Slide 1: Results Presentation for the six months ended 30 June 2012
mining, global player, ferrochrome, safety, partnerships, JSE SRI index, diversification, joint venture, South Africa, communities, empowerment, Mining Charter, diversity, stainless steel, cooperation, social responsibility, assurance,`+ producer, skills profitability, loyalty, development, sharing,
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 Resource
Slide 3: Quote from the CEO
Quote from the CEO “I am delighted that in my first report as Chief Executive Officer I am able to advise you that despite the challenges in the first half of 2012, we achieved a 57% increase in our basic earnings per share, period on period. Production costs were contained at an overall increase of
Slide 4: Agenda
4 Agenda 1. Key features 2. Sustainability 3. Market review 4. Financial review 5. Project pipeline 6. Outlook and way forward Appendices Merafe Resources Ltd results presentation for the six months ended 30 June 2012
Slide 5: 1. Key features
1. Key features Merafe Resources Ltd results presentation for the six months ended 30 June 2012 Merafe Resources Ltd results presentation for the six months ended 30 June 2012 Workers in the metal extraction plant at Boshoek ferrochrome plant performing a visual inspection of moving parts in the pla
Slide 6: Key features for the period
6 Key features for the period • 7% decrease in revenue • Profit of R138m, increase of 57% in basic EPS • Cash flows from operations of R134m • Total recordable injury frequency rate improved by 7% • Contained mining costs despite high mining inflation levels • Project Tswelopele is on track and on b
Slide 7: 2. Sustainability
2. Sustainability Merafe Resources Ltd results presentation for the six months ended 30 June 2012 Merafe Resources Ltd results presentation for the six months ended 30 June 2012 The sustainable development team at the Lion ferrochrome plant records the details of an indigenous plant being relocated
Slide 8: Sustainability
8 Sustainability • Safety – TRIFR improved by 7% • Labour and Community unrest – Impacted Project Lion II Merafe Resources Ltd results presentation for the six months ended 30 June 2012
Slide 9: 3. Market review
3. Market review Merafe Resources Ltd results presentation for the six months ended 30 June 2012 Merafe Resources Ltd results presentation for the six months ended 30 June 2012 Maintenance work under way on the tailings dam at Boshoek ferrochrome plant in North West province
Slide 10: Marginal increase in stainless steel production
10 Marginal increase in stainless steel production 020 2011 June YTD Actual tonnes in millions 018 0.6% 2012 June YTD Estimated tonnes in 016 millions 014 012 010 008 2% 006 (1%) 004 002 13% (6%) 7% (2%) (13%) - 0.60/0.59 1.07/1.21 1.17/1.02 1.69/1.59 1.63/1.74 4.11/4.06 7.26/7.42 17.53/17.63 Others
Slide 11: 2% increase in global ferrochrome demand
11 2% increase in global ferrochrome demand 6000 2011 June YTD Actual tonnes in '000 2% 5000 2012 June YTD Estimated tonnes in '000 4000 3000 2000 1000 19% (6%) (6%) (1%) 14% 0 277/261 344/339 368/421 656/778 936/877 2376/2370 4957/5046 NAFTA Japan Others S. Korea, Taiwan, EU China Total India 2012
Slide 12: 2% increase in global ferrochrome supply
12 2% increase in global ferrochrome supply 6000 Ferrochrome production in China grew from 5% 5000 2011 June YTD Actual tonnes in '000 in 2001 to 33% in H1 2% 2012 June YTD Estimated tonnes in '000 2012 4000 3000 2000 (15%) 18% 1000 7% 3% 24% 3% 10% 167% 0 9/24 76/78 89/110 158/162 167/183 540/580 5
Slide 13: Chrome ore imports into China remain significant
13 Chrome ore imports into China remain significant 2012 (June YTD) 2011 2010 ‘000t ‘000t ‘000t South Africa 2 133 4 675 3 100 Turkey 832 1 612 1 933 Oman 222 645 902 India 201 439 389 Pakistan 215 440 512 Albania 122 357 363 Iran 253 330 350 Zimbabwe 1 212 160 Madagascar 51 86 115 Australia 235 208
Slide 14: What are we doing about this?
14 What are we doing about this? • Advancing our engagement with the South African government • A solution for the entire chrome value chain – Short term: chrome export levy on unbeneficiated ores – Long term: regulation of the supply of ore in line with demand Merafe Resources Ltd results presentat
Slide 15: Volatility in the market in the first half of 2012
15 Volatility in the market in the first half of 2012 • Eurozone debt crisis and US debt ceiling Ferrochrome price overview debacle coupled with the Chinese New Year resulted in an unstable market at the Q4 2011 120 USc/lb end of 2011 Q1 2012 115 USc/lb • The Q1 2012 ferrochrome price was settled 4%
Slide 16: 4. Financial review
4. Financial review Merafe Resources Ltd results presentation for the six months ended 30 June 2012 Merafe Resources Ltd results presentation for the six months ended 30 June 2012 Boshoek ferrochrome plant in the North West province
Slide 17: Weaker rand and contained costs result in higher profits
17 Weaker rand and contained costs result in higher profits • Profit of R138m in comparison to R86m • Production cost increases contained at 4,5% • Cash balance of R80m • Long Term Debt of R300m and unutilised ABSA facility of R500m Merafe Resources Ltd results presentation for the six months ended
Slide 18: Revenue decreased by 7%
18 Revenue decreased by 7% – Reduced ferrochrome sales tonnes – Reduced ferrochrome sales prices + Weaker Rand + Increase in chrome ore sales 2012 June YTD 2011 June YTD Reviewed Reviewed % Change Ferrochrome sales tonnes 123 900 146 100 (15%) Average exchange rate (Rand:USD) 7.90 6.90 14% Average b
Slide 19: Reconciliation of EBITDA to profit
19 Reconciliation of EBITDA to profit 300 279 250 (16) 200 (68) (10) R‘millions 150 138 (47) 100 50 0 Merafe's 20.5% of EBITDA Corporate costs Depreciation Net financing costs Taxation expense Profit from the Venture Merafe Resources Ltd results presentation for the six months ended 30 June 2012
Slide 20: EBITDA increased by 28%
20 EBITDA increased by 28% • Production costs per tonne increases contained at 4.5% • Non-recurring 2011 indirect tax charges of R30m Merafe Resources Ltd results presentation for the six months ended 30 June 2012
Slide 21: Power buy-back arrangement
21 Power buy-back arrangement • The Venture temporarily closed seven of its furnaces from February 2012 to May 2012 resulting in 130 000 lost ferrochrome tonnes • In return, Eskom bought back the energy not consumed by these seven furnaces • This resulted in a net positive impact for both the Ventur
Slide 22: Balance sheet
22 Balance sheet As at As at 30 June 2012 31 December 2011 Reviewed R’000 Audited R’000 Property, plant and equipment 2 541 110 2 372 768 Total current assets 1 558 603 1 549 370 Inventories 1 090 031 1 065 932 Trade and other receivables 362 845 262 979 Current tax asset 26 102 – Cash and cash equi
Slide 23: Balance sheet
23 Balance sheet As at As at 30 June 2012 31 December 2011 Reviewed R’000 Audited R’000 Total non-current liabilities 947 844 867 378 Loans and borrowings 312 477 312 778 Provision for close down and restoration costs 50 109 48 396 Deferred tax 585 258 506 204 Total current liabilities 355 965 396 0
Slide 24: Cash flows from operations of R134m
24 Cash flows from operations of R134m 400 134 350 (14) 300 250 220 R'millions 200 (164) 150 100 (78) 80 (7) (11) 50 0 Balance at 1 Cash flows Net financing Expansionary Sustaining Current Tax Exchange rate Balance at 30 January 2012 from operations costs capex capex paid fluctuations June 2012 Mera
Slide 25: Financing of Lion II – No rights issue expected
25 Financing of Lion II – No rights issue expected R’ millions Total Project cost (Merafe’s portion at 20.5%) 1 000 Less: Capital expenditure to 30 June 2012 (240) Capital expenditure outstanding 760 Expected financing: Cash on balance sheet 80 ABSA debt – unutilised facility 500 Venture overdraft f
Slide 26: 5. Project pipeline
5. Project pipeline Merafe Resources Ltd results presentation for the six months ended 30 June 2012 Merafe Resources Ltd results presentation for the six months ended 30 June 2012 Lion I: a worker inside the Furnace Workshop store is attending to some of the routine maintenance on specialist equipme
Slide 27: Projects are on track and on budget
27 Projects are on track and on budget Project Cost (Merafe’s portion Completion Description at 20.5%) Date Progress Lion II smelter complex On track to be 360 000 tpa of ferrochrome smelting 1 R1bn H2 2013 completed within capacity and development of schedule/budget Magareng mine Project Tswelopele
Slide 28: 6. Outlook and the way forward
6. Outlook and the way forward Merafe Resources Ltd results presentation for the six months ended 30 June 2012 Merafe Resources Ltd results presentation for the six months ended 30 June 2012 The Lion ferrochrome plant at Steelpoort, Limpopo province, which the lowest-cost producer of ferrochrome in
Slide 29: Outlook
29 Outlook • We expect the stainless steel production to grow by 4% in 2012 and by 5% in the long-term which is expected to increase demand for ferrochrome • Lower production in South Africa is expected to result in tight supply • The Venture’s suite of energy efficient technologies leaves it well p
Slide 30: The way forward
30 The way forward Our goals remain focused: • To ensure our interests in the ferrochrome industry are profitable and sustainable • To continue with organic growth of our ferrochrome business • To grow through diversification Merafe Resources Ltd results presentation for the six months ended 30 June
Slide 31: Questions
31 Questions Merafe Resources Ltd results presentation for the six months ended 30 June 2012
Slide 32: 7. Appendices
7. Appendices Merafe Resources Ltd results presentation for the six months ended 30 June 2012 Merafe Resources Ltd results presentation for the six months ended 30 June 2012 The sustainable development team at the Lion ferrochrome plant in Limpopo province inspect a lining laid in preparation for th
Slide 33: Stainless steel cluster index points
33 Stainless steel cluster 3,700 3,400 External Stainless Scrap 3,100 G. R.: 7.9% 2,800 Stainless Steel 2,500 G. R.: 5.3% Index points 2,200 1,900 Chrome 1,600 G. R.: 4.2% 1,300 Nickel 1,000 G. R.: 3.6% Molybdenum 700 G. R.: 3.9% 400 100 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Me
Slide 34: Stainless steel supply and demand balance
34 Stainless steel supply and demand balance Source: Heinz H. Pariser 11.0 Demand 10.0 Forecast in Mill t Crude Stainless Steel 9.0 Nickel Price Bubble 8.0 Destocking 7.0 Supply 9/11 6.0 Financial 5.0 Crisis Demand 4.0 2000 2002 2004 2006 2008 2010 2012 2014 Merafe Resources Ltd results presentation
Slide 35: Stainless steel product mix
35 Stainless steel product mix 80.0 70.0 300 Series 60.0 300 Series (Austenitic: 17%-22% Share of Production, in % chrome & 7%-25% nickel, most corrosion resistant) 50.0 40.0 30.0 400 Series 400 Series (Ferritic: 10.5%-22% chrome, no nickel ) 20.0 200 Series (Chrome manganese: 16%-18% chrome, 2%-4%