annual results presentationmeraferesources.co.za/.../annuals-2019/pdf/presentation.pdfresults...

1MERAFE RESOURCESRESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2019

Annual Results presentationfor the year ended

31 December 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 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 The information contained herein shall not be published, rewritten for broadcast or publication or redistributed in any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.



KEY FEATURES 1

MARKET REVIEW 2

OPERATIONAL REVIEW 3

FINANCIAL REVIEW 4

DIVIDEND 5

OUTLOOK 6

Agenda



Disappointing performance reflecting difficult market conditions

SAFETY OPERATIONAL

• Lower ferrochrome production

• Costs under pressures,

especially from administered prices

MARKET

• Global uncertainty persists dampening market

sentiment

• Stainless steel production holds up

• Chrome supply exceeds demand

• Depressed prices

FINANCIAL

• Regrettably, 1 fatality

• TRIFR improved by 24% year on year

• Revenue down by 4% year on year

• Headline loss per share of 1.8 cents

• Final dividend declared



0

50

100

150

200

250

300

Jun17

Sep17

Dec17

Mar18

Jun18

Sep18

Dec18

Mar19

Jun19

Sep19

Dec19

0

20

40

60

80

100

120

Jun17

Sep17

Dec17

Mar18

Jun18

Sep18

Dec18

Mar19

Jun19

Sep19

Dec19

0

30

60

90

120

150

180

20

17

Q1

20

17

Q2

20

17

Q3

20

17

Q4

20

18

Q1

20

18

Q2

20

18

Q3

20

18

Q4

20

19

Q1

20

19

Q2

20

19

Q3

20

19

Q4

20

20

Q1

2019 prices under pressure

UG2 Merchant prices

(USD/t)

Ferrochrome Merchant prices 49% - 70%

(USc/lb)

European benchmark ferrochrome price

(USc/lb)

Source for all charts: CRU



China’s market dominance entrenched

4,8

13,2

5,6

56,5

19,8

Global stainless steel production (%)

USA Western Europe Japan China Other

Global ferrochrome demand (%)

Source for both charts: CRU

2019

5,5

14,4

6,3

52,1

21,6

2018

3,8

9,0

4,8

64,2

18,2

2019

4,2

9,9

5,5

60,3

20,1

2018


3,0 2,8 2,5

7,4 7,4 6,8

3,2 3,2 2,9

25,8 26,6 29,3

9,211,0 10,3

48,551,1 51,9

0

10

20

30

40

50

60

FY 2017 FY 2018 FY 2019

Global stainless steel production (mt)

Growth in stainless steel production and ferrochrome demand


0,6 0,6 0,5

1,3 1,3 1,2

0,7 0,7 0,7

7,5 8,0 8,8

2,12,7

2,512,2

13,313,7

0

2

4

6

8

10

12

14

FY 2017 FY 2018 FY 2019

Global ferrochrome demand (mt)

USA Western Europe Japan China Other


Ferrochrome production responded to demand;Ore imports into China also increased

4,9 5,3 6,0

3,73,9

3,6

1,31,3

1,41,31,3

1,30,60,7

0,70,9

1,00,912,6

13,614,0

0

4

8

12

16

FY 2017 FY 2018 FY 2019

Global ferrochrome production (mt)

10,0 10,912,6

1,11,0

0,9

0,50,3

0,3

0,40,7

0,71,8

1,4

1,513,9 14,3

15,9

0

3

6

9

12

15

18

FY 2017 FY 2018 FY 2019

Chrome ore imports into China (mt)

China South Africa Kazakhstan

India Europe Other

South Africa Turkey Albania

Zimbabwe Other



The safety of all employees remains paramount

• Regrettably one fatality during 2019

• TRIFR improved to 2.56 from 3.39 in December 2018

• Safety of our employees remains a critical focus

area with the goal of achieving zero harm

• Education and good decision making are key to

building a sustainable safety culture

• Continued focus on safety campaigns and programs

through the period

• Subscribe to the CEOs-led Minerals Council of SA

initiative – Khumbul’ekhaya

4,1

7

4,1

5

3,7

4

3,3

9

2,5

6

0

1

2

3

4

5

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Total Recordable Injury Frequency Rate (TRIFR)


Several operational disruptions

• Negative growth of 9% in ferrochrome production

to 371kt

• Electricity curtailments disrupted operations

• Community protests led to production stoppage

• Cut-backs due to market conditions

37

7 39

3

39

5 40

7

37

1

0

100

200

300

400

500

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Ferrochrome production (kt)


Total production costs per tonne increased by 12%, influenced by:

• Increase in reductants prices

• Increase in labour costs, effective 1 July 2019

• Increase in electricity prices, effective 1 April 2019

• Lower production tonnages

The following helped keep costs increasesunder control:

• Reduced winter production

• Decrease in UG2 prices

• Lower royalty taxes, arising from lower chrome ore prices

• Ongoing operational cost control initiatives

Post year end, S189 notice issued at Rustenburg smelter employees

The Venture remains the lowest cost producer in South Africa. Industry developments and market dynamics have however impacted its cost position globally

Costs continue to rise


Revenue

4% decrease in revenue from prior year to R5.379bn

• Ferrochrome revenue decreased by 8% to R4.455bn from prior year

• Chrome ore revenue increased by 22% to R910m from prior year

• A significant increase in chrome ore tonnes sold and a marginal decrease in ferrochrome volumes sold

• Lower ferrochrome and chrome ore prices. Weaker average R/US$ exchange rate

4 4

55

4 9

23

5 1

63

4 8

49

0

2 000

4 000

6 000

FY 2016 FY 2017 FY 2018 FY 2019

Ferrochrome revenue (R’m)

91

0

77

8

72

6

74

7

0

200

400

600

800

1 000

FY 2016 FY 2017 FY 2018 FY 2019

Chrome ore revenue (R’m)


Earnings

• Headline loss per share of 1.8c for the year

• Commodity prices key contributor to the loss

8

14

21

36

27

(2)

(10)

0

10

20

30

40

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

HEPS full year (cents)


EBITDA under pressure

10

0%

31

%

8%

16

%

2%

1%

(65

%)

(16

%)

(9%

)

(5%

)

(1%

)

0%

20%

40%

60%

80%

100%

120%

EBITDA 2018 Volume - CrOre

Revenue prices Inflation Inventory NRVadj

Foreignexchange

Standingcharges

Carbon tax Royalty tax Other EBITDA 2019

Reconciliation EBITDA from Venture: 2018 vs 2019


EBITDA reconciliation to profit

392 (467)

(1 846)

(3)

(2 000)

(1 500)

(1 000)

(500)

0

500

Merafe's share ofEBITDA @20.5%

Depreciation Impairment Net financeincome

Currenttax

Deferredtax

Net lossafter tax

EBITDA reconciliation to profit (R’m)

55

508

(1 362)


Focus remains on driving efficiencies to counter negative macro influences

Ferrochrome revenue• Driven by lower prices and sales volumes

Chrome ore revenue• Driven by lower prices and higher sales volumes

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

Operating expenses• Production cost per tonne increased by 12%

• Key factors were:

- Standing charges, inventory impairment, reductants, labour & power costs

Merafe corporate costs• Lower due to no short term incentives

Depreciation & impairment• Due to capex for the year

• Impairment loss of R1.85bn recognised

Current tax• Decrease due to lower taxable income

Deferred tax• Increase due to impairment losses

2019R’m

2018R’m Variance

Ferrochrome revenue 4 455 4 849 (8%)

Chrome ore revenue 910 747 22%

Other revenue 15 11 36%

Foreign exchange (loss)/gain (14) 141 nmf

Operating expense (4 937) (4 357) (13%)

Merafe’s share of PSV EBITDA 428 1 390 (69%)

Merafe’s corporate costs (36) (44) 18%

Merafe’s EBITDA 392 1 346 (71%)

Depreciation & impairment (2 314) (406) (463%)

Net financing income 55 4 1 275%

Current tax expense (3) (291) 99%

Deferred tax credit 508 30 1 593%

(Loss)/profit after tax (1 362) 683 nmf

Headline (loss)/earnings per share (cents)

(1.8) 27.2 nmf


Balance sheet weighed on by increased inventory levels

Inventories

Decrease due to:

• NRV adjustment of R133 million for the year

• Closing FeCr finished goods of 131kt represent 4-5 months stock

Trade and other receivables

Decrease due to:

• Strengthening of the Rand against US$

• Lower sales in Q4

Cash and cash equivalents

Increase due to:

• Reduction in working capital levels

• Reduced dividend payment

Total assets

Include:

• Property, plant and equipment which has been impaired by R1.85bn

As at31 Dec 2019

R’m

As at31 Dec 2018

R’m

Current assets

Inventories 2 008 799 2 042 621

Trade and other receivables¹ 675 334 968 998

Current tax asset 18 635 26 368

Cash and cash equivalents 354 181 282 037

Total current assets 3 056 959 3 320 024

Total assets 4 559 293 6 628 552

1. Excludes the derivatives balances which, in prior years, was deducted from this balance


Generation of cash from operations

* Includes bank overdraft

28

0 8

55

35

4 1

81

76

1 0

43

(53

1 4

73

)

(15

0 6

42

)

(4 2

28

)

(1 3

74

)

0

250 000

500 000

750 000

1 000 000

1 250 000

Openingcash *

Cash fromoperating activities

Sustainingcapex

Dividend Repaymentof borrowings

Other Closingcash

Reconciliation of net cash (R’000)


Significant headroom on facilities

1. Merafe's 20.5% of the Venture’s

increased $175 million overdraft

facilities

2. Merafe's 20.5% of the Venture's

$100 million working

3. Unsecured three-year Revolving

Credit Facility

As at 31 December 2019

Venture(Merafe’s share)

R’m

Merafehead office

R’m

MerafetotalR’m

Closing cash 143 211 354

As at 31 December 2019

Cash and overdraft facilities

R’m

Working capital loanR’m

Interest bearing debtR’m

Total(R’m)

Total facilities in place (502)¹ (286)² (300)³ (1 088)

Total facilities utilised - – – -

Headroom (502) (286) (300) (1 088)


• The Board has declared a gross cash final ordinary

dividend of R100m

• Final dividend amounts to 4c per share

• Total dividend for the year is R100m (2018: R351m)

• As a headline loss was generated, dividend based on

availability of excess cash and solvency & liquidity

considerations

Dividend declarations


• Global uncertainty persists

• Modest growth in stainless steel

• No major expansionary projects planned

• Capex budget earmarked for sustaining capex

to maintain asset integrity and meet compliance

requirements

• Balance sheet remains ungeared with facilities

headroom in excess of R1bn

• Focus on

- Cash preservation

- Cost control

- Efficient capital allocation

Outlook

annual results presentationmeraferesources.co.za/.../annuals-2019/pdf/presentation.pdfresults...

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