mining, global player, ferrochrome, safety, partnerships, jse sri … · 2013. 5. 22. · mining,...

Merafe Resources Ltd results presentation for the six months ended 30 June 2012

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partnerships, JSE SRI index, diversification,

joint venture, South Africa, communities,

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Results Presentation For the six months ended 30 June 2012

Presented by Zanele Matlala and Kajal Bissessor

Merafe Resources Limited

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

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

Resources to be reliable but no warranty is given that such information is accurate or

complete and it should not be relied upon as such. Views and opinions expressed in this

presentation reflect the judgment of Merafe Resources as of the date of this presentation and

are subject to change. Merafe Resources will not be responsible for any liability for loss or

damage of any kind which arises, directly or indirectly, and is caused by the use of any of the

information provided. The entire presentation is subject to copyright with all rights reserved.

The information contained herein shall not be published, rewritten for broadcast or publication

or redistributed in any medium without prior written consent from Merafe Resources.

Prospective investors should take appropriate investment advice and inform themselves as to

applicable legal requirements, exchange control regulations and tax considerations in the

countries of their citizenship, residence or domicile. The distribution of the information

contained in this presentation in certain countries may be restricted by law and persons who

access it are required to inform themselves and to comply with any such restrictions. This

information does not constitute an offer or solicitation in any jurisdiction in which such an offer

or solicitation is not authorised or to any person to whom it is unlawful to make such an offer

or solicitation. Past performance is not a guarantee of future performance. The price of shares

can go down as well as up and may be affected by change in exchange rates, market

conditions and risks associated with a mining venture.

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

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 4.5%, period on period, despite

high mining inflation levels. We closed the period with a cash balance of R80m

and have undrawn debt facilities with ABSA of approximately R500m. I am also

pleased to report that project Tswelopele, our new pelletiser at the Rustenburg

plant is on track and on budget and will be commissioned in the second half of

this year. Our flagship project, Lion II, is also within budget and on track to be

completed in the second half of 2013.” Zanele Matlala


4


Agenda

1. Key features

2. Sustainability

3. Market review

4. Financial review

5. Project pipeline

6. Outlook and way forward

Appendices



Workers in the metal extraction plant at Boshoek ferrochrome plant performing a visual inspection of moving

parts in the plant

1. Key features


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 budget - expected to be

commissioned in H2 2012

• Lion II is on track and on budget - expected to be commissioned

in H2 2013



The sustainable development team at the Lion ferrochrome plant records the details of an indigenous plant being

relocated to make way for a new development at the plant in Limpopo province

2. Sustainability


8


Sustainability

• Safety

– TRIFR improved by 7%

• Labour and Community unrest

– Impacted Project Lion II



Maintenance work under way on the tailings dam at Boshoek ferrochrome plant in North West province

3. Market review


10


-

002

004

006

008

010

012

014

016

018

020

Others India NAFTA Japan S. Korea/Taiwan European Union China Total

2011 June YTD Actual tonnes in millions

2012 June YTD Estimated tonnes inmillions

7%

(1%)

0.60/0.59 1.07/1.21 4.11/4.06

Marginal increase in stainless steel production

2012 2011 Change

Full year tonnes in millions

*Estimate

35.4* 34.1 4%

(2%) 13% (13%)

(6%)

2%

0.6%

1.17/1.02 1.69/1.59 1.63/1.74 7.26/7.42 17.53/17.63

Source:

Heinz H. Pariser July 2012


11


2% increase in global ferrochrome demand

0

1000

2000

3000

4000

5000

6000

NAFTA Japan Others S. Korea, Taiwan,India

EU China Total

2011 June YTD Actual tonnes in '000

2012 June YTD Estimated tonnes in '000

277/261 344/339 368/421 4957/5046

(6%) (1%) 14%

19% (6%)

2%

656/778 936/877 2376/2370

2012 2011 Change

Full year tonnes in ‘000 *Estimate

10 023* 9 554 5%

Source:



12


9/24 76/78 89/110 158/162 167/183 540/580 4730/4808 556/557 0

1000

2000

3000

4000

5000

6000

Iran, Oman Brazil Zimbabwe Russia,Turkey,Albania

EU India Kazakhstan China South Africa Total

2011 June YTD Actual tonnes in '000

2012 June YTD Estimated tonnes in '000

167%

Ferrochrome production

in China grew from 5%

in 2001 to 33% in H1

2012

2% increase in global ferrochrome supply

3% 24% 3% 10% 7%

18% (15%)

2%

1331/1575 1804/1539

2012 2011 Change

Full year tonnes in ‘000 *Estimate

9 646* 9 183 5%

Source:



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 235 208 201

Philippines 109 137 150

Brazil - 60 77

Kazakhstan 19 94 243

Others 46 149 172

Total 4 439 9 444 8 667

Source:

Chinese Customs / July 2012


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


• Eurozone debt crisis and US debt ceiling

debacle coupled with the Chinese New

Year resulted in an unstable market at the

end of 2011

• The Q1 2012 ferrochrome price was

settled 4% down

• Improved sentiment in Europe and a good

start to the US earnings season as well

as SA Eskom buy back arrangements

resulted in ferrochrome prices improving

by 17% in Q2 2012

• Renewed concerns over European debt,

lower growth rates in China, lower nickel

prices as well as general weaknesses

across the global economy resulted in a

7% decrease in the ferrochrome price

Volatility in the market in the first half of 2012

Ferrochrome price overview

Q4 2011 120 USc/lb

Q1 2012 115 USc/lb

Q2 2012 135 USc/lb

Q3 2012 125 USc/lb

15



Boshoek ferrochrome plant in the North West province

4. Financial review


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


18


Revenue decreased by 7%

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 benchmark ferrochrome price in Usc/lb 125.00 130.00 (4%)

Chrome ore revenue as a percentage of total revenue increased from 11% in the first half of 2011 to 14% in the

first half of 2012

– Reduced ferrochrome sales tonnes

– Reduced ferrochrome sales prices

+ Weaker Rand

+ Increase in chrome ore sales


19


Reconciliation of EBITDA to profit

279

138

(10)

(16)

(68)

(47)

0

50

100

150

200

250

300

Merafe's 20.5% of EBITDAfrom the Venture

Corporate costs Depreciation Net financing costs Taxation expense Profit

R‘m

illio

ns


20


EBITDA increased by 28%

• Production costs per tonne increases contained at 4.5%

• Non-recurring 2011 indirect tax charges of R30m


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 Venture

and Eskom

• No job losses


22


Balance sheet

As at

30 June 2012

As at

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 equivalents 79 625 220 459

Total assets 4 099 713 3 922 138


23


Balance sheet

As at

30 June 2012

As at

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 355 965 396 092

Trade and other payables 352 229 375 946

Loans and borrowings 592 508

Financial liability 3 144 6 098

Current tax liability – 13 540

Total liabilities 1 303 809 1 263 470


24


Cash flows from operations of R134m

220

80

134

(14)

(11)

(164)

(78) (7)

0

50

100

150

200

250

300

350

400

Balance at 1January 2012

Cash flowsfrom operations

Net financingcosts

Expansionarycapex

Sustainingcapex

Current Taxpaid

Exchange ratefluctuations

Balance at 30June 2012

R'm

illio

ns


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 facility (Merafe’s portion at 20.5%) 180

Total facilities available 760



Lion I: a worker inside the Furnace Workshop store is attending to some of the routine maintenance on specialist

equipment

5. Project pipeline


27


Projects are on track and on budget

Description

Project Cost

(Merafe’s portion

at 20.5%)

Completion

Date Progress

1

Lion II smelter complex

360 000 tpa of ferrochrome smelting

capacity and development of

Magareng mine

R1bn H2 2013

On track to be

completed within

schedule/budget

2

Project Tswelopele

600 000 tpa pelletising and sintering

plant at Rustenburg smelter

R190m H2 2012

On track to be

completed within

schedule/budget

3 Horizon mine development

480 000 tpa R66m H1 2013

On track to be

completed within

schedule/budget



6. Outlook and the way forward

The Lion ferrochrome plant at Steelpoort, Limpopo province, which the lowest-cost producer of ferrochrome in

the Venture. The plant uses the Venture’s proprietary Premus technology


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

positioned for the upturn in global demand


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

30


31

Questions



The sustainable development team at the Lion ferrochrome plant in Limpopo province inspect a lining laid in

preparation for the construction of a tailings dam. The lining prevents any leakage from the tailings dam

7. Appendices


33


Stainless steel cluster

100

400

700

1,000

1,300

1,600

1,900

2,200

2,500

2,800

3,100

3,400

3,700

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Ind

ex

po

ints

External Stainless Scrap

G. R.: 7.9%

Stainless Steel

G. R.: 5.3%

Chrome

G. R.: 4.2%

Nickel

G. R.: 3.6%Molybdenum

G. R.: 3.9%

Source:



34


4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

2000 2002 2004 2006 2008 2010 2012 2014

in M

ill t

Cru

de

Sta

inle

ss S

tee

l

Source: Heinz H. Pariser

9/11

Destocking

Nickel Price

Bubble

Financial

CrisisDemand

Supply

Demand

Forecast

Stainless steel supply and demand balance

Source:



35


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Sh

are

of

Pro

du

cti

on

, in

%

2002 2013201120102009200820072006200520042003

300 Series

200 Series

400 Series

2012

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)

Source:


mining, global player, ferrochrome, safety, partnerships, jse sri … · 2013. 5. 22. · mining,...

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