JOHANNESBURG (miningweekly.com) – A R65-million operating loss in the 12 months to February 28 has prompted JSE-listed Metmar to cold-shoulder mining and re-embrace the metals trading base on which the company was founded.
“Our focus going forward is on the trading business and not on mining business,” Metmar CE David Ellwood said on Tuesday (also see attached video), adding that the return to profitability of the group would be from the trading space.
Mining investment would be only to secure long-term offtakes and investments COO Michael Golding said the company was in the process of disposing of five of its 14 investments and had declared several others noncore.
The company is in the final draft of concluding a tolling agreement with Kalagadi Manganese, the sinter plant of which is soon to go through a full cold-commissioning process. The Kalagadi mine is likely to be operational in early 2014.
Metmar owns 11.66% of Kalahari Resources, which owns Kalagadi, and this has presented an opportunity for toll treating manganese fines to sinter at Kalagadi using the metallurgical coke breeze that the company has in stock.
The sinter plant has a capacity of 250 000 t of manganese feed a month and the company is in a final stage of negotiation for an additional 750 000 t from another manganese source.
“That’s going to bring significant additional income,” said Ellwood, who reported a “difficult” trading environment in which Metmar’s revenue declined by 23% to R2-billion from R2.6-billion in the previous financial year.
Startup of the Kalagadi sinter plant will allow Metmar to turn a portion of its large Zimbabwe-sourced metallurgical coke breeze stockpile in Pretoria to account.
“We’ve had massive logistics costs in transporting the coke and we’ve had financial costs because of the delay of the Kalagadi sinter plant,” Ellwood said.
At full production, the Kalagadi plant would consume up 14 000 t of the stockpiled coke a month.
The manganese mine in the Northern Cape is expected to produce 3-million tons of ore a year.
The offtake agreement with Kalagadi to market 50% of its produce is in the final process of negotiations.
Metmar would also look to the mining-focused technical ability of Wasat Investment - with which it has a cooperation agreement - to secure offtake transactions.
The chrome ore market, Ellwood said, was “completely oversupplied”, with rivalry between independent chrome-ore miners, the ferrochrome producers and the platinum producers, which were spewing out large volumes of upper group two ore into the Chinese market at prices below production cost.
Margins had been decimated and traders were making $4/t or $5/t.
The company trades internationally in ferrous, nonferrous, plastic and chemical product.
To secure further offtake opportunities, Metmar has increased its shareholding in Kivu Resources to 32.4%, the tin project in the Democratic Republic of Congo which has been sold to Canada-listed Alphamin Resources.
Kivu also owns a tin project in Rwanda in partnership with the Rwandan Government.
Ellwood reported that the recent positive news out of the US had been neutralised by the ongoing crisis experienced in Europe and he expected Chinese external consumption numbers to remain depressed for the foreseeable future.
Nevertheless, the group was confident about its return to profitability, as a result of promising near-term business prospects.
The board, leadership team and senior skills base had been strengthened through the appointment of new board members, recruitment of specialist senior executives and concluding a service level agreement with Beacon Rock Corporate Services, owned by Peter Gain, Tom Borman and Rupert Smith.
Metmar raised nearly R100-million during the year through an issue of shares with the cash position at year-end a net overdraft balance of R19.7 million compared with the R39.5-million of the previous financial year.
Restructuring was expected to deliver a turnaround in performance irrespective of the performance of commodity markets.
Metals trading achieved an operating profit of R4.7-million compared with R88.5-million previously, owing to the decline in trading margins. The weak Rand in the second half of the financial year was not beneficial given that US Dollar purchases converted to Rand were higher than US Dollar sales converted to Rand. Furthermore US Dollar facilities at year-end had to be converted to Rand.
Evaluation has enabled Metmar Investments to identify noncore assets, which resulted in impairments contributing to the loss.
Part of the nigh-R100-million raised was used to bolster the Kivu stake and fund the Eastern Belt Chrome Mines Proprietary Limited’s Sefateng chrome mine project and give Metmar rights to full offtake.
Metmar Polychem, which distributes polymers, natural rubber and rubber chemicals, delivered lower-than-anticipated financial results.
No dividend was declared.