Merafe boosts ferrochrome output despite market challenges

Merafe Resources yesterday reported a 2% increase in attributable ferrochrome output from its joint venture with Glencore during the nine-month period to end September.

This rising production reflects the company’s effort to navigate ongoing challenges within the South African mining sector, where energy costs and logistical hurdles have become prevalent concerns

Merafe Resources CEO, Zanele Matlala said in August that the company together with Glencore was looking at ways to mitigate power supply, energy costs, and logistical constraints impacting mining companies in the country.

The company yesterday said all operational smelters had been brought into production, helping to drive up production for the quarter to September and subsequently for the nine month period under review.

“Merafe's attributable ferrochrome production from the Glencore Merafe Chrome Venture in the third quarter ended 30 September 2024 was 76 000 tons, resulting in an increase of approximately 2% in production for the nine months ended 30 September 2024 compared to the prior comparative period,” it said.

“This increase in production is primarily attributed to all operating smelters being in production throughout the winter months.”

Matlala was, however, expecting the second half to the end 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 the second half of 2024,” said the company.

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 is being 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 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 earnings before interest, tax, depreciation, and amortisation for the period fell by 27% to R1.1 billion.

Interim revenues were lower by 0.4% at R4.7bn 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.