| Tue 7 Aug 2007, 7:30 | | MRF - Merafe - Reviewed Results For The Six Months |
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MRF
MRF
MRF - Merafe - Reviewed Results For The Six Months Ended 30 June 2007
Merafe Resources Limited
(Incorporated in the Republic of South Africa)
(Registration number 1987/003452/06)
Share Code: MRF
ISIN: ZAE 000060000
("Merafe" or "the Company")
REVIEWED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007
REVENUE UP FROM R330 MILLION TO R730 MILLION
EBITDA UP FROM R4 MILLION TO R183 MILLION
EARNINGS PER SHARE UP FROM (1) CENT TO 4 CENTS
GROUP CONDENSED INCOME STATEMENT
6 months ended 6 months ended
30 June 2007 30 June 2006
Reviewed Unaudited
R`000 R`000
Revenue 729 833 330 293
EBITDA 183 348 4 008
Depreciation (18 001) (10 851)
Net financing costs (31 317) (18 991)
Profit/(loss) before taxation 134 030 (25 834)
Normal taxation (164) -
Deferred taxation (42 631) -
Secondary taxation on companies (1 388) (1 970)
Profit/(loss) for the period 89 847 (27 804)
Earnings/(loss) per share (cents) 4 (1)
Diluted earnings/(loss) per share 4 (1)
(cents)
Ordinary shares in issue 2 386 479 739 2 339 241 009
Weighted average number of shares 2 351 095 379 2 251 861 364
for the period
GROUP CONDENSED BALANCE SHEET
As at As at
30 June 2007 31 December 2006
Reviewed Audited
R`000 R`000
Assets
Non-current assets 1 508 169 1 494 910
Property, plant and equipment 1 508 169 1 465 739
Deferred tax asset - 28 825
Investments - 346
Current assets 712 291 612 540
Inventories 406 513 319 356
Trade and other receivables 296 670 273 708
Bank and cash 9 108 19 476
Total assets 2 220 460 2 107 450
Equity and liabilities
Capital and reserves 1 207 726 1 105 989
Issued share capital 23 865 23 416
Share premium 1 162 993 1 142 887
Equity-settled share-based 3 738 3 300
payment
Non-distributable reserve - 9 103
Accumulated profit/(loss) 17 130 (72 717)
Non-current liabilities 330 745 424 753
Non-current borrowings 293 098 413 799
Deferred tax liability 13 806 -
Provision for close-down and 23 841 10 954
restoration
Current liabilities 681 989 576 708
Trade and other payables 357 343 316 194
Current portion of non-current 149 929 153 371
borrowings
Bank overdraft 174 717 107 143
Total equity and liabilities 2 220 460 2 107 450
GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY
6 months ended 6 months ended
30 June 2007 30 June 2006
Reviewed Unaudited
R`000 R`000
Issued share capital 23 865 23 393
Balance at beginning of the 23 416 22 475
period
New shares issued during the 449 918
period
Share premium 1 162 993 1 142 001
Balance at the beginning of the 1 142 887 1 091 743
period
Premium on new shares issued 20 106 50 258
during the period
Equity-settled share-based 3 738 2 992
payment
Balance at the beginning of the 3 300 2 510
period
Share-based payment 438 482
Accumulated loss 17 130 (239 664)
Balance at the beginning of the (72 717) (211 860)
period
Net profit/(loss) for the period 89 847 (27 804)
Non-distributable reserve - -
Balance at the beginning of the 9 103 -
period
Downstream project (9 103) -
1 207 726 928 722
GROUP CONDENSED CASH FLOW STATEMENT
6 months ended 6 months ended
30 June 2007 30 June 2006
Reviewed Unaudited
R`000 R`000
Net profit/(loss) before tax for 134 030 (25 834)
the period
Interest paid 31 604 19 543
Interest received (287) (552)
Depreciation 18 001 10 851
Adjusted for non-cash items 17 634 482
Adjusted for working capital (73 264) (332 419)
changes
Cash flows from operating 127 718 (327 929)
activities
Interest paid (31 604) (19 543)
Interest received 287 552
Taxation paid (1 567) -
Cash flows from operating 94 834 (346 920)
activities
Cash flows from investing (60 085) (90 695)
activities
Investment matured 346 -
Acquisition of property, plant and (60 431) (90 695)
equipment
Cash flows from financing (112 691) 380 369
activities
Proceeds from issue of shares 11 452 51 176
Loans raised during the year - 376 046
Repayment of non-current (124 143) (46 853)
borrowings
Net decrease in cash and cash (77 942) (57 246)
equivalents
Cash and cash equivalents at the (87 667) (87 427)
beginning of the year
Cash and cash equivalents at the (165 609) (144 673)
end of the year
COMMENTARY
Basis of preparation
In compliance with the JSE Limited Listings Requirements, Merafe has
prepared its Group financial statements for the six months ended 30 June
2007 in accordance with International Financial Reporting Standards (IFRS).
The accounting policies adopted are consistent with those applied in the
annual financial statements for the year ended 31 December 2006.
Review of results
The results of the Group have been reviewed by the Group`s auditors, KPMG
Inc. Their unqualified review report is available for inspection at the
Company`s registered address.
Merafe`s income is generated from the Xstrata-Merafe Chrome Venture (the
Venture), the market leader in ferrochrome, with a total managed capacity
of 1,96 million tonnes of ferrochrome production per annum. Merafe shares
in 20,5% of the earnings before interest, taxation, depreciation and
amortisation (EBITDA) from the Venture.
In the comparative six month period, Merafe recorded a net loss of R27,8
million, mainly due to weak ferrochrome prices and a strong Rand. The first
half of 2007 showed an increase in the ferrochrome price, a comparatively
weaker Rand and some operations that had been temporarily shut down were re-
started, resulting in increased production. Merafe`s share of EBITDA from
the Venture for the six month period ended 30 June 2007 was R197,1 million
from attributable saleable ferrochrome production of 139 000 tonnes (30
June 2006: 85 000 tonnes). After accounting for corporate costs of R13,4
million and a share-based payment expense of R0,4 million, the Group`s
EBITDA was R183,3 million. The net profit after tax for the first half of
2007 is R89,8 million after taking into account a deferred tax expense of
R42,6 million.
The deferred tax expense of R42,6 million was mainly attributable to the
taxable income generated by the Group, which is offset against unredeemed
capital expenditure.
Merafe has repaid R160,0 million of its borrowings since 31 December 2006
through cash flows generated by operating activities and an active
reduction in its accounts receivable days. The balances remaining at 30
June 2007 are R165,0 million in respect of preference shares, R277,5
million in respect of the loan for the Lion Ferrochrome plant and R147,0
million owing to Xstrata, included in trade and other payables.
Review of operations
Global demand for ferrochrome remained strong in the first half of 2007
resulting in increased prices for ferrochrome despite the fact that new
capacity was brought on-stream from Lion Ferrochrome and other local
producers.
The strong demand for ferrochrome necessitated the resumption of operations
at five out of the seven furnaces that were closed during 2006. The two
furnaces (Wonderkop 5 & 6) that remain closed are expected to return to
operation during the second half of 2007.
Despite the negative effect of ongoing mining sector inflation, increased
production volumes positively impacted fixed cost structures but inevitably
had an adverse effect on variable costs. The higher level of production
precipitated the use of more power at elevated winter tariff structures,
increased consumption of imported coke and the purchasing of additional
lumpy ore at a premium. Due to the significant energy requirements of
ferrochrome production, the Venture is participating in the demand market
programme of Eskom, assisting Eskom to manage demand on the national grid
whilst achieving a financial benefit for the Venture.
To meet increased demand from the smelters, chrome ore production will be
increased at Thorncliffe, Helena and Waterval mines and opencast reserves
at Boshoek are being developed. The new UG2 chrome ore recovery plant at
Eastern Platinum Mine has been commissioned and is producing at design
capacity, providing a further low cost source of chrome ore.
The Lion Ferrochrome plant experienced some commissioning problems
accompanied by adverse consequential operating conditions which caused
delays in the planned ramp-up schedule. Additional engineering and
operational staff were allocated to the operation to mitigate the impact
and as a result the plant recovered some lost production time. The plant is
expected to reach its design capacity of 360 000 tonnes per annum during
the fourth quarter of 2007. The metal recovery plant was commissioned at
the end of June 2007, which will increase production during the second half
of the year.
The commissioning of Bokamoso, an R800 million 1,2 mtpa pelletising and
sintering plant, has commenced. Full commissioning of this plant will
provide additional agglomeration capacity to enable all fine ore produced
by the Venture`s mines, together with purchased UG2 chrome ore (a by-
product of platinum production) to be agglomerated and consumed by the
smelters at the Western Limb operations. Merafe is currently in discussions
with Xstrata with regard to its option on the best way for Merafe to
participate in this project.
Submissions have been made to the Department of Minerals and Energy for New
Order Prospecting and Mining Rights for the Venture. To date, 50% of
conversion applications have been granted New Order Mining Rights by the
Minister of Minerals and Energy.
Market review
Demand for ferrochrome remained strong in the first half of 2007.
Production of stainless steel continues to grow and is anticipated to
increase to almost 30 million tonnes for 2007, which is around 5% higher
than the record levels reached last year. It is anticipated that the lower
production from Western Europe, and to a lesser extent Eastern Europe and
the Americas, will be compensated for by further significant production
growth in China of around 38% year-on-year to approximately 6,8 million
tonnes.
High nickel prices have resulted in numerous stainless steel producers
increasing the production of ferritic (higher virgin chrome content) grades
and reducing production of the nickel-bearing austenitic grades. This
switch away from the nickel-intensive stainless steel has boosted demand
for virgin chrome input, as less scrap is available in the lower value
ferritic range.
The positive move taken by the Indian government to impose a US$44 per
tonne export duty on chrome ore exports, together with the strong
consumption of the chrome ore by ferrochrome producers especially in South
Africa, has led to higher traded chrome ore prices. The increased cost of
imported chrome ore has decreased the cost competitiveness of the Chinese
ferrochrome industry which depends entirely on imported ore, and has
resulted in Chinese stainless steel producers importing increased
quantities of ferrochrome to meet their demand.
The combination of continued stainless melt growth, increased ferritic
stainless steel production and strong ferrochrome import demand from China
in the first two quarters led to demand for ferrochrome outstripping
production, especially in China. This has led to a decrease in ferrochrome
stocks and increases in ferrochrome prices, with South African ferrochrome
producers operating at near full capacity.
The strong ferrochrome market has resulted in an increase in the
ferrochrome base price from 75USc/lb in the first quarter of 2007 to
82USc/lb in the second quarter of 2007. This has been a significant
increase from an average base price of about 70USc/lb in 2006.
Merafe Coal
On 21 June 2007, Merafe announced the formation of a 50/50 joint venture
with Scharrig Mining Limited called Merafe Coal. Merafe Coal intends to
maximise the value of its existing coal resources by mining them while at
the same time look for growth opportunities in the coal mining sector. The
existing coal resources are expected to be brought to account towards the
end of 2008.
Merafe has done business effectively through joint ventures as demonstrated
in the past. Merafe looked for a partner in coal and was impressed with the
credentials and track record of Scharrig. Management is excited about this
venture as it brings a new and complementary commodity and skills into the
Merafe stable.
Future prospects
The increase in production of ferritic grades and low nickel-bearing
grades, together with continued strong ferrochrome demand from China, bodes
well for ferrochrome demand for the remainder of the year. This will
compensate for the stainless steel production slow down in the third
quarter, caused by a number of stainless steel mills cuts in austenitic
output, due to the impact of previous strong nickel prices and very
recently, by the decline in nickel prices and its knock-on effect on high
nickel-bearing stainless steel prices. A further ferrochrome price increase
of 18USc/lb has already been announced for the third quarter resulting in a
base price of US$1/lb. Merafe`s share of the attributable sales and EBITDA
from the Venture for the second half of 2007 is expected to be more than
the attributable sales and EBITDA for the first half of 2007.
It is management`s primary objective to continue to use cashflows received
from the Venture to reduce gearing levels and Merafe still has unredeemed
capex in excess of R1 billion.
Chris Molefe Steve Phiri
Non-Executive Chairman Chief Executive Officer
Sandton
7 August 2007
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Executive Directors: DS Phiri (Chief Executive Officer), Z van der Walt, B
McBride, S Elliot
Non-Executive Directors: CK Molefe, (Chairman), L Mogotsi, J Matlala, M
Mthenjane, T Ramantsi, M Mamathuba, A Mahendranath (Company Secretary)
Transfer Secretaries: Link Market Services South Africa (Pty) Limited
Date: 07/08/2007 07:30:03 Produced by the JSE SENS Department.
