Merafe reports surge in half-year profit and declares cash dividend

Merafe Resources, the junior empowerment partner in a chrome joint venture with Glencore, achieved 60% profit growth during the first half of the year, but warned on Tuesday that inflationary pressures and the risk of a global recession could affect chrome supply and demand dynamics during the second part of the year.

Headline earnings per share (HEPS), the main profit measure in SA, increased 60%, the company said, citing a weaker rand and higher chrome prices.

Merafe said it generated a R925m profit for first half of the year to June 2022, up from R576m for the corresponding period in 2021.

Net cash had climbed 4.4% to R1.015bn by the end of the period.

Mefare holds 20.5% of the Glencore-Merafe Chrome Venture in SA and derives all its revenue from the partnership.

Despite a 14% decrease in ferrochrome sales volumes, revenue from these sales increased 12% from the previous period to R3.6bn due to higher prices and a 6% weakening of the average rand-dollar exchange rate over the period. Chrome ore sales volumes decreased 17%, but revenue increased 22% from the previous period to R630m, driven by a 39% average sales price increase for the period as well as the weaker exchange rate.

The company said new global and local risks have emerged that could result in a “tougher” second half of the year.

Challenges faces by Transnet Freight Rail, including infrastructure theft and damage, lack of spares and insufficient rolling stock, continue to disrupt its operations, posing a risk to the mining industry.

Russia’s invasion of Ukraine added to global uncertainty and fuelled “supply shortages, inflationary pressures and recession concerns”.

“These events have impacted our industry in one way or another and are likely to affect production inputs and chrome demand-supply dynamics going into the second half of 2022,” Merafe said.

Merafe’s attributable ferrochrome production from the Venture for the six months increased marginally by 2% from 199,000 tonnes to 203,000 tonnes compared with the six months to end-June 2021. Total cost of production per tonne increased 13.6% from December 2021. The increase was mainly due to general inflation, higher market ore prices, reductant prices (coke and anthracite) and electricity tariffs.

Merafe declared a 12c interim cash dividend, up from 7c in 2021, representing a payout of about R550m.

By the JSE’s close Merafe’s share price had fallen the most since December 2020, down 10.96% to R1.30.

erasmusd@businesslive.co.za