Publications
Partners
Johannesburg - Ferrochrome producer Merafe Resources has joined the list of mining companies not paying out a dividend for the past financial year amid a weak demand for ferrochrome and an uncertain global economy.
Merafe said it would preserve the cash it made in 2008 and showed cash in hand of R540m at December 31 2008.
The shares rose 5% to 60c on the JSE, moving away from its 12-month low of 55c.
Merafe's income is generated from its 20.5% share in the Xstrata-Merafe Chrome Venture which has shut down 17 of its 20 furnaces last year. The total suspended ferrochrome production capacity represents 1.37 million tonnes of annual operating capacity.
In the short term, Merafe said it expects the demand for ferrochrome to remain low. However, it is bullish about its future in China, where it sees demand picking up.
"As global demand recovers, the decisions to defer or cancel ferrochrome capacity expansions are expected to lead ferrochrome supply constraints and again place upward pressure on pricing," Merafe said in its full-year financial results to end-December 2008 statement.
An analyst said: "The ferrochrome production cuts are in excess of the stainless steel productions cuts. Logically, ferrochrome will have to come into production again at some point."
Merafe's operating profit increased by 244% to R1.6bn from R465m, a record profit despite the lower volumes of ferrochrome sold year-on-year.
The average European benchmark ferrochrome price increased from $0.89 in 2007 to $1.76 in 2008, up 97% year-on-year.
However, the price for the first quarter of 2009 has been set at $0.79 as a result of a global deterioration in demand.
Coal venture
Merafe Coal, the 50/50 joint venture with Sentula Mining, is planning to start mining once the department of minerals and energy grants new order mining rights for Schoongezicht and Bankfontein coal deposits.
"People don't want Merafe to be anything but a ferrochrome producer," an analyst said. Shareholders would not support moves into additional diversification, the analyst said.
Merafe said in its statement it "continues to look for growth opportunities in the coal mining sector".
The company repaid R458m in debt in 2008. The remaining debt is R367m, of which R350m is due in 2012.
Merafe predicts stainless steel melt growth will be significantly below its long-term average for the second consecutive year, with global production for 2008 estimated to have declined by approximately 8.4% to 26 million tonnes compared to the prior year.
"No decision has been taken to restart any of the venture's suspended capacity. We continue to focus on cost optimisation, management of working capital and the deferment of major sustaining and expansionary capital expenditure," Merafe said.
- Fin24.com
