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MERAFE RESOURCES LIMITED - Summarised Consolidated Financial Statements for the year ended 31 December 2016

Release Date: 07/03/2017 07:10
Code(s): MRF     PDF:  
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Summarised Consolidated Financial Statements for the year ended 31 December 2016

Merafe Resources Limited 
(incorporated in the Republic of South Africa) 
Company Registration Number: 1987/003452/06 
Share code: MRF 
ISIN: ZAE000060000 

Summarised Consolidated Financial Statements 
For the year ended 31 December 2016 

Key features 

Record production of 393k tonnes 

Record revenue of R5.7 billion 

53% increase in HEPS to 21.2 cents 

Improved TRIFR of 4.15 

Final dividend of 4 cents per share (R100.4 million) 

Preparation of this report 
The following individuals were responsible for the preparation of this report: 

Kajal Bissessor CA (SA) 
Financial Director 

Zanele Matlala CA (SA) 
Chief Executive Officer 


Commentary 

Basis of preparation 
On 6 March 2017, the Board of directors (the Board) of Merafe Resources Limited (the Company) approved the audited consolidated 
annual financial statements of the Merafe Group (Group) and the Company for the year ended 31 December 2016. 

These summarised consolidated 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, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Pronouncements 
as issued by Financial Reporting Standards Council and the presentation and disclosure requirements of IAS 34 Interim Financial Reporting.
 
The Board takes full responsibility for the preparation of the summarised consolidated annual financial statements, which is 
unaudited, and the financial information has been correctly extracted from the underlying audited consolidated annual financial 
statements. 

The accounting policies applied in the preparation of the audited consolidated annual financial statements from which the 
summarised consolidated financial statements were derived are in terms of IFRS and are consistent with those accounting policies 
applied in the preparation of the previous audited consolidated annual financial statements. 

New Standards and amendments to published standards 
In 2016 the Group did not early adopt any new, revised or amended accounting standards or interpretations. The accounting 
standards, amendments to issued accounting standards and interpretations which are relevant to the Group but not yet effective at 
31 December 2016 are being evaluated by management for the impact to the Group. 

Review of results 
The Group annual financial statements from which the summarised consolidated financial statements were derived have been audited by 
the Group`s auditors, KPMG Inc. Their unqualified audit report and the audited consolidated annual financial statements are available 
on our website (www.meraferesources.co.za). 

Merafe`s revenue and operating income is generated from the Glencore-Merafe Chrome Venture (the Venture) which is one of the market 
leaders in ferrochrome production, with a total installed capacity of 2.3m 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 share of revenue from the Venture increased by 29% from the prior year to R5 702m. Ferrochrome revenue increased by 
25% year-on-year to R4 923m primarily as a result of an 18% increase in ferrochrome sales volumes to 437kt (2015: 372kt) and the 15% 
weaker average Rand/US Dollar exchange rate (2016: R14.7, 2015: R12.8) which was partially offset by a 7% decline in net ferrochrome 
prices. The average European benchmark ferrochrome price decreased by 11% from 107USc/lb in 2015 to 95.5USc/lb in 2016. 

Chrome ore revenue increased by 61% year-on-year to R778m. This was as a result of a 38% increase in chrome ore sales volumes to 
372kt (2015: 270kt), a 7% increase in USD CIF prices and the weaker Rand/Dollar exchange rate. Chrome ore revenue as a percentage of 
total revenue increased from 11% in 2015 to 14% in 2016. 

Merafe’s share of EBITDA from the Venture for the 2016 year was R1 176.2m (2015: R851.9m) which was 38% higher than the 
comparative year. The EBITDA includes a foreign exchange loss of R78.2m (2015: R83.4m foreign exchange gain) and Merafe’s 
attributable share of standing charges of R96.7m (2015: R92.4m). 

Merafe Corporate costs, excluding share based payment expenses, was R30.2m in 2016 compared to R34.0m for the prior year. The share 
based payment expense increased from R1.9m in 2015 to R12.8m in 2016 as a result of the significant increase in the share price 
which is a key input to the share based payment valuation. 

Profit and total comprehensive income for the year was R532.4m (2015: R343.4m) after taking into account depreciation of R329.9m 
(2015: R267.4m), net financing costs of R59.4m (2015: R63.1m), current tax expense of R147.1m (2015: R63.7m) and deferred tax 
expense of R64.5m (2015: R72.0m). The balance of unredeemed capital expenditure is nil at 31 December 2016 (2015: R173.8m). 

Depreciation increased year-on-year primarily as a result of the additional depreciation on Project Lion II and the accelerated 
depreciation arising from the re-assessment of useful lives and residual values in accordance with IAS 16: Property, plant and 
equipment. 

Property, plant and equipment increased from the prior year as a result of capital expenditure of which R276.0m (2015: R259.2m) was 
sustaining and R11.6m (2015: R44.3m) was expansionary. 

Trade and other receivables increased from R317.4m in 2015 to R1 278.1m in 2016 primarily as a result of the significant increase 
in prices and sales volumes in the last quarter of 2016, the lower utilisation of the debtors’ facility and earlier than 
expected receipts from customers in the comparative year which was non-recurring in the current year. The utilisation of the 
debtors’ financing facility reduced to R309.1m (2015: R411.4m). 

Trade and other payables increased from R444m in 2015 to R668m in 2016 primarily as a result of the increase in selling expenses 
and commission arising from the significant increase in sales volumes and prices in the last quarter of 2016. 

Merafe closed the year with a net cash balance of R263.3m (2015: R309.6m). Cash in Merafe’s accounts was R208.7m (2015: 
R108.7m) and Merafe’s share of the cash balance in the Venture was R54.6m (2015: R200.9m). 

During the year Merafe substantially reduced its debt. At 31 December 2016, Merafe had head-office debt of R363m (2015: R559m) and 
unutilised debt facilities of R283m (2015: R191m). Post year-end, R137m of the R363m debt was repaid resulting in a balance of 
R226m. 

The interim dividend that was paid in August 2016 amounted to R20m (2015:R25m) and a final dividend of R100.4m was declared by the 
Board on 6 March 2017 (2016: R30m). 

Safety 
Sadly there was a fatality at the Venture’s Helena mine on 20 September 2016. Our condolences are extended to the family and 
friends of Mr Johan Cronje who sustained fatal injuries. 

Safety remains a critical focus area and all efforts continue to be made to ensure that the highest standards of safety remain in 
place at all the Venture’s operations. The Venture’s total recordable injury frequency rate (TRIFR) improved slightly 
from 4.17 at the end of 2015 to 4.15 at the end of 2016 as a result of ongoing safety campaigns and programs at its operations. 

Review of operations 
Merafe’s ferrochrome production from the Venture was 4% higher than the prior year due to the timing of refurbishments in 
2016 compared to 2015, leading to more available furnace hours, and the benefits of operating Lion II for the full year whereas it 
was ramping up in the first half of 2015. 

Total production cost per tonne increases were well below inflation which is an exceptional achievement especially in light of 
above inflation price increases in electricity and labour, the impact of the weaker Rand on imported reductants and higher UG2 input 
costs. This was primarily as a result of higher production volumes, the impact of low cost volumes from Lion II and various cost 
saving initiatives across all operations. 

The Venture’s operations were not significantly impacted by electricity supply constraints during 2016. Post year end, NERSA 
approved a 2.2% electricity price increase according to the Multi Year Price Determination after taking into account the tariff 
increases of 12.7% and 9.4% during the prior two years. This increase is effective from 1 April 2017. 

There were no major labour disputes during the year under review. 

Mineral reserves, mineral resources and mining rights 
During 2016, there were no material changes to the mineral reserves, mineral resources and mining rights of the Venture. 

Market review 
Stainless Steel Market 
Global stainless steel production totalled 45.2m* tonnes in 2016, equivalent to 8.8%*year-on-year growth. A surge in Chinese 
stainless steel production was the leading influence behind the global increase, as China increased its annual output to 24.4m* 
tonnes which is equivalent to a 13.3%* year-on-year growth. 

Other significant stainless steel-producing regions also recorded year-on-year growth. Favourable trade and anti-dumping conditions 
in Europe, India and the USA supported increases of 1.8%*, 6.6%* and 6.7%* respectively. Collectively, these regions produced 13.2m* 
tonnes in 2016 which is an increase of 3.9%* year-on-year. 

Ferrochrome Market 
In early 2016, ferrochrome prices decreased to the lowest levels seen since 2009 when the second quarter European Benchmark was 
settled at 82.00 USc/lb. This decrease was largely driven by destocking of chrome ore, ferrochrome and stainless steel. In the same 
period, the Metal Bulletin "Imported Charge Chrome 50% Index, CIF China" decreased to 54.00 USc/lb which is the lowest 
price quoted since the index was introduced in 2012. 

A surge in Chinese stainless steel production positively impacted ferrochrome demand and resulted in global ferrochrome demand 
increasing 7.6%* year-on-year. Chinese stainless steel mills were the largest contributors to this increase, with demand growth of 
9.4%* year-on-year to 7.0m* tonnes. Chinese mills typically employ lower scrap utilisation ratios compared to global averages and 
therefore require a significantly larger portion of primary chrome units to meet stainless steel production increases. 

Ferrochrome prices have continued to increase since the second quarter of 2016 on the back of increased ferrochrome demand, lower 
stock levels and increased chrome ore prices. The European Benchmark ferrochrome price for the fourth quarter of 2016 was settled at 
110.00 USc/lb which is a 34.1% increase compared to the price in the second quarter of 2016. The Metal Bulletin  "Imported 
Charge Chrome 50% Index, CIF China" price increased to 135.00 USc/lb by year-end which is a 150.0% increase compared to the 
price in March 2016. 

Global ferrochrome production increased 4.9%* year-on-year to 11.1m* tonnes. Significant increases were recorded from Kazakhstan 
and Chinese producers (19.2%* and 11.8%* respectively), while South African production decreased by 3.2%* which is as a result of 
multiple producer closures in late 2015 and early 2016. China remained the world’s largest ferrochrome producer, with a 2016 
output of 4.2m* tonnes. 

Chrome Ore Market 
The increased demand for ferrochrome, coupled with tightness in global chrome ore supply, resulted in positive price movements for 
chrome ore. Between February 2016 and December 2016, the Metal Bulletin "Imported UG2 Chrome Ore 42%, CIF China" rose 
from 77.00-80.00 USD/t to 390.00-400.00 USD/t, equivalent to a 400.0% increase. 

Chinese chrome ore importers continued to increase their dependence on South African chrome ore in 2016, as South African material 
accounted for 73.3%* of all imported material (72.9%* in 2015). Chinese chrome ore imports totalled 10.6m* tonnes in 2016, compared 
to 10.4m* tonnes in 2015. 

Change to Board of directors 
As previously reported, Mr Zed van der Walt, an independent non-executive director resigned with effect from 7 March 2016. 

Outlook 
Towards the end of 2016, the European Benchmark ferrochrome price for the first quarter of 2017 was announced as 165.00 USc/lb 
which is the highest quoted price since 2008. The price increase was indicative of a market still in deficit, and highlighted the 
positive sentiment for 2017. 

Stainless steel production is projected to increase by 3.5%* and 3.8%* in 2017 and 2018 respectively, indicating strong demand 
prospects for ferrochrome in the short-to-medium term. The Venture is well positioned to take advantage of the increased demand. 

We remain on track to achieving our strategy of further reducing Merafe debt and increasing dividends. 

Dividend policy 
The Company has a hybrid dividend policy that has features of a stable dividend policy and a residual dividend policy. The Company 
intends to pay a stable dividend of a minimum of 30% of headline earnings at least once a year, based on the annual financial 
performance, expansionary projects and economic circumstances prevailing at the time. In addition, in any given year, the Board may 
consider an additional distribution in the form of special dividends and/or share buy-backs dependent on the Company’s 
financial position, future cash requirements, future earnings prospects, availability of distributable reserves and other factors. 

Declaration of ordinary dividend for the year ended 31 December 2016 
The Board declared a final dividend of R100.4m on 6 March 2017. Notice is hereby given that a gross final ordinary dividend in the 
amount of 4 cents per ordinary share has been declared by the Board, payable to holders of ordinary shares. The dividend will be 
paid out of distributable reserves. 

The ordinary dividend will be subject to a dividend withholding tax rate of 20%. The net ordinary dividend to those shareholders 
who are not exempt from paying dividend withholding tax is therefore 3.2 cents per ordinary share. The number of ordinary shares in 
issue at the date of the declaration is 2 510 704 248. Merafe Resources Limited’s income tax reference number is 9550 008 602. 

The important dates pertaining to the dividend are as follows: 

                                                                                                                     2017 
Declaration date:                                                                                         Monday, 6 March 
Last day for ordinary shares respectively to trade cum ordinary dividend:                               Tuesday, 28 March 
Ordinary shares commence trading ex-ordinary dividend:                                                Wednesday, 29 March 
Record date:                                                                                             Friday, 31 March 
Payment date:                                                                                             Monday, 3 April 

Share certificates may not be dematerialised/rematerialised between Wednesday, 29 March 2017 and Friday, 31 March 2017, both days 
inclusive. Where applicable, in terms of instructions received by the Company from certificated shareholders, the payment of the 
dividend will be made electronically to shareholders’ bank accounts on payment date. In the absence of specific mandates, 
cheques will be posted to shareholders. Shareholders who have dematerialised their shares will have their accounts with their 
Central Securities Depositary Participant (CSDP) or broker credited on Monday, 3 April 2017. 

Chris Molefe
Independent Non-executive Chairman

Zanele Matlala 
Chief Executive Officer 

Sandton 

7 March 2017 

Reference: *Heinz H. Pariser/February 2017 

Summarised consolidated financial statements 

Summarised consolidated statement of comprehensive income 

                                                                             For the year ended                                          
                                                                31 December 2016            31 December 2015                             
                                                                         Audited                     Audited                             
                                                                           R'000                       R'000                             
Revenue                                                                5 701 567                   4 428 075                             
EBITDA                                                                 1 133 197                     815 992                             
Depreciation and impairment                                             (329 893)                   (273 753)                            
Net financing costs                                                      (59 356)                    (63 065)                            
Profit before taxation                                                   743 948                     479 174                             
Taxation                                                                (211 518)                   (135 717)                            
Profit and total comprehensive income for the year                       532 430                     343 457                             
Basic earnings per share (cents)                                            21.2                        13.7                             
Diluted earnings per share (cents)                                          21.2                        13.7                             
Headline earnings per share (cents)#                                        21.2                        13.9                             
Diluted headline earnings per share (cents)#                                21.2                        13.9                             
Ordinary shares in issue                                           2 510 704 248               2 510 704 248                             
Weighted average number of shares for the year                     2 510 704 248               2 509 634 174                             
Diluted weighted average number of shares for the year             2 510 704 248               2 509 634 174                             
# Headline earnings reconciliation                                                                                                       
                                                                         532 430                     348 031                             
Profit and total comprehensive income for the year                       532 430                     343 457                             
Impairments                                                                    -                       4 609                             
Profit on sale of asset                                                        -                         (35)                            
                                                                                                                                         
Summarised consolidated statement of financial position 

                                                                                   As at                                                 
                                                                31 December 2016            31 December 2015                             
                                                                         Audited                     Audited                             
                                                                           R'000                       R'000                             
Assets                                                                                                                                   
Property, plant and equipment                                          3 235 204                   3 240 370                             
Deferred tax asset                                                        19 340                      17 995                             
Total non-current assets                                               3 254 544                   3 258 365                             
Inventories                                                            1 105 437                   1 445 887                             
Current tax assets                                                        36 395                      10 773                             
Trade and other receivables                                            1 278 147                     317 454                             
Cash and cash equivalents                                                287 880                     325 126                             
Total current assets                                                   2 707 859                   2 099 240                             
Total assets                                                           5 962 403                   5 357 605                             
Equity                                                                                                                                  
Share capital                                                             25 107                      25 107                             
Share premium                                                          1 269 575                   1 269 575                             
Retained earnings                                                      2 602 474                   2 120 007                             
Total equity attributable to equity holders                            3 897 156                   3 414 689                             
Liabilities                                                                                                                              
Loans and borrowings                                                     189 102                     472 755                             
Share-based payment liability                                              5 012                       3 147                             
Provision for close down and restoration costs                           151 747                     139 351                             
Deferred tax liabilities                                                 829 528                     763 724                             
Total non-current liabilities                                          1 175 389                   1 378 977                             
Loans and borrowings                                                     187 839                     101 176                             
Trade and other payables                                                 668 235                     444 314                             
Share-based payment liability                                              9 208                       2 893                             
Bank overdraft                                                            24 576                      15 556                             
Total current liabilities                                                889 858                     563 939                             
Total liabilities                                                      2 065 247                   1 942 916                             
Total equity and liabilities                                           5 962 403                   5 357 605                             

Summarised statement of changes in equity 

                                                                            For the year ended                                           
                                                                31 December 2016            31 December 2015                             
                                                                         Audited                     Audited                             
                                                                           R'000                       R'000                             
Issued share capital - ordinary shares                                    25 107                      25 107                             
Balance at beginning of year                                              25 107                      25 053                             
Share options exercised                                                        -                          54                             
Share premium - ordinary shares                                        1 269 575                   1 269 575                             
Balance at beginning of year                                           1 269 575                   1 269 578                             
Share premium arising from share options exercised                             -                          (3)                            
Equity-settled share-based payment reserve                                     -                           -                             
Balance at beginning of year                                                   -                      24 651                             
Shares vested during the year                                                  -                      (2 205)                            
Share-based payments expensed during the year                                  -                       2 465                             
Transfer to retained earnings                                                  -                      (8 090)                            
Transfer to share-based payment liability                                      -                     (16 821)                            
Retained earnings                                                      2 602 474                   2 120 007                             
Balance at beginning of year                                           2 120 007                   1 804 220                             
Profit and total comprehensive income for the year                       532 430                     343 457                             
Dividends paid                                                           (49 963)                    (45 192)                            
Transfer from share-based payment reserve and 
share-based payment liability                                                  -                      17 522                             
                                                                                                                                         
Total equity at end of year                                            3 897 156                   3 414 689                             

Summarised consolidated statement of cash flow 

                                                                             For the year ended                                          
                                                                31 December 2016            31 December 2015                             
                                                                         Audited                     Audited                             
                                                                           R'000                       R'000                             
Profit before taxation                                                   743 948                     479 174                             
Interest paid                                                             63 400                      65 008                             
Interest received                                                         (4 044)                     (1 943)                            
Depreciation and impairment                                              329 893                     273 753                             
Adjusted for non-cash items                                               12 805                      36 533                             
Share grants vested                                                       (4 624)                     (2 888)                            
Adjusted for working capital changes                                    (419 659)                    201 870                             
Cash flows from operations                                               721 719                   1 051 507                             
Interest paid                                                            (50 745)                    (41 201)                            
Interest received                                                          2 727                       1 460                             
Tax paid                                                                (172 193)                    (58 972)                            
Cash flows from operating activities                                     501 508                     952 794                             
Cash flows from investing activities                                    (287 582)                   (303 457)                            
Proceeds on disposal of property, plant and equipment                          -                          48                             
Acquisition of property, plant and equipment - sustaining               (275 995)                   (259 185)                            
Acquisition of property, plant and equipment - expansionary              (11 587)                    (44 320)                            
Cash flows from financing activities                                    (246 953)                   (102 346)                            
Dividends paid                                                           (49 963)                    (45 192)                            
Loans repaid during the year                                            (196 990)                    (57 154)                            
                                                                                                                                         
Net (decrease)/increase in cash and cash equivalents                     (33 027)                    546 991                             
Cash and cash equivalents at the beginning of the year                   309 570                    (162 468)                            
Effect of exchange rate fluctuations on cash held                        (13 239)                    (74 953)                            
Cash and cash equivalents at the end of the year                         263 304                     309 570                             


Sponsor: Merrill Lynch South Africa Proprietary Limited
Executive Directors: Z Matlala (Chief Executive Officer),
K Bissessor (Financial Director),
Non-executive Directors: CK Molefe (Chair)*, NB Majova*,
A Mngomezulu*, K Nondumo*, M Mosweu, S Blankfield
Company Secretary: CorpStat Governance Services
Registered office: Building B, 2nd Floor, Ballyoaks Office Park,
35 Ballyclare Drive, Bryanston, 2191
Transfer secretaries: Link Market Services South Africa
Proprietary Limited
* independent

Financial Director: Kajal Bissessor
Tel: +27 11 783 4780/+27 83 784 6686
Email: kajal@meraferesources.co.za
www.meraferesources.co.za


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