| Thu 29 Jan 2009, 8:30 | | MRF - Merafe - Trading Statement |
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MRF
MRF
MRF - Merafe - Trading Statement
MERAFE RESOURCES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1987/003452/06
Share Code: MRF
ISIN: ZAE000060000
("Merafe")
Trading Statement
In terms of section 3.4 (b) of the JSE Limited Listings Requirements, issuers
are required to publish a trading statement as soon as they are satisfied that a
reasonable degree of certainty exists that the financial results for the current
reporting period will be more than 20% different from those of the prior
comparative period.
Shareholders are advised that Merafe`s net profit after tax for the year ended
31 December 2008 is expected to be between R1 billion and R1.1 billion resulting
in earnings per share and headline earnings per share of between 41 and 45 cents
for the year ended 31 December 2008. These earnings were achieved from
attributable saleable production of 223,000 tonnes of ferrochrome.
The net profit after tax for the year ended 31 December 2008 is therefore
expected to increase by between 317% and 358% from the R240 million reported for
the year ended 31 December 2007 and the earnings per share and headline earnings
per share are expected to increase by between 310% and 350% from the 10 cents
reported for the year ended 31 December 2007.
Update on cash balances and debt
During the twelve months ended 31 December 2008, Merafe repaid R458 million of
debt, comprising R120 million outstanding on preference shares, R147 million
owing to Xstrata and R191 million in respect of the bank overdraft. The only
remaining debt at 31 December 2008 is R350 million, which is due to be repaid in
one instalment on 31 December 2012. Strong cash flows generated during the year
have resulted in Merafe having a cash balance of R540 million at 31 December
2008.
Review of operations
2008 was a record year for Merafe mainly due to record ferrochrome prices and
strong cost control. Higher mining sector and CPI inflation costs were
outweighed by the positive impact of the weaker Rand against the US dollar.
Ferrochrome production was lower than the previous year, following significant
production cuts during the last quarter of the year in response to the worldwide
economic slowdown. In November and December, the Xstrata-Merafe Chrome Venture
(the Venture) announced the temporary suspension of eleven furnaces. A further
six furnaces were suspended in January 2009, leaving three out of twenty
ferrochrome furnaces operating. The total suspended ferrochrome production
capacity represents 1.37 million tonnes or 80% of annual operating capacity.
Despite increased power and raw material costs, cost savings were achieved as a
result of ongoing process improvement initiatives and investments to reduce
costs, including lower cost capacity at the Lion Ferrochrome smelter and the
Bokamoso pelletising and sintering plant, which resulted in an improvement of
13% in power efficiency and 9% increase in ore consumption efficiencies.
Market review
The first half of 2008 was characterised by robust supply demand fundamentals
driven by high stainless steel melt production, which steadily increased from
the beginning of the year, and supply side cutbacks as a result of power
restrictions imposed by Eskom. Ferrochrome base prices remained strong
throughout the year and the average European benchmark ferrochrome price for
2008 of 176 USc/lb was 97% higher than in the previous year.
In the first half, global ferrochrome production reached 2 million tonnes per
quarter for the first time, 6% higher than for the same period in 2007. However,
a typically slow third quarter was exacerbated by slower stainless steel
production in China during the Olympic Games and was followed by a dramatic fall
in demand during the fourth quarter as the global financial turmoil impacted all
major commodity markets.
The supply side response to weaker demand has been rapid and significant cuts
were announced by all the major ferrochrome producers during the fourth quarter
of 2008. Stainless steel melt growth will be significantly below its long-term
average for the second consecutive year, with global production for 2008
estimated to have declined by approximately 11% to 25.5 million tonnes compared
to the prior year.
Outlook
Most planned expansions to South African ferrochrome capacity in 2008 were
deferred or cancelled due to ongoing power constraints. The deferral of planned
expansions is expected to continue in South Africa and globally, in response to
the current economic slowdown.
The outlook for ferrochrome remains robust in the medium to long term. In the
medium term, stainless steel production is expected to increase from current low
levels, supported by major economic stimulus plans, which include significant
investment in infrastructure. However, in 2009 stainless steel production is
expected to decrease compared to 2008. As global demand recovers, the decisions
to defer or cancel capacity expansions are expected to lead to ferrochrome
supply constraints and again place upward pressure on pricing.
Shareholders are advised that the above information has not been reviewed or
reported on by Merafe`s auditors. The audited results for the year ended 31
December 2008 are expected to be released on SENS on 3 March 2009.
Sandton
29 January 2009
Sponsor
Deutsche Securities SA (Proprietary) Ltd
Date: 29/01/2009 08:30:02 Produced by the JSE SENS Department.
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