Merafe Resources, the junior empowerment partner in a chrome joint venture with Glencore, says load shedding by Eskom is the main challenge it is facing in 2019.

“The electricity situation in the country is concerning given the financial, structural and operational challenges that face Eskom. Eskom's situation exposes the venture, and indeed the entire country, to both tariff and electricity supply risks,” the company said.

The company, whose primary asset is a 20.5% stake in a chrome joint venture with Glencore, reported lower cash flow, profitability and revenue in the year to December.

Merafe, however,  still managed to declare a record full-year dividend payout of R351m, taking it from its cash reserves. It has a dividend policy of 30% of headline earnings. The dividend payout equates to 14c per share, up from 12c in the prior comparative period.

The dividend represents some 50% of the company’s headline earnings, well above its target of 30% distribution. Merafe CEO Zanele Matlala said on Monday the company had targeted a cash balance of between R150m and R250m, and due to its high cash reserves was able to pay out well above its target.


The company managed to keep production costs per tonne contained to a 9% rise during the period, despite uncertainty around Eskom. It also received a boost from double-digit ferrochrome price increases. 

Higher prices were driven by increased demand from China, the world's leading producer of stainless steel. China imported 3.1% more ferrochrome during the period, with SA's exports rising 8.5% year on year.

China was expected to continue growing in 2019, Merafe said, with the company's main headwind expected to be Eskom.

Chrome ore revenue increased 3% year on year to R747m, driven by a 16% increase in prices. Sales volumes during the period, however, decreased 23% to 248,000 tonnes, the company said on Monday.

Headline earnings per share fell 25% to 27.2c, with the company's financial positions falling to R281m from the prior period's R600m.

Glencore-Merafe Chrome Venture is one of the world’s largest producers of ferrochrome, which is used in the production of stainless steel. It is an electricity-intensive product to make.

Merafe was right to be concerned about the prospect of load-shedding, and case of point was how quickly South African companies, such as African Rainbow Minerals and Assore, had moved their ferromanganese production offshore, mostly to Malaysia, said Peter Major, an analyst and director of mining at Mergence Corporate Solutions.

This had happened in previous years when electricity was cheaper and more reliable than currently, Major said. 

At 12.30pm Merafe's share price was down 0.71% to R14, with the company having lost 1.41% so far in 2019.

CORRECTION: March 12 2019

An earlier version of this article mistakenly quoted Major as saying that miners were moving their SA ferrochrome offshore, when in fact they are moving their ferromanganese production offshore. Business Day regrets the error.