Merafe initiated a business review process in respect of its ferrochrome smelting business and is assessing potential measures to address the ongoing market challenges. Picture: Supplied
Merafe Resources has warned that it might begin to suspend certain of its ferrochrome furnaces in May 2025, which would result in a significant reduction in its ferrochrome production in South Africa.
This comes as Merafe, through its chrome Pooling and Sharing Venture with Glencore Operations South Africa, initiated a business review process in respect of its ferrochrome smelting business and is assessing potential measures to address the ongoing market challenges.
“The Business Review follows sustained pressure from the prolonged economic downturn in the global ferrochrome market, which pressures are not expected to ease in the near to medium term,” Merafe said in a note to shareholders on Monday.
“Should the PSV not be able to identify viable solutions to sustain profitability, it will begin to suspend certain of its ferrochrome furnaces in May 2025, thereby resulting in a significant reduction in Merafe's ferrochrome production.”
Merafe said the PSV was actively working with regulatory authorities to mitigate any continued adverse impacts and will continue to explore all viable alternatives in partnership with organised labour.
Additionally, the PSV has engaged with its suppliers to identify cost-saving measures to help improve the current situation.
Merafe mainly derives its revenues and operating income from the Glencore-Merafe Chrome Venture which produces ferrochrome at a total installed capacity of 2.3 million tons per year. It also shares about 20.5% of the earnings before interest, taxation, depreciation and amortisation (Ebitda) from the South African ferrochrome joint venture project.
Merafe Resources’ attributable ferrochrome production from the Glencore Merafe Chrome Venture plunged by 22% to 75 000 tons in the fourth quarter to December 31, 2023, down from 97 000 tons in the same period in 2022.
The Merafe-Glencore venture has been impacted by high energy costs as well as port and rail logistical constraints. Some South African bulk miners are having to cut production to be in line with Transnet’s capacity to move ore or finished products.
In the half year period to the end of June 2024, headline earnings per share in Merafe Resources slumped from 42 cents to 28.2 cents after Ebitda for the period fell by 27% to R1.1 billion.
Interim revenues were slower by 0.4% at R4.74 billion although the company’s net asset value rose by 3% to R5.4bn, while net cash flows from operating activities were up by 7% to R852 million.
BUSINESS REPORT
