| Wed 2 Mar 2005, 9:19 | | Merafe Resources Limited - Reviewed results for th |
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Merafe Resources Limited - Reviewed results for the 9 months ended 31 December
2004
Merafe Resources Limited
(formerly South African Chrome and Alloys Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1987/003452/06)
(`Merafe` or `the Company`)
Share Code: MRF ISIN number: ZAE 000060000
Reviewed results for the 9 months ended 31 December 2004
GROUP ABRIDGED INCOME STATEMENT
9 Months to 12 Months to
31 December 31 March
2004 2004
Reviewed Audited
R`000 R`000
Revenue 502 369 554 442
EBITDA 60 237 (23 427)
Depreciation (16 103) (28 312)
Net financing costs (38 585) (55 385)
Profit / (loss) before taxation 5 549 (107 124)
Taxation - -
Net profit / (loss) for the 5 549 (107 124)
period
Earnings / (loss) per share 0.45 (9.43)
(cents)
Headline earnings / (loss) per 0.45 (9.43)
share (cents)
Ordinary shares in issue 1 237 917 518 1 195 664 842
Weighted average ordinary shares 1 236 676 723 1 135 527 054
in issue for period
GROUP ABRIDGED BALANCE SHEET
9 Months to 12 Months to
31 December 31 March
2004 2004
Reviewed Audited
R`000 R`000
ASSETS
NON-CURRENT ASSETS 689 358 692 779
Options, mineral and participation 258 258
rights
Property, plant and equipment 681 054 679 897
Investments 6 408 9 784
Long-term receivables 1 638 2 840
CURRENT ASSETS 479 088 156 312
Inventories 237 270 92 797
Trade and other receivables 189 598 63 515
Bank and cash 52 220 -
TOTAL ASSETS 1 168 446 849 091
EQUITY AND LIABILITIES
CAPITAL AND RESERVES 259 857 222 561
Share capital 12 379 11 957
Share premium 557 035 527 217
Fair value reserve 1 637 130
Accumulated loss (311 194) (316 743)
NON-CURRENT LIABILITIES
Long-term borrowings 395 154 369 295
CURRENT LIABILITIES 513 435 257 235
Trade and other payables 438 414 199 122
Current portion of long-term 50 988 49 170
borrowings
Bank overdraft 24 033 8 943
TOTAL EQUITY AND LIABILITIES 1 168 446 849 091
STATEMENT OF CHANGES IN EQUITY
9 Months to 12 Months to
31 December 31 March
2004 2004
Reviewed Audited
R`000 R`000
Share capital 12 379 11 957
Balance at beginning of period 11 957 10 150
New shares issued during period 422 1 807
Share premium 557 035 527 217
Balance at beginning of period 527 217 421 406
Premium on new shares issued during 29 818 105 811
the period
Accumulated loss (311 194) (316 743)
Balance at beginning of period (316 743) (200 091)
Net profit / (loss) for the period 5 549 (107 124)
Transfer to fair value reserve (130)
Prior year adjustment - (9 398)
Fair value reserve 1 637 130
BALANCE AT END OF PERIOD 259 857 222 561
GROUP ABRIDGED CASH FLOW STATEMENT
9 Months to 12 Months to
31 December 31 March
2004 2004
Reviewed Audited
R`000 R`000
Cash generated by operations 28 970 (45 106)
Interest cost - (57 557)
Interest received 3 008 1 838
Cash flows from operating activities 31 978 (100 825)
Cash flows from investing activities (11 175) (45 227)
Cash flows from financing activities 16 328 135 800
Net increase (decrease) in cash and 37 131 (10 252)
cash equivalents
Cash and cash equivalents at beginning (8 944) 1 308
of period
Cash and cash equivalents at end of 28 187 (8 944)
period
COMMENTARY
Change of year-end
Shareholders are reminded that the Company changed its year-end from 31 March to
31 December and, as such, the current reporting period is for nine months to 31
December 2004.
Accounting policy
This report has been prepared in terms of South African Statements of Generally
Accepted Accounting Practice (GAAP) and the Companies Act, No 61 of 1973, and is
consistent with those applied in the financial statements for the 12 months
ended 31 March 2004.
Review of results
The reviewed results of the Company, as set out above, have been reviewed by the
Company`s auditors, KPMG Inc. as required by the JSE Securities Exchange South
Africa. Their review report is available for inspection at the Company`s
registered address.
Merafe`s current source of income is from its chrome venture with Xstrata SA
(Pty) Limited (`the Xstrata-Merafe Chrome Venture`), which became effective on 1
July 2004 and reinforced the merged entity as the South African market leader
with total managed annual capacity of 1.4 million tonnes of ferrochrome per
annum. Merafe shares in 11% of the earnings before interest, tax and
depreciation (`EBITDA`) from the Xstrata-Merafe Chrome Venture until 30 June
2005. Merafe`s share of the EBITDA from the Xstrata-Merafe Chrome Venture will
increase to 14% from 1 July 2005 and to 17.5% from 1 July 2006 onwards.
The Company`s earnings before interest, tax, depreciation and amortisation for
the nine-month period ended 31 December 2004 was R60 million. After accounting
for depreciation of R16 million and net interest paid of R38 million the net
profit after tax was R5.5 million.
Of importance to the future of the Company, is its performance since the
formation of the Xstrata-Merafe Chrome Venture on 1 July 2004. Merafe`s 11%
share of the EBITDA from the Xstrata-Merafe Chrome Venture for the six-month
period from 1 July 2004 to 31 December 2004, was R55 million. Corporate costs
for this six-month period were R8 million and included costs relating to the
formation of the Xstrata-Merafe Chrome Venture of R2 million. The average Rand:
US$ exchange rate during this six-month period was R6.22: US$1.
Shareholders are reminded that in 4 months` time, on 1 July 2005, Merafe`s share
of EBITDA from the Xstrata-Merafe Chrome Venture increases to 14%, and in 16
months time, that percentage increases to 17.5%.
Numerous shareholders have requested that the Company illustrate how sharing in
17.5% of the EBITDA from the Xstrata-Merafe Chrome Venture would affect earnings
going forward. As an example, using Merafe`s actual 11% share of EBITDA of R55
million for the six-month period to 31 December 2004, then annualising this
amount and increasing the share of EBITDA from 11% to 17.5%, results in Merafe`s
EBITDA (before corporate costs, interest and depreciation) being R175 million
for a full year under the same trading conditions that prevailed in the last six
months of 2004.
Review of operations
From an operating perspective, 2004 was a challenging year for all major South
African producers, given the dramatic rise in the cost of key raw material
inputs during the period and a decline in metallurgical efficiencies, due
principally to a shortage of quality chrome ore for the Xstrata-Merafe Chrome
Venture. Other challenging issues included some transformer failures and the
reliability of electricity supply. The sharp rise in the cost of reductants
(primarily coke) had the greatest negative impact on costs, offset to some
extent by the success of the Xstrata-Merafe Chrome Venture`s coke reduction
programme.
The Xstrata-Merafe Chrome Venture has continued to enhance its relative cost
competitiveness by increasing ore agglomeration capacity, securing a captive
supply of reductants, improving the energy efficiency of capacity expansions and
aggressively pursuing a general reduction in unit costs.
Challenging geological conditions at the Western mines reduced mine output and
lowered head grades during the period, giving rise to a shortage of quality
chrome ore mentioned above. An open cast mining section was opened in the latter
part of 2004 to produce 80,000 tonnes ROM of chrome ore per month. This
initiative is expected to make a significant contribution towards alleviating
ore supply and associated quality difficulties in 2005.
The integration of Merafe and Xstrata`s chrome businesses has been seamless,
with many synergies materializing in the first six months. The Company now has a
broader operating base, with earnings generated from the combined performance of
all the Xstrata-Merafe Chrome Venture`s 16 furnaces compared with it`s reliance
on the 2 furnaces at the Boshoek plant previously. Production levels at the
Boshoek plant have increased by 20% from the previous financial year to reach
the plant`s full design capacity and it is expected that these higher production
rates will be sustained into 2005.
During 2005, a feasibility study will be undertaken to evaluate the introduction
of Xstrata`s proprietary Premus pre-reduction pelletising technology to the
Wonderkop operations as part of the ongoing focus on cost reductions.
Market review
Global ferrochrome demand remained robust during 2004, increasing to
approximately 5.5 million tonnes, compared to 5.2 million tonnes the previous
year. Continued growth in the production of stainless steel, which accounts for
around 80% of ferrochrome consumption, was the main driver behind this increase.
In China, stainless steel melt grew by around 24% during the year, strongly
underpinning the global increase.
Strong stainless steel melt growth was also evident in Europe, estimated at
around 8.9 million tonnes in 2004, an increase of 6% versus the previous year,
in South Korea where melt grew by 16.4% to 2.3 million tonnes per annum and in
the United States, with an annual increase of around 8.4% to 2.4 million tonnes.
Quoted European base prices for ferrochrome remained firm at 73USCents (USD) per
pound in the first quarter of the 2005. The outlook for ferrochrome demand and
prices for 2005 remains strong, with stainless melt forecast to continue to
increase by around 9% in 2005 and no meaningful increase in ferrochrome
production capacity expected before 2006.
Project Lion
The Company has assessed phase one of the R1.7 billion Project Lion, the 360,000
tonne per annum ferrochrome expansion of the Xstrata-Merafe Chrome Venture.
Construction started in late December 2004, following the finalisation of the
environmental impact study. Initial production is expected to commence in the
second half of 2006, ramping up to full production from the beginning of 2007.
The board of Merafe has taken a decision to invest in 17.5% of Project Lion to
match its share of earnings received from the Xstrata-Merafe Chrome Venture. The
investment will be funded via a combination of equity and debt. The percentage
investment in Project Lion may increase above 17.5% depending on the outcome of
negotiations referred to in the Cautionary Announcement below which could , if
successful, result in Merafe increasing it`s share in the earnings of an
enlarged Xstrata-Merafe Chrome venture.
Future prospects
The Company announced previously that it would be focussing on organic and
acquisitive growth in ferrochrome as well as through diversification into other
resources. This strategy is on course, and in addition to Project Lion, the
Company is in discussions regarding further acquisitions outside of ferrochrome.
Shareholders will be kept updated on any progress in this regard.
Dividend
No dividend has been declared for the nine-month period to 31 December 2004.
Board composition
There have been no changes to the board of directors during the period under
review.
Interim-results
The interim results for the six-month period ending 30 June 2005 will be
published on 10 August 2005.
Further cautionary announcement
Further to the cautionary announcements dated 16 November 2004, 6 December 2004
and 18 January 2005, shareholders are advised that negotiations are in progress
regarding a potential acquisition, which could result in Merafe increasing its
share in the earnings of an enlarged Xstrata-Merafe Chrome Venture.
Accordingly, shareholders are advised to continue to exercise caution when
dealing in their shares until a further announcement is made.
Chris Molefe Steve Phiri
Non-Executive Chairman Chief Executive Officer
Johannesburg
2 March 2005
Date: 02/03/2005 07:00:31 AM
Produced by the JSE SENS Department
