Merafe achieved solid operational and financial results for the first half of 2021. Merafe recorded a profit after tax of R576m compared to a loss of R961m in the prior comparative period. An upswing in ferrochrome demand contributed to increased volumes sold and higher CIF prices realised, which were to some extent offset by a stronger average ZAR:US$ exchange rate. Despite the Lydenburg smelter being on care and maintenance, production volumes increased significantly due to current production being less affected by the COVID-19 restrictions coupled with improved plant efficiencies achieved at our smelters.
Merafe’s revenue and operating income are primarily generated from the Glencore-Merafe Chrome Venture which is one of the global market leaders in ferrochrome production, with a total installed capacity of 2.3m tonnes of ferrochrome per annum. Merafe shares in 20.5% of the earnings before interest, taxation, depreciation and amortisation (EBITDA) from the Venture.
Merafe’s attributable revenue from the Venture increased by 60% from the prior period to R3 746m (June 2020: R2 338m). Ferrochrome revenue increased by 61% from the prior period to R3 229m (June 2020: R2 005m) primarily as a result of higher average realised prices and an increase of 39% in ferrochrome sales volumes to 210kt (June 2020: 151kt).
Chrome ore revenue increased by 55% from the prior period to R517m (June 2020: R333m), as a result of higher chrome prices as well a 51% increase in sales volumes to 208kt (June 2020: 138kt). Merafe’s attributable share of the Venture’s EBITDA for the six months ended 30 June 2021 is R839.2m (June 2020: R170.6m).
The EBITDA includes Merafe’s attributable share of standing charges of R31.1m (June 2020: R277.3m) and a foreign exchange loss of R47.1m (June 2020: foreign exchange gain of R90.2m). The reason behind the decrease in standing charges is because, in the current reporting period, there were no production stoppages due to COVID-19 lockdowns.
After accounting for corporate costs of R20.5m (June 2020: R13.2m), which include a cash settled share-based payment expense of R2.5m (June 2020: credit of R1.3m), Merafe’s EBITDA was R818.8m (June 2020: R157.5m).
The profit for the six months ended 30 June 2021 amounted to R576.3m (June 2020: loss of R961.1m). The taxation expense includes a current income tax expense of R99.6m (June 2020: R4.5m) and a deferred tax charge of R127.6m (June 2020: R322.8m deferred tax credit) which arose primarily as a result of temporary differences on property, plant and equipment as well as those relating to provisions and accruals.
A profit of R719k (June 2020: loss of R162k), being Merafe’s proportionate share in the profit from an associate of Unicorn Chrome (Pty) Ltd, was recorded for the period.
Sustaining capital expenditure increased by 84% to R176m (June 2020: R95.9m). The increase was to catch up on stay-in-business capital expenditure that was postponed due to cash preservation measures initiated in response to the COVID-19 pandemic and tough market conditions in 2020.
Ferrochrome finished goods volumes of 79kt (June 2020: 99kt) on hand represent approximately two to three months of sales. The value of closing inventory was R1 424.9m (December 2020: R1 433.6m).