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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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