| Tue 1 Mar 2011, 8:00 | | MRF - Merafe - Audited abridged results and dividend announcement for the year |
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MRF
MRF
MRF - Merafe - Audited abridged results and dividend announcement for the year
ended 31 December 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)
AUDITED ABRIDGED RESULTS AND DIVIDEND ANNOUNCEMENT
for the year ended 31 December 2010
KEY FEATURES
- Significant increase in basic and headline EPS
- Increased production volumes
- Improved total recordable lost time injury frequency rate
- Fatality at the Lion ferrochrome plant
- A best performer on JSE SRI Index for fourth consecutive year
- Stable dividend policy continues
- Ferrochrome prices expected to increase in 2011
ABRIDGED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 December 31 December
2010 2009
Audited Audited
R`000 R`000
Revenue 2 558 441 1 839 169
EBITDA 529 815 (100 311)
Depreciation (113 535) (106 189)
Net financing costs (24 997) (11 975)
Profit/(loss) before income tax 391 283 (218 475)
Income tax (112 579) 66 150
Current tax (20 180) (1 902)
Deferred tax (88 354) 68 052
Secondary tax on companies (4 045) -
Profit/(loss) and total comprehensive 278 704 (152 325)
income/(loss) for the year
Earnings/(loss) per share (cents) 11 (6)
Diluted earnings/(loss) per share 11 (6)
(cents)
Headline earnings/(loss) per share 11# (6)
(cents)
Diluted headline earnings/(loss) per 11# (6)
share (cents)
Dividends per share (cents) 2** 2*
Ordinary shares in issue 2 476 656 043 2 459 258 860
Weighted average number of shares for 2 463 152 779 2 459 258 860
the year
Diluted weighted average number of 2 481 965 326 2 482 014 143
shares for the year
* This relates to a dividend that was
declared by the Board on 26 February
2010
** This relates to a dividend that was
declared by the Board on 25 February
2011
# Headline earnings R269 million (R157 million)
Profit and total comprehensive income R279 million (R152 million)
for the year
Profit on disposal of property, plant (R10 million) (R5 million)
and equipment
ABRIDGED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
31 December 31 December
2010 2009
Audited Audited
R`000 R`000
Assets
Property, plant and equipment 2 192 600 1 949 464
Total non-current assets 2 192 600 1 949 464
Inventories 865 251 757 457
Trade and other receivables 435 514 234 346
Current tax asset 3 519 -
Cash and cash equivalents 320 724 462 632
Total current assets 1 625 008 1 454 435
Total assets 3 817 608 3 403 899
Equity
Share capital 24 767 24 593
Share premium 1 253 568 1 244 072
Equity-settled share-based 24 391 22 109
payment reserve
Retained earnings 1 272 279 1 042 762
Total equity attributable to 2 575 005 2 333 536
equity holders
Liabilities
Loans and borrowings 312 786 363 626
Provision for closure and 39 439 37 347
restoration costs
Deferred tax liability 469 534 381 180
Total non-current liabilities 821 759 782 153
Loans and borrowings 831 888
Financial liability 11 048 8 568
Trade and other payables 408 965 278 735
Current tax liability - 19
Total current liabilities 420 844 288 210
Total liabilities 1 242 603 1 070 363
Total equity and liabilities 3 817 608 3 403 899
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended Year ended
31 December 31 December
2010 2009
Audited Audited
R`000 R`000
Issued share capital - 24 767 24 593
ordinary shares
Balance at beginning of year 24 593 24 593
Share options exercised 174 -
Share premium - ordinary 1 253 568 1 244 072
shares
Balance at beginning of year 1 244 072 1 244 072
Share premium arising from 9 496 -
share options exercised
Equity-settled share-based 24 391 22 109
payment reserve
Balance at beginning of year 22 109 15 586
Share-based payment 2 282 6 523
Retained earnings 1 272 279 1 042 762
Balance at beginning of year 1 042 762 1 195 087
Profit/(loss) and total 278 704 (152 325)
comprehensive income/(loss)
for the year
Ordinary dividend paid (49 187)* -
Total equity at end of year 2 575 005 2 333 536
*Relates to a dividend that was declared by the board on 26 February 2010
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOW
Year ended Year ended
31 December 31 December
2010 2009
Audited Audited
R`000 R`000
Profit/(loss) before taxation 391 283 (218 475)
Interest paid 33 853 39 568
Interest received (8 856) (27 593)
Depreciation 113 535 106 189
Adjusted for non-cash items 2 488 3 625
Adjusted for working capital (240 249) 363 389
changes
Cash flows from operations 292 054 266 703
Interest paid (31 373) (39 568)
Interest received 8 856 27 418*
Tax paid (23 715) (87 728)
Net cash from operating 245 822 166 825
activities
Net cash utilised in investing (270 498) (182 583)
activities
Acquisition of property, plant (103 372) (1 593)
and equipment - expansionary
Acquisition of property, plant (167 126) (180 990)
and equipment - sustaining
Net cash (used in) from (94 402) (2 548)
financing activities
Dividends paid (49 187) -
Secondary tax on companies (4 045) -
paid
Proceeds from issue of shares 9 670 -
Decrease in non-current (50 840) (2 548)
borrowings
Net decrease in cash and cash (119 078) (18 306)
equivalents
Cash and cash equivalents at 462 632 539 741
the beginning of the year
Effect of exchange rate (22 830) (58 803)
fluctuations on cash held
Cash and cash equivalents at 320 724 462 632
the end of the year
* Amount is net of interest accrual of R0,175 million
COMMENTARY
Basis of preparation
On 25 February 2011, 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 2010.
In compliance with the JSE Limited Listings Requirements, the annual financial
statements have been prepared in accordance with and contain the information
required by International Financial Reporting Standards("IFRS"), the AC 500
Standards, as issued by the Accounting Practices Board or its successor and in
the manner required by the Companies Act, 1973 (Act 61 of 1973), as amended. The
accounting policies adopted are in terms of IFRS and are consistent with those
adopted in the annual financial statements for the year ended 31 December 2009.
The abridged results are a summary of the consolidated annual financial
statements and have been prepared applying the principles in IAS34:Interim
Financial Reporting to the annual financial statements.
Review of results
The abridged consolidated results and the consolidated annual financial
statements 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 global market leader in ferrochrome, with a total managed
capacity of 1,98 million tonnes of ferrochrome 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 prior year
primarily as a result of an increase of 46% in the average European benchmark
ferrochrome price from 85USc/lb to 124USc/lb year-on-year and an increase of 4%
in Merafe`s share of sales tonnes from 281 000 in 2009 to 291 000 in 2010.
Merafe`s share of EBITDA from the Venture for the year ended 31 December 2010
was R563,5 million. The EBITDA includes Merafe`s attributable share of standing
charges of R96,4 million and a foreign exchange loss of R41,2 million. Merafe`s
EBITDA was R529,8 million, after accounting for corporate costs of R31,4 million
and share-based expense of R2,3 million.
The profit and total comprehensive income for the year is R278,7 million after
taking into account depreciation of R113,5 million, net financing costs of R25
million, current tax expense of R20,1 million, deferred tax expense of R88,4
million and secondary tax on companies of R4 million. The deferred tax expense
relates primarily to R28,4 million recognised on the utilisation of the
assessable loss and R60 million recognised on current temporary differences,
primarily relating to property, plant and equipment. The balance of unredeemed
capital expenditure is estimated to be R252 million at 31 December 2010.
Trade and other receivables have increased significantly from the prior year
primarily due to the effect of the European benchmark price on sales. Property,
plant and equipment increased from the prior period as a result of sustaining
capex of R167 million and R103 million of expansionary capex of which R55
million relates to the Horizon mine development and R48 million relates 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 R233
million in cashflows, paid a dividend and secondary tax on companies ("STC") of
R53 million, repaid R50 million of long-term resources debt and invested R270
million in expansionary and sustaining capex, closing with a healthy cash
balance of R321 million. Merafe has R136 million in its own cash balance and a
further R185 million in the Venture. Merafe has R300 million of long-term debt
repayable in one instalment on 31 December 2012.
Review of operations
Production costs in Rand terms increased by 10% due to substantial increases in
chrome ore prices and power costs. These were partially offset by lower
reductant costs achieved mainly as a result of breakthrough achievements in
optimising the reductant mix to limit the impact of high metallurgical coke
prices.
Higher costs for ore were due to the introduction of South African royalty
taxes, higher UG2 prices and the use of higher cost ore to meet increased demand
from the smelters.
Ongoing electrical energy efficiency improvements and prioritising maintenance
during high-tariff electricity months helped to offset a 25% annual increase in
electricity prices. During the past decade electrical energy efficiencies of the
group`s ferrochrome operations have improved by over 25%. Further efficiency
improvements will be achieved as Project Tswelopele becomes operational in 2013.
All new order mining right applications, mining right conversions, prospecting
right conversions and new order prospecting rights applied for in respect of
chrome have been granted and executed by the Department of Mineral Resources.
Best performer on JSE SRI Index
Merafe was one of only twenty three companies that were listed as Best
Performers on the JSE Socially Responsible Investment Index (SRI Index). The
index has recognised Best Performers for the past four years and Merafe is one
of only seven companies to have been listed as a Best Performer since the
inception of the SRI Index.
Our reporting on our sustainability was also recognised when Merafe`s annual
report for 2009 was rated excellent in the Ernst & Young Excellence in
Sustainability Reporting awards in 2010. These awards recognise the level of
disclosure applied in a company`s reporting.
Safety
The Venture had a very good overall safety performance for the year which was
sadly marred by the unfortunate and tragic death of 58 year old Kgokong Simon
Malapane at the Lion ferrochrome plant in August 2010. The lost time injury
frequency rate reduced by 31% compared to the year ended 31 December 2009.
Market review
Strong growth in stainless steel demand, combined with the rapid growth of
stainless steel production in China, resulted in a 21% increase in the demand
for ferrochrome year-on-year. Global consumption of ferrochrome reached 8,6
million tonnes, exceeding the previous record high of 7,4 million tonnes
achieved in 2007, due to record stainless steel melt, which increased by 20% to
an estimated 31,2 million tonnes compared to 2009 and was 10% above the previous
record production (28,4 million tonnes) in 2006.
China produced more than a third of the world`s stainless steel in 2010, an
increase of 17% year-on-year. Stainless steel production, excluding that of
China, increased by 22% over 2009 levels. Stainless steel production and
consequently demand for ferrochrome continued to grow in emerging economies in
the second half. However, sovereign debt concerns in Europe impacted confidence
in global financial stability in the second quarter and resulted in lower
stainless steel melt production in Europe and America in the latter part of the
year.
Global ferrochrome production was 8,5 million tonnes in 2010 a growth of 44%
year-on year from 2009, despite energy tariffs influencing production levels in
both South Africa and China. South African producers ramped up production in the
first half of 2010, with scheduled maintenance reducing production in the high
electricity-cost winter months.
Despite increased energy costs, rising chrome ore prices and the Chinese
government`s restrictions on electricity supply as it pursues the energy
reduction and efficiency targets set in its 11th five-year programme, China
produced 2,1 million tonnes of ferrochrome in 2010. China remains a net
ferrochrome importer, with 46% of its 3,8 million tonne per annum requirement
being sourced externally. South Africa`s global market share of production
declined from 50% in 2002 to 41% in 2010 as a result of the increased production
in China, despite reaching record levels of 3,8 million tonnes.
Third quarter weather and energy related production cuts in South Africa, China
and India prevented a build up of global stocks of ferrochrome for both
producers and consumers. Global ferrochrome stocks have been maintained at
around ten to twelve weeks of consumption.
The European benchmark ferrochrome price closed the year unchanged from
130USc/lb achieved in the third quarter of 2010. Lower ferrochrome stock levels
and higher production costs underpinned stronger prices.
Recent developments
Xstrata South Africa (Proprietary) Limited (Xstrata) has approved the second
phase of the Lion smelter complex expansion (Lion II). The expansion will
involve the construction and commissioning of a 360 000 tonne per annum
ferrochrome capacity smelter and will increase the Venture`s total ferrochrome
capacity to over 2,3 million tonnes per annum at a capital cost of R4,9 billion.
The capital cost includes R700 million for the concurrent development of the 1,2
million ROM tonne per annum Magareng mine within the Thorncliffe mine complex.
Bulk earthworks will commence in the first quarter of 2011 and commissioning is
planned for the first half of 2013. The expansion will create over 1 000
permanent jobs and a further 1 800 jobs will be generated during the
construction phase. Merafe has a right to participate in Lion II at cost, in
accordance with its current participation interest of 20,5% in the Venture. In
addition, Merafe has the right to simultaneously increase its interest above
20,5% in Lion II and the Venture up to 26%. Merafe and its partner, Xstrata are
in discussions in this regard.
An agreement was concluded with Lonmin to increase and extend the current UG2
off-take agreement from tailings at Lonmin`s Marikana operations. The tailings
will be treated through chromite recovery plants that will be built, owned and
operated by the Venture. Total UG2 supply sourced through this deal agreement
will amount to approximately 1.5 million tonnes per annum. Construction of the
UG2 plant is expected to be completed by mid 2011.
The Venture approved the construction of Project Tswelopele, a new 600 000
tonnes per annum pelletising and sintering plant. Project Tswelopele will be
constructed at the Rustenburg plant and is expected to be fully operational in
2013. The plant will agglomerate some of the additional UG2 from the Lonmin
operations, significantly improving operational efficiencies and costs and
delivering environmental improvements. 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 by the Venture`s current and
future cash flows.
The Horizon mine development is on schedule to reach a production capacity of 40
000 tonnes of ore per month by the end of 2013. Production at Waterval mine will
start at the end of the first quarter of 2011, producing an average of 30 000
tonnes of ore per month from available mineable panels.
Outlook
In 2011, stainless steel production and world consumption of ferrochrome is
anticipated to grow by over 8%, including a 13% increase in demand for
ferrochrome from China.
Ferrochrome prices are forecast to trade at higher levels in 2011 underpinned by
demands from increased stainless steel production. Restricted supply of
electricity in South Africa has resulted in the postponement of a number of
planned ferrochrome projects over the next five years.
The positive outlook for ferrochrome together with the strong cash position of
the Company have enabled Merafe`s Board to declare a dividend of 2 cents per
share in respect of the financial year ended 31 December 2010. Details of the
dividend are set out below:
Declaration of ordinary cash dividend (No. 2)
On 25 February 2011, the Board declared a final ordinary cash dividend (No. 2)
of 2 cents per share amounting to R49,533 million in respect of the financial
year ended 31 December 2010. 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, 25 March 2011. The STC on the dividend will
amount to R4,953 million, before taking STC credits into account.
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, 17 March 2011
Shares trade ex-dividend Friday, 18 March 2011
Record date Friday, 25 March 2011
Payment date Monday, 28 March 2011
Share certificates may not be dematerialised or rematerialised during the period
Friday, 18 March 2011 and Friday, 25 March 2011, both days inclusive.
On Monday, 28 March 2011, 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 28 March 2011 will be posted on that date.
Dematerialised shareholders will have their accounts at their CSDP or broker
credited on Monday, 28 March 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 continued as a non-executive director of the Company.
Mr Stuart Elliot, the Company`s Chief Financial Officer (CFO), was appointed the
new CEO with effect from 1 April 2010 and continued to act as CFO until the
effective date of appointment of the new CFO on 1 October 2010.
Ms Zanele Matlala, who was previously an independent non-executive director of
the Board, was appointed as CFO with effect from 1 October 2010.
Dr Con Fauconnier resigned as an independent non-executive director with effect
from 5 May 2010.
Mr Abiel Mngomezulu joined the Board as an independent non-executive director
with effect from 9 September 2010.
Mr Mzila Mthenjane resigned as a non-executive director with effect from 9
September 2010.
Mr Tlamelo Ramantsi resigned as a non-executive director with effect from 19
November 2010.
Ms Karabo Nondumo joined the Board as an independent non-executive director with
effect from 1 December 2010.
Mr Mfanyana Salanje joined the Board as an independent non-executive director
with effect from 1 December 2010.
On behalf of the Board
Chris Molefe Stuart Elliot
Non-executive Chairman Chief Executive Officer
Executive directors:
S Elliot (Chief Executive Officer)
Z Matlala
B McBride
Non-executive directors:
CK Molefe (Chairman)*
NB Majova*
M Mamathuba
A Mngomezulu*
K Nondumo*
M Salanje*
S Phiri
* Independent
Company secretary:
A Mahendranath
Registered office:
First Floor, Block B, Sandton Place
68 Wierda Road East, Wierda Valley, Sandton, 2196
Transfer secretaries:
Link Market Services South Africa (Proprietary) Limited
www.meraferesources.co.za
Sandton
1 March 2011
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 01/03/2011 08:00:04 Produced by the JSE SENS Department.
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