Leadership reviews

Merafe's revenue and operating income are primarily generated from the Venture which is one of the global market leaders in ferrochrome production. It has total installed capacity of 2.3mt of ferrochrome per annum.

Financial Director | 17 March 2023



Financial Capital

Financial capital makes it possible for other types of capital to be owned and traded. Financial capital is also representative of how successful we have been at achieving the sustainable development of our natural, human, social and manufactured capitals.

Material issues

  • Global economic environment
  • Ferrochrome demand and prices
  • Energy supply and prices
  • Rand/US Dollar exchange rate
  • Production costs

Sustainable organisations need a clear understanding of how financial value is created, in particular, dependence on other forms of capital. We enhance our financial capital by:

  • effective risk management;
  • corporate governance structures;
  • ensuring the equitable use of wealth created; and
  • assessing the wider economic impact of our activities on society.
Key points – 2022


R8.1 billion)


R2.4 billion)
Net Profit


R1.7 billion)
balance of

R1.3 billion

R972 million)
Final and
dividends for

R625 million

(2021: R725
* For a complete appreciation of the financial results, this Financial capital section must be read in conjunction with the complete set of audited consolidated annual financial statements. The Board has used its discretion in determining the material matters to be reported in this section.

The Company's consolidated financial statements for the year ended 31 December 2022 were approved by the Board on 17 March 2023 and are available on the Company's website on this link www. meraferesources.co.za/ results/annuals-2022/pdf/full-afs.pdf.

The summarised consolidated financial statements below are an extract from audited consolidated financial statements but are not themselves audited. The following individuals were responsible for the preparation of the financial statements: Busisiwe Nteyi CA(SA), Financial Manager and supervised by Ditabe Chocho CA(SA), Financial Director.


2022 was a rollercoaster year. What was expected to be the beginning of a normalisation after the COVID-19 pandemic turned into a year characterised by the Russia/Ukraine conflict, rising inflation, recessionary fears as well as COVID-19 lockdowns in China, among other things. In South Africa, the continued and at times worsening Eskom and Transnet problems in addition to the Kwa-Zulu Natal floods added to the many challenges. The impact on the stainless steel industry was noticeable with a 3.5% year-on-year contraction in demand. Despite these conditions, Merafe's revenue declined by only 2%. Due mainly to continued efficiencies and plants operating over the winter months, full year production was at 80% of installed capacity. Cost pressures, particularly from electricity as well as reductants prices, negatively impacted the local ferrochrome industry's competitiveness. Our business continued to focus on managing liquidity and cash flows as evidenced by our financial position.

We refer you to the material issues affecting Merafe for a review of financial matters that impact the business and our responses thereto.

Merafe recorded basic earnings from operations of R1.41 billion (2021: R1.67 billion). This represents basic earnings per share of 56.4 cents (2021: 66.8 cents). The headline earnings per share for the year were 56.4 cents (2021: 67.0 cents). Favourable commodity prices and the ZAR:USD exchange rate were key contributors to this performance.

Financial performance

Total revenue was R7.94 billion (2021: R8.06 billion) amounting to a year-on-year decrease of 2%. Higher realised ferrochrome prices as well as a weaker ZAR/USD exchange rate led to ferrochrome revenue performance that was only marginally lower than the comparative period. This was in spite of 11% lower volumes of ferrochrome sold at 350kt (2021: 394kt). The average ferrochrome CIF price increased by 3% to 111 USc/lb (2021: 108 USc/lb). Ferrochrome revenue was 3% lower at R6.80 billion (2021: R7.02 billion). Chrome ore sales volumes for the year decreased by 32% to 265kt (2021: 390kt) and, on average, CIF chrome ore prices increased by 37% to USD237.48 (2021: USD173.18). The resultant revenue was 0.4% higher at R1.04 billion (2021: R1.036 billion). For the first time, the Kroondal Platinum Group Metals (PGMs) processing plant operated for the full year. Revenue increased to R100 million (2021: R2.6 million). Although the average basket price of PGMs achieved decreased by 9% to 2 007 USD/oz (2021: 2 216 USD/oz), higher volumes sold of 3 055 oz (2021: 75 oz) as well as a weaker average ZAR:USD exchange rate more than made up for the revenue impact.

Total operating expenses (excluding Merafe head office costs)

Operating expenses increased by 2% to R5.802 billion (2021: R5.668 billion). This increase was in spite of lower sales volumes and was principally due to inflationary pressures as evidenced by our unit production cost that increased by 30% year-on-year.

Key contributors to operating costs were:

  • increased cost of chrome ore inputs to our production;
  • increased cost of reductants;
  • increased cost of electricity due to Eskom's tariff adjustments; and
  • general inflationary increases on fixed and variable costs.

The increase in the cost of reductants and fluxes was due mainly to high coal prices as a direct result of the energy crisis arising from the Russia/Ukraine conflict. The lack of availability of local anthracite has also led to this stock having to be sourced from abroad.

The adjustments resulting from the impairment of property, plant and equipment in earlier years have resulted in a decrease in the depreciation charge that was capitalised to inventory by R25 million (2021: R44 million increase).

The diesel rebate matter with SARS is ongoing and has yet to be resolved. Accordingly, the disallowed amount (net of income tax) of R17 million (2021: R15 million), as well as interest payable to SARS of R5 million (2021: R5 million), continues to be fully provided for at year end.

Foreign exchange adjustments

The volatility of the Rand against the US Dollar has resulted in a foreign exchange gain of R68 million for the year (2021: R104 million).


All the above factors have resulted in Merafe's share of the Venture's EBITDA for the year decreasing to R2.23 billion (2021: R2.50 billion). Merafe's EBITDA was R2.14 billion (2021: R2.43 billion) after accounting for its corporate costs which were R65 million (2021: R66 million). Corporate costs include a share-based payment expense (which is influenced by the Company's share price) of R13 million (2021: R9 million), Corporate Social Investment spend of R3 million (2021: R3 million) and a bonus provision of R12 million (2021: R11 million).

Depreciation and impairment

Merafe's share price at financial year end traded at a discount to its net asset value per share thereby indicating possible impairment. Consequently, a calculation of the recoverable amount had to be made as per IAS 36: Impairment of Assets. The recoverable amount was largely based on Merafe's share of the value in use of the Venture as the cash-generating unit. The valuation of Unicorn Chrome (Pty) Ltd (Unicorn Chrome) was also included.

The directors have concluded that there is no conclusive evidence to support recognising any impairment for the year. There are no operational or market factors identified by management that point to possible impairment other than the market capitalisation of the company being lower than the asset value of the business.

The prior impairment losses have led to a much lower depreciation charge for historical assets for reporting periods since 2020. Capital expenditure made over subsequent years has however gradually been increasing the depreciation expense. Depreciation of R219 million (2021: R111 million) was expensed for the year.

Net finance income

Finance costs, arising mainly from commitment fees from our revolving credit facility, amounted to R1 million (2021: R2 million). The source of finance income of R26 million for the year (2021: R14 million) was interest on cash reserves.

Income from equity-accounted investments

Due to strong chrome ore prices, Impala Chrome (Pty) Ltd, Unicorn Chrome's only investment, had an improved financial performance in 2022. This led to Merafe's share of income from equity accounted investment increasing to R4 million (2021: R1 million).


The taxation expense includes a deferred tax charge of R36 million (2021: R199 million) arising from temporary differences on property, plant and equipment, receivables, provisions and accruals. Due to its taxable profits exceeding its capital expenditure as at 31 December 2022, Merafe had no unredeemed capital expenditure balance at year end (2021: Rnil). This resulted in current tax expense of R503 million (2021: R454 million).

Profit for the year

Merafe reported a profit after tax of R1.41 billion (2021: R1.67 billion) for the year ended 31 December 2022.

Financial position

Ferrochrome production at our operations was 1% higher than the comparative period despite load curtailments experienced. Due to the contraction in stainless steel production and therefore in ferrochrome demand, there was a build-up in ferrochrome finished goods at year end from 76kt to 109kt. The above finished goods levels represent approximately three to four months of sales, an increase from two to three months in the prior year. The closing inventory balance was R2.37 billion (2021: R1.65 billion). What further contributed to the increase in the closing value of inventory was higher production costs for the year. Mainly due to low sales volumes in the last quarter of 2022 and customer payments over the period, the closing trade and other receivables balance was lower at R868 million (2021: R1.55 billion). Working capital remains a key part of our financial position and we continue to focus on optimising its levels.

The Venture's debt facilities are unutilised, and the business remains ungeared at the financial year end.

Our rehabilitation obligation is assessed periodically by an independent expert. For the year under review, the liability was assessed to be higher due to higher closure costs. As a result, the ringfenced cash was increased to match the increased liability. The ringfenced cash caters for both mine and smelters closure costs. The cash is assessed annually against our obligations to determine if any adjustment is warranted.

The provision for environmental rehabilitation increased by R104 million resulting in total provisions increasing from R190 million to R294 million. Our provisioning already caters for the impact of the National Environmental Management Act.

Boshoek mine, which has been on care and maintenance for a while, is in the process of being sold. It therefore has been classified as an asset held for sale at reporting date.

Cash position

The closing cash balance was R1.27 billion (2021: R972 million). This comprises Merafe's share of cash in the Venture and Unicorn Chrome of R652 million (2021: R489 million) and Merafe's own cash of R617 million (2021: R483 million). The cash movement includes net cash outflow from working capital movements, largely influenced by an increase in inventories by R722 million as well as a decrease in trade and other payables by R23 million, countered by the decrease in trade and other receivables by R623 million. Additionally, there was an outflow of cash from investing activities due to sustaining capital expenditure of R466 million (2021: R448 million), expansionary capital expenditure of R18 million (2021: R42 million) and payment of both the 2021 final dividend as well as the 2022 interim dividend which amounted to R849 million (2021: R175 million) in total. Expansionary capital includes R15 million (2021: R32 million) spent on the PGMs processing plant.

As mentioned earlier, the Venture has set aside cash, ringfenced to fund its future environmental rehabilitation obligations. Merafe's share of this cash now sits at R301 million (2021: R189 million) and is included in its share of the cash in the Venture and Unicorn Chrome of R652 million referred to above.

Debt position

Both Merafe's own facility with ABSA Bank Limited (ABSA) and Glencore facilities available to the Venture through Glencore Holdings South Africa (Pty) Ltd, were unutilised at year end. Merafe's R300 million committed revolving credit facility with ABSA was refinanced during the year for another 3-year tenure. The commitment fee has been lowered by 0.1% to 0.4% of undrawn funds and the base rate margin has also been reduced from 2.5% to 2.4%.

Contingent liability

The Group is subject to direct and indirect tax in the South African jurisdiction. The Group's subsidiary undertakes various cross-border transactions within the Venture, subject to the Group's transfer pricing policies. As a result, significant judgement is required in determining the Group's provision for income taxes. The income tax and annual assessments are subject to examination within prescribed periods by the South African Revenue Services (SARS).

On 16 August 2022, the tax authority issued a letter of findings against the Group's operating entity, Merafe Ferrochrome. The matter relates to transfer pricing audit findings for the 2016 and 2017 years of assessment which the Group is contesting with SARS. At 31 December 2022, the tax matter was still ongoing and management obtained opinions from external legal and tax advisers to inform and support the significant judgement required in interpreting relevant tax legislation. The matter has been disclosed as a contingent liability as the matter is in the early stages, its outcome remains uncertain and any potential tax exposure cannot be reliably estimated. Accordingly, no adjustment for any effects on the Group has been made in the consolidated financial statements.

Share buy-back

The Board has considered whether the share buy-back programme should be resumed and concluded that at this stage, in light of various factors that include the market cycle as well as the company's share price, a dividend may be preferable.


The Board has declared a final cash dividend of R325 million (2021: R550 million). This amounts to 13 cents (2021: 22 cents) per share and brings the total dividend for the year to R625 million (2021: R725 million).


As predicted, 2022 saw a slowdown in economic activity but other factors led to increases in commodity prices. Although there was a contraction in volumes and cost inflation was high, commodity pricing kept the market afloat. We enter 2023 with no less uncertainty and continued volatility. The manner in which events unfold will determine how markets react and the resultant impact on our business. China remains a key force in the global economy and the relaxation of their zero COVID policy spells good news for markets. We will continue with our focus on key identified risks that affect our business and work on mitigating these as best we can. The key risks include electricity availability and pricing, input costs inflation and logistics challenges. The need to manage liquidity and cash flows heightens in uncertain times and thus this will remain an area of focus. We will manage our capital as optimally as possible with priority being on sustaining capital expenditure but not neglecting to consider and fund future-facing projects.

Once more, we will remain vigilant and continue managing the affairs of the Group with sustainability and the creation of value for our stakeholders being our focal points.

Financial Director | 17 March 2023

The full set of audited consolidated financial statements from which these summarised consolidated financial statements have been derived, were prepared under the supervision of Ditabe Chocho CA(SA), Financial Director. The directors take full responsibility for the preparation of the summarised consolidated financial statements.

    As at
Summarised consolidated statement of financial position   31 December
  31 December
Property, plant and equipment   1 074 971   712 577
Intangible assets   29 626   34 060
Investment in associate   6 709   2 765
Deferred tax   6 210   3 394
Long-term receivable   38 663   13 444
Other long-term receivable   14 229  
Total non-current assets   1 170 408   766 240
Inventories   2 372 540   1 652 178
Trade and other receivables   868 122   1 554 620
Current tax receivable     16
Cash and cash equivalents   1 268 599   972 129
    4 509 261   4 178 943
Non-current asset held for sale   963  
Total assets   5 680 632   4 945 183
Share capital   1 288 876   1 288 876
Retained income   3 041 413   2 481 106
Total equity attributable to owners of the company   4 330 289   3 769 982
Lease obligation   9 059   10 919
Deferred tax   131 020   92 226
Provision   265 350   171 164
Share-based payment liability   12 518   8 490
Total non-current liabilities   417 947   282 799
Trade and other payables   840 039   862 594
Lease obligation   3 884   3 988
Current tax payable   52 073   5 565
Provision   4 345   18 997
Share-based payment liability   7 794   1 258
    908 135   892 402
Liabilities directly associated with the assets held for sale   24 261  
Total liabilities   1 350 343   1 175 201
Total equity and liabilities   5 680 632   4 945 183


    For the year ended
Summarised consolidated statement of profit or loss and other comprehensive income   31 December
  31 December
Revenue   7 939 061   8 062 656
Foreign exchange gain   68 310   104 305
Other expenses   (5 866 720)   (5 734 901)
Earnings before interest, taxation, depreciation, amortisation and impairment   2 140 651   2 432 060
Depreciation and amortisation   (219 473)   (111 185)
Impairment   (236)   (5 824)
Income from equity accounted investment   3 944  
Results from operating activities   1 924 886   2 315 051
Finance income   26 078   13 572
Finance expense   (1 487)   (2 502)
Income from equity accounted investment     614
Profit before taxation   1 949 477   2 326 735
Taxation   (539 467)   (653 070)
Total comprehensive income for the year   1 410 010   1 673 665
Basic earnings per share (cents)   56.4   66.8
Diluted earnings per share (cents)   56.4   66.8


    For the year ended 
Summarised consolidated statement of changes in equity    31 December
  31 December
Issued share capital – ordinary shares    24 991    25 107 
Shares repurchased and cancelled during the year        (116)
Balance at the end of the year (issued share capital)   24 991    24 991 
Share premium – ordinary shares    1 263 885    1 269 575 
Shares repurchased and cancelled during the year        (5 690)
Balance at the end of the year (share premium)   1 263 885    1 263 885 
Balance at beginning of the year    2 481 106    982 380 
Total comprehensive income for the year    1 410 010    1 673 665 
Dividends paid    (849 703)   (174 939)
Balance at the end of the year (retained earnings)   3 041 413    2 481 106 
Total equity for the end of the year    4 330 289    3 769 982 


    For the year ended 
Summarised consolidated statement of cash flows    31 December 
  31 December 
Profit before tax    1 949 477    2 326 735 
Depreciation and amortisation    219 473    111 185 
Effect of exchange rate fluctuations    49 623    (213 400)
Income from equity accounted investment    (3 944)   (614)
Finance income    (26 078)   (13 572)
Finance expense    1 487    2 502 
Impairment    236    5 824 
Movement in rehabilitation provision    11 478    18 547 
Other non-cash movement    4 223    1 329 
Profit on sale of property, plant and equipment    (650)   (116)
Fair value adjustment on provisionally priced revenue    63 933    (27 807)
Movement in long-term receivable    (25 219)   538 
Share grants vested    (2 284)   (1 232)
Share-based payment expense    12 848    8 869 
Net realisable value inventory adjustment    1 288    24 411 
Changes in work capital:         
Inventories    (721 650)   (242 908)
Trade and other receivables    622 565    (648 374)
Trade and other payables    (22 555)   225 627 
Cash generated from operating activities    2 134 251    1 577 544 
Interest received    23 666    11 615 
Interest paid    (3 358)   (2 123)
Taxation paid    (456 863)   (431 112)
Net cash generated from operating activities    1 697 696    1 155 924 
Acquisition of property, plant and equipment – sustaining    (466 396)   (448 149)
Acquisition of property, plant and equipment – expansionary    (17 841)   (42 086)
Proceeds from the sale of property, plant and equipment    697    366 
Movement in other long-term receivable    (14 229)   — 
Net cash utilised in investing activities    (497 769)   (489 869)
Payment for repurchase of shares        (5 774)
Costs incurred for the repurchase of shares    —    (32)
Repayment of capital portion on lease liabilities    (4 131)   (4 210)
Dividends paid    (849 703)   (174 939)
Net cash utilised in financing activities    (853 834)   (184 955)
Total cash movement for the year    346 093    481 100 
Cash at the beginning of the year    972 129    277 629 
Effect of exchange rate movement on cash balances    (49 623)   213 400 
Total cash at the end of the year    1 268 599    972 129