Merafe Resources Limited · JSE:MRF
Merafe Resources — Non-Deal Roadshow (September 2009)
52 slides from Merafe Resources's roadshow presentation, Sep 17, 2009
Slide 1: Merafe Resources Limited
Merafe Resources Limited 16-17th September 2009 London
Slide 2: Legal Notice / Disclaimer
2 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 Reso
Slide 3: Contents
3 Contents 1. Corporate information 2. Operations overview 3. Market review 4. Chrome ore exports 5. Financial overview 6. Eskom update 7. Recent developments 8. Outlook 9. Appendix 1 (6 months results to 30 June 2009)
Slide 4: 1. Corporate information
1. Corporate information
Slide 5: Corporate Structure
5 Corporate Structure 20.5% 79.5% of of EBITDA EBITDA Xstrata-Merafe Chrome Venture Formed 1 July 2004 Largest ferrochrome producer in the world Opportunity to invest directly into Xstrata’s ferrochrome business
Slide 6: Share price information
6 Share price information ZAR Market capitalisation* 3.96bn (GBP 314m) Share price* 1.61 12 month high 2.50 12 month low 0.55 Shares outstanding 2.46 billion shares *As at 10 September 2009
Slide 7: Merafe's share price performance over the past year
7 Merafe’s share price performance over the past year Merafe’s share price performance relative to: • FTSE/JSE Mining Index • FTSE/JSE General Mining Index Source: Datastream
Slide 8: Shareholder analysis
8 Shareholder analysis Shareholders at end of August 2009 SA 38% Royal Bafokeng (Dec'08 : 42%) 29% ( Dec'08 : 29%) Offshore 11% IDC 22% (Dec'08 : 7%) (Dec'08 : 22%)
Slide 9: Xstrata-Merafe, the world's largest ferrochrome producer
9 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 10: 2. Operations overview
2. Operations overview
Slide 11: Operations overview: Smelters capacity
11 Operations overview SMELTERS CAPACITY Wonderkop 553 kt FeCr - 6 furnaces (Conventional) Rustenburg 430 kt FeCr - 6 furnaces (Conventional) Boshoek 240 kt FeCr – 2 furnaces (Outokumpu) Lydenburg 396 kt FeCr - 4 furnaces (Premus) Lion 360 kt FeCr - 2 furnaces (Premus) Total • 1 979 kt in production
Slide 12: Initiatives by the Venture to contain costs
12 Initiatives by the Venture to contain costs In response to the global economic downturn, the Venture introduced the following initiatives to contain costs: • Freezing all new appointments and promotions • Reducing fixed term contract employees • Reducing the use of contractors • Limiting maintena
Slide 13: 3. Market review
3. Market review s oa = ¢ ‘* i oh “a “ - "2 we « ae wi “s Py 4 + CA Cap age hs
Slide 14: Crude stainless steel production (estimate for 2009)
14 Crude stainless steel production (estimate for 2009) 2007 2008 2008 /2007 2009 2009 /2008 ‘000 t ‘000 t % ‘000 t % (estimate) NAFTA 2,171 1,925 -11.3% 1,602 -16.8% European Union 8,109 7,822 -3.5% 6,288 -19.6% Japan 3,901 3,564 -8.6% 2,079 -41.7% S. Korea / Taiwan / India 5,305 4,458 -16.% 4,595
Slide 15: Stainless Steel Melting Capacity Utilisation 1st HY 2009
15 Stainless Steel Melting Capacity Utilisation 1st HY 2009 China 100.0 South Africa 82.1 India 78.7 Brazil 73.9 Taiwan 63.5 South Korea 60.0 USA 53.3 Japan 50.7 Europe 50.5 Total 71.1 0 20 40 60 80 100 in % Source: Heinz Pariser
Slide 16: Crude stainless steel production – EU & China
16 Crude stainless steel production – European Union (EU) & China 3,000 2,500 Quarterly Production in ´000 t 2,000 1,500 EU 1,000 500 China 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Heinz Pariser
Slide 17: Regional ferrochrome demand
17 Regional ferrochrome demand 2007 2008 2008/2007 2009 2009/2008 ‘000 t ‘000 t % ‘000 t % (estimate) NAFTA 455 502 10.3% 299 -40.4% European Union 2,080 1,993 -4.2% 1,269 -36.3% Japan 866 768 -11.4% 515 -33% S. Korea/Taiwan/India 1,326 890 -32.9% 958 7.6% Others 709 628 -11.4% 477 -24% China 2,577
Slide 18: Charge/High carbon ferrochrome production
18 Charge/High carbon ferrochrome production 2007 2008 2008/2007 2009 2009/2008 ‘000 t ‘000 t % ‘000 t % (estimate) Brazil 164 187 14% 172 -8% European Union 366 351 -4.1% 117 -66.7% Russia, Turkey, Albania 406 337 17% 309 -8.3% India 820 750 -8.5% 765 2% Kazakhstan 1,070 955 -10.7% 874 -8.5% South
Slide 19: Venture's sales by region for the eight months to August 2009
19 Venture’s sales by region for the eight months to August’09 Sales by region Other 7% (2008: 8%) Europe 26% (2008: 40%) USA 5% Asia 62% (2008: 12%) (2008: 40%)
Slide 20: Stainless substitution trigger – Nickel bearing stainless steel
20 Stainless substitution trigger – Nickel bearing stainless steel Ratios of: Ferritics 23.8 22.7 22.0 22.6 23.0 23.4 23.5 26.2 25.1 23.5 CrMn 3.6 4.7 5.0 7.1 10.2 11.6 11.0 14.6 15.3 15.6 50 80.0 45 LME Ni Price in ´000 US$/t 40 74.0 SS Austenitic Ratio Austenitic Ratio in % 35 30 68.0 25 20 62.0 1
Slide 21: Austenitic Stainless Grades 304 – price components
21 Austenitic Stainless Grades 304 – price components Price Ratio Intrinsic Cr Value of Intrinsic Ni Value of Effective Price Effective Price in % 2000 7.4% 22.4% 2001 7.2% 18.0% 2002 6.7% 16.6% 2003 7.6% 18.8% 2004 8.6% 26.8% 2005 9.5% 30.5% 2006 6.7% 33.9% 2007 6.7% 61.4% 2008 16.3% 34.3% 2009 (Q1
Slide 22: Ratio of Nickel & Chrome in Effective Stainless Prices
Ratio of Nickel (Ni) & Chrome (Cr) in Effective 22 Stainless Prices Ni - Stabilises Austenitic Grade 304 (18% Cr, 8% Ni) Microstructure at Room Temperature => 300 Series 100 Intrinsic Ratio of Effective Price, in % Basis: Effective German trader prices, 304 grade 90 - Enhances anti-corrosion propert
Slide 23: Charge Chrome price for the last four years
US $/lb 0.5 1.5 2.5 0 1 2 Q1'06 0.75 Q2'06 0.82 Q3'06 1 Q4'06 1 Q1'07 1.21 Q2'07 1.92 Q3'07 2.05 Q4'07 1.85 Q1'08 1.21 Q2'08 1.92 Q3'08 2.05 Charge Chrome price for the last four years Q4'08 1.85 European benchmark ferrochrome prices Q1'09 0.79 Q2'09 0.69 Q3'09 0.89 23
Slide 24: 4. Chrome ore exports
4. Chrome ore exports
Slide 25: Chrome ore exports to China
25 Chrome ore exports to China Country 2009 2008 % Change Y-t-D to July Y-t-D to July 2009/2008 (Y-t-D to July) in kt US$/t in kt US$/t Volume Price Chrome Ores & Concentrates India 269.1 289 364.9 531 -26.2% -45.6% South Africa 1,401.2 164 1,529.3 344 -8.4% -52.4% Turkey 477.6 210 667.9 440 -28.5%
Slide 26: 5. Financial overview
5. Financial overview
Slide 27: Key features for the six months ended 30 June 2009
27 Key features for the six months ended 30 June 2009 Revenue down by 49% to R824 million Net financing costs down by 96% Headline loss of R84 million equating to a loss of 3c per share Cash flows from operations of R144 million Strong cash balance of R466 million Ferrochrome inventory r
Slide 28: Summary of cash flows for the six months to June 2009
28 Summary of cash flows for the six months to 30 June 2009 (no cash burn) R’m Opening cash balance 1 January 2009 540 Cash flows after interest from operations 142* Taxation paid (accrual 31 Dec 2008) (88) Capital expenditure (84) Forex loss on US$ cash held (44) Closing cash balance 30 June 2009 4
Slide 29: Charge Chrome annual average prices
29 Charge Chrome annual average prices European benchmark ferrochrome prices 2 1.76 1.8 1.6 1.4 1.2 US $/lb 1 0.89 0.79 0.8 0.71 0.6 0.4 0.2 0 2006 2007 2008 2009 2009 – represents first three quarters of 2009
Slide 30: Financial performance over the last three years
30 Financial performance over the last three years Revenue 3,000 2,781 2,500 2,000 1,656 ZARm 1,500 1,030 1,000 824 500 0 2006 2007 2008 Jun-09 6 months Revenue EBITDA 2,000 1,612 1,500 1,000 ZARm 465 500 179 -75 0 2006 2007 2008 Jun-09 (500) 6 months EBITDA
Slide 31: Financial performance over the last three years (cont.)
31 Financial performance over the last three years (cont.) EBITDA and margin evolution 6 months Net profit after tax 1,200 1,028 1,000 800 600 ZARm 400 240 160 200 -84 0 2006 2007 2008 Jun-09 (200) NPAT 6 months
Slide 32: Financial performance over the last three years (cont.)
32 Financial performance over the last three years (cont.) Earnings per share 50 42 40 Cents 30 20 10 7 10 -3 0 (10) 2006 2007 2008 Jun-09 6 months Eps 6 months Net asset value per share 150 101 97 100 Cents 48 59 50 0 2006 2007 2008 Jun-09 NAV per share 6 months
Slide 33: Financial performance over the last three years (cont.)
33 Financial performance over the last three years (cont.) Net (debt) / cash position 400 173 200 100 0 2006 2007 2008 Jun-09 (200) (400) (600) (800) (801) (787) (1,000) Net (debt) Net cash
Slide 34: Working capital requirements in second half of 2009
34 Working capital requirements in second half of 2009 Expect cash to be “locked-up” in working capital for the second half of 2009 This is due to the ramp-up in ferrochrome production Typical working capital cycle 5-6 months Mining of chrome ore Ferrochrome smelting Transport (road/rail, shippi
Slide 35: Production costs
35 Production costs • Despite improved efficiencies, production costs continue to be a challenge • Cost increases to 30 June 2009 are mainly attributable to: an announced 27% increase in electricity prices from 1 July 2008 an average 64% increase in reductant prices (lag effect) double digit l
Slide 36: 6. Eskom update
6. Eskom update s oa = ¢ ‘* i oh “a “ - "2 we « ae wi “s Py 4 + CA Cap age hs
Slide 37: Update on the power situation (Eskom)
37 Update on the power situation (Eskom) • During the past 18 months, there has been a 4% decline in electricity demand • Electricity demand is rebounding fast with 5% growth expected during 2009 (mainly on alloy restarts) with 2-3% growth expected thereafter • From Eskom’s lows of January/February
Slide 38: 7. Recent developments
7. Recent developments
Slide 39: Xstrata-Merafe production capacity utilisation
39 Xstrata-Merafe production capacity utilisation • Global economic conditions necessitated the following actions by the Venture: 6 furnaces temporarily suspended in November 2008 a further 5 furnaces suspended in December 2008 6 further furnaces suspended in January 2009 total suspended fur
Slide 40: Charge / HC FeCr Price vs. Capacity Utilisation
40 Charge / HC FeCr Price vs. Capacity Utilisation 100.0 350 90.0 300 80.0 250 Forecast in US$ c / lb 70.0 200 in % Capacity Utilization in % 60.0 150 Charge / HC FeCr Prices US$ c / lb 50.0 100 40.0 50 30.0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2008 2009 2009 HY1 HY2 HY1 HY2 Capacity
Slide 41: Points of caution
41 Points of caution Some of the immediate concerns to the Company are as follows: • Risk of ferrochrome producers ramping up too quickly and possibly oversupplying the market • Over reliance on Chinese stainless steel production with the rest of the world recovering slowly • A short pull back in Ch
Slide 42: Barriers to entry
42 Barriers to entry Low barriers to entry in South Africa, a thing of the past: • Capital cost of building smelters up by over 500% • Access to funding (debt and equity markets) • Long lead time for critical items needed for construction • Power supply - when will power be available for new project
Slide 43: 8. Outlook
8. Outlook he ewe we « aa 43 is ave i
Slide 44: Outlook
44 Outlook • The recovery of global stainless steel production is likely to continue into the third and fourth quarter of 2009 on the back of real demand and restocking • Demand has mainly come from Asia but positive signs are also coming out of Germany • Global ferrochrome stockpiles have reduced s
Slide 45: Outlook (cont.)
45 Outlook (cont.) • The retention of the Venture’s skilled labour force has proved to be very beneficial now that there are signs of a market upturn • The Venture has increased production to 85% of annual operating capacity • Strong balance sheet with cash on hand of R466 million
Slide 46: Charge chrome price development
46 Charge chrome price development 2.50 Realistic Price Forecast (in 2008 US$) 2.00 1.50 in US$ / lb 1.00 0.50 Nominal Prices 0.00 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: Heinz Pariser
Slide 47: www.meraferesources.co.za
www.meraferesources.co.za
Slide 48: Appendix 1 – 6 months results to 30 June 2009
Appendix 1 – 6 months results to 30 June 2009
Slide 49: Group condensed statement of comprehensive income
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME Six months Six months ended ended 30 June 30 June 2009 2008 Reviewed Reviewed R'000 R'000 Revenue 824 081 1627 610 EBITDA (74 737) $a3 601 Depreciation (50 507) (28 157) Net financing costs (1 145) (28 087) (Loss)/profit before taxation (126 389) 837
Slide 50: Group condensed statement of financial position
GROUP CONDENSED STATEMENT OF FINANCIAL POSITION As at Asat 30 June 31 December 2009 2008 Reviewed Audited R000 R'0coo Assets Non-current assets 1918 383 1861 185 Property, plant and equipment [ 1 918 3383 | [ 1861 185 | Current assets 1614782 1893 165 Inventories 798 304 1 067 153 Trade and other re
Slide 51: Group condensed statement of cash flows
GROUP CONDENSED STATEMENT OF CASH FLOWS Six months ‘Six months ended ended 30 June 30 June 2009 2008 Reviewed Reviewed R’000 RCo before taxation {126 389) 837 347 Interest paid 20 874 29 124 Interest received {19 729) (1.027) Depreciation 50 S07 28 157 Adjusted for non-cash items 376 20529 Adjusted
Slide 52: Group statement of changes in equity
GROUP STATEMENT OF CHANGES IN EQUITY Six months Six months ended ended W June 30 June 2009 2008 Reviewed Reviewed R’000 R'000 Share capital 24 593 24 593 Balance at the beginning of the period 24593 24 404 New shares issued during the period - Ec) Share premium 1 244 072 1 244 O72 Balanos at the beg
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