Black-owned ferrochrome company Merafe Resources on Tuesday reported record production, record revenue and a major jump in headline earnings in the 12 months to December 31.
Production hit the 393 000 t mark, revenue lifted to R5.7-billion, headline earnings a share soared 53% to 21.2c, safetyimproved and the final dividend of 4c a share amounts to a payout of R100.4-million.
Merafe’s revenue and operating income is generated from the Glencore-Merafe Chrome Venture, which has a total installed capacity of 2.3-million tonnes of ferrochrome a year.
Headed by CEO Zanele Matlala, Merafe shares in 20.5% of the venture’s earnings before interest, taxes, depreciation and amortisation (Ebitda).
The Bafokeng community-linked company’s share of venture revenue increased by 29% from the prior year to R5 702-million.
Ferrochrome revenue rose 25% year-on-year to R4 923-million on mainly an 18% increase in ferrochrome sales volumes to 437 000 t and a 15% weaker average rand/dollar exchange rate, partially offset by a 7% decline in net ferrochrome prices.
The average European benchmark ferrochrome price in US currency fell 11% from 107c/lb in 2015 to 95.5c/lb in 2016.
Chrome ore revenue increased by 61% year-on-year to R778-million on a 38% increase in chrome ore sales volumes to 372 000 t (2015: 270 kt), a 7% increase in dollar cost, insurance and freight (CIF) prices and the weaker exchange rate.
Chrome ore revenue as a percentage of total revenue increased from 11% in 2015 to 14% in 2016.
Merafe’s share of the venture’s Ebitda was R1 176.2-million for the 12 months to December 31, 38% higher than last year.
Corporate costs fell to R30.2-million in 2016 compared with R34.-million in the prior year. The share based payment expense increased from R1.9-million in 2015 to R12.8-million in 2016 as a result of the significant increase in the share price, a key input to the share-based payment valuation.
Profit and total comprehensive income for the year was R532.4-million, up from R343.4-million last year, after taking into account depreciation of R329.9-million, net financing costs of R59.4-million, current tax of R147.1-million and deferred tax of R64.5-million.
The balance of unredeemed capital expenditure is nil compared with R173.8-million last year.
Depreciation increased year-on-year on mainly the ProjectLion II ferrochrome plant.
Merafe closed the year with a net cash balance of R263.3-million, down on last year’s R309.6-million.
Head-office debt fell to R363-million from R559-million last year, and unutilised debt facilities stood at R283-million.
The interim dividend in August last year was R20-million and a final dividend of R100.4-million has been declared, compared with R30-million last year.
Sadly there was a fatality at the venture’s Helena mine, in September, when Johan Cronje sustained fatal injuries.
The company says that all efforts continue to be made to ensure that the highest standards of safety remain.
The venture’s total recordable injury frequency rate improved slightly from 4.17 at the end of 2015 to 4.15 at the end of 2016 as a result of ongoing programmes.
Merafe’s ferrochrome production from the venture was 4% higher than the prior year owing to the timing of refurbishments leading to more furnace hours, and the benefits of operating Lion II for the full year.
Total production cost a tonne increases were well below inflation despite above inflation price increases in electricityand labour, the impact of the weaker rand on imported reductants and higher upper group two (UG2) input costs.
This was primarily as a result of higher production volumes, the impact of low cost volumes from Lion II and various cost saving initiatives across all operations.Global stainless steel production totalled 45.2-million tonnes in 2016, equivalent to 8.8% year-on-year growth.
A surge in Chinese stainless steel production was the leading influence behind the global increase, as China increased its yearly output to 24.4-million tonnes, which is equivalent to a 13.3% year-on-year growth.
Other significant stainless steel-producing regions also recorded year-on-year growth. Favourable trade and anti-dumping conditions in Europe, India and the US supported increases of 1.8%, 6.6% and 6.7% respectively.
Collectively, these regions produced 13.2-million tonnes in 2016, an increase of 3.9% year-on-year.
In early 2016, ferrochrome prices decreased to the lowest levels seen since 2009 when the second quarter European Benchmark was settled at 82.00 USc/lb, driven largely by destocking of chrome ore, ferrochrome and stainless steel.
In the same period, the Metal Bulletin said that the imported charge chrome 50% index CIF China had decreased to 54.00 USc/lb, which is the lowest price quoted since the index was introduced in 2012.
A surge in Chinese stainless steel production positively impacted ferrochrome demand and resulted in global ferrochrome demand increasing 7.6% year-on-year.
Chinese stainless steel mills were the largest contributors to this increase, with demand growth of 9.4% to seven-million tonnes.
Chinese mills typically employ lower scrap utilisation ratios compared to global averages and therefore require a significantly larger portion of primary chrome units to meet stainless steel production increases.
Ferrochrome prices have continued to increase since the second quarter of 2016 on the back of increased ferrochrome demand, lower stock levels and increased chrome ore prices.
The European Benchmark ferrochrome price for the fourth quarter of 2016 was settled at 110 USc/lb, up 34.1% on the second quarter of 2016.
The Metal Bulletin imported charge chrome price increased to 135 USc/lb by year-end, a 150.0% increase on the price in March last year.
Global ferrochrome production increased 4.9% to 11.1-million tonnes with significant increases recorded from Kazakhstan and Chinese producers.
South African production decreased by 3.2%, which is as a result of multiple producer closures in late 2015 and early 2016.
China remained the world’s largest ferrochrome producer, with a 2016 output of 4.2-million tonnes.
The increased demand for ferrochrome, coupled with tightness in global chrome ore supply, resulted in positive price movements for chrome ore.
Between February and December last year, the Metal Bulletinprice for imported UG2 chrome ore 42% CIF China rose 400% to $400/t.
Chinese chrome ore importers continued to increase their dependence on South African chrome ore in the 12 months to December 31, as South African material accounted for 73.3% of all imported material.
Chinese chrome ore imports totalled 10.6-million tonnes.
Towards the end of 2016, the European Benchmark ferrochrome price for the first quarter of 2017 was announced as 165.00 USc/lb, the highest quoted price since 2008.
The price increase is indicative of a market still in deficit, and highlights the positive sentiment for 2017.
Stainless steel production is projected to increase by 3.5% and 3.8% in 2017 and 2018 respectively, indicating strong demand prospects for ferrochrome in the short-to-medium term.
Merafe reports that the venture is well positioned to take advantage of the increased demand.
“We remain on track to achieve our strategy of further reducing Merafe debt and increasing the dividend,” Matlala said.
The company has a hybrid dividend policy that has features of a stable dividend policy and a residual dividend policy.
A stable dividend of a minimum of 30% of headline earnings is planned at least once a year, based on the yearly financialperformance, expansionary projects and prevailing economic circumstances.
In addition, special dividends and share buy-backs may be considered.http://www.miningweekly.com/article/bafokengs-merafe-hits-high-spots-with-record-results-2017-03-07