Merafe Resources Limited · JSE:MRF
Merafe Resources — Merrill Lynch South African Investor-to-Corporate Trip 2008
29 slides from Merafe Resources's conference presentation, Oct 22, 2008
Slide 1: Merrill Lynch South African Investor-to-Corporate Trip
Merrill Lynch South African Investor-to-Corporate Trip 22 October 2008
Slide 2: Disclaimer
2 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
Slide 3: Corporate Structure
3 Corporate Structure 20.5% 79.5% of of EBITD EBITD A A Xstrata-Merafe Chrome Venture Formed 1 July 2004 Largest ferrochrome producer in the world (±20% market share) Opportunity to invest directly into Xstrata’s ferrochrome business
Slide 4: Share price information
4 Share price information ZAR US$ Market capitalisation* 2.7bn 263m Share price* 1.09 0.11 1 year high 4.34 0.43 1 year low 0.97 0.10 Shares outstanding 2.45 billion shares *As at 20 October 2008 US$ amounts based on exchange rate of R10.17:$ at 20 October 2008
Slide 5: Shareholder analysis
5 Shareholder analysis Major shareholders – September 2008 Royal Bafokeng Resources 29% The IDC 22% SA 37% Offshore 12%
Slide 6: Merafe's share price performance relative to Mining Index
Merafe’s share price performance relative to Mining Index 180 The collapse of major 160 international financial 6-Aug-08 insitutions in recent weeks have thrown global markets Interms results: into turmoil 140 Revenue +123% EBITDA +387% EPS +525% 120 Rebased to 100 100 80 13-Oct-08 60 (35%) Q4 Europ
Slide 7: Xstrata-Merafe, the world's largest ferrochrome producer
7 Xstrata-Merafe, the world’s largest ferrochrome producer Chelyabinsk, Russia Vargön Alloys, Sweden ASA Metals, South Africa 2% 2% 2% Ferbasa, Brazil 2% Zimasco, Zimbabwe 2% Others 15% Outokumpu, Finland 3% Assmang Chrome, South Xstrata Merafe PSV Africa 20% 3% Hernic Ferrochrome, South Africa 5% S
Slide 8: Operations overview
8 Operations overview SMELTERS CAPACITY Wonderkop 520 kt FeCr - 6 furnaces (Conventional) Rustenburg 440 kt FeCr - 6 furnaces (Conventional) Boshoek 240 kt FeCr – 2 furnaces (Outokumpu) Lydenburg 400 kt FeCr - 4 furnaces (Premus) Lion 360 kt FeCr - 2 furnaces (Premus) Total • 1 960 kt in production
Slide 9: Barriers to entry
9 Barriers to entry Low barriers to entry, a thing of the past: • Capital cost of building smelters have gone up over 500% • Lead time for critical items needed for construction now 3 years • Power supply - when will power be available for new projects? • Shortage of available quality ore reserves •
Slide 10: Production of Charge/HC ferrochrome
10 Production of Charge/HC ferrochrome 2006 2007 in ‘000 t Material Change 2008 Weight 2009 Change in % In ‘000 t in % In ‘000 t 08 / 07 09 / 08 Charge Brazil 141 164 16.3 165 170 0.6 3.0 Finland 243 242 -0.4 240 241 -0.8 0.4 Sweden 88 80 -9.1 86 110 7.5 27.9 South Africa 2,912 3,549 21.9 3,570 3,65
Slide 11: Major capacity changes
11 Major capacity changes 2006 2007 2008 2009 2010 in ‘000 t Material Weight Projected capacity 7,200 7,200 8,250 8,720 9,355 Expansions Sweden - - 30 30 20 Finland - - - - 100 IFM (Ramp-up) - 230 30 - - Tata (Ramp-up) - - 60 90 - Xstrata, Lion II - - - - - ASA - - - - - Samancor - - - - - Assmang -
Slide 12: China chrome ore imports
12 China chrome ore imports 2006 in2007 ‘000 t Material Weight 2008 (1-8) % Change in ‘000 t US$/t in ‘000 t US$/t in ‘000 t US$/t Y-t-D United States 66 122 0 0 759 0.0 Brazil 99 161 106 194 61 412 -9.1 Turkey 741 172 1,083 274 770 459 -1.1 Albania 83 152 230 252 94 412 -48.2 Kazakhstan 144 157 198
Slide 13: Latest developments have not changed the fundamentally strong outlook for commodities
13 Latest developments have not changed the fundamentally strong outlook for commodities China remains the growth point for the stainless steel and ferrochrome industry • The International Monetary Fund has recently (Oct 2008) revised its growth forecasts for China from 9.7% in 2008 to 9.3% in 2009
Slide 14: China's Stainless Steel supply and demand
14 China’s Stainless Steel supply and demand Stainless Steel Supply & Demand Heinz H. Pariser 9,000 8,500 in Mill t Crude Stainless Steel Nickel Price Bubble 8,000 7,500 Destocking 7,000 6,500 Supply 9/11 6,000 Financial 5,500 Crisis 5,000 Demand 4,500 2000 2001 2002 2003 2004 2005 2006 2007 2008e 2
Slide 15: Development Stainless Steel Product Mix
15 Development Stainless Steel Product Mix • Application • Economics • Process 8% Ni, 18% Cr 18% Cr, 0% Ni 18% Cr, 4% Ni, 7.5% Mn Data: Heinz Pariser/CRU
Slide 16: Demand changes by segment 2007/2009 - Japan
16 Demand changes by segment 2007/2009 - Japan Data: Heinz Pariser
Slide 17: Stainless steel applications
17 Stainless steel applications Cold rolled (CR) flat products represent the largest portion of all stainless steel Application % Share of global CR flats consumption Construction 14% Transport 17% Industrial equipment 25% Catering & household products 33% Welded tubes 6% Other 5% Total 100% Data: C
Slide 18: Ferrochrome prices
18 Ferrochrome prices European benchmark ferrochrome prices 2.5 2.05 1.92 1.85 2 US $/lb 1.5 1.21 0.82 1 1 1 0.75 0.5 0 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08
Slide 19: Gearing
19 Gearing R’m Closing balance 30 June 2008 608 Preference shares 75 ABSA (Lion Ferrochrome, Wonderkop & Bokamoso) 350 Xstrata 99 Overdraft 84 Debtors discounting facility 190 Current situation Preference shares 75 ABSA 350 Xstrata 0 Overdraft 0 Debtors discounting facility 190
Slide 20: Production costs are rising for ferrochrome producers
20 Production costs are rising for ferrochrome producers FeCr producers have been hit hard by surging costs • Electricity costs have increased – Eskom has increased tariffs by 27% this year – Expect further increases of between 20-25% p.a. over the next three years • Labour costs – The Venture has s
Slide 21: Average power rates in 2008
21 Average power rates in 2008 Country USc/kWh China 5.1c India 4.9c Japan 4.3c Finland 4.2c Sweden 3.7c Russia 3.2c Brazil 3.2c Zimbabwe 3.0c Iran 2.8c South Africa 2.8c Kazakhstan 1.8c Data: CRU Analysis
Slide 22: Production costs
22 Production costs $1.20/lb
Slide 23: Xstrata-Merafe challenge to contain costs – Lion Ferrochrome
23 Xstrata-Merafe challenge to contain costs – Lion Ferrochrome The Venture anticipated the changes in the South African production environment and invested in efficiencies: 5 4.8 Specific Energy 4.5 Consumption (MWh/T) 4.1 4 3.5 3.5 3 2.5 2.4 2 Premus O utokumpu Conventional DC Arc
Slide 24: Xstrata-Merafe challenge to contain costs – Lion Ferrochrome (cont.)
24 Xstrata-Merafe challenge to contain costs – Lion Ferrochrome (cont.) Comparative resources consumption gives Premus a further edge: 95 Chrome Recovery 70% Coke Consumption 60% 60% 60% 90 90 88 50% 85 Consumption/t 40% % Recovery 80 77 30% 75 20% 20% 70 10% 68 0 65 0% C onventional Outokumpu DC Ar
Slide 25: Bokamoso - improved energy consumption
25 Bokamoso - improved energy consumption Xstrata-Merafe position in regard to the forecast high energy tariffs 4.5 4.1 4.0 3.5 3.5 3.0 3.0 2.5 2.3 2.0 Conventional Bokamoso MWh/tonne Alloy 4.1 3.5 Ore tonne/tonne Alloy 3.0 2.3
Slide 26: Prospects
26 Prospects • China’s urbanisation plans to continue • No new ferrochrome capacity expected from South Africa in the next three years • Ferrochrome prices expected to come under pressure in the short-term but recover based on medium term fundamentals • Strong cash flows being generated by Merafe ar
Slide 27: www.meraferesources.co.za
www.meraferesources.co.za
Slide 28: Appendix
RESOURCES
Slide 29: Merafe Coal
29 Merafe Coal • Vehicle to pursue coal opportunities in South Africa • 50/50 joint venture between Merafe and Sentula Mining Limited • Prospecting of Schoongezicht and Bankfontein coal deposits is underway • These properties have a total target coal resources of approximately 10m tonnes • Both proj
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