Merafe paints troubled outlook for remainder of year as sees cash pile top R1bn

Zanele Matlala, CEO, Merafe Resources

MERAFE Resources increased the interim dividend about 70% following a strong showing for the six months ended June but it painted a relatively grim outlook for the remainder of the financial year troubled with logistical and supply chain constraints.

Local risks associated with flooding, disrupted logistical channels, supply chain constraints and cost inflation would dominate from July to December, the company said.

“As a result, we expect a tougher H2 2022,” said Merafe CEO Zanele Matlala in comments to the firm’s interim numbers in which basic share earnings increased to 37 South African cents from 23c/share previously.

“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,” said Matlala.

Ferrochrome prices were “robust” in the period under review but had since weakened. “Ferrochrome prices have since declined and cost pressures from inflation, higher reductant costs, chrome ore costs and electricity tariffs continue to mount,” she said.

Merafe’s outlook informs its conservative approach to the dividend which was despite increasing cash to over R1bn as of June 30 from R972m at the same stage last year.

Asked in a presentation about the relatively conservative dividend payment, Merafe’s CFO Ditabe Chocho said future risks were the defining feature of its payout declaration. He also said that cash that was available to Merafe was half of the stated cash on hand.

“The R1bn referred to is cash at the venture level as well as at Merafe,” he said, referring to the firm’s 20% stake in the Merafe-Glencore Joint Venture. “Merafe has R500m cash available and of that R300m was declared [in the dividend] out of cash available leaving a balance [of R200m] to see us through the remainder of the year,” he said.

“At the year end, we will have opportunity to consider an appropriate dividend to declare in line with full year having transpired.”

Merafe was criticised last year for having “an extremely lazy balance sheet” to which Matlala replied that dividend payments would be weighted towards the second half of its financial year. The company subsequently announced a final dividend of R549.8m bringing the total dividends for the year to R724.7m.

Chocho said the company would not currently resume its suspended share buy-back programme. “There is no intention to buy back shares,” said Chocho of Merafe’s current view on the matter.

Merafe was similarly reticent to comment on the prospect of merger and acquisition activity. Matlala said there was nothing currently on the firm’s radar although conceptually the company would remain in mining if it decided to diversify.