results presentation - merafe resources · • declared interim cash dividend of r 75.3m. ......

RESULTS PRESENTATIONFOR THE SIX MONTHS ENDED 30 JUNE 2017

Presented by Zanele Matlala & Kajal Bissessor

Merafe Resources Ltd | Results presentation for the six months ended 30 June 2017

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 The information contained herein shall not be published, rewritten for broadcast or publication or redistributed in any medium without prior written consent from MerafeResources.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


Agenda

01 Key Highlights

02 Market Review

03 Operational Review

04 Financial Review

05 Outlook

3


Key Highlights

4

01


Solid performance in an uncertain environment

5

Safety

• Regrettably, one fatality

• 9% improvement in TRIFR since Dec’16

Operational

• 10% y-o-y increase in production, reaching a

record high

• Costs well managed within a high mining

inflation environment

Market

• Volatile pricing environment as market

readjusts

• Growth in stainless steel production underpins

industry outlook

Financial

• 7% y-o-y increase in Revenue

• 30% y-o-y increase in cashflow from operating

activities

• 49% reduction in Net Debt from Dec’16

• Declared interim cash dividend of R 75.3m


Market Review

6

02


-

20

40

60

80

100

120

140

160

180

200

Ja

n-1

6

Feb

-16

Mar-

16

Apr-

16

May-1

6

Ju

n-1

6

Ju

l-16

Aug

-16

Sep

-16

Oct-

16

No

v-1

6

De

c-1

6

Ja

n-1

7

Feb

-17

Mar-

17

Apr-

17

May-1

7

Ju

n-1

7

Ju

l-17

European Benchmark Ferrochrome Price (USc/lb)

-

20

40

60

80

100

120

140

160

Ja

n-1

6

Feb

-16

Mar-

16

Apr-

16

May-1

6

Ju

n-1

6

Ju

l-16

Aug

-16

Sep

-16

Oct-

16

No

v-1

6

De

c-1

6

Ja

n-1

7

Feb

-17

Mar-

17

Apr-

17

May-1

7

Ju

n-1

7

Ju

l-17

Ferrochrome Metal Bulletin 50% (USc/lb)

-

50

100

150

200

250

300

350

400

450

Ja

n-1

6

Feb

-16

Mar-

16

Apr-

16

May-1

6

Ju

n-1

6

Ju

l-16

Aug

-16

Sep

-16

Oct-

16

No

v-1

6

De

c-1

6

Ja

n-1

7

Feb

-17

Mar-

17

Apr-

17

May-1

7

Ju

n-1

7

Ju

l-17

UG2 Metal Bulletin 42% (USD/t)

Pricing environment adjusts following

unprecedented run in Q4 2016

7


China the critical influencer accounting for 52%

of global stainless steel production in H1 2017

51.9%

6.5%

17.0%

6.8%

4.8%

7.5%

5.5%

Global Stainless Steel Production (H1 2017)

China NAFTA Europe Japan

South Korea India Other

8

60.7%

4.9%

12.7%

5.9%

4.5%

5.0%

6.3%

Global Ferrochrome Demand (H1 2017)



Source: CRU


11.612.6 12.1

1.41.4

1.5

3.93.6 4.0

1.51.6 1.6

1.11.2 1.1

1.71.7 1.7

1.11.2 1.3

0

5

10

15

20

25

H1 2016 H2 2016 H1 2017

Global Stainless Steel Production (mt)



Industry fundamentals remain solid as ferrochrome

demand tracks stainless steel production

9

22.323.3 23.3

3.33.7

3.5

0.3

0.30.3

0.7

0.70.7

0.3

0.30.30.3

0.30.30.3

0.30.30.3

0.30.4

0

1

2

3

4

5

6

H1 2016 H2 2016 H1 2017

Global Ferrochrome Demand (mt)



5.6

6.0 5.8

Source: CRU


Ferrochrome production reacted to market

conditions; Ore imports into China also increased

10

1.92.3 2.2

1.8

1.7 2.0

0.6

0.60.60.5

0.60.6

0.3

0.20.3

0.3

0.30.4

0

1

2

3

4

5

6

7

H1 2016 H2 2016 H1 2017

Global Ferrochrome Production

(mt)

China South Africa Kazakhstan

India Europe Others

5.3

5.76.0

3.6

4.24.5

0.3

0.5

0.6

0.2

0.3

0.3

0.6

0.9

1.2

0

1

2

3

4

5

6

7

H1 2016 H2 2016 H1 2017

Chrome Ore Imports into China (mt)

South Africa Turkey Albania Others

Source: CRU

4.6

5.9

6.6


Operational Review

11

03


Ensuring the safety of all our employees remains

key to building a stable production environment

12

• Regrettably one fatality during the period

• Overall, TRIFR improved to 3.78, from 4.15 in December 2016

• Safety remains the number 1 priority for the Venture with a goal of achieving zero harm

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

• Increased focus on safety campaigns and programmes through the period

4.404.17

4.004.15

3.78

0

1

2

3

4

5

H1 2015 FY 2015 H1 2016 FY 2016 H1 2017

Total Recordable Injury Frequency Rate (TRIFR)

/ m

illio

n h

ours

work

ed


Reaping rewards of initiatives undertaken to

drive efficiency

13

• Ferrochrome production increased by 10% y-o-y to

216 kt as a result of:

− greater number of furnaces in operation

− Improved furnace performances with 2 record

months during the quarter resulting from the

ongoing efforts to improve efficiencies

• No significant disruptions in electricity supply during

the period under review

• Price increase of 2.2% effective 1 April 2017

• 3-year wage agreements expire in 2018 for the

smelters

• Western mines negotiations are currently in progress

195

182

196 197

216

0

50

100

150

200

250

H1 2015 H2 2015 H1 2016 H2 2016 H1 2017

Total Ferrochrome Production (kt)


• Total costs per tonne of ferrochrome sold increased by 9%* with key contributors being:

− Increase in reductant prices;

− Increase in UG2 input prices;

− Increase in labour costs, effective 1 July 2016;

− Increases in electricity prices of 9.4%, effective 1 April 2016;

− Higher royalty taxes, arising from higher chrome ore prices; and

− Higher commissions as a result of higher sales prices.

• The Venture remains the lowest cost producer in South Africa and the second lowest cost

producer globally

Total costs well managed within a high mining

inflation environment

14

*excludes foreign exchange losses


Financial Review

15

04


Strong performance driven by favourable market

conditions

16

5

8.9

2.3

18.9 19.4

0

5

10

15

20

25

H1 2015 H2 2015 H1 2016 H2 2016 H1 2017

HEPS (Cents)

1976 19702153

2770

2282

0

500

1000

1500

2000

2500

3000

3500

H1 2015 H2 2015 H1 2016 H2 2016 H1 2017

Ferrochrome Revenue R’m

247 235260

518

298

0

100

200

300

400

500

600

H1 2015 H2 2015 H1 2016 H2 2016 H1 2017

Chrome Ore Revenue R’m

− 7% increase in revenue y-o-y to R 2 580m

• Strength of the Rand partially offset the impact of the pricing environment

• Ferrochrome revenue up by 6% y-o-y to R 2 282m setting a new record for H1

• Chrome ore revenue up by 15% y-o-y to R 298m. Realised chrome ore prices lower than

average market prices due to lower grade material sold and an increase in local sales period

on period


EBITDA reconciliation to profit

17

887.1

486.5

(23.8)

91.5

(21.7)

(164.9)

(281.7)

0

100

200

300

400

500

600

700

800

900

1,000

Merafe's 20.5% ofEBITDA from the

Venture

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

R'm


Benefitted from upswing but continuing to drive

efficiencies to counter negative macro influences

18

Ferrochrome Revenue

• Driven by higher prices but partially offset by stronger Rand

and lower sales volumes

Other operating expenses

• Total cost per tonne of ferrochrome sold increased by 9%

but due to lower volumes sold overall reduction in operating

expenses

Merafe corporate costs

• Corporate costs of R22m include maiden R3.4m CSI

expense

Depreciation

• Depreciation increase as useful lives are re-assessed as a

result of scrapping of assets

Current tax

• Current tax increase reflects higher profits and full utilisation

of capex

Deferred tax

• Deferred tax income due to timing differences on provisions

and accruals, higher depreciation compared to sustaining

capex and impact of embedded derivative.

H1 2017 H1 2016 Variance

R'm R'm

Ferrochrome revenue 2 282 2 153 6%

Chrome ore revenue 298 260 15%

Foreign exchange

losses (50) (29) (72%)

Other operating

expenses (1 643) (2 109) 22%

Merafe's 20,5% of

Venture's EBITDA 887 275 223%

Merafe corporate costs (22) (18) (22%)

Merafe's EBITDA 865 257 237%

Depreciation (165) (147) (12%)

Net financing costs (24) (32) 25%

Current tax (282) (2) (14000%)

Deferred tax 92 (19) 584%

Profit after tax 486 57 753%

HEPS 19.4 2.3 743%

Chrome Ore Revenue

• Driven by higher prices and volumes but partially offset by

stronger Rand


Strengthening of the balance sheet enables

greater flexibility in the future

Inventories

• 59kt increase in finished goods on hand as a result

of production being higher than sales

• Finished goods on hand is about 4 to 5 months of

sales

Key contributors to trade and other receivables:

• Working capital loan reclassified to short-term

liabilities to more accurately reflect the nature

• Reduction in volumes (Q2 2017 vs Q4 2016)

• Strengthening of the Rand at 30 June 2017 vs 31

December 2016

19

As at As at

30 June 31 December

2017 2016

Reviewed Audited

R'000 R'000

Assets

Property, plant and equipment 3 208 474 3 235 204

Deferred tax asset 19 948 19 340

Total non-current assets 3 228 422 3 254 544

Inventories 1 657 033 1 105 437

Current tax asset - 36 395

Trade and other receivables 1 378 710 1 587 280

Cash and cash equivalents 122 573 287 880

Total current assets 3 158 316 3 016 992

Total assets 6 386 738 6 271 536


-

100

200

300

400

500

600

700

800

Opening Expansionary capex Sustaining capex Dividends paid Exchange ratefluctuations

Cash from operatingactivites

Closing

Reconciliation of Net Debt (R’m)

1

141

10021* (464)

409

208

Strong operational cash generation enabled a

significant reduction in net debt levels

20

*includes R20m exchange rate fluctuations, R4m arranging fees and (R3m) net repayment of borrowings as per slide 21


Significant headroom on debt facilities

21

*US Dollar facilities converted at the closing exchange rate of R13.09

R’ m

Merafe and

Venture - Cash

and cash

equivalents*

Working

Capital loan*

Merafe Head

Office debt Total

Opening 263 (309) (363) (409)

Cash from operating

activities 485 (21) - 464

Arranging fees - (4) (4)

Expansionary capex (1) - - (1)

Sustaining capex (141) - - (141)

Dividends paid (100) - - (100)

Net Repayment of

borrowings (364) - 367 3

Exchange rate

fluctuations (20) - - (20)

Closing 122 (330) (0.4) (208)

Facilities 362 403 300 1 065

Utilised - (330) (0.4) (330)

Headroom 362 73 300 735


Outlook

22

05


Outlook

23

• 2017 growth rate of stainless steel production projected to be 1.6%

• 2018 to 2021 growth rate of 4.3% per annum for stainless steel production indicating

strong demand for chrome

• Our strong balance sheet, strong cash flow generation coupled with being a low cost

producer enables us to withstand the volatility in the markets and benefit from future price

increases

• In line with strategy, we are on track to maximise returns to shareholders in the form of

dividends and also explore opportunities to deliver further value


Questions

24

results presentation - merafe resources · • declared interim cash dividend of r 75.3m. ......

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