Merafe Resources shares leap 9% on acuisition of Unicorn Chrome stake
JOHANNESBURG – Merafe Resources closed 9.09 percent higher to close at 60c a share on Friday following news that it had acquired a 20.5 percent stake in Unicorn Chrome from Glencore for R32.2 million.
Merafe, which is the world’s largest ferrochrome producer through the Merafe Glencore Chrome joint venture, told investors that it considered Unicorn to be a ‘valuable addition’ to its chrome interests.
The company said that it had sufficient cash reserves to complete the acquisition.
“Merafe considers this acquisition as a long-term strategic investment which will place the company in a better position and ahead of its peers from an operational perspective. Given the cyclical nature of the mining industry, prudent cash management is crucial, especially now during Covid-19 pandemic,” Merafe said, adding that it continued to closely monitor the costs and capital expenditure of the company.
Unicorn owns a UG2 chrome concentrate producer, which extracts chrome concentrate from a tailings stream in the North West.
Merafe said Unicorn’s net asset value at the year to 28 February was R21.2m and the profit attributable thereto was R28.6m.
The company also said the acquisition was not subject to shareholder approval, and it had appointed Tamela Holdings as the independent expert to provide an opinion on the fairness of the acquisition.
“Tamela has considered the terms and conditions of the acquisition and is of the opinion that the acquisition is fair to shareholders,” the company said. It invited shareholders to inspect the terms of the acquisition for a period of 28 days from the date of the announcement.
In March Merafe told shareholders that in accordance with its strategy, it would continue to focus on maximizing shareholder returns in the near term in the form of dividends and would continually assess opportunities to deliver shareholder value.
The company declared and paid a dividend of R100 million for 2019 and said it would continue to manage factors within its control.
However, it was concerned that ferrochrome sales to China were impacted by the export of unbeneficiated chrome ore from South Africa, which was facilitating the growth of a ferrochrome industry in China.
It was also worried that the loss of sales was highly likely if increased costs made its product prices uncompetitive. It had previously warned of a possible loss of production because of electricity shortages, saying should the joint venture be unable to secure electricity supply for new projects, it would be unable to grow its operations