MERAFE Resources rallied more than 5 percent on the JSE yesterday as investors warmed to news that the firm expected a headline earnings hike of up to 142 percent for the six months to June.
Merafe owns a 20.5 percent stake in the world’s largest ferrochrome operation through its participation in the Glencore-Merafe Chrome Venture, in which Glencore owns the remaining 79.5 percent share.
“The significant period-on-period increase in headline earnings was primarily attributable to the increase in ferrochrome production and sales volumes and the weakening of the rand against the dollar,” Merafe said in a statement yesterday.
Merafe said it was likely to report headline earnings a share of between 8.6c and 9.2c compared with 3.8c for the comparative period last year, which is an increase of between 126 percent and 142 percent.
Basic earnings a share would be between 569 percent and 615 percent higher at between 8.7c and 9.3c, compared with 1.3c for the comparative period last year, the company said.
About 80 percent of the world’s ferrochrome is used for the production of stainless steel, and the stainless steel industry will probably maintain a growth rate about 4 percent a year. To meet this demand 2.5 million tons of additional ferrochrome would be needed annually by 2017, the company has said previously.
Merafe reported operational improvements in the first half of the year with attributable ferrochrome output of 168 000 tons from 145 000 tons in the six months to June last year.
Its operating capacity utilisation for the first half was 90 percent, an increase of 16 percentage points period on period.
“This increase was primarily attributable to a stronger market and the impact of the Eskom buy-back agreements that were entered into in the first half of 2013 and were non-recurring in the first half of this year,” the company said.
Ferrochrome sales volumes rose 25 percent period on period to 171 000 tons from 137 000 tons in the corresponding period.
Ferrochrome production from the first furnace of the Project Lion II started on April 6, and production from the second furnace commenced on May 30.
Earlier this month, daily ferrochrome production at the plant reached more than 60 percent of design capacity and it was expected to reach full capacity within the next year.
The five-month platinum belt strike hurt chrome output at platinum producers from upper group two (UG2) reefs..
Ore input costs at the venture’s furnaces rose during the first half of the year as a consequence of a higher percentage of own mined ore and bought in ore being used in the production of ferrochrome, instead of internally produced UG2 concentrate.
Merafe expects to close at the end of June with a net cash balance of R19 million, against a net overdraft of R19m at year-end.
The shares gained 5.07 percent to close at R1.45 yesterday.