The second quarter of 2018, ended June 30, was particularly difficult for specialty alloys producer Afarak, the company said on Friday, with the ferro-alloys segment having shown a bad performance which negatively impacted on the group’s overall financial results.
This, Afarak pointed out, was mainly owing to the low-quality orebodies that were encountered, which had a significant impact on its South African operations.
The company, nevertheless, increased its sales of processed material by 24.8% to 25 929 t, while revenues rose by 14.6% to €54.3-million.
Mining output also grew on account of the new mining activity at Vlakpoort and a comparatively better performance year-on-year at Mecklenburg, which still remained below expectations.
Overall, tonnage mined increased by 36.4%, to 150 852 t, with the group’s earnings before interest, taxes, depreciation and amortisation (Ebitda) reaching €1.2-million.
The Ebitda margin was 2.2%, while the company recorded a loss before interest and taxes of €400 000.
Afarak posted a net loss from continuing operations of €2.7-million, which was affected largely by unrealised foreign exchange losses, while cash flow from operations stood at negative €4.8-million.
Net interest-bearing debt increased to €10.5-million, partly offsetting operating losses, capital expenditure and a relative increase in working capital committed.
Cash and cash equivalents as at June 30 totalled €5.5-million
Meanwhile, revenue for the first half of 2018, ended June 30, remained stable at the same level of a year earlier, whereas revenue in the speciality alloys segment was buoyant and expanded by 16.6% to €51.3-million.
Revenue in the ferro-alloys segment, however, contracted by about 10%.
Profitability was also negatively impacted on by the performance of the ferro-alloys segment, owing to the interplay of lower market prices and specific adverse conditions that the plants faced in South Africa, the company lamented.
Ebitda for the first half this year contracted to €500 000, while the net loss for the first half stood at €4.6-million.
Looking ahead into the third quarter, which is typically driven by seasonal effects, the ferrochrome benchmark price contracted to 138c/lb, from 142c/lb in quarter two.
On the other side, chrome ore prices in China have already contracted below levels of $180/t in July and August.
“The second quarter presented some serious challenges for Afarak, mainly concerning the operations in South Africa. Unfortunately, our mining teams in Stellite and Mecklenburg came across some difficulties throughout the quarter.
“As a mining company, we cannot always predict the geology,” CEO Guy Konsbruck commented, adding that the unexpected quality of ore mined affected downstream processing at Mogale, as well as the cost of production and pricing of both mined and processed materials.
In addition, the unfavourable exchange rate movements also impacted on Afarak’s bottom-line.
The interplay of these factors, Konsbruck added, led to an overall poor financial performance in the ferro-alloys segment.
Afarak achieved growth in revenues, despite lower prices compared to a year earlier, but this did not translate into improved profitability.
Konbruck further pointed out that the specialty alloys business segment fully met the company’s expectations, with the mines in Turkey continuing to perform well and the additional plant investments having led to an increase in productivity and output.
Processing levels at the EWW plant, in Germany, continued to increase, he added, noting that the company also enjoyed increased demand for its products. Currency exposures, particularly the weakening of the dollar, negatively affected Afarak’s profitability, however.
Moving forward, although the market remains highly volatile, Konsbruck noted that, from an operational perspective, Mogale will be operating without furnace number 3 during the third quarter, owing to an unexpected maintenance activity, while mining activity will be adapted to the present poor demand.
“We will continue to prepare the underground operations in Mecklenburg. Our platinum-group metals plant project is completed and we will start production during the quarter, adding to our product range and further diversifying our revenue streams,” he said.
Mogale has also completed two important investment projects, starting to operate its own metal recovery plant and a foundry grade chrome ore concentrate producing plant, in this quarter.
Both these plants are expected to make a positive contribution to Afarak’s revenues and profitability going forward.