Merafe Resources Limited · JSE:MRF
Merafe Resources — Non-Deal Roadshow (June 2008)
37 slides from Merafe Resources's roadshow presentation, June 2008
Slide 1: Merafe Resources Limited
Merafe Resources Limited June 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 Listing (Ticker MRF, JSE Limited (main board) Bloomberg MRFSJ) Market capitalisation US$1.2bn (ZAR9.8 bn)* Share price US$0.50 (ZAR 398 cents)* 52-week Price Range: High US$0.52 (ZAR 414 cents) Low US$0.17 (ZAR 136 cents) Shares in issue 2.467 billion shares * Closing price at 10 J
Slide 5: Shareholder analysis
Shareholder analysis Major shareholders – June 2008 Royal Bafokeng Resources 29% The IDC 22% Minorities 49% 5
Slide 6: Liquidity
Liquidity 160,000 Average daily volume 10m shares 40,000 140,000 Average annual volume 100% of issued shares 35,000 equivalent to: 120,000 30,000 •200% of free float 100,000 25,000 Volume Value 80,000 20,000 60,000 15,000 40,000 10,000 20,000 5,000 0 0 01-Nov -07 08-Dec -07 14-Jan-08 20-Feb-08 28-Ma
Slide 7: International shareholding
International shareholding International shareholding as at May 2008 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% O er ne 08 e r il M y Au ly ay em t 08 n 08 r ay 08 b 08 pr ch em r Fe ary e c ber s a ov e r r a e Ju Ap S e gu ua -M b M b -A N tob -M ar Ju -J -F nu em br c Ja pt D Merafe’s internatio
Slide 8: 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 9: 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 10: 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 cap
Slide 11: Operations overview (cont)
Operations overview (cont) Operations • All 20 furnaces in production in 2008 (capacity 1,960kt) • Expected saleable production was 85% of capacity (1,666kt) • Available power load from Eskom decreased by 10% • Expected saleable production reduced to 75% of capacity (1,500kt) • Situation could last
Slide 12: Market review
MERAFE RESOURCES
Slide 13: The dawning of a new age
The dawning of a new age Low barriers to entry, a thing of the past: • Huge pressure on return on capital Capital cost of building smelters have gone up over 500% • Lead times for critical items needed for construction now 3 years • Power supply – when will power be available for new projects? • Re
Slide 14: The South African situation
The South African situation • All new expansion projects have been delayed – power availability issue • Exports of chrome ore out of SA continue • No export duty on chrome ore exports (unlike India $77/t) • No beneficiation requirements imposed by the Department of Minerals and Energy 14
Slide 15: Eskom reserve margin forecast
Eskom forecasts indicate that their reserve margin will be well below optimum levels post 2014 4% Data: Eskom 15
Slide 16: 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 2.5c* Kazakhstan 1.8c *As at 1 April 2008 Data: CRU Analysis 16
Slide 17: 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 felt in transporting ore rising % of fines needing pelletising • Electricity costs have increased Eskom increased tariffs by 15% from 1
Slide 18: Production costs (cont)
Production costs (cont) $1.30/lb 18
Slide 19: 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 20: Xstrata-Merafe initiatives to contain costs
Xstrata-Merafe initiatives to contain costs FeCr SMELTING • Lion Ferrochrome commissioned Q4 2006 360,000tpa ferrochrome smelter Utilises Venture’s proprietary Premus technology CHROME ORE AGGLOMERATION • Bokamoso pelletising and sintering plant commissioned Q3 2007 1.2mt agglomeration capacit
Slide 21: Xstrata-Merafe challenge to contain costs
Xstrata-Merafe challenge to contain costs 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 21
Slide 22: Xstrata-Merafe challenge to contain costs (cont)
Xstrata-Merafe challenge to contain costs (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 Premus C onventional
Slide 23: 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 23
Slide 24: Global market review of Chrome Ore
Global market review of Chrome Ore World Resources Data : US Geologial Service 24
Slide 25: Distribution of World Chromite Reserves
Distribution of World Chromite Reserves 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 – April 2008 YTD in kt South Africa 776 Turkey 354 India 272 Oman 242 Philippines 134 Pa
Slide 26: Chrome ore prices (US$/tonne, C.I.F. China)
Chrome ore prices (US$/tonne, C.I.F. China) Soaring chrome ore prices have pushed up China’s cost of production Indian ore prices are close to $750/t – more than 11 times higher than in early 2003 Ore prices start to accelerate at the beginning of 2007 Data : CRU 26
Slide 27: Stainless steel production expected to reach 38m tonnes by 2011
Stainless steel production expected to reach 38m tonnes by 2011, driven mainly by Asian markets Global stainless melted production, 2001-2011 45,000 ISSF Xstrata - Merafe 40,000 Actual Forecast 35,000 30,000 % 33 R 7. ‘000 tonnes 25,000 CAG 20,000 15,000 10,000 5,000 0 2001 2002 2003 2004 2005 2006
Slide 28: Demand driven by China
Demand driven by China China forecast to produce 10 mt Stainless Steel by 2010 14000 Stainless Steel Production ('000 Tonnes) 01 1 to 2 12000 1. 79% 10000 R of 2 CAG 8000 6000 4000 2000 0 2004 2005 2006 2007 2008 2009 2010 2011 Major Chinese Stainless Steel Producers capacity 2006 and 2011 B aosteel
Slide 29: Ferrochrome price
Ferrochrome price • Q2 2008 saw FeCr price reaching record levels of US$1.92/lb an increase of 59% from US$1.21/lb in Q1 2008 • Expect further price increases in 2H 2008 and 2009 29
Slide 30: Austenitic vs ferritic grade stainless steel
Austenitic vs ferritic grade stainless steel • Switch taking place from austenitic to ferritic grade Stainless Steel (now 60:40 vs 75:25) • Ferritic grades (400 series) Cr 12% to 17% No nickel Cr costs $3 500lt Austenitic grades (300 series) Cr 17% to 26% Nickel 7% to 19% Ni costs $23,
Slide 31: Outlook
Outlook • Stainless steel production slowed in first quarter of 2008 due to production cuts in China and destocking in Europe • We believe this is a short-term situation • Chinese and European production set to recover in 2008 • Merafe expects prices to increase further during 2008 and 2009 31
Slide 32: Current focus
Current focus • 2008 cash flows used to reduce long-term debt and working capital facilities of Merafe • Cash flows in 2009 could be utilised to: fund expansions; and/or pay dividends/buy back shares 32
Slide 33: Analyst coverage
Analyst coverage Deutsche Securities Tim Clark tim.clark@db.com Afrifocus Securities Richard Hart richard.hart@afrifocus.co.za Prescient Securities Willem Venter willem@prescient.co.za Reports due out soon HSBC (London) Shamim Mansoor shamim.mansoor@hsbcib.com Macquarie (JHB) Avishkar Nagaser avishk
Slide 34: Consensus analyst forecast
Consensus analyst forecast* 2008 2009 FeCr price ($/lb) $1.82 $2.15 Sales – MRF share (tonnes) 300,000 304,000 Exchange rate (R:$) R7.84 R8.26 EPS (cents) 54c 76c * Based on research published since 15 April 2008 34
Slide 35: www.meraferesources.co.za
www.meraferesources.co.za 35
Slide 36: Austenitic vs ferritic grade Stainless Steel
Austenitic vs ferritic grade Stainless Steel • Switch taking place from austenitic to ferritic grade Stainless Steel (now 60:40 vs 75:25) • Ferritic grades (400 series) Cr 12% to 17% No nickel Price of CR 430 (17% Cr) currently $2,900t • Cr accounts for 26% ($754) • Iron, production costs & pro
Slide 37: Debt and facilities
Debt and facilities At 31 December 2007 • R350m long-term debt • R120m preference shares (non-convertible) • R147m owed to Xstrata • R200m overdraft • R140m debtors discounting facility 37