Directors' report for the year ended 31 December 2023

The directors report for the year ended 31 December 2023 is set out in the annual financial statements and an abridged version is set out below.

Nature of business

Merafe was incorporated in South Africa with interests in the ferrochrome and chrome industry. The activities of the Group are undertaken through the Company and its principal subsidiaries and joint arrangements. The Group operates in South Africa. Merafe holds 100% of the issued share capital in Merafe Ferrochrome and Mining Proprietary Limited (Merafe Ferrochrome) which through a pooling and sharing venture with Glencore Operations South Africa Proprietary Limited (GOSA), participates in chrome mining and the beneficiation of chrome ore into ferrochrome. The Glencore-Merafe Chrome Venture (Venture) operates five ferrochrome smelters (including pelletising and sintering plants), twenty-two ferrochrome furnaces, PGM processing plants in the Western and Eastern limbs of the Bushveld Complex, six chrome ore mines and five UG2 plants, situated in the North West, Limpopo and Mpumalanga Provinces of South Africa. The Venture is one of the largest ferrochrome producers in the world with an installed capacity of 2.3 million tonnes per annum. Merafe Ferrochrome's share of the earnings before interest, taxation, depreciation and amortisation (EBITDA) is 20.5%. Merafe Ferrochrome shares in the revenue, expenses and liabilities at 20.5%. The Venture comprises assets that both GOSA and Merafe Ferrochrome have granted the right of use but own in different proportions. Merafe Ferrochrome through the Venture agreement, has a 20.5% interest in Unicorn Chrome Proprietary Limited (Unicorn Chrome). Listed below are the operations to which Merafe Ferrochrome has granted the right-of-use to the Venture:

Ferrochrome smelters   Chrome mines   UG2 plants and pelletisers   PGM plant
Asset   Merafe Ferrochrome's interest   Asset   Merafe Ferrochrome's interest   Asset   Merafe Ferrochrome's interest   Asset   Merafe Ferrochrome's interest
Wonderkop smelter (furnaces 5 and 6)   50%   Boshoek Mine   100%   2 Impala Kanana UG2 plants   100%   Western PGM plant   20.5%
Boshoek smelter   100%   Kroondal and Wonderkop Mine   50%   3 Lonmin UG2 plants   20.5%   Eastern PGM X plant   50.0%
Lion I smelter   20.5%   Helena Mine   20.5%   Bokamoso pelletising plant   20.5%
Lion II smelter   20.5%   Magareng Mine   20.5%   Motswedi pelletising plant   100%
  Marikana   26%   Tswelopele pelletising plant   20.5%
  Unicorn Chrome   20.5%

Effective 6 September 2023, Merafe acquired 0% ownership and 20.5% participation rights in the Eastern PGM plant and 50% ownership and 20.5% participation rights in the second PGM X plant located in the eastern chrome mine operations. The new joint operation relates to all PGM-bearing material produced pursuant to Eastern Mining Right included in the Venture.

Group financial results

The financial statements set out the financial results of the Group and Company and have been prepared using appropriate accounting policies, conforming to International Financial Reporting Standards and the requirements of the Companies Act of South Africa, supported by reasonable and prudent judgements where required.

Revenue was R9 244m (2022: R7 939m) supported by high chrome ore prices and a weaker ZAR:USD exchange rate. Although ferrochrome volumes sold were lower than in 2022, chrome ore volumes sold were much higher. Merafe's portion of the Venture's EBITDA for the year ended 31 December 2023 is R2 358m (2022: R2 228m). The EBITDA includes Merafe's attributable share of standing charges of R346m (2022: R108m) and a foreign exchange gain of R99m (2022: R68m). The Company wrote down inventory by R2m during the year (2022: R1m).

After accounting for corporate costs of R76m (2022: R65m), which include a cash-settled share-based payment expense of R11m (2022: R13m), Merafe achieved EBITDA of R2 545m (2020: R2 141m). Corporate costs also include corporate social investment expenses of R2m (2022: R3m) and a bonus provision of R11m (2022: R12m).

Waterval Mine and Lydenburg smelter are still under care and maintenance. Boshoek Mine, also under care and maintenance, is being sold conditional upon final regulatory approvals. Boshoek Mine continues to be classified as held for sale in terms of IFRS 5.

When we thought that 2022 was the worst load-shedding year to date, 2023 proved beyond doubt that it deserved that honour. In November 2023, Martin Creamer's Engineering News reported that "just shy of 16 000 GWh of energy had been shed in 2023, which is double the 8 000 GWh of 2022 and eight times the 2 000 GWh of 2021". The impact on the economy has been dire as evidenced by, South Africa's low growth rate, amongst other things. Once again, although affected by the resultant load curtailments, the Venture has been sufficiently nimble in its approach and used the downtime as efficiently as possible. Downtime, including the period of planned shutdown in winter, was used to attend to plant maintenance. Costs remain a concern for the Venture, and these remain tightly managed by the business. Mainly due to high chrome ore prices, increased reductant costs and a higher fixed costs absorption rate, unit production costs increased by 28% compared to the prior year. Logistics were yet again a challenge, not only for the Venture, but for the country in general. Our team has had to be alert and sharp-witted to ensure that products reach our customers despite these challenges.

Two highlights for the year were the contribution of the Eastern PGM operations to the Venture and the approval of our application for a Negotiated Pricing Agreement (NPA) with Eskom. The contributed PGM operations add to the existing Western operations and increase the scale of the PGM business, thereby further cementing our economies of scope. The NPA, once finalised, will give us pricing certainty for the term of the agreement.

The high chrome ore prices and improvements in operations have led to our investment in Unicorn Chrome rendering its best performance to date. The Venture will continue to work with our co-investors in the ultimate asset to optimise its value.

That the business was able to produce a great set of results despite the challenges is a testament to the resilience of our business and the quality of our management team. Indications are that 2024 will see a slowdown in pricing and a narrowing of margins, thereby putting the Venture under pressure. With the foundation laid, Merafe plans to build and solidify the 2023 gains.

Full details of the financial position and cash flows of the Group and Company are set out in the consolidated and separate annual financial statements.

Loans and borrowings

The Group had a cash balance of R1 656m on 31 December 2023 (2022: R1 269m). Although R200m thereof was used to pay the 2023 interim dividend, the Group's Revolving Credit Facility (RCF) of R300m was unutilised at year-end. Refer to note 27 for the disclosure of the Group's facilities and for covenants associated to these facilities, including the Venture's facilities.

Going concern

As stated above, the Group has a cash balance amounting to R1 656m and no debt at the reporting date and a cash balance of R2 228m and no debt as of 29 February 2024.

The Group benefits from unutilised debt facilities through its 20.5% share of the Venture, which the Board considers sufficient to sustain the business for at least the next 12 months in the event that need arose. The Group's forecasts and projections of its short- to medium-term profitability, taking account of likely changes in production and performance, show that the Group will be able to operate within the level of its cash resources and facilities for at least 12 months from the approval date of the annual financial statements.

The Group generated EBITDA of R2 545m and made a profit after tax of R1 753m in the current year. Merafe Group and the Company maintain healthy cash.

Dividend policy and ordinary cash dividend

The Company has a hybrid dividend policy with features of a stable and residual dividend policy. The Company intends to pay a dividend of at least 30% of headline earnings at least once a year taking into account, amongst other things, the annual financial performance, expansionary projects and economic circumstances prevailing at the time. In addition, in any given year, the directors may consider an additional distribution in the form of special dividends and share buy-backs dependent on the Company's financial position, future cash requirements, future earnings prospects, availability of distributable reserves and other factors. Dividends are recognised when they are declared by the Board of the Company.

On 15 March 2024, the Board declared a final dividend of 22 cents (2022: 13 cents) per ordinary share. This follows an interim dividend of 20 cents (2022: 12 cents) per share, thus bringing the total dividend for the year ended 31 December 2023 to 42 cents (2022: 25 cents) per share and amounts to 70% of headline earnings.

Share capital

The full details of the authorised and issued share capital of the Company are set out in note 14 to the annual financial statements. No shares were issued in 2023.


Details of transactions with directors and key management are detailed in note 33 of the annual financial statements. The Board composition during the year under review is set out in directors' report in the annual financial statements and in governance in this report. There have been no changes to the directorate for the year under review.

Major shareholders

The following shareholders were the registered holders of 5% or more of the issued ordinary shares in the Company at 31 December 2023:

  • Glencore Netherlands B.V. – 28.82%;
  • Industrial Development Corporation of South Africa Limited – 21.88%; and
  • Ninety One – 6.21%.

The analysis of the ordinary shareholding is given in shareholder information in the annual financial statements and report of the audit and risk committee in this report.

Directors' interests in Merafe Resources Limited

Refer to note 34 of the annual financial statements and remuneration report  of this report for the beneficial interests of directors in shares of the Company as well as note 33 of the annual financial statements for transactions with key management personnel and non-executive directors.

Details of investments in subsidiaries, associates and joint arrangements

Details of material interests in subsidiary companies, associates and joint arrangements are presented in the annual financial statements in note 5 and note 6. The interests of the Group in the profits and losses of its subsidiaries, associates and joint arrangements for the year ended 31 December 2023 are as follows:

Total profits after income tax 1 769 307 1 422 541
Total share of income from equity accounted investments 19 083 3 944
Total 1 788 390 1 426 485

Property, plant and equipment

There was no change in the nature of the property, plant and equipment of the Group or in the policy regarding their use during the year. During the current year, there was no impairment loss recognised by the Group (2022: R0.24m) against the assets, refer to note 3 and note 37 to the annual financial statements.

Independent external auditor

Deloitte and Touche were re-elected as the Company's independent external auditor on 17 May 2023 in accordance with section 90 of the Companies Act and will again be proposed for re‑election in respect of the 2024 financial year at the forthcoming annual general meeting (AGM) of shareholders.

Audit and Risk Committee

The Audit and Risk Committee's report is presented in the annual financial statements and report of the audit and risk committee in this report.

Related party transactions

Details of related party transactions are set out in note 32 to the annual financial statements.

Electricity challenges

Electricity supply and pricing have been concerns for several years now. This is why developments on the NPA front have been welcomed by our business, particularly on the pricing front. While various national stakeholders are exploring ways of addressing the electricity supply challenges, the Venture also continues to explore other sources of power – in particular, green energy. The Venture has made significant progress in this regard and we expect to conclude the first of our green energy projects in the first half of 2024.

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 judgment is required in determining the Group's provisions for income taxes. The income tax and annual assessments are subject to examination within prescribed periods by the South African Revenue Service (SARS).

On 31 December 2023, the previously reported transfer pricing matter with SARS was ongoing. The Group has a deadline of 30 April 2024 by which to respond to SARS' letter of audit findings for the 2016 and 2017 years of assessment, which the Group is contesting with SARS. Management still relies on opinions obtained 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 its outcome remains uncertain and any potential tax exposure cannot be reliably estimated. Accordingly, the consolidated financial statements have made no adjustment for any effects on the Group.

Events after the reporting period

On 15 March 2024, the Board resolved to declare a final dividend of 22 cents (2022: 13 cents) per share for the 2023 financial year. The total gross cash dividend for the year amounted to 42 cents per share. The dividend will be paid out of income reserves. On 18 January 2024, the Group announced the appointment of Mr Ditshebo Stephen Phiri as an independent non-executive director of the Board effective 1 February 2024.

The directors are not aware of any other material event which occurred after the reporting date and up to the date of this report is authorised that may require adjustment or disclosure in these annual financial statements.

Special resolutions

All special resolutions were passed by the shareholders at the 2023 AGM held on 17 May 2023.

The next AGM of the shareholders of the Company will be held (subject to any adjournment or postponement) on Wednesday, 15 May 2024.

Environmental and decommissioning provision

The Group's environmental rehabilitation costs are in accordance with the National Environmental Management Act (NEMA) No. 107 of 1998, and Regulation No. 1147 of 20 November 2015. There are proposed amendments to the 2015 financial provisioning regulations of the same Act, which were gazetted on 27 August 2022. These had not yet come into effect at the reporting date.

Mining rights and mining operations

The directors are satisfied that there are no foreseeable material risks relating to the Resources and Reserves of the Venture and the ability of the Venture to conduct its mining operations. The abridged Mineral Resources and Reserves statement and the detailed Resources and Reserves statement have been signed off by a competent person in accordance with the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (The SAMREC Code) 2016 Edition.

CEO's and FD's responsibility statement

Each of the directors, whose names are stated below hereby confirm that:

(a) the annual financial statements set out in independent auditor's report , fairly present in all material respects the financial position, financial performance and cash flows of Merafe Resources Limited in terms of IFRS;
(b) to the best of our knowledge and belief, no facts have been omitted or untrue statements made that would make the annual financial statements false or misleading;
(c) internal financial controls have been put in place to ensure that material information relating to Merafe Resources Limited and its consolidated subsidiaries have been provided to effectively prepare the annual financial statements of Merafe Resources Limited;
(d) the internal financial controls are adequate and effective and can be relied upon in compiling the annual financial statements, having fulfilled our role and function as executive directors with primary responsibility for implementation and execution of controls;
(e) where we are not satisfied, we have disclosed to the Audit and Risk Committee and the auditors any deficiencies in design and operational effectiveness of the internal financial controls and have taken steps to remedy the deficiencies; and
(f) we are not aware of any fraud involving directors.

Chief Executive Officer

15 March 2024

Financial Director

15 March 2024

Approval of the consolidated and separate annual financial statements of Merafe Resources Limited

The consolidated and separate financial statements of Merafe Resources Limited were approved by the Board on 15 March 2024 and signed by:


15 March 2024

Chief Executive Officer

15 March 2024

The CEO's and FD's responsibility statement as required by paragraph 3.84(k) of the JSE Listings Requirements is set out in full and in the annual financial statements which forms part of our online Integrated Annual Report for 2023.

See manufactured capital of this report for a table on the Venture's plants, technology and mines and natural capital for further information on the reserves and resources of the Venture.

See our online Integrated Annual Report for 2023 for our annual financial statements.