JOHANNESBURG - Merafe Resources has withheld the interim dividend for the six months to June on lower average prices of chrome ore prices that have stunted revenue growth.
Merafe chief executive Zanele Matlala said yesterday that the board of directors had decided not to declare an interim dividend due to prevailing market conditions. “In accordance with our strategy, we remain committed to maximising return to our shareholders in the near term in the form of dividends and will continue to assess opportunities to deliver shareholder value,” Matlala said.
Merafe, whose revenue is primarily generated from the Glencore-Merafe Chrome Venture, has a dividend policy of 30percent of headline earnings.
It declared a R200million dividend in the corresponding period last year and a record full-year dividend payout of R351m from its cash reserves.
Matlala cautioned the environment had been tough as the company battled the 13percent slide in prices to $1.04 (R15.34) per pound ($/lb) for the third quarter from $1.20/lb for the second quarter - the lowest level since the third quarter of 2016. The low prices reflected a weakening global stainless steel price environment, which had been adversely impacted by high inventories. “Due to the challenging operational environment characterised by weak demand and lower realised prices, Merafe has produced a subdued set of financial results for the six months ended June 30, 2019,” Matlala said.
Profit took a hefty 61percent knock mainly as a result of lower ferrochrome and chrome ore prices. Profit fell to R165.2m from R425.1m, the company said. Ferrochrome revenue jumped by 2percent to R2.391billion from R2.3bn in the comparative period last year primarily as a result of a weaker average exchange rate and a marginal increase in ferrochrome sales volumes to 189000 tons from 181000 tons last June.
Matlala said it expected price and exchange rate volatility to continue.
“Global uncertainty remains a concern and will continue to have a negative impact on economies. Given the state of the market, there are likely to be ferrochrome production cuts across key markets. Surpluses are expected to narrow as a result with some improvement in prices expected,” Matlala said.
Merafe’s portion of the venture’s earnings before interest, tax, depreciation, and amortisation (Ebitda) for the period almost halved to R454.4m from R814.4m in the previous period last year. The Glencore-Merafe chrome venture is one of the world’s largest producers of ferrochrome, used in the production of stainless steel.
It reportedly said in March it was concerned over the country’s electricity situation given the financial, structural and operational challenges that faced Eskom. “Eskom’s situation exposes the venture, and indeed the entire country, to both tariff and electricity supply risks,” the company reportedly said.
Merafe Resources shares closed 2.48percent lower at R1.18 on the JSE yesterday.