa

TurkeyTurkey

Oman

Oman

Albania

Albania

Pakistan

Pakistan

Iran

Iran

Others

Others

2013(Monthly Average)

2014(Monthly Average)

1,008

855

15%

Source: Heinz H Pariser /July 2014

FY 2013kt

2013 (Jan to May)

kt

2014 (Jan to May)

kt

Change Jan to May

(2014/2013)%

South Africa 6 736 2 792 2 531 (9.3)

Turkey 1 988 717 650 (9.3)

Oman 687 266 240 (9.8)

India 168 66 51 (22.7)

Pakistan 482 223 148 (33.6)

Albania 677 255 243 (4.7)

Iran 428 181 205 13.3

Madagascar 118 53 44 (17.0)

Australia 407 194 44 (77.3)

Philippines 126 42 37 (11.9)

Kazakhstan 167 53 35 (34.0)

Others 108 46 48 4.3

Total 12 092 4 888 4 276 (12.5)


Ferrochrome market review

11

2013 Usc/lb 2014 Usc/lb Change

Q1 112.5 118 +5%

Q2 127 122 (4%)

Q3 112.5 119 +6%

Average 117 120 +3%

H1 2013 H1 2014 Change9.2 10.7 +16%

Average Rand/Dollar exchange rate

Rising demand in Europe, doubts

about security of electricity supply

in SA and the platinum strike

Rising demand in Europe, doubts

about security of electricity supply

in SA and the platinum strike

Seasonal slowdown and

softer ferrochrome

prices in China

Seasonal slowdown and

softer ferrochrome

prices in China

European benchmark ferrochrome prices


Strategic focus

14

Renewed focus

• Background• Focusing short- to medium term on ferrochrome operations and maximising cash flows from

the Venture• Diversification not being actively pursued in the short- to medium term

Aligning head-office structure to strategy

Impact on Board and key management personnel

• Boardd• Company Secretary• CFO• Commercial Director

Smooth succession plan and adequate time for handover process

Acknowledgements


Strategic focus

04


Key financial features

16

35% 101% 134% 13% 3%

Revenue EBITDA HEPSCash flows from

operating activities

Net debt

H1 2014R1 991m

H1 2014R423m

H1 20148.9 cents

H1 2014R265m

H1 2014R587m

EBITDA in millions

600

500

400

300

200

100

0

380

FY 2011

314

FY 2012

558

FY 2013

423

H1 2014

HEPS in cents

12

10

8

6

4

2

0

6.4

FY 2011

5.1

FY 2012

10.8

FY 2013

8.9

H1 2014


Financial review

05


Ferrochrome production cost per tonne (H1 2014 vs H1 2013)

18

Increase of 4% contained below ferrochrome mining inflation

Chrome ore (strike related, salary increases)

Power (Eskom increase, start-up of Lion II, lower percentage premus production)

Fixed cost per unit (higher production volumes)


Revenue

17

25% 16% 39% 13%

Ferrochrome sales tonnes

Average European

benchmark ferrochrome

prices

Average Rand/US$

exchange rateFerrochrome

revenueChrome ore

revenue

H1 2014171kt

H1 2014120USc/lb

H1 201410.7

H1 2014R1 787m

H1 2014R204m

Revenue in millions4 000

3 500

3 000

2 500

2 000

1 500

1 000

500

0

2 427

FY 2011

2 542

FY 2012

3 497

FY 2013

1 991

H1 2014


Capital expenditure

20

Project Lion II

Balance of Lion II spend – expected in H2 2014

231

424 397

151

174

180 208

95

0

100

200

300

400

500

600

700

FY 2011 FY 2012 FY 2013 H1 2014

Sustaining

Expansionary

Sustaining Capex

2014 – similar levels as in prior year


EBITDA reconciliation to profit

19

460

225 (18)

(59)

(37)

(85)

(36)

0

50

100

150

200

250

300

350

400

450

500

Merafe's 20.5% ofEBITDA from the

Venture

Corporate costs* Depreciation Net financing costs Current tax expense Deferred tax expense Profit

R'm

* includes R13m restructuring costs


Balance sheet (continued)

22

As at30 June 2014

As at31 December 2013

Reviewed R’000 Audited R’000

Total non-current liabilities 1 378 635 1 313 866

Loans and borrowings 575 003 576 311

Provision for close down and restoration costs 118 249 111 456

Deferred tax 685 383 626 099

Total current liabilities 608 471 763 907

Loans and borrowings 31 051 19 471

Trade and other payables 532 099 648 143

Bank overdraft 45 321 96 293

Total liabilities 1 987 106 2 077 773


Balance sheet

21

As at 30 June 2014

As at31 December 2013

Reviewed R’000 Audited R’000

Total non-current assets 3 249 215 3 099 988

Property, plant and equipment 3 249 215 3 099 988

Total current assets 1 890 909 1 903 622

Inventories 1 206 738 1 132 986

Trade and other receivables 617 831 677 649

Current tax asset 1 579 7 440

Cash and cash equivalents 64 761 85 547

Total assets 5 140 124 5 003 610


Outlook

06


Debt and facilities

23

Utilised facilities at 30 June 2014R'm

ABSA loan 592

Overdraft facilities* 45

Inventory facility* 65

Total 702

* USD facilities converted at the closing exchange rate of R10.6

Net debt movement R’m

** Comprises R575m loans and borrowings, R31m short-term loans and borrowings, R45m overdraft and cash of R64m

Net debt at 31

December 2013

Cash from operating activities

Expansionary capex

Sustainingcapex

Net debt at 30 June 2014**

(606)

265

(151)(95)

(587)(700)(600)(500)(400)(300)(200)(100)

0100200300400

Headroom at 30 June 2014R'm

ABSA loan 208

Overdraft facilities* 351

Inventory facility* 152

Total 711


Outlook

25

Strong forecasted growth in stainless steel production and demand

Partnership and excellent relationship with Glencore

Positive about future prospects

Committed to returning cash to shareholders and reducing debt


Questions

26


Ferrochrome prices


Annexures


A changing market environment(Regional share of global stainless production and ferrochrome demand)

0

10

20

30

40

50

60

70

8019

5019

5519

6019

6519

7019

7519

8019

8519

9019

9520

0020

0520

1020

15

Mar

ket S

hare

in %

Stainless Steel

USA

EU

Japan

China

© Heinz H. Pariser

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


Stainless steel supply and demand balance

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


Global power prices

31

0.00

0.02

0.04

0.06

0.08

0.10

0.12A

vera

ge p

ower

pric

e, in

US$

per

kW

h

Scandi-navia

IndiaCaptive Power

ChinaSouth AfricaEskom

IndiaPurchased

Power

Kazakh-stan Turkey

Sources: Individual annual and company reports, NordPool Electricity Spot Prices, NRDC, Eskom, Heinz H. Pariser

2010/11

2012/132011/12

2009/10

All data based on average power prices and exchange rates for the years stated /South African Projection based on Exchange Rate of ZAR 10.1 per US$

2008/0920082009

20102011

2009

20102011

200920102011

20102011

2009/102010/11

2008/092012

2012/14

2009

2008

BrazilHydro

2010

2011

20092008

Russia

201020112012/14

20092008

2012/14

2011/12

2012/14

2016/17

2012

2013/14

MYP

D 3

2012/132013/14

2013

2013

2013

2013

201320132014

2014

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