| Wed 10 Aug 2005, 9:56 | | Merafe Resources Limited - Unaudited results for t |
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Merafe Resources Limited - Unaudited results for the six months ended 30 June
2005
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: ZAE 000060000
Unaudited results for the six months ended 30 June 2005
Group highlights
Substantial earnings improvement
Reduction in long-term debt
Capital projects successfully advanced
Group costs well-contained
Acquisitions approved by shareholders
Demand for ferrochrome remains robust
GROUP ABRIDGED INCOME STATEMENT
6 months ended 9 months ended
30 June 31 December
2005 2004
Unaudited Audited
R`000 R`000
Revenue 296,068 502,369
EBITDA 67,304 59,541
Depreciation (4,177) (5,911)
Net financing costs (19,861) (38,585)
Profit before taxation 43,266 15,045
Preference dividends (9,675) -
STC (1,215) -
Net profit for the period 32,376 15,045
Earnings per share (cents) 2.62 1.22
Headline earnings per share 2.62 1.22
(cents)
Ordinary shares in issue 1,237,917,518 1,237,917,518
Weighted average number of 1,237,917,518 1,236,676,723
shares for period
GROUP ABRIDGED BALANCE SHEET
As at 30 June As at
31 December
2005 2004
Unaudited Audited
R`000 R`000
ASSETS
NON-CURRENT ASSETS 745,702 734,800
Options, mineral and 258 258
participation rights
Property, plant and equipment 745,098 734,196
Investments 346 346
CURRENT ASSETS 513,275 486,790
Available-for-sale-bonds 6,062 6,062
Financial asset 1,752 1,752
Inventories 246,396 237,270
Trade and other receivables 242,851 189,486
Cash and cash equivalents 16,214 52,220
TOTAL ASSETS 1,258,977 1,221,590
EQUITY AND LIABILITIES
CAPITAL AND RESERVES 345,837 313,003
Share capital 12,379 12,379
Share premium 557,035 557,035
Equity-settled share-based 2,003 1,545
payments
Fair value reserve 1,637 1,637
Accumulated loss (227,217) (259,593)
NON-CURRENT LIABILITIES
Long-term borrowings 9,715 395,990
Long-term borrowings - Preference 363,450 -
shares
CURRENT LIABILITIES 539,975 512,597
Trade and other payables 463,393 412,077
Provisions 23,681 21,818
Current portion of long-term 5,330 54,669
borrowings
Bank overdraft 47,571 24,033
TOTAL EQUITY AND LIABILITIES 1,258,977 1,221,590
STATEMENT OF CHANGES IN EQUITY
6 months ended 9 months ended
30 June 31 December
2005 2004
Unaudited Audited
R`000 R`000
Share capital - Ordinary shares 12,379 12,379
Balance at beginning of period 12,379 11,957
New shares issued during the - 422
period
Share premium - Ordinary shares 557,035 557,035
Balance at beginning of period 557,035 527,217
Premium on new shares issued - 29,818
during the period
Equity-settled share-based 2,003 1,545
payments
Balance at beginning of period 1,545 849
Share-based payment 458 696
Accumulated loss (227,217) (259,593)
Balance at beginning of period (259,593) (274,638)
Net profit for the period 32,376 15,045
Fair value reserve 1,637 1,637
BALANCE AT END OF PERIOD 345,837 313,003
GROUP ABRIDGED CASH FLOW STATEMENT
6 months ended 9 months ended
30 June 31 December
2005 2004
Unaudited Audited
R`000 R`000
Cash generated by operations 42,389 29,408
Interest cost (20,853) (42,218)
Interest received 991 3,634
Cash flows from operating 22,527 (9,176)
activities
Cash flows from investing (9,449) (11,222)
activities
Cash flows from financing (72,622) 57,529
activities
Net (decrease)/ increase in cash (59,544) 37,131
and cash equivalents
Cash and cash equivalents at 28,187 (8,944)
beginning of period
Cash and cash equivalents at end (31,357) 28,187
of period
COMMENTARY
Basis of preparation
In compliance with the JSE Listings Requirements, Merafe has prepared its
consolidated financial statements in accordance with International Financial
Reporting Standards (`IFRS`) for the six months ended 30 June 2005. The
accounting policies adopted are consistent with those applied in the annual
financial statements for the period ended 31 December 2004, except for the
changes noted under the heading `First-time adoption of IFRS`.
The major effect on Merafe`s financial statements of adopting IFRS, relates to
the changes to the accounting policy for property, plant and equipment and share
based payments.
The effects of the first-time adoption of IFRS are detailed below under the
heading `First-time adoption of IFRS`.
Review of results
Merafe`s current source of income is generated 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 market leader
with a total managed capacity of 1.4 million tonnes of ferrochrome per annum.
Merafe shared in 11% of the earnings before interest, tax, depreciation and
amortisation (`EBITDA`) from the Xstrata-Merafe Chrome Venture until 30 June
2005. Merafe`s share of the EBITDA from the Xstrata-Merafe Chrome Venture
increased to 14% from 1 July 2005 and will increase to 17.5% from 1 July 2006
onwards. Following the Wonderkop acquisition, as described below, Merafe`s share
of the EBITDA will increase by a further 3% and, as a result, the 14% will
increase to 17% on the effective date of the Wonderkop acquisition and the 17.5%
will increase to 20.5% from 1 July 2006.
The Company`s EBITDA for the six-month period ended 30 June 2005 was R67.3
million. After accounting R4.2 million for depreciation; R19,9 million for net
interest paid and R9,7 million for preference dividends, ?see note 1 belowU the
net profit after tax was R32.4 million. Merafe`s 11% share of attributable
saleable production was 64,860 tonnes.
Corporate costs for this six-month period were R9 million and included costs
relating to the acquisition of Wonderkop of R2 million. The average Rand:US$
exchange rate during this six-month period was R6.22: US$1.
?Note 1 - on 1 April 2005, Merafe raised R390 million through the issue of
cumulative non-convertible redeemable preference shares. The R390 million raised
was used to repay the long-term debt owing to its lending banks. The dividends
paid on the redeemable preference shares attract STC (secondary tax on
companies) at a rate of 12.5% reflecting an STC charge of R1.2 million for the
six-month period ended 30 June 2005.U
During the last six months, R25 million of the redeemable preference shares were
redeemed, reducing the balance to R365 million. A further R40 million is
expected to be redeemed during the next six months further reducing the
outstanding balance to R325 million by year end.
Review of operations
The pricing volatility for reductants experienced in 2004 has stabilised, albeit
at higher levels. Although coke prices are expected to weaken somewhat in the
second half of 2005, this benefit will only be realised in the fourth quarter of
2005 when higher priced stocks are depleted. Nonetheless, real progress was made
in controlling costs in the first half of 2005 across all our operations.
Operational costs increased by around 3% period on period in real terms.
Operating conditions improved during the first half due to increased
metallurgical efficiencies, particularly at the Rustenburg pelletising plant,
reduced raw material requirements and improved distribution of agglomerated
ores. In June 2005, suspensions to production were announced at seven of the
Xstrata-Merafe Chrome Venture furnaces to perform planned maintenance during the
winter months when Eskom power prices are at their peak. The temporary closures
are not expected to have a material impact on the 2005 financial performance.
Challenging geological conditions at the Western mines continued into the first
half of 2005 but the new opencast section, which began production in late 2004,
substantially offset any negative impact on the smelting operations.
Market review
Demand for ferrochrome remained strong during the first half of 2005 and quoted
European base prices increased by 6.8% from 73 USGBP per pound to 78 USGBP per
pound.
The market for ferrochrome was supported by strong stainless steel melt growth
in the first half of 2005, estimated at around 13.0 million tonnes, up by around
7.4% from 12.1 million tonnes for the same period in 2004. China continues to be
the major growth area with melt expected to increase by over 30% to
approximately 3.7 million tonnes for the full year.
Some correction in stainless steel melt is inevitable in the second half, as
stocks build up in China. This, together with the recent depreciation of the
South African rand against the US dollar, which declined by 6.5% from the first
to the second quarter, will result in some downward pressure on ferrochrome
prices. The third quarter base price declined by 5 USGBP per pound.
Despite this short-term softening, the outlook for ferrochrome demand remains
robust, with good growth anticipated for the full year to around 6 million
tonnes, on the back of expected stainless steel melt growth of 4% compared to
2004.
Wonderkop acquisition
At a general meeting held on 26 July 2005, shareholders approved the acquisition
by Merafe of:
- a 50% participation interest in the Wonderkop Joint Venture;
- a 50% interest in the Kroondal resources; and
- a 26% interest in the Marikana resources
from Samancor Holdings (Pty) Limited for a purchase consideration of R331.7
million.
Payment for the acquisition will be made once all the conditions precedent to
the transaction have been fulfilled, including inter-alia:
- obtaining the necessary approvals in terms of the Competition Act No. 89 of
1998; and
- Merafe obtaining the necessary funding for the purchase consideration.
Subject to the fulfilment of the conditions precedent, Merafe will incorporate
the above assets into the Xstrata-Merafe Chrome Venture in exchange for an
additional 3% share of EBITDA from the Xstrata-Merafe Chrome Venture, thereby
ultimately increasing Merafe`s share of EBITDA to 20.5% from 1 July 2006.
Project Lion
In late December 2004, construction started on the first phase of the 360,000
tonnes per annum Project Lion, following finalisation of the environmental
impact study. The project is on schedule and on budget despite some initial
difficulties experienced with ground conditions, escalating steel prices and
changes in locality due to design optimisation. Commissioning is on track to
commence in the second half of 2006, ramping up to full production in the first
half of 2007.
The consideration payable by Merafe for 20.5% of Project Lion will be R349
million and its share of working capital is estimated at R59 million.
Funding
The funding required by Merafe for inter-alia the Wonderkop acquisition and for
Project Lion is estimated to be R850 million. This will be raised by a
combination of debt and equity.
Further details regarding the timing and methodology of raising these funds will
be announced in due course.
Dividend
No ordinary dividend has been declared by the directors of Merafe for the six-
month period to 30 June 2005.
Changes to the board of directors
In compliance with paragraph 3.59 of the JSE Listings Requirements, shareholders
are advised of certain changes to the board of directors of the Company.
The board is pleased to announce the appointment of Mr Guy Clarke (49) as a non-
executive director of the Company with effect from 5 August 2005. Mr Clarke is
an Executive Vice President of the Industrial Development Corporation and his
qualifications include a BSc Civ. Eng. (Natal), Msc Civ. Eng (Wits), MBA
(Stellenbosch) and HDip Tax (Unisa).
The board of Merafe further announces the resignation of Dr Todor Vlajcic and Mr
Reinier Meyjes as non-executive directors of the Company with effect from 5
August 2005. The board wishes to thank Dr Vlajcic and Mr Meyjes for their
significant contribution to the Company, especially during the project and start
up phase of the Boshoek operation.
First time adoption of IFRS
The date of transition to IFRS for Merafe is 1 April 2004 and therefore as
required by IFRS 1, Merafe`s opening balance sheet at 1 April 2004 has been
restated to reflect all existing IFRS statements expected to be applicable at 31
December 2005. Merafe has adopted the following transitional arrangements:
Share-based payments
Merafe has applied the provisions of IFRS 2, share-based payments, except for
share options granted before 7 November 2002, or to share options granted after
this date but which had vested prior to 1 January 2005.
Previously share options granted to employees did not result in any expense to
Merafe, other than a dilution in earnings per share when the shares were issued.
In accordance with the requirements of IFRS 2, Merafe has recognised an expense
in the income statement, with a corresponding credit to equity. The fair value
at the date of granting the options is charged to income over the relevant
option vesting periods, adjusted to reflect actual and expected levels of
vesting.
The effect of accounting for these share-based payments at fair value is to
decrease earnings by R458,118 for the six months ended 30 June 2005, by R696,036
for the nine months ended 31 December 2004 and by R848,577 prior to 31 March
2004.
Property, plant and equipment
Merafe has applied the provisions of IAS 16 - Property, Plant and Equipment,
which requires that the Company provide an annual review and assessment of the
useful life of its assets, depreciation method and residual values at the end of
each financial year and adjusts depreciation charges accordingly. Thus the
depreciable amount of property, plant and equipment is its cost less its
residual value. Where items of property, plant and equipment comprise individual
components for which different depreciation methods are appropriate, each
component is accounted for separately.
Previously individual components were not always separately identified and no
residual value was used in determining the depreciable amount of the component.
The effect of accounting for property, plant and equipment under IAS 16 is to
decrease the depreciation charge by R5,627,872 for the six months ended 30 June
2005, by R10,192,760 for the nine months ended 31 December 2004 and by
R42,950,228 prior to 31 March 2004.The effect of the above adjustments on
accumulated loss on an annual basis is as follows:
Rand
Accumulated loss - 31 March 2004 - `SA GAAP` (316,740,082)
IFRS adjustments:
- Share-based payments (848,577)
- Property, plant & equipment 42,950,228
Accumulated loss - 31 March 2004 - `IFRS` (274,638,431)
Net profit after tax - 31 Dec 2004 - `SA GAAP` 5,547,730
IFRS adjustments:
- Share-based payments (696,036)
- Property, plant & equipment 10,192,760
Accumulated loss - 31 Dec 2004 -`IFRS` (259,593,977)
Net profit after tax - 30 June 2005 - `SA GAAP` 27,206,070
IFRS adjustments:
- Share-based payments (458,118)
- Property, plant & equipment 5,627,872
Accumulated loss - 30 June 2004 - `IFRS` (227,218,153)
The effect of the above adjustments on net profit after tax is as follows:
Nine months to Six months to
31 Dec 2004 30 June 2005
Rand Rand
Net profit after tax 5,547,730 27,206,070
-`SA GAAP`
IFRS adjustments:
- Share-based (696,036) (458,118)
payments
- Property, plant & 10,192,760 5,627,872
equipment
Net profit after tax 15,044,454 32,375,824
-`IFRS`
Year end results
The results for the year ended 31 December 2005 will be published on SENS at
around 07h30 on 1 March 2006 and in the press on 2 March 2006.
Chris Molefe Steve Phiri
Non-Executive Chairman Chief Executive Officer
Johannesburg
10 August 2005
Sponsor
ABSA
Corporate & Merchant Bank
Corporate Finance
A division of ABSA Bank Limited
Reg No 1986/004794/06
Date: 10/08/2005 07:33:01 AM
Produced by the JSE SENS Department
