Merafe Resources Limited · JSE:MRF
Merafe Resources — Non-Deal Roadshow (June 2010)
44 slides from Merafe Resources's roadshow presentation, June 2010
Slide 1: London Roadshow Presentation June 2010
London Roadshow Presentation June 2010
Slide 2: Legal Notice / Disclaimer
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 Resour
Slide 3: Agenda
Agenda 1. Corporate Information 2. Operational Review 3. Market Review 4. Financial Review 5. Industry Outlook 6. Recent Developments 7. Prospects 8. Appendices 3
Slide 4: 1. Corporate Information
1. Corporate Information MERAFE RESOURCES
Slide 5: Largest Ferrochrome Producer in the World
Largest Ferrochrome Producer in the World MERAFE RESOURCES Ticker: MRF 20.5% of EBITDA 79.5% of EBITDA Market Cap* (ZAR): 3.94 billion Share price* (ZAR): 1.60 52 week high (ZAR): 1.94 52 week low (ZAR): 0.91 Xstrata-Merafe Chrome Venture (The Venture) * As at 2 June 2010 Formed 1 July 2004 Second
Slide 6: Experienced Management Team
Experienced Management Team Stuart Elliot CA(SA) - Chief Executive Officer • Has been Merafe’s CFO for the past nine years and was appointed CEO with effect from 1 April 2010 • Has extensive experience in the accounting and corporate finance fields • Worked as an Audit Manager at KPMG and a Senior M
Slide 7: Experienced Management Team
Experienced Management Team Bruce McBride - Commercial Director • Has been with Merafe for the past nine years as Commercial Director • Formerly a Senior Partner at law firm Bell, Dewar and Hall before joining Merafe Resources in 2001 • Specialised in commercial litigation, banking and mining law Dr
Slide 8: Shareholder Structure at End of May 2010
Shareholder Structure at End of May 2010 SA institutional investors 35% (Dec'08 : 42%) Royal Bafokeng 29% ( Dec'08 : 29%) International institutional investors 14% IDC 22% (Dec'08 : 7%) (Dec'08 : 22%) No.1 (mining sector) in Financial Mail’s Top Empowerment Companies Survey for 2009 Top 10 in JS
Slide 9: Merafe Represented at all Levels of the Venture
Merafe Represented at all Levels of the Venture Merafe assets Xstrata assets The Venture Joint Board* EXCO* Treasury* Audit* SHEC* Transformation* Operations* Marketing* * Merafe representation * As of 12 January, 2010 9
Slide 10: 2. Operational Review
2. Operational Review MERAFE RESOURCES
Slide 11: Three Different Technologies provide a Competitive Advantage
Three Different Technologies provide a Competitive Advantage Smelters Capacity Technology Wonderkop 553 ktpa – 6 furnaces *Conventional Rustenburg 430 ktpa – 6 furnaces *Conventional Boshoek 240 ktpa – 2 furnaces Outotec Lydenburg 396 ktpa – 4 furnaces Premus Lion 360 ktpa – 2 furnaces Premus Total
Slide 12: Venture Well Positioned to Manage Higher Energy Tariffs
Venture Well Positioned to Manage Higher Energy Tariffs Xstrata-Merafe anticipated the changes in the South African electricity tariffs and invested in efficiencies: Lion Ferrochrome Bokamoso Specific Energy Consumption (MWh/T) 4.5 4.1 4.0 3.5 3.5 3.0 3.0 2.5 2.3 2.0 Conventional Bokamoso *Part of O
Slide 13: Production Costs – Expectations in 2010
Production Costs – Expectations in 2010 • A 25% increase in electricity costs announced 1 April 2010 • Labour cost increases from 1 July 2010 • General mining inflation on chrome ore • Transport - dependent on oil prices • Royalty tax with effect from 1 March 2010 • Reductant prices under pressure 1
Slide 14: 3. Market Review
3. Market Review MERAFE RESOURCES
Slide 15: Ferrochrome: Overview of the Market in 2009
Ferrochrome: Overview of the Market in 2009 • Unparalleled production cut backs late 2008 / early 2009 • Demand picked up Q2 2009 • Q3 2009 China running at maximum capacity • Rest of world recovering at slower pace • Demand met through increased production and stockpiles • Ferrochrome producers run
Slide 16: Ferrochrome: Overview of the Market: Jan – May 2010
Ferrochrome: Overview of the Market: Jan – May 2010 • December 2009 – China fully stocked, pull back in Chinese demand, January holidays • Ferrochrome price settled at 101USc/lb - Q1 2010 • China demand returns February 2010 • Ferrochrome production matches demand • Ferrochrome stock levels unchange
Slide 17: Ferrochrome Current Operating Capacity: Q1 2010
Ferrochrome Current Operating capacity: Q1 2010 South Africa* 95.6 China 94.7 Kazakhstan** 92.0 Brazil 88.0 Finland 78.5 Turkey 78.4 Russia** 69.0 India 67.5 Zimbabwe 60.8 Others*** 29.3 Sweden 25.0 Total 88.7 0 10 20 30 40 50 60 70 80 90 100 *) after Power Reduction in % **)Generic Production ***)
Slide 18: Global Ferrochrome Production Breakdown
Global Ferrochrome Production Breakdown Forecast Change 2008 2009 2010 10/09 in’000t in ’000t in ’000t in % Brazil 187 113 182 61.0 EU 27 356 161 335 107.8 Russia, Turkey, Albania 531 316 489 55.0 India 750 765 975 27.4 Kazakhstan 955 982 1,076 9.6 South Africa 3,239 2,179 3,527 61.9 Zimbabwe 152 10
Slide 19: Stainless Steel Overview of the Market: Jan – May 2010
Stainless Steel Overview of the Market: Jan – May 2010 • Q1 2010, Chinese stainless steel mills back to full capacity • Q1 2010, Chinese stainless steel production was 2.5mt • Japanese stainless steel mills running at 80% capacity - increased ferritic production • Europe stainless steel mills at 75%
Slide 20: Stainless Steel Capacity Utilisation: Q1 2010
Stainless Steel Capacity Utilisation: Q1 2010 China 100.0 USA 97.6 Taiwan 95.1 South Korea 81.8 India 80.6 Japan 77.4 Brazil 73.1 Europe 69.5 South Africa 68.7 Total 83.8 0 10 20 30 40 50 60 70 80 90 100 Source: Heinz Source: HeinzH.Pariser Pariser(05/2010) in % 20
Slide 21: Global Stainless Steel Production Breakdown
Global Stainless Steel Production Breakdown Forecast Change 2007 2008 2009 2010 10/09 in ’000t in ’000t in ’000t in ’000t in % NAFTA 2,171 1,925 1,618 2,431 50.2 European Union 8,109 7,828 5,974 7,366 23.3 Japan 3,901 3,564 2,607 3,375 29.5 S.Korea/Taiwan/India 5,305 4,458 4,811 5,605 16.5 Others 1,
Slide 22: Venture's Geographical Sales Fairly Match Stainless Steel Production
Venture’s Geographical Sales Fairly Match Geographical Stainless Steel Production Venture’s estimated Estimated Stainless steel Region ferrochrome sales production by region 2010 by region 2010 Asia 52% 59% Europe 36% 23% USA 8% 9% Others 4% 9% Total 100% 100% 22
Slide 23: Chrome Ore Imports – China
Chrome Ore Imports – China • China is expected to import a total of 8.8 Mt of chrome ore in 2010, which is 29% higher than 2009 • Export duty imposed by the Indian Government has curbed chrome ore exports out of India • Industry have ongoing discussions with the DMR to regulate chrome ore exports. T
Slide 24: 4. Financial Review
4. Financial Review MERAFE RESOURCES
Slide 25: Key Financial Highlights
Key Financial Highlights Year ended 31 December 2009 • Revenue down by 34% to R1.8 billion • Full year loss of R152 million equating to a loss of 6c per share • Net financing costs down by 81% • Ferrochrome inventory reduced by 49% • Cash flows from operations of R267 million • Healthy cash balance
Slide 26: Financial Performance over the last Four Years
Financial Performance over the last Four Years Earnings per share 50 42 40 30 Cents 20 10 10 7 -6 0 (10) 2006 2007 2008 2009 2006 2007 2008 2009 Net asset value per share 120 101 95 100 80 59 Cents 60 48 40 20 0 2006 2007 2008 2009 2006 2007 2008 2009 26
Slide 27: Financial Performance over the last Four Years (cont.)
Financial Performance over the last Four Years (cont.) Net (debt) / cash position Dividends R50 50 R million 0 0 0 2006 2007 2008 2009 Dividends 27
Slide 28: New Royalty Tax Effective from March 2010
New Royalty Tax Effective from March 2010 • Royalty tax effective 1 March 2010 and based on chrome ore as the first saleable point • Merafe (“the Venture”) subject to the “Unrefined” formula • Royalty % is: 0.5% + [(EBIT)/(gross sales x 9)] % • Taxable EBIT – can deduct unredeemed capex but not asse
Slide 29: 5. Industry Outlook – 2010
5. Industry Outlook -— 2010 MERAFE RESOURCES
Slide 30: Stainless Steel Outlook
Stainless Steel Outlook Speed bumps in Q3 2010 • Euro crisis – PIIGS • China cooling measures • Raised mortage rates, second home deposits up, raised reserve requirements on banks • China appears to have restocked • Nickel price collapse • Weaking Euro 30
Slide 31: Ferrochrome Outlook
Ferrochrome Outlook • Winter furnace shutdowns – The venture has announced the closure of 10 furnaces for routine maintenance at various times during the next 3 months – Other South African Ferrochrome producers set to follow • Stockpiles still low at 10 –12 weeks • SA ferrochrome producers costs co
Slide 32: High Barriers to Entry in South Africa
High Barriers to Entry in South Africa • Capital cost of building smelters up by over 500% Pre 2008 • Long lead time for critical items needed for construction • Shortage of available quality ore reserves • Shortage of artisans and skilled labour Post 2008 • Escalating production costs • Access to f
Slide 33: 6. Recent Developments
6. Recent Developments MERAFE RESOURCES
Slide 34: UG2 Chrome Contract Signed with Lonmin
UG2 Chrome Contract Signed with Lonmin • The Venture has signed a contract with Lonmin for construction of a Chrome Recovery Plant (CRP) to treat the current tailings from UG2 concentrators at Lonmin’s Marikana operations • The Venture will construct, own and operate the CRP and purchase the chromit
Slide 35: 7. Prospects
7. Prospects MERAFE RESOURCES
Slide 36: Outlook for Ferrochrome Remains Positive
Outlook for Ferrochrome Remains Positive • Ferrochrome stock levels are at historic lows • Transnet Railway workers strike created ferrochrome backlog • Nickel price collapse, Euro weakness, Euro crisis, China cooling off will slow stainless steel production in Q3 2010 • We expect stainless steel de
Slide 37: Appendices
Appendices MERAFE RESOURCES
Slide 38: Abridged Consolidated Statement of Comprehensive Income
Abridged Consolidated Statement of Comprehensive Income As at As at 31 December 2009 31 December 2008 Audited Audited R’000 R’000 Revenue 1,839,169 2,781,304 EBITDA (100,311) 1,611,923 Depreciation (106,189) (77,918) Net financing costs (11,975) (63,983) (Loss)/profit before income tax (218,475) 1,4
Slide 39: Abridged Consolidated Statement of Comprehensive Income (cont.)
Abridged Consolidated Statement of Comprehensive Income (cont.) As at As at 31 December 2009 31 December 2008 Audited Audited R’000 R’000 Income tax income/(expense) 66,150 (442,331) Current tax (1,902) (84,216) Deferred tax 68,052 357,247 Secondary tax on companies - (868) (Loss)/profit and total c
Slide 40: Abridged Consolidated Statement of Financial Position
Abridged Consolidated Statement of Financial Position As at As at 31 December 2009 31 December 2008 Audited Audited R’000 R’000 Total non-current assets 1,949,464 1,861,185 Property, plant and equipment 1,949,464 1,861,185 Total current assets 1,454,435 1,893,165 Trade and other receivables 234,346
Slide 41: Abridged Consolidated Statement of Financial Position (cont.)
Abridged Consolidated Statement of Financial Position (cont.) As at As at 31 December 2009 31 December 2008 Audited Audited R’000 R’000 Total non-current liabilities 782,153 845,136 Loans and borrowings 363,626 366,174 Provision for closure and restoration costs 37,347 29,730 Deferred tax liability
Slide 42: Abridged Consolidated Statement of Cash Flow
Abridged Consolidated Statement of Cash Flow As at As at 31 December 2009 31 December 2008 Audited Audited R’000 R’000 (Loss)/profit before income tax (218,475) 1,470,022 Net interest paid 11,975 52,517 Depreciation 106,189 77,918 Adjusted for non-cash items 3,625 12,485 Adjusted for working capital
Slide 43: Abridged Consolidated Statement of Cash Flow (cont.)
Abridged Consolidated Statement of Cash Flow (cont.) As at As at 31 December 2009 31 December 2008 Audited Audited R’000 R’000 Net acquisition of property, plant and equipment (182,583) (138,262) Cash flows from financing activities (2,548) (114,351) Net (decrease)/increase in cash and cash equivale
Slide 44: Analyst Coverage
Analyst Coverage Tim Clark Deutsche Bank Email : tim.clark@db.com Avishkar Nagaser Macquarie First South Email: avishkar.nagaser@macquarie.com Willem Venter Prescient Securities Email: willie@prescient.co.za Richard Hart Afrifocus Securities Email: richardh@afrifocus.co.za 44