Mining and materials group Afrimat is hopeful that electricity tariff talks between the state and SA’s smelting industry will help salvage the local sector.
“What is encouraging is that the sector and the government are in discussions to secure sustainable electricity tariffs, thus maintaining competitiveness,” the company said as it released interim results.
“Afrimat remains hopeful that no further erosion of industrialisation will occur in SA.”
Soaring electricity costs, spurred by years of double-digit tariff hikes, have taken a toll on the group in recent months as smelters shut down across the country, weighing on local demand for iron ore and anthracite.
The closure of ArcelorMittal SA’s (Amsa) Newcastle long steel business, which put 3,500 jobs on the line, is expected to result in a slump in the group’s iron ore sales in the second half.
Meanwhile, a growing number of idle ferrochrome smelters forced the company to reconsider the viability of its Nkomati anthracite mine after shutting underground mining operations in the six months to end-August.
In recent months, the government has moved to extend negotiated pricing agreements (NPAs) to SA’s alloy and ferrochrome industries, allowing these companies to negotiate their electricity prices in a bid to promote beneficiation in these energy-intensive sectors.
Amsa’s ailing long steel business has resulted in the state making serious concessions to the company’s demands, including rolling out its most extensive review of steel tariffs in more than 20 years.
Added to this have been government bailouts, with the department of trade, industry & competition announcing in March it would pick up the unit’s wage bill for the next year.
Shareholders also chipped in to keep the longs unit afloat, including a R1.7bn cash injection from the state-owned Industrial Development Corporation.
Business Day reported that the ANC’s 10-point economic action plan, adopted by its national executive committee earlier this month, aimed to unlock more value from the chrome industry through trade tools and industrial energy relief.
Preferential electricity tariffs, export controls and infrastructure investment in the chrome industry were among the policy approaches outlined in the plan.
“Despite the structural economic challenges in SA, Afrimat’s management is confident that the foundation and diversification of the group are sound,” said CEO Andries van Heerden.
Despite the structural economic challenges in SA, Afrimat’s management is confident that the foundation and diversification of the group are sound
— CEO Andries van Heerden
Electricity fears aside, Afrimat reported bumper profits for the first half as the group’s R1bn acquisition of construction material group Lafarge started to bear fruit, with most assets either becoming profitable or “demonstrating strong momentum” in the first half.
Shares in the group rose 6.3% in early morning trading after it reported a 92% jump in headline earnings per share (HEPS) to 101.9c.
A 30% year-on-year increase in revenue to R5.3bn was attributed to the integration of the Lafarge businesses and overall volume and sales increases from iron ore and cement.
“The troubled Lafarge SA assets that we recently acquired have now been fully integrated into our structures, and good progress has been made with the turnaround of these businesses,” said Van Heerden.
Operating profit was up 30% as local iron ore sales volumes increased to 830,662 tonnes, more than double the 339,648 tonnes recorded in the previous first half.
The closure of the Newcastle steelworks and shutdown of ferrochrome smelters also weighed on the group’s industrial minerals segment, resulting in a 17% drop in revenue to R270m.
Merafe Resources announced in September that it had begun the retrenchment consultation process with employees at its Boshoek and Wonderkop smelters in the North West, indicating that closures were on the horizon.
The smelters are owned by the Merafe-Glencore joint venture, which has already closed 10 of its 22 furnaces over the past four years, resulting in the loss of 1,800 jobs. Thousands more jobs and billions of rand of export earnings are on the line if the smelters, which were suspended earlier this year due largely to unsustainable electricity costs, are closed.
Meanwhile, South32 plans to put its Mozambican Mozal aluminium smelter on care and maintenance next year, putting about 5,200 jobs on the line, with as many as 22,000 jobs indirectly at risk of being lost.
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