The “prohibitive” increasing cost of South African electricity in the powering of smelters remains a major concern, says African Rainbow Minerals (ARM) CEO Mike Schmidt.

Responding to questions following ARM’s reporting of 30%-lower earnings in the six months to December 31, Schmidt said that the JSE-listed company had to respond by investing capital into its smelting operations.

“We operate in a global environment. We have to compete with hydro and gas. Our cost increases are running away. That’s the concern we have,” said Schmidt.

Smelters in the group did not necessarily have critical mass.

“We have to do a huge amount of capital injection to get the most modern smelting technology going,” Schmidt said.

The ARM-Assmang ferrochrome operations have been converted from ferrochrome to ferromanganese at Machadodorp.

A few years back, the company believed that getting out of ferrochrome into ferro- manganese was the way to go and the conversions have bought the company time.

But competing with companies that receive lower-priced power from hydro- electric plants and from cheaper gas is proving a tough ask.

The company has to get back to the drawing board.

Smelting in South Africa without critical mass is proving a losing battle as a result of the steeply rising power costs.

What has impacted negatively on South Africa’s ferrochrome business is the chrome concentrate coming out of the platinum-group-metals (PGMs) mining operations.

ARM’s own two PGM mines are able to produce at a rate of 50 000 t of chrome a month at the low cost of R50/t, compared with R750/t elsewhere.

It also has significant chrome stockpiles at the Nkomati nickel mine. Collectively, the company could be capable of generating 600 000 t to 700 000 t of chrome concentrate a year at marginal cost.

It is having to watch the market that is currently flooded, observe government reaction and position itself accordingly.

Chrome ore unit costs increased by 7% in the six months to December 31 as a result of inflation and higher labour cost increases.

Manganese alloys’ unit costs also rose by 7%.