JOHANNESBURG (miningweekly.com) – Commissioning of the Xstrata-Merafe chrome venture’s Lion Ferrochrome Complex Phase 2 expansion project (Lion II), in Limpopo, was still expected during the second half of 2013, despite heavy rainfall and community unrest, Merafe CEO Zanele Matlala said on Tuesday.
Presenting the company’s results for the year ending December, she indicated that the project remained on schedule and within budget.
About 50% of the budgeted project cost of R1-billon had been incurred by December 31, 2012.
Merafe expected additional consumption efficiency improvements and cost savings to materialise once the plant was fully operational.
The venture’s new R1-billion, 600 000 t/y pelletising and sintering plant, Tswelopele, at its Rustenburg smelter was completed on schedule and within budget during 2012. The plant was hot commissioned in October and reached design production capacity within the first two months of operation.
Matlala pointed out that the local ferrochrome industry had not been immune to the challenges facing the mining industry as a whole, which included the eurozone crisis, slow economic recovery in China, weak commodity prices and local cost pressures in the form of rising electricity costs and wages.
Despite this, the company reported a 5% increase in revenue to R2.54-billion during 2012, while headline earnings a share were 5c, marginally down from 6c in 2011.
“We had strikes at our Wonderkop and Waterval mines, but this had no significant impact,” Matlala noted.
Merafe’s 2012 share of ferrochrome sales volumes from the Xstrata-Merage chrome venture was 255 000 t, marginally above the prior year’s sales volumes of 254 000 t. The average European benchmark ferrochrome price decreased from $1.25/lb in 2011 to $1.21/lb in 2012.
A foreign exchange (forex) loss of R3.9-million in 2012 contributed to Merafe’s share of earnings before interest, taxes, depreciation, and amortisation (Ebitda) from the venture falling to R349.4-million during the year from R464.4-million in 2011, which was boosted by a forex gain of R80.9-million.
However, the decrease in the average European benchmark ferrochrome price and an increase in costs, which were partially offset by the weakening of the rand to the dollar, was the primary cause of the year-on-year fall in Ebitda.
Corporate costs of R33.6-million decreased year-on-year, primarily as a result of transaction costs and expenses associated with indirect tax liabilities that were incurred in 2011.
The profit and total comprehensive income for the year was R48.9-million.
At December 31, Merafe had long-term debt owing to Absa Capital of R512-million and about R288-million of used Absa long-term debt facilities.
Merafe’s board decided not to declare a dividend for the 2012 financial year, taking into account expansionary projects and the projected debt and cash levels of the group.
During year under review, Merafe’s total ferrochrome production fell by 8% year-on-year to 242 000 t. The company attributed this to weaker demand and participation in State-owned Eskom’s power buy-back programme.
The compensation received from Eskom for the electricity not consumed was adequate to cover the costs and lost profits on the associated volumes. Operating capacity use for 2012 reduced to 66%, compared with 72% for the prior year.
Merafe continued to benefit from investments in improving efficiencies in its operations and managed to contain total cost increases at 9.2%.
Growth in global stainless steel production in 2012 was primarily driven by the increased production of stainless steel in China, which resulted in record stainless steel production for the year of 35.2-million tons, compared with the 34.1-million tons in 2011.
Global demand for ferrochrome was up year-on-year, to 9.7-million tons in 2012, exceeding the previous high of 9.5-million tons in 2011.
On the back of the agreements South African producers had with Eskom to sell back electricity to the grid, local ferrochrome production declined by 9% year-on-year. In response to the resulting increased demand for domestically produced ferrochrome and increased availability of chrome ore, Chinese ferrochrome production increased by 9%, from the production levels achieved in 2011.
South Africa supplied around 48% of the chrome ore imported into China, a 2% decrease from 2011’s record volumes. These exports of chrome ore continued to advance the development of the ferrochrome industry in China, displacing capacity in South Africa and undermining South African ferrochrome sales, stated Merafe.
Matlala said discussions between industry and the Department of Minerals and Resources (DMR) continued, with the DMR having initiated a process with major ferrochrome, chrome ore and platinum producers to find a solution aimed at improving the current plight of the South African chrome value chain.
THE YEAR AHEAD
Merafe expected stainless steel production to increase by 4% in 2013 and by 5% in the long term, which would lead to increased growth in demand for ferrochrome globally.
“Given the reduced supply of ferrochrome resulting from the Eskom buy-back agreements in South Africa, coupled with improved market sentiments, we expect increased pricing going forward,” Matlala added.
The company also put forward that its low costbase positioned it to take advantage of the increased demand for ferrochrome.
Merafe’s new CFO, Ditabe Chocho, stated that the company’s focus in 2013 would be to further build its capacity and improve its efficiency, while priority would be give to completing Lion II within budget and on schedule.
He added that, beyond that, in the 2014/15 financial year, Merafe would work to reduce its debt.
“We intend to use up our full facilities from Absa, which amounts to R800-million. But the debt levels we are comfortable with are in the region of R400-million.”