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 The information contained herein shall not be published, rewritten for broadcast or publication or redistributed in any medium without prior written consent from Merafe Resources.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.
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Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
KEY AGENDA
1. Key features
2. Operational review
3. Market review
4. Financial review
5. Outlook
Annexures
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Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Key features
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Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Key features
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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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Operational review
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Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Operational review
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– 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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Market review
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Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Global market review (H1 2016/H1 2015)
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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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Ferrochrome market review
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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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Chrome ore imports into China
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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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Financial review
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Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Key financial features
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• 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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Revenue
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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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Production costs* contained
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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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Balance sheet
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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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Balance sheet (continued)
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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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Facilities
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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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Outlook
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Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Conclusion
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• 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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Annexures
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Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
China chrome ore import prices
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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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Ferrochrome supply and demand balance
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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
Merafe Resources Ltd | Results presentation for six months ended 30 June 2016
Ferrochrome prices differ from region to
region
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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)