Good day, ladies and gentlemen, and welcome to the Merafe Resources Interim Results presentation. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star and then zero. Please note that this call is being recorded. I would now like to turn the conference over to Zanele Matlala. Please go ahead.
Good morning. Thank you for joining us for the interim results presentation. Ditabe and I will take you through the results. We also have Japie Fullard, the CEO of Glencore Ferroalloys, with us to assist with operational questions. The operating environment continued to be challenging, leading to weaker financial performance. Slide four, which gives us the key takeaways from the results. Sadly, we recorded one fatality, and there has been a deterioration in the total recordable injury frequency rate.
Operationally, ferrochrome and chrome ore production were lower. The PSV continued to focus on efficiencies. Cost pressures persisted. On the positive side, though, there was some improvement in electricity supply and logistics. There was good performance from the PGM plants. Negotiated pricing agreements with Eskom were concluded and implemented. Market uncertainty continued with ferrochrome prices under pressure. Global stainless steel production increased and demand for ferrochrome followed a similar trend.
Rand weakness against the U.S. dollar provided some cushion. Total revenue remained relatively flat period on period. Headline earnings were ZAR 0.282 per share and dividends of ZAR 0.20 per share were declared. We move to slides six and seven, which is the market. Global stainless steel production increased by 9% from 28.8 million to 31.3 million tonnes. The biggest increase came from China, which grew stainless steel production by 12%.
Ferrochrome demand increased by 10%, from 7.2 million to 7.9 million tonnes, more or less in line with stainless steel production growth. China continues to dominate global stainless steel production, accounting for more than 63%, which is slightly up from the competitive period. We move to slide 8. Global ferrochrome production increased by 7%, from 15.1 million to 16.1 million tonnes. Nearly all of this growth came from China, which grew at about 29%.
China has been introducing new cost-efficient capacity, particularly in the northern region. This has meant displacement of production from other regions. For instance, South African production decreased by 21%, from 3.9 million to 3.1 million tonnes. Following the growth in ferrochrome production in China, chrome imports grew by 27%, from 6.7 million to 8.5 million tonnes. Of the 8.5 million tonnes, 84% came from South Africa.
On slide nine, given the demand for chrome ore, prices remained robust for most of the reporting period. Ferrochrome prices, on the other hand, remained under pressure, trading below $1 a pound. As previously published on SENS, the European ferrochrome benchmark price has been discontinued, and Merafe will no longer publish the price. On slide 11. Sadly, a fatality occurred at one of Wonderkop Smelter in January 2024. Our TRIFR deteriorated from 2.34 in December 2023 to 2.52 in June 2024.
We remain focused on the goal of achieving zero harm. Safety campaigns and programs encourage all our employees to keep safety top of mind. On the next slide, power supply has been stable for most of the reporting period. It is encouraging that there hasn't been significant load curtailment in the first half. Negotiated pricing agreements have been concluded and implemented effective 1 January 2024, the effect of which will be more pricing certainty for the venture. On slide 13, the venture continues to explore alternative technologies for producing energy from off gases. Renewable energy projects from both wind and solar are being considered. Development projects have advanced, and we expect the first offsite solar project to achieve financial close in H2, which is slightly behind schedule. Slide 14, ferrochrome production decreased by 17%, from 185 to 154 kilotons.
Rustenburg smelter was not brought back to production post the 2023 winter shutdown due to prevailing market conditions. After exploring various scenarios, the venture has commenced with Section 189 consultation process, which could result in Rustenburg smelter being on care and maintenance. Lydenburg smelter remains on care and maintenance. On slide 15, total cost of production per ton increased marginally from December 2023, which was driven by higher chrome ore market costs, higher fixed costs absorbed due to lower production, and general inflation.
Reductants costs, on the other hand, provided a cushion as they decreased. On slide 16, PGM production increased, boosted by the inclusion of the Eastern PGM Plant from September 2023. Feed volumes increased from 69 to 209 kilotons, with PGM ounces increasing from 7,586 to 31,882. However, PGM prices have reduced significantly, particularly rhodium. I'll now hand over to Ditabe to take you through the numbers.
Thank you, Zanele, and good morning all. It's my privilege to take you through Merafe's 2024 interim results. We start the presentation with revenue on slide 18. Total revenue decreased marginally by 0.4% to ZAR 4.7 billion. Instrumental to this revenue were four items: higher chrome ore volume sold, resilient chrome ore prices over the period, higher PGMs volume sold, and a weaker rand dollar exchange rate.
Due to weakness in the market, ferrochrome volume sold were lower than in the prior period. Expanding on the three revenue sources, ferrochrome revenue decreased by 10% to ZAR 3.4 billion, arising from an 8% decrease in prices achieved and a 6% reduction in ferrochrome volume sold. Chrome ore continued to support our revenue performance. Prices held up over the reporting period and higher volume sold contributed to a 30% increase in revenue period on period.
Finally, our PGMs revenue of ZAR 131 million was significantly higher than in the prior comparative period. Once again, although the average PGM basket price was lower, higher sales volumes and a favorable exchange rate supported revenue growth. The increase in volumes result from contribution of the Eastern PGMs operation. Slide 19 covers earnings per share. As indicated in our trading update, our performance represents a reduction in earnings per share. For the period, we achieved basic earnings per share of ZAR 0.288 and headline earnings per share of ZAR 0.282 . The difference relates to the financial impact of the sale of Boshoek Mine. We analyze our EBITDA on the next slide. This EBITDA slide indicates the proportion of the 2024 EBITDA variances in percentage terms relative to the 2023 EBITDA as a base.
The impact of especially lower ferrochrome prices is evident from the revenue prices variance of 23%. Inflation was the second largest negative variance and eroded 8% from EBITDA. Lower production due to the idled Rustenburg smelter led to an increase in standing charges, resulting in a 3% EBITDA variance. Foreign exchange effect of a stronger closing rand, dollar exchange rate shaved off 3% from EBITDA. Higher chrome ore and PGMs volume sold added 9% to the 2023 EBITDA. Other smaller variances are responsible for the balance of the movement. Overall, the 2024 EBITDA from the venture is 26% lower than the 2023 comparative figure. The next slide 21, looks at EBITDA of ZAR 1.2 billion generated from the venture. And reconcile that to reported profit after tax of ZAR 720 million for the period.
Profit after tax is arrived at after the following items go off against EBITDA from the venture. The first one is current and deferred tax of ZAR 284 million. Next is depreciation and amortization costs of ZAR 169 million, with no cash-generating unit impairment adjustment over the period. The third item is corporate cost of ZAR 45 million. Next is net financing income of ZAR 29 million. And lastly, income from equity accounted investment of ZAR 11 million. The slide that follows explores some of these items further. Slide 22 presents the income statement. We have already discussed revenue. A foreign exchange loss of ZAR 14 million was incurred for the period against a gain of ZAR 148 million in the prior period. This is thanks to a stronger closing rand, dollar exchange rate. Moving to the operating expenses line.
These expenses were affected by higher production costs per unit, which negatively impact cost of sales. The causes of this have already been discussed by Zanele. Next is general inflation on both fixed and other variable costs, that contributed to this increase. And finally, higher volumes of chrome ore sold. Merafe's corporate costs were higher than prior year or the prior comparative period, I should say, primarily due to inflation, staff-related costs, and higher legal fees incurred.
The depreciation and amortization charge is higher due to capital procured. The net interest income amount is higher due to higher cash balances held over the period. The current tax expense is expectedly lower due to lower earnings. The resulting profit after tax for the period is ZAR 720 million as indicated, a 31% decrease period on period. Next, we review the balance sheet.
Non-current assets increased due to capital expenditure of ZAR 253 million over the period. The current assets balance closed higher than the opening balance. Material increases had led to this, relates to trade and other receivables, which increased due to higher sales over the second quarter, as well as cash and cash equivalents, which increased due to improved earnings. These increases exceeded the decrease in inventory balances which arose from inventory drawn down over the reporting period.
Ferrochrome finished goods decreased from last year's closing balance of 81,000 tons to 68,000 tons. These volumes represent two to three months of sales. Liabilities include provision for environmental obligations. And the largest current liability is trade and other payables of ZAR 889 million. Additional breakdown of these results is provided in the SENS announcement. Excuse me. On slide 24, we provide a reconciliation of our cash balance.
We started the year with a combined cash balance of ZAR 1.7 billion. We generated ZAR 852 million from operations. ZAR 253 million was spent on capital expenditure as already indicated. A final dividend of ZAR 550 million was paid in the reporting period. This resulted in closing cash of ZAR 1.7 billion. This cash includes Merafe's own cash as well as its share of the cash from the venture. This split together with Merafe's headroom are shown on the next slide. On slide 25, we can see that Merafe's own cash is ZAR 550 million. Merafe's share of cash at the venture is ZAR 1.2 billion, resulting in the total cash of ZAR 1.7 billion. Cash at the venture includes ZAR 344 million, which has been set aside for rehabilitation obligations, primarily. The company was ungeared at period end.
Merafe's headroom consists of facilities in place at the PSV, as well as the ZAR 300 million revolving credit facility with Absa. Moving to slide 27, which is my last slide. This covers our interim dividend. The board has declared an interim cash dividend of ZAR 0.20 per share. This represents 71% of headline earnings and a yield of 14% on the closing share price at period end. Thank you all for your attention. It's back to Zanele for closing remarks.
Thank you, Ditabe. As we had expected, the first half of 2024 was challenging, with most of the headwinds we had outlined at the time panning out. There is still a lot of uncertainty in the system, which should indicate that the second half is not going to be any easier. There are some positives, though, with improvements in electricity supply and logistics. The negotiated pricing agreement provides some price uncertainty. Going forward, we will continue to focus on efficiencies in our operations, cash preservation, managing costs, and efficient capital allocation. Thank you. We will now take questions, first from the conference call and then from the webcast.
Thank you. Ladies and gentlemen, if you would like to ask a question, you are welcome to press star and then one on your touchtone phone or on the keypad on your screen. You will hear a confirmation tone that you have joined the queue. If you wish to withdraw your question, you may press star and then two to remove yourself from the question queue. For those on the webcast, you may submit your question using the Ask a Question box at the bottom of your screen. The first question we have is from Tim Clark of SBG Securities. Please go ahead.
Hi there. Thanks. Good morning. Congratulations on the results and on the dividend, as ever. A few questions from me. The first one on chrome ore. Your commentary indicated a negative outlook on pricing. I wonder if you could just talk to us about how you see the chrome ore market playing out given transport and logistics limitations, port issues, and just what you are seeing and what you are expecting for chrome ore markets. My second question is just on ferrochrome production. You have Rustenburg going on to Section 189, so a more permanent closure type of scenario, I suppose, is what I am reading from that.
First of all, the cost of that Section 189, can you give us an estimate of the timing and what you think that could cost us so we can just pop that in the model? What kind of capacity utilization do you think you can achieve of the residual of the fleet? What do you think your production outlook could look like given Rustenburg is out and Lydenburg is out? Should we just take those out of your nominal capacity, or how should we look at that? I have a few more questions, but I will give someone else a chance and maybe come back.
Okay. Thanks, Tim. I guess I will start with the chrome ore outlook. If you just look at the numbers for the six months, the issue was not so much the logistics because that had improved for various reasons. That was not the big contributor to where prices remained for chrome ore that is. I think the big driver was the demand, mainly from China, and that is as a result of them building more capacity in China. In terms of going forward, there is some expectation that pricing should start coming down, and I think it has already showing signs of coming down. But whether it will go to the levels that we have experienced in the past, we cannot tell at this stage.
Are you saying that the transport issues have already turned significantly? Is that a port issue or a rail issue, Zanele?
There's been some improvement. I wouldn't say it's completely. There's still some challenges. But for the period of reporting, that was not a big constraining factor. You'll see that from the volumes that were sold in the six months, that they were way higher than prior year or prior period.
Okay. Thank you.
On the Section 189, we've just started the consultation process. As you know, that consultation process means you explore various options. We're not at a stage where we can say to you, this is what it's going to cost us, because we're not there yet. We've just started the consultation process.
In terms of timing, can you give us an indication of what you think the timing will be?
Japie. Is he on the line?
You can hear me?
Yeah, we got you.
Okay. Just in terms of timing, normally a Section 189, there is a minimum period of 60 days. Because of all the various options that we are looking at, it could definitely be a bit longer. There are various options that we must consider. As Zanele also said, Section 189 means placing all actions and steps prior to closure. We will actually have a look at that. We do have an estimate on what would be the closure cost in terms of if we must, let's say, retrench all the people. Like, as Zanele also said, we do not want to go there before we deal with them properly.
All right. Thanks so much, Japie.
Maybe the final question on capacity utilization, Tim, the current forecast, which is guidance that we would like to leave you with, is a production of between 60% and 70% of installed capacity. So more or less around the same levels as what we produced last year.
Installed includes Rustenburg and Lydenburg. So, you would normally operate of your available, let's call it capacity, you would be at 80-ish.
Correct. Yeah, if you look at operating capacity around the 80% mark. Correct.
Okay, spot on. Thank you so much.
Thanks, Tim.
Tim, if you have any other questions, you may go ahead.
Yeah, thank you very much. Just the NPA, the agreement, it said in the release that it had been concluded. Is the full period that we have got now taking account of that agreement? Just, I wonder if you could give us some indication of, you speak about more stability. Is it more a sort of inflation-linked agreement to electricity price increases? Or how should we think about it in our modeling of power prices?
A second question just maybe for Ditabe on deferred tax. Quite a big liability rising now, ZAR 342 million and now starting to rise significantly. I guess that is because the assets have been impaired, so the depreciation is quite low. Your sustaining CapEx is quite high. So you are sort of ending up with a rising deferred tax balance, I would imagine, sort of an investment level. I wonder if you've got an indication of, or you're concerned about whether that's going to reverse at some point and turn into cash outflow.
Okay, thanks, Tim. I think on the NPA, as we've indicated in the SENS, it's effective 1 January. The implementation goes back to 1 January, which means it's already included in these numbers. Maybe in terms of the impact, let me ask Japie to comment.
Yeah, thanks, Zanele. On the impact, what we are seeing, obviously, for us, the Rustenburg complex is out. I mean, obviously that electricity demand is not there. What it does, it gives us a more stable pricing environment. That means that we don't have to schedule in the winter months anymore. It's a flat rate inflation coupled, but it's a much more clearer understanding of what the electricity pricing would be. That's the first thing. The second thing is that there's no peak, so that means that we can schedule our maintenances of our smelters throughout the year. Just by doing that, it also allows us then to be much more flexible in terms of where do we take out which furnace, if that makes sense, Tim. I'm not sure if you've got a follow-up on that.
Yeah, thanks, Japie. That's very interesting. Does that mean that it takes out the winter tariff, it takes out this kind of big peak? Is there a financial impact? You always used to sell electricity back to Eskom effectively on that kind of very short-term available power sale agreement that you had where you could be tripped for a couple of hours, taken offline. Does it change that? Also, what's the term of the agreement? Is it you've got inflation-linked power for, say, five years or 10 years, and then it's going to reset?
Yeah. The term is a midterm period. I'm not in a position to disclose that, but I can tell you that it's quite a substantial time period, and it's definitely linked to inflation. So that means we are certain of our electricity price for the next couple of years. We are still, however, bound in terms of demand. If there's load curtailment, then we are still in that same agreement that we had been to pull back.
But obviously it is with Eskom in a restructured way. We don't see that as a problem. But obviously, seeing that we are getting now the special tariff, that's why we did apply for this. It's a special tariff, but it also allows the agreement between ourselves and Eskom, so that if there is load curtailment, that we are still going to participate in that.
Thank you so much, Japie.
Okay.
Okay, thanks. Then I think Ditabe can take the deferred tax question.
Yeah. As you know, Tim, the nature of our operation is that we are able to offset all of our capital expenditure against the profits that we generate. Our deferred tax balance is a function of the deferred tax base, which currently is nil. Impairment doesn't quite impact that as such. It will always be a function of what the tax base is against what we expect in the future. Hopefully that clarifies it.
I guess so. I mean, it is becoming quite a significant liability over time. It did not used to be quite as high as it is now, and it just seems to be rising. I just wonder when you think it will crystallize, or I guess it can just continue rising if your investment level remains. I mean, I do not think you are growing.
Yeah.
It is not like you are over-investing.
Yeah.
You are investing at a very consistent level, sort of ZAR 500 odd million a year, right?
Correct.
Given that investment level, I guess that deferred tax liability is just going to continue to rise, right? But it means that your cash generation is better than your earnings generation, perhaps.
Yeah. It will continue to grow for as long as we do make the capital expenditure, which we have been making over the years.
Okay. Thanks, Ditabe.
Yeah. Thanks, Tim.
Since we have no further questions on the conference call, I would like to hand over to Ditabe for any webcast questions.
Thank you so much. There are a few questions on the line. The first one has to do with electricity, but we might have covered this. Could you please provide more detail on how the electricity tariffs for the period changed year-on-year? What increases do you expect for the coming year? Maybe I will hand this over to Japie, because it does have a direct impact on the NPA.
Yes, Ditabe. Are you just asking about the NPA tariffs?
Yeah. The question is more around the electricity tariffs, how they have changed year-on-year, and what increases we expect in the coming year.
Yeah. Like I did previously state, the increases that we are going to face would be inflation-based.
Yes.
It is inflation-based tariff that we are facing, and for that reason, we are much more clear or much more sure of our electricity pricing over the next, in a couple of years.
Thanks, Japie. The next question is around smelters. Can you clarify what smelters are operating, what is care and maintenance, and what is being closed?
Okay. Basically, Lydenburg is on care and maintenance, and it has been for quite a number of years. Rustenburg currently is being idled. We are going through that process of Section 189, which means only the three smelters are currently operating, which is Wonderkop, Boshoek, and Lion.
Thanks, Zanele. The final question on the webcast is around the presentation itself. The question is on slide 15 of the presentation, we referred to production costs having increased by 0.4%, and on slide 22, production costs having increased by 10% period on period. The difference there is on slide 15, what is being compared is the H1 costs relative to the costs at the end of December 2023. So, a shorter period, and the increase is a smaller increase relative to the increase that is referred to on slide 22, which is a period-on-period comparison. In other words, H1 2024 versus H1 2022, slightly longer period, and therefore the increases are much more higher at 10%. Hopefully that clarifies it. That is the last question that we got on the webcast.
Thank you. We also have no further questions on the conference call, and I would like to hand over to Zanele for any closing comments.
Thank you for your attendance. I do not really have any further comments to add, other than appreciation for all who have attended the call and webcast. Thank you.
Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.