Merafe’s strong and ungeared to withstand challenging times ahead
The COVID-19 pandemic has destabilised the global health systems and disrupted economies. This pandemic coupled with an already fragile operating environment have resulted in a loss after tax for the 2020 financial year mainly due to a significant impairment loss on property, plant and equipment in the first half of the year.
A slow-down in global economic activity has contributed to not only reduced volumes of commodities sold, but also to lower realised cost, insurance and freight (CIF) ferrochrome and chrome ore prices with a weaker Rand:US$ exchange rate that provided some cushion to the loss.
Attributable ferrochrome production volumes decreased by 29% to 265kt (2019: 371kt) in the current financial year. The drastic reduction in production was as a result of the national lockdown implemented to curb the spread of COVID-19, weaker demand and to a lesser extent electricity supply load curtailment.
The significant reduction was mainly in the second and third quarters of the financial year. During this period, the Venture only operated the Lion smelter, Eastern Chrome mines and the UG2 Chrome Recovery Plants due to subdued demand and winter shut-downs for maintenance.
After winter, the Venture resumed production at all other operations except for the Lydenburg smelter and Rustenburg furnace 5, which have been placed under care and maintenance.
The recovery of stainless steel production and ferrochrome demand will depend on developments regarding the COVID-19 pandemic. The availability of vaccines and their distribution would be supportive of global economic recovery. Although negative growth of 5.0% is expected in global stainless steel production in 2020, production is expected to recover with growth of 12.5% projected in 2021.
The supply restrictions in China, as well as the expected increase in demand could have a positive impact on ferrochrome prices.
Merafe says it will continue to manage factors within its control by continuing to focus on cost management, efficient and safe operations, cash preservation and efficient capital allocation. Merafe’s balance sheet remains strong and ungeared which positions it to withstand the challenging times ahead.
