Merafe gives equity raising a miss, keeps Lion Two stake at 20.5%

The black-owned JSE-listed ferrochrome company Merafe is giving equity raising a wide berth and opting to stick with a 20,5% stake in Xstrata’s Lion Two expansion at this stage, for which it must fork out R1-billion.

The Bafokeng-controlled company, which has a chrome joint venture with the London-listed Xstrata, has exercised its right to a 20,5% participation in Lion Two at cost.

Merafe decided not to up its stake to 26% at this stage, owing to unfavourable current equity market conditions.
Lion Two, which will create 1 000 permanent jobs and 1 800 construction jobs, will continue to use Xstrata’s proprietary Premus technology, which cuts electricity consumption by up to 50%.

Premus also requires less metallurgical coke, provides better chrome recovery and generates 30% less slag and slime.

Eskom has allocated electricity to Lion Two, which is aligned with South Africa’s Integrated Resource Plan and Industrial Policy Action Plan, as well as the Mining Charter, which calls for sustainable job creation, beneficiation, increased export earnings, increased procurement from black economic-empower- ment enterprises, support for new local enterprises and skills development.

Merafe will source the R1-billion investment from its own cash, its share of future cash flows from the venture and debt.
Lion Two, in Steelpoort, Limpopo, is to be a 360 000 t/y ferrochrome smelter that will increase total ferrochrome capacity, to 2,3-million tons a year.

Its R4,9-billion capital cost includes R700-million for the concurrent development of the 1,2-million-ton-a-year run-of-mine Magareng project at Thorncliffe.

On the demand side, Merafe sees stainless steel melt production growing at 6% a year and, on the supply side, increasing barriers to entry that include security of electricity supply, high capital costs, rising production costs, less access to funding and a shortage of high-quality ore reserves.

Lion Two, which will have two closed electric arc furnaces, two pelletisers and two drying and roasting kilns, is expected to begin producing ferrochrome in the first half of 2013.

To watch a video of Merafe CE Stuart Elliot being interviewed by Mining Weekly Online, go to www.miningweekly.com and click on ‘Multimedia’ and then on ‘Video Clips’, or watch it on the Mining Weekly App on your iPhone, or at m.miningweekly.com on your cellphone.