| Wed 2 Aug 2006, 7:01 | | Merafe - Interim results for the six months ended |
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MRF
MRF
Merafe - Interim results for the six months ended 30 June 2006
Merafe Resources Limited
(Incorporated in the Republic of South Africa)
(Registration Number 1987/003452/06)
("Merafe" or "the Company")
Share code: MRF ISIN: ZAE000060000
Unaudited results for the six months ended 30 June 2006
Group abridged income statement
6 months 6 months
ended ended
30 June 2006 30 June 2005
Unaudited Unaudited
R"000 R"000
Revenue 330,293 296,068
EBITDA 4,008 67,304
Depreciation (10,851) (4,177)
Net finance costs (18,991) (29,536)
(Loss) / profit before taxation (25,834) 33,591
Secondary tax on companies (1,970) (1,215)
(Loss) / profit for the period (27,804) 32,376
(Loss) / earnings per share (cents) (1.23) 2.62
Diluted (loss) / earnings per share (1.23) 2.56
(cents)
Ordinary shares in issue 2,339,241,009 1,237,917,518
Weighted average number of shares for 2,251,861,364 1,237,917,518
the period
Group abridged balance sheet
As at As at
30 June 31 December
2006 2005
Unaudited Audited
R"000 R"000
Assets
Non-current assets 1,410,684 1,330,840
Options for mineral rights 258 258
Property, plant and equipment 1,410,080 1,330,236
Investments 346 346
Current assets 621,898 692,500
Inventories 331,842 324,309
Trade and other receivables 270,283 281,449
Bank and cash 19,773 86,742
Total assets 2,032,582 2,023,340
Equity and liabilities
Capital and reserves 928,722 904,868
Issued share capital 23,393 22,475
Share premium 1,142,001 1,091,743
Equity-settled share-based payment 2,992 2,510
Accumulated loss (239,664) (211,860)
Non-current liabilities 606,149 232,425
Non-current borrowings 598,522 224,833
Provision for close-down and 7,627 7,592
restoration
Current liabilities 497,711 886,047
Trade and other payables 253,740 585,828
Other provisions 24,009 26,003
Current portion of non-current 55,516 100,047
borrowings
Bank overdraft 164,446 174,169
Total equity and liabilities 2,032,582 2,023,340
Statement of changes in equity
6 months 6 months
ended ended
30 June 2006 30 June 2005
Unaudited Unaudited
R"000 R"000
Issued share capital 23,393 12,379
Balance at beginning of the period 22,475 12,379
New shares issued during the period 918 -
Share premium 1,142,001 557,035
Balance at the beginning of the period 1,091,743 557,035
Premium on new shares issued during the 50,258 -
period
Equity-settled share-based payment 2,992 2,003
Balance at the beginning of the period 2,510 1,545
Share-based payment 482 458
Accumulated loss (239,664) (227,217)
Balance at beginning of the period (211,860) (259,593)
Net profit for the period (27,804) 32,376
Fair value reserve - 1,637
Total equity and reserves 928,722 345,837
Group abridged cash flow statement
6 months 6 months
ended Ended
30 June 2006 30 June
2005
Unaudited Unaudited
R"000 R"000
Cash generated by operations (327,929) 42,389
Interest cost (19,543) (20,853)
Interest received 552 991
(346,920) 22,527
Cash flows from investing activities (90,695) (9,449)
Cash flows from financing activities 380,369 (72,622)
Net decrease in cash and cash (57,246) (59,544)
equivalents
Cash and cash equivalents at beginning (87,427) 28,187
of period
Cash and cash equivalents at end of (144,673) (31,357)
period
Basis of preparation
In compliance with the JSE Limited Listings Requirements, Merafe has prepared
its consolidated financial statements in accordance with International
Financial Reporting Standards (IFRS) for the six months ended 30 June 2006.
The accounting policies adopted are consistant with those applied in the annual
financial statements for the year ended 31 December 2005. These financial
statements have not been audited.
Review of results
Merafe"s current source of income is generated from its chrome venture with
Xstrata SA (Pty) Ltd ("the Chrome Venture"). Merafe shared in 17% of the
earnings before interest, tax, depreciation and amortisation ("EBITDA") from
the Chrome Venture for the six months ended 30 June 2006. The share of EBITDA
from the Chrome Venture increased to 20.5% on 1 July 2006. Headline loss for
the six months to 30 June 2006 amounted to 1.23 cents per share (30 June 2005:
headline earnings per share 2.62).
Merafe"s attributable saleable production of ferrochrome from the Chrome
Venture during the six month period was 84,474 tonnes. The EBITDA includes
Merafe"s attributable share of standing charges from the temporary closure of
furnaces of R17.9 million, Merafe"s attributable share of the foreign exchange
loss of R14.6 million, corporate expenses of R12.7 million and share-based
payments under IFRS 2 of R482,000.
The foreign exchange loss in the Chrome Venture arose as a result of the
weakening of the Rand against the US$ in the second quarter of 2006. This was
due to the Chrome Venture"s nett US$ payables exceeding its nett US$
receivables. Included in the nett US$ payables was a US$ facility. A portion of
this facility has been converted into Rands which should ensure that the nett
US$ receivables exceed the nett US$ payables going forward.
Non-current borrowings have increased due to the drawdown of the loan facility
to fund Project Lion and the reclassification of funds owed to Xstrata
previously reflected in trade payables.
Due to the tough trading conditions experienced in the last six months, Merafe
raised an amount of R50 million in equity in June 2006 in order to meet its
scheduled debt repayments.
The increase in the base price of ferrochrome from 63 USCents per pound in the
first quarter of 2006 to 75 USCents per pound in the third quarter of 2006, the
weakening of the Rand against the US$, Merafe"s share of EBITDA increasing to
20.5% from 1 July 2006 and Project Lion coming on-stream, should result in
Merafe posting meaningful profits for the remainder of the financial year.
Review of operations
During the first half of 2006, all major South African producers reduced
production in an attempt to restore balance to the market. The available
operating capacity of the Chrome Venture was reduced by some 15% compared to
the same period last year through furnace closures, providing the opportunity
for the refurbishment of plant and equipment. Improved market demand from the
second quarter should facilitate a strong operating performance in the second
half of the year. Three furnaces are expected to be returned to production at
the end of winter.
Despite the absorption of higher fixed cost structures due to reduced operating
capacity, cost performance was in line with the comparable period after
adjusting for the impact of inflation. Reductant prices fell from the very high
levels seen last year and improved quality of furnace feed stock assisted
positively in metallurgical efficiencies.
Market review
Primary stainless steel melt production, which declined by around 1% in 2005,
continued to be weak in the early part of the year. These weak conditions
resulted in a further 5 USCents drop in the base price for ferrochrome from 68
USCents per pound at year end, to 63 USCents per pound in the first quarter of
2006. Weak stainless production combined with higher ferrochrome production in
2005 from mainly China, led to an increase in ferrochrome stocks towards the
year-end. Due to the continued appreciation of the Rand, together with soft
market conditions for ferrochrome, a number of South African producers
announced production cutbacks in the second half of 2005. The temporary closure
of capacity extended into 2006 with the prevailing weakness in the stainless
melt sector in the first quarter.
The second quarter of the year has seen a turnaround for the ferrochrome
business. Stainless production has increased sharply, as service centres and
fabricators returned to the market to replenish inventories and meet growing
demand, particularly in Europe. Supported by this significant increase in
demand, the ferrochrome base price increased by 19% to 75 USCents per pound in
the third quarter of 2006.
Global stainless production is estimated to increase to 26.4 million tonnes in
2006, 8.6% higher than 2005 production levels. Production from western Europe
and Africa is anticipated to grow by around 7%, with smaller increases in
central and eastern Europe, and the Americas. China is forecast to become the
leading stainless producer in 2006 with growth of 35%, taking annual production
to approximately 4.5 million tonnes. Consequently, demand for ferrochrome is
expected to show good growth of around 8% to over 6 million tonnes for the full
year of 2006, resulting in improved ferrochrome production capacity utilization
and increased sales volumes in the second half.
Most major stainless producers report strong order books through the third
quarter, with lead times increasing.
Project Lion
Project Lion is nearing completion and is on schedule for a phased
commissioning in the second half of 2006. The chromite pre-reduction kilns will
be commissioned, as planned, during August and September. This will reduce the
risk to the ensuing furnace commissioning with the availability of hot feed
stock from the kilns. Notwithstanding the significant time impact of several
equipment quality and supply delays, the project team has managed to recover
lost time and is on track to commission this 360 000 tonnes per annum facility
in the second half of 2006 as planned. The development of the associated Helena
mine has been completed with mine production ramped up to design capacity.
Project Lion is expected to deliver significant cost savings compared to
current industry averages, arising from improved efficiencies in energy, ore
and reductant consumption. Ramp-up to full production is expected in the first
half of 2007 and overall the project remains on budget, despite significant
cost inflation for key inputs.
Dividend
No ordinary dividend has been declared by the directors of Merafe for the six
months ended 30 June 2006.
Future prospects
Merafe" share of the EBITDA increased to 20.5 % on 1 July 2006. This together
with the increase in the base price of ferrochrome from 63 USCents per pound in
the first quarter of 2006 to 75 USCents per pound in the third quarter of 2006,
the weakening of the Rand against the US dollar and with Project Lion coming on-
stream, should result in Merafe returning to profitability and posting
meaningful profits for the remaining six months of 2006.
Management continues to focus cautiously on the achievement of its
diversification strategy, whilst taking cognisance of the commodity cycle,
returns to shareholders and the need to reduce the Company"s gearing levels.
Chris Molefe
Non-executive chairman
Steven Phiri
Chief Executive Officer
Sandton
2 August 2006
Sponsor
ABSA Capital
A division of ABSA Bank Limited
Reg no 1986/004794/06
Date: 02/08/2006 07:01:49 AM Produced by the JSE SENS Department
