Directors' report

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 subsidiary 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 Pooling and Sharing 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, five chrome ore mines and three 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 (Pty) Ltd (Unicorn Chrome).

Listed below are the operations to which Merafe Ferrochrome has granted the right of use to the Venture:

On 5 June 2024, the Group received final regulatory approval from the Department of Mineral Resources and Energy for the sale of the Boshoek mine. All suspensive conditions of the sale were met on 20 June 2024. Prior to and up to the date of sale, Merafe Ferrochrome held a 100% ownership interest in the Boshoek mine.

The financial statements set out the financial results of the Group and Company and have been prepared using appropriate accounting policies, conforming to IFRS Accounting Standards as issued by the International Accounting Standards Board and the requirements of the Companies Act, supported by reasonable and prudent judgements where required.

Revenue was R8 443 million (2023: R9 244 million), driven by resilient chrome ore prices and higher sales volumes. Ferrochrome prices and volumes were lower than the previous year and the average ZAR:USD exchange rate was stronger in 2024. Merafe's attributable share of the Venture's EBITDA was R1 798 million (2023: R2 358 million), inclusive of R287 million in standing charges (2023: R346 million) and a R29 million foreign exchange gain (2023: R99 million). A R79 million inventory write-down was recorded (2023: R2 million) in addition to the Rustenburg Smelter retrenchments costs of R67 million (2023: Rnil).

After deducting corporate costs of R85 million (2023: R76 million), which include R15 million in cash-settled share-based payments (2023: R11 million), R3 million in corporate social investment (2023: R2 million), and R13 million in bonus provisions (2023: R11 million), Merafe achieved EBITDA of R1 731 million (2023: R2 545 million).

Waterval mine and Lydenburg smelter remained under care and maintenance, while the Boshoek mine was successfully divested in 2024. The Rustenburg smelter had been under care and maintenance from September 2023 during which period the Venture continued to pay full salaries to all permanent employees. The Venture embarked on an extensive stakeholder consultation process in terms of Section 189 of the Labour Relations Act from August 2024. Out of a total of 448 remaining affected employees, 241 employees were redeployed at other operations, while the remaining employees were retrenched (voluntarily or not).

Cost management remained a key focus. While inflation led to increased fixed costs and pricing pressure from chrome ore prices, reductions in reductant costs and power prices mitigated the overall impact, resulting in only a 2% year-on-year increase in production costs. Despite logistical challenges, projected shipment volumes were achieved. A significant accomplishment was the December 2024 finalisation of a 100MW solar power purchase agreement, furthering the Venture's decarbonisation and cost-optimisation strategies. The investment in Unicorn Chrome performed well, benefiting from resilient chrome ore prices. Collaboration with co-investors will continue to explore best ways to maximise this investment's value.

The Group concluded that the Boshoek smelter should be fully impaired resulting in an impairment write off of R574 million relating thereto at year end. This was in light of grounds pointing to the likely impairment of some of our smelting operations. This conclusion was reached after considering several critical factors which included the state of the ferrochrome market and the level of our operating costs.

The impact of China's substantial ferrochrome production increase (25% in 2024), exceeding stainless steel production growth, resulted in market oversupply, placing downward pressure on ferrochrome prices and impacting our smelting operations. Despite these challenges, Merafe delivered satisfactory overall results, though 2025 is anticipated to present increased challenges. Management is constantly evaluating strategies to enhance the business' resilience.

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

The Group had a cash balance of R1 795 million on 31 December 2024 (2023: R1 656 million). The Group's Revolving Credit Facility (RCF) of R300 million was unutilised at year end. Refer to note 27 for the disclosure on the Group's facilities and covenants associated with these facilities, including the Venture's facilities.

As stated above, the Group had a cash balance of R1 795 million and no debt at the reporting date and a positive cash balance and no debt as at 28 February 2025.

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 if the need arises. 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 R1 731 million and made a profit after tax of R667 million in the current year. Merafe Group and the Company maintain healthy cash balances per note 13 with access to banking and other lending facilities. The Group and Company's credit and liquidity risks have been assessed in notes 27.1 and 27.2. Having considered the Group and Company's key risks, current financial position, solvency and liquidity, debt levels, lending facilities available through the Venture, impairment review, as well as the Group and Company's financial budgets with their underlying business plans, the directors believe that the Group and Company have sufficient resources and cash flows to be able to continue as a going concern at least for the year ahead. The Group and Company's lending facilities are referenced in note 27.2.

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, among 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 6 March 2025, the Board resolved to declare a final dividend of 8 cents (2023: 22 cents) per ordinary share. This follows an interim dividend of 20 cents (2023: 20 cents) per share, thus bringing the total dividend for the year ended 31 December 2024 to 28 cents (2023: 42 cents) per share and amounts to 65% of headline earnings.

The full details of the authorised and issued share capital of the Company are set out in note 14 of the annual financial statements. No shares were issued in 2024.

Details of transactions with directors and key management are detailed in note 33. The Board comprised of the following directors at the date of this report:

The following shareholders were the registered holders of 5% or more of the issued ordinary shares in the Company at 31 December 2024:

• Glencore Netherlands B.V. - 28.82%; and
• Industrial Development Corporation of South Africa Limited - 21.88%.

The analysis of the ordinary shareholding is given on Shareholder analysis.

Refer to note 34 for the beneficial interests of directors in shares of the Company and note 33 for transactions with executive and non-executive directors.

Details of material interests in a subsidiary company, associate and joint arrangements are presented in the annual financial statements in notes 5 and 6.

The interests of the Group in the profits and losses of its subsidiary, associate and joint arrangements for the year ended 31 December 2024 are as follows:

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.

The Group recognised an impairment loss of R575 million against specific assets during the current year (2023: Rnil). Refer to notes 3 and 37 in the annual financial statements.

Deloitte & Touche were re-elected as the Company's independent external auditor on 15 May 2024 in accordance with section 90 of the Companies Act and will again be proposed for re‑election in respect of the 2025 financial year at the forthcoming Annual General Meeting (AGM) of shareholders.

The Audit and Risk Committee's report is presented on Report of the Audit and Risk Committee.

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

Electricity supply and pricing have been concerns for several years now although Eskom managed to bring stability to supply for most of 2024. The Negotiated Pricing Agreements with Eskom have brought some pricing relief to our business. While various national stakeholders are exploring ways of addressing the electricity supply challenges, the Venture also continues exploring other power sources - particularly green energy. The Venture has made significant progress in this regard, with the first of our green energy projects concluded in December 2024. This will see the development of a 100MW plant, via a Power Purchase Agreement with Pele Green Energy, over the coming two years.

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 to determine the Group's provisions for income taxes. The income tax and annual assessments are subject to examination within prescribed periods by the SARS.

SARS finalised the audit of the previously reported transfer pricing matter on 30 October 2024 and adjusted (increased) the Group's tax assessments for 2016 and 2017. Pursuant to the finalisation of the audit, SARS issued additional assessments on 30 October 2024 levying additional income tax, dividends tax, understatement penalties, and interest in the aggregate amount of R406 million against the Group for the 2016 and 2017 years.

The Group disagrees with the additional assessments and will lodge an objection against the additional assessments. The Group has applied for a full suspension of payment of the disputed tax debt, pending its objection and Tax Court appeal process.

Management continues to rely 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, due to the dispute, 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.

Business Review

The Business Review follows sustained pressure from the prolonged economic downturn in the global ferrochrome market, which pressures are not expected to ease in the near to medium term. Should the Venture not be able to identify viable solutions to sustain profitability, it may have to consider suspension of certain ferrochrome furnaces in May 2025.

Contingent liability

Note 31 of the annual financial statements provides details of the pending transfer pricing matter with SARS. While the Group had applied for full suspension of payment, communication was received from SARS post year-end, partially suspending the payment. The amount which has not been suspended and therefore payable is R232 million. Pursuant to section 9 of the Tax Administration Act, the Company has requested SARS reconsider its decision to partially decline the request for suspension of payment.

Update regarding the chrome ore operations

The Venture has entered into a mutually beneficial enhancement to its historical agreement with Lonmin plc, as well as a new chrome management agreement with, inter alia, Sibanye Stillwater Limited. Refer to the SENS published on 19 February 2025.

It is anticipated that the new agreement will result in increased feed and improved recoveries, thereby optimising production yields and reducing operational costs across all relevant chrome recovery plants.

On 6 March 2025, the Board resolved to declare a final dividend of 8 cents (2023: 22 cents) per share for the 2024 financial year. The total gross cash dividend for the year amounted to 28 cents per share. The dividend will be paid out of income reserves.

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

The shareholders passed all special resolutions at the 2024 AGM held on 15 May 2024.

The next AGM of the shareholders of the Company will be held (subject to any adjournment or postponement) on Tuesday, 13 May 2025.

The Group's environmental rehabilitation costs are in accordance with the National Environmental Management Act No. 107 of 1998 (NEMA) 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 2021. These had not yet come into effect at the reporting date.

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 Mineral Reporting Codes for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves 2016 edition and in compliance with the JSE Listings Requirements.