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Difficulties continue for Afarak in Q3

16th November 2018

By: Simone Liedtke

Creamer Media Social Media Editor & Senior Writer

     

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Industry seasonal effects, coupled with some internal adversities, primarily in the ferro-alloys segment, continue to make this a difficult year for specialty alloys producer Afarak.

During the company’s third-quarter period, ended September 30, the benchmark price for ferrochrome fell further, leading to lower revenues on a quarter-on-quarter and year-on-year basis.

Processed material sold decreased by 7.3% to 25 521 t and revenues decreased by 3.6% to €42.6-million.

Tonnage mined decreased by 1.5% to 150 951 t.

The group recorded a loss before interest, taxes, depreciation and amortisation (Ebitda) of €2.5-million, with an Ebitda margin of -5.9%.

Afarak incurred a loss from continuing operations of €2.8-million and cash flow from operations stood at €2.3-million.

Net interest-bearing debt increased to €9.9-million.

Cash and cash equivalents as at September 30 was €5.8-million.

Commenting on the results, CEO Guy Konsbruck said that in line with expectations, the seasonal effects of quarter three impacted Afarak’s performance.

“With plants in Europe shutting down, owing to summer recess, and plants in South Africa also closing for maintenance in order to avoid higher winter electricity tariffs, quarter three is always bound to be a difficult one,” he elaborated.

These effects, he added, were compounded by a suppressed benchmark price, compared with the previous quarter, albeit higher than the one registered a year earlier.

“The significant challenges faced by the ferro-alloys segment in South Africa offset positive results registered by the speciality segment. Higher electricity costs were compounded by lower mining activity, primarily owing to lower quality ore from Mecklenburg, and a forced close of the P3 furnace, owing to unexpected repairs.”

This interplay of factors, Konsbruck noted, together with lower sales prices, led to the segment registering a significant loss, which impacted heavily on the group’s results.

However, he noted that the speciality alloys business segment fully met the company’s expectations.

The mines in Turkey continued to perform well and the additional plant investments have led to an increase in productivity and outputs.

Processing levels at Afarak’s EWW plant, in Germany, continued to increase.

“We also enjoyed increased demand for our products. Currency exposures, particularly the strengthening of the US dollar, positively affected our profitability, when compared to a year earlier,” Konsbruck said.

Despite the volatile market environment, Afarak continues on its path of restructuring and consolidation.

“During the past two years, the management has undertaken an ambitious work programme to make the group more sustainable.”

Meanwhile, Afarak expects the downward trend in the benchmark price for ferrochrome to continue in the fourth quarter.

“In fact, the benchmark has been settled at $124c/lb, which is lower than both the previous quarter and the price for quarter four in 2017,” the company commented.

However, several measures taken by the company are expected to come on-stream.

The Mecklenburg mine is expected to deliver more tonnage as the opencast pit has been extended until the end of March 2019, with a resultant deferral in going underground.

Mecklenburg, despite being a challenging mine, remains an important supplier to Mogale.

The platinum-group metals plant at Stellite is now complete and has started operating, with the revenue from this new product class expected to make a full contribution in 2019, the company said.

Vlakpoort continued to operate and contribute positively. The Zeerust mine is currently being prepared for a start of operations during the final quarter as, following the grant of Section 11, the final transfer of control was completed in November.

The situation at Mogale is expected to improve and following emergency works at the P3 furnace, production is expected to resume during the final quarter, Afarak confirmed.

Additionally, a new production cycle is set to start at Magnohrom in 2019, as repair works in the rotary kiln have been finalized and preparations have started for ramping up mining of the magnesite ore.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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