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Merafe Resources Ltd | Results presentation for the year ended 31 December 2017i
PRESENTED BY ZANELE MATLALA (CEO) AND KAJAL BISSESSOR (FD)
RESULTS
PRESENTATIONFOR THE SIX MONTHS ENDED 30 JUNE 2018
Presented by Zanele Matlala (CEO) and Kajal Bissessor (FD)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 Resources Limited 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 Limited 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The information contained herein shall not be published, rewritten for broadcast or publication or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 Limited. 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.
KEY AGENDA
Merafe Resources Ltd | Results presentation for the six months ended 30 June 20183
1. Key highlights
2. Market review
3. Operational review
4. Financial review
5. Dividends
6. Outlook
Merafe Resources Ltd | Results presentation for the six months ended 30 June 20184
Key highlights1
Pleasing performance within the context of a volatile operating environment
Merafe Resources Ltd | Results presentation for the six months ended 30 June 20185
Safety
• 2.4% improvement in TRIFR* from
December 2017;
• Safety remains priority and a critical focus
area.
Operational
• 2.3% period on period decrease in
production;
• Production equivalent to installed
capacity of 88%;
• Production cost per tonne increase
managed to 4.8%.
Market
• Global stainless steel production grew
by 10% to 25.6m tonnes, period on
period;
• Volatile pricing environment as market
readjusts;
• Growth in stainless steel production
underpins industry outlook.
Financial
• 5.5% period on period increase in revenue;
• 12.9% decrease in HEPS to 16.9 cents;
• Declared interim cash dividend of R200m;
• Net cash balance of R331m.**
* Total recordable injury frequency rate.
** Net cash includes cash and cash equivalents, bank overdraft and working capital loan.
Merafe Resources Ltd | Results presentation for the six months ended 30 June 20186
Market review2
China remains the key player in stainless steel, accounting for 50% of global production and 58% of global ferrochrome demand
Merafe Resources Ltd | Results presentation for the six months ended 30 June 20187
Source: CRU
Global Stainless Steel Production
(H1 2018)
Global Ferrochrome Demand
(H1 2018)
58%
11%
5%
5%
20%
China Europe Japan USA Other
50%
15%
6%
6%
22%
China Europe Japan USA Other
Sector fundamentals remain strong
Merafe Resources Ltd | Results presentation for the six months ended 30 June 20188
Source: CRU
1.5 1.4 1.5
3.9 3.5 3.9
1.6 1.6 1.6
12.1 13.7 12.8
4.2
5.0 5.7
0
5
10
15
20
25
30
H1 2017 H2 2017 H1 2018
Global Stainless Steel Production(mt)
USA Western Europe Japan China Other
23.2 mt
25.2 mt25.6 mt
0.3 0.3 0.3
0.7 0.7 0.7
0.3 0.4 0.4
3.5 4.0 3.7
0.9
1.2 1.3
0
1
2
3
4
5
6
7
H1 2017 H2 2017 H1 2018
Global Ferrochrome Demand(mt)
USA Western Europe Japan China Other
5.8 mt
6.5 mt 6.5 mt
Ferrochrome production reacted to market conditions; Ore imports into China increased in the first five months
Merafe Resources Ltd | Results presentation for the six months ended 30 June 20189
Source: CRU
2.2
2.72.4
2.0
1.6 2.0
0.60.7 0.6
0.30.2
0.4 0.60.7
0.6 0.40.3
0.4
0
1
2
3
4
5
6
7
H1 2017 H2 2017 H1 2018
Global Ferrochrome Production (mt)
China South africa India Europe Kazakhstan Other
6.0 mt6.3 mt
6.6 mt
5.8 mt
6.5 mt
0
1
2
3
4
5
6
7
First 5 months 2017 First 5 months 2018
Chrome Ore Imports into China (mt)
2018 Ferrochrome price environment characterised by some volatility
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201810
UG2 Metal Bulletin 42%
(USD/t)
Metal Bulletin Chinese charge
chrome 50% (USc/lb)European Benchmark
Ferrochrome Price (USc/lb)
-
40
80
120
160
200
Jan
-17
Fe
b-1
7M
ar-
17
Ap
r-17
Ma
y-1
7Jun
-17
Jul-1
7A
ug-1
7S
ep-1
7O
ct-
17
Nov-1
7D
ec-1
7Jan
-18
Fe
b-1
8M
ar-
18
Ap
r-18
Ma
y-1
8Jun
-18
Jul-1
8 -
50
100
150
200
250
300
350
400
450
Jan
-17
Fe
b-1
7M
ar-
17
Ap
r-17
Ma
y-1
7Jun
-17
Jul-1
7A
ug-1
7S
ep-1
7O
ct-
17
Nov-1
7D
ec-1
7Jan
-18
Fe
b-1
8M
ar-
18
Ap
r-18
Ma
y-1
8Jun
-18
Jul-1
8
-
30
60
90
120
150
Jan
-17
Fe
b-1
7M
ar-
17
Ap
r-17
Ma
y-1
7Jun
-17
Jul-1
7A
ug-1
7S
ep-1
7O
ct-
17
Nov-1
7D
ec-1
7Jan
-18
Fe
b-1
8M
ar-
18
Ap
r-18
Ma
y-1
8Jun
-18
Jul-1
8
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201811
Operational review
3
Ensuring the safety of all our employees remains key to building a sustainable production environment
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201812
• Overall, TRIFR improved by 2.4% to 3.65 compared to December 2017;
• Safety remains the number one priority for the Venture with a goal of achieving zero harm;
• Education and good decision making are key to building a sustainable safety culture.
4.00 4.15
3.78 3.74 3.65
-
1
2
3
4
5
H1 2016 FY 2016 H1 2017 FY 2017 H1 2018
/ m
illi
on
ho
urs
wo
rke
d
Total Recordable Injury Frequency Rate (TRIFR)
Reaping rewards of initiatives undertaken to drive efficiency
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201813
• Ferrochrome production decreased by 2.3% period on period to 211kt;
• The production for the period is equivalent to an installed capacity of 88%;
• Venture’s operations were not significantly impacted by the electricity supply constraints;
• Wage negotiations
▪ East - successfully implemented
▪ West - ongoing
196 197
216
179
211
-
50
100
150
200
250
H1 2016 H2 2016 H1 2017 H2 2017 H1 2018
Total Ferrochrome Production (kt)
Total costs well managed within a high mining inflation environment
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201814
• Total costs per tonne of ferrochrome produced increased by 4.8% compared to 31 December
2017 with key contributors being:
− Increase in reductant prices due to change in mix;
− Increases in electricity prices of 5.3%, effective 1 April 2018.
• C3 Production costs can be broken down into the following main categories:
35%
14%22%
16%
13%
H1 2018
33%
13%23%
16%
15%
FY 2017
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201815
Financial overview
4
Increase in revenue and healthy profit
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201816
27.1% Chrome ore revenue
+ Higher prices
- Lower sales volumes
- Stronger Rand
260
518
298
428
378
0
100
200
300
400
500
600
H1 2016 H2 2016 H1 2017 H2 2017 H1 2018
Chrome Ore RevenueR'm
2.3
18.919.4
17.0 16.9
0
5
10
15
20
25
H1 2016 H2 2016 H1 2017 H2 2017 H1 2018
HEPS(cents)
2153
2770
2282
2881
2342
0
500
1000
1500
2000
2500
3000
3500
H1 2016 H2 2016 H1 2017 H2 2017 H1 2018
Ferrochrome Revenue R'm
5.5% increase in total revenue period on period to R2.7bn
2.6% Ferrochrome revenue
+ Higher sales volumes
- Stronger Rand
- Lower prices
EBITDA reconciliation to profit
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201817
814
425
(18)(204)
(3) (184)
19
0
100
200
300
400
500
600
700
800
900
1000
Merafe's 20.5%EBITDA from the
Venture
Corporate costs Depreciation Net financing cost Current taxexpense
Deferred taxincome
Profit
R'm
illio
n
Continue to drive efficiencies
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201818
H1 2018 H1 2017 H2 2017
R’m R'm R’m
Ferrochrome revenue 2 342 2 282 2 881
Chrome ore revenue 378 298 428
Foreign exchange gain/(loss) 103 (50) (23)
Operating expenses (1) (2 009) (1 643) (2 468)
Merafe EBITDA 814 887 818
Merafe corporate costs (2) (18) (22) (18)
Depreciation (3) (204) (165) (203)
Net financing (costs)/income (4) (3) (24) 5
Current tax expense (5) (184) (282) (129)
Deferred tax income/(expense) (6) 19 92 (45)
Profit after tax 424 486 428
HEPS (cents) 16.9 19.4 17.0
(1) Other operating expenses
• Higher sales volumes and increase in operating costs.
(2) Merafe corporate costs
• Decrease due to lower CSI spend in 2018.
(3) Depreciation
• Driven by accelerated depreciation arising from the
scrapping of assets and the reassessment of residual values
to zero in the second half of 2017.
(5) Current tax
• Current tax decrease reflects lower taxable income.
(6) Deferred tax
• Deferred tax income due to temporary and timing
differences on property, plant and equipment, the embedded
derivative and provisions.
H1 2018 versus H1 2017:
(4) Net financing (costs)/income
• Driven by lower debt levels.
• Includes unwinding of discount on rehabilitation provision.
Strengthening of the balance sheet enables greater flexibility in the future
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201819
As at As at
30 June 31 December
2018 2017
R'000 R'000
Current assets
Inventories (1) 1 881 387 1 497 798
Trade and other receivables (2) 1 167 839 883 249
Cash and cash equivalents 341 232 671 655
Total current assets 3 390 458 3 052 702
Total assets 6 635 375 6 355 447
(1) Inventories
• Increase mainly due to higher finished goods on hand
as result of production being higher than sales and
higher production costs;
• Finished goods on hand is about four to five months of
sales.
(2) Trade and other receivables
• Driven by weaker closing Rand/USD exchange rate;
• Earlier than expected receipts in December 2017.
-800
-600
-400
-200
-
200
400
600
800
H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018
Historical Venture working capital movements(Merafe’s portion)
R’million
• Significant volatility in working capital arising from
• Exchange rate fluctuations;
• Pricing;
• Volumes;
• Seasonality;
• Composition of sales (Chinese versus non-Chinese)
Reconciliation of net cash
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201820
* Cash from operating activities plus movement of working capital loan.
600
331
159* (174)
(226)
(28)
0
100
200
300
400
500
600
700
800
Opening Cash from operatingactivities
Sustaining capex Dividend Exchange ratefluctuations
Closing
R'm
illio
n
Remarkable reduction in debt levels over three year period
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201821
(1,200)
(1,000)
(800)
(600)
(400)
(200)
-
200
400
600
800
2015 H1 2015 H2 2016 H1 2016 H2 2017 H1 2017 H2 2018 H1
¹Merafe’s 20.5% of the Venture’s $120 million overdraft facility
²Merafe’s 20.5% of the Venture’s $100 million working capital loan
³Unsecured, 3 year Revolving Credit Facility at Merafe level concluded with ABSA in H2 2017.4Net cash/(debt) includes cash and cash equivalents, bank overdraft, working capital loans and debt.
Merafe and
Venture Cash
Working
Capital loan
Merafe Head
Office debtTotal
R'm R'm R'm R'm
Closing net cash/(debt)4 331 - - 331
Total facilities (337)¹ (281)² (200)³ (818)
Total facilities utilised 10 - - 10
Headroom (327) (281) (200) (808)
At 30 June 2018
Net cash/(debt)⁴
R’million
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201822
Dividends5
Record interim dividend
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201823
25 30 20
100
75
226
200
-
50
100
150
200
250
H1 2015 H2 2015 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018
R m
illio
n
16%
23%
33%
47%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2015 2016 2017 H1 2018
Dividend as a percentage of profit
Dividend guidelines
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201824
• At least 30% of headline earnings;
• Special dividend/share buy-backs dependent on cash position;
• Excess cash above R50m at Merafe level to be distributed to shareholders;
▪ R50m retained to fund head office costs;
• Merafe portion of the cash in the venture of between R100m and R200m
retained to fund working capital and sustaining capex.
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201825
Outlook6
Outlook
Merafe Resources Ltd | Results presentation for the six months ended 30 June 201826
• Stainless steel production is currently forecast to grow in excess of
3.5% per annum over the next 3 years;
• Volatile pricing and exchange rate environment continue;
• Remain committed to maximising shareholder returns.
Source: CRU
Merafe Resources Ltd | Results presentation for the year ended 31 December 2017i
QUESTIONS?