Merafe back to profit as it flags lagging vaccine drives
Financial performance came off a low base in 2020 when lockdown disrupted ferrochrome production
Merafe Resources, the junior empowerment partner in a chrome joint venture with Glencore, has adopted a cautious approach going into the second half of the financial year, saying the sustainability of the global upswing depends on the successful rollout of Covid-19 vaccines.
While Merafe bounced back to profitability in the six months to June, the financial performance came off a very low base in 2020, when the first Covid-19-related lockdown restrictions disrupted ferrochrome production in SA, while the demand for stainless steel was sluggish and thus affected pricing for ferrochrome and chrome ore.
Most chrome is converted into ferrochrome, the raw material used to produce stainless steel. China is the largest ferrochrome consumer.
“While in several parts of the world the Covid-19 vaccination drive is starting to pay off and normality is gradually being restored, there are several parts of the world, including SA, where the Covid-19 pandemic is still wreaking havoc on communities and businesses,” the company said on Tuesday.
“The strong growth in stainless steel demand is a positive development and has been key to the buoyancy in the ferrochrome market.”
Merafe, which holds 20.5% of the Glencore-Merafe Chrome Venture in SA, derives all its revenue from the partnership. The company is 21.8% owned by the state-backed Industrial Development Corporation.
Merafe shares rose as much as 6.52%, the most on an intraday basis in a week, before pulling back to trade at 92c on the JSE by Monday afternoon, valuing the company at R2.3bn.
Group net profit was R576.3m in the six months to end-June, swinging from a loss of R961.1m in the same period a year ago, the company said on Monday.
Its attributable revenue from the venture increased 60% from the prior period to R3.74bn.
Ferrochrome revenue surged 61% to R3.22bn, primarily due to higher average realised prices and a 39% increase in ferrochrome sales volumes to 210,000 tonnes.
Chrome ore revenue was up 55% to R517m due to higher chrome prices and a 51% increase in sales volumes to 208,000 tonnes.
“An upswing in ferrochrome demand contributed to increased volumes sold and higher CIF [cost, insurance and fright] prices realised, which were to some extent offset by a stronger average rand exchange rate,” CEO Zanele Matlala said.
“Despite the Lydenburg [Mashishing] smelter being on care and maintenance, production volumes increased significantly due to current production being less affected by the Covid-19 restrictions coupled with improved plant efficiencies achieved at our smelters.”
The article has been updated with more information.
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