| Tue 2 Mar 2010, 8:00 | | MRF - Merafe Resources Limited - Audited Abridged Results and Dividend |
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MRF
MRF
MRF - Merafe Resources Limited - Audited Abridged Results and Dividend
Announcement
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 AND DIVIDEND ANNOUNCEMENT
for the year ended 31 December 2009
- Sales volumes increased by 26%
- Ferrochrome inventory reduced by 49%
- Healthy cash balance of R463 million
- Maiden dividend declared of 2 cents per share
- All New Order Mining Rights granted
COMMENTARY
Basis of preparation
On 26 February 2010, 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 2009. In compliance with the JSE Limited Listings
Requirements, the statements have been prepared in accordance with International
Financial Reporting Standards and the Companies Act 61 of 1973, as amended. The
abridged results are a summary of the 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 2008, with the exception of the adoption of IFRS 8:
Operating Segments which became effective from the current year and has been
applied retrospectively. The adoption of this standard only resulted in
additional disclosure in the notes to the annual financial statements with no
effect to the prior year consolidated statement of financial position and
consolidated statement of comprehensive income.
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 operating income is generated from the Xstrata-Merafe Chrome Venture
(the Venture), the market leader in ferrochrome. Merafe shares in 20,5% of the
earnings before interest, taxation, depreciation and amortisation (EBITDA) from
the Venture.
The 2009 financial year has been a difficult trading year for the ferrochrome
industry, brought about by declining global ferrochrome demand, a sharp fall in
the ferrochrome prices in the first half of the year and exacerbated by the
strengthening of the Rand throughout the year. Merafe reported an EBITDA loss
for the year ended 31 December 2009 primarily as a result of the factors
mentioned above. Merafe`s share of saleable ferrochrome production for 2009 of
281 000 tonnes was higher than the comparative year of 223 000 tonnes, however,
the depressed ferrochrome prices and exchange rates negated the effect of the
increase in sales volumes.
Merafe`s share of EBITDA loss from the Venture for the year ended 31 December
2009 was R60 million.The EBITDA loss from the Venture includes Merafe`s share of
standing charges, from the temporary suspension of furnaces of R159 million and
Merafe`s share of foreign exchange losses of R82 million. After accounting for
corporate costs of R33,5 million and a share-based payment expense of R6,5
million, Merafe`s EBITDA loss was R100 million. Taking into account net
financing costs of R12 million, depreciation of R106 million, deferred tax
income of R68 million and current tax expense of R2 million, the loss and total
comprehensive loss for the year is R152 million. Finance income increased year-
on-year as a result of larger cash balances held throughout the year. Finance
expenses reduced year-on-year as a result of the repayment of debt in the
previous financial year. Depreciation increased period on period primarily as a
result of the sustaining capital expenditure carried out on furnaces that were
temporarily suspended and the annual reassessment of useful lives and residual
values as required per IAS 16, Property, Plant and Equipment. The deferred tax
income of R68 million relates to R33 million recognised on the assessable loss
and R35 million recognised on current temporary differences primarily relating
to property, plant and equipment. At 31 December 2009, the balance of unredeemed
capital expenditure and assessable loss is estimated to be R252 million and R117
million respectively.
Property, plant and equipment increased year-on-year primarily as a result of
sustaining capital expenditure. Finished good inventories reduced by 49% from
the comparative year due to severe production cuts early in the year, followed
by increasing demand for ferrochrome. Merafe has R350 million long-term debt.
Despite the tough trading conditions, the Group closed with a healthy cash
balance of R463 million at 31 December 2009. (Cash in the Merafe Group is R280
million and Merafe`s share of cash in the Venture is R183 million).
Review of operations
2009 was an extremely challenging year for the Venture which saw the Venture
producing at an average of 56% of operating capacity for the year. Demand for
ferrochrome steadily improved during the year and the Venture increased
production capacity from 20% in early January 2009 to 85% by the end of the
year. The Premus technology furnaces remained in operation through most of the
downturn, contributing a 5% improvement in ore consumption efficiency and a 5%
increase in electricity efficiency, compared to 2008.
Variable costs rose by 20% in nominal Rand terms despite improved efficiencies,
due to ongoing cost pressures which included a 34% increase in electricity costs
and a 30% increase in average reductant prices. A range of cost savings
initiatives were implemented to limit the impact of increased costs, which
included the reduced use of contractors, limited expenditure on maintenance and
reduced overtime, all of which limited fixed cost increases to approximately 5%
compared to 2008.
These cost savings and efficiency initiatives enabled the Venture to avoid
retrenching any permanent employees in order to retain its skilled labour force
in anticipation of a market upturn. Training programmes, maintenance and repairs
were carried out during the suspension of ferrochrome production, which enabled
operations to be restarted quickly and efficiently during the second half of the
year. Mining activities were scaled down to align with smelter requirements and
contractual production obligations at opencast activities were reduced to a
minimum. UG2 chromite ore consumption was optimised to reduce input costs.
The Venture has been granted all of its New Order Prospecting and Mining Rights
as well as all the Mining Rights conversions from the Department of Mineral
Resources.
Market review
Stainless steel melt production mainly from Western Europe, Japan and America
continued to weaken significantly during the first six months of 2009 which
materially reduced demand for ferrochrome from these regions. However, Chinese
stainless steel mills increased their stainless steel capacity utilisation to
almost 100% during the second and third quarters of the year increasing the
demand for ferrochrome. China`s increased capacity utilisation resulted in the
stainless steel market becoming fully supplied which led to the Chinese
stainless steel melt production being curtailed for the remainder of the year.
Despite the significant production of stainless steel melt in China during 2009,
the annual stainless steel melt production declined year-on-year by 3% to 25
million tonnes during 2009.
The reduced demand for ferrochrome during the first half of the year, led to a
sharp decline in the European benchmark ferrochrome price from a record high of
205 USc/lb during 2008 to 79 USc/lb in the first quarter of 2009, reducing
further to 69 USc/lb in the second quarter. Ferrochrome producers, led by South
Africa, maintained the low production levels seen in the last quarter of 2008
into the first half of 2009. This, coupled with Eskom`s price increases as well
as the strengthening Rand, led to an increase in the European benchmark
ferrochrome price to 89 USc/lb in the third quarter which rose to 103 USc/lb in
the fourth quarter of 2009. The average European benchmark ferrochrome price of
85 USc/lb in 2009 was 52% lower than the comparative year of 176 USc/lb.
Safety
The Venture achieved an excellent safety record this year, which was sadly
marred by the tragic death of contractor Mr Julias Ngele in December. We extend
our deepest sympathies to his wife Efeniya and his children. Mr Ngele was a
front end loader (FEL) operator employed by Fraser Alexander Bulkmech, the main
internal transport contractors at the Venture`s Lydenburg plant.
UG2 Chrome Contract
The Xstrata-Merafe Chrome Venture (the Venture) has signed a contract with
Lonmin for the construction of a Chrome Recovery Plant (CRP) to treat the
current tailings from UG2 concentrators at Lonmin`s Marikana operations. The
Venture will construct, own and operate the CRP and purchase the chromite
concentrate produced from the CRP, which is expected to be in full production in
2011. The duration of the contract is based on total volume treated, rather than
a fixed time period, and the Venture is expected to treat approximately 1,5
million tonnes of chromite concentrate contained in the tailings feed per annum.
Merafe Coal
In June 2007, Merafe announced the formation of a 50/50 joint venture with
Sentula Mining Limited (Sentula), called Merafe Coal. Merafe Coal`s objective
was to develop existing coal projects in its portfolio as well as pursuing
further coal opportunities in South Africa.
Merafe now announces that Merafe and Sentula have agreed to terminate the joint
venture. Sentula will be continuing to pursue the development projects
contributed to the joint venture. In terms of the agreement, Sentula will fund
all historic, present and future costs associated with the projects.
Merafe will continue to independently consider opportunities in coal.
Outlook
Although the first quarter of 2010 has seen a slight reduction in the European
benchmark ferrochrome price of 2% to 101 USc/lb, ferrochrome prices are expected
to increase during 2010.
The limited availability of power from Eskom, access to financing as well as the
large capital cost, have acted and will continue to act as barriers to any
planned expansions by South African ferrochrome producers or new entrants for at
least the next three years. At the same time China is expected to continue to be
the fastest growing stainless steel producing market globally, driving strong
demand for ferrochrome. This bodes well for the outlook for ferrochrome both in
the short-term and the medium to long-term. Global stocks of ferrochrome are at
approximately 10 weeks consumption, and due to the forecast strong demand for
ferrochrome in 2010 South African ferrochrome producers are currently operating
at 85% of capacity with the Venture operating 19 of the 20 furnaces.
Despite the challenges of 2009, Merafe continued to maintain its strong cash
position with R463 million cash on hand at the end of 2009. Strong cash flows
were generated during the difficult operating environment of 2009, from the
unwinding of finished goods inventory. While the strong Rand continues to impact
on earnings, Merafe`s balance sheet remains strong and the Company continues to
be well poised going forward. The Venture continues in its endeavours to
constantly improve efficiencies and contain costs, thereby retaining its
position as one of the lowest cost ferrochrome producers globally.
The positive outlook for ferrochrome together with the strong cash position of
the Company have enabled Merafe`s Board to declare a maiden dividend of 2 cents
per share in respect of the financial year ended 31 December 2009 as well as
repaying R50 million of the long-term debt on 31 March 2010. Details of the
dividend are set out below.
Declaration of ordinary cash dividend (No. 1)
On 26 February 2010, the Board declared an ordinary cash dividend (No. 1) of 2
cents per share amounting to R49,185 million, in respect of the financial year
ended 31 December 2009. The dividend has been declared in South African currency
and is payable to shareholders recorded in the register of the Company at the
close of business on Friday, 26 March 2010. The secondary tax on companies (STC)
on the dividend will amount to R4,919 million before taking into account STC
credits.
In compliance with the requirements of Strate, the electronic and custody system
used by the JSE Limited, the following dates are applicable:
Last date to trade cum-dividend Thursday, 18 March 2010
Shares trade ex-dividend Friday, 19 March 2010
Record date Friday, 26 March 2010
Payment date Monday, 29 March 2010
Share certificates may not be dematerialised or rematerialised during the period
Friday, 19 March 2010 and Friday, 26 March 2010, both days inclusive.
On Monday, 29 March 2010 the ordinary cash dividend will be electronically
transferred to the bank accounts of all certificated shareholders where this
facility is available. Where electronic fund transfer is not available or
desired, cheques dated 29 March 2010 will be posted on that date.
Dematerialised shareholders will have their accounts at their CSDP or broker
credited on Monday, 29 March 2010.
On behalf of the Board
Chris Molefe Steve Phiri
Non-Executive Chairman Chief Executive Officer
Sandton
2 March 2010
ABRIDGED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 December 31 December
2009 2008
Audited Audited
R`000 R`000
Revenue 1 839 169 2 781 304
EBITDA (100 311) 1 611 923
Depreciation (106 189) (77 918)
Net financing costs (11 975) (63 983)
(Loss)/profit before income tax (218 475) 1 470 022
Income tax 66 150 (442 331)
Current tax (1 902) (84 216)
Deferred tax 68 052 (357 247)
Secondary tax on companies - (868)
(Loss)/profit and total (152 325) 1 027 691
comprehensive (loss)/income for
the year
(Loss)/earnings per share (6) 42
(cents)
Diluted (loss)/earnings per (6) 41
share (cents)
Headline (loss)/earnings per (6) 42
share (cents)
Diluted headline (loss)/earnings (6) 41
per share (cents)
Dividends per share (cents) 2* -
Ordinary shares in issue 2 459 258 860 2 459 258 860
Weighted average number of 2 459 258 860 2 456 110 621
shares for the year
Diluted weighted average number 2 482 014 143 2 492 203 126
of shares for the period
Final dividend - declared 49 185* -
(R`000)
*This dividend was declared by
the board on 26 February 2010.
ABRIDGED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
31 December 31 December
2009 2008
Audited Audited
R`000 R`000
Assets
Property, plant and equipment 1 949 464 1 861 185
Total non-current assets 1 949 464 1 861 185
Inventories 757 457 1 067 153
Trade and other receivables 234 346 286 271
Cash and cash equivalents 462 632 539 741
Total current assets 1 454 435 1 893 165
Total assets 3 403 899 3 754 350
Equity
Share capital 24 593 24 593
Share premium 1 244 072 1 244 072
Equity-settled share-based 22 109 15 586
payment reserve
Retained earnings 1 042 762 1 195 087
Total equity attributable to 2 333 536 2 479 338
equity holders
Liabilities
Loans and borrowings 363 626 366 174
Provision for closure and 37 347 29 730
restoration costs
Deferred tax liability 381 180 449 232
Total non-current liabilities 782 153 845 136
Loans and borrowings 888 1 200
Financial liability 8 568 11 466
Trade and other payables 278 735 331 364
Current tax liability 19 85 846
Total current liabilities 288 210 429 876
Total liabilities 1 070 363 1 275 012
Total equity and liabilities 3 403 899 3 754 350
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended Year ended
31 December 31 December
2009 2008
Audited Audited
R`000 R`000
Issued share capital - ordinary 24 593 24 593
shares
Balance at beginning of year 24 593 24 494
Share options exercised - 99
Share premium - ordinary shares 1 244 072 1 244 072
Balance at beginning of year 1 244 072 1 238 643
Share premium arising from share - 5 429
options exercised
Equity-settled share-based 22 109 15 586
payment reserve
Balance at beginning of year 15 586 7 993
Share-based payment 6 523 7 593
Retained earnings 1 042 762 1 195 087
Balance at beginning of year 1 195 087 167 396
(Loss)/profit and total (152 325) 1 027 691
comprehensive (loss)/income for
the year
Total equity at end of year 2 333 536 2 479 338
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOW
Year ended Year ended
31 December 31 December
2009 2008
Audited Audited
R`000 R`000
(Loss)/profit before income tax (218 475) 1 470 022
Interest paid 39 568 55 579
Interest received (27 593) (3 062)
Depreciation 106 189 77 918
Adjusted for non-cash items 3 625 12 485
Adjusted for working capital 363 389 (683 854)
changes
Cash flows from operations 266 703 929 088
Interest paid (39 568) (55 579)
Interest received 27 418* 3 062
Taxation paid (87 728) (700)
Cash flows from operating 166 825 875 871
activities
Cash flows from investing (182 583) (138 262)
activities
Acquisition of property, plant (1 593) (13 658)
and equipment - expansionary
Acquisition of property, plant (180 990) (124 664)
and equipment - sustaining
Proceeds from disposal of - 60
property, plant and equipment
Cash flows from financing (2 548) (114 351)
activities
Proceeds from issue of shares - 5 528
Increase/(decrease) in non- (2 548) (119 879)
current borrowings
Net (decrease)/increase in cash (18 306) 623 258
and cash equivalents
Cash and cash equivalents at the 539 741 (153 469)
beginning of the year
Effect of exchange rate (58 803) 69 952
fluctuations on cash held
Cash and cash equivalents at the 462 632 539 741
end of the year
*Amount is net of interest accrual of R0,175 million.
Executive directors: DS Phiri (Chief Executive Officer) B McBride, S Elliot
Non-executive directors: CK Molefe (Chairman), CJ Fauconnier,
J Matlala, M Mthenjane, NB MajovaT Ramantsi, M Mamathuba,
A Mahendranath (Company Secretary)
Registered office: 1st Floor, Block B, Sandton Place, 68 Wierda Road East,
Wierda Valley, Sandton, 2196
Transfer secretaries: Link Market Services South Africa (Pty) Limited
Sandton
2 March 2010
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
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