LEADERSHIP REVIEWS

Chief executive officer's strategic review

Our strategy remains unchanged and we continue to focus on ferrochrome and chrome ore production and maximising cash flows from the Venture. We continue to evaluate growth opportunities together with our Venture partner.

ZANELE MATLALA
Chief Executive Officer

Safety

Regrettably, there were two fatalities at the Venture's smelters, Boshoek and Rustenburg, in the second half of the year. Another fatality occurred at Wonderkop smelter in January 2024. Our condolences are extended to their families, friends and colleagues.

We remain committed to ensuring the safety of the Venture's employees by implementing safety programmes such as SafeWork 2.0 with the aim of improving safety standards.

Financial review

Merafe achieved a record profit of R1 753 million in a year full of challenges.

Ferrochrome revenue increased by 1% despite lower volumes sold and lower realised prices as a result of weaker market conditions. However, chrome revenue increased significantly driven by both sales volume and realised price increases.

Operational review

Merafe's attributable ferrochrome production decreased by 22% from 384kt to 300kt for the year ended 31 December 2023. The reduction is mainly due to the planned pullback in production over the winter months. Only the Lion smelter was operating during this high electricity demand season of elevated power prices. The operations were also impacted, to a lesser extent, by stage 3 and 4 electricity load curtailments for the year ended 2023.

Lydenburg smelter, Rustenburg furnace 6 and Waterval Mine remain under care and maintenance for the foreseeable future.

The total unit cost of ferrochrome production increased by 28% from December 2022. The increase was driven by general inflation, higher chrome ore market cost and higher reductant costs.

Reductant costs were impacted by higher market prices and inadequate local supply, which necessitated some imports of coke.

Logistics challenges continue with not much improvement in rail availability. The chrome industry and Transnet Freight Rail continue to collaborate on improving rail performance.

Eskom

Reliability of electricity supply and above inflation cost increases remain key risks for our business. Electricity tariffs increased by 18.65% effective 1 April 2023 and NERSA has approved tariff hikes of 12.75% effective 1 April 2024.

NERSA has approved the Negotiated Pricing Agreement (“NPA”) application between Glencore/Merafe and Eskom. The parties are in the process of finalising the agreements. This should facilitate price and planning predictability for the JV smelters.

Renewable energy projects

As part of the Venture's strategy to ensure stable and consistent supply at optimal cost of electricity to the operations, both off-site and on-site projects are being pursued.

Off-site: Negotiations with independent power producers are at advanced stages with the first 100MW solar project expected to achieve financial close in H1 2024. An implementation pipeline is being developed in order to ensure carbon reduction targets are achieved.

On-site: Project development has commenced at various operations to maximise the generation potential and enable the development of a phased implementation plan.

Eastern PGMs plant

In the third quarter of the 2023 financial year, the JV partners reached an agreement for the PGMs plant, located at Thorncliffe Mine (Eastern PGMs plant), to be contributed to the Venture. The inclusion of this plant has resulted in Merafe’s attributable PGMs production volume increasing from 3 170 oz to 6 443 oz.

Market review

Chinese ferrochrome production increased by 14% year-on-year, outpacing domestic demand. The introduction of additional low-cost capacity in China has heightened pressure on global alloy conversion spreads, resulting in production cutbacks in other regions worldwide. Ferrochrome demand outside of China experienced a year-on-year decrease as stainless steel melt rates in the EU and the US reached multi-year lows.

Chrome ore prices remained elevated during 2023, up 24% year-on-year, due to persistent logistical constraints out of South Africa and constrained global supply growth.

The average European ferrochrome benchmark price was US cents 156 per pound in 2023, which represents a decrease of 14.5% from the 2022 average price.

Strategic review

Our strategy remains unchanged and we continue to focus on ferrochrome and chrome ore production and maximising cash flows from the Venture. We continue to evaluate growth opportunities together with our Venture partner.

Outlook

Uncertainties, fuelled by geopolitical tensions are likely to persist.

With global inflation easing, we expect interest rates cuts in the latter half of the year, which could stimulate demand.

Stainless steel production is expected to increase by 5% in 2024, which should incentivise ferrochrome production.

Production costs are expected to remain high but softer than 2023.

Ferrochrome prices are expected to be weaker on the back of softer production costs.

ZANELE MATLALA

Chief Executive Officer | 15 March 2024

Key market indicators

Global stainless steel production (mt)

Global ferrochrome demand (mt)

Global stainless steel production (%)

Global ferrochrome demand (%)

Global stainless steel production (%)

Global ferrochrome demand (%)

Global ferrochrome production (mt)

UG2 Merchant prices (USD/t)

Chrome ore imports into China (mt)

Ferrochrome Merchant prices 49%–70% (USc/lb)*

* Series replaced by 48%–63% from mid May 2021

Note: The source of information in our operating context, and chief executive officers strategic review in this report is CRU. This market information is continually updated by CRU. Such updates may amend previous information or projections. To the extent that there is any significant or material change to information provided by CRU and used in this or previous reports then this will be stated.

European benchmark ferrochrome price (USc/lb)