Good morning, ladies and gentlemen. Welcome to Merafe Resources Limited's interim results conference call. All participants are in listen-only mode. A question and answer session will follow the formal presentation, at which time participants on the webcast are welcome to submit questions in the question box provided on your screen. Participants who have dialed into the call and would like to ask a verbal question may do so by keying in star and then one on your telephone keypad. If you should require your operator's assistance during the conference, please key in star and then zero. Please note that this event is being recorded. I will now hand over to the CEO, Zanele Matlala. Please go ahead, ma'am.
Good morning and welcome to the Merafe interim results presentation. The operating environment continued to be volatile and uncertain, mainly due to geopolitical tensions, which led to oil price shocks. At Merafe, the uncertainty was mainly due to the smelters being idled whilst negotiations regarding electricity tariffs were underway. Thankfully, a positive outcome was achieved, with NERSA approving tariffs of ZAR 0.62/kWh in May 2026. Despite the challenging and uncertain environment, Merafe profits were higher for the six months to June 2026. If we look at the market, global stainless steel production increased by 3% to 33.2 million tons. This increase was largely driven by China, Japan, and Indonesia. Global ferrochrome demand also increased by 4% and as expected, the growth came from China and Indonesia. Global ferrochrome production increased by 10%, with China increasing by 32%.
The increase in China's production was primarily driven by the continued ramp-up of low-cost production, supported by competitive power costs and access to ore. On the other hand, South African production decreased by 69% due to suspension of smelters. Chrome ore imports into China increased by 42%. Of these imports, 79% came from South Africa. If we look at pricing, prices across the three commodities trended upwards. Chrome ore prices remained resilient, staying above $250 per ton through the reporting period. However, these have been under some pressure in recent weeks. Ferrochrome prices increased steadily and are currently just above $1 . PGM prices improved significantly, with Venture achieving average prices of $2,295/oz . Moving to health and safety. No fatalities were recorded in the six months to June. The total recordable injury frequency rate improved by 24%, from 1.8 in December 2025 to 1.4 in June 2026.
We remain focused on achieving the goal of zero harm. An update on electricity or Eskom. There were no significant disruptions in power supply. The approval of the lower tariff is welcome news and have paved the way for the restart of the suspended smelters. All negotiated pricing agreements have been concluded with Eskom. In terms of alternative energy, renewable energy projects are currently on hold. With the restart of the smelters, it is likely that these will be revisited. As previously indicated, we are in the process of de-risking the Pele Green Energy Project. Looking at production. Ferrochrome production reduced to only 28 kt. This was mainly due to the suspension of Boshoek and Wonderkop smelters. Lion smelter was restarted in Q1 on a staggered basis. All four furnaces from Lion smelter have been fully operational from May 2026.
If we look at chrome ore production. Chrome ore production decreased by 4%, mainly due to lower UG2 production as a result of lower feed. Moving on to production costs. Total production costs per ton of ferrochrome increased by 33% due to higher market cost of chrome ore and higher fixed costs fixed cost absorption rate. The costs are distorted because the smelters were being idled, and therefore, there were higher standing charges. Chrome ore costs also increased by 12% due to higher labor, engineering, and fuel costs. These were offset by lower raw material costs. In terms of the PGMs, PGM production decreased mainly as a result of lower mine production and feed mix. Prices made up for lower volumes, with platinum and rhodium prices being significantly higher than H1 2025. I will now invite Ditabe to take you through our financial performance.
Thank you, Zanele, and good morning, everyone. The revenue slide on page 21 will be my first slide. Here we provide an overview of the revenue makeup. The bulk of our revenue remains export-based, and all our PGM concentrate is sold locally. Yet again, chrome ore revenue's proportion to total revenue exceeded 50%. Period- on- period, chrome ore volumes sold increased by 75%. Average prices achieved for all commodities were higher. Lastly, the average rand-dollar exchange rate strengthened. All these factors contributed to the increase in total revenue by 36%. On slide 22, we provide the commodities revenue trends over five halves. Starting with ferrochrome. The suspension of smelters meant that approximately 75% less ferrochrome was produced by the Venture year-to-date. The business was, however, able to draw down on its inventory holdings to meet its sales requirements.
Although sales volumes trailed last year's by 4%, ferrochrome revenue of ZAR 1.4 billion was 2% higher due to an 11% increase in average ferrochrome prices. Once again, China produced the bulk of its ferrochrome requirements. Over the first half of 2026, this worked out to approximately 93% of its demand. Chrome ore revenue increased by 78% to ZAR 1.8 billion in the reporting period. This was due to a combination of about 11% higher average chrome ore prices, as well as a 75% increase in volumes sold, as indicated earlier. Most of the sales were to China. Finally, PGMs revenue of ZAR 255 million represents a 63% increase. This improved performance was made possible by a 96% increase in prices achieved, which more than offset 4% lower volume sold.
As indicated, the average rand-dollar exchange rate strengthened over the reporting period, negatively impacting all our revenues, which are US dollar denominated. As more of our smelters restart, we will begin to see a change in the chrome ore/ferrochrome mix. The next slide shows our earnings per share. As stated in the company's trading update, there is an improvement in our financial performance as evidenced by an increase in earnings per share. We achieved basic earnings per share of ZAR 0.205 and headline earnings per share of ZAR 0.207 over the reporting period. Headline earnings per share normalizes earnings, and in this case excludes the after-tax financial impact of the impairment of smelting plants. In the next few slides, we look at earnings in greater detail. The contribution of each of our operations to the Venture's EBITDA is analyzed on the next slide.
Once again, the importance of ore to earnings is evidenced by this chart. In the reporting period, chrome ore contributed 75% of the reported EBITDA from the Venture. Although this decreases from a contribution of 85% in the prior year, the mining business continues to fund the smelting operation. The contribution of PGMs increased in the current period from 17% to 20% due to favorable prices. Smelting losses moderated over this reporting period, resulting in a lower negative contribution from 43% in the prior period to 10% this period. The impact of adjustments for unrealized profit on sales from mining operations to smelting operations is reflected in head office adjustments, which reduced to 15% due to lower intercompany chrome ore sales. On the next slide, the proportions of the 2026 EBITDA variances in percentage terms relative to the 2025 EBITDA as a base are presented.
The net impact of significantly higher chrome ore volumes, partially offset by lower ferrochrome and PGMs volumes sold, is a positive 40% contribution to EBITDA. The commodity prices impact is a positive 87%. Operations efficiencies were impacted by the restart of suspended plants, resulting in a negative 12% contribution to EBITDA. Inflation eroded 20% from EBITDA, illustrating continued cost pressures. Foreign exchange effects of a stronger closing rand exchange rate used up 50% of EBITDA. Due to suspended operations, standing charges accounted for 12% of EBITDA. The reversal of the restructuring provision due to the withdrawal of the Section 189 consultation process led to a positive 32% contribution to EBITDA. Overall, the 2026 EBITDA from the Venture is 65% higher than the 2025 comparative figure.
The next slide looks at Merafe's share of EBITDA from the Venture of the figure of ZAR 807 million and reconciles that to Merafe's reported profit after tax of ZAR 512 million for the period. We reach this profit after the following items have been accounted for, and these are in order of size. Current and deferred tax of ZAR 189 million, depreciation and amortization expense of ZAR 91 million, corporate costs of ZAR 33 million, net financing income of ZAR 28 million. Net financing income includes interest income from financial assets held with centralized treasury. Impairment of ZAR 16 million already discussed, and income from equity accounted investment of ZAR 6 million. The slide that follows explores some of these items further. On this slide, we present the standard income statement format. I will only deal with items not previously discussed.
Foreign exchange loss of ZAR 10 million resulted from a stronger closing rand dollar exchange rate. This is against a loss of ZAR 81 million in the prior period. Operating expenses are 36% higher due to several reasons, including higher volumes of chrome ore sold, higher standing charges, and inflation. The increase in costs was partially offset by a retrenchment provision reversal of ZAR 181 million that I referred to earlier. Merafe's corporate costs were lower than in the prior year, mainly due to cost containment measures. The depreciation, amortization, and impairment charges are lower due to impairment losses recognized in prior periods. The investment in Unicorn Chrome continues to contribute positively to profits. Net interest income is lower due to lower average cash balances and interest rates. The current tax expense is higher due to increased earnings.
The resultant profit after tax for the period is ZAR 512 million . Next, we look at the balance sheet. Non-current assets increased due to capital expenditure of ZAR 174 million . There was a net increase in total current assets over the reporting period. Inventory balances decreased due to drawdown of ferrochrome inventory over the period. Ferrochrome finished goods decreased from last year's closing balance and now represent two to three months sales. Trade and other receivables increased due to sales in quarter two of 2026. In terms of our liquid reserves, the 120-day notice deposit, which has been set aside for rehabilitation obligations and guarantees and is classified as other short-term financial assets, increased because of interest and uncapitalized.
Other balances held by centralized treasury increased to approximately ZAR 721 million , while cash held at Merafe also increased to approximately ZAR 821 million , is driven by improved performance and working capital improvements. Liabilities include provision for environmental obligations of ZAR 333 million and trade and other payables of ZAR 786 million . The pending transfer pricing matter with SARS remains ongoing. For reporting purposes, it will continue to be treated as a contingent liability. We earlier reported on our inventory levels.
This slide provides a bit more detail of our inventory. Ferrochrome finished goods reduced from 71,000 tons to 27,000 tons at year-end. This was due to drawdown of inventory, as already discussed. Chrome ore inventories increased slightly from 290,000 tons to 296,000 tons as production exceeded sales. The bulk of our chrome ore is met grade, and the bulk of our ferrochrome inventory is at plant and ports.
Moving to slide 30, capital expenditure of ZAR 174 million was lower than in the prior period. The bulk of the spend was on mining operations, with only ZAR 69 million spent on smelting operations. The restart of our smelters will see an increase in smelting CapEx. Looking at the Venture's total capital expenditure, 72% was spent on replacement and sustaining capital to keep the lights on. 22% of the spend was on health, safety, environment, and community requirements to ensure compliance and the safety of our employees. 5% was on expansion projects in our mining operations with a balance on various smaller projects. On slide 31, we provide a reconciliation of our cash and cash equivalents balance. We started the year with a cash balance of ZAR 458 million . Operating activities generated net cash of ZAR 810 million .
We've already spoken about the CapEx of ZAR 174 million that was spent. Payment of the 2025 final dividend used up ZAR 200 million , resulting in the closing cash balance of ZAR 871 million after sundry cash outflows of ZAR 23 million . Next, we look at our liquid reserves on slide 32. This slide simply consolidates all the liquid reserves. Merafe's own cash at reporting period is ZAR 871 million . Merafe's share of the 120-day notice deposit is ZAR 410 million , and its share of other balances held with centralized treasury is ZAR 721 million , resulting in total liquid reserves of ZAR 2 billion at period end. The company was ungeared and had sufficient headroom at period end.
My last slide covers our interim dividend. After careful consideration of the matter, the board has declared an interim cash dividend of ZAR 0.16 per share, representing 77% of headline earnings and a 12% yield based on the closing share price at period end. Thank you all for your attention. It's over to Zanele for closing remarks.
Thank you, Ditabe. With the lower tariff, ferrochrome production should increase with the Wonderkop and Boshoek smelters restarting fully towards the end of the financial year. Ferrochrome margins are likely to come under pressure as more supply comes on stream. Stainless steel production is expected to grow, which will support ferrochrome demand. However, the operating environment is still uncertain and volatile. Pressure on costs is likely to continue. Thank you. We will now take questions. We have Japie Fullard also on the call, and he'll be available for any operational questions.
Thank you, ma'am. Ladies and gentlemen, we will now be conducting the question and answer session. Once again, to the participants on the webcast, you're welcome to submit your questions in the question box provided on your screen. Participants who have dialed into the call and would like to ask a verbal question, may do so by keying in star and then one on your telephone keypad. A confirmation tone will indicate that you are in the question queue. You may key in star and then two to leave the question queue. We will pause a moment while we assemble the questions. Our first telephone question comes from Tim Clark of SBG Securities. Please go ahead.
Thanks. Good morning. Can you hear me?
Yes.
Yes, we can hear you, Tim.
Thanks. Well, firstly, just thank you for the disclosures. There's quite a lot more disclosures to work through this time, a lot more detail and a lot more transparency. So thank you for that. That's very helpful to the market and certainly, I appreciate that. Let's start off with just the sort of ramp up. We've clearly gone through a period where Lion was off, or was partly off and then came on from May and Wonderkop and Boshoek will ramp up through the second half. Perhaps you can just give us, if possible, a little bit more color on what you think or what your budget for production guidance for ferrochrome is for the year. Obviousely, there's an offset to that. The ancillary part of that question is, what happens to chrome ore production?
Is your met grade production still going to stay the same and then should we sort of reduce the UG2 production down to virtually zero? Or the UG2 sales to zero. I suppose the question is, are you in a net long position on chrome or not just met grade, but UG2? My last question, briefly, just is on dividends. You've declared a ZAR 400 million dividend. You're sitting with ZAR 870 million at Merafe level, so you're keeping ZAR 470 million. Should we think of that as holding back cash for the South African Revenue Service payment just in case it comes along? Obviously, you're disputing that. But just in case that comes along. My general understanding is that the tax authorities, I'm not sure about South African Revenue Service, but tax authorities require you to pay upfront and then dispute.
I suppose I wonder why that amount has not been paid up front, once they have claimed against it. I'll leave it for there for now. Thanks.
Okay. Thank you, Tim. I think your questions, there's quite a few in that one wrapped into that one. I think the first one is with the lower tariff. You just want some color around the ramp-up and what our expected production is. Then there's a question around the dividend. Then there's the question around South African Revenue Service. So maybe we'll break it down like that. With the production, so Wonderkop and Boshoek will come. The process of restarting has started, so the ramp-up probably will be fully done around towards the end of the year. So you won't have the impact of much of the production because it's only coming in, fully towards the end of the year. Maybe I'll leave Ditabe to just give you the estimated production levels for the year. He'll give you that number.
On the dividend, you will note that the dividend is double what it was at, I think, the half year last year. When the board looks at the dividend, they consider a number of aspects, and liabilities, contingent or not, is one of them. So the South African Revenue Service issue would have been considered, but that's not necessarily the only factor in the decision reached to pay the ZAR 400 million. There's also, with the ramp-up, there's CapEx and working capital that goes into it. So that would have come into it as well. Also it is an interim dividend. So at the end of the year, when maybe things are more certain of how the ramp-up has gone, there's always an opportunity to look at whether you increase or not the dividend.
Maybe the issue of South African Revenue Service and whether we've paid or not, I'll also leave that one to Ditabe.
Thanks, Zanele. Just on the issue of production, Tim, in terms of guidance, ferrochrome production guidance is between 25%-29% of installed capacity for the reasons that Zanele has explained.
From a chrome ore production point of view, I would say the figure that you are probably familiar with is a number that you can still work with of approximately 5 million tons for the year. From a South African Revenue Service point of view, we do continue to negotiate with South African Revenue Service around the portion that hasn't been suspended and therefore requires payment. You're quite right, generally, the approach with South African Revenue Service is pay now, argue later, but there are provisions in the act that allow you to request suspension of payment, which we have done. So once the outcome of those discussions is known, we will then know what amounts, if any, need to be paid to South African Revenue Service.
But as Zanele indicated, those were some of the considerations amongst others, that the board made in coming to the proposed dividend. Hope that answers your question.
Thanks. That's very helpful. I'll pass on to someone else.
Thank you. Ladies and gentlemen, at this stage, we have no further questions from the telephone lines. I will hand over for questions from the webcast.
Thank you for that. There are a few questions on the webcast. We'll start with the first one from [Philip]. The question is, with lower electricity prices, should higher production be feasible? I'll hand that over to Zanele to answer.
Yeah. I think that question we've already answered. Maybe it's linked to Tim's question in that, yes, the process of ramping up Wonderkop and Boshoek is underway, so that should result in higher production.
Thanks. Next question is from [Wallace]. The question: For the smelting business on a standalone basis, what level of margins of profitability are achievable given the new ZAR 0.62 tariff? I'll pass that one on to Japie. Japie, are you online?
Good morning, Ditabe. Yes, I am. Am I clear?
Yes, you are.
Thank you. Okay. So obviousely, you know that we have now entered into the ZAR 0.62 tariff. What that means, it makes us competitive towards the Chinese production cost. At ZAR 0.62, I can tell you that we are only utilizing our infrastructure. We are not really in a profit-making situation. But during this time period, it allows us to still keep our people in jobs. It still allows us to capitalize or to sweat the assets that we've got. Also, we then will transfer our ore into our own furnaces. That will help in terms of logistics as well. The ZAR 0.62 doesn't really make us that competitive. It just allows us to be able to still compete. I think that's the long and the short of it. There's also certain agreements that we've got with Eskom in terms of upside sharing.
If we do move into a position of profit, we will also give back so that Eskom also shares in the upside. But definitely not in a profitable position to such a point that we are out of the [woods] yet, if that makes sense. Thanks, Ditabe.
Thanks for that, Japie. The next question is from [Matthew]. What is the expectation of CapEx in H2 and for 2027? I'll take that one, and the best guidance, [Matthew], is for the whole of 2026, our guidance is that our CapEx should come in between the ranges of ZAR 500 million and ZAR 550 million. For 2027, possibly a slight increase in that, which will fall between the ranges of ZAR 550 million and ZAR 600 million. The next question is similar to [Matthew]'s question. It's from [Wallace]. It's also around CapEx, and hopefully, my response has dealt with that one as well. The last question on the webcast is from [Patrick], and this I'll hand over to Japie as well. The question is: where do you think the business sits on the global cost curve for ferrochrome with the agreed electricity tariff?
How competitive a position do you think the JV is in longer term? Thanks, Japie.
Yeah. Thanks, Ditabe. Thank you. Thank you, Ditabe. I think this question is very much linked to the previous question. Except for, obviously, with the ZAR 0.62 , we moved definitely to the left-hand side of the cost curve, more towards the Chinese price. Obviously, we can expect that the Chinese will force their cost of production down even further. It will definitely place continued pressure on us as the PSV. We need to be very clever in the way that we box. So important for us to really capitalize on the ZAR 0.62 and not just sit back now and think that that's a silver bullet. We just want to make it very clear that the ZAR 0.62 is not a silver bullet. It will just mean that we will be able to be competitive, but we need to work very hard to stay there.
Obviously, we are looking at various aspects, efficiency improvements, reduction of labor. I think you also spoke about it, Ditabe, that even at a head office level, we are also driving down costs. We will be doing the same in our ferrochrome business, in our chrome business for us to be really competitive. That will definitely help. In the longer term, you know that we've got the ZAR 0.62 over a three-year period. Obviously, we are working with Eskom to see if we can't find a better electricity solution. I think that it's very public out there that all the other energy-intensive users are also now looking for the same type of relief, which is not a problem because that's what we want to do. We want to re-industrialize South Africa. We need to be very clever in the way that we do it.
But I hope that answers it, Ditabe.
Thanks for that, Japie. That was the last question on the webcast. Back to you, ma'am.
Thank you. At this stage, we do not have any further questions on the telephone lines. Ladies and gentlemen, we have reached the end of the Q&A session. Can I hand back for closing remarks?
Uh, no. Thank you to everyone for attending this presentation. I guess, like I said in the beginning, it was a challenging half. But the decisions, I guess, that we made in the past to suspend the smeltings kind of paid off and hence the improved profitability. Thanks for your time.
Thank you. Ladies and gentlemen, that concludes today's event. Thank you for joining us. You may now disconnect your line.