Merafe Resources’ share price fell on Friday after the group said its interim headline earnings would fall by half after low ferrochrome prices forced the group to suspend production at several smelters in the six months to end-June.
In a trading update, Merafe said it expected to report headline earnings per share (HEPS) of 9.8c-15.4c, down 45%-65% from the previous first half.
The company’s share price closed down 9.77% at R1.20 on Friday, taking its year-to-date losses to 14.9%.
The miner’s attributable ferrochrome production was recorded at 112,000 tonnes, down 28% year on year.
Merafe attributed the expected decrease to softer commodity prices, lower volumes sold, a stronger rand-to-dollar exchange rate and further impairments over the reporting period.
Merafe’s core asset is the Glencore-Merafe Chrome Venture, in which it owns a 20.5% stake, with global commodities giant Glencore holding the remaining 79.5% and being responsible for its operational management.
The group has closed down several smelters in the past six months after reporting a 9% slump in revenue for the year to end-December.
Most of the pressure came from weaker commodity prices driven by China’s slowing industrial activity and growing ferrochrome production.
China increased its ferrochrome production by 25% last year, which exceeds the growth in stainless steel production over the period, with the resultant market oversupply putting downward pressure on ferrochrome prices.
Added to this was input cost inflation, with ferrochrome production costs edging up 2% in the year to end-December.
Electricity costs are a huge constraint on Merafe’s ferrochrome operations, with the cost of power accounting for about 20% of the group’s ferrochrome production costs last year.
The company said its cash and cash equivalents for the period comprised cash held by Merafe of R449m, and R693m, being Merafe’s share of the cash balance in the venture. Included in the cash held by the venture is money set aside to fund future environmental rehabilitation obligations, with Merafe’s share of this being R378m.
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