| Mon 3 Mar 2008, 7:31 | | MRF - Merafe Resources Limited - Audited abridged |
|
MRF
MRF
MRF - Merafe Resources Limited - Audited abridged results for the year ended 31
December 2007
Merafe Resources Limited
(Incorporated in the Republic of South Africa)
(Registration number 1987/003452/06)
Share Code: MRF
ISIN: ZAE000060000
("Merafe" or "the Company" or "the Group")
AUDITED ABRIDGED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
* Revenue up from R1 billion to R1,7 billion
* EBITDA up from R179 million to R465 million
* Earnings per share up from 6 cents to 10 cents
ABRIDGED CONSOLIDATED INCOME STATEMENT
Year ended Year ended
31 December 31 December
2007 2006
Audited Audited
R`000 R`000
Revenue 1 655 803 1 030 486
EBITDA 465 140 178 644
Depreciation (46 239) (25 303)
Net financing costs (54 394) (39 189)
Profit before taxation 364 507 114 152
Taxation (124 394) 24 991
Net profit after tax 240 113 139 143
Earnings per share (cents) 10 6
Diluted earnings per share (cents) 10 6
Headline earnings per share (cents) 10 6
Diluted headline earnings per share 10 6
(cents)
Ordinary shares in issue 2 449 397 232 2 341 569 564
Weighted average number of shares 2 389 076 460 2 296 747 099
for the year
Diluted weighted average number of 2 423 805 128 2 328 678 892
shares for the year
ABRIDGED CONSOLIDATED BALANCE SHEET
As at As at
31 December 31 December
2007 2006
Audited Audited
R`000 R`000
Assets
Non-current assets 1 800 793 1 494 910
Property, plant and equipment 1 800 793 1 465 739
Deferred tax - 28 825
Investments - 346
Current assets 785 409 612 540
Inventories 496 877 319 356
Trade and other receivables 251 064 273 708
Bank and cash 37 468 19 476
Total assets 2 586 202 2 107 450
Equity and liabilities
Capital and reserves 1 438 526 1 105 989
Issued share capital 24 494 23 416
Share premium 1 238 643 1 142 887
Equity-settled share-based payment 7 993 3 300
reserve
Non-distributable reserve - 9 103
Retained income/(accumulated loss) 167 396 (72 717)
Non-current liabilities 518 094 424 753
Non-current borrowings 400 948 413 799
Provision for close down and 25 161 10 954
restoration costs
Deferred tax 91 985 -
Current liabilities 629 582 576 708
Trade and other payables 352 340 316 194
Current portion of non-current 86 305 153 371
borrowings
Bank overdraft 190 937 107 143
Total equity and liabilities 2 586 202 2 107 450
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended Year ended
31 December 31 December
2007 2006
Audited Audited
R`000 R`000
Issued share capital - ordinary shares 24 494 23 416
Balance at the beginning of the year 23 416 22 475
New shares issued during the year 1 078 941
Share premium - ordinary shares 1 238 643 1 142 887
Balance at the beginning of the year 1 142 887 1 091 743
Premium on new shares issued during 95 756 51 144
the year
Equity-settled share-based payment 7 993 3 300
reserve
Balance at the beginning of the year 3 300 2 510
Share-based payments 4 693 790
Retained income/(accumulated loss) 167 396 (72 717)
Balance at the beginning of the year (72 717) (211 860)
Net profit for the year 240 113 139 143
Non-distributable reserve - 9 103
Balance at the beginning of the year 9 103 -
Liability settled via share issue (9 103) 9 103
Balance at the end of the year 1 438 526 1 105 989
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Year ended Year ended
31 December 31 December
2007 2006
Audited Audited
R`000 R`000
Net profit for the year before 364 507 114 152
taxation
Interest paid 55 075 39 915
Interest received (681) (726)
Depreciation 46 239 25 303
Adjusted for non-cash items 21 212 37 211
Adjusted for working capital changes (122 364) (300 946)
Cash flows from operations 363 988 (85 091)
Interest paid (55 075) (39 915)
Interest received 681 726
Taxation paid (2 211) (3 746)
Cash flows from operating activities 307 383 (128 026)
Cash flows from investing activities (380 998) (166 589)
Acquisition of property, plant and (199 148) (151 199)
equipment - expansionary
Acquisition of property, plant and (182 196) (15 390)
equipment - sustaining
Disposal of investment 346 -
Cash flows from financing activities 7 813 294 375
Proceeds from issue of shares 87 731 52 085
Loans raised during the year 95 000 343 583
Repayment of non-current borrowings (174 918) (101 293)
Net decrease in cash and cash (65 802) (240)
equivalents
Cash and cash equivalents at the (87 667) (87 427)
beginning of the year
Cash and cash equivalents at the end (153 469) (87 667)
of the year
COMMENTARY
Basis of preparation
On 28 February 2008, the board of directors ("the Board") of the Company
approved the consolidated annual financial statements of the Group and the
Company for the year ended 31 December 2007, prepared in accordance with
International Financial Reporting Standards. The abridged results are a summary
of these consolidated annual financial statements. 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 abridged consolidated results and the consolidated annual financial
statements from which the abridged consolidated results were derived have been
audited by the Group`s auditors, KPMG Inc. Their unqualified audit 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.
Merafe`s earnings from the Venture increased significantly from the twelve month
comparative period, primarily as a result of an increase in the average base
price of ferrochrome from 70 USc/lb in 2006 to 89 USc/lb in 2007 and as a result
of Merafe`s share of saleable ferrochrome production increasing from 239,000
tonnes in 2006 to 284,000 tonnes in 2007. The increase in saleable ferrochrome
production was attributable to the Lion Ferrochrome smelter ramping up
production during 2007 and the resumption of furnaces that were temporarily
suspended during 2006.
Merafe`s share of EBITDA from the Venture for the twelve months ended 31
December 2007 was R497 million. After accounting for corporate costs of R27
million and a share-based payment expense of R5 million, the Group`s EBITDA was
R465 million. Depreciation increased year-on-year by R21 million due to the Lion
Ferrochrome smelter being depreciated for the full twelve months for the first
time and the Bokamoso pelletising and sintering plant (refer below) being
depreciated for the last few months of the year. Net financing costs increased
by R15 million year-on-year. This increase is due to the finance costs relating
to the Lion Ferrochrome smelter that were capitalised in 2006, but in 2007,
these costs have been accounted for through the income statement.
The deferred tax expense of R121 million was mainly attributable
to the net portion of the profits generated by the Group, being offset against
unredeemed capital expenditure. The balance of unredeemed capital expenditure at
31 December 2007 is estimated to be R1,2 billion.
During the twelve months ended 31 December 2007, Merafe repaid R228 million in
debt, comprising R105 million relating to preference shares, R45 million on the
original R300 million Lion Ferrochrome smelter loan and R78 million owing to
Xstrata. Net debt at 31 December 2007 comprises R120 million in respect of
preference shares, R255 million in respect of the Lion Ferrochrome smelter, R95
million in respect of the Bokamoso pelletising and sintering plant and R147
million owing to Xstrata included in trade and other payables.
Review of operations
2007 has been a record year for Merafe and the Venture both in terms of the
units of ferrochrome sold during the year, as well as higher ferrochrome prices.
This was predominantly driven by the robust global demand for ferrochrome. The
increased demand necessitated the resumption in the first half of 2007 of five
out of the seven furnaces that were temporarily suspended during 2006. By the
end of the year, all of the Venture`s twenty furnaces were in production.
Containing costs continued to be a challenge in the current environment of high
mining sector inflation. Increased production volumes positively impacted fixed
costs and partially offset higher variable costs, which include higher
electricity and coke costs as well as higher finished product delivery costs.
The increased production volumes precipitated the use of more power. Due to the
significant energy requirements of ferrochrome production, the Venture
participated in the demand market programme of Eskom, assisting Eskom to manage
demand on the national grid whilst achieving a financial benefit for the
Venture.
Chromite ore production was increased at the Thorncliffe, Helena and Waterval
mines with the opencast reserves at Boshoek being developed, to meet the
increased demand from the smelters. During 2007, the Venture commissioned two
new UG2 chrome ore recovery plants thereby providing an additional source of UG2
chrome ore. The Venture continues to make good progress in regard to the
conversion of Old Order Rights and Prospecting Rights under the Minerals and
Petroleum Resources Development Act of 2002 and the Venture is confident that
the process will be successfully completed during 2008.
The Lion Ferrochrome smelter experienced a slower than expected production ramp
up in 2007, largely due to equipment failure which the Venture is monitoring
closely. Furnace components are currently on order to improve furnace
availability and additional engineering and operational staff have been
allocated to the operation. Furnace temporary suspensions required to implement
improvements will take place during the second quarter of 2008, after which the
plant should be able to produce at design capacity on a sustainable basis.
The Bokamoso pelletising and sintering plant, the largest plant of its kind in
the world, was successfully commissioned in the second half of 2007 on budget
and on time. The plant provides additional agglomeration capacity to enable all
ore fines from the chrome mining operations, including UG2 chrome ore recovered
from platinum mining, to be agglomerated and consumed by the furnaces on the
Western Limb. The Bokamoso plant is expected to reduce operating costs whilst
improving environmental performance and operational flexibility. By December,
production at this plant had already achieved 80% of design capacity at
production costs below budget. The plant is on track to attain full operating
capacity of 1,2 million tonnes per annum by the end of the first quarter of
2008.
Merafe`s 20,5% interest in Bokamoso amounted to R182 million, funded through a
general issue of shares for cash of R66 million, debt of R100 million and
cashflows of R16 million.
In response to the request by Eskom, Merafe announced on 25 January 2008 that
the Venture had reduced the electricity load across all the Venture`s furnaces
to the minimum possible electricity usage. Subsequent to this, a meeting was
held on 29 January 2008 between Eskom and its key customers whereby Eskom
committed to supplying 90% of the operations` electricity demand. This came into
effect on 1 February 2008 and the operations are currently operating at 90%
electricity load. It is still uncertain as to when the remaining 10% will be
restored, suffice to say that it will be entirely dependent on the success of a
nationwide recovery plan presented to major industrial and local government
users.
The Venture has declared a force majeure with its customers as a precautionary
measure should the Venture be unable to supply the required quantities of
ferrochrome due to the reduction in the operations` electricity supply.
Market review
The first half of 2007 was characterised by strong growth in stainless steel
production, in particular Asia, driven by Chinese stainless steel melt
production growth of over 20% compared to the same period in 2006. High nickel
prices in the first half of 2007 resulted in numerous stainless producers
increasing ferritic grade stainless steel production, which uses a higher
proportion of virgin chrome units, at the expense of nickel-bearing austenitic
grade.
The second half of the year, however, saw stainless producers in Europe and
America cutting production and delaying the purchase of nickel in response to
declining nickel prices. These production cuts, following a strong first half,
resulted in stainless steel melt production remaining at a similar level to
2006. Despite these production cutbacks, the switch to ferritic grade stainless
steel production maintained robust demand for ferrochrome through the year.
Stronger demand drove South African ferrochrome producers to restart all
available idle capacity. China`s increasing significance as a producer of
ferrochrome was reflected in a further 22% increase in production to 1,2 million
tonnes in 2007. Despite this increased production, China remains a net importer
of ferrochrome. 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 of 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 robust market fundamentals supported strong ferrochrome base prices
throughout the year with an average base price for 2007 of 89 USc/lb which was
27% higher than in 2006.
Merafe Coal
Merafe Coal is a 50/50 joint venture with Sentula Mining (formerly Scharrig
Mining). The main aim of this venture is to maximise the combined value of the
partners` existing coal resources in the Mpumalanga Province by mining them
while at the same time looking for growth opportunities in the coal mining
sector. The existing coal resources are expected to be brought to account during
2009.
Sentula Mining announced the acquisition of 49,998% of the Koornfontein Coal
Mine in Mpumalanga for R150 million from Investec and Coronation Capital. In
line with the agreement contained in the Merafe Coal joint venture, Merafe has
an option to acquire 50% of the purchased stake and a decision in this regard
will be made shortly.
Prospects
The outlook for ferrochrome prices in 2008 remains positive. Stainless melt is
forecast to increase by over 10% to 32 million tonnes in 2008. While stainless
steel production is set to slow down in the first quarter of 2008 due to
production cuts in China, Chinese production is expected to recover during the
course of the year, increasing by approximately 12% over 2007 levels. Demand for
stainless steel in Europe and America has started to recover in the first
quarter of 2008, albeit at a slower rate.
Ferrochrome demand is accordingly forecast to increase by approximately 9% in
2008, due to strong stainless melt production and stainless producers continuing
to produce a higher ratio of ferritic grades than the historical average.
Supply-side constraints on South African producers as a result of rolling power
outages and the power reduction programme are expected to result in a supply
deficit during 2008. The first quarter of 2008 saw the base price set at 121
USc/lb and Merafe expects this to increase further during 2008.
Merafe has converted R350 million of amortising debt into a five year debt
facility with a local bank. This will allow Merafe to focus on repaying the R120
million preference shares and R147 million owing to Xstrata during 2008.
The Board believes that 2008 will be an excellent year for its ferrochrome
business.
Changes to the board of directors
The board is pleased to announce the appointment of Dr CJ Fauconnier as an
independent non-executive director with effect from 1 March 2008. Dr Fauconnier
was Chief Executive of Exxaro Resources Limited until August 2007 and he is
currently managing his own business, Fauconnier Consulting. His qualifications
include a D.Eng (Pretoria) and an MBA (Oregon, USA).
The board further announces the resignation of Ms Lebo Mogotsi as independent
non-executive director with effect from 28 February 2008. The board wishes to
thank Ms Mogotsi for her valuable contribution to the Company.
Merafe`s Technical Director, Zed van der Walt has retired with effect from 29
February 2008 after seven years with the Company. Dr Jurgens Zaayman, the former
managing director of Merafe Ferrochrome before the establishment of the Venture
with Xstrata, has been appointed General Manager in the Merafe chrome business
and has been seconded to the Venture to look after the interests of Merafe. The
board wishes to thank Mr Van der Walt for his commitment and significant
contribution to the Company since its inception.
Chris Molefe Steve Phiri
Non-Executive Chairman Chief Executive Officer
Sandton
3 March 2008
Sponsor
Deutsche Securities (SA)(Proprietary) Limited
Executive Directors:
DS Phiri (Chief Executive Officer), B McBride, S Elliot
Non-Executive Directors:
CK Molefe, (Chairman), CJ Fauconnier, J Matlala, M Mthenjane,
T Ramantsi, M Mamathuba, A Mahendranath (Company Secretary)
Registered office: First floor Sandton Place, 68 Wierda Road East, Wierda
Valley, Sandton, 2196
Transfer Secretaries:
Link Market Services South Africa (Pty) Limited
Date: 03/03/2008 07:31:17 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
