Bauba projects adversely affected by chrome price and forex
The cash flow forecast prepared by Bauba management, based on current available information, indicates that the group will have funds available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.
As is common with many junior exploration and mining companies, the group raises capital for exploration and other projects as and when required. There can be no assurance that the group’s projects will be fully developed in accordance with current plans or completed on time or to budget.
Future work on the development of these projects may be adversely affected by factors outside the control of the group as the group’s operating results are subject to changes in the average chrome price and US dollar exchange rate.
Bauba diversified its business into a low-cost, cash-generative, mining operations in 2015 with the Company acquiring 60% of the beneficial rights to the Moeijelijk Chrome Mine. The operation is efficient, low-cost and cash-generative and through the exploitation of its near-surface and underground chrome resource, delivering a run-of-mine chrome-ore and concentrate chrome from its washing plant to China.
Global market uncertainties, driven by COVID-19 waves, have lowered the global demand for stainless steel and, in turn, demand for chrome. The market price of 42% chrome concentrate decreased from US$162,5 (China CIF) at the beginning of the financial period to US$132 (China CIF) at the end of the financial period. The market price was US$165 (China CIF) in mid-March 2021.
While the US dollar/ZAR exchange rate has weakened from 14,62 at the end of the period under review to 15.06 on 29 March 2021. If the chrome price drops below this level for an extended period, or if the US dollar/ZAR exchange rate strengthens significantly, it could cause a material uncertainty for the group to meet its obligations as they fall due and its ability to continue as a going concern.
The proposed chrome ore export tax in South Africa to support the local ferrochrome industry has also created further uncertainty that will continue to have a negative impact on short-term chrome ore pricing.
The directors have, subject to the aforesaid caveats, a reasonable expectation that the group will have adequate resources to continue in operational existence for at least the next 12 months from the reporting date.