Merafe: FeCr remains strained, increasing pressure on margins

Merafe achieved a profit of R720 million for the six months ended 30 June 2024, as a result of higher realised chrome ore prices and a weaker ZAR:USD exchange rate.

Ferrochrome prices remain strained and cost increases continue to put pressure on margins. The efficiency of Merafe operations provided some buffer to protect our profitability.

The board of directors of Merafe (“Board”) has declared an interim gross cash dividend of 20 cents (June 2023: 20 cents) per share.

Outlook

Merafe’s outlook has not changed much from year end. As articulated then, some key trends that are shaping the environment in which it operates are:

• Economic uncertainty that is characterised by high inflation, interest rates and trade tensions. This uncertainty makes it difficult for businesses to plan and leads to volatility in the markets.
• The global market is increasingly focused on sustainability, and businesses are under pressure to reduce their environmental impact.
• The Glencore-Merafe Chrome Venture (“Venture”) has embraced this initiative and incorporated sustainability initiatives into strategic plans. Our green energy initiatives are a key part of these plans.
• Technological innovation has a major impact on the global market, as new technologies are being developed that are changing the way we do business. For the Venture, some of the key benefits of innovation are production efficiencies and the safety of our employees.

Merafe’s business is not immune to the impact of these trends which are firmly on management’s radar. Local challenges which include power shortages, energy costs and logistics constraints continue to be monitored by the Venture and mitigated in the best ways possible.

Merafe expects the second half of 2024 (“H2 2024”) to be softer given a weaker market outlook. Downward pressure on chrome ore prices, which has started, is expected to translate to lower ferrochrome prices. Given the forecast inflationary pressures, its margins are at risk of being squeezed in H2 2024.

Given the conclusion of the Negotiated Pricing Agreement with Eskom, the Venture plans on producing ferrochrome at most of its smelters.

The only smelters that will not be operational are Lydenburg, which is still on care and maintenance, and Rustenburg, which has been idle since June 2023.

Merafe remains cautious in our approach to the remaining six months of the year and will continue to focus on efficient operations, cash preservation, cost control and efficient capital allocation.