Merafe Resources, the junior empowerment partner in a chrome joint venture with Glencore, managed to increase profit earned for the year to end-December despite a 22% drop in ferrochrome production.
Ferrochrome, which is used in the production of stainless and other speciality steels, contributed 75% to Merafe’s revenue, with the other 25% coming from chrome ore.
“Merafe achieved a record profit of R1.75bn despite a challenging economic environment. Demand for ferrochrome was weaker compared to prior years, which resulted in lower sales volumes and lower realised prices, while chrome ore sales volumes were significantly elevated and realised prices increased due to buoyant demand and supply constraints,” said CEO Zanele Matlala on Monday.
Merafe holds 20.5% of the Glencore-Merafe Chrome Venture in SA and derives all its revenue from the partnership.
Due to a decline in global ferrochrome prices and demand, Merafe decreased ferrochrome production in 2023 to 300,000 tonnes from 384,000 tonnes in 2022. Ferrochrome sales for the year decreased 7% to 327,000 tonnes. Ferrochrome finished goods on hand decreased from 109,000 tonnes in 2022 to 81,000 tonnes, due to an inventory drawdown after planned production cutbacks in response to weaker market conditions.
Meanwhile, chrome ore sales increased 77% to 470,000 tonnes, compared with 265,000 tonnes in 2022.
The average European ferrochrome benchmark price decreased 14.5% from the 2022 average price. Chrome ore prices increased 24% year on year due to constrained global supply growth.
The weaker rand helped mitigate some of the effects of the lower ferrochrome price.
The group’s headline earnings per share, an alternative profit measure commonly used in SA, increased about 6% to 60c.
“With continued economic uncertainty in 2024, we expect commodity prices to come under pressure. Given the unrelenting inflationary pressures, our margins remain at risk of being squeezed in 2024.
“The anticipated slowdown in 2024 demands that we remain focused on efficient operations, cash preservation, cost control and efficient capital allocation,” said Matlala.
Merafe declared a final cash dividend of R550m up from R325m in 2022. This amounts to 22c per share and brings the total dividend for the year to R1.05bn compared with R625m in 2023.
The group’s share price was up about 4% at R1.46 in morning trade on the JSE. The share has gained about 8% over the last 12 months.
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