Merafe Resources CEO, Zanele Matlala, said the company and its South African joint venture partner, Glencore, were looking at ways to mitigate power supply, energy costs and logistical constraints impacting mining companies in the country.
Merafe mainly derives its revenues and operating income from the Glencore-Merafe Chrome Venture which produces ferrochrome at a total installed capacity of 2.3 million tons per year. It also shares about 20.5% of the earnings before interest, taxation, depreciation and amortisation (Ebitda) from the South African ferrochrome joint venture project.
Like other South African mining companies, the Merafe-Glencore venture has been impacted by high energy costs as well as port and rail logistical constraints. Some South African bulk miners are having to cut production to be in line with Transnet’s capacity to move ore or finished products.
“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,” said Matlala yesterday.
In the half year period to the end of June, headline earnings per share in Merafe Resources slumped from 42 cents to 28.2 cents after Ebitda for the period fell by 27% to R1.1 billion.
Interim revenues were slower by 0.4% at R4.744bn although the company’s net asset value rose by 3% to R5.4bn, while net cash flows from operating activities were up by 7% to R852 million.
The company’s dividend for the period was stagnant at 20 cents, with shares in Merafe Resources trading 4.23% stronger at R1.48 in afternoon trade on the JSE yesterday. The company has been stronger on the JSE by more than 10% in the past 90 days and six months.
Matlala said she expected the second half of 2024 to “be softer given a weaker market outlook”, with the pressure on chrome ore prices that have started to fall “expected to translate to lower” ferrochrome prices.
“Given the forecast inflationary pressures, our margins are at risk of being squeezed in H2 2024,” said the company.
Merafe and Glencore are also planning to produce ferrochrome at all of their venture’s smelters “given the conclusion of the Negotiated Pricing Agreement” with Eskom.
The only smelters that will not be operational include Lydenburg, which is still on care and maintenance, and Rustenburg, which has been idle since June 2023. “We remain cautious in our approach to the remaining six months of the financial year and will continue to focus on efficient operations, cash preservation, cost control and efficient capital allocation.”
During the half year period under review, Merafe’s attributable ferrochrome production decreased by 17% from 158 000 tons, with the reduction attributed to the idling of the Rustenburg smelter.
Its saleable platinum group metals (PGM) production, however, increased from 1 455 ounces to 6 738 ounces due to the inclusion of the Eastern PGM plant and improved yields.
Total unit cost of production for the period increased by 10% mainly due to higher ore market cost, electricity tariffs and fixed costs.
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