Merafe Resources Limited · JSE:MRF
Merafe Resources — H1 2020 Earnings Presentation
29 slides from Merafe Resources's earnings presentation, Jun 30, 2020
Slide 1: Interim Results presentation for the six months ended 30 June 2020
Interim Results presentation for the six months ended 30 June 2020 MERAFE RESOURCES 1 RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2020
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: Agenda
Agenda 1. KEY FEATURES 2. MARKET REVIEW 3. OPERATIONAL REVIEW 4. FINANCIAL REVIEW 5. DIVIDEND 6. OUTLOOK MERAFE RESOURCES 3 RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2020
Slide 4: Key features
MERAFE RESOURCES 4 RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2020
Slide 5: Lackluster performance reflecting difficult market conditions
Lackluster performance reflecting difficult market conditions HEALTH AND SAFETY OPERATIONAL • TRIFR up by 39.4% (from December 2019) • Lower ferrochrome and chrome ore production • COVID-19 protocols introduced: impacted by COVID-19 • Screening and testing • Costs under pressures especially from ele
Slide 6: Market review
MERAFE RESOURCES 6 RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2020
Slide 7: 2020 prices under pressure
2020 prices under pressure UG2 Merchant prices Ferrochrome Merchant prices 49% - 70% European benchmark ferrochrome price (USD/t) (USc/lb) (USc/lb) 300 120 150 250 100 120 200 80 90 150 60 60 100 40 30 50 20 0 0 0 Oct Jan Jan Oct Oct Oct Sep Sep Q4 Jul Jul Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Jan Apr
Slide 8: China's market dominance entrenched
China’s market dominance entrenched Global stainless steel production (%) Global ferrochrome demand (%) 1.1 1.3 0.3 0.3 4.5 5.2 1.0 1.2 3.1 0.6 0.7 3.7 0.3 0.3 1.3 1.5 H1 H1 H1 H1 2020 2019 2020 2019 13.5 15.0 4.3 4.0 USA Western Europe Japan China Other Source for all charts: CRU MERAFE RESOURCES 8
Slide 9: Decline in stainless steel production and ferrochrome demand
Decline in stainless steel production and ferrochrome demand Global stainless steel production (mt) Global ferrochrome demand (mt) 30 8.0 26.3 26.9 7.0 6.8 23.5 6.2 5.2 5.2 1.2 6.0 1.2 4.5 1.0 20 4.0 14.6 16.0 4.6 13.5 4.3 4.0 10 2.0 1.5 1.5 1.3 0.3 3.7 0.3 0.3 3.0 3.1 0.7 0.6 0.6 0 1.3 1.2 1.1 - 0.
Slide 10: Ferrochrome production responds to demand; ore imports into China also decreased
Ferrochrome production responds to demand; Ore imports into China also decreased Global ferrochrome production (mt) Chrome ore imports into China (mt) 16 10.0 14.0 8.5 13.6 0.9 12.6 1.0 0.7 8.0 7.4 0.7 12 0.7 0.8 0.3 6.9 1.3 0.6 0.4 1.3 0.8 0.2 1.4 1.2 0.3 0.6 1.3 6.0 0.2 1.5 0.5 0.3 0.1 0.1 8 3.6 3
Slide 11: Operational review
MERAFE RESOURCES 11 RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2020
Slide 12: COVID-19 impact
COVID-19 impact • Slowdown in global economy: negative growth in demand for SS, FeCr and Cr • PSV operations scaled down: full year production planned at 50% - 60% of installed capacity • Increased standing charges • Investment in health protocols • Cash preservation a key focus area. Includes reduc
Slide 13: Employees health & safety a focus point over this period
Employees health & safety a focus point over this period Total Recordable Injury Frequency Rate (TRIFR) 4 • No fatalities • TRIFR increased to 3.57 from 2.56 in 3 December 2019 • Safety of our employees remains a critical focus 2 area with the goal of achieving zero harm • Safety campaigns and progr
Slide 14: Production cutbacks
Production cutbacks Ferrochrome production (kt) 500 • Ferrochrome production reduced to 120kt for the period 400 - Installed capacity utilisation of 50% 300 • Response to South Africa’s nationwide lockdown to assist contain the spread of COVID-19 200 • Cutbacks also influenced by market conditions •
Slide 15: Cost control guards competitiveness
Cost control guards competitiveness Breakdown of C3 production costs 17% • Total production costs per tonne increased by 8.4% 34% (from December 2019), influenced by: FY 15% - Inflation 2019 - Increase in electricity prices, effective 1 April 2020 20% 14% - Lower production volumes 23% • Costs incre
Slide 16: Financial review
MERAFE RESOURCES 16 RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2020
Slide 17: Revenue
Revenue Decrease in revenue from prior period • Ferrochrome revenue decreased by 16% to R2.388 billion from prior period • Chrome ore revenue decreased by 16% to R333 million from prior period • Sales volumes markedly impacted by the COVID-19 lockdowns and weaker demand • Lower ferrochrome and chrom
Slide 18: Earnings
Earnings • Headline earnings per share of 1.1c for the six months • Key contributors to the loss were sales prices and volumes HEPS & Basic EPS (cents) 20 16.9 16.9 10.3 10.3 6.6 6.6 1,1 0 (8.4) (20) (40) (38.3) (60) (60.8) (80) H1 2018 H2 2018 H1 2019 H2 2019 H1 2020 HEPS Basic EPS MERAFE RESOURCES
Slide 19: EBITDA under pressure
EBITDA under pressure Reconciliation of EBITDA from the Venture: H1 2020 vs H1 2019 (%) 120 100 (139) 92 (46) 80 5 (3) (2) 38 40 110 (27) 0 (52) (40) (80) (120) EBITDA Revenue Revenue prices Cost Inflation Foreign Standing Head office Net interest Other EBITDA H1 2019 volumes volumes exchange charge
Slide 20: EBITDA reconciliation to loss
EBITDA reconciliation to loss Merafe’s EBITDA reconciliation to loss after tax (R’m) 300 171 (13) (101) (1 340) (961) 0 (300) (600) (900) 323 (1 200) 4 (5) (1 500) Merafe's share Corporate costs Depreciation Impairment Net financing Current Deferred Loss of PSV EBITDA and amortisation income tax tax
Slide 21: Financial performance overview
Financial performance overview H1 2020 H1 2019 H2 2019 Ferrochrome revenue R’m R’m R’m • Driven by lower prices and sales volumes Ferrochrome revenue 2 005 2 391 2 064 Chrome ore revenue Chrome ore revenue 333 397 513 • Driven by lower prices and sales volumes Other revenue – – 15 Foreign exchange g
Slide 22: Financial position influenced by working capital movements
Financial position influenced by working capital movements As at As at Inventories 30 Jun 2020 31 Dec 2019 Decrease due to: R’000 R’000 • Inventory drawdown for sales. Closing FeCr finished Current assets goods of 99kt represent 3-4 months sales Inventories 1 641 137 2 008 799 Trade and other receiv
Slide 23: Reconciliation of net cash (R'000)
Reconciliation of net cash (R’000) Reconciliation of net cash (R’000) 600 000 163 799 (6 172) (95 883) (100 428) 400 000 354 181 (34 543) (2 501) (15 114) 263 339 200 000 0 Opening Cash from Expansionary Sustaining Dividend Investment Repayment of Foreign Closing cash* operating capex capex in assoc
Slide 24: Significant headroom on facilities
Significant headroom on facilities Venture Unicorn Merafe Merafe (Merafe’s share) (Merafe’s share) head office total 1. Merafe's 20.5% of the Venture’s As at 30 June 2020 R’m R’m R’m R’m increased $175 million overdraft Closing cash * 197 1 65 263 facilities 2. Merafe's 20.5% of the Venture's $100 m
Slide 25: Dividend
MERAFE RESOURCES 25 RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2020
Slide 26: Dividend
Dividend • The Board has decided not to declare an interim ordinary dividend considering significant market uncertainty • A final dividend will be considered based on the 31 December 2020 year end results MERAFE RESOURCES 26 RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2020
Slide 27: Outlook
MERAFE RESOURCES 27 RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2020
Slide 28: Outlook
Outlook • COVID-19 has disrupted economies globally • Our business has supported government initiatives to curb the spread of the pandemic • There are signs of a recovery which is expected to be slow • Focus continues to be on - Efficient operations - Cash preservation - Cost control - Efficient cap
Slide 29: MERAFE RESOURCES RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2020
MERAFE RESOURCES 29 RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 JUNE 2020