The shares of Merafe Resources dipped to a low of 12 percent yesterday despite it announcing an increase in its half-year profit and declared a 12c dividend – a 70 percent increase compared to the previous comparative period.
However, the ferrochrome producer warned that for the remainder of the financial year it expected trouble in logistical and supply chain constraints and would take a cautious approach.
The shares traded at a low of R1.28, having decreased by almost 7 percent in the past six months.
In its results for the six months ended June 30, 2022, yesterday, Merafe said headline earnings per share rose by 60 percent to 37 cents due to a weaker rand and higher chrome prices.
Chief executive Zanele Matlala said Merafe achieved a profit of R925 million for the half year due to higher realised ferrochrome prices and a weaker rand and dollar exchange rate.
“Ferrochrome prices have since declined, and cost pressures from inflation, higher reductant costs, chrome ore costs, and electricity tariffs continue to mount,” she said.
The Glencore-Merafe Chrome Venture operates five ferrochrome smelters and eight mines. Merafe owns 20.5 percent of the joint venture.
The mining firm, whose primary source of income is the joint venture, reported a 15 percent increase in revenue to R4.3 billion, compared to June 2021’s R3.7bn.
Earnings before interest, tax, depreciation and amortisation (Ebitda) increased by 68 percent to R1.4bn. Net asset value surged by 10 percent to R4.1bn.
Merafe flagged a 14 percent decrease in ferrochrome sales volumes, while revenue from these sales was up by 12 percent from the previous period to R3.6bn due to higher prices and a 6 percent weakening of the average rand-dollar exchange rate over the period.
Chrome ore sales volumes decreased 17 percent, but revenue increased 22 percent from the half year of 2021 to R630m, driven by a 39 percent average sales price increase for the reported period and the weaker exchange rate.
Merafe’s attributable ferrochrome production from the Venture increased by 2 percent from 199 000 tons to 203 000 tons compared with the half year of 2021.
Total cost of production per ton up 13.6 percent from December 2021.
“The increase was mainly due to general inflation, higher market ore prices, reductant prices (coke and anthracite) and electricity tariffs,” the group said.
Looking forward, Matlala said, just as the Covid-19 risk was abating, other global and local risks had emerged. Locally, floods had wreaked havoc, especially in KwaZulu-Natal, disrupting logistics channels.
“Transnet’s challenges, which have also impacted our industry, have included infrastructure theft and damage, lack of spares, and insufficient rolling stock. In general, supply chain constraints remain a concern. Eskom’s situation deteriorated further over the period following the utility’s industrial strike action leading to power cuts escalating to stage 6.
“Internationally, the Russia/Ukraine conflict has not only resulted in the unfortunate loss of lives but led to global uncertainty, supply shortages, inflationary pressures, and fuelled recession concerns,” she said.
According to Matlala, these events have impacted the industry in one way or another and were likely to affect production inputs and chrome demand/supply dynamics going into the second half of 2022.
“As a result, we expect a tougher H2 (second half) 2022. We remain cautious in our approach to the remaining six months of the year and will continue to focus on efficient operations, cash preservation, cost control and efficient capital allocation,” she said.
BUSINESS REPORT