Merafe Resources Limited, incorporated in the Republic of South Africa, has released the trading statement for the six months ended 30 June 2020. Weak chrome ore and ferrochrome prices as well as rising production costs had negative impacts on the financial results.
Load curtailment by Eskom had an impact on production volumes and costs. This remains a key risk for the business and the broader ferro-alloy sectors. In addition, electricity tariff increases are contributing to cost pressures in the business. The National Energy Regulator of South Africa approved a 13.87% tariff increase effective 1 April 2019 and 8.1% effective 1 April 2020.
While the tariff increases are less than amounts Eskom had applied for, the above inflation increases have a negative impact on cost structures and margins.
The company says it now expects the following, in respect of the period:
- a basic loss per share of between 37.6 cents and 39.0 cents, compared to a basic earnings per share of 6.6 cents for the prior comparative period; and
- headline earnings per share of between 0.9 cents and 1.3 cents, compared to a headline earnings per share of 6.6 cents for the prior comparative period, which is a decrease of between 81% and 86%.
The expected decrease in basic earnings and headline earnings per share is primarily driven by substantially lower chrome ore and ferrochrome prices and lower sales volumes which were partially offset by a weaker average Rand:US$ exchange rate.
In addition to this, basic earnings includes an impairment charge which has led to further expected decrease in basic earnings per share.
Merafe Resources advises that the financial information on which this announcement is based, has not been reviewed or reported on by Merafe’s external auditors. The official financial results for the Period are expected to be published on SENS on or about 8 September 2020.
The main focus of Merafe business is on the 20.5% participation of its wholly owned subsidiary, Merafe Ferrochrome and Mining Proprietary Limited, in the Glencore-Merafe Chrome Venture (the Venture), in which Glencore has a 79.5% participation.
Merafe and Glencore Operations SA formed the venture in July 2004 to create the largest ferrochrome producer in the world.
Stainless steel production is expected to grow by 3.2% in 2020, however, both chrome and ferrochrome prices are expected to remain under pressure in the short term due to oversupply. The growth forecasted does not factor in the possible impact of COVID-19 (Coronavirus) and load shedding which is expected to last for 18 to 24 months.
Merafe will continue to manage factors within its control. Cost management, efficient and safe operations, cash preservation and efficient cost allocation will continue to be management’s key areas for 2020.