Johannesburg - Evraz Highveld Steel and Vanadium said yesterday there was “significant” doubt about its future as a going concern.
It was unable to borrow more money after it posted a loss for the second consecutive year, South Africa’s second-largest steel maker and the primary producer of vanadium slag said. Its balance sheet showed it had a net cash position of R7 million at the end of December last year.
“There are matters that may cast significant doubt about the ability of the company to continue as a going concern,” Evraz Highveld said.
Its plight highlights the effect on industry of the volatile labour situation as the company struggled last year to recover from a crippling four-week strike in 2012.
Smaller producers such as Evraz Highveld, which has a market capitalisation of about R1.7 billion, are vulnerable to major labour disruptions, as well as to climbing wage bills and power costs.
“The domestic economy remains under pressure of electricity supply concerns and notable energy tariff increases, which adversely affect the competitiveness of the domestic steel industry,” it said in its annual results statement.
“Labour stability, health of the market and production stability continue to pose a threat to the operations of the company and the ability to generate profits,” it said.
Its credit lines were “fully drawn and may not be sufficient to support the company if the company cannot achieve its production and sales and cost targets”.
Its operating loss narrowed to R293 million from a loss of R854m in the previous year. The headline loss was trimmed to R3.772 a share from a loss of R10.304 a share in 2012.
Evraz Highveld’s shares shed 1.43 percent to end at R13.75 on the JSE yesterday. Its price has slipped 12.81 percent this year compared with the 16.17 percent rise in the all share index.
Michael Garcia, the chief executive, was not available for comment.
Evraz Highveld is 85 percent owned by Mastercroft, a unit of Russian multinational Evraz.
Abdul Davids, the head of research at Kagiso Assent Management, was surprised by Evraz Highveld’s language in light of the offer last year by little-known BEE company Nemascore to buy an 85 percent stake. Davids also said Evraz Highveld’s debt was not that high in relation to its assets.
“The Russians have not invested into the company since they bought into it. They have not been able to restore stability. It has a very high electricity usage. They should a get a handle on the costs.”
Karl Cloete, the deputy general secretary of the National Union of Metalworkers of SA (Numsa), said he was on his way to Limpopo to attend a meeting called by Evraz Highveld. The meeting would end tomorrow.
“It is about the relationship between the company and Numsa. They are not specific about who may buy the company and are not giving any solid information,” he said.
In April 2013, Evraz Highveld announced that Nemascore would acquire 85 percent of the company for $320 million (R2.9 billion at the time) subject to due diligence.
Evraz Highveld refused to explain why a buyer would pay such a high premium to market value for a loss-making asset. It has not made an announcement about the due diligence and Nemascore’s offer, which was to expire on June 30, 2013.