Merafe Resources Limited - Integrated Annual Report 2015

MANUFACTURED CAPITAL

Manufactured capital in the mining context relates to the mining and smelting process and how it is conducted and the assets, which are being mined and beneficiated. It is important to an organisation’s sustainability because its efficient use allows an organisation to be flexible and innovative and increases the speed at which it delivers.

KEY POINTS     Lion II fully ramped up Merafe attributable ferrochrome production 377kt (2014: 334kt) Operating capacity utilisation of 87% (2014: 84%)   Excellent cost performance in 2015   Nil fatalities   Improvement in safety   Successful wage negotiation Overview Production volumes were 13% higher than the similar period during 2014 mainly due to the contribution from Lion II that added additional production capacity. Total production at the other smelters remained similar to the previous period in spite of challenges like Eskom transformer failures and electricity supply constraints that adversely affected production volumes and damaged equipment.

OUR OPERATIONS

	Year ended 31 December 2015		Year ended 31 December 2014
Attributable production (kt)	377		334

Production costs were well managed and contained as a result of the benefits of the additional low cost volumes from Lion II and various ongoing cost saving initiatives.

Safety
The Venture continues to place maximum focus on safety. In 2015 there were no fatalities at the operations and the TRIFR reduced to 4.17 (2014: 4.63). See Human capital of this report for a detailed summary of the Venture’s approach and performance in respect of safety and health for 2015.

Eskom
The request for a partial re-opener of the Multi Year Price Determination (MYPD3) from Eskom and an additional 2 c/kWh electricity levy was not allowed by the National Energy Regulator. This would have resulted in an effective electricity price increase of 25.5%. Considering that electricity costs are a material plant production cost, the impact could have been significant.

Electricity supply constraints during the larger part of 2015 had an adverse impact on production volumes and damages to equipment. However, through close cooperation with Eskom and through participation with their demand response programme these influences were managed and the impacts were restricted.

Successfull wage negotiations
We had successful wage negotiations with different unions at the smelters and none of the operations were adversely affected by industrial action in 2015.

Chrome ore production
Saleable chrome ore production was 10% less than the previous year due to less run of mine (ROM) material available. This was due to industrial action, section 54 stoppages, power interruptions and community unrest. UG2 production volumes in 2015 were increased when compared to the prior year when there was the prolonged strike in the platinum sector.

Outlook
The Venture's investments in energy efficient projects like Lion phases I & II, Bokamoso and Tswelopele have shown to be extremely beneficial. Over the past decade the average energy efficiency of the PSV smelters improved by more than 25%. During 2015 two South African producers were placed on business rescue while the PSV not only survived but generated healthy returns for the shareholders. This benefit will increase with future electricity price increases.

Dr Jurg Zaayman
General Manager
Merafe Chrome

Power and ore consumption efficiencies*

* The decrease in consumption efficiencies in 2014 was due to the startup of Lion II and the use of non-optimal ore mixes during the strike in the platinum sector

The Glencore-Merafe Chrome Venture’s operations

	Ferrochrome plants	Capacity	Technology	Mines
	Western Limb (North West province)
	Wonderkop	553 000 tpa FeCr	Bokamoso pelletising and sintering plant using Outotec technology	Kroondal, Waterval and Marikana
		6 furnaces	Conventional semi-closed furnaces
	Rustenburg	430 000 tpa FeCr	Tswelopele pelletising and sintering plant using Outotec technology	Kroondal, Waterval and Marikana
		6 furnaces	Conventional semi-closed furnaces
	Boshoek	240 000 tpa FeCr	Motswedi pelletising and sintering plant using Outotec technology	Waterval, Kroondal and Boshoek
		2 furnaces	Closed furnaces
	Eastern Limb (Mpumalanga and Limpopo provinces)
	Lydenburg	396 000 tpa FeCr	Premus – kilns	Thorncliffe, Helena and Magareng
		4 furnaces	Three closed furnaces and one semi-closed furnace
	Lion Phase I	360 000 tpa FeCr	Premus – kilns	Thorncliffe, Helena and Magareng
		2 furnaces	Closed furnaces
	Lion Phase II	360 000 tpa FeCr	Premus – kilns	Thorncliffe, Helena and Magareng
		2 furnaces	Closed furnaces

The Venture has access to various UG2 plants, in the Western Limb including Eland, EPL, Kanana, Kl, K2, K4 and Rowland, and Mototolo in the Eastern Limb.

See Human capital of this report for details of industrial action, our approach and performance to safety and health.