Slide 1: Results Presentation for the Year Ended 31 December 2016
RESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2016 Presented by Zanele Matlala & Kajal Bissessor
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 Resource
Slide 3: Key Agenda
Key Agenda Introduction 01. Year in review 02. Operational review 03. Market review 04. Financial review 05. Outlook and dividends Annexures 3 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016
Slide 4: Introduction
Introduction • Significant volatility in commodity prices • Currency fluctuations • Chinese economic growth 4 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016
Slide 5: Year in review
01 Year in review 5 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016
Slide 6: 2016 year in review
2016 year in review Operational Safety • Record ferrochrome production of 393kt • Sadly one fatality • Cost increases contained below • TRIFR of 4.15 inflation Market Financial • Global stainless steel production • Revenue up by 29% growth of 8.8% • HEPS up by 53% • Global ferrochrome demand growth
Slide 7: Operational review
02 Operational review 7 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016
Slide 8: Operational review
Operational review • Increase of 4% in ferrochrome production - Project Lion II - Timing of refurbishments • Safety - Sadly one fatality - TRIFR of 4.15 • Electricity - Supply - Pricing • Wage negotiations 8 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016
Slide 9: Production costs well managed and controlled
Production costs well managed and controlled • Well below inflation increase in total Rand production costs per tonne • Key contributors – Above inflation increase in labour and electricity – Weaker Rand impact on imported reductants – Higher UG2 input costs + Lion II + Various cost saving initiativ
Slide 10: Market review
03 Market review 10 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016
Slide 11: Stainless steel production
Stainless steel production Sales • Global production – 8.8% growth – China 13.3% – Europe 1.8% – India 6.6% – USA 6.7% • Strong performances in various end use sectors – Electro & Electronics – Motor Vehicles – Machinery and equipment – Basic metals 11 Merafe Resources Ltd | Results presentation for
Slide 12: Ferrochrome demand and production
Ferrochrome demand and production Global ferrochrome demand • Global demand - 7.6% year-on-year growth • Chinese demand - 9.4% growth • Growth in other regions – EU, NAFTA Ferrochrome pricing • Q1 prices decreased to lowest levels • Q2 to Q4 – recovery in prices Ferrochrome production • Global produ
Slide 13: Chrome ore market
Chrome ore market Chrome ore imports into China • 1.7% increase to 10.6mt • South Africa – growth of 2.2%, Albania – growth of 1.6%, Iran - growth of 7.2% • Turkey – decline by 20.5%, Oman – decline by 23% Imports into China – SA source • 2016 – 73.3% • 2015 – 72.9% Price developments • Q1 - lowest
Slide 14: Financial review
04 Financial review 14 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016
Slide 15: Key financial features
Key financial features Revenue EBITDA Heps Net debt 29% 39% 53% 38% 25 21.2 20 15 13.9 10.8 10 8.4 5.1 5 0 2012 2013 2014 2015 2016 HEPS (cents) 15 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016
Slide 16: Ferrochrome revenue up by 25%
Ferrochrome revenue up by 25% Net CIF Average Rand/US$ Ferrochrome sales volume ferrochrome price exchange rate Usc/lb 18% 7% 15% 6 000 4 923 5 000 3 946 4 000 3 270 3 005 3 000 2 212 2 000 1 000 - 2012 2013 2014 2015 2016 Ferrochrome revenue (R’m) 16 Merafe Resources Ltd | Results presentation for
Slide 17: Chrome ore revenue up by 61%
Chrome ore revenue up by 61% Chrome ore price Average Rand/US$ Chrome ore sales volume USD/t exchange rate 38% 7% 15% 900 778 800 700 600 492 482 500 400 330 339 300 200 100 0 2012 2013 2014 2015 2016 Chrome ore revenue (R’m) 17 Merafe Resources Ltd | Results presentation for the year ended 31 Decem
Slide 18: EBITDA reconciliation to profit
EBITDA reconciliation to profit 1 400 1 176 1 200 1 000 (30) (12) 800 (330) R'm 600 (59) 532 (147) 400 (65) 200 0 Merafe's 20.5% of Corporate costs Share based Depreciation and Net financing Current tax Deferred tax Profit EBITDA from the payment expense impairment costs expense expense Venture EBIT
Slide 19: Half on half performance
Half on half performance H1 2016 H2 2016 Total 2016 R’m R’m R’m 33% higher price Ferrochrome revenue 2 153 2 770 4 923 60% higher volumes Chrome ore revenue 260 518 778 and 69% higher price Merafe’s 20.5% of PSV EBITDA 275 901 1 176 Increased share based Merafe total payment charge corporate costs (
Slide 20: Key balance sheet items
Key balance sheet items • Inventories – Reduction in finished goods – Production > sales • Trade and other receivables (key contributors) Q4 2015 vs Q4 2016 • Ferrochrome Sales volumes +26% Net CIF price +31% • Chrome ore Sales volumes +228% Prices +73% • Debtors facility (R102m) • Earlier than expe
Slide 21: Cash flow statement
Cash flow statement 600 501 500 400 310 300 263 200 100 Sustaining Expansionary Dividends Decrease in capex capex paid borrowings Other 0 Cash at Cash flows Cash at (12) (13) 1 Jan 2016 from (50) 31 Dec 2016 (100) operating activities (200) (197) (300) (276) (400) Cash movement R‘m 21 Merafe Resourc
Slide 22: Reconciliation of Merafe head-office debt
Reconciliation of Merafe head-office debt 600 559 500 400 363 300 226 200 Voluntary Mandatory Voluntary Voluntary Mandatory prepayment repayment prepayment 100 prepayment repayment on RCF on Term on Term on RCF of Term 4 0 Debt at 1 IFRS Debt at 31 (17) Debt at 3 (100) Jan 2016 adjustment Dec 2016 (
Slide 23: Significant reduction in net debt levels
Significant reduction in net debt levels 2016 2015 Balance Headroom Balance R’m R’m R'm Merafe head-office debt 363 283 559 Net cash (263)* 379* (310)* Debtors facility 309* 112* 411* Total – Net debt 409 774 660 *USD facilities converted at the closing rate of R13.7 (2015: R15.5) 23 Merafe Resource
Slide 24: Outlook and dividends
05 Outlook and dividends 24 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016
Slide 25: Outlook and dividends
Outlook and dividends • Healthy growth rates are expected in stainless steel production in 2017 and 2018 • Reduction in Merafe head-office debt • Dividends - minimum 30% of Headline earnings - special dividends/share buy-backs 25 Merafe Resources Ltd | Results presentation for the year ended 31 Dece
Slide 26: Questions
Questions 26 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016
Slide 27: Annexures
Annexures 27 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016
Slide 28: Global stainless steel production
Global stainless steel production 2013 2014 2015 2016 Change 2017e Change 2018f Change 16/15 17/16 18/17 '000 t '000 t '000 t '000 t in % '000 t in % '000 t in % NAFTA 2 032 2 389 2 345 2 503 6.7% 2 490 -0.5% 2 540 2.0% Brazil 421 425 402 440 9.5% 445 1.1% 452 1.6% European Union 7 142 7 242 7 173 7
Slide 29: Global ferrochrome demand
Global ferrochrome demand 2014 2015 2016 Change 2017e Change 2018f Change 16/15 17/16 18/17 '000 t '000 t '000 t in % '000 t in % '000 t in % NAFTA 706 451 540 19.7% 548 1.5% 564 2.9% European Union 1 546 1 475 1 484 0.6% 1 560 5.1% 1 610 3.2% Japan 757 675 701 3.9% 710 1.3% 711 0.1% South Korea 468
Slide 30: Global ferrochrome production
Global ferrochrome production 2014 2015 2016 Change 2017e Change 2018f Change 16/15 17/16 18/17 '000 t '000 t '000 t in % '000 t in % '000 t in % Brazil 165 137 118 -13.9% 140 18.6% 145 3.6% EU 27 507 542 571 5.4% 588 3.0% 605 2.9% Russia, Turkey, Albania 282 254 241 -5.1% 282 17.0% 306 8.5% India 8
Slide 31: Chrome ore imports into China
Chrome ore imports into China 2014 2015 2016 Change '000 t '000 t '000 t % South Africa 5 748 7 579 7 747 2.2 Turkey 1 280 1 037 825 (20.5) Albania 555 486 493 1.6 Iran 494 392 420 7.2 India 63 23 206 800.1 Pakistan 339 302 281 (6.9) Oman 489 337 258 (23.3) Madagascar 113 170 113 (33.1) Mozambique 2
Slide 32: Production costs: 2015 to 2017
Production costs: 2015 to 2017 C3 Cost ex Works -12% +2% Source: Heinz H. Pariser, Alloy Metals & Steel Market Research 32 Merafe Resources Ltd | Results presentation for the year ended 31 December 2016