Merafe Resources Limited · JSE:MRF
Merafe Resources — Non-Deal Roadshow (October 2009)
49 slides from Merafe Resources's roadshow presentation, October 2009
Slide 1: Merafe Resources Limited U.S.A. Roadshow
Merafe Resources Limited U.S. A. Roadshow 12-15 October 2009
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: Contents
3 Contents 1. Corporate Information 2. Operations overview 3. Market review 4. Financial overview 5. Outlook 6. Appendix I ( analyst coverage) 7. Appendix II ( six months financial results to 30 June 2009)
Slide 4: 1. Corporate Information
1. Corporate Information
Slide 5: Corporate Structure
5 Corporate Structure Merafe Xstrata Alloys 20.5% of EBITDA 79.5% of EBITDA *Xstrata-Merafe Chrome Venture (formed 1 July 2004) * Largest ferrochrome producer in the world
Slide 6: Share price information
6 Share price information ZAR USD Market capitalisation* 3.84 bn 518m Share price* 1.56 0.21 12 month high 1.70 0.23 12 month low 0.55 0.07 Shares outstanding 2.46 billion shares *As at 7 October 2009
Slide 7: Merafe's share price performance from 2008 to 2009
7 Merafe’s share price performance from 2008 to 2009 180.00 Merafe‟s share price performance relative to: 160.00 • FTSE/JSE Mining Index • FTSE/JSE General Mining Index 140.00 120.00 100.00 80.00 60.00 40.00 20.00 08/05/20 09/07/14 08/01/01 08/01/29 08/02/26 08/03/25 08/04/22 08/06/17 08/07/15 08/08
Slide 8: Shareholder analysis
8 Shareholder analysis Shareholders at end of September 2009 SA Free float Royal Bafokeng 38.5% 29% (Dec'08 : 42%) ( Dec'08 : 29%) Offshore Free float IDC 22% 10.5% (Dec'08 : 22%) (Dec'08 : 7%)
Slide 9: Global ferrochrome production
9 Global ferrochrome production 2008 Market share by production Vargön Alloys - HCFeCr 1% Other China 14% 19% ASA Metals Zimasco 2% 2% Chelyabinsk Ferbasa 2% 2% International Ferro Metals Xstrata Merafe PSV 3% 19% Assmang Chrome 3% Outokumpu 3% Hernic Ferrochrome 5% Samancor Chrome ENRC 11% 14%
Slide 10: 2. Operations overview
2. Operations overview
Slide 11: Operations overview
11 Operations overview SMELTERS CAPACITY Wonderkop 553 kt pa – 6 furnaces Conventional Rustenburg 430 kt pa – 6 furnaces Conventional Boshoek 240 kt pa – 2 furnaces Outokumpu Lydenburg 396 kt pa – 4 furnaces Premus Lion 360 kt pa – 2 furnaces Premus Total • 1 979 kt pa in production capacity 5 Produ
Slide 12: Xstrata-Merafe production capacity utilisation
12 Xstrata-Merafe production capacity utilisation • Global economic conditions necessitated the following actions by the Venture: 6 furnaces temporarily suspended in November 2008 a further 5 furnaces suspended in December 2008 6 further furnaces suspended in January 2009 total suspended fur
Slide 13: Update on the power situation (Eskom)
13 Update on the power situation (Eskom) • During the past 18 months, there was a 4% decline in electricity demand • Electricity demand is rebounding fast with 5% growth expected during 2009 (mainly on alloy restarts) with 2-3% growth expected thereafter • From Eskom‟s lows of January/February 2008,
Slide 14: Costs of electricity continues to be a challenge - Lion Ferrochrome
Costs of electricity continues to be a challenge 14 - Lion Ferrochrome The Venture anticipated the changes in the South African electricity tariffs and invested in efficiencies: 5 Specific Energy Consumption 4.8 (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: Bokamoso – improved energy consumption
Bokamoso – improved energy consumption 15 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 16: 3. Market review
3. Market review
Slide 17: Crude stainless steel production
17 Crude stainless steel production 2007 2008 2008/2007 2009 2009/2008 2010 „000 t „000 t % „000 t % „000 t (estimate) (forecast) NAFTA 2,171 1,925 -11.3% 1,632 -15.2% 2,010 European Union 8,109 7,822 -3.5% 5,682 -27.3% 5,986 Japan 3,901 3,564 -8.6% 2,473 -30.6% 2,845 S.Korea/Taiwan/India 5,305 4,45
Slide 18: Stainless steel melting capacity utilisation 1st HY 2009
Stainless steel melting capacity utilisation 18 1st HY 2009 China 100.0 South Africa 82.1 India 78.7 Brazil 73.9 Taiwan 63.5 South Korea 60.0 USA 53.3 Japan 50.7 Europe 50.5 Total 71.1 0 10 20 30 40 50 60 70 80 90 100 in % Source: Heinz Pariser
Slide 19: Crude stainless steel production – European Union & China
Crude stainless steel production – European Union 19 (EU) & China 3,000 China now #1 SS producer Quarterly Production in ´000 t 2,500 2,000 1,500 EU 1,000 500 China 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Heinz Pariser
Slide 20: Regional ferrochrome demand
20 Regional ferrochrome demand 2007 2008 2008/2007 2009 2009/2008 „000 t „000 t % „000 t % (estimate) NAFTA 455 502 10.3% 299 -40.4% European Union 2,080 1,993 -4.2% 1,269 -36.3% Japan 866 768 -11.4% 515 -33% S. Korea/Taiwan/India 1,326 890 -32.9% 958 7.6% Others 709 628 -11.4% 477 -24% China 2,577
Slide 21: Charge/High carbon ferrochrome production
21 Charge/High carbon ferrochrome production 2007 2008 2008/2007 2009 2009/2008 „000 t „000 t % „000 t % (estimate) Brazil 164 187 14% 172 -8% European Union 366 351 -4.1% 117 -66.7% Russia, Turkey, Albania 406 337 -17% 309 -8.3% India 820 750 -8.5% 765 2% Kazakhstan 1,070 955 -10.7% 874 -8.5% South
Slide 22: Venture's sales by region for the nine months to September'09
Venture’s sales by region for the nine months to 22 September’09 Other 5% USA 5% (2008: 8%) (2008: 12%) Asia 63% Europe 27% (2008: 40%) (2008: 40%)
Slide 23: Austenitic ratios – Nickel bearing stainless steel
23 Austenitic ratios – Nickel bearing stainless steel Changes in austenitic production ratios 70.00% 60.00% 50.00% 40.00% Cr Mn Ferritic 30.00% Austenitic 20.00% 10.00% 0.00% 2006 2007 2008 2009 (e) 2010 (f) Source: Heinz Pariser/Merafe Resources
Slide 24: Austenitic stainless grades – price components
22 Austenitic stainless grades 304 – price components Price Ratio Intrinsic Cr Value of Intrinsic Ni Value of Effective Price Effective Price in % in % 2000 7.4% 22.4% 2001 7.2% 18.0% 2002 6.7% 16.6% 2003 7.6% 18.8% 2004 8.6% 26.8% 2005 9.5% 30.5% 2006 6.7% 33.9% 2007 6.7% 61.4% 2008 16.3% 34.3% 200
Slide 25: Large rise in Chinese stainless steel production in 2009
Large rise in Chinese stainless steel production 25 in 2009 Source: Macquarie Research, September 2009
Slide 26: European benchmark ferrochrome prices
US$/lb 0 1 2 0.5 1.5 Q1'06 0.63 2.5 Q2'06 0.70 Q3'06 0.75 Q4'06 0.78 Q1'07 0.75 from the lows of Q2’09 Q2'07 0.82 Q3'07 1.00 Q4'07 1.00 Q1'08 1.21 Q2'08 1.92 Q3'08 2.05 European benchmark ferrochrome prices Q4'08 1.85 Q1'09 0.79 Q2'09 0.69 Q3'09 0.89 Q4'09 1.03 Charge Chrome prices starting to show
Slide 27: 4. Financial overview
4. Financial overview
Slide 28: Key features for the six months ended June 2009
28 Key features for the six months ended 30 June 2009 Revenue down by 49% to R824 million Net financing costs down by 96% Headline loss of R84 million equating to a loss of 3c per share Cash flows from operations of R144 million Strong cash balance of R466 million Ferrochrome inventory r
Slide 29: Summary of cash flows for the six months to June 2009
Summary of cash flows for the six months to 29 30 June 2009 R’m Opening cash balance 1 January 2009 540 Cash flows after interest from operations 142* Taxation paid (accrual 31 Dec 2008) (88) Capital expenditure (84) Forex loss on US$ cash held (44) Closing cash balance 30 June 2009 466 * After acco
Slide 30: Financial performance over the last three years
30 Financial performance over the last three years Revenue 3,000 2,781 2,500 2,000 ZARm 1,656 1,500 1,030 1,000 824 500 0 2006 2007 2008 Jun-09 Revenue 6 months EBITDA 2,000 1,612 1,500 ZARm 1,000 465 500 179 -75 0 2006 2007 2008 Jun-09 (500) EBITDA 6 months
Slide 31: Financial performance over the last three years (cont.)
Financial performance over the last three years 31 (cont.) EBITDA and margin evolution 2,000 70% 58% 60% 1,500 50% ZARm 40% 1,000 28% 30% 17% 20% 500 10% -9% 0 0% 2006 2007 2008 Jun-09 -10% (500) -20% EBITDA % Margin 6 months Net profit after tax 1,200 1,028 1,000 800 600 ZARm 400 240 160 200 -84 0
Slide 32: Financial performance over the last three years (cont.)
Financial performance over the last three years 32 (cont.) Earnings per share 50 42 40 Cents 30 20 10 10 7 -3 0 (10) 2006 2007 2008 Jun-09 Eps 6 months Net asset value per share 120 101 97 100 80 Cents 59 60 48 40 20 0 2006 2007 2008 Jun-09 NAV per share 6 months
Slide 33: Financial performance over the last three years (cont.)
Financial performance over the last three years 33 (cont.) Net (debt) / cash position 400 173 200 100 0 2006 2007 2008 Jun-09 ZARm (200) (400) (600) (800) (801) (787) (1,000) Net (debt) Net cash
Slide 34: Working capital requirements in second half of 2009
Working capital requirements in second half 34 of 2009 Expect cash to be “locked-up” in working capital for the remainder 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 35: Production costs
35 Production costs • Despite improved efficiencies, production costs continue to be a challenge • Looking forward at production costs Merafe sees: electricity prices increasing by an announced 31.3% from 1 July 2009 reduced inflation dollar denominated costs such as shipping and reductants re
Slide 36: Substantial rises in Chinese stainless production from end-2008 lows
Substantial rises in Chinese stainless production 36 from end-2008 lows Source: CSSC, Macquarie Research, September 2009
Slide 37: Points of caution
37 Points of caution Some of the immediate concerns to the Company are as follows: • Risk of ferrochrome producers ramping up too quickly and possibly oversupplying the market • Over reliance on Chinese stainless steel production with the rest of the world recovering slowly stainless orders in Eur
Slide 38: Barriers to entry
38 Barriers to entry Low barriers to entry in South Africa, a thing of the past: Pre 2008 • Capital cost of building smelters up by over 500% • Long lead time for critical items needed for construction • Shortage of available quality ore reserves • Shortage of artisans and skilled labour Post 2008 •
Slide 39: 5. Outlook
5. Outlook A r “.? - * yi wee AOS g 7» vate is ave i
Slide 40: Outlook
40 Outlook • Recovery of global stainless steel production likely to continue • Stainless steel production for 2010 estimated at 28.7 million tonnes, a 13.8% increase y-o-y • Demand mainly from Asia with Europe still restocking • Global ferrochrome stockpiles have reduced • Ferrochrome inventory lev
Slide 41: Outlook (cont.)
41 Outlook (cont.) • 16% increase in European benchmark ferrochrome price in Q4‟09 to $1.03 • Size and flexibility of the Venture provide an advantage • Venture‟s retention of its skilled labour force has proved very beneficial • Venture has increased production to 85% of annual operating capacity •
Slide 42: Charge chrome price development
42 Charge chrome price development 2 .50 Realistic Price Forecast (in 2008 US$) 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 Pariser
Slide 43: www.meraferesources.co.za
www.meraferesources.co.za
Slide 44: Appendix I Analyst coverage
Appendix I Analyst coverage
Slide 45: Analyst coverage of Merafe Resources
45 Analyst coverage of Merafe Resources Tim Clark Deutsche Bank Email : tim.clark@db.com Avishkar Nagaser Macquarie First South Email: avishkar.nagaser@macquarie.com Willem Venter Prescient Securities Email: willie@prescient.co.za Richard Hart Afrifocus Securities Email: richardh@afrifocus.co.za
Slide 46: Appendix II Six months financial results to June 2009
Appendix II Six months financial results to 30 June 2009
Slide 47: Group Condensed Statement of Comprehensive Income
Group Condensed Statement of Comprehensive 47 Income 6 months ended 6 months ended 30 June 2009 30 June 2008 Reviewed Reviewed R’000 R’000 Revenue 824,081 1,627,610 EBITDA (74,737) 893,601 Depreciation (50,507) (28,157) Net financing costs (1,145) (28,097) (Loss)/profit before taxation (126,389) 837
Slide 48: Group Condensed Statement of Financial Position
48 Group Condensed Statement of Financial Position As at As at 30 June 2009 31 December 2008 Reviewed Audited R’000 R’000 Assets Non-current assets 1,918,383 1,861,185 Property, plant and equipment 1,918,383 1,861,185 Current assets 1,614,782 1,893,165 Inventories 798,304 1,067,153 Trade and other r
Slide 49: Group Condensed Statement of Financial Position (cont.)
Group Condensed Statement of Financial Position 49 (cont.) As at As at 30 June 2009 31 December 2008 Reviewed Audited R’000 R’000 Equity and liabilities Equity 2,398,272 2,479,338 Share capital 24,593 24,593 Share premium 1,244,072 1,244,072 Equity settled share-based payment reserve 18,706 15,586 R