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MERAFE RESOURCES LIMITED

MRF JSE Listed
Market Cap
~R2.75 Billion

Role: Senior Equity Analyst (JSE) Subject: Investment Analysis – Merafe Resources Limited (JSE: MRF) Date: 13 January 2026

Here is the comprehensive investment analysis for Merafe Resources Limited, the leading ferrochrome producer and joint venture partner with Glencore.

Step 1: Data Gathering & Source Verification

Reporting Periods Analyzed:

Key SENS Announcements (Last 12 Months):

  • 09 Dec 2025: Further Update on Section 189 Process & Eskom MoU (Restructuring & Power talks).
  • 28 Oct 2025: Production Report for nine months ended 30 Sept 2025.
  • 12 Aug 2025: Unaudited Interim Results (Profit collapse & Dividend cut).
  • 10 Mar 2025: Declaration of Final Dividend for 2024 (8 cents).

Step 2: Metric Extraction

  • Market Cap: ~R2.75 Billion

  • Context: Small-cap miner; highly sensitive to commodity cycles.

  • Dividend Yield (L12M): 10.9%

  • Calculation: Final 2024 (8c) + Interim 2025 (4c) = 12 cents total.

  • Note: The yield is historically high but declining rapidly (down from ~20% yields in peak years) as the company preserves cash for restructuring.

  • Liquidity Check: Medium (Retail Friendly)

  • Metric: Average daily value traded fluctuates between R5m and R10m. Sufficient for retail investors, but institutional exits can move the price significantly.

  • P/E Ratio: 4.0x

  • Calculation: Share Price (110c) / TTM HEPS (27.3c).

  • Breakdown: H2 2024 HEPS (14.7c) + H1 2025 HEPS (12.6c).

  • Net Asset Value (NAV): 196 cents per share

  • Price-to-NAV: 0.56x.
  • Flag: The stock is trading at a massive 44% discount to its net asset value, implying the market expects further asset impairments or significant cash burn.

Step 3: Operational & Strategic Analysis

Business Overview: Merafe’s primary asset is its 20.5% interest in the Glencore-Merafe Chrome Venture, the world's largest ferrochrome producer. It mines chrome ore and beneficiates it into ferrochrome (used in stainless steel) at smelters across South Africa.

Performance Trend (Interim 2025 vs Prior):

  • Revenue: Contracting Sharply. Revenue nearly halved (-47%) to R2.5bn in H1 2025.
  • Profitability: Collapsed. EBITDA fell 56% to R500m. The company remains profitable but margins are being squeezed by lower sales volumes (-55% for ferrochrome) and weaker prices.
  • Operational Health: The company has entered a defensive crouch. Section 189 processes (retrenchments) are active at multiple smelters (Rustenburg, Lydenburg) as it idles unprofitable production.

Sector Context (Macro Factor):

  • The "Eskom Death Spiral": The South African ferrochrome industry is uncompetitive due to electricity costs (ferrochrome production is essentially "congealed electricity").
  • China Dominance: China now dominates global ferrochrome production, often importing un-beneficiated chrome ore from South Africa. This structural shift forces SA producers like Merafe to become chrome ore exporters rather than value-add beneficiators.

Step 4: The Verdict

Bull Case (Deep Value): Free Cash on the Table. Merafe is trading at roughly half its book value (Price 110c vs NAV 196c). Even in this terrible cycle, it remains profitable and cash-positive (Cash balance ~R1.1bn). If the Rand weakens significantly or chrome prices tick up, the operational leverage will see profits double overnight. The Section 189 process will eventually lower the fixed cost base, leaving a leaner, profitable core.

Bear Case (Structural Decline): The "Melting Ice Cube". The South African smelting business model is broken. With electricity tariffs rising faster than inflation, Merafe is slowly shutting down its smelters. You are effectively buying a company that is liquidating itself in slow motion. The dividend cut (from 20c to 4c) signals that management is hoarding cash for survival, not distribution.

Fair Value Estimate: R1.30 - R1.40 While NAV is R1.96, the market rightly discounts the smelter assets which may be impaired further. A fair value is likely around a 30% discount to NAV, acknowledging the cash pile but penalizing the dying smelting division.

Final Rating: SPECULATIVE BUY (Cyclical Trade)

Rationale: The negativity is priced in. At 4x P/E and a 44% discount to NAV, you aren't paying for success. Any positive news (Eskom deal, China stimulus, weaker Rand) could trigger a violent rally. However, this is not a "Hold forever" stock—it is a cyclical trade to sell into strength.

AI Generated Analysis Last Updated: 2026-01-14