Chairperson's report

Chris Molefe

We agree with the assertion in King IV that good governance has its foundation in effective and ethical leadership and transparency and that integrated thinking and reporting on economic, social and environmental dimensions is key to this.

Chris Molefe
Chairperson

Overview

In 2017 we welcomed the introduction of King IV of which the Board of Merafe and I are fully supportive. Our approach to King IV is disussed further below and throughout this report. However, in this introduction I want to touch on three key ethical principles of King IV which we try our best to uphold. These principles state that the governing body of an organisation should (i) be transparent in the manner in which it exercises its governance role and responsibilities, (ii) govern in a way that supports an ethical culture and (iii) the governing body must try to ensure that the organisation is seen as a responsible corporate citizen.

2017 was an eventful year in South Africa where unfortunately (as in 2016) a lack of ethical leadership in high profile organisations was again exposed in both the public and private sectors.

It was another difficult year for the economy characterised by low growth, credit downgrades and low business confidence coupled with political uncertainty in the build up of the governing party's (ANC) elective conference at the end of 2017. Now that this is behind us, it appears that there is renewed optimism.

The business environment in the resources sector was difficult and challenging mainly due to volatility in both pricing and exchange rate.

In our industry specifically the regulatory and legislative environment remains uncertain with the Mineral Petroleum Resources Development Act Amendment Bill and contested Mining Charter remaining unfinalised.

In such difficult times, we are again reminded to remain focused on making our business a success so that we are able to provide a positive contribution to all our stakeholders and broader society.

I am pleased to report that despite this challenging business environment Merafe produced another excellent set of results in 2017, and was again able to pay a dividend for the year under review.

The financial performance of the Company has been addressed in the CEO’s report and the Financial Capital of this report. The CEO has also provided comment on the strategy of the Company going forward and the benefit the Company has gained from its focus on ferrochrome, maximising cash flows from the Venture and reducing debt.

Safety

Safety remains the number one priority of Merafe and the Venture.

It is with deep regret that we report a fatality at our Lion Plant on 21 March 2017. Our condolences are extended to the family, friends and colleagues of Mr Tshepo Braine Makola who sustained fatal injuries.This unfortunate event occurred despite the considerable effort that the Venture has placed into embedding a safety culture into its operations. In this regard see the safety section in the Human capital of this report for further details, as well as the Manufactured capital section.

Strategy

We continue to take a long-term view of our business. In terms of achieving our strategic objectives, our ferrochrome interests were profitable and the Company has benefited from its investement in the Lion ferrochrome plant and other projects as previously reported which has improved the Venture’s sustainability by increasing its cost efficiency and production capacity. As reported last year we will assess opportunities outside ferrochrome if this makes commercial sense. In this regard see the report of the CEO.

The Board, together with our Venture partners, continues to consider the impact of losing our key empowerment shareholder in 2015 .We remain committed to ensuring the long-term sustainability of both Merafe and the Venture and complying with legislation and the challenges brought about by amendments to the Charter and to the BBBEE Codes of Good Practice.

Our approach to sustainability and assurance

The directors have followed the materiality determination processes described in this report and have applied the results of these processes to formulate the material issues in this report. Merafe relies on the Venture and Glencore to obtain quantitative data with regard to sustainability indicators. I would refer you to the Sustainability review and assurance summary in this report for information on Merafe and the Venture’s assurance and review processes.

Our commitment to good governance and sustainability has also always been reflected in our inclusion in the JSE Socially Responsible Investment (SRI) Index since its inception in 2003, the Company often being a top 10 performer. Since 2015, however, the SRI Index assessment was only performed on the Top 100 companies on the JSE by market capitalisation and Merafe was therefore unfortunately not assessed. We believe that all companies listed on the JSE need to again be subjected to this assessment and not only the top 100.

During the year under review the Board developed an understanding of King IV. Therafter, a gap analysis of how the Company performed in terms of King IV was performed and steps taken to address issues where the Company was non compliant. We are pleased to report (while acknowledging that this is a work in progress) that the Company in most material respects is compliant with King IV. Where we have fallen short, we have provided an explanation and will focus on this in 2018. For more details on our reporting on King IV I refer you to the Governance section and for the full report and compliance analysis to our 2017 Online Integrated Annual Report.

We agree with the assertion in King IV that good governance has its foundation in effective and ethical leadership and transparency and that integrated thinking and reporting on economic, social and environmental dimensions is key to this.

Board decisions need to be made in an integrated manner understanding the impact on these dimensions as well as the impact on value creation in the short, medium and longer term.

Stakeholder inclusivity and responsiveness is key to the process. We are pleased to note that we have been reporting in an integrated manner and in terms of the Capitals – as recommended by King IV – for some years now.

The Board

As Chairperson of our unitary Board I am responsible for the overall effectiveness of the Board and its committees and for ensuring that we provide Merafe with effective leadership, uphold ethical standards, and are responsible, accountable, fair and transparent. I am also responsible for ensuring that we implement strategies aimed at achieving our economic, social and environmental performance objectives.

There is a clear separation between my responsibilities and those of the Chief Executive Officer, which is documented in our Board charter. Our Chief Executive Officer is expected to focus on our business and ensure it is run effectively and in accordance with the strategic decisions of the Board.

We interact at our Annual General Meetings and at presentations made by our executive management team when our interim and annual results are released. This year we again increased our focus on stakeholder relationships and in particular our relationships with our shareholders and our Venture partner. The Board has delegated the responsibility for engagement with our shareholders and potential investors to the Chief Executive Officer and the Financial Director.

My thanks to our non-executive and executive directors for your contribution to the Merafe Board’s deliberations and decision-making during 2017.

Merafe team and Glencore

On behalf of the Board, I would like to thank the Merafe team and our partners, Glencore, for their hard work during the year, which resulted in the Company producing an excellent financial and operational performance. While the overall safety performance was good, any fatality is unnacceptable and the Venture will continue to do all it can to ensure that 2018 is a fatality free year.

Future outlook

I am again pleased to report that Merafe is well positioned for the year ahead with a strong balance sheet and no debt at Merafe level. The Venture is also well positioned as a result of it being the lowest-cost producer in South Africa. Its investment over the years in new and more efficient technolgy has increased its competitiveness among South African ferrochrome producers. We believe the Venture and Merafe will reap the benefits of this commitment to having invested in energy efficient technology in the years to come.

Chris Molefe
Chairperson