Commentary

The summarised consolidated financial results for the year ended 31 December 2024 are presented below.

Rounding of figures may result in minor computational discrepancies of the tabulations.

Merafe’s revenue and operating income are primarily generated from the Glencore-Merafe Chrome Venture (Venture), one of the global market leaders in ferrochrome production, with a total installed capacity of 2.3 million tonnes of ferrochrome per annum. Merafe shares 20.5% of the earnings before interest, taxation, depreciation and amortisation (EBITDA) from the Venture. Merafe has one reportable segment, the mining and beneficiation of chrome ore into ferrochrome and associated minerals. As a result, no segment report has been presented.

Merafe’s share of the revenue from the Venture, which includes a management fee, decreased by 9% from the prior year to R8 443 million (2023: R9 244 million).

Ferrochrome revenue decreased by 14% from the prior period to R5 909 million (2023: R6 885 million). Key contributors to the reduced revenue were a 6% decrease in the average net cost, insurance and freight (CIF) prices, a 9% decrease in ferrochrome sales volumes to 298kt (2023: 327kt) and the average ZAR:USD exchange which strengthened by 1% to R18.34 (2023: R18.45). Chrome ore revenue increased 2% year-on-year to R2 262 million (2023: R2 222 million). Average chrome ore CIF prices increased by 1%, as did sales volumes, which increased to 475kt (2023: 470kt). The slightly stronger average ZAR:USD exchange rate deflated some of the growth in chrome ore revenue. Platinum Group Metals (PGMs) revenue increased to R267 million (2023: R133 million). Although the average basket price of PGMs decreased by 16% to 1 079 USD/oz (2023:1 284 USD/oz), higher volumes sold of 13 557oz (2023: 6 588oz) supported growth in PGMs revenue.

Operating and other expenses decreased by 4% to R6 741 million (2023: R7 048 million). This decrease was mainly influenced by lower ferrochrome sales. A 2% higher unit production cost per tonne year-on-year lowered the full impact of this decline. Inflationary pressures on our unit production cost came primarily from higher chrome ore prices and higher fixed costs. Operating and other expenses include Merafe’s attributable share of standing charges of R287 million (2023: R346 million). Additionally, the figure includes inventory write down of R79 million (2023: R2 million) during the year arising mainly from a net realisable value (NRV) adjustment on ferrochrome stock. Expenses also include the Rustenburg smelter retrenchments costs of R67 million (2023: Rnil).

Operating and other expenses also include corporate costs of R84 million (2023: R76 million). Corporate costs include a cash-settled share-based payment expense of R15 million (2023: R11 million), Corporate Social Investment expenses of R3 million (2023: R2 million) and a bonus provision of R13 million (2023: R11 million).

Merafe achieved EBITDA of R1 731 million (2023: R2 545 million) and included in the EBITDA is a foreign exchange gain of R29 million (2023: R99 million).

Earnings for the year ended 31 December 2024 amounted to R667 million (2023: R1 753 million), after taking into account a depreciation charge of R354 million (2023: R249 million), net financing income of R65 million (2023: R38 million) and taxation expense of R219 million (2023: R600 million). There was an impairment of the Boshoek smelter by R574 million, additional to impairment of another specific asset by R1 million. This brings the total asset specific impairment loss for the year to R575 million (2023: Rnil). Taxation includes a deferred tax credit of R85 million (2023: R147 million expense), which arose primarily due to temporary differences in property, plant and equipment as well as those relating to receivables, provisions and accruals. There is no unredeemed capital expenditure balance on 31 December 2024 (2023: Rnil) as taxable profits exceeded capital expenditure. Depreciation increased year-on-year primarily as a result of capital expenditure.

Sustaining capital expenditure decreased by 2% to R608 million (2023: R618 million). Expansionary capital includes R43 million (2023: R47 million) spent on the PGMs processing plants. This year’s capital expenditure includes spend on additional processing capacity in the Eastern PGMs operations.

The unsecured, credit facility of R300 million with ABSA remained unutilised at year end.

Merafe closed the year with a solid and healthy balance sheet. Cash and cash equivalents were R1 795 million (2023: R1 656 million), comprised cash held by Merafe of R603 million (2023: R697 million) and R1 192 million (2023: R959 million), being Merafe’s share of the cash balance in the Venture. The cash held by the Venture for rehabilitation is not restricted cash but has been set aside to fund future environmental rehabilitation obligations. Merafe’s share of this cash is R361 million (2023: R328 million) and is included in its share of the cash in the Venture of R1 192 million (2023: R959 million) referred to above. The restricted cash of R8 million (2023: R7 million) is not available for general use by the Group and is held in a trust bank account to rehabilitate the Kroondal mine.

Trade and other receivables decreased by 24% compared to the previous year, primarily due to lower sales volumes during the last quarter of 2024 as well as lower prices.

At financial year end, the 83kt (2023: 81kt) of ferrochrome finished goods on hand represented three to four months of sales. The closing inventory value declined to R1 794 million (2023: R1 916 million). This is after the NRV adjustment referred to earlier.

The Board resolved to declare a final dividend of R200 million (2023: R550 million), which is 8 cents (2023: 22 cents) per share before dividend tax. This brings the total dividend for the year to R700 million (2023: R1 050 million).

For the year 2024, we sadly recorded one fatality. However, our total recordable injury frequency rate improved by 1.47%, reaching 2.31 (2023: 2.34).

The safety of our employees remains our top priority. We are committed to continuously improving our safety performance, focusing on the four key areas identified in our turnaround strategy: risk management, effective supervision, safety culture and contractor management.

We continue to monitor pandemics and other related diseases for any concerning trends that might impact our workforce, ensuring that necessary controls are implemented promptly.

Our commitment to creating a healthy work environment remains steadfast. We will review all health risk assessments and maintain our pre-, annual, and exit medical surveillance to monitor the occupational health of our workforce. Implementing our Health Standards and Health Hazards Exposure Limits is a core strategic focus, integrated with our baseline review to confirm exposures through quantitative data analysis.

Environmental, Social and Governance (ESG) compliance is a fundamental pillar of our business operations. Our Health, Safety, Environmental, Community and Human Rights Standards, introduced in 2021 and fully implemented in 2022, are now deeply integrated into our operations. We are reinforcing our commitment to being a responsible producer through second-line assurance, enhancing transparency, and strengthening our compliance requirements.

As a member of the International Council on Mining and Metals (ICMM), we adhere to the mining principles, which include 10 sustainable development principles and eight position statements covering issues from biodiversity to water management. We recorded no major or catastrophic environmental incidents in 2024. We have completed the assessment of material water-stress risks and set local water targets, implementing actions to reduce impacts and improve performance against these targets. Additionally, we have embarked on a project to visualise our knowledge base using GIS solutions to support decision-making processes.

Our decarbonisation objectives align with those of the Glencore plc Group. Our portfolio profile provides the flexibility to reduce our carbon footprint. We aim to achieve a 50% reduction in our total CO₂e emissions by 2035 compared to our 2019 baseline. Strategic elements towards achieving this target include managing our operational footprint and leveraging opportunities to reduce our scope three emissions.

Merafe’s attributable ferrochrome production increased marginally from 300kt in 2023 to 301kt for the year ended 31 December 2024. The Rustenburg smelter idled for the full year, however volumes produced were not impacted as the operation continued operating in the winter months.

Saleable PGM production increased from 6 588oz to 13 957oz as a result of the inclusion of the Eastern PGM plant and improved yields. The PGMX plant has been commissioned and is now producing concentrate.

Cost management remained a key focus. Inflation and an increase in the network demand fee (fixed power charge) led to increased fixed costs. This, coupled with pricing pressure from chrome ore prices, increased production costs while reductions in reductant costs and variable 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 Proprietary Limited performed well, benefiting from resilient chrome ore prices. In collaboration with co-investors, we will continue to explore best ways to maximise this investment’s value.

The impact of China’s substantial ferrochrome production increase (25% in 2024) which exceeded ferrochrome demand, 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 actively implementing strategies to enhance the business’ resilience.

The Venture embarked on an extensive stakeholder consultation process in terms of section 189 of the Labour Relations Act from August 2024. This process was concluded in December 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).

Global stainless-steel supply grew by 4.8%¹ year-on-year in 2024, driven by increased melt rates across all regions. Production in China expanded by 6.4%¹ year-on-year, surpassing 40 million tonnes¹ and accounting for over 60%¹ of global output. Production in Europe and the United States, while showing some growth, remained significantly below historical levels.

The strong growth in stainless steel production led to an increase in demand for chrome units, particularly in China. However, this rise in demand was more than offset by supply growth, with Chinese ferrochrome production increasing by 25%¹ year-on-year. The expansion of low-cost alloy production capacity in China significantly compressed global smelter margins. Consequently, the ferrochrome oversupply resulted in a sharp decline in ferrochrome prices during H2 2024, which in turn led to a decrease in chrome ore prices.

The Company has, through the Venture, initiated a business review process in respect of its ferrochrome smelting business and is assessing potential measures to address the ongoing market challenges (Business review) – refer to the SENS announcement published on 3 February 2025.

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.

The Venture is actively working with regulatory authorities to mitigate any continued adverse impacts and will continue to explore all viable alternatives in partnership with organised labour. Additionally, the Venture has engaged with its suppliers to identify cost-saving measures to help improve the current situation.

The outlook for FY2025 anticipates market volatility due to geopolitical tensions, protectionist policies that are being threatened, ongoing regional wars and potential slowdowns in Chinese industrial production. While declining global interest rates might help, inflationary concerns and currency volatility remain risks.

Demand for stainless steel is expected to remain strong, driven by infrastructure development and manufacturing in Asia. South Africa’s role as a major chrome ore supplier provides an advantage, but increased Chinese ferrochrome production capacity poses a challenge, putting pressure on pricing. The Company plans to review smelting operations, leverage technology for optimisation and cost reduction, and focus on environmental sustainability (including a new solar plant) and ESG principles to navigate these challenges.

We are dedicated to creating shared value for our stakeholders.

Sandton

7 March 2025