| Tue 3 Mar 2009, 7:05 | | MRF - Merafe - Audited Abridged Results for the Year Ended 31 December 2008 |
|
MRF
MRF
MRF - Merafe - Audited Abridged Results for the Year Ended 31 December 2008
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 2008
Revenue up from R1,6 billion to R2,8 billion
EBITDA up from R465 million to R1,6 billion
Earnings per share up from 10 cents to 42 cents
Debt reduced by R458 million to R350 million
Cash balance of R540 million
COMMENTARY
Basis of preparation
On 27 February 2009, 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 2008. In compliance with the JSE Limited Listings
Requirements, the statements have been prepared in accordance with
International Financial Reporting Standards and the Companies Act of South
Africa. The abridged results are a summary of those consolidated annual
financial statements and comply with IAS 34: Interim Financial Reporting. The
accounting policies adopted are consistent with those applied in the annual
financial statements for the year ended 31 December 2007.
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 European benchmark ferrochrome price from 89 USc/lb in 2007 to 176
USc/lb in 2008 and the weakening of the Rand against the US dollar, particularly
in the second half of 2008. Merafe`s share of saleable ferrochrome production
decreased by 21% from 284 000 tonnes in 2007 to 223 000 tonnes in 2008. The
decrease in saleable ferrochrome production was mainly attributable to the
significant decrease in demand for ferrochrome in the fourth quarter as a result
of the global economic slowdown.
The Group`s EBITDA for the twelve months ended 31 December 2008 was R1 612
million, after accounting for corporate costs related to 2008 of R36 million,
debt restructuring fees of R2,5 million, and a share-based payment expense of
R8 million. Depreciation increased year-on-year by R32 million due to the
Bokamoso pelletising and sintering plant being depreciated for the full year
for the first time and because of significant capital expenditure at the
Boshoek smelter. Net financing costs increased by R10 million year-on-year,
mainly because of the recognition of the fair value of an interest rate swap
entered into during the year.
The Group is in a tax paying position for the first time and has current
taxation payable of R84 million and a deferred tax expense of R357 million
which 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 2008 is estimated to be R52
million. During the twelve months ended 31 December 2008, Merafe repaid R458
million in debt, comprising R120 million relating to preference shares, R147
million owing to Xstrata and R191 million in respect of the bank overdraft.
The remaining debt at 31 December 2008 is R367 million, of which R350 million
is due to be repaid in one instalment on 31 December 2012 and R16 million is a
finance lease. 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
Strong ferrochrome prices and strong cost control resulted in Merafe recording
record profits for 2008 despite the lower volumes of ferrochrome sold. Higher
mining sector and CPI inflation costs were outweighed by the positive impact of
the weaker Rand against the US dollar.
In the first half of 2008 the demand for ferrochrome increased steadily, driven
by high stainless steel melt production. The Venture, faced with power
restrictions imposed by Eskom, was unable to take full advantage of the
increased capacity it had achieved through the ramp up of the new energy
efficient Lion Ferrochrome smelter and the return to production of previously
idle capacity. In the second half of the year, responding rapidly to a dramatic
fall in demand for ferrochrome, the Venture suspended six furnaces in November
2008 and a further five furnaces in December 2008. As market conditions
worsened the Venture suspended the operation of a further six furnaces, leaving
only three of its twenty ferrochrome furnaces operating in January 2009. 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 efficiencies and a 9% increase in ore consumption efficiencies.
These technologies allowed for some replacements of metallurgical grade coke
with lower priced reductants, mitigating the impact of a year-on-year increase
of 71% in the average consumption cost of metallurgical coke and char.
The Bokamoso pelletising and sintering plant reached full production capacity
during 2008 and exceeded nameplate capacity by more than 15% for three
consecutive months.
The additional agglomeration capacity provided by Lion Ferrochrome and Bokamoso
allowed for the production and use of increased volumes of fine UG2 chrome ore.
Optimisation of the UG2 concentrating plants and additional production from the
Mototolo and Eland concentrators resulted in a production increase of 20% to
1,5 million tonnes of UG2 during 2008. The maximum possible use of UG2 is
favoured during periods of reduced ferrochrome production at the smelters in
order to optimise production costs.
The Boshoek opencast reserves have been successfully developed and were in
operation at a sustainable level during 2008. The development of the Magareng
opencast reserves and mine was completed during 2008 to supplement chrome ore
supplies to Lion Ferrochrome and the Lydenburg smelter.
The Venture has submitted nine applications to the Department of Minerals and
Energy (DME) for new order prospecting and mining rights under South Africa`s
Mineral and Petroleum Resources Development Act. All of these applications have
been granted to the Venture. In addition the Venture has successfully converted
one old order prospecting right to a new order prospecting right. Of the eleven
applications made to convert existing old order mining rights into new order
mining rights, nine have been granted and notarially executed. The two
outstanding conversions are being processed and actively pursued on an ongoing
basis with the DME.
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 in South Africa. 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 of 2008, 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 and first quarter of 2009.
We estimate that the ferrochrome industry worldwide has, to date, cut
ferrochrome production by more than 66%. Some producers have suspended all
their operations until market conditions improve. 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 8,4% to 26 million tonnes compared to the prior year.
Exports of South African chrome ore increased significantly as a result of the
power restrictions in the first half of 2008 which constrained domestic
beneficiation. As a result of the increased availability of ore and robust
ferrochrome prices, previously uneconomical capacity was restarted in various
regions, including China and India. The deterioration in demand due to the
global economic crisis resulted in the European benchmark ferrochrome price
being set at 79 USc/lb in the first quarter of 2009.
Merafe Coal
Merafe Coal, the 50/50 joint venture with Sentula Mining Limited, continues to
look for growth opportunities in the coal mining sector as well as developing
the Schoongezicht and Bankfontein coal deposits. These properties have total
target coal resources of approximately 10 million tonnes. New Order Prospecting
Rights in respect of Schoongezicht and Bankfontein have been granted and
applications for New Order Mining Rights have been submitted to the DME.
Merafe Coal intends to commence mining once these have been granted. Both these
projects are opencast and are well positioned to supply export quality,
domestic "A" grade and Eskom quality coal into a variety of markets.
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 thereby benefiting the stainless steel
industry. However, in 2009, stainless steel production is expected to decrease
compared to 2008. In the short term, the demand for ferrochrome in Europe,
North America and Japan remains low. However, the demand for ferrochrome and
chrome ore in China has picked up and appears to be coming from restocking and
is not yet at normalised levels. As global demand recovers, the decisions to
defer or cancel ferrochrome capacity expansions are expected to lead to
ferrochrome supply constraints and again place upward pressure on pricing.
No decision has been taken to restart any of the Venture`s suspended capacity.
We continue to focus on cost optimisation, management of working capital and
the deferment of major sustaining and expansionary capital expenditure.
The strong cashflows generated by Merafe have been used to reduce its long-term
and short-term debt and strengthen its balance sheet. The Company is therefore
well positioned to see out the present difficult economic climate and to
consider opportunities which may present themselves going forward.
At 31 December 2008, Merafe had R540 million cash on its balance sheet, whilst
the bulk of its remaining debt of R350 million is only due to be repaid on 31
December 2012.
Dividend policy
Merafe has adopted a hybrid dividend policy that has features of a stable
dividend policy and a residual dividend policy. The Company intends to pay a
stable dividend once a year, based on the Company`s annual financial
performance and prevailing market conditions. In addition, in any given year,
the directors may consider an additional distribution in the form of special
dividends and/or share buy-backs dependent on the Company`s financial
condition, future cash requirements, future earnings prospects, availability of
distributable reserves and other factors. Dividends are recognised when they
are declared by the board of directors of Merafe (the board).
No dividend has been declared for the year ended 31 December 2008. The board
together with management deem it prudent under the prevailing market conditions
to preserve the cash generated during 2008 as there is still considerable
uncertainty as to how long the current global economic slowdown will last.
Changes to the board of directors
The board is pleased to announce the appointment of Ms. Belese Majova as an
independent non-executive director with effect from 2 January 2009. Ms Majova
was a Financial Director of City of Johannesburg Housing since 2005. She is
currently Chief Executive Officer of Zeleb Holdings (Pty) Ltd, a business
consultancy specialising in financial management capacity building
interventions, business process mapping and supply chain management
integration.
Chris Molefe Steve Phiri
Non-Executive Chairman Chief Executive Officer
Sandton
3 March 2009
ABRIDGED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 December 2008 31 December 2007
Audited Audited
R`000 R`000
Revenue 2 781 304 1 655 803
EBITDA 1 611 923 465 140
Depreciation (77 918) (46 239)
Net financing costs (63 983) (54 394)
Profit before taxation 1 470 022 364 507
Taxation (442 331) (124 394)
Current tax (84 216) (1 373)
Deferred tax (357 247) (120 810)
Secondary tax on companies (868) (2 211)
Net profit and total comprehensive income 1 027 691 240 113
Earnings per share (cents) 42 10
Diluted earnings per share (cents) 41 10
Headline earnings per share (cents) 42 10
Diluted headline earnings per share (cents) 41 10
Ordinary shares in issue 2 459 258 861 2 449 397 232
Weighted average number of shares for
the year 2 456 110 621 2 389 076 460
Diluted weighted average number of
shares for the year 2 492 203 126 2 423 805 128
ABRIDGED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
31 December 2008 31 December 2007
Audited Audited
R`000 R`000
Assets
Non-current assets 1 861 185 1 800 793
Property, plant and equipment 1 861 185 1 800 793
Current assets 1 893 165 785 409
Inventories 1 067 153 496 877
Trade and other receivables 286 271 251 064
Bank and cash 539 741 37 468
Total assets 3 754 350 2 586 202
Equity and liabilities
Capital and reserves 2 479 338 1 438 526
Issued share capital 24 593 24 494
Share premium 1 244 072 1 238 643
Equity-settled share-based payment
reserve 15 586 7 993
Retained income 1 195 087 167 396
Non-current liabilities 845 136 518 094
Loans and borrowings 366 174 400 948
Provision for close down and
restoration costs 29 730 25 161
Deferred tax 449 232 91 985
Current liabilities 429 876 629 582
Loans and borrowings 1 200 86 305
Financial liability 11 466 -
Trade and other payables 331 364 350 879
Current tax liability 85 846 1 461
Bank overdraft - 190 937
Total equity and liabilities 3 754 350 2 586 202
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended Year ended
31 December 2008 31 December 2007
Audited Audited
R`000 R`000
Issued share capital - ordinary shares 24 593 24 494
Balance at the beginning of the year 24 494 23 416
New shares issued during the year 99 1 078
Share premium - ordinary shares 1 244 072 1 238 643
Balance at the beginning of the year 1 238 643 1 142 887
Premium on new shares issued during
the year 5 429 95 756
Equity-settled share-based payment
reserve 15 586 7 993
Balance at the beginning of the year 7 993 3 300
Share-based payments 7 593 4 693
Retained income/(accumulated loss) 1 195 087 167 396
Balance at the beginning of the year 167 396 (72 717)
Net profit and total comprehensive
income for the year 1 027 691 240 113
Balance at end of year 2 479 338 1 438 526
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 2008 31 December 2007
Audited Audited
R`000 R`000
Net profit for the year before
taxation 1 470 022 364 507
Interest paid 55 579 55 075
Interest received (3 062) (681)
Depreciation 77 918 46 239
Adjusted for non-cash items 12 485 18 450
Adjusted for working capital changes (683 854) (122 364)
Cash flows from operations 929 088 361 226
Interest paid (55 579) (55 075)
Interest received 3 062 681
Taxation paid (700) (2 211)
Cash flows from operating activities 875 871 304 621
Cash flows from investing activities (138 262) (380 998)
Acquisition of property, plant and
equipment - expansionary (13 658) (199 148)
Acquisition of property, plant and
equipment - sustaining (124 664) (182 196)
Proceeds on disposal of plant and equipment 60 -
Disposal of investment - 346
Cash flows from financing activities (114 351) 7 813
Proceeds from issue of shares 5 528 87 731
Loans raised during the year - 95 000
Repayment of non-current borrowings (119 879) (174 918)
Net increase/(decrease) in cash and
cash equivalents 623 258 (68 564)
Cash and cash equivalents at the
beginning of the year (153 469) (87 667)
Effect of exchange rate fluctuations
on cash held during the year 69 952 2 762
Cash and cash equivalents at the end
of the year 539 741 (153 469)
Sponsor
Deutsche Securities
Member of the Deutsche Bank Group
Deutsche Securities (SA) (Proprietary) Limited
(Registration number 1995/011798/07)
Executive Directors: DS Phiri (Chief Executive Officer), B McBride, S Elliot
Non-Executive Directors: CK Molefe, (Chairman), CJ Fauconnier, J Matlala,
M Mthenjane, NB Majova, T Ramantsi, M Mamathuba, A Mahendranath
(Company Secretary)
Registered office: First floor, Block B, Sandton Place, 68 Wierda Road East,
Wierda Valley, Sandton, 2196
Transfer Secretaries: Link Market Services South Africa (Pty) Limited
Date: 03/03/2009 07:05:07 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.
