Merafe Resources have reported a loss after tax for the first half of 2020 due to not only reduced volumes of commodities sold, but also to lower realised cost, insurance and freight (CIF) ferrochrome and chrome ore prices.
Merafe’s operating income is primarily generated from the Glencore-Merafe Chrome Venture (Venture) focusing on ferrochrome production, with a total installed capacity of 2.3m tonnes of ferrochrome per annum. Merafe shares in 20.5% of the earnings from the Venture.
Merafe’s attributable ferrochrome production from the Venture for the six months ended 30 June 2020 decreased by 42% to 120kt (June 2019: 206kt). The decrease in production was as a result of the lockdown implemented to curb the spread of COVID-19, weaker demand and to a lesser extent load-curtailment.
With the easing of lockdown restrictions from level 5 to the current level 2, the Venture resumed operations at Lion smelter, Eastern Chrome mines and UG2 plants.
Post the winter period, the Boshoek and Wonderkop smelters as well as Kroondal mine have resumed operations. Lydenburg smelter will remain on care and maintenance indefinitely.
The National Energy Regulator of South Africa (NERSA) had approved an increase of 8.76% for Eskom direct standard tariff customers which became effective on 1 April 2020. The July 2020 court ruling that NERSA unlawfully included a R69 billion equity injection from the government in its calculation of Eskom’s allowable revenue for 2019 to 2022 will result in further increased cost for the Venture’s energy intensive business. These cost pressures threaten the sustainability of its smelting business as well as employment in the chrome sector.
“While the impact of the COVID-19 pandemic remains a key concern, we have had to review our business to ensure that our operations continue with minimal unplanned disruptions and our growth strategy remains pursued. We will continue to closely monitor the impact of the COVID-19 pandemic as well as market developments and respond accordingly,” said Zanele Matlala, Merafe’s Chief Executive Officer.