Directors' report

for the year ended 31 December 2015

1.

Nature of business

The company, through its wholly-owned ultimate subsidiary, Merafe Ferrochrome and Mining Proprietary Limited (Merafe Ferrochrome) and through a pooling and sharing venture with Glencore Operations South Africa Proprietary Limited (Glencore), participates in chrome mining and the beneficiation of chrome ore into ferrochrome. The Glencore-Merafe Chrome Venture (Venture) operates five ferrochrome smelters, twenty-two ferrochrome furnaces and nine mines, situated in the North-West, Limpopo and Mpumalanga Provinces of South Africa. Merafe Ferrochrome’s share of the earnings before interest, taxation, depreciation and amortisation (EBITDA) is 20.5%. The Venture comprises assets to which both Glencore and Merafe Ferrochrome have granted the right of use.

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

Ferrochrome Smelters Chrome mines UG2 plants and pelletisers
    Asset   Merafe Ferrochrome’s interest     Asset   Merafe Ferrochrome’s interest     Asset   Merafe Ferrochrome’s interest  
  Wonderkop smelter (furnaces 5 and 6)   50%   Horizon mine*   100%   Impala Kanana UG2 plant   100%  
  Boshoek smelter   100%   Boshoek mine   100%   Lonmin UG2 plants   20.5%  
  Lion I smelter   20.5%   Kroondal and Wonderkop mine   20.5%   Mototolo UG2 plant   20.5%  
  Lion II smelter   20.5%   Helena mine   20.5%   Bokamoso pelletising plant   20.5%  
          Magareng mine   20.5%   Motswedi pelletising plant   100%  
                  Tswelopele pelletising plant   20.5%  

* Disposed of during 2015
2.

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, supported by reasonable and prudent judgements where required.

Merafe Ferrochrome’s share of EBITDA from the Venture is accounted for at 20.5%.  In addition to Merafe Ferrochrome’s share of EBITDA from the Venture, corporate expenses, interest on debt, depreciation and interest received are accounted for in order to determine earnings before taxation of the group.  Refer to Note 1.3.2, Basis of consolidation – Transactions with the Venture, for further information regarding the accounting policy for Merafe Ferrochrome’s interest in the Venture.
3.

Loans and borrowings

As at 31 December 2015, R559 million of the ABSA and Standard Bank facility was utilised and the remaining R191 million was available and unutilised.
4.

Venture projects

Production from the Lion II furnaces commenced in the first half of 2014.  The plant reached full production in mid 2015.
5.

Going concern

The directors believe that the company has sufficient resources and expected cash flows to continue as a going concern for the year ahead.
6.

Dividend policy

The company has a hybrid dividend policy that has features of a stable dividend policy and a residual dividend policy.  The company intends to pay a stable dividend at least once a year taking into account 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 dependent on the company’s financial position, future cash requirements, future earning prospects, availability of distributable reserves and other factors.  Dividends are recognised when they are declared by the board of the company.
7.

Ordinary dividends

An interim dividend of R25 million was declared and paid during the 2015 year.  A final dividend of R30 million was declared for the year ended 31 December 2015.
8.

Share capital

The full details of the authorised and issued share capital of the company are set out in note 6 to the annual financial statements. Merafe did not issue any shares for cash or effect any share repurchases under a general or specific authority.
9.

Changes to Directorate and Company Secretary

The following changes to the Board were effective during the period:

• B McBride, S Phiri and M Mamathuba resigned effective 2 March 2015
• B Harvey was appointed on 2 March 2015 and resigned effective 28 April 2015
• Z Van Der Walt resigned effective 7 March 2016

S Blankfield was appointed effective 13 May 2015 and K Bissessor was appointed effective 1 January 2015.

The Board comprised of the following Directors at 8 March 2016:

• Chris Molefe (Chairperson), Belese Majova, Abiel Mngomezulu, Mpho Mosweu, Karabo Nondumo, Shaun Blankfield, Zanele Matlala, Kajal Bissessor.
10.

Major shareholders

The following shareholders were the registered holders of 5% or more of the issued ordinary shares in the company at 31 December 2015:

• Glencore (Nederland) B.V. – 28.68%;
• The Industrial Development Corporation of South Africa Limited – 21.78%;

Royal Bafokeng Resources Holdings (Proprietary) Limited disposed of its 28.68% shareholding to Glencore (Nederland) B.V. effective 29 April 2015.
11.

Directors’ interests in Merafe Resources Limited

Refer to Note 22.2 for the beneficial interests of directors in shares of the company.
12.

Details of investments in subsidiaries and structured entities

Refer to Note 3 for details of investments in subsidiaries and structured entities.
13.

Property, plant and equipment

There were no changes in the nature of property, plant and equipment or in the policy regarding their use during the year.  Management is of the opinion that the carrying value of property, plant and equipment is reflected at less than its recoverable amount.
14.

Events after the reporting date

Refer to note 26.

15.

Special Resolutions

The following special resolutions were passed by the shareholders at the 2015 Annual General Meeting:

• Special Resolution Number 1 – Approval of non-executive directors’ fees
• Special Resolution Number 2 – Loans or other financial assistance to related or inter-related Companies