LEADERSHIP REVIEWS

I am pleased to report that in 2022 Merafe again produced an excellent financial and operational performance. This was despite the significant challenges around the availability and pricing of electricity and the failing railway and port infrastructure. On governance, we are pleased to report that the Company in most material respects is compliant with King IV. The Company in 2022 also assessed the JSE's guidance papers on sustainability and climate change reporting and will be working hard in 2023 with its Venture partner to address any shortfalls identified.

ABIEL MNGOMEZULU
Chairperson | 17 March 2023

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Overview

Due to continued demand for our product, Merafe's performance in 2022, was again exceptional. This is manifested in our reported revenue, EBITDA, profit after tax and net cash on hand at the end of the reporting period. I am also pleased to report that the operations of the Venture performed well with regard to production and its identified sustainability criteria.

As reported last year, the Judicial Commission of Inquiry into State Capture shone a light on corruption and state capture in our country and the undermining of state institutions and enterprises that took place. The three-part report of the Commission was published in 2022. Hopefully remedial action will follow and those responsible will be held to account. South Africa faced further headwinds in 2022 with devastating floods in the provinces of the Eastern Cape and KwaZulu Natal and the continual issues with Eskom and “loadshedding” as well as problems caused by a failing rail and port infrastructure. Together with on-going corruption and crime it is no easy task to restore the image of South Africa and attract investments in order to grow the economy so the country can address the key challenges it faces of unemployment, poverty and income disparity.

Last year I also mentioned that there were promising offshoots that can still be seen, showing the resiliency of South Africans in dealing with the challenges they face and this resilience will again be tested in 2023. It is only sustained ethical leadership in government, business and society that can lead to a turnaround in sentiment and create a conducive environment for new investments. This however requires decisive action and sustained leadership by government.

On the global front, our chief executive officer mentions in her report the issues that impacted the performance of the Company in 2022. Of specific importance is that, despite excellent performance, the South African ferrochrome market share will continue to be lost to international ferrochrome production because of the rising energy costs in South Africa and on the back of cheap South African un-beneficiated chrome ore exports. The government and industry need to continue working together to ensure local beneficiation of its resources and efficient use of its existing infrastructure. This is critical for the sustainability of the South African ferrochrome industry and to protect employment whilst ensuring foreign revenue flows into the country. Other countries (China, India, Kazakhstan and Zimbabwe) have and continue to implement tariffs and subsidies to protect their ferrochrome industries. I have previously welcomed the October 2020 announcement by Cabinet of its decision on the introduction of a chrome export tax and remarked that it is our hope that government will, in time, move towards the implementation of this decision. Unfortunately, to date there have been no developments in this regard with dire consequences to this industry.

Despite an ever-changing world and business environment, we will continuously remain focused on making our business a success whilst providing a positive contribution to our stakeholders and the broader society

COVID-19

As mentioned, the impact of COVID-19 continued into 2022 but to a lesser effect. The impact on our business is commented on in the reports of the chief executive officer's strategic review, the financial director and in the manufactured capital section in this report. Unfortunately, during 2022, two (2) of our employees at the Venture lost their lives to COVID-19 (2021:26).

Financial performance

As I mentioned in the introduction, 2022 was an excellent year in terms of all the key financial indicators such as revenue, EBITDA, profit after tax, net cash generated and net cash on hand.

The financial performance of the Company has been addressed in the chief executive officer's strategic review report and the financial capital section in this report . The Chief Executive Officer has also provided commentary on the strategy of the Company going forward and the benefit the Company has gained from its focus on ferrochrome (and ancillary businesses) and maximising cash flows from the Venture.

Safety

Safety remains the number one priority of Merafe and the Venture; I am pleased to report that there were no fatalities at the operations in 2022 and there were also improvements in the other areas of safety. In this regard, see the Safety section in human capital on this report for further details as to the efforts made by the Venture in respect of safety, as well as the manufactured capital section . The Venture is continuing to do all it can to ensure that 2023 is again a fatality free year and that the high standards of safety are maintained.

Key challenges

Despite the excellent performance of the Company in 2022, power costs and continuous failures at Eskom remain a concern for the Company and our industry. Above average tariff increases together with supply challenges remain serious areas of focus for the Venture and the industry. The Venture continues to be impacted by loadshedding and this hinders the ability of the Venture to be a reliable partner to our global customers. There needs to be a long term and sustainable solution to the country's power supply and pricing. In order to mitigate this, the Venture is pursuing Negotiated Pricing Agreements with Eskom in terms of the DMRE's Interim Framework for Long Negotiated Pricing Agreement.

The Venture is continuing the construction of renewable energy facilities and supply of power. For more information, please see the manufactured capital section of this report. As reported in 2021, the deteriorating infrastructure of the railways and the ports continue to be a challenge to the South African ferrochrome industry. The inability of the railways to transport our product and inefficiencies at the ports causes an excessive reliance on road transport resulting in backlogs and delays at the harbours. This not only results in delays in shipping our product (and impacting the reputation of South African producers as being reliable suppliers) but also creates opportunities for corruption and theft. The Venture continues to engage proactively with the governmental departments to attempt to find solutions to these critical issues. For more detail on this challenge to our industry please see the manufactured capital section, the chief executive's strategic review and the section in material issues on this report.

Strategy

We continue to take a long-term view of our business. In terms of achieving our strategic objectives, our ferrochrome interests will continue to benefit from investments in low-cost production facilities and technology at its operations. This has improved the Venture's sustainability by increasing the Venture's cost efficiency and production capacity in difficult trading conditions, but then also allows the Venture to take advantage of improving global conditions and demand as we saw last year. We remain hopeful that in 2023 the government will follow up on a Cabinet decision, by introducing a tax on the export of chrome ore from South Africa. This would be encouraging for South African ferrochrome producers and it would be some extra revenue for the state, whilst it would also level the playing field with our competitors from China, India, Kazakhstan and Zimbabwe, who for years have enjoyed this benefit from their governments.

We reported last year that we will continue to assess opportunities outside ferrochrome where this makes commercial sense. I am pleased to report that in 2021, we participated and invested in a PGMs plant in our western operations with our Venture partners and the plant performed well in 2022. For further information in this regard see the report of the chief executive officer's strategic review .

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 Mining Charter and to the B-BBEE 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 refer you to the sustainability review and summary on internal and external reviews, audits and processes in this report for information on Merafe and the Venture's review processes.

As we indicated last year, on an annual basis, the Board does a gap analysis of how the Company performed in terms of King IV as well as the steps taken to address issues where the Company was non-compliant. We are pleased to report that, while acknowledging that this is a work in progress, the Company in most material respects is compliant with King IV. Where we have fallen short, we have provided an explanation as well as the areas we will focus on in 2023. For more details on our reporting on King IV, I refer you to the governance section for the full report and compliance analysis.

During the year, the Board and the relevant committees took note and assessed the JSE's pro-active financial statement monitoring report, the JSE's guidance papers on sustainability and climate change reporting and assessed changes to the JSE Listing Requirements.

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 and the feedback from stakeholders has been positive.

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 with our stakeholders 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.

The Board is satisfied that it has discharged its responsibilities as set out in the Board Charter. I look forward with enthusiasm to the members' contributions to the Board in the coming year.

Merafe team and Glencore

On behalf of the Board, I would like to thank the Merafe management team and our Venture partner, Glencore, for their hard work in delivering another exceptional financial, operational and safety performance in the year under review.

Future outlook

The excellent performance we had this year provides confidence for the future. We are also confident that strategy for cash preservation will also bring future benefits to the Company. I thank all stakeholders for their continued support.

ABIEL MNGOMEZULU
Chairperson | 17 March 2023