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Merafe Resources boosted by high demand for ferrochrome

Merafe Resources, a ferrochrome producer in a joint venture with Glencore, said yesterday that 2021 had been a year of recovery as financial and operational improvement was bolstered by the high demand for ferrochrome. Photo: File

Merafe Resources, a ferrochrome producer in a joint venture with Glencore, said yesterday that 2021 had been a year of recovery as financial and operational improvement was bolstered by the high demand for ferrochrome. Photo: File

Published Mar 23, 2022

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MERAFE Resources, a ferrochrome producer in a joint venture with Glencore, said yesterday that 2021 had been a year of recovery as financial and operational improvement was bolstered by the high demand for ferrochrome.

In its trading statement, the JSE-listed company said it generated a R1.67 billion profit for the year to end December, from a loss of R1bn from the previous year.

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According to the company, the strong growth in stainless steel production, as well as developments in China, were key to the buoyancy in the ferrochrome market in 2021.

Merafe declared a 22c final dividend, from none previously, representing about a R550 million final payout. In its 2019 financial year, the group had declared a final dividend of 4c.

Chief executive Zanele Matlala said the improved economic activity contributed to robust demand for ferrochrome, which coupled with supply constraints resulted in a marked increase in prices. “This activity also led to higher volumes sold, however, the impact on revenue was somewhat dampened by a stronger rand: USD exchange rate. Merafe achieved the highest profit after tax since the formation of the venture in 2004,” she said.

The Glencore-Merafe Chrome Venture operates five ferrochrome smelters and eight mines. Merafe owns 20.5 percent of the joint venture.

The mining firm, whose primary source of income is the joint venture, said its group revenue rose 69 percent to R8.06bn, with attributable ferrochrome production volumes increasing by 43 percent to 379 000 tonnes.

“The increase was mainly due to production being less affected by Covid-19 shutdowns coupled with improved plant efficiencies achieved at Venture’s smelters,” the company said.

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The company said its Wonderkop and Lion smelters achieved record production.

Merafe’s portion of the venture’s earnings before interest, taxes, depreciation, and amortisation was R2 498.1 million compared to the previous year’s R197.8m.

The company said there were no retrenchment costs in the year, while in 2020 they were R97m. “The company wrote down inventory by R24.4 million during the year compared to previous R13.6 million,” Merafe said.

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On the company outlook, it said its capital expenditure programme which was necessary to enable these performances was resumed in 2021 and will continue in 2022.

“There is an expectation that global growth, while still positive, will slow down from the highs experienced in 2021. While the Covid-19 effects have been less damaging in recent periods, the pandemic remains a threat which we will continue to monitor,” Merafe said.

Last year, Merafe also announced that it and Glencore Operations South Africa Proprietary had reached an agreement to contribute to the joint venture of a new platinum group metal (PGM) production plant that is being constructed at the Kroondal Mine.

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The new PGM plant’s main operations will be the treatment of PGM-bearing material derived from the mining operations at the joint venture’s western chrome mines available in applicable tailings facilities and dams; and from certain mining operations in the vicinity of the Kroondal Mine to which Glencore SA and/ or Merafe directly or indirectly have rights concerning PGMs, the company said at the time.

Integral Asset Management mining analyst Bruce Williamson said Merafe recovered in the first half of the year.

“That was a really big turnaround. If you look at the prices Merafe sells two products, chrome ore picked up and ferrochrome price picked up from the end of December. The results we saw today haven’t shown the increase in the ferrochrome price,” he said.

According to Williamson the outlook was more positive because the ferrochrome price was up from 75 to 80, to 120 US cents a pound.

“It’s an almost 40 percent increase to the price of ferrochrome price which is going to help them.”

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