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Zanele Matlala, Merafe Resources CEO

During the first six months of 2017, Merafe delivered a solid performance with significant increases in production, revenue and  headline earnings per share (HEPS) relative to the first half of 2016.

Despite the secular trends for the industry such as Chinese demand for stainless steel remaining positive, short-term volatility across commodities remains, given the backdrop of an uncertain geopolitical environment.

As such, Merafe has focused on building both operational flexibility and balance sheet strength to best
position the Company to navigate the various cycles and maximise return to shareholders.


Safety remains the number one priority of Merafe and the Glencore Merafe Chrome Venture (“the Venture”), and despite a 9% improvement in our total recordable injury frequency rate (TRIFR), it is with deep regret that we report a fatality at our Lion Plant on 21 March 2017.

Our condolences are extended to the family, friends and colleagues of Tshepo Braine Makola who sustained fatal

Ensuring the safety of all our employees remains a critical focus area and all efforts continue to be made to ensure that the highest standards of safety remain in place at all the Venture’s operations. Although the Venture’s TRIFR improved from 4.15 for the year ended 31 December 2016 to 3.78 for the six months ended 30 June 2017, there remains further work to be done as we seek to embed a safety culture into our operations and achieve our goal of achieving zero harm, through further safety campaigns and programmes.

Review of results

Merafe’s revenue and operating income is primarily generated from the Venture which is one of the global market leaders in ferrochrome production, with a total installed capacity of 2.3m tonnes of ferrochrome per annum. Merafe shares in 20.5% of the earnings before interest, taxation, depreciation and amortisation (EBITDA) from the Venture. Merafe has one reportable segment being the mining and beneficiation of chrome ore into ferrochrome and as a result no segment report has been presented.

Merafe’s share of revenue from the Venture increased by 7% from the prior period to ZAR2 580m. Ferrochrome revenue increased by 6% period on period to ZAR2 282m primarily as a result of an increase in prices which was partially offset by a 28% decrease in ferrochrome sales volumes to 157kt and a 14.3% strengthening of the average Rand:Dollar exchange rate to ZAR13.2.

Chrome ore revenue increased by 15% period on period to ZAR298 million, driven by an increase in prices, and an increase in volumes to 146kt,  which was partially offset by the stronger Rand.

Merafe’s portion of the Venture’s EBITDA for the six months ended 30 June 2017 is ZAR887.1 million.

The EBITDA includes Merafe’s attributable share of standing charges of ZAR32.7 million and a foreign exchange loss of ZAR50.1 million.

After accounting for corporate costs of ZAR21.7 million, which includes a cash settled share based payment expense of ZAR2.8 million, Merafe’s EBITDA reached ZAR865.4 million. Corporate costs increased period on period primarily as a result of inflation as well as Corporate Social Investment Costs of ZAR3.4 million following a contribution to the Adopt-a-School Project.

This project relates to the renovations of science laboratories at two schools in the Rustenburg area.

Profit for the six months ended 30 June 2017 amounted to ZAR486.5 million, after taking into account depreciation of
ZAR164.9 million, net financing costs of ZAR23.8 million and taxation expense of ZAR190.2 million.

The taxation expense includes deferred tax income of ZAR91.5 million, which arose as a result of temporary differences on Property, Plant and Equipment, timing differences relating to provisions and accruals and the embedded derivative as per note 2.1.

There is no unredeemed capital balance at 30 June 2017 given the taxable profits exceeded capital expenditure.

Depreciation increased to ZAR164.9 million for the six months ended 30 June 2017 as a result of the accelerated depreciation arising from the scrapping of assets due to the reassessment of useful lives.

Net financing costs reduced as a result of the reduction in borrowings.

Sustaining capital expenditure incurred for the period was ZAR141.3 million and expansionary capital expenditure incurred for the period was ZAR0.8 million. 

During the reporting period, Merafe continued to reduce its total net debt to ZAR207.8 million, which was primarily as a result of repaying the majority of its head-office debt owing to ABSA and Standard Bank.

At period end, a balance of ZAR0.4m was owing to ABSA and Standard Bank with unutilised debt facilities of ZAR299.6 million.

Management are currently negotiating new debt facilities with ABSA which comprises a R200m unsecured, three-year revolving credit facility, which will replace the existing facility and will be utilised for general head-office costs. The previous ZAR800m facility was utilised primarily to finance Project Lion II which has since been completed.

At 30 June 2017, Merafe had a cash balance of ZAR122.4 million which comprised of cash held by Merafe of ZAR37 million and ZAR85.4 million being Merafe’s share of the cash balance in the Venture.

Inventories increased as a result of higher finished goods on hand at period end which is approximately four to five months of sales.

The increase is a function of higher production volumes compared to sales volumes.

The working capital loan at 30 June 2017 of ZAR329.8 millionwas reclassified as a current liability to more accurately reflect the nature of this item.

The balance at 31 December 2016 was reclassified as it was previously recognised as a reduction in trade and other receivables and is now recognised as a current liability.

The board of directors of Merafe declared an interim dividend of ZAR75.3 million. 


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