Chrome: Waking up to what is possible
A price surge in chrome is attracting junior miners, and commentators believe prices could remain firm for some time
SA junior miners have been chasing opportunities in platinum for the past few years, but now they are scrambling to find them in chrome ore instead.
Platinum and chrome ore are mined on the Bushveld complex, the semicircular geological formation north of Gauteng. They are extracted either separately or together in the platinum group metal-bearing Upper Group 2 reef.
Some chrome ore is turned into higher-margin ferrochrome locally. But because of SA’s recent electricity shortages and tariff hikes, which have strangled investment in smelters, it has been increasingly exported as a concentrate to ferrochrome smelters in China. Ferrochrome is an input for stainless steel.
Platinum prices have stagnated over the past year but chrome ore prices have surged and in the past six months investors have woken up to the opportunities. In December, Merafe Resources, which is in a joint venture with Glencore that forms the world’s biggest ferrochrome producer, said first-quarter 2017 ferrochrome contract prices had been agreed at 50% higher than in the fourth quarter of 2016. The company’s shares have added 161% to 178c since last January.
Lara Smith of Core Consultants says in the firm’s mid-December market update that the global chrome ore and ferrochrome market appears to be awakening from "an eight-year nightmare".
Prices recovered in the second quarter of last year when SA, which accounts for about 75% of chrome production, was unable to meet demand from China. The main reasons were production cuts and logistical and infrastructural challenges. At the same time, stocks at China’s ports hit a record low.
"There is no sign that supplies will increase from SA, Turkey, Albania, Iran or Pakistan for either chrome ore or ferrochrome in the near future," Smith says. "The prediction is that in the first half of 2017 prices will be higher, and there is scope for prices to increase by a further 15%-20% from these levels. The second half of the year could go either way, depending on the supply from SA."
Last week shares in Bauba Platinum more than doubled in one day to 60c after the company announced it had restarted chrome mining at its Moeijelijk mine and would build it up to 20,000t/month within three months. It suspended production a year ago when chrome prices fell to US$120/t from $175/t. They have since rebounded to about $380/t, the firm says.
One of the best-performing shares on the JSE over the past year has been platinum and chrome miner Tharisa, whose shares have added more than 300% to R22.50 as the company reached steady state production and declared a maiden dividend. Tharisa CEO Phoevos Pouroulis says that since June metallurgical-grade chrome prices have surged because of supply shortages in China and the Chinese government’s stimulus package, which spurred demand for stainless steel.
Assore’s shares have gone up 265% over the past year to R241.32. It produces iron ore, chrome ore and manganese. The prices of all of them have increased strongly. With perfect timing, Assore also concluded the R450m buyout of its 50% partner in the Dwarsrivier chrome mine, African Rainbow Minerals, in August.
Assore realised an average chrome ore price of $150/t in its June financial year and can be expected to report even higher average prices in the current year. It is also optimistic that prices will continue to be firm.
"Stainless steel production in China continues to be driven by increased demand and other seasonal factors that are expected to continue for the medium term," it says. "Consolidation in the SA ferrochrome industry, as well as stable levels of supply from chrome ore miners, have resulted in a notable recovery in chrome ore prices.
"Inventories of chrome ore in Chinese ports recently reached a 10-year low, and based on the current fundamentals, the chrome ore market should remain strong in the near future."
With a price recovery, there may be more merger and acquisition activity. Sylvania Platinum has said it wants to exit or spin off its Grasvally chrome project. AltX-listed Chrometco has entered into an agreement with the Sail group of companies, a global trader specialising in chrome, under which Sail will acquire about 90% of Chrometco’s shares as payment for injecting two chrome projects, Black Chrome and Palm Chrome, which can together produce about 1Mt of high-grade material. Chrometco shares have risen 233% over the past year to 40c. In July they touched a low of 7c.
But market recovery has come too late for International Ferro Metals, the AIM-listed company with two chrome mines, Sky Chrome and Lesedi, and a ferrochrome plant at Buffelsfontein. It went into business rescue in August 2015 and its SA assets are being bought by Samancor Chrome.