1. Basis of preparation

These unaudited condensed consolidated interim results for the six months ended 30 June 2023 have been prepared under the supervision of Ditabe Chocho CA(SA) (Financial Director), in accordance with and containing the information required by IAS 34: Interim Financial Reporting, the Financial Pronouncements as issued by the Financial Reporting Standards Council and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the requirements of the Companies Act of South Africa No. 71 of 2008 and the JSE Limited Listings Requirements.

The unaudited condensed consolidated financial statements are presented in South African Rands, and all values are rounded to the nearest thousand (R'000), except where otherwise indicated.

1.1 Going concern

In determining the appropriate basis for the preparation of the interim results, the directors are required to consider whether the Group can continue to be in operational existence for the foreseeable future. The financial performance of the Group is dependent upon the wider economic environment in which the Group operates.

These interim results are prepared on a going concern basis. The Board has undertaken a rigorous assessment of whether the Group is a going concern in light of current economic conditions taking into consideration available information about future risks and uncertainties. The projections for the Group have been prepared, covering its future performance, capital and liquidity including performing sensitivity analyses. The Group has the benefit of a healthy balance sheet and available unutilised debt facilities. The Group's forecasts and projections of its current and expected profitability, taking account of reasonably possible changes in production and performance, show that the Group will be able to operate within the level of its cash resources for at least the next 12 months.

The Board is satisfied that the Group is sufficiently liquid and solvent to be able to support the operations for the next 12 months.

1.2 Accounting policies

The accounting policies applied in the preparation of these interim results are in terms of the International Financial Reporting Standards ("IFRS") and are consistent with those applied in the previous consolidated annual financial statements. The Group did not early adopt any new, revised or amended accounting standards or interpretations.

1.3 Significant accounting judgements and key sources of estimation uncertainty

The preparation of the unaudited condensed consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates are reviewed on an ongoing basis. Underlying assumptions are also reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised.

In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the unaudited condensed consolidated financial statements are as follows:

  • Measurement of depreciation and impairment, useful lives and residual values of property, plant and equipment and intangible assets;
  • Inputs used in the determination of the fair value of the sharebased payment transactions, lease classification and depreciation of right of use assets;
  • Assumptions used in the calculation of the life of the mines/smelters estimation of the closure and restoration costs and inputs used in the calculation of the present value of the provision for closure, restoration costs and discount rate applied;
  • Recognition of deferred tax asset on assessable losses;
  • Fair value measurement of trade receivable subject to provisional pricing;
  • Assumptions around joint control of the Venture;
  • Impairment of non-financial assets – The Group determines whether any of the cash-generating units are impaired at each reporting date. This requires consideration of the current and future economic and trading environment and available valuation information, to ascertain if there are indications of impairment to those owned by the Group;
  • Inventories – The Group determines whether there is obsolete inventory on an annual basis and adjustments to the net realisable value of inventory as required;
  • Financial risk management – The Group assesses credit risk and the impact of liquidity risk, cash and cash equivalents and trade and other receivables. There has been no material increase in either liquidity risk and own credit risk based on this assessment; and
  • The Group exercises judgement in measuring and recognising the provisions and the exposure to contingent liabilities related to unresolved tax matters. Judgements, including those involving estimations, are necessary in assessing the likelihood that a pending tax dispute will be resolved, or a liability will arise, and to quantify the possible range of the tax exposure.

The global environment, the risk of adverse impacts on our revenue, costs and capital spend by the Group, were all taken into account in determining the accounting estimates and judgements for the period.

2. Determination of fair values

A number of the accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities.

Fair values have been determined for measurement and/or disclosure purposes based on the methods indicated below.

2.1 Trade receivables subject to provisional pricing terms

Trade receivables of R104 million (December 2022: R233 million) are subject to provisional pricing terms which are accordingly accounted for at fair value through profit and loss. Level 2 hierarchy per IFRS 13.

The fair value at the reporting date is based on the latest available ferrochrome prices and closing ZAR:USD exchange rate of R18.85.

2.2 Long-term receivable

The Venture has an asset swap arrangement for mineral rights, where a receivable of R39 million (December 2022: R39 million) arises through ore recovery and the sale from mining in the rights area. Level 3 hierarchy per IFRS 13.

The discounted cashflow valuation technique was used with the key inputs being the discount rate, ZAR:USD exchange rate and a forward-looking chrome price. The cash flows are based on the life-of-mine plan of 10 years. The fair value at the reporting date is based on chrome ore prices of $197.88, an average ZAR:USD exchange rate of 15.67 and a discount rate of 9.7%. There were no transfers between fair value hierarchy levels during the period. There was also no change in the valuation technique compared to the prior corresponding period.

A security deposit payable of R4 million was received during the period due to the amendment of the arrangement and will be held for the duration of the agreement.

3. Headline earnings per share

    For the six months ended
    30 June 2023
Unaudited
R'000
  30 June 2022
Unaudited
R'000
Profit, total comprehensive income for the period   1 048 687   924 919
Headline earnings for the period*   1 048 687   924 919
Headline earnings per share (cents)   42.0   37.0
Diluted headline earnings per share (cents)   42.0   37.0
Ordinary shares in issue   2 499 126 870   2 499 126 870
Weighted average number of shares for the period   2 499 126 870   2 499 126 870
Diluted weighted average number of shares for the period   2 499 126 870   2 499 126 870
* There were no adjustments applicable to basic earnings

4. Revenue

    For the six months ended
    30 June 2023
Unaudited
R'000
  30 June 2022
Unaudited
R'000
Ferrochrome revenue   3 792 241   3 613 760
Chrome ore revenue   936 169   629 920
PGMs revenue   34 584   46 111
Revenue from contracts with customers   4 762 994   4 289 791
Other income   1 423   1 470
Revenue other than from contracts with customers   1 423   1 470
Total revenue   4 764 417   4 291 261

5. Capital commitments

 
    For the six months ended
    30 June 2023
Unaudited
R'000
  30 June 2022
Unaudited
R'000
Contracted but not provided for   250 748   222 433
Authorised but not contracted for   448 864   555 140
    699 612   777 573

6. Related parties

Related party transactions and balances

During the current reporting period, management reviewed its related party relationships in accordance with IAS 24: Related Party Disclosures. The Glencore plc Group is a related party taking into consideration the shareholding and related significant influence coupled with the substance of the relationship. Significant transactions and balances with all entities within the Glencore plc Group are therefore disclosed together with the comparative figures.

All related party transactions relate to Merafe's attributable 20.5% interest in the Venture. There were no outstanding commitments at period end.

Name of related party   Description of relationship   Transactions and balance
Industrial Development Corporation of South Africa Limited (“IDC”)   The IDC holds 21.9% of the issued share capital of the Company and has the ability to exercise significant influence over the Company as a result of its shareholding.  

The IDC received non-executive directors’ fees for Mr D McGluwa. IDC receives dividends declared by the Company.

At period end there are no amounts owing to the IDC.

Glencore (Nederland) B.V. ("GN")   GN holds 28.8% of the issued share capital of the Company and has the ability to exercise significant influence over the Company as a result of its shareholding.  

At period end there are no amounts owing to GN.

GN receives dividends declared by the Company.

Glencore Limited (Stamford) ("GLS")   GLS acts as the Venture’s exclusive marketing agent to sell ferrochrome on its behalf and acts as a distributor in the USA and Canada.  

Sales of ferrochrome of R223m (June 2022: R261m).

Commission expense on the sale of ferrochrome of R4m (June 2022: R7m).

Interest expense of R5m (June 2022: R0.6m).

Balance receivable at the end of the period R129m (December 2022: R160m), which is reduced as and when GLS receives funds from customers.

Glencore International AG ("GIAG")  

GIAG acts as the Venture’s exclusive marketing agent to sell ferrochrome and chrome ore on its behalf.

The Venture purchases various raw materials from GlAG on an ongoing basis.

The Venture sells chrome ore to GlAG on an ad hoc basis.

 

Commission expense on sale of ferrochrome and chrome ore of R190m (June 2022: R169m).

Interest income of R9m (June 2022: R3m).

Marketing fee expense of R1m (June 2022: R0.9m).

Purchase of raw materials of R0.5m (June 2022: R76m).

Balance owing at the end of the period R36m (December 2022: R29m) payable on confirmation of final sales.

Char Technology (Pty) Ltd ("Chartech")   Chartech sells raw materials to the Venture.  

Purchase of raw materials of R91m (June 2022: R64m).

Balance owing at the end of the period of R13m (December 2022: R17m) payable 30 days from the statement date.

Glencore Holdings South Africa (Pty) Ltd (“GHSA”)   GHSA offers the central treasury function for the Venture.  

Interest income of R32m (June 2022: R7m).

Cash deposits of R964m (December 2022: R351m) and rehabilitation investment of R315m (December 2022: R301m).

Glencore Operations South Africa (Pty) Ltd (“GOSA”)   GOSA is Merafe Ferrochrome and Mining (Pty) Ltd’s partner in the Venture.  

Cost recovered from PGMs tailings R2m (June 2022: R2m).

Employee costs of R76m (June 2022: R68m).

Head-office costs of R44m (June 2022: R15m).

Lion housing costs of R10m (June 2022: R10m).

Training costs of R4m (June 2022: R4m).

Shared services costs of R6m (June 2022: R5m).

Balance owing at the end of the period of R33m (December 2022: R18m) payable 10 days after month end.

GOSA received the non-executive directors’ fees for Mr D Green.

Loan receivable at the end of the period of R30m (December 2022: R122m payable) is owed to Merafe Ferrochrome.

Glencore Property Management Company (Pty) Ltd (“GPMC”)   GPMC provides rental property to the Venture.  

Rental of CSI offices R0.2m (June 2022: R0.2m).

Balance owing at the end of the period of R0.1m (December 2022: R0.04m) payable 30 days from the statement date.

Access World (South Africa) (Pty) Ltd (“Access”)   Access is a warehousing company that supplies storage facilities of ferrochrome and chrome ore to the Venture.  

Storage of ferrochrome and chrome ore of Rnil (June 2022: R0.6m).

At period end there are no amounts owing to Access.

Astron Energy (Pty) Ltd (“Astron”)   Astron sells fuel to the Venture.  

Purchase of fuel of R18m (June 2022: R17m).

Balance owing at the end of the period of R3m (December 2022: R3m).

Impala Chrome (Pty) Ltd (“Impala”)   Impala is an associate jointly controlled by the Venture.  

Revenue from logistics, marketing and maintenance contracts of R25m (June 2022: R17m).

Balance receivable at the end of the period of Rnil (December 2022: R5m).

Unicorn Chrome (Pty) Ltd (“Unicorn”)   Unicorn is a jointly controlled chrome tailings processing operation by the Venture.   Shareholder loan receivable at the end of the period of R0.6m (December 2022: R5m).

7. Taxation

The Group's annualised effective tax rate is 28.29% (June 2022: 27.7%) for the six months ended 30 June 2023.

8. Inventories

During the reporting period, inventory of R1 million (December 2022: R1 million) was written down.

9. Asset held for sale

On 16 August 2022, the Group decided to dispose of the mineral rights and land that form part of Boshoek mine. The liability directly associated with the asset held for sale is the environmental rehabilitation obligation. The Group considered that the sale of Boshoek mine meets the criteria to be classified as held for sale. As of 30 June 2023, regulatory approvals were pending to finalise the transaction. No impairment loss has been recognised as the mineral right and land have been measured at their carrying amount.

10. Contingent liabilities

The Group is subject to direct and indirect tax in the South African jurisdiction. As a result, significant judgment is required in determining the Group's provision for income taxes. The Group's subsidiary undertakes various cross-border transactions within the Venture, subject to the Group's transfer pricing policies.

On 16 August 2022, the tax authority issued a letter of findings against the Group's operating entity, Merafe Ferrochrome. The matter relates to transfer pricing audit findings, which the Group is contesting with the South African Revenue Service. At 30 June 2023, the tax matter was still ongoing. The matter has been disclosed as a contingent liability as its outcome remains uncertain, including whether any tax exposure exists, the quantum of which cannot be reliably estimated. Accordingly, no adjustment for any effects on the Group has been made in the consolidated financial statements.

11. Events after the reporting period

As reported above, on 10 August 2023, the Board resolved to declare a gross interim cash dividend of 20 cents (2022: 12 cents) per share for the six months ended 30 June 2023.

The directors of Merafe are not aware of any material events which occurred after the reporting period and up to the date of authorisation of this report that may require adjustment or disclosure in these interim financial statements.

12. Declaration of an ordinary cash dividend for the six months ended 30 June 2023

Notice is hereby given that, on 10 August 2023, the Board resolved to declare a gross interim cash dividend of 20 cents (June 2022: 12 cents) per share, to holders of ordinary shares. The dividend will be paid out of income reserves.

The ordinary dividend will be subject to a local dividend tax rate of 20%. The net local ordinary dividend, to those shareholders who are not exempt from paying dividend tax, is therefore 16 cents per share. Merafe's income tax number is 9550 008 602. The number of ordinary shares issued at the date of the declaration is 2 499 126 870.

The important dates pertaining to the dividend are as follows:

  2023
Last day for ordinary shares to trade cum ordinary dividend: Tuesday, 05 September
Ordinary shares commence trading ex-ordinary dividend: Wednesday, 06 September
Record date: Friday, 08 September
Payment date: Monday, 11 September

Shareholders will not be permitted to dematerialise or rematerialise their ordinary shares between Wednesday, 06 September 2023 and Friday, 08 September 2023, both days inclusive.