Merafe Resources Limited · JSE:MRF
Merafe Resources — Non-Deal Roadshow (October 2010)
46 slides from Merafe Resources's roadshow presentation, October 2010
Slide 1: Investor Presentation
Investor Presentation New York and Boston, October 2010
Slide 2: Disclaimer
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 Resources to be relia
Slide 3: Agenda
Agenda 1. Corporate Overview 2. Operational Overview 3. Market Dynamics 4. Financial Overview 5. South African Specific Developments 6. Recent Project 7. Outlook 8. Appendix 3
Slide 4: 1. Corporate Overview
1. Corporate Overview 4
Slide 5: Experienced Management Team Focussed on Delivering Returns
Experienced Management Team Focussed on Delivering Returns 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
Slide 6: Largest Ferrochrome Producer in the World
Largest Ferrochrome Producer in the World Investor Profile Ticker: MRF Market Cap* (R): 3.6bn Share price* (R): 1.45 20.5% of EBITDA 79.5% of EBITDA 52 week high (R): 1.90 52 week low (R): 1.17 * As at 4 October 2010 Xstrata-Merafe Venture (The Venture) Formed 1 July 2004 Second quartile of the glob
Slide 7: Stable and Supportive Shareholder Base
Stable and Supportive Shareholder Base 29% - Royal Bafokeng 34% - SA Free Float 15% - Offshore Free Float 22% - IDC No.1 (resource sector) in Financial Mail’s 2009 survey for top Empowerment Companies Top 10 in JSE’s SRI Index Shareholder analysis as of August 2010 7
Slide 8: Represented at all Levels of the Xstrata-Merafe Venture
Represented at all Levels of the Xstrata-Merafe Venture Merafe Assets Xstrata Assets The Xstrata-Merafe Venture Joint Board* EXCO* Treasury* Audit* SHEQ* Transformation* Operations* Marketing* * Merafe representation and participation 8
Slide 9: 2. Operational Overview
2. Operational Overview M MERAFE
Slide 10: Global Chrome Reserves
Global Chrome Reserves 11% - Other 4% - Kazakhstan 73% - South Africa 12% - Zimbabwe SA Larger reserve base and experience provides competitive advantage over global peers 10
Slide 11: Recipe for Producing Ferrochrome
Recipe for Producing Ferrochrome Ore 2.1-3.1 t Reductants 0.4-0.8t Furnace Ferrochrome 1.0t Electricity 2.4-4.2 MWh Water 1.25t Slag 2.5m3/t FeCr 11
Slide 12: South African Chrome Geology Favours Xstrata-Merafe Venture's Mines
South African Chrome Geology Favours Xstrata-Merafe Venture’s Mines Helena and Magareng Boshoek smelter Lion smelter Impala UG2 Thorncliffe Rustenburg smelter Motololo UG2 Lydenburg smelter Horizon mine Wonderkop smelter Boshoek mine Waterval East and West mine EPL UG2 Kroondal mine Eland UG2 K1 UG2
Slide 13: Geographical Distribution Provides Competitive Advantage
Geographical Distribution Provides Competitive Advantage • Ferrochrome capacity of 2m ktpa, 5 production sites and 20 furnaces • 3 different technologies offer flexibility Wonderkop Boshoek (Outotec) (Conventional) 240ktpa - 2 furnaces 553ktpa - 6 furnaces Lydenburg (Premus) 396ktpa - 4 furnaces Rus
Slide 14: 3. Market Dynamics
e MERAFE 3. Market Dynamics
Slide 15: Global Stainless Steel Production Breakdown
Global Stainless Steel Production Breakdown Global stainless steel production was up 38% from first half of 2009 and 11% from second half of 2009 Change Change H1 2009 H2 2009 H1 2010 H1 2010 / H1 2010 / in ‘000t in ‘000t in ‘000t H1 2009 H2 2009 in % in % NAFTA 702 916 1,166 +66 +27 European Union
Slide 16: Overview of the Ferrochrome Market in 2010
Overview of the Ferrochrome Market in 2010 Q1 2010 Q2 2010 Q3 2010 Price: 101USc/lb Price: 136USc/lb Price: 130USc/lb • December 2009 China was fully • China demand returns in Q1 2010 • 18 day Transnet strike created order stocked, pull back in Chinese demand together with North America and Europe b
Slide 17: Global Ferrochrome Production Breakdown
Global Ferrochrome Production Breakdown 2009 2010 Change 10/09 in ‘000t in ‘000t in % Other 380 691 +82 Russia, Turkey, Albania 443 522 +18 India 670 955 +43 Kazakhstan 982 1,076 +10 South Africa 2,179 3,219 +48 China 1,510 1,460 (3) Total 6,164 7,923 +29 Charge chrome 2,438 3,648 +50 HC ferrochrome
Slide 18: Global Ferrochrome Capacity Utilisation
Global Ferrochrome Capacity Utilisation • SA winter closures impacted Q3 2010 100% 89% 90% 85% 86% 85% 82% 80% 80% 69% 70% 66% 67% 60% 2009 50% 2010 40% 37% 30% 20% 10% 0% Q1 Q2 Q3 Q4 Total 2010 global capacity utilisation expected to be up 22% year on year Source: Heinz Pariser / Merafe Resources /
Slide 19: Global Ferrochrome Demand
Global Ferrochrome Demand 2009 2010 Change 09/10 in ‘000t in ‘000t in % NAFTA 229 463 +102 European Union 1,242 1,512 +22 Japan 459 674 +47 S.Korea/Taiwan/India 1,245 1,264 +2 Others 633 723 +14 China 3,480 3,581 +3 Total 7,288 8,217 +13 Charge chrome 3,340 3,950 +18 HC ferrochrome 3,948 4,267 +8 De
Slide 20: 4. Financial Overview
4. Financial Overview 20
Slide 21: H1 2010: Good Recovery from Global Economic Crisis in 2009
H1 2010: Good Recovery from Global Economic Crisis in 2009 • Revenue up by 45% year on year • Profit for the period was R189 m equating to basic earnings per share of 8 cents compared to a basic loss per share of 3 cents in the comparative period • Ferrochrome inventory levels remain at low levels •
Slide 22: H1 2010: Revenue Increased due to Higher Ferrochrome Prices
H1 2010: Revenue Increased due to Higher Ferrochrome Prices and Sales Tonnes Partially offset by the Strength of the Rand R518m 1500 R1191m -R280m R129m 1000 R824m 500 0 H1- 2010 H1 - 2009 Change Saleable production tonnes 148 400 128 100 +20,300 Average exchange rate 7.5 9.2 (18%) Average ferrochro
Slide 23: H1 2010: Strong Cash Position Remains after Dividend Payment
H1 2010: Strong Cash Position Remains after Dividend Payment and Early Debt Repayment. Long Term Debt of R300m Remains R84m R6m -R16m R463m -R37m -R75m -R53m R2m R323m -R51m 200 23
Slide 24: H1 2010: EBITDA Margins and ROC Recover from 2009 Downturn
H1 2010: EBITDA Margins and ROC Recover from 2009 Downturn • EBITDA Margin average for last 4.5 years is 28% 90% 80% 70% 60% 81% 50% 40% 58% EBITDA Margin * Return on Capital ** 30% 20% 27% 28% 28% 17% 26% 10% 12% 19% 15% 0% -5% -12% -10% 2006 2007 2008 2009 2010 June Average *** -20% * EBITDA / Rev
Slide 25: 5. South African Specific Developments
5. South African Specific Developments 25
Slide 26: Energy Efficiency
Energy Efficiency MERAFE
Slide 27: South African Competitiveness: The Rising Cost of Electricity
South African Competitiveness: The Rising Cost of Electricity 2009 2010 USc per KWh USc per KWh South Africa 3.6 4.6 India 8.7 9.7 Kazakhstan 3.2 3.3 China 8.3 8.8 Xstrata-Merafe Venture well positioned to limit impact through energy saving initiatives 27
Slide 28: What has the Xstrata-Merafe Venture done in Response?
What has the Xstrata-Merafe Venture done in Response? 4.5 Lion – 2 large furnaces 3.99 4 2007 – R1,700 million 3.66 3.47 Bokamoso sinter plant 3.46 3.5 2007 – R800 million 3.29 3.3 3.19 MWh / tonne 3.15 3.15 3.10 3.10 Tswelopele sinter plant 3 2012 – R900 million 2.5 Improved by more than 25% over t
Slide 29: Xstrata-Merafe Venture well Placed to Handle Higher Energy Tariffs
Xstrata-Merafe Venture well Placed to Handle Higher Energy Tariffs Xstrata-Merafe Venture anticipated the changes in the South African electricity tariffs and invested in efficiencies: Lion Ferrochrome Bokamoso Specific Energy Consumption (MWh/T) 4.5 4.1 4.0 3.5 3.5 3.0 3.0 2.5 2.3 2.0 Conventional
Slide 30: Security of Mineral Rights
Security of Mineral Rights 30
Slide 31: New Mining Charter: Positive News
New Mining Charter: Positive News Element Measure 2014 Target Weighting Reporting Annually in March Non negotiable Ownership Meaningful economic 26% Non negotiable participation Housing Convert hostels into family 100% Non negotiable units Procurement & Procurement spend from 40% cap goods 15% Enter
Slide 32: Recent Project
Recent Project wi? re t« a. a .. 2:
Slide 33: Project Tswelopele: New Pelletising and Sintering Plant at Rustenburg Smelter
Project Tswelopele: New 600 000 tonnes per annum Pelletising and Sintering plant to be Constructed at Rustenburg Smelter • Initiated after the success of a similar plant, Bokamoso that was successfully commissioned at the Wonderkop smelter in 2007 • The Xstrata-Merafe Venture will benefit from the f
Slide 34: 7. Outlook
7. Outlook 34
Slide 35: Stainless Steel and Ferrochrome Outlook
Stainless Steel and Ferrochrome Outlook Stainless Steel • The forecasted medium to long term growth remains strong – expected CAGR 5% • Production in 2010 is expected to reach record levels • Production will remain strong in Asia, due primarily to China estimated to be above the 10m tonnes mark. Fer
Slide 36: Barriers to Entry: Limited Power and Chromite Reserves
Limited access to power and economically mineable chromite reserves, amongst other barriers • Capital cost of building smelters increased significantly • long lead time for critical items • Shortage of available quality ore reserves • Shortage of artisans and skilled labour • Escalating production c
Slide 37: Positive Long term Outlook
Positive Long term Outlook • 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 performances of furnaces - continuous electrical energy improvements that clearly set us a
Slide 38: Competitive Advantage
Well Positioned to Deliver Outstanding Shareholder Value Lowest cost producer in SA with gap widening Energy efficiency of operations Strong Balance Sheet and stable shareholder base Competitive Secured Mining Rights and Compliance with DMR Advantage Safety Directives Supply squeeze expected during
Slide 39: 8. Appendix
8. Appendix 39
Slide 40: New Department of Mineral Resources (DMR) Safety Directive
New Department of Mineral Resources (DMR) Safety Directive • Bord-and-pillar mines to reduce bord widths in their shafts to 6m • Extraction ratio’s should be limited to 75% • All mines affected made individual representations to the DMR on action plans to convert to more safer and conservative minin
Slide 41: Merafe's Approach to Safety prior to DMR Directive
Merafe’s Approach to Safety prior to DMR Directive Prior to DMR Directive – The Xstrata-Merafe Venture’s strategy and proactive approach to eliminate fall of ground incidents included the following: • Bord width’s reduced from 14m to 10m to 8m and some areas to 6m or less if adverse geology was iden
Slide 42: Ferrochrome Industry – Strategic Importance in South Africa
Ferrochrome Industry – Strategic Importance in South Africa • Produce about 40% of the World’s Ferrochrome • South Africa has 73% of global chrome ore reserves • South African Ferrochrome Industry invested about R10 billion since 2004 • Created more than 200 000 jobs • Average annual revenue about R
Slide 43: Stainless steel product mix going forward into 2010 / 2011
Stainless steel product mix – what we see going forward into remainder of 2010 / 2011 75.0 30.0 400 Series 400 Series, 200 Series Share of Production, in % 70.0 25.0 300 Series Share of Production, in % 65.0 20.0 300 Series 60.0 15.0 55.0 10.0 200 Series 50.0 5.0 2001 2002 2003 2004 2005 2006 2007 2
Slide 44: Global stainless steel demand – dominated by China and Europe
Global stainless steel demand – dominated by China and Europe with India growing 26,000 25 24,000 22,000 G.R.: 5.3% Growth Rate 2000 - 2009 in % p.a. in ´000 t 20 China / Hong Kong 20,000 18,000 16,000 15 14,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 10 Middle East India Other America Oth
Slide 45: Venture's geographical sales fairly match geographical stainless steel production
Venture’s geographical sales fairly match geographical stainless steel production Global Stainless Steel Venture’s sales of ferrochrome Production per region OTHERS OTHERS 11% 4% EUROPE EUROPE ASIA 35% ASIA 24% 52% 58% USA USA 7% 9% Source: Merafe Resources / July 2010 45
Slide 46: Global end use of stainless steel – positive 5.3% average growth
Global end use of stainless steel – positive 5.3% average growth 10 8 Growth Rate 1995 - 2009, in % Building & Construction 16.9% 6 Average Growth Rate: 5.3% p.a. 4 Metal Goods 24.2% Engineering 22.2% Tubular 2 Products Transport 13.0% 12.8% 0 Electromechanical 6.4% -2 Non allocated 4.5% -4 0 10 20