Merafe Resources Limited · JSE:MRF
Merafe Resources — Deutsche Bank BRICS Metals & Mining Conference (London) 2009
53 slides from Merafe Resources's conference presentation, Nov 10, 2009
Slide 1: Merafe Resources Limited
Merafe Resources Limited Deutsche Bank BRICS Metals & Mining Conference (London) 9-10 November 2009
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. Operational overview 3. Market review 4. Merafe‟s financial overview 5. Outlook 6. Appendix I ( analyst coverage) 7. Appendix II (Merafe‟s management) 8. Appendix III (Merafe‟s six months financial results to 30 June 2009) 9. Appendix IV (austenitic stainless s
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
Slide 6: Share price information
6 Share price information ZAR GBP Market capitalisation* 3.42 bn 265m Share price* 1.39 0.11 12 month high 1.70 0.13 12 month low 0.55 0.04 Shares outstanding 2.46 billion shares *As at 2 November 2009
Slide 7: Merafe's share price performance from 2008 to 2009
100.00 120.00 140.00 160.00 180.00 20.00 60.00 80.00 40.00 08/01/01 08/01/15 08/01/29 08/02/12 08/02/26 08/03/11 08/03/25 Source: Datastream 08/04/08 08/04/22 08/05/06 08/05/20 Merafe Resources 08/06/03 08/06/17 08/07/01 08/07/15 08/07/29 08/08/12 08/08/26 08/09/09 08/09/23 08/10/07 08/10/21 08/11/0
Slide 8: Shareholder analysis
8 Shareholder analysis Shareholders at end of September 2009 SA Free float Royal Bafokeng 38.5% 29% (Dec'08 : 42%) ( Dec'08 : 29%) Offshore Free float IDC 22% 10.5% (Dec'08 : 22%) (Dec'08 : 7%)
Slide 9: Global ferrochrome production
9 Global ferrochrome production 2008 Market share by production Vargön Alloys - HCFeCr 1% Other China 14% 19% ASA Metals Zimasco 2% 2% Chelyabinsk Ferbasa 2% 2% International Ferro Metals Xstrata Merafe PSV 3% 19% Assmang Chrome 3% Outokumpu 3% Hernic Ferrochrome 5% Samancor Chrome ENRC 11% 14%
Slide 10: 2. Operational overview
2. Operational overview
Slide 11: Operations
11 Operations SMELTERS CAPACITY Wonderkop 553 kt pa – 6 furnaces **Conventional Rustenburg 430 kt pa – 6 furnaces **Conventional Boshoek 240 kt pa – 2 furnaces Outokumpu Lydenburg 396 kt pa – 4 furnaces Premus Lion 360 kt pa – 2 furnaces Premus Total • 1 979 kt pa in production capacity 5 Production
Slide 12: Xstrata-Merafe production capacity utilisation
12 Xstrata-Merafe production capacity utilisation Production Date capacity January 2009 20% Average for 6 months to June 2009 30% July 2009 60% September 2009 85% Production of the Xstrata-Merafe Chrome Venture 2008 2009 ‘000/tonnes ‘000/tonnes Q1 383 92 Q2 390 215 Q3 388 308 Total 1,161 615 • Xstra
Slide 13: Update on the power situation (Eskom)
13 Update on the power situation (Eskom) • 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 2008, Eskom‟s plant performance has improved, additional maintenance has been d
Slide 14: Xstrata-Merafe well placed to handle higher energy tariffs
Xstrata-Merafe well placed to handle higher energy tariffs 14 - Lion Ferrochrome Xstrata-Merafe anticipated the changes in the South African electricity tariffs and invested in efficiencies: 5 Specific Energy Consumption 4.8 (MWh/T) 4.5 4.1 4 3.5 3.5 3 2.5 2.4 2 Premus O utokumpu Conventional DC Arc
Slide 15: Bokamoso – improved energy consumption
Bokamoso – improved energy consumption 15 Xstrata-Merafe‟s position with 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 16: 3. Market review
3. Market review
Slide 17: Market review on stainless steel – the first 3 quarters of 2009
17 Market review on stainless steel – the first 3 quarters of 2009 • During the second and third quarters of 2009, major Chinese stainless steel mills increased their stainless steel capacity utilisation to almost 100% • The market became fully supplied • Leading stainless steel mills in China have
Slide 18: Market review on ferrochrome – the first 3 quarters of 2009
18 Market review on ferrochrome – the first 3 quarters of 2009 • Global ferrochrome capacity utilisation was about 40% at the beginning of 2009 • This has improved significantly in the second half of the year and is currently at about 75% • China‟s imports of ferrochrome have increased in the first
Slide 19: Crude stainless steel production
19 Crude stainless steel production 2007 2008 2008/2007 2009 2009/2008 2010 „000 t „000 t % „000 t % „000 t (estimate) (forecast) NAFTA 2,171 1,925 -11.3% 1,715 -10.9% 2,120 European Union 8,109 7,822 -3.5% 5,738 -26.6% 6,629 Japan 3,901 3,564 -8.6% 2,644 -25.8% 3,330 S.Korea/Taiwan/India 5,305 4,45
Slide 20: Stainless steel melting capacity utilisation for the first three quarters of 2009
Stainless steel melting capacity utilisation 20 for the first three quarters of 2009 China 100.0 Taiwan 99.3 Brazil 86.0 India 85.7 USA 84.6 South Africa 82.1 South Korea 79.4 Japan 76.5 Europe 54.9 Total 83.8 30 40 50 60 70 80 90 100 in % Source: Heinz Pariser
Slide 21: Regional ferrochrome demand
21 Regional ferrochrome demand 2007 2008 2008/2007 2009 2009/2008 „000 t „000 t % „000 t % (estimate) NAFTA 455 502 10.3% 130 -74.1% European Union 2,080 1,993 -4.2% 1,246 -37.5% Japan 866 768 -11.3% 395 -48.6% S. Korea/Taiwan/India 1,326 890 -32.9% 1,032 16% Others 709 633 -10.7% 637 0.6% China 2,1
Slide 22: Charge/High carbon ferrochrome production
22 Charge/High carbon ferrochrome production 2007 2008 2008/2007 2009 2009/2008 „000 t „000 t % „000 t % (estimate) Brazil 164 187 14.0% 123 -34.2% European Union 366 351 -4.1% 294 -16.2% Russia, Turkey, Albania 492 531 7.9% 349 -34.4% India 820 750 -8.5% 500 -33.3% Kazakhstan 1,070 955 -10.7% 918 -
Slide 23: Xstrata-Merafe's sales by region for the nine months to September 2009
Xstrata-Merafe’s sales by region for the nine months23 to September’09 Other 5% USA 5% (2008: 8%) (2008: 12%) Asia 63% Europe 27% (2008: 40%) (2008: 40%)
Slide 24: European benchmark ferrochrome prices
US$/lb 0 1 2 0.5 1.5 Q1'06 0.63 2.5 Q2'06 0.70 Q3'06 0.75 Q4'06 0.78 Q1'07 0.75 from the lows of Q2’09 Q2'07 0.82 Q3'07 1.00 Q4'07 1.00 Q1'08 1.21 Q2'08 1.92 Q3'08 2.05 European benchmark ferrochrome prices Q4'08 1.85 Q1'09 0.79 Q2'09 0.69 Q3'09 0.89 Q4'09 1.03 Charge Chrome prices starting to show
Slide 25: 4. Merafe's financial overview
4. Merafe’s financial overview
Slide 26: Key features for the six months ended 30 June 2009
26 Key features for the six months ended 30 June 2009 Revenue down by 49% to R824 million Net financing costs down by 96% Headline loss of R84 million equating to a loss of 3c per share Cash flows from operations of R144 million Strong cash balance of R466 million Ferrochrome inventory r
Slide 27: Summary of cash flows for the six months to 30 June 2009
Summary of cash flows for the six months to 27 30 June 2009 R’m Opening cash balance 1 January 2009 540 Cash flows after interest from operations 142* Taxation paid (accrual 31 Dec 2008) (88) Capital expenditure (84) Forex loss on US$ cash held (44) Closing cash balance 30 June 2009 466 * After acco
Slide 28: Financial performance over the last three years
28 Financial performance over the last three years Revenue 3,000 2,781 2,500 2,000 ZARm 1,656 1,500 1,030 1,000 824 500 0 2006 2007 2008 Jun-09 Revenue 6 months EBITDA 2,000 1,612 1,500 ZARm 1,000 465 500 179 -75 0 2006 2007 2008 Jun-09 (500) EBITDA 6 months
Slide 29: Financial performance over the last three years (cont.)
Financial performance over the last three years 29 (cont.) EBITDA and margin evolution 2,000 70% 58% 60% 1,500 50% ZARm 40% 1,000 28% 30% 17% 20% 500 10% -9% 0 0% 2006 2007 2008 Jun-09 -10% (500) -20% EBITDA % Margin 6 months Net profit after tax 1,200 1,028 1,000 800 600 ZARm 400 240 160 200 -84 0
Slide 30: Financial performance over the last three years (cont.)
Financial performance over the last three years 30 (cont.) Earnings per share 50 42 40 Cents 30 20 10 10 7 -3 0 (10) 2006 2007 2008 Jun-09 Eps 6 months Net asset value per share 120 101 97 100 80 Cents 59 60 48 40 20 0 2006 2007 2008 Jun-09 NAV per share 6 months
Slide 31: Financial performance over the last three years (cont.)
Financial performance over the last three years 31 (cont.) Net (debt) / cash position 400 173 200 100 0 2006 2007 2008 Jun-09 ZARm (200) (400) (600) (800) (801) (787) (1,000) Net (debt) Net cash
Slide 32: Working capital requirements in second half of 2009
Working capital requirements in second half 32 of 2009 Expect cash to be “locked-up” in working capital for the remainder 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 33: Production costs
33 Production costs • Despite improved efficiencies, production costs continue to be a challenge • Looking forward at production costs Merafe sees: electricity prices increasing - Eskom has asked NERSA for a 45% p.a. increase for the next three years reduced inflation dollar denominated costs
Slide 34: Points of caution
34 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 stainless orders in Eur
Slide 35: Barriers to entry
35 Barriers to entry Low barriers to entry in South Africa, a thing of the past: Pre 2008 • Capital cost of building smelters up by over 500% • Long lead time for critical items needed for construction • Shortage of available quality ore reserves • Shortage of artisans and skilled labour Post 2008 •
Slide 36: 5. Outlook
5. Outlook A r “.? - * yi wee AOS g 7» vate is ave i
Slide 37: Outlook
37 Outlook • Recovery of global stainless steel production likely to continue • Stainless steel production for 2010 estimated at 29.6 million tonnes, a 13.8% increase y-o-y • Real demand coming from Asia with Europe mainly restocking • Ferrochrome inventory levels have normalised (currently below no
Slide 38: Outlook (cont.)
38 Outlook (cont.) • 16% increase in European benchmark ferrochrome price in Q4‟09 to $1.03/lb • Xstrata-Merafe‟s ferrochrome order book full until end 2009 • Size and flexibility of the Venture provide an advantage • Xstrata-Merafe‟s retention of its skilled labour force has proved very beneficial
Slide 39: Charge chrome price development
39 Charge chrome price development 2 .50 Realistic Price Forecast (in 2008 US$) 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 40: www.meraferesources.co.za
www.meraferesources.co.za
Slide 41: Appendix I Analyst coverage
Appendix I Analyst coverage
Slide 42: Analyst coverage of Merafe Resources
42 Analyst coverage of Merafe Resources Tim Clark Deutsche Bank Email : tim.clark@db.com Avishkar Nagaser Macquarie First South Email: avishkar.nagaser@macquarie.com Willem Venter Prescient Securities Email: willie@prescient.co.za Richard Hart Afrifocus Securities Email: richardh@afrifocus.co.za
Slide 43: Appendix II Merafe's Management
Appendix II Merafe’s Management
Slide 44: Management
44 Management Steve Phiri Chief Executive Officer Steve joined Merafe Resources as its Chief Executive Officer in May 2003. Before joining Merafe Resources he headed up Corporate and Legal Affairs for the Royal Bafokeng Nation (RBN) and led the negotiating team that successfully resolved the dispute
Slide 45: Management
45 Management Bruce McBride Commercial Director Bruce was a Senior Partner at law firm Bell, Dewar and Hall before joining Merafe Resources in 2001 as Commercial Director. During his time in law he specialised in commercial litigation, banking and mining law. Dr Jurg Zaayman General Manager – Merafe
Slide 46: Appendix III Merafe's six months financial results to June 2009
Appendix III Merafe’s six months financial results to 30 June 2009
Slide 47: Group Condensed Statement of Comprehensive Income
Group Condensed Statement of Comprehensive 47 Income 6 months ended 6 months ended 30 June 2009 30 June 2008 Reviewed Reviewed R’000 R’000 Revenue 824,081 1,627,610 EBITDA (74,737) 893,601 Depreciation (50,507) (28,157) Net financing costs (1,145) (28,097) (Loss)/profit before taxation (126,389) 837
Slide 48: Group Condensed Statement of Financial Position
48 Group Condensed Statement of Financial Position As at As at 30 June 2009 31 December 2008 Reviewed Audited R’000 R’000 Assets Non-current assets 1,918,383 1,861,185 Property, plant and equipment 1,918,383 1,861,185 Current assets 1,614,782 1,893,165 Inventories 798,304 1,067,153 Trade and other r
Slide 49: Group Condensed Statement of Financial Position (cont.)
Group Condensed Statement of Financial Position 49 (cont.) As at As at 30 June 2009 31 December 2008 Reviewed Audited R’000 R’000 Equity and liabilities Equity 2,398,272 2,479,338 Share capital 24,593 24,593 Share premium 1,244,072 1,244,072 Equity settled share-based payment reserve 18,706 15,586 R
Slide 50: Appendix IV Austenitic stainless steel
Appendix IV Austenitic stainless steel
Slide 51: Austenitic ratios – Nickel bearing stainless steel
51 Austenitic ratios – Nickel bearing stainless steel Changes in austenitic production ratios 70.00% 60.00% 50.00% 40.00% Cr Mn Ferritic 30.00% Austenitic 20.00% 10.00% 0.00% 2006 2007 2008 2009 (e) 2010 (f) Source: Heinz Pariser/Merafe Resources
Slide 52: Austenitic vs Ferritic stainless steel grades
52 Austenitic vs Ferritic stainless steel grades • The demand for nickel year to date has softened mainly due to the increase in nickel prices • This has resulted in an increase in the production of ferritic stainless steel grades • Japan‟s ferritic stainless steel production for August increased by
Slide 53: Austenitic stainless grades – price components
Austenitic stainless grades 304 – price components 53 Price Ratio Intrinsic Cr Value of Intrinsic Ni Value of Effective Price Effective Price in % 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% 200
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