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Abridged Audited Group Annual Financial Statements for the year ended 31 December 2012
Merafe Resources Limited
(Incorporated in the Republic of South Africa)
Company Registration Number: 1987/003452/06
Share code: MRF ISIN: ZAE000060000
(Merafe or the Company or the Group)
Abridged audited Group annual financial statements
For the year ended 31 December 2012
Preparation of this report
The following individuals were responsible for the preparation of the
abridged audited Group annual financial statements: Kajal Bissessor (CA)SA,
Financial Manager Zanele Matlala (CA)SA, Chief Executive Officer
5% increase in revenue
Headline EPS of 5 cents
Cash from operating activities of R257m
Project Tswelopele commissioned within schedule and budget
Total recordable injury frequency rate remains stable
Abridged consolidated statement of comprehensive income
Year ended Year ended
31 Dec 2012 31 Dec 2011
Audited Audited
R'000 R'000
Revenue 2 541 984 2 426 755
EBITDA 313 650 379 825
Depreciation and impairment (217 641) (153 113)
Net financing costs (19 660) (21 565)
Profit before taxation 76 349 205 147
Taxation (27 476) (88 397)
Current tax (306) (29 433)
Deferred tax (60 155) (36 670)
Prior years over/(under) provision 32 985 (17 783)
Secondary tax on companies - (4 511)
Profit and total comprehensive income for
the year 48 873 116 750
Basic earnings per share (cents) 2 5
Diluted earnings per share (cents) 2 5
Headline earnings per share (cents) 5* 6*
Diluted headline earnings per share (cents) 5* 6*
Ordinary shares in issue 2 493 221 394 2 493 221 394
Weighted average number of shares
for the year 2 493 221 394 2 478 541 751
Diluted weighted average number of shares
for the year 2 500 172 742 2 486 859 923
* Headline earnings reconciliation
R126 million R158 million
Profit and total comprehensive income
for the year R49 million R117 million
Impairment R77 million R41 million
Abridged consolidated statement of financial position
As at As at
31 December 31 December
2012 2011
Audited Audited
R'000 R'000
Assets
Property, plant and equipment 2 677 308 2 372 768
Total non-current assets 2 677 308 2 372 768
Inventories 1 088 885 1 065 932
Trade and other receivables 344 725 262 979
Current tax assets 26 424 -
Cash and cash equivalents 82 643 220 459
Assets held for sale 72 127 -
Total current assets 1 614 804 1 549 370
Total assets 4 292 112 3 922 138
Equity
Share capital 24 932 24 932
Share premium 1 262 481 1 262 481
Equity-settled share-based payment reserve 33 847 31 759
Retained earnings 1 388 369 1 339 496
Total equity attributable to equity holders 2 709 629 2 658 668
Liabilities
Loans and borrowings 523 872 312 778
Provision for close down and restoration
costs 57 892 48 396
Deferred tax liabilities 551 165 506 204
Total non-current liabilities 1 132 929 867 378
Loans and borrowings 636 508
Financial liability - 6 098
Trade and other payables 430 368 375 946
Current tax liability - 13 540
Liabilities held for sale 18 550 -
Total current liabilities 449 554 396 092
Total liabilities 1 582 483 1 263 470
Total equity and liabilities 4 292 112 3 922 138
Abridged consolidated statement of changes in equity
Year ended Year ended
31 Dec 2012 31 Dec 2011
Audited Audited
R'000 R'000
Issued share capital - ordinary shares 24 932 24 932
Balance at beginning of year 24 932 24 767
Share options exercised - 165
Share premium - ordinary shares 1 262 481 1 262 481
Balance at beginning of year 1 262 481 1 253 568
Share premium arising from share options
exercised - 8 913
Equity-settled share-based payment reserve 33 847 31 759
Balance at beginning of year 31 759 24 391
Share-based payment 2 088 7 368
Retained earnings 1 388 369 1 339 496
Balance at beginning of year 1 339 496 1 272 279
Profit and total comprehensive income
for the year 48 873 116 750
Ordinary dividend paid - (49 533)*
Total equity at end of year 2 709 629 2 658 668
* Approved by the Board on 25 February 2011
Abridged consolidated statement of cash flow
Year ended Year ended
31 Dec 2012 31 Dec 2011
Audited Audited
R'000 R'000
Profit before taxation 76 349 205 147
Interest paid 29 302 32 853
Interest received (9 642) (11 288)
Depreciation and impairment 217 641 153 113
Adjusted for non-cash items 2 088 7 368
Adjusted for working capital changes (31 747) (43 113)
Cash flows from operations 283 991 344 080
Interest paid (29 302) (29 186)
Interest received 9 642 10 383
Tax paid (7 285) (30 157)
Cash flows from operating activities 257 046 295 120
Cash flows from investing activities (603 210) (404 404)
Proceeds on disposal of property, plant and
equipment 16 -
Acquisition of property, plant and equipment -
sustaining (179 658) (173 603)
Acquisition of property, plant and equipment -
expansionary (423 568) (230 801)
Cash flows from financing activities 211 094 (44 974)
Dividends paid - (49 533)
Secondary tax on companies paid - (4 511)
Proceeds from issue of shares - 9 078
Increase/(decrease) in non-current borrowings 211 094 (8)
Net decrease in cash and cash equivalents (135 070) (154 258)
Cash and cash equivalents at the beginning
of the year 220 459 320 724
Effect of exchange rate fluctuations on cash held (2 746) 53 993
Cash and cash equivalents at the end of the year 82 643 220 459
Commentary
Basis of preparation
On 28 February 2013, the Board of directors (the Board) of the Company
approved the annual financial statements of the Group and the Company for
the year ended 31 December 2012.
These abridged Group annual financial statements have been prepared in
accordance with the framework concepts, the measurement and recognition
requirements of International Financial Reporting Standards (IFRS), the
requirements of the Companies Act 71 of 2008, as amended, and the AC 500
standards issued by the Accounting Practices Board and contain the
information required by IAS 34 Interim Financial Reporting. 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
2011.
Review of results
The Group annual financial statements from which the abridged Group annual
financial statements were derived 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 revenue and operating income is primarily generated from the
Xstrata-Merafe Chrome Venture (the Venture), the market leader in
ferrochrome, with a total installed capacity of 1.98m 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 2012 share of ferrochrome sales tonnes from the Venture was
255 000 which was marginally above the prior yearâs sales tonnes of 254 000.
Chrome ore revenue as a percentage of total revenue decreased from 14% in
2011 to 13% in 2012. The average Rand:US Dollar exchange rate was R8.21
in 2012, compared to R7.26 for the 2011 year. The average European
benchmark ferrochrome price decreased from 125USc/lb in 2011 to 121USc/lb
in 2012.
Merafe's share of EBITDA from the Venture for the 2012 year was R349.4m
(2011: R464.4m). The EBITDA for 2012 includes a foreign exchange (forex)
loss of R3.9m against a forex gain of R80.9m in 2011. The forex gain/loss
captures all adjustments arising from translation/revaluation of foreign
currency denominated balances/hedges to the local currency. This amount
includes R5.5m relating to the re-measurement of the foreign currency
hedging derivative. This arose as a result of implementation by the
Venture of the hedging policy in the fourth quarter of 2012. The Board
approved hedging policy requires Merafe to hedge its foreign currency
exposure to the US$ ferrochrome margin in line with the quarterly European
price of ferrochrome. The EBITDA from the Venture decreased from the prior
year primarily as a result of the decrease in the average European
benchmark ferrochrome price and an increase in costs which were partially
offset by the weakening of the Rand compared to the US Dollar. The EBITDA
includes Merafeâs attributable share of standing charges of R167.2m.
After accounting for corporate costs of R33.6m and a share-based payment
expense of R2.1m, Merafeâs EBITDA was R313.7m. Corporate costs of R33.6m
decreased year on year primarily as a result of transaction costs and
expenses associated with indirect tax liabilities that were incurred in
2011.
The profit and total comprehensive income for the year was R48.9m after
taking into account depreciation of R140.1m, an impairment loss of R77.5m,
net financing costs of R19.7m, current tax expense of R0.3m, deferred tax
expense of R60.2m and R33.0m write-back arising from prior yearsâ
overprovision of current tax. Depreciation increased year on year as a
result of the re-assessment of useful lives and residual values in
accordance with IAS 16, Property, Plant and Equipment as well as the
accelerated depreciation recognised on assets scrapped during the year.
The impairment loss was primarily as a result of the Venture considering
the sale of some of its mining assets as part of its portfolio review. The
R33.0m write-back of current tax and the increase in the effective rate of
tax arose from the South African Revenue Services (SARS) assessment of our
returns during 2012. The balance of unredeemed capital expenditure is
estimated to be R446m at 31 December 2012.
As per SENS announcement dated 7 August 2012, it was reported that SARS
issued Merafe Ferrochrome and Mining Proprietary Limited with an audit
letter of findings of R26m. SARS have since withdrawn the letter of
findings of R26m. As previously reported, the Venture partners were in the
process of engaging with SARS with a view to obtaining clarity on other
areas where the structure of the Venture created anomalies with regard to
VAT interpretation. We are pleased to report that this matter is now
resolved.
Property, plant and equipment increased from 31 December 2011 as a result
of R603m of capital expenditure of which R423m was expansionary and R180m
was sustaining. Expansionary capital primarily comprised expenditure
on Project Tswelopele and Project Lion II.
Merafe started the year with a cash balance of R221m, generated operating
cash flows of R257m, invested R603m in capital expenditure, raised loans
of R211m, incurred R3m foreign exchange fluctuations on cash held and
closed with a cash balance of R83m at 31 December 2012. Cash in Merafe was
R24m and Merafeâs share of cash in the Venture was R59m. At 31 December
2012, Merafe had long-term debt owing to ABSA Capital of R512m and
approximately R288m unutilised ABSA long-term debt facilities.
The Merafe Board decided not to declare a dividend for the 2012 financial
year, taking into account expansionary projects and the projected debt and
cash levels of the Group.
Review of operations
During 2012, Merafe's total ferrochrome production was 242 000 tonnes
which was 8% lower than the comparative period primarily as a result of
weaker demand and participation in Eskom's power buy-back programme. The
compensation received from Eskom for the electricity not consumed was
adequate to cover the costs and lost profits on the associated volumes.
Operating capacity utilisation for the 2012 year reduced to 66% compared
to 72% for the prior year.
Total cost increases were contained at 9.2%. We continue to benefit from
cost savings as a result of investments in improving efficiencies in our
operations.
Safety and environment
Although there were no fatalities for the 2012 year, we are saddended to
report the loss of one of our contractor employees, Mr Segopotje Johannes
Ramontja, who passed away on 14 February 2013. Our deepest sympathies go
out to his family, colleagues and friends.
The safety of our employees remains a key focus area as evidenced by the
Venture's total recordable injury frequency rate of 4.05 for the 2012 year
which was at similar levels to prior years. There were no significant
adverse environmental incidents in the Venture during the reporting
period.
Mineral Reserves, Mineral Resources and Mining Rights
During 2012, there were no material changes to the mineral reserves,
mineral resources and mining rights of the Venture.
Employment equity and empowerment
Both Merafe and the Venture exceeded the employment equity targets as per
the Mining Charter scorecard for the year under review. We are pleased to
report that in the Financial Mail Top Empowerment Companies Survey of JSE
Listed Companies published in 2012, Merafe was named number one in the
Resources sector.
Market review
Growth in stainless steel production in 2012 was primarily driven by the
increased production of stainless steel in China. This resulted in a new
record production of stainless steel in 2012 of 35.2m* tonnes compared
with the 34.1m* tonnes in 2011. Global demand for ferrochrome was up year
on year, to 9.7m* tonnes in 2012, exceeding the previous high of 9.5m*
tonnes in 2011.
The increased demand and reduced supply of ferrochrome resulted in the
drawing down of global ferrochrome stocks. A number of issues, including
the continuation of concerns for the Eurozone due to the ongoing debt
crisis, economic woes in the United States and other geopolitical events,
such as the change of leadership in the Communist Party of China, resulted
in weaker market conditions which affected ferrochrome demand in the
second half of 2012.
Global ferrochrome production increased to 9.3m* tonnes in 2012 compared
to 9.2m* tonnes in 2011. South African production declined during 2012 on
the back of the agreements that South African producers had with Eskom to
sell back electricity to the grid. South African ferrochrome production
declined by 9% year on year. In response to the resulting increased demand
for domestically produced ferrochrome and an increased availability of
chrome ore, Chinese ferrochrome production increased by 9%*, from the
production levels achieved in 2011. Despite producing around 3.3m* tonnes
of ferrochrome in 2012, China remains a net ferrochrome importer with
1.5m* tonnes imported in 2012, a year on year decrease of 15%*.
Chrome ore imports into China reduced from 9.4m tonnes* in 2011 to 9.3m*
tonnes in 2012, however, Chinese demand for chrome ore increased year on
year with the excess coming from a draw down of Chinese port stocks of
chrome ore to feed the increased production of ferrochrome in China. South
Africa supplied around 48%* of the chrome ore imported into China, a 2%*
decrease from 2011's record volumes. These exports of chrome ore continue
to advance the development of the ferrochrome industry in China,
displacing capacity in South Africa and undermining South African sales of
beneficiated chrome ore in the form of ferrochrome. The South African
ferrochrome industry has brought this situation to the attention of the
Government of South Africa and is engaging with the Department of Minerals
and Resources (DMR). The DMR has initiated a process with major
ferrochrome, chrome ore and platinum producers to find a solution aimed at
improving the current plight of the South African chrome value chain.
* Source: Heinz Pariser/February 2013
Developments
Project Lion II
The commissioning of Lion II is expected during the second half of
2013 and about 50% of the budgeted cost of R1bn was incurred to
31 December 2012. In spite of heavy rainfalls and community unrest, the
expected commissioning date is still envisaged in the second half of 2013
and the project remains within budget. Once this plant is fully
operational, additional consumption efficiency improvements and cost
savings are expected to materialise.
Project Tswelopele
We are pleased to report that Project Tswelopele, our new pelletising and
sintering plant, was completed on schedule and within budget during 2012.
The plant was hot commissioned on 7 October 2012 and reached design
production capacity within the first two months of operation. We are proud
to report that more than 1.6m hours were worked on this project, without
any lost time injuries.
Outlook
Stainless steel production is expected to increase by 4%* in 2013 and by
5%* in the long term which would lead to increased growth in demand for
ferrochrome globally. Given the reduced supply of ferrochrome resulting
from the Eskom buy-back agreements in South Africa, coupled with improved
market sentiments, we expect increased pricing going forward. Our low cost
base leaves us well positioned to take advantage of the increased demand
for ferrochrome. We look forward to a further strengthening of our
position as the lowest cost producers in South Africa when our flagship
and world class project, Lion II, comes on stream. We continue to
recognise the importance of diversification and this will be a focus of
the management team once project Lion II is completed.
* Source: Heinz Pariser/February 2013
Changes to Directorate
Mr Stuart Elliot resigned as Chief Executive Officer (CEO) with effect
from 31 May 2012.
Ms Zanele Matlala, who was previously Chief Financial Officer (CFO)
was appointed as CEO with effect from 1 June 2012 and also fulfilled the
CFO role until the effective date of appointment of the new CFO.
Mr Ditabe Chocho was appointed CFO with effect from 2 January 2013.
Chris Molefe Zanele Matlala
Non-executive Chairman Chief Executive Officer
Sandton
5 March 2013
Sponsor
Merrill Lynch South Africa Proprietary Limited
Executive directors: Z Matlala (Chief Executive Officer), D Chocho (Chief
Financial Officer), B McBride
Non-executive directors: CK Molefe (Chairman)*, NB Majova*, M Mamathuba,
A Mngomezulu*, K Nondumo*, M Salanje*, S Phiri, M Mosweu, Z van der Walt*
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
* Independent
Date: 05/03/2013 07:34:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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