Merafe’s cash-rich, debt-free holding structure — tied to one of the world’s lowest-cost ferrochrome assets — may be the cleanest asymmetric bet in South Africa today.
Conventional wisdom says ferrochrome is a brutal cycle. Prices swing, demand is tied to stainless steel, and Eskom adds operational risk. The market assumes Merafe is permanently trapped in that cycle.
The reality is harsher but more nuanced. In the first half of 2025, revenue fell 47% to R2.5bn (June 2024: R4.7bn), while basic earnings collapsed 68% to 9.3c a share (June 2024: 28.8c). The interim dividend was slashed to 4c a share, down from 20c a year earlier. Profitability weakened: earnings before interest, tax, depreciation, and amortisation (ebitda) declined 56% to R500m and headline earnings per share halved to 12.6c. Cash reserves dropped 36% to R1.14bn, with operations consuming R159m of cash vs generating R852m a year earlier.
Yet the balance sheet remains intact: NAV inched up 0.7% to R4.91bn, underscoring Merafe’s resilience despite cyclical headwinds. And still the market values the company at barely 1.35 times enterprise value/ebitda, with R1.14bn cash and no debt. That is a textbook case of valuation dislocation.
Merafe is not a miner in the traditional sense. It is a financial stub: a 20.5% economic interest in a Glencore-run joint venture (JV). There is no operational execution risk, no balance sheet debt and no obligation to fund beyond pro rata contributions.
Where juniors dilute or overleverage, Merafe avoids the trap. In strong years (2021-2022), it returned 70%-plus of earnings to shareholders. In weak years, it preserves capital — without lifelines, without drama.
The JV is mature, scaled and technologically advanced, with about 2.3Mt ferrochrome capacity and proprietary pelletising/smelting tech. Lion II, its flagship smelter, is not only cost-efficient but among the greenest globally in energy intensity (37% less electricity than conventional ferrochrome processes).
This isn’t “Africa discount” efficiency. The JV would be cost-competitive in Europe. Its resilience isn’t theoretical — it has been proved through multiple price cycles.
Merafe’s economics are naturally dollar-linked. Roughly 85% of sales are exported in dollar, while costs are rand-based. So, the rand weakens and earnings surge … the rand strengthens and margins compress, but costs remain anchored.
The rand weakens and earnings surge … the rand strengthens and margins compress, but costs remain anchored
With South Africa facing inflation, Eskom volatility and political risk, Merafe offers what domestic investors crave — hard-currency cash flows without offshore capex headaches.
Still, the market assumes that ferrochrome is permanently oversupplied, that Chinese demand has structurally peaked and that Eskom risk will cripple operations.
Each holds a grain of truth. None is fatal. The JV flexes furnace utilisation, pursues renewable procurement and adapts to demand cycles. Meanwhile, optionalities — chrome recovery, platinum group metals, renewable-linked cost reductions — are ignored in valuation. Investors get them for free.
The top concerns — cyclical pricing, Eskom instability, South African regulation, JV dependence and currency volatility — are well known, but the company’s structure actively mitigates each. It’s not a leveraged miner vulnerable to every macro shock.
Instead, Merafe earns dollar-linked cash flows from a globally competitive asset without operational exposure. Regulatory overhangs such as the National Environmental Management Act or carbon taxes may raise costs over time, but Merafe’s low cost base and capital-light model provide margin for error. Even JV reliance on Glencore — a risk in perception — is functionally a strength, insulating Merafe from execution while giving it exposure to world-class operations.
Merafe trades not just on commodity pessimism but on neglect. Institutional investors overlook it. The market applies a blanket “commodities = debt + dilution” heuristic that simply doesn’t fit.
But attention is mean-reverting. Eventually, fundamentals resurface. And while the market waits, Merafe prints cash — even in downcycles.
The recent earnings call revealed something the market seems to ignore: Merafe is not doubling down on ferrochrome — it’s pivoting. With smelters idled due to subeconomic power costs and weak prices, the company is shifting its value extraction upstream — maximising chrome ore sales rather than forcing loss-making ferrochrome production. Chrome ore margins remain strong and management confirmed about 1Mt of chrome stock ready for sale.
At 104c, Merafe trades at roughly 3.85 times earnings — despite sitting on a net cash balance sheet with zero dilution risk. A conservative discounted cash flow, using a 14% cost of equity and assuming ferrochrome prices recover only halfway back to mid-cycle, points to a fair value of 380c-480c a share — more than triple the current price. That translates into a 25%-30% internal rate of return over five years, even without any rerating.
Valuation alone doesn’t move markets — catalysts do. And Merafe has several. A return to special dividends or share buybacks could attract yield-focused investors. A public relaunch or investor day could reintroduce the story to institutions that missed the post-Covid recovery. On the strategic side, any move by Glencore to consolidate the JV or expand capacity would immediately reprice Merafe’s optionality.
For investors seeking asymmetric exposure with embedded downside protection, Merafe may be the rarest commodity of all: mispriced value hiding in plain sight.
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