Directors' report

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
  Asset Merafe
  Asset Merafe
Wonderkop smelter (furnaces five and six) 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 sme 20.5%   Helena mine 20.5%   Bokamoso pelletising plant 20.5%  
      Magareng mine 20.5%   Motswedi pelletising plant 100%  
            Tswelopele pelletising plan 20.5%  
* Disposed during 2015

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 of the annual financial statements – Basis of consolidation – Transactions with the Venture, for further information regarding the accounting policy for Merafe Ferrochrome’s interest in the Venture.

Loans and borrowings

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

Venture projects

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

Mining rights and mining operations

The directors are satisfied that there are no foreseen material risks relating to the resources and reserves of the Venture and the ability of the Venture to conduct its mining operations. See the abridged mineral resources and reserves statement and the detailed resources and reserves statement on our website.

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.

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.

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.

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.

See Manufactured capital for a table on the Venture’s plants, technology and mines and
Abridged mineral resources and mineral reserves statement further information on the reserves and resources of the Venture.
See our online integrated report for 2015 for our annual financial statements


Changes to the Board effective during the period ending 31 December 2015 and from 31 December 2015 to 8 March 2016 are set out in the Directorate section of this report.

At 8 March 2016 the Board consisted of the following directors: Chris Molefe (Chairperson), Belese Majova, Abiel Mngomezulu, Mpho Mosweu, Karabo Nondumo, Shaun Blankfield, Zanele Matlala, Kajal Bissessor.

During the period under review, no contracts were entered into in which directors and officers of the Company had an interest and which could affect the business of the Group.

Non-executive directors are remunerated periodically for their contribution to the Board. Executive directors do not receive Board fees in addition to their remuneration. Refer to note 22.1 of the annual financial statements for a detailed report on directors’ remuneration prepared in accordance with the JSE Limited Listings Requirements and Companies Act.

Service contracts of directors and prescribed officers

Merafe has not entered into any contract other than the normal employment service contracts with executive directors and other prescribed officers.

Significant agreements

Pooling and Sharing Venture Agreement and addendums to the agreement
The Venture Agreement, which was signed in July 2004, governs the pooling and sharing Venture between Merafe Ferrochrome and Glencore Operations South Africa Proprietary Limited. The respective assets of the two companies are pooled to form the world’s largest ferrochrome producer. This agreement sets out the terms and conditions under which the Venture will operate.

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 BV – 28.68%;
• The Industrial Development Corporation of South Africa Limited – 21.83%;

Directors’ interests in Merafe Resources Limited

According to information available after reasonable enquiry, the interests of the directors and their families in the shares of the Company at 31 December 2015 are set out in note 22.2 of the annual financial statements and were as follows:

  2014   2015
ZJ Matlala 1 000 000     2 012 305    
B Majova   62 610       62 610  
K Bissessor     7 000 000    
Total 1 000 000   62 610   2 712 305   62 610  

There has been no changes to the directors' interests since the end of the financial year and the date of this report and the release of the annual financial statements.

Details of investments in subsidiaries and structured entities

Refer to Note 3 of the annual financial statements for details of investments in subsidiaries and structured entities.

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.

Events after the reporting date

None: Refer to Note 26 of the annual financial statements.

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


The Audit and Risk Committee reports that it has adopted formal terms of reference as its Audit and Risk Committee charter, and that it has discharged all of its responsibilities for the current financial year, in compliance with the charter.

The Audit and Risk Committee is satisfied that an adequate system of internal control is in place to reduce significant risks faced by the Group to an acceptable level, and that these controls have been effective throughout the period under review. The system is designed to manage, rather than eliminate, the risk of failure and to maximise opportunities to achieve business objectives. This can provide only reasonable, but not absolute assurance. In addition, the Audit and Risk Committee reviews the financial control systems, the accounting systems and sets the Group’s policy on non-audit services provided by the external auditors. It also monitors compliance with legal requirements, assesses the performance of financial management, approves external audit fees, budgets, plans and performance, and conducts an annual review and assessment of the business risks the Group faces.

As required by the JSE Limited Listings Requirements 3.84(h), the Audit and Risk Committee has satisfied itself that Kajal Bissessor, the Chief Financial Officer during the current financial year has the appropriate experience and expertise to fulfil the responsibilities of the finance function.

The approval of the Integrated Report is also the responsibility of the Audit and Risk Committee. The Committee members are appointed annually by the shareholders at the Annual General Meeting.

The Audit and Risk Committee has evaluated the consolidated and separate financial statements of Merafe Resources Limited for the year ended 31 December 2015 and based on the information provided to the Audit and Risk Committee, considers that it complies, in all material respects, with the requirements of the various Acts governing disclosure and reporting in the consolidated and separate financial statements.

The Audit and Risk Committee has evaluated the independence of the external auditors and the Audit and Risk Committee is satisfied that the external auditors have remained independent. The Audit and Risk Committee therefore recommends the adoption of the consolidated and separate financial statements by the Board.

Karabo Nondumo CA(SA)
Chairperson – Audit and Risk Committee
8 March 2016