Merafe Resources said yesterday that despite local challenges, which include power shortages, energy costs and logistics constraints its interim earnings increased.
In its financial results for the six months ended June 30, 2023, the group reported headline earnings per share of 42 cents, compared to the 37c in the comparable period last year.
The company, which is part of a joint venture with mining giant Glencore, had its shares increase on the JSE by almost 11% yesterday morning. The shares traded at R1.29, they had dropped by 13.04% in the past six months.
Merafe achieved a profit of R1.05 billion from R925m the prior corresponding period, as a result of higher realised chrome ore prices and a weaker rand and dollar exchange rate.
"These were somewhat offset by lower ferrochrome prices and sales volumes, as well as higher costs of ferrochrome production," it said.
Merafe declared an interim cash dividend of 20c per share, compared to last year's 12c per share.
Ferrochrome production of 185 000 per ton was 9% down on the corresponding six months last year. "The reduction is mainly due to the planned pullback in production over the winter months," the group said.
Ferrochrome revenue increased by 5% from the prior period to R3.8bn primarily as a result of an 18% weakening of the average rand to dollar exchange rate over the period.
Chrome ore revenue increased by 49% from the prior period to R936m, driven by an 8% average sales price increase over the period, a weaker rand to dollar exchange rate and a 17% increase in chrome ore sales volumes to 201 000 tonnes.
Merafe’s share of the revenue from the Venture increased by 11% from the prior period to R4.8bn And net cash was up 26% at R1.6bn.
Merafe CEO Zanele Matlala said key trends that were shaping the environment in which the group operated included the economic uncertainty characterised by rising inflation, interest rates and trade tensions. This uncertainty was making it difficult for businesses to make long-term plans and it also led to volatility in the markets.
"The global market is increasingly focused on sustainability, and businesses are under pressure to reduce their environmental impact.
“The Glencore-Merafe Pooling and Sharing Venture has embraced this initiative and incorporated sustainability initiatives into strategic plans. Our green energy initiatives are a key part of these plans," she said.
Looking ahead, Matlala said: "We expect the second half of 2023 to be softer on a weaker market outlook. Downward pressure on chrome ore prices, which have started coming down, is expected to translate to lower ferrochrome prices. Given the forecast inflationary pressures, our margins are at risk of being squeezed in H2 2023.
"The Venture plans on producing ferrochrome only at the Lion smelter over the three-month high electricity demand winter season, a period of elevated power prices. This will assist with managing costs and lowering inventory levels as sales units are expected to be drawn down from inventory," she said.
Matlala said the group remained cautious in its approach to the remaining six months of the year and would continue to focus on efficient operations, cash preservation, cost control, and efficient capital allocation.
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