Commentary

The unaudited condensed consolidated financial results for the six months ended 30 June 2022 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") which is one of the global market leaders in ferrochrome production, with a total installed capacity of 2.3 million of ferrochrome per annum. Merafe shares in 20.5% of the earnings before interest, taxation, depreciation and amortisation ("EBITDA") from the Venture. Merafe has one reportable segment being the mining of chrome ore and beneficiation of chrome ore into ferrochrome and associated minerals, as a result, no segment report has been presented.

Merafe's share of revenue from the Venture, which includes a management fee, increased by 15% from the prior period to R4 291 million (June 2021: R3 746 million).

Ferrochrome revenue increased by 12% from the prior period to R3 614 million (June 2021: R3 229 million) primarily as a result of a 26% increase in average net cost, insurance and freight (CIF) prices and a 6% weakening of the average ZAR:US$ exchange rate over the period. Ferrochrome sales volumes decreased by 14% to 180kt (June 2021: 210kt). Chrome ore revenue increased by 22% from the prior period to R630 million (June 2021: R517 million), driven by a 39% average sales price increase for the period as well as the weaker ZAR:US$ exchange rate. There was a 17% decrease in chrome ore sales volumes to 172kt (June 2021: 208kt). Platinum Group Metals ("PGMs") concentrate sold over the period, from the new processing plant that Merafe invested in (as reported in the announcement published on SENS on 14 January 2022), generated revenue of R46 million (June 2021: Rnil).

Merafe's portion of the Venture's EBITDA for the six months ended 30 June 2022 is R1 397.1 million (June 2021: R839.2 million). The EBITDA includes Merafe's attributable share of standing charges of R31.5 million (June 2021: R31.1 million) and a foreign exchange gain of R27.4 million (June 2021: R47.1 million loss). There was no write-down of inventory during the six months ended 30 June 2022 (June 2021: R17.4 million). The diesel rebate matter with the South African Revenue Service ("SARS") as disclosed in the Integrated Annual Report for the year ended 31 December 2021, continues. Accordingly, the disallowed amount (inclusive of interest payable to SARS and net of income tax) of R21.1 million (June 2021: R19.3 million) continues to be fully provided for at period end.

After accounting for corporate costs of R24.1 million (June 2021: R20.5 million), which include a cash settled share-based payment expense of R6.7 million (June 2021: R2.5 million), Merafe achieved EBITDA of R1 373.0 million (June 2021: R818.8 million). Corporate costs also include Corporate Social Investment expenses of R147 thousand (June 2021: R1.8 million) and a bonus provision of R5.8 million (June 2021: R5.1 million).

Earnings for the six months ended 30 June 2022 amounted to R925 million (June 2021: R576.3 million), after taking into account depreciation and amortisation of R105.5 million (June 2021: R12.9 million), net financing income of R10.3 million (June 2021: R2.8 million) and taxation expense of R354.1 million (June 2021: R227.2 million). The increase in depreciation is due to depreciation on new assets including assets that are fully depreciable within a year. An impairment assessment on property, plant and equipment was performed at period end, resulting in no cash-generating unit impairment adjustments for the period. Additionally, there was no specific asset impairment loss for the period (June 2021: R5.8 million). Taxation includes a deferred tax expense of R47.6 million (June 2021: R127.6 million) which arose primarily as a result of temporary differences on property, plant and equipment as well as those relating to provisions and accruals. There is no unredeemed capital expenditure balance as at 30 June 2022 (June 2021: Rnil) as taxable profits exceeded capital expenditure.

A profit of R1.2 million (June 2021: R719 thousand), being Merafe's proportionate share of the profit from an associate of Unicorn Chrome (Pty) Ltd, was recorded for the period.

Sustaining capital expenditure decreased by 19% to R142.5 million (June 2021: R176 million) partly due to timing of spending as well as due to reduced catch-up spending. Expansionary capital includes R12 million (June 2021: Rnil) spent on the PGMs processing plant.

The unsecured credit facility with Absa of R300 million remained unutilised at period end.

As at 30 June 2022, Merafe had cash and cash equivalents of R1 015.3 million (December 2021: R972.1 million) which comprised cash held by Merafe of R555 million (December 2021: R483.2 million) and R460.3 million (December 2021: R488.9 million), being Merafe's share of the cash balance in the Venture. The Venture has set aside cash, ringfenced to fund its future environmental rehabilitation obligations. Merafe's share of this cash is R194.3 million (December 2021: R189.3 million) and is included in its share of the cash in the Venture of R460.3 million referred to above.

Trade and other receivables increased by 15% compared to the 31 December 2021 balance, primarily as a result of higher prices and a weaker closing ZAR:US$ exchange rate. The ZAR:US$ exchange rate closed at R16.33 as at 30 June 2022 (December 2021: R15.94).

Ferrochrome finished goods volumes of 99kt (June 2021: 79kt) on hand represent approximately three to four months of sales. The closing inventory value increased to R1 936.4 million (December 2021: R1 652.2 million) due to higher production costs as well as production exceeding sales volumes.

The board of directors ("Board") has declared an interim gross cash dividend of 12 cents per share (June 2021: 7 cents per share).

The Venture was fatality free for the year 2021 and remains fatality free for the first six months of 2022. Our total recordable injury frequency rate improved by 11% to 2.49 (December 2021: 2.80^§).

We remain focused on the implementation of SafeWork 2.0 with focus on continuous improvement of our system and processes to ensure that we create a safe and healthy working environment. We encourage empowerment of our employees to enforce the stop-work process if a situation is unsafe. The safety of our employees remains our number one priority.

COVID-19 is still a risk that we deal with daily. Our operations continue to manage the spread of the virus through ensuring adherence to all approved COVID-19 protocols and legal requirements. We continue with electronic screening and conduct antigen tests on all symptomatic employees.

On average a total of 9 748 antigen tests were conducted during the first six months of 2022, in total 71 211 tests have been conducted on site since we started carrying out the tests in January 2021. For the year to date 330 members of our workforce have tested positive compared to 2 873 positive cases for the full year in 2021. Since the beginning of COVID-19 we have had 3 487 positive cases in total.

We supplied vaccinations at our operations until the end of April 2022. In total, 21 520 vaccines were administered, of which 4 438 were given in 2022.

It is with great sadness that we report that in the first half of 2022 we lost two of our colleagues due to COVID-19.

Merafe's attributable ferrochrome production from the Venture for the six months ended 30 June 2022 increased marginally by 2% from 199kt to 203kt compared to the six months ended 30 June 2021. Plant efficiencies were sustained for the period.

Total cost of production per tonne increased by 13.6% from December 2021. The increase was mainly due to general inflation, higher market ore prices, reductant prices and electricity tariffs.

Electricity tariffs increased by 9.61% which became effective from 1 April 2022. Reliability of electricity supply continues to be a risk for the business.

Reductant costs were impacted by higher market prices for coke and anthracite. Inadequate local supply of reductants continues to be a challenge.

Logistics costs also came under pressure due to an increase in road transportation as well as higher diesel prices. Freight rates were also higher.

There were no material changes to Mineral Reserves, Mineral Resources and mining rights of the participants in the Venture from those reported in the Integrated Annual Report for the year ended 31 December 2021.

Global stainless-steel production decreased by 2.7%¹ for the six months ended 30 June 2022 ("H1 2022") compared to the six months ended 30 June 2021 ("H1 2021"), as Chinese melt rates slowed by 4.3%¹. This was partially offset by an increase in the Indonesian production. Increased power availability in China supported ferrochrome production growth of 20%² year-on-year ("YoY") during H1 2022 to 3.45mt². Ferrochrome production in South Africa remained flat during H1 2022 YoY at 1.93mt¹. Increased supply put pressure on prices at the end of H1 2022.

China imports of South African chrome ore decreased by 1.6%³ year-to- date ("YTD") May 2022 to 5.2mt³ as logistical constraints persisted in South Africa. Due to the high chrome ore consumption in China, port stocks decreased 40%² during H1 2022. This has resulted in 48%¹ higher pricing for chrome ore.

The average European benchmark ferrochrome price was US cents 198⁴ per pound in H1 2022, which represents an increase of 44.5%⁴ from the H1 2021 average price.

Just as the COVID-19 risk was abating, other global and local risks have emerged. Locally, floods have wreaked havoc, especially in the KwaZulu- Natal region, disrupting logistics channels and sadly resulting in the loss of life. Transnet's challenges, which have also impacted our industry, have included infrastructure theft and damage, lack of spares and insufficient rolling stock. In general, supply chain constraints remain a concern. Eskom's situation deteriorated further over the period following the utility's industrial strike action leading to power cuts escalating to stage 6. Internationally, the Russia/Ukraine conflict has not only resulted in the unfortunate loss of life, but led to global uncertainty, supply shortages, inflationary pressures and fueled recession concerns. These events have impacted our industry in one way or another and are likely to affect production inputs and chrome demand/supply dynamics going into the second half of 2022 ("H2 2022"). As a result, we expect a tougher H2 2022. We remain cautious in our approach to the remaining six months of the year and will continue to focus on efficient operations, cash preservation, cost control and efficient capital allocation.

In accordance with our strategy, we remain committed to maximising return to our shareholders in the near term and we will continue to assess opportunities to deliver shareholder value.

Sandton
23 August 2022