| Tue 3 Aug 2010, 7:05 | | MRF - Merafe Resources Limited - Reviewed interimResults for the six months |
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MRF
MRF
MRF - Merafe Resources Limited - Reviewed interimResults for the six months
ended 30 June 2010
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)
REVIEWED INTERIMRESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2010
Increase in basic EPS of 8 cents - an outstanding turnaround equating to profit
of R189 million
Increase in ferrochrome prices
Increase in sales and production volumes
Reduction in LTIFR
COMMENTARY
Basis of preparation
In compliance with the JSE Limited Listings Requirements, Merafe Resources
Limited Group (Merafe) prepared its interim financial report for the six months
ended 30 June 2010 in accordance with and containing the information required by
IAS 34: Interim Financial Reporting, the AC 500 standards issued by the
Accounting Practices Board or its successor and Schedule 4 Part IV of the
Companies Act of South Africa. The accounting policies adopted are consistent
with those applied in the annual financial statements for the year ended 31
December 2009 and are in terms of International Financial Reporting Standards.
Review of results
The historical interim financial information of Merafe was 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
1,98 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 six month
comparative period, primarily as a result of an increase of 60% in the average
European benchmark ferrochrome price from 74USc/lb to 118,5USc/lb period on
period and an increase of 16% in Merafe`s share of saleable ferrochrome
production from 128 100 tonnes in the first half of 2009 to 148 400 tonnes in
the first half of 2010.
Merafe`s share of EBITDA from the Venture for the six months ended 30 June 2010
was R331,2 million. The EBITDA includes Merafe`s attributable share of standing
charges of R30,3 million and a foreign exchange gain of R20,3 million. After
accounting for corporate costs of R10,4 million and share-based income of R1,6
million, Merafe`s EBITDA was R322,4 million.
The profit and total comprehensive income for the period is R188,7 million after
taking into account depreciation of R46 million, net financing costs of R12,7
million, deferred tax expense of R70,9 million and secondary tax on companies of
R4,1 million. The deferred tax expense relates to R28 million recognised on the
utilisation of the assessable loss and R43 million recognised on current
temporary differences, primarily relating to property, plant and equipment. The
balance of unredeemed capital expenditure is estimated to be R181 million at 30
June 2010.
Trade and other receivables have increased significantly primarily as a result
of an increase in the European benchmark ferrochrome price. Property, plant and
equipment increased from the prior period as a result of sustaining capex of R75
million and R37 million of expansionary capex relating to Project Tswelopele,
the new planned 600 000 tonnes per annum pelletising and sintering plant, that
will be constructed at the Rustenburg smelter (see recent developments below).
Merafe started the year with a cash balance of R463 million, generated R75
million in cashflows, paid a dividend and secondary tax on companies of R53
million, repaid R50 million of long-term debt and invested R112 million in
expansionary and sustaining capex, closing with a healthy cash balance of R323
million. Cash in Merafe is R153 million and Merafe`s share of cash in the
Venture is R170 million. Merafe has long-term debt of R300 million due to be
repaid in one instalment on 31 December 2012.
Review of operations
During the first half of 2010, in response to a strong market, the Venture
operated at an average ferrochrome production capacity of 85% from January to
May, and thereafter decreased capacity during June for routine maintenance,
thereby planning to operate at an average of 65% over the winter months. In the
comparative 2009 period, the Venture operated at 30% average ferrochrome
production capacity.
Despite a difficult operating cost environment, which included a 25% increase in
electricity costs, Merafe achieved cost savings of 12,7% as a result of savings
from a number of initiatives, including the increased use of the lower cost UG2
in the ore mix and the optimisation of the reductant mix to limit the impact of
high metallurgical coke prices.
There have been no material changes to Mineral Resources and Mineral Reserves
for this period.
Safety
The Venture had a very good safety performance with no fatalities for the
period. The lost time injury frequency rate (LTIFR) reduced by 43% compared to
the year ended 31 December 2009.
Market review
As stainless steel melt production increased, restocking of stainless steel
commenced in the first half of the year, leading to a recovery in demand for
ferrochrome. 15,6 million tonnes of stainless steel melt was produced in the
first half of 2010, 38% higher than in the comparable period and 11% higher than
the second half of 2009. China continued to be the dominant stainless steel melt
producer, producing 5,3 million tonnes, followed by 3,9 million tonnes of
European production.
In response to increasing demand, South African ferrochrome producers returned
to about 85% capacity utilisation at the beginning of 2010. Chinese and Indian
domestic ferrochrome production also increased in the first quarter of the year
as furnaces returned to profitability.
In line with the recovery in the ferrochrome market, the European benchmark
ferrochrome price increased by 35% from 101USc/lb in the first quarter of 2010
to 136USc/lb in the second quarter of 2010. The benchmark price for the third
quarter of 2010 was settled at 130USc/lb, down 4% on the second quarter price.
Recent developments
Project Tswelopele
The Venture has approved the construction of a 600 000 tonnes per annum
pelletising and sintering plant (Project Tswelopele - which means "Progress") at
the Venture`s Rustenburg smelter.
Merafe`s participation in the new plant is 20,5%, which is its proportionate
share in the Venture. Merafe`s share is expected to cost R190 million and will
be funded from the Venture`s current and future cash flows.
This project was initiated after the success of a similar plant, Bokamoso, which
the Venture commissioned adjacent to its Wonderkop smelter in 2007. Bokamoso is
a large chrome ore pelletising and sintering plant that has an annual capacity
of 1,2 million tonnes. By using the pellets produced in the Bokamoso plant,
there have been significant improvements in furnace efficiencies, resulting in
reduced production costs.
In line with the Venture`s commitment to local beneficiation, chromite
concentrate will be agglomerated within the planned 600 000 tonnes per annum
pelletising and sintering plant, and then used for the production of ferrochrome
at the Rustenburg smelter. This enhances the Venture`s strategy of utilising
additional UG2 ore in the ferrochrome production process.
It is anticipated that as a result of Project Tswelopele, the Venture will
benefit from the following:
- an improvement in the overall energy efficiency of the operations;
- cost benefits per tonne of ferrochrome resulting from efficiency savings;
- more efficient use of reductants and a reduced ratio of chromite concentrate
usage to ferrochrome produced;
- a more stable production environment;
- significant environmental improvements with less slag generation, less road
transport and less fugitive emissions; and
- it will extend the life of existing mining operations.
This new plant will result in a complete solution of pelletising and sintering
technologies across all five locations operated within the Venture and will
contribute to sustainable job creation.
Subject to the normal environmental approvals, the new plant is planned to be
fully operational by 2013 and the team that successfully implemented,
commissioned and managed the Bokamoso project will be responsible for the
delivery of this new facility.
Outlook
Demand for ferrochrome in the third quarter of 2010 has been impacted by lower
nickel prices, the traditionally slow third quarter for stainless steel melt
production, driven by seasonally weak demand in Europe and the US and
exacerbated by the measures taken by the Chinese government to reduce growth to
more sustainable levels. Despite the slowdown in demand currently being
experienced, we believe this is of a short term nature. Ferrochrome inventory
levels remain low at approximately 10 - 12 weeks as South African capacity has
been reduced due to maintenance programmes being undertaken, in response to
higher winter electricity tariffs.
Continued global economic growth coupled with the lack of any new ferrochrome
capacity coming on stream in the immediate future should support a recovery in
demand in the final quarter of 2010 and into 2011.
Changes to the Board of Directors during the period
Mr Steve Phiri resigned as Chief Executive Officer (CEO) with effect from 31
March 2010 and will be continuing as a non-executive director of the Company.
We are pleased to announce that Mr Stuart Elliot, the Company`s Chief Financial
Officer (CFO), was appointed the new CEO with effect from 1 April 2010 and will
continue to act as CFO until the effective date of appointment of the new CFO on
1 October 2010.
We are pleased to announce that Ms Joyce Matlala, who was previously an
independent non-executive director of the Board, has been appointed as CFO with
effect from 1 October 2010.
Dr Con Fauconnier resigned as a non-executive director of the Company with
effect from 5 May 2010.
On behalf of the Board
Chris Molefe Stuart Elliot
Non-Executive Chairman Chief Executive Officer
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months
ended ended
30 June 2010 30 June 2009
Reviewed Reviewed
R`000 R`000
Revenue 1 191 272 824 081
EBITDA 322 379 (74 737)
Depreciation (46 023) (50 507)
Net financing costs (12 727) (1 145)
Profit/(loss) before taxation 263 629 (126 389)
Taxation (74 890) 42 203
Current tax - (1 898)
Deferred tax (70 845) 44 101
Secondary tax on companies (4 045)+ -
Profit/(loss) and total comprehensive 188 739 (84 186)
income/(loss) for the period
Basic earnings/(loss) per share 8 (3)
(cents)
Diluted earnings/(loss) per share 8 (3)
(cents)
Headline earnings/(loss) per share 7# (3)
(cents)
Diluted headline earnings/(loss) per 7# (3)
share (cents)
Ordinary shares in issue 2 460 508 860 2 459 258 860
Weighted average number of shares for 2 459 799 376 2 459 258 860
the period
Diluted weighted average number of 2 488 677 466 2 479 639 408
shares for the period
# Headline earnings R179 million
Total comprehensive R189 million
income for the year
Profit on disposal of (R10 million)
property, plant and
equipment
GROUP CONDENSED STATEMENT OF FINANCIAL POSITION
As at As at
30 June 2010 31 December
2009
Reviewed Audited
R`000 R`000
Assets
Property, plant and equipment 2 060 467 1 949 464
Total non-current assets 2 060 467 1 949 464
Inventories 837 316 757 457
Trade and other receivables 419 537 234 346
Cash and cash equivalents 323 095 462 632
Total current assets 1 579 948 1 454 435
Total assets 3 640 415 3 403 899
Equity
Share capital 24 605 24 593
Share premium 1 244 872 1 244 072
Equity-settled share-based payment 20 491 22 109
reserve
Retained earnings 1 182 314 1 042 762
Total equity attributable to equity 2 472 282 2 333 536
holders
Liabilities
Loans and borrowings 313 116 363 626
Provision for close down and 36 768 37 347
restoration costs
Deferred tax 452 027 381 180
Total non-current liabilities 801 911 782 153
Loans and borrowings 971 888
Financial liability 10 430 8 568
Trade and other payables 354 802 278 735
Current tax liability 19 19
Total current liabilities 366 222 288 210
Total liabilities 1 168 133 1 070 363
Total equity and liabilities 3 640 415 3 403 899
GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY
Six months Six months
ended ended
30 June 2010 30 June 2009
Reviewed Reviewed
R`000 R`000
Share capital 24 605 24 593
Balance at beginning of the period 24 593 24 593
Share options exercised 12 -
Share premium 1 244 872 1 244 072
Balance at beginning of the period 1 244 072 1 244 072
Share premium arising from share 800 -
options exercised
Equity-settled share-based payment 20 491 18 706
reserve
Balance at beginning of the period 22 109 15 586
Share-based payment (1 618) 3 120
Retained earnings 1 182 314 1 110 901
Balance at beginning of the period 1 042 762 1 195 087
Profit/(loss) and total comprehensive 188 739 (84 186)
income/(loss) for the period
Dividend (49 187)+ -
Total equity at end of year 2 472 282 2 398 272
GROUP CONDENSED STATEMENT OF CASH FLOWS
Six months Six months
ended ended
30 June 2010 30 June 2009
Reviewed Reviewed
R`000 R`000
Profit/(loss) before taxation 263 629 (126 389)
Interest paid 18 268 20 874
Interest received (5 541) (19 729)
Depreciation 46 023 50 507
Adjusted for non-cash items (1 411) 376
Adjusted for working capital changes (236 655) 218 695
Cash flows from operations 84 313 144 334
Interest paid (16 406)* (20 874)
Interest received 5 541 19 342
Tax paid - (87 728)
Cash flows from operating activities 73 448 55 074
Cash flows from investing activities (112 057) (83 470)
Acquisition of property, plant and (36 817) (925)
equipment - expansionary
Acquisition of property, plant and (75 240) (82 545)
equipment - sustaining
Cash flows from financing activities (102 930) (735)
Dividends paid (49 187)+ -
Secondary tax on companies paid (4 045)+ -
Proceeds from issue of shares 812 -
Decrease in non-current borrowings (50 510) (735)
Net decrease in cash and cash (141 539) (29 131)
equivalents
Cash and cash equivalents at the 462 632 539 741
beginning of the period
Effect of exchange rate fluctuations 2 002 (44 270)
on cash held
Cash and cash equivalents at the end 323 095 466 340
of the period
* Excludes R1,9 million relating to the fair value adjustment on the interest
rate swap.
+ Relates to the dividend declared by the Board on 26 February 2010 and paid on
29 March 2010.
Executive directors:
S Elliot (Chief Executive Officer), B McBride
Non-executive directors:
CK Molefe (Chairman), J Matlala, M Mthenjane, NB MajovaT Ramantsi, M Mamathuba,
DS Phiri, 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 August 2010
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 03/08/2010 07:05:02 Produced by the JSE SENS Department.
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