Good morning, and welcome to the Merafe Resources Limited's annual results conference call. All participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If you should require operator assistance during the conference, please key in star and then zero on your telephone keypad. Please note that this event is being recorded. I will now hand you over to the CEO, Zanele Matlala. Please go ahead, ma'am.
Good morning. Welcome to the Merafe year-end results presentation. 2025 was a challenging year for Merafe, and this is reflected in the deteriorated financial performance. Safety performance improved, with no fatalities recorded. All the remaining operating smelters in the Venture were suspended post the business review. This led to significantly lower production and higher standing charges. Chrome ore production was marginally lower, whilst PGM production was higher. Global market uncertainty continued.
Global stainless steel production increased, leading to increased ferrochrome demand. However, ferrochrome production decreased, signaling inventory drawdown. Chrome ore prices remained resilient, although lower than prior year. The rand strengthened against the U.S. dollar. Revenue decreased by 31%, largely driven by much lower ferrochrome sales volumes. Additional impairments were recorded, and all this resulted in a significant decline in headline earnings. The board has declared final dividends of ZAR 0.08 per share. We look at the market.
Global stainless steel production increased by 2% to 65 million tons. Ferrochrome demand followed a similar trend, increasing by 3% to 16.4 million tons. China accounted for 63.5% of global stainless steel production and 66% of global ferrochrome demand. Global ferrochrome production declined by 7%, despite the growth in stainless steel production. This indicates that there was a drawdown from inventories.
Chrome ore imports into China increased by 13%. 83% of these imports came from South Africa and was largely the result of reduced ferrochrome production, making more ore available for export. In terms of pricing, chrome ore prices fluctuated but remained resilient, with average CIF prices of $270 per ton achieved by the Venture. Ferrochrome prices on a CIF basis averaged about $0.93 per pound. On the health and safety, the Venture safety performance improved significantly from prior year.
There were no fatalities recorded, and the total recordable injury frequency rate improved by 23%. Power supply was mostly stable. High power costs remain a concern, and that was a key contributor to smelters being suspended from Q2. The Venture continues to engage with Eskom and other stakeholders to find sustainable solutions to the high tariffs.
In February 2026, which is post year-end, NERSA approved an interim tariff of ZAR 0.8774 per kWh for 12 months, whilst a lower tariff was being explored. This enabled the restart of the Lion Smelter in mid-February, but the tariff was not sufficient or low enough for us to restart Boshoek and one of GOB's smelters. At the end of February, Eskom proposed a tariff of ZAR 0.62, which is a welcome step, and currently the Venture is considering the conditions proposed by Eskom.
In terms of alternative energy, the Venture has suspended the various renewable energy projects to preserve cash. We are also in the process of de-risking the Pele Green Energy Project. If we look at operations on the production side, ferrochrome production decreased by 63% as a result of all operating smelters being idled from Q2. Chrome ore production decreased by 2% overall, but that was made up of mined ore, which increased by 4%, whilst UG2 production decreased by 16%. Ferrochrome production costs increased by 14%, mainly due to standing charges, as mentioned earlier, because of the smelters that were idled. Chrome ore production costs increased by 8%, and that was driven largely by labor, engineering, and utilities costs. PGM production increased due to the PGMX plant being operational for the full year.
As mentioned earlier, PGM prices were significantly higher, with platinum and rhodium prices being more than 30% up. We previously announced the chrome management agreement with Sibanye-Stillwater, and that agreement has now become effective from November 2025 after Competition Commission approval. In terms of the business review of the smelting operations, the Section 189 consultation process has been extended to 31 March 2026 to allow for the terms and conditions of the ZAR 0.62 per kWh offer from Eskom to be considered. I will pause here and invite Ditabe to take you through our financial performance.
Thank you, Zanele, and good morning all. My presentation starts with slide 23. Here we provide a revenue snapshot. The bulk of our revenue remains export-based. For the first time since I've been at Merafe, chrome ore revenue's proportion to total revenue exceeded 50%. Average prices achieved for ferrochrome and chrome ore were lower year-on-year. However, PGM prices increased over the period.
Our PGM concentrate is sold locally. Finally, the average rand-dollar exchange rate strengthened in 2025, and this too can be seen on the slide at the bottom. These factors contributed to the decline in total revenue by 31% over the reporting period. On slide 24, we provide the commodities revenue trends over the last five years. Starting with ferrochrome, the suspension of smelters during the year meant that 63% less ferrochrome was produced by the Venture in 2025.
This, coupled with average ferrochrome prices that declined by 4%, resulted in ferrochrome revenue decreasing by 61% to ZAR 2.3 billion. China produced about 87% of its ferrochrome requirements. Chrome ore revenue increased by 37% in the reporting period. Although average chrome prices decreased by 4%, volume sold shot up by 44% due to demand mainly from China. Finally, PGMs revenue of ZAR 390 million represents a 46% increase.
This improved performance was made possible by a 31% increase in prices achieved and a 10% increase in volume sold due to the contribution of our PGMX plant. As earlier reported, the average rand-dollar exchange rate strengthened over the period, negatively impacting all our revenues, which are U.S. dollar denominated. The chrome ore/ferrochrome mix in 2026 will be a function of the outcome of the ongoing discussions with Eskom and government.
The next slide, which is slide 25, outlines our earnings per share. As stated in the company's trading update, the full year financial performance reflects a decline in earnings per share. We achieved basic earnings per share of 0.057 and headline earnings per share of 0.122 . Headline earnings per share normalizes earnings and excludes the after-tax financial impact of the impairment of additional smelting and pelletizing plants in our case.
This is discussed further later in the presentation. In the next few slides, we look at earnings in greater detail. The contribution of each of our operations to the Venture EBITDA is analyzed on the next slide. The increased importance of chrome ore to earnings over time is evidenced by this chart. In the reporting period, chrome ore contributed 169% of the reported EBITDA from the Venture. This increases from a contribution of 107% in the prior year.
The contribution by PGMs also increased in the current period from 9% to 38%. Smelting losses used up an even larger share of EBITDA from 26% in the prior period to 146%. The impact of adjustments relating to unrealized profit on sales from the mining operations to the smelting operations is captured in the head office adjustments. On the next slide, the proportions of the 2025 EBITDA variances in percentage terms relative to the 2024 EBITDA as a base are presented.
The net impact of significantly lower ferrochrome volumes, partially offset by higher chrome ore, sold is a - 13%. The net commodity prices impact is a negative 5%. Inflation eroded 18% from EBITDA, illustrating the underlying cost pressures. Foreign exchange effects of a stronger closing rand/dollar exchange rate used up 17% of EBITDA. Due to suspended operations, standing charges accounted for a sizable 18% of EBITDA.
Various other costs are included in the balance of the variance, a - 11%. This includes provision for retrenchment costs of ZAR 198 million, and an increase in rehabilitation expense of ZAR 136 million due to some rehabilitation work brought forward due to non-operating plants. The only positive contributor to EBITDA was due to the efficiencies of our operations, which resulted in a reduction in unit costs in real terms.
This contributed 15% to the prior period's EBITDA. Overall, the 2025 EBITDA from the Venture is 66% lower than the 2024 comparative figure. The next slide looks at Merafe's proportionate share of the Venture's EBITDA of ZAR 602 million and reconciles that to Merafe's reported profit after tax of ZAR 143 million for the year. Profit after tax is arrived at after deducting the following items from the Venture's EBITDA. Impairments of ZAR 222 million.
As previously reported in our interim results, this arises from the full write-off of additional smelting and pelletizing plants. Depreciation and amortization expense of ZAR 201 million. Current and deferred tax of ZAR 47 million. Corporate costs of ZAR 69 million. Net financing income of ZAR 67 million. This net financing income includes interest income from financial assets held with central treasury, and we will talk about that later on, as well as an income from equity accounted investments of ZAR 13 million.
The slide that follows explores some of these items further. This slide 29 presents the income statement in its standard format. Revenue has been discussed already. Foreign exchange loss of ZAR 165 million resulted from a stronger closing rand/dollar exchange rate. This is against a gain of ZAR 29 million in the prior year. Operating expenses were lower in 2025, essentially due to lower volumes of ferrochrome sold.
The decrease was offset by higher standing charges, increased retrenchment, and rehabilitation costs, all items discussed earlier in the presentation. Merafe's corporate costs were lower than in the prior year, mainly due to lower staff-related costs and consulting fees. The depreciation, amortization, and impairment charge is lower due to higher impairment losses recognized in the prior year.
Excluding impairments, the depreciation and amortization charge is lower due to last year's impairment of the Boshoek smelter. The investment in Unicorn Chrome continued to contribute positively to profits. Net interest income is lower due to lower cash balances and interest rates. The current tax expense is lower due to lower earnings. The resultant profit after tax for the year is ZAR 143 million, as earlier indicated. Next, we review the balance sheet. Non-current assets increased due to capital expenditure of ZAR 447 million.
Total current assets were lower as a result of lower cash balances. Included in this total current assets balance, though, were higher inventory and trade and other receivables balances. Trade and other receivables increased due to higher sales in Q4 of 2025. Inventory balances increased due to higher raw materials volumes at year-end. Ferrochrome finished goods decreased from last year's closing balance.
As I just said, chrome ore volumes increased. To comply with accounting standards, we had to restate our cash balance and only show cash held with banks as cash and cash equivalents. The balance of our cash is with a Venture and is managed by central treasury. This cash has two components. There is 120-day notice deposit that has been set aside for rehabilitation obligations and guarantees for DMRE and Eskom, which is now classified as other short-term financial assets.
This balance increased with the interest income end. The second part is the balance of the cash held with central treasury, which is readily accessible, and this is classified under the heading cash and cash equivalents and balances held with central treasury. Included in this balance is Merafe's cash balances held with banks. This is the balance that I indicated was lower than the prior year's, primarily due to lower earnings. Liabilities include provision for environmental obligations of ZAR 303 million and provision for retrenchment costs, as well as trade and other payables. We have previously reported on the pending transfer pricing matter with SARS. This matter is still ongoing. In our results, this has been reported as a contingent liability still. During the reporting period, the company lodged an objection with SARS, and this was disallowed.
The company has since filed a notice of appeal, which initiates the court process. The company is also still awaiting SARS's response to its request for SARS to review its partial suspension of payment of the assessed amount. The amount which has not been suspended, and therefore is payable, is ZAR 232 million. Earlier, we reported on our inventory levels. Slide 31 provides a bit more detail on our inventory.
Ferrochrome finished goods reduced from 83,000 tonnes to 71,000 tonnes at year-end. This was due to drawdown of inventory, given our suspended smelters. Chrome ore inventories increased from 129,000 tonnes to 290,000 tonnes in spite of record levels of chrome ore sales. This was also contributed to by no production of ferrochrome since the suspension of the smelters. The bulk of our chrome ore inventory is mat grade, and the bulk of our ferrochrome inventory is at plant and ports.
Moving to slide 32. Capital expenditure for the year was ZAR 447 million, as indicated earlier. ZAR 186 million of the spend was on smelting operations, most of which was spent on the Lion Smelter. ZAR 221 million was spent on chrome ore mining operations, and the balance of ZAR 40 million was on PGM operations. Looking at the Venture's total capital expenditure, 72% was on replacement and sustaining capital expenditure. 19% of the spend was on health, safety, environment, and community requirements, to ensure compliance and the safety of our employees. 8% was on expansion projects in our mining operations. On the next slide, we provide a reconciliation of our cash and cash equivalents balance. We started the year with a cash balance of ZAR 603 million. Net cash from operating activities of ZAR 160 million was generated.
We have already spoken about the CapEx of ZAR 447 million that was spent, and dividends of ZAR 300 million were paid. The closing cash balance was ZAR 458 million after sundry cash outflows of ZAR 8 million. We look at our liquid reserves on the next slide. Merafe's own cash at period end is ZAR 458 million, as indicated on the previous slide. Merafe's share of the 120-day notice deposit that I referred to earlier is ZAR 394 million.
Merafe's share of cash held with central treasury is ZAR 698 million, resulting in total liquid reserves of ZAR 1.6 billion at year-end. The company was ungeared at period end and has sufficient headroom. My last slide 36, covers capital allocation. The board has declared a final cash dividend of ZAR 0.08 per share, and this represents 66% of headline earnings and a yield of 7% on the closing share price at period end. Thank you all for your attention. I now hand you back to Zanele for closing remarks.
Thank you, Ditabe. We expect the global operating environment to be volatile from geopolitical tensions and trade wars. In fact, we have already started seeing the escalation of tensions in the Middle East. Steel and steel production is expected to grow, which will support ferrochrome demand. Pressure on ferrochrome prices and costs is expected to remain.
As indicated earlier, Lion Smelter has resumed operations at two of the four furnaces, and it is expected to restart the other two furnaces at the end of March. Should the conditions of the ZAR 0.62 tariffs be acceptable to the Venture, Boshoek and Wonderkop will restart later in the year. We will continue to focus on our mining operations. Cost management, and cash preservation measures will also continue. The ultimate aim is to create value for stakeholders. Thank you. We will now take questions.
We do have Japie Fullard on the call, and he will be available to participate in operational questions.
Thank you, ma'am. Ladies and gentlemen, we will now be conducting the question-and-answer session. If you would like to ask a question, please key in star and then one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may key in star and then two to leave the question queue. To the participants who have joined via the webcast, you are welcome to submit your questions in the question box provided on your screen. We will pause a moment while we assemble the question queue. At this stage, we have no questions on the telephone lines. I will now hand over for questions from the webcast.
Okay. We have got a question on the webcast, and the question reads, "Please could you provide a breakdown of the FY 2025 chrome ore production tonnages between the Venture mines and UG2 operations?" I think for the period, the split between the two was in the region of, let us say, 25%, 26% UG2, and the balance would have been production from the Venture. Unicorn Chrome mine. The next question is, what is the expected cost of restarting Boshoek and Wonderkop later in the year? I would like to pass that on to Japie to deal with.
Good morning, all. Thanks, Ditabe. So the total operational readiness, a huge portion of that would be to still pay the employees. That would be in the region of about ZAR 350 million. Then restocking in terms of anthracite, in terms of pellets, in terms of getting ourselves ready, about an additional ZAR 500 million. So close to ZAR 1 million. This will happen if we do get the ZAR 0.62 and also the terms and conditions that is commercially viable for us. This will take us for Boshoek about three months to be ready and then Wonderkop about five months. Thanks, Ditabe.
Thanks, Japie. That seems to have been the last question on the webcast.
Thank you. We have no further questions from the telephone lines. With no further questions in the queue, can I hand over for closing remarks?
Thank you for your attendance. We expected a lot more questions, but maybe the presentation was clear enough. Thank you. We can close.
Thank you, ma'am. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.