JOHANNESBURG (miningweekly.com) - Chrome and ferrochrome company Merafe delivered exceptional results for 2017, setting new production, revenue, earnings before interest tax depreciation and amortisation (Ebitda) and dividend records.
Cashflow from operating activities rocketed 179% to R1 400-million, compared with R502-million in 2016, leaving the JSE-listed company with net cash of R600-million, compared with net debt of R409-million in 2016.
Shareholders, including the State-owned Industrial Development Corporation, are on the receiving end of a record R301-million total dividend declaration, which is up 151 % on last year's R120-million at 12 c a share.
The women-managed business is headed by CEO Zanele Matlala, with Kajal Bissessor serving as financial director.
Matlala attributed the outstanding results primarily to increases in chrome ore and ferrochrome prices coupled to operational cost control, while production cost increases per tonne were held at 9%.
A 10% safety improvement resulted in the total recordable injury frequency rate improving to 3.74 from 4.15.
Ferrochrome production reached a record high of 395 000 t, up on the 393 000 t of 2016.
Revenue increased 3% to a record R5 889-million and Ebitda leapt 47% higher to a record R1 665-million, with headline earnings per share soaring 72% to 36.4 c a share.
Merafe shares in 20.5% of the Ebitda from the Glencore Merafe Chrome Venture, a global market leader in ferrochrome production, with a total installed capacity of 2.3-million tonnes of ferrochrome a year.
Chrome ore revenue decreased by 7% to R726-million on a decrease in sales volumes to
322 000 t, a strengthening rand, and a higher proportion of lower grade material.
Profit for the year was R914.1-million, after taking into account depreciation of R368.2-milion, net financing costs of R19.3-million and taxation of R363.6-million.
Merafe's attributable ferrochrome production is equivalent to installed capacity utilisation of 82%.
Record ferrochrome production was achieved at the Lion smelter and the Wonderkop smelter, and record pellet production were achieved at the Tswelopele and Bokamoso pelletising and sintering plants.
The record at the Tswelopele plant is seen as remarkable since it is the first plant of its type in the world to exceed its design capacity over a full year.
The 9% production costs per tonne rise was against the backdrop of ore increases of 15% and reductant consumption increases of 31% and carefully managed production during the high electricity tariff winter months.
STAINLESS STEEL OUTLOOK
Global stainless steel growth stalled in early 2017 when a number of Chinese mills announced widespread environmental and pricing-linked shutdowns. Despite the slow start to the year, the commissioning of a large Indonesian stainless steel project, increased US output and a second-half recovery in Chinese production resulted in global stainless steel output achieving growth of 5.9%. Global stainless steel output for the year is estimated to have been 48.3-million tonnes, of which Chinese mills accounted for 25.7-million tonnes.
Ferrochrome pricing remained volatile throughout 2017, with market fundamentals and macroeconomic factors contributing to large swings. The first quarter (Q1) of the 2017 year began with near-term record chrome prices as quotes for imported charge chrome and imported upper group two (UG2) chrome ore reached 135 c/lb and $395/t. This pricing followed a Q1 2017 European Benchmark ferrochrome price of $165 c/lb, which increased 50% from the prior quarter.
The strong pricing environment incentivised additional supply which, in conjunction with the temporary slowdown in the Chinese stainless steel industry, caused a rapid pricing decrease in early Q2. Quotes for imported charge ferrochrome and UG2 chrome ore reached floors in June, when they were quoted as 70 c/lb and $138/t.
The second half of the year was characterised by a rebalancing of the industry's supply-demand structure, and multiple price fluctuations continued to cause disruption. Under these conditions, Chinese ferrochrome producers were able to increase their 2017 yearly output to 4.9-million tonnes, up from 4.1-million tonnes in 2016. Global ferrochrome output is estimated to have increased to 12.3-million tonnes in 2017, up 11.3% year-on-year.
China's increase in ferrochrome production resulted in a large rise in seaborne chrome ore trade. During 2017, China imported 13.9-million tonnes of chrome ore, marking a year-on-year increase of 31.1%. South African producers maintained their position as China's largest supplier, accounting for 72.3% of these imports by volume.
Global stainless steel production is projected to grow by 4.1% in 2018 and at an average of 3% for the three years thereafter as additional Indonesian capacity is brought online and demand remains robust. This will, in turn, bolster demand for ferrochrome, particularly from non-Chinese sources. The Glencore Merafe Chrome Venture remains well positioned to take advantage of the healthy market outlook, the company said on Monday in presenting its financial results for the 12 months to December 31.
Sustaining capital expenditure increased from R276-million in 2016 to R403-million in 2017. This is as a result of inflation and the required refurbishments to older plants coupled with the Glencore Merafe Chrome Venture's ongoing efforts to improve costs and efficiencies across all operations.
The National Energy Regulator of South Africa approved a 2.2% tariff increase from April 1, which is significantly lower than the increases of the two preceding years.