Slide 1: Merafe Resources Limited
Merafe Resources Limited September 2008 1
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: Corporate structure
Corporate structure 20.5% of 79.5% of EBITDA EBITDA Xstrata-Merafe Chrome Venture Formed 1 July 2004 • Largest ferrochrome producer in the world (±20% market share) • Second lowest cost ferrochrome producer in the world • Opportunity to invest directly into Xstrata’s ferrochrome business 3
Slide 4: Share information
Share information Market capitalisation US$891 m (ZAR 6.9 bn)* Share price US$0.36 (ZAR 280 cents)* 52-week Price Range: High US$0.56 (ZAR 434 cents) Low US$0.18 (ZAR 136 cents) Shares in issue 2.459 billion shares * Closing price at 29 August 2008 ZAR/US$ R7.73 at 29 August 2008 4
Slide 5: Xstrata-Merafe, the world's largest ferrochrome producer
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% Sam
Slide 6: Operations overview
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 ca
Slide 7: Operational review
MERAFE R EFS.O,U R G Ess
Slide 8: Operational review
Operational review Operations • All 20 furnaces in production during first half of 2008 • Record sales, despite 10% reduction in power consumption • Expected annual sales - approximately 1,500kt • Expect improved efficiencies over time 8
Slide 9: Operational review (cont.) Lion Ferrochrome
Operational review (cont.) Lion Ferrochrome 9
Slide 10: Operational review (cont.) Lion Ferrochrome
Operational review (cont.) Lion Ferrochrome • Improvements carried out during the 2nd quarter of 2008 • Benefits from this plant have already started filtering through the Group • Low-silicon production – key element of competitiveness in the Chinese market • Phase 2 to be timed with Eskom’s power a
Slide 11: Bokamoso pelletising and sintering plant
Operational review (cont.) Bokamoso pelletising and sintering plant 11
Slide 12: Bokamoso
Operational review (cont.) Bokamoso • Mega pelletising and sintering plant with capacity of 1.2 mtpa • Successfully commissioned on time and on budget in the second half of 2007 • Design capacity was exceeded by more than 15% for three consecutive months during the first quarter of 2008 12
Slide 13: Benefits of Bokamoso
Operational review (cont.) Benefits of Bokamoso • Prevents excess fine ore build-up • Improves furnace efficiencies • Increases ferrochrome production • Increases the use of chromite fines from UG2 tailings due to increased agglomeration capacity • Reduces production costs 13
Slide 14: Market review
MERAFE R EFS.O,U R G Ess
Slide 15: Barriers to entry
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 • S
Slide 16: Stainless steel production
Stainless steel production • Stainless steel production has steadily increased since the slowdown seen in the second half of 2007 • Global production of stainless steel for the first half of 2008 is estimated at 15.3 million tonnes, 16% higher than the second six months of 2007 • Fluctuating nickel
Slide 17: Development Stainless Steel
Development Stainless Steel Product Mix 8% Ni, 18% Cr 18% Cr, 0% Ni 18% Cr, 4% Ni, 7.5% Mn Data : Heinz H Pariser/CRU 17
Slide 18: Stainless steel production (cont.)
Stainless steel production (cont.) • Europe and China in third quarter Slow down in Stainless Steel production due to: traditional northern hemisphere summer shutdowns stockists / buyers expecting nickel prices to come down resulting in destocking • China in third quarter Cutbacks in Stainle
Slide 19: Primary Chrome Requirement
Primary Chrome Requirement 2007 / 2008 2007 2008 Change Mill t Mill t in % Crude Stainless Output 28.5 30.4 6.7 Total Stainless Scrap Input 11.5 12.9 11.8 Primary Chrome Requirement 4.2 4.5 7.1 - Stainless Steel 3.2 3.4 6.3 - Alloy Steels & Others 1.0 1.1 10.0 Charge / HC FeCr Equivalent 7.4 7.9 7.1
Slide 20: Ferrochrome prices
Ferrochrome prices Ferrochrome prices 2.5 2.05 2 1.92 1.5 US $/b 1.21 1 1 1 0.82 0.75 0.5 0 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 An increase of 173% from Q1’07 to Q3’08 20
Slide 21: Financial performance
Financial performance 21
Slide 22: Financial highlights for six months to June 2008
Financial highlights for six months to 30 June 2008 • Revenue up 123% to R1,6 billion • EBITDA up 387% to R894 million • Net profit after tax up 571% to R602 million • Earnings per share up 525% to 25 cents • Attributable ferrochrome sales up 8% to 150,500 tonnes • Debt reduced by R200 million • Deb
Slide 23: Group condensed income statement
Group condensed income statement 6 months ended 6 months ended 30 June 2008 30 June 2007 Reviewed Reviewed R’000 R’000 Revenue 1,627,610 729,833 EBITDA 893,601 183,348 Depreciation (28,157) (18,001) Net financing costs (28,097) (31,317) Profit before taxation 837,347 134,030 Normal taxation (799) (1
Slide 24: Group condensed balance sheet
Group condensed balance sheet As at As at 30 June 2008 31 December 2007 Reviewed Audited R’000 R’000 Assets Non-current assets 1,861,780 1,800,793 Property, plant and equipment 1,861,780 1,800,793 Current assets 1,457,380 785,409 Inventories 611,416 496,877 Trade and other receivables 795,257 251,06
Slide 25: Group condensed balance sheet (cont.)
Group condensed balance sheet (cont.) As at As at 30 June 2008 31 December 2007 Reviewed Audited R’000 R’000 Equity and liabilities Capital and reserves 2,049,011 1,438,526 Issued share capital 24,593 24,494 Share premium 1,244,072 1,238,643 Equity-settled share-based payment 10,492 7,993 Retained i
Slide 26: Group condensed balance sheet (cont.)
Group condensed balance sheet (cont.) As at As at 30 June 2008 31 December 2007 Reviewed Audited R’000 R’000 Current liabilities 547,908 629,582 Trade and other payables 388,992 352,340 Current portion of non-current borrowings 75,063 86,305 Bank overdraft 83,853 190,937 Total equity and liabilities
Slide 27: Group condensed cash flow statement
Group condensed cash flow statement 6 months ended 6 months ended 30 June 2008 30 June 2007 Reviewed Reviewed R’000 R’000 Net profit before tax for the period 837,347 134,030 Finance cost 29,124 31,604 Finance income (1,027) (287) Depreciation 28,157 18,001 Adjusted for non-cash items 20,529 17,634
Slide 28: Group condensed cash flow statement (cont.)
Group condensed cash flow statement (cont.) 6 months ended 6 months ended 30 June 2008 30 June 2007 Reviewed Reviewed R’000 R’000 Cash flows from investing activities (89,110) (60,085) Proceeds on disposal of property, plant and equipment 47 - Acquisition of property, plant and equipment - maintenan
Slide 29: Gearing
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 29
Slide 30: Production costs are rising for all FeCr producers
Production costs are rising for all FeCr producers….. FeCr producers have been hit hard by surging costs • Mining/ore costs have increased higher oil prices associated with transporting chrome ore rising % of fines require pelletising • Electricity costs have increased Eskom has increased tari
Slide 31: Production costs (cont.)
Production costs (cont.) $1.30/lb 31
Slide 32: Average power rates in 2008
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 *Including the 13.5% additional increase approved by Nersa on 18 June 2008 Data: CRU Analysis 32
Slide 33: Xstrata-Merafe challenge to contain costs – Lion Ferrochrome
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 33
Slide 34: Xstrata-Merafe challenge to contain costs (cont.)
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 Arc P
Slide 35: Bokamoso - improved energy consumption
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 35
Slide 36: Shareholder analysis
Shareholder analysis Major shareholders – July 2008 Royal Bafokeng Resources 29% The IDC 22% SA 37% Offshore 12% 36
Slide 37: Prospects
MERAFE R EFS.O,U R G Ess
Slide 38: Prospects
Prospects • Supply constraints on SA producers expected to result in a supply deficit during 2008 and into 2009 • Merafe’s attributable ferrochrome sales for 2008 expected to be approximately 300,000 tonnes (8% increase y-o-y) • Ferrochrome prices will remain strong – third quarter prices set at a r
Slide 39: www.meraferesources.co.za
www.meraferesources.co.za 39
Slide 40: Appendices
MERAFE RESOURCES
Slide 41: The role of chrome
The role of chrome • Steel + minimum 12% chrome = Stainless Steel • Chrome makes steel “stainless” • The element that provides resistance to corrosion (“rust”) • No substitute for chrome • 50% Fe : 50% Cr (South African “charge” chrome) 40% Fe : 60% Cr (India and Turkey) 32% Fe : 68% Cr (Kazakhstan)
Slide 42: Chrome ore sales
Chrome ore sales About 23.4 m tonnes of chromite ore produced in 2007. Used in producing countries : 70% (16m tonnes) Exported : 30% ( 7m tonnes) Chrome ore imports into China from Jan ’08 – June 2008 YTD in kt South Africa 1,245 Turkey 549 Oman 395 India 327 Pakistan 230 Philippines 190 Iran 120 Ot
Slide 43: Eskom reserve margin forecasts
Eskom forecasts indicate that their reserve margin will be well below optimum levels until 2014 4% Data: Eskom 43
Slide 44: New capacity
New capacity Assumptions: • No new expansions in South Africa for next 3 years • Growth to come from Kazakhstan, China and India Ferrochrome supply (‘000 tonnes alloy) 2007 2008 2009 2010 2011 2012 SA 3,562 3,616 3,773 3,802 4,317 4,538 Kazakhstan 934 970 1,003 1,047 1,246 1,246 India 773 894 1,035
Slide 45: Merafe Coal
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 project
Slide 46: China is importing chrome ore - pushing up China's COP
China is importing chrome ore - pushing up China’s COP What China is paying for chrome ore: Indian ore – US$700/mt Turkish ore – US$600/mt South African ore – US$430/mt 46
Slide 47: Melting Production 2007 & 2009 - Regional
Melting Production 2007 & 2009- Regional 47
Slide 48: Demand changes by segment 2007/2009 - Japan
Demand changes by segment 2007/2009 - Japan 48