Johannesburg - South Africa's electricity crisis dominated the annual shareholders' meeting of ferrochrome producer Merafe Resources on Tuesday, with shareholders expressing their concerns about what the crisis means for their company.
Chief executive Steve Phiri told the meeting the crisis has resulted in the company reducing its power consumption at its smelters by 10% since the beginning of the year. "Our production will also go down by 10%," said Phiri.
Reduced output is having a positive impact on the commodity's price in the global market. At the start of 2008, ferrochrome fetched around US$1.21/lb; this has risen to $1.92/lb currently. "We can expect a higher number during the second quarter," said Merafe CFO Stuart Elliot. Around April 2006, ferrochrome was trading for $0.63/lb.
Prior to the start of the electricity crisis, there was already a 10% supply deficit in the ferrochrome market. Reduced power supply has also resulted in some delivery obligations not being met timeously. "Although the crisis has so far been good for the ferrochrome price, we cannot completely celebrate it," said Phiri.
He said his company - through its joint venture with Xstrata - was the world's number one supplier of ferrochrome. "I'm scared we'll lose our reputation as a reliable supplier," said Phiri.
"People (customers) might look for alternative suppliers, in that respect we cannot celebrate the rising ferrochrome prices completely."
The year ahead promises to be a "bumper" one for commodities, said Elliot. Merafe would like to increase its production to take advantage of the bullish market. Merafe was in constant "discussions with Eskom" on the availability of power, as it would like to increase capacity at its Project Line 2 in Limpopo.
That would ramp capacity up to over 1.6Mt from the current 360 000Mt. The project was initially pencilled in for commissioning in 2011 but had to be shelved indefinitely because of the power crisis.
Merafe is therefore only left with the joint venture with Xstrata to increase its production. "We can increase our share in the JV to 26% from the current 20,5% but the high prices are an impediment (to that option)," said Elliot.
While talking about the "bumper year", Elliot also cautioned against rising costs. "They've increased 15% already this year (as a result of the 14.8% electricity price increase)," said Elliot. "Eskom is waiting for a decision on another super hike." Elliot said the rising inflation, at over 10% currently, will also push up wage costs this year.
Authority on unissued shares
Shareholders questioned the company on the need to pass a resolution to give directors authority to issue unissued but authorised shares. One shareholder, Myron Pollack, reminded Merafe that the Public Investment Corporation (PIC, which owns around 2% of Merafe) was against giving the authority to directors.
"If you (shareholders) don't give directors the authority to issue unissued shares, then you need to get rid of management and let shareholders manage it," said Elliot.
He explained that the shares would be issued "very carefully", under certain circumstances like granting share options to new appointees. "We have representatives of major shareholders on the board and independent directors (to ensure fairness)," said Elliot.
All the resolutions were passed with over 85% majority.
- Fin24.com