JOHANNESBURG (miningweekly.com) – The start of manganese sinter sales over the six months ended August 31, led to diversified commodities trader Metmar lifting its turnover by 11% to R1.03-billion for the period.

However, a general decline in commodity prices, such as those for manganese and iron-ore, which, in the last 12 months had declined by 23% and 25% respectively, led to margin contraction.

Metmar achieved a gross margin of 5% for the six months – 30% below that of the same period last year.

“This equates to a R15.2-million decline in gross profit in absolute terms, while the trading margin of 5.1% is lower than the 7.9% achieved in the previous period, owing to the drop in key commodity prices,” the company outlined in a results statement on Tuesday.

Operating expenses declined 4% to R60.8-million, reflecting an effective cost containment strategy in the midst of weak commodity prices.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) of R11.1-million were 63% down from the previous period as a result of low gross margins, while the attributable loss for the period decreased 34% to R30.4-million with Metmar’s headline loss, however, increasing to R60.1-million.

TRADING SEGMENT
Looking to divisional performance, revenue from Metmar’s core trading segment fell 8% to R839.5-million.

Volumes, excluding sinter, were 23% down on the prior year, mainly owing to volume decreases in zinc, chrome and manganese ore, tin, coal and iron-ore.

Gross margins of 4.7% were 25% down as a result of “unfavourable” product mix and reduced prices in commodities such as iron-ore.

“Although Ebitda was down 37%, profit before discontinued operations was R11.1-million compared with a loss of R1.9-million in the previous year,” said the group.

Meanwhile, Metmar’s Kalagadi tolling project, in the Northern Cape, recorded a loss of R13-million over the period, mainly owing to high interest charges arising from financing inventory.

Manganese commodity prices decreased significantly over the period, resulting in lower-than-forecast profit margins.

“After solving numerous commissioning issues, the sinter plant is now stable and we expect higher production to drive increased sales volumes in the second half, as well as decreasing inventory levels and finance charges,” Metmar outlined.

INVESTMENT SEGMENT
Revenue from the company’s investments division was negative in the current year following the reversal of intercompany sales and profits with Metmar Trading, while operating expenses were down 58% to R13.6-million.

Net finance costs had decreased 26% and were expected to further decrease as coke breeze was consumed in the sinter tolling project.

“Over the past two years, various investments were impaired and, where uncertainties existed, noncore investments were identified and transferred to noncurrent assets held for sale. Our investment portfolio is now streamlined to withstand market fluctuations,” the group stated.

Metmar’s five core investments were now a 4.6% interest in Kalagadi Manganese, a 19.9% stake in the Sefateng chrome mine, a 3.5% interest in Alphamin Resources, a 26% stake in FPT Minerals and a 51% share in Steelpoort Chrome Mines.

OPERATIONAL ACHIEVEMENTS
Over the period, the group signed a long-term offtake agreement for chrome, following the award of a mining right to Sefateng Chrome, which would result in significant additional volumes in future.

“The offtake will require minimal cash investment from Metmar Trading to start mining, as well as providing stability to future trading volumes,” it noted.

In addition, FPT Minerals, a 26%-held investment in a container handling facility in Maputo, Mozambique, completed its commissioning in January and material from Sefateng Chrome would fully use its current capacity of 30 000 t/m.

The Kalagadi Manganese sinter plant, meanwhile, began production during the period. Commissioning issues had been resolved and the plant was now running at a production level to match improving outbound logistics.

“Production volumes are expected to be higher in the second half as the technical team fine-tunes the production process,” Metmar outlined.

In addition, Alphamin Resources declared further drilling results over the six months that firmed up its resource status. An updated resource statement was expected in the second half of the financial year.

Steelpoort Chrome was, meanwhile, completing an application for a water use licence, which would be submitted in the second half of the financial year.

“Upon award of this licence, Steelpoort Chrome Mines will start mining under its existing mining right and deliver chrome to Metmar as per the signed offtake agreement,” it stated.

The process of disposing noncore assets also gained momentum during the period, and most of the property, plant and equipment previously disclosed as noncurrent assets held for sale were successfully disposed of.

OUTLOOK
Looking ahead, Metmar said declining growth rates in China reflected a subdued commodity market.

Chinese buyers had been opportunistic as commodity prices had weakened
during the period and “many” mines and commodity trading companies were not sustainable at these reduced commodity prices.

“Hence, natural attrition has prevailed, which provides opportunities for the company. Going forward, we intend to continue ramping up and exploiting signed offtake agreements, delivering profits from the sinter tolling agreement, reducing costs and seeking diversified profitable opportunities,” the group advised.