JOHANNESBURG (miningweekly.com) – The earnings of the black-owned and black-controlled Merafe have more than doubled in the six months when the company benefited from its record ferrochrome production and strong global ferrochrome demand.

Merafe, headed by CEO Zanele Matlala, is paying an interim dividend of R28-million and letting people go at its corporate office as a result of its decision to focus solely on the ferrochrome business rather than diversify.

Merafe’s revenue and operating income is primarily generated from the Glencore Merafe Chrome Venture, which is one of the global market leaders in ferrochrome production, with a total installed capacity of 2.3-million tons of ferrochrome a year.

Merafe shares in 20.5% of the venture’s earnings before interest, taxation, depreciation and amortisation (Ebitda), which included Merafe’s attributable share of standing charges of R35.7-million (R23.9-million), which increased mainly as a result of the platinum strike action and related impact on the upper group two (UG2) plants of the platinum-mining companies.

Ferrochrome production was up 16% to 168 000 t in the half year (H1) to June 30, when revenue rose 35% to R2-billion and headline earnings a share soared 134% to 8.9c a share.

Controlled by the Bafokeng community, Merafe generated cash from operating activities of R265-million as the venture’s low-energy flagship operation, Project Lion II, moved into production.

The 35% revenue increase on the prior year was supported by a 25% increase in ferrochrome sales to 171 000 t (2013 H1: 137 000 t) and a 16% weaker rand:dollar exchange rate.

Chrome ore revenue as a percentage of total revenue decreased to 10% in the first half of 2014, compared with 12% last year.

Merafe’s 20.5% Ebitda from the venture was R460.2-million compared with R236.5-million in the 2013 H1 and included a lower foreign exchange loss of R3.5-million (R28.7-million), as a result of the lower utilisation of the venture’s dollar facilities.

After accounting for corporate costs of R37.4-million, which included a share-based payment expense of R3.3-million, Merafe’s Ebitda was R422.8-million (2013 H1: R210.2-million).

Corporate costs increased mainly as a result of restructuring costs at Merafe head-office level. 

Profit for the six months was R224.7-million compared with R33.5-million in H1 last year.

The impairment in the prior period related to the Horizon mine, which has since been placed on care and maintenance.

Net financing costs increased largely because of higher debt levels and the reduced capitalisation of borrowing costs related to Project Lion II, which was brought into use in the second quarter of 2014.

Expansionary capital of R9.5-million was down on the R11.3-million for H1 last year.

Merafe’s capital commitments at June 30 were R231-million.

The company had a net cash balance of R19-million and debt owing to Absa Capital of R592-million at June 30.

As a result of the acquisition of the Wonderkop assets and various expansionary projects  including the Bokamoso and Tswelopele pelletising and sintering plants, the Lion smelter complex as well as UG2 plants and chrome ore reserves, the company is well positioned for the future.

Accountant Ditabe Chocho will leave the company’s employ in December, long-standing marketing executive Bruce McBride will leave in March 2015 and company secretary Ami Mahendranath will leave in September.

Chartered accountant Kajal Bissessor will succeed Chocho as financial director.

Merafe’s operating capacity utilisation for the first half of 2014 was 90%, which is equivalent to an increase of 16% compared to the previous corresponding period.

This increase is primarily attributable to a stronger market and the impact of the nonrecurring Eskom buy-back agreements that were entered into in H1 2013. 

Despite the start-up costs of Lion II and the impact of the strike action in the platinum sector, the total ferrochrome cost per ton increase was below mining inflation, primarily as a result of higher production volumes and cost saving initiatives. 

The venture’s wage negotiations at its eastern smelters and mines were successfully concluded, while wage negotiations at the venture’s western mines and smelters are ongoing.

An accident on April 9 at the Kroondal mine in Rustenburg resulted in Andries Shomolekae being fatally injured.

The venture’s total recordable injury frequency rate increased to 4.41 owing to two additional H1 injuries.

Global stainless steel production for the first half of 2014 reached 21.1-million tons, primarily due to a 14.3% increase in China, while higher production in India and the US also played a role.

As a result, 2014 estimated global stainless steel production of 41.9-million tons is on track to surpass last year’s all time annual high of 38.5-million tons.

Global ferrochrome demand continued to rise, reaching 5.7-million H1 tons.

Global ferrochrome production  increased by 20.5% to a matching 5.7-million tons, the majority from China with 12.4% more, and South Africa with 36.2% more.

Stainless steel production and demand is expected to increase by 5.5% a year for the next three years and the demand for ferrochrome is expected to follow suit with an increase of 6% a year for the next three years.