Merafe Resources Limited · JSE:MRF
Merafe Resources — Investec Small Cap Resources Conference 2009
33 slides from Merafe Resources's conference presentation, Sep 4, 2009
Slide 1: Investec Small Cap Resources Conference
Investec Small Cap Resources Conference 4 September 2009 “Ready to deliver”
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: Corporate Structure
3 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 4: Share price information
4 Share price information ZAR Market capitalisation* 3.88bn Share price* 1.58 12 month high 2.92 12 month low 0.55 Shares outstanding 2.46 billion shares *As at 28 August 2009
Slide 5: Merafe's share price performance over the past year
5 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: I-Net Bridge
Slide 6: Shareholder analysis
6 Shareholder analysis Shareholders at end of July 2009 SA 40% (Dec'08 : 42%) Royal Bafokeng 29% ( Dec'08 : 29%) Offshore 9% (Dec'08 : 7%) IDC 22% (Dec'08 : 22%)
Slide 7: Sustainable Development (recent achievements)
7 Sustainable Development (recent achievements) Some of Merafe’s achievements to date: • Ranked number 1 in the Resources sector in both 2008 and 2009 Financial Mail Top Empowerment Companies Survey (Empowerdex) • Listed among the 14 Top Performers on the JSE SRI Index in 2007 and 2008 • Awarded tog
Slide 8: Sustainable development (cont.)
8 Sustainable development (cont.) Merafe’s commitment to sustainable development is reflected in its approach: • First Sustainability report produced in 2003 • 2008 Sustainability report was subjected to independent third party assurance • Its pillars of sustainable development are: 1 Safety 2 Occup
Slide 9: Financial performance over the last three years
9 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 10: Financial performance over the last three years (cont.)
10 Financial performance over the last three years (cont.) EBITDA and margin evolution 2,000 80% 58% 1,500 60% ZARm 1,000 40% 28% 500 17% 20% -9% 0 0% 2006 2007 2008 Jun-09 (500) -20% 6 months EBITDA % Margin Earnings per share 50 42 40 30 Cents 20 10 6 10 -3 0 (10) 2006 2007 2008 Jun-09 6 months Ep
Slide 11: Key features for the six months ended June 2009
11 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 12: Xstrata-Merafe, the world's largest ferrochrome producer
12 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%
Slide 13: Operations overview: smelters capacity
13 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 14: Xstrata-Merafe challenge to contain costs – Lion Ferrochrome
Xstrata-Merafe challenge to contain costs – Lion 14 Ferrochrome The Venture anticipated the changes in the South African electricity tariffs and invested in efficiencies: 5 Specific Energy 4.8 Consumption (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: Xstrata-Merafe challenge to contain costs – Lion Ferrochrome (cont.)
Xstrata-Merafe challenge to contain costs – Lion Ferrochrome 15 (cont.) Comparative resources consumption gives Premus a further edge: Chrome Recovery 70% Coke Consumption 95 60% 60% 90 60% 90 88 50% 85 Consumption/t 40% % Recovery 80 77 30% 75 20% 20% 70 10% 68 0 65 0% C onventional Outokumpu DC Ar
Slide 16: Bokamoso – improved energy consumption
Bokamoso – improved energy consumption 16 Xstrata-Merafe 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 17: Initiatives by the Venture to contain costs
17 Initiatives by the Venture to contain costs In response to the global economic downturn, the Venture has introduced the following initiatives to contain costs: • Freezing all new appointments and promotions • Reducing fixed term contract employees • Reducing the use of contractors • Limiting main
Slide 18: Barriers to entry
18 Barriers to entry Low barriers to entry in South Africa, a thing of the past: • Capital cost of building smelters up by 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
Slide 19: Crude stainless steel production (estimate for 2009)
19 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 1,612 -16.3 European Union 8,109 7,822 -3.5 6,109 -21.9 Japan 3,901 3,564 -8.6 2,347 -34.1 S. Korea / Taiwan / India 5,305 4,458 -16.0 4,465 0.2 Ot
Slide 20: Stainless steel capacity utilisation, Q2 2009
20 Stainless steel capacity utilisation, Q2 2009 China 97.8 India 78.7 South Africa 77.0 Brazil 67.4 Taiwan 63.5 South Korea 60.0 USA 58.8 Italy 58.6 France 56.4 Japan 54.2 Czech Rep. 52.3 Belgium 52.0 Germany 48.7 Finland 48.6 Spain 45.9 Sweden 45.5 Russia 44.6 Slovenia 38.9 Ukraine 38.0 Austria 34
Slide 21: Crude stainless steel production – European Union & China
21 Crude stainless steel production – European Union (EU) & China 3000 2500 Quarterly Production in ´000 t 2000 1500 EU 1000 500 China 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Heinz P. Pariser
Slide 22: Regional ferrochrome demand
22 Regional ferrochrome demand 2007 2008 2008/2007 2009 2009/2008 ‘000 t ‘000 t % ‘000 t % (estimate) NAFTA 455 502 10.3 422 -16.0 European Union 2,116 2,138 1.0 1,697 -20.6 Japan 890 888 -0.2 660 -25.6 S. Korea/Taiwan/India 1,342 1,040 -22.5 1,062 2.2 Others 743 719 -3.2 603 -16.2 China 2,277 1,987
Slide 23: Charge/High carbon ferrochrome production
23 Charge/High carbon ferrochrome production 2007 2008 2008/2007 2009 2009/2008 ‘000 t ‘000 t ‘000 t % (estimate) % Brazil 176 193 9.7 145 -25.0 European Union 367 354 -3.6 98 -72.3 Russia, Turkey, Albania 274 335 22.1 222 -33.7 India 928 948 2.2 675 -28.8 Kazakhstan 970 880 -9.3 746 -15.3 South Afr
Slide 24: Venture's sales by region for the six months to June '09
24 Venture’s sales by region for the six months to June ’09 Sales by region Other 7% (2008: 8%) Europe 25% (2008: 40%) USA 3% Asia 65% (2008: 12%) (2008: 40%)
Slide 25: Charge chrome price development
25 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 P. Pariser
Slide 26: Working capital requirements in second half of 2009
26 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 27: Production costs
27 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 28: Xstrata-Merafe production capacity utilisation
28 Xstrata-Merafe production capacity utilisation • The weakness in demand experienced in the fourth quarter of 2008 and well into the first quarter of 2009 as a result of the economic downturn, necessitated the following action undertaken by the Venture: six furnaces were temporarily suspended on
Slide 29: The ferrochrome industry production capacity utilisation
29 The ferrochrome industry production capacity utilisation • Ferrochrome producers worldwide, in particular the South African producers responded swiftly and responsibly to the weakness in ferrochrome demand experienced from the fourth quarter of 2008 by cutting ferrochrome production by as much as
Slide 30: Point of caution
30 Point of caution Some of the immediate concerns to the Company are as follows: • Risk of ferrochrome producers ramping up at the same time and possibly oversupplying the market • Over reliance on Chinese stainless steel production with the rest of the world slowly recovering • A short pull back i
Slide 31: "Ready to deliver"
31 “Ready to deliver” • The size and flexibility of the Venture provide an advantage • Have so far weathered the worst storm and are well positioned to deliver into growth • The recovery of global stainless steel production is likely to continue into the third and fourth quarter of 2009 on the back
Slide 32: "Ready to deliver" (cont.)
32 “Ready to deliver” (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 restarted some of the idle capacity and production of ferrochrome has increased to 60% of annual operating capacity and i
Slide 33: www.meraferesources.co.za
www.meraferesources.co.za
Merafe Resources — Investec Small Cap Resources Conference 2009 on 6ix