Merafe Resources Limited · JSE:MRF
Merafe Resources — Non-Deal Roadshow (October 2011)
47 slides from Merafe Resources's roadshow presentation, October 2011
Slide 1: US Investor Presentation
US INVESTOR PRESENTATION October 2011 Stuart Elliot (CEO) and Zanele Matlala (CFO)
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: Agenda
Agenda 1. Corporate Overview 2. Operational Overview 3. Market Dynamics 4. Financial Overview 5. Outlook 6. Appendix 3
Slide 4: 1. Corporate Overview
1. Corporate Overview Boshoek ferrochrome smelter, North West Province, South Africa 240 ktpa, 2 furnaces, Outotec Technology 4
Slide 5: Experienced Management Team
Experienced Management Team Stuart Elliot CA(SA) – Chief Executive Officer • Appointed CEO in April 2010; Formerly CFO for 9 years • Extensive experience in the accounting and corporate finance • Formerly worked as an Audit Manager at KPMG and then in Mining Corporate Finance at FirstCorp, Gencor, D
Slide 6: Largest Ferrochrome Producer in the World
Largest Ferrochrome Producer in the World Investor Profile Ticker: MRF Market Cap* (R): 2,4bn Share price* (R): 0,95 20.5% of EBITDA 79.5% of EBITDA 52 week high (R): 1,72 52 week low (R): 0,85 * As at 11 October 2011 Xstrata‐Merafe Venture (The Venture) Formed 1 July 2004 Lower quartile of the glob
Slide 7: Stable Shareholder Base
Stable Shareholder Base Shareholder analysis as of 29 April 2011 7
Slide 8: Global Chrome Ore Reserves
Global Chrome Ore Reserves SA Larger reserve base and experience provides competitive advantage over global peers 8
Slide 9: The Venture is the largest ferrochrome producer in the world
The Venture is the largest ferrochrome producer in the world 2010 Global Ferrochrome production 2010 South African production Total global production = 8 720kt Total SA production = 3 596kt RTA: Russia, Turkey & Albania Source: Heinz Pariser, May 2011 9
Slide 10: What sets us apart from the competition
What sets us apart from the competition Lower quartile of the ferrochrome cost curve with the gap widening Energy efficient technology reducing impact of high electricity costs in SA Secure long-term supply of ore reserves Strong Balance Sheet and proven track record Organic growth in ferrochrome –
Slide 11: 2. Operational Overview
2. Operational Overview Rustenburg ferrochrome smelter, North West Province, South Africa, 430ktpa , 6 furnaces, Conventional with Tswelopele Pelletiser 11
Slide 12: Geographical Distribution Provides Competitive Advantage
Geographical Distribution Provides Competitive Advantage Chrome ore - 9 mines, 245 million tonnes of mineral resources, 6 UG2 plants and long‐term supply agreements with major SA platinum producers 10 500 Ferrochrome employees New Project‐ Lion II - 20 furnaces ‐ 1.979 million tonnes installed ferro
Slide 13: Recipe for Producing Ferrochrome
Recipe for Producing Ferrochrome Chrome ore 2.1 – 3.1 t Reductants 0.4 – 0.8 t Electricity 2.4 – 4.2 MWh Furnace Ferrochrome Water 1.0t 2.5m³/t FeCr Transport (Internal) 1.25t Slag Fixed Costs (Primarily Salaries) 13
Slide 14: Historic projects delivered on time and on budget
Historic projects delivered on time and on budget… 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Merger to form Commissioning Commissioning Xstrata‐Merafe of Lion I of Boshoek Chrome Venture smelter smelter Commissioning Acquired interest in of Bokamoso Wonderkop smelter Pelletiser and related m
Slide 15: Merafe approved a 20.5% participation in Project Lion Phase II
Merafe approved a 20.5% participation in Project Lion Phase II ‐ 360,000 tonnes of ferrochrome capacity Introduction: • Construction of a 360 000 tonne per annum capacity ferrochrome smelter in Steelpoort, Limpopo Province • Will increase the Venture’s total ferrochrome capacity to over 2.3 million
Slide 16: Lion II uses significantly less electricity than other smelting technologies
Lion II uses significantly less electricity compared to other available smelting technologies and will reduce the overall cost per tonne in the group by 6% Xstrata‐Merafe Venture anticipated the changes in the South African electricity tariffs and invested in efficiencies. Specific Energy Consumptio
Slide 17: Lion addresses the key challenges facing the SA ferrochrome industry
Lion addresses the key challenges facing the SA Ferrochrome industry Lowest specific energy consumption ca. Escalating energy costs 37% better than nearest rival Increased fine ore 750,000 tonnes pelletising capacity Skills shortages In‐house training centre established Lagging logistics Proximity t
Slide 18: Project Tswelopele – Rustenburg 600,000 tonnes of pelletising capacity
Project Tswelopele – Rustenburg 600,000 tonnes of pelletising capacity 4.5 4.1 • Initiated after the 4.0 success of Bokamoso 3.5 3.5 • Expected to be fully 3.0 operational by 2013 3.0 • Merafe’s portion is 2.5 2.3 expected to cost R190m. 2.0 Conventional Bokamoso • To be funded from existing and fut
Slide 19: 3. Market Dynamics
3. Market Dynamics Lion ferrochrome smelter, Limpopo Province, South Africa 360 ktpa, Premus Technology, 2 furnaces 19
Slide 20: Estimated increase in stainless steel production in all regions
Estimated increase in stainless steel production in all regions Actual, ‘000 tonnes 7% Estimate ‘000 tonnes 14% 2% 1.4% 2% 4% 4% 1 143/1 192 2 201/2 294 3 427/3 485 5 774/5 853 7 497/7 645 12 350/14 110 Source: Heinz Pariser Sep 2011 20
Slide 21: Global FeCr production overview
Global FeCr production overview – estimated to increase by 3% in 2011 3% 2% 11% 1% 7% 1% 8% 6% 351/353 297/321 325/346 1 000/1 070 1 161/1 169 2 166/2 400 3 591/3 514 8 891/9 173 RTA: Russia, Turkey, Albania Source: Heinz Pariser Sep 2011 Others: Brazil, Zimbabwe, Iran, Oman 21
Slide 22: Ferrochrome demand estimated to be up 7% y-o-y
Ferrochrome demand estimated to be up 7% y‐o‐y 7% 14% 9% 9% 9% 8% 9% 481/523 722/663 1 476/1 345 1 661/ 1 808 3 971/4 540 9 037/9 669 726/790 22
Slide 23: Overview of the ferrochrome market in 2010/2011
Overview of the ferrochrome market in 2010/2011 Ferrochrome price overview Current developments • Global stainless steel production reached record Q1 2011 125 USc/lb highs in Q1 2011, this increased demand for FeCr Q2 2011 135 USc/lb • Significant restocking took place Q3 2011 120 USc/lb • Recent Ge
Slide 24: 4. Financial Overview: H1 2011 Results and Financial Position
4. Financial Overview: H1 2011 Results and Financial Position Wonderkop ferrochrome smelter, North West Province, South Africa 553 ktpa, 6 furnaces, Conventional Technology with Bokamoso Pelletiser 24
Slide 25: Profit of R86m compared to R189m for comparative period
Increased production costs and strengthening of the Rand limit the profit impact from the ferrochrome price increases • Profit of R86m compared to profit of R189m for the comparative period • Production costs increased by 16% in Rand terms • Healthy cash balance of R366 million • Ferrochrome invento
Slide 26: Ferrochrome price increases offset by the strengthening of the Rand
Ferrochrome price increases offset by the strengthening of the Rand 2011 June 2010 June % Change Sales tonnes 146 100 148 400 (2%) Average benchmark 130 118.5 10% ferrochrome price in USc/lb Average exchange rate 6.90 7.53 (8%) (Rand:USD) 26
Slide 27: Production costs contained at an overall increase of 16% in Rand terms
Production costs contained at an overall increase of 16% in Rand terms • Chrome ore costs increase • Higher prices of bought‐in UG2 • Higher mining costs • Reductant cost efficiencies limit the impact of the higher coke and anthracite prices • Electricity price increases of 27% in 2011 27
Slide 28: 24% EBITDA Margin and return on capital over the last 5 years
24% EBITDA Margin and return on capital over the last 5 years * EBITDA/Revenue ** Profit (loss)after tax/(Share Capital and Share Premium) 28
Slide 29: H1-2011 Reconciliation of EBITDA to profit
H1‐2011 Reconciliation of EBITDA to profit * 29
Slide 30: Strategy on costs going forward
Strategy on costs going forward Cost Driver Strategy Improved efficiencies/higher pellet ratio’s Ore Optimize UG2 contracts and usage Time Of Use optimization Power Improved Efficiencies DM participation Higher anthracite levels Reductants Tactical coke sourcing Fixed cost Cost control Workforce opt
Slide 31: Real production costs are well controlled
Real production costs are well controlled Actual Real MI% 31
Slide 32: 5. Outlook
5. Outlook Ferrochrome (FeCr) is a silvery grey alloy metal which contains: • 48 – 52 % Cr • 7 – 8 % Carbon • 3 – 7 % Silicon 32 • 35 – 37 % Fe
Slide 33: Positive long-term outlook
Positive long‐term outlook • Projected 6% CAGR in stainless global steel industry fuels ongoing demand for ferrochrome • Long‐term demand fundamentals remain strong as China continues to expand • The Xstrata‐Merafe Venture will retain advantage as lowest cost SA producer ―outstanding historical cost
Slide 34: 6. Appendix
6. Appendix Lydenburg ferrochrome smleter, Limpopo Province, South Africa 396ktpa, 4 furnaces (2 Premus Technology) 34
Slide 35: Projects - Significant growth and efficiencies
Projects ‐ Significant growth and efficiencies Project cost (Merafe’s portion at Completion Description 20.5% cost) date Progress 1 Lonmin UG2 Plants H1 Completed within 1,5million tonnes UG2 chrome ore per annum R44m 2011 schedule/budget On track to be 2 Waterval mine development H2 completed withi
Slide 36: All ferrochrome producing countries experience electricity and chrome ore supply restrictions
All ferrochrome producing countries experience electricity and chrome ore supply restrictions • 77% of the world’s chrome ore reserves, however, becoming South Africa more expensive to mine • Tight electricity reserve margin and power conservation program may place a moratorium on new power applicat
Slide 37: Stainless steel product mix
Stainless steel product mix 400 SERIES (Ferritic : 10.5%‐22% chrome, no nickel) 300 SERIES (Austenitic : 17%‐22% chrome & 7%‐25% nickel, most corrosion resistant) 200 SERIES (Chrome manganese : 16%‐18% chrome, 2%‐4% nickel and 6% ‐ 9% manganese) 72 54 5 37
Slide 38: Global end use of stainless steel
Global end use of stainless steel Share of Cumulated Output, in% 0 10 20 30 40 50 60 70 80 90 0 %1 Non‐allocated t n e i 2 a ,0 R 13 t 0 h 2 w -4 Average CAGR: 4.4% p.a. o r 0 G 0 5 0 26 7 Building & Metal Goods Engineering Transport Tubular Electro & Construction Products Electronic • Lifts, • Cutl
Slide 39: Stainless Producer Ranking 2010
in Mill t 0.0 0.5 1.0 1.5 2.0 2.5 3.0 TISCO 2.72 Posco / ZPSS 2.65 ThyssenKrupp Stainless 2.37 YUSCO / LISCO 2.13 Acerinox 2.06 43% Share of Global Production ArcelorMittal 2.05 Outokumpu 1.63 Baoshan Iron & Steel 1.34 Tsingshan 1.10 Wuhang Stainless Steel 0.92 Stainless Producer Ranking 2010 JISCO
Slide 40: Balance sheet remains strong
Balance sheet remains strong As at As at 30 June 31 December 2011 2010 Reviewed R’000 Audited R’000 Total non‐current assets 2,301,262 2,192,600 Property, plant and equipment 2,301,262 2,192,600 Total current assets 1,658,157 1,625,008 Inventories 889,016 865,251 Trade and other receivables 403,023
Slide 41: Balance sheet remains strong (cont.)
Balance sheet remains strong (cont.) As at As at 30 June 31 December 2011 2010 Reviewed R’000 Audited R’000 Total non‐current liabilities 865,851 821,759 Loans and borrowings 312,542 312,786 Provision for closure and restoration costs 46,300 39,439 Deferred tax liability 507,009 469,534 Total curren
Slide 42: Chrome ore exports to China has increased significantly over the last few years
Chrome ore exports to China has increased significantly over the last few years 2011 2008 2009 2010 Aug YTD in ´000 t South Africa 2 604 2 904 3 100 2 965 Turkey 1 180 1 287 1 933 1 064 Oman 814 688 902 462 India 551 414 389 301 Pakistan 379 296 512 330 Albania 154 220 363 253 Iran 188 255 350 214 Z
Slide 43: SA Power prices continue to escalate
SA Power prices continue to escalate 43 Sources: Annual and company reports, NordPool Electricity Spot Prices, Eskom, Heinz H. Pariser
Slide 44: What has the Venture done in response?
What has the Venture done in response? 4.5 Conventional Semi - Closed - 13 Furnaces 3.99 Bokamoso Sinter Plant 4 2007 – ZAR 800 Million 3.66 3.46 3.47 Tswelopele Sinter Plant 3.5 2012 – ZAR 900 Million 3.29 3.3 3.19 3.19 MWh / tonne 3.15 3.08 3.05 2.99 3 Lion I – Two Large Furnaces Premus 2007 – ZAR
Slide 45: Carbon emissions: In absolute terms we are small
Carbon emissons : In absolute terms we are small In 2020 China increases by 500%! ~1.1% of total global CO2 emissions Source IEA ‐ Top 20 CO2 Country emitters, 2008 45
Slide 46: Venture's geographical sales fairly match geographical stainless steel production
Venture’s geographical sales fairly match geographical stainless steel production 2011 Estimated Venture 2011 Estimated stainless steel ferrochrome sales production 46
Slide 47: Contact details
Contact details Management : Stuart Elliot Chief Executive Officer Ph: +27 11 783 4780 Fax: +27 11 783 4789 Analyst coverage : stuart@meraferesources.co.za Deutsche Securities – Tim Clark +27 11 775 7268 Zanele Matlala tim.clark@db.com Chief Financial Officer Ph: +27 11 783 4780 Macquarie Securities