Merafe Resources suffers R1bn loss in joint venture with Glencore
MERAFE Resources yesterday fell 8.57percent on the JSE to close at 32cents after the group flagged that it swung from a profit last year to a near R1billion loss during the half-year ended June on its joint venture with Glencore.
The world’s largest ferrochrome producer said that it
incurred a significant impairment loss on property, plant and equipment.
The group said its losses for the year came to R961.1
million from a R165.2m profit a year earlier.
It said its impairments rose to R1.34 billion, although the
weaker average rand dollar exchange rate provided some cushion to the loss.
The group said its headline earnings per share plummeted to
1.1c from 6.6c a year earlier.
Revenue from the joint venture shrunk 16percent to R2.3bn
from R2.78bn a year earlier, and ferrochrome revenue also decreased by
16percent to R2bn, primarily as a result of a decline in ferrochrome sales
volumes to 151000 tons from 189000 tons on lower average realised prices.
Chrome ore revenue decreased 16percent to R333m as a result
of a 6percent decrease in sales volumes to 138000 tons compared with 147000
tons a year earlier as well as weaker chrome prices for the first half of the
year.
Merafe withheld the interim dividend due to the company’s
key focus areas being working capital management and cash preservation,
especially over these challenging times.
“In spite of current challenges, the board of directors
remains positive about future prospects of the business supported by industry
fundamentals that are still in place,” Merafe said.
The group said that the country’s hard national lockdown
weighed heavily on its production performance.
“Production in South Africa was particularly impacted,
falling 50percent in the second quarter of 2020, not only because of Covid-19
cutbacks, but also due to the ongoing cost pressure, including unsustainably
high electricity pricing,” said the group.
The Merafe-Glencore Venture is currently leading a Section
189 consultation process with organised labour amid plans to restructure its
smelters as a result of deteriorating operating and market conditions across
the South African ferrochrome industry, including high electricity tariffs and
interruptions, cross-subsidies and real cost inflation.
“These factors have also led to the displacement of
significant volumes of ferrochrome production to lower-cost competitors
overseas. Despite significant investments in an attempt to make the operations
more competitive, the Venture has continued to come under substantial
operational and financial pressures,” said the group.
Covid-19 related government-imposed lockdowns in key global
stainless steel producing regions during the first half of the year resulted in
production curtailment of stainless steel of 11 percent year on year.
“While Chinese stainless steel production in the first
quarter of the year 2020 plummeted to levels last seen in early 2016, it
recovered strongly during the second quarter of the year 2020, backed by
government infrastructure spending,” said the group.
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