Johannesburg - Resources company Merafe Resources on Tuesday reported diluted headline earnings per share of 41c for the year ended December 2008 from 10c a year ago.
Revenue rose to R2.8bn from R1.6bn, while earnings before interest, tax, depreciation and amortisation (EBITDA) grew to R1.6bn from R465m. Net profit rose to R1.03bn from R240.1m a year ago.
No dividend was declared as the board and management deem it prudent under the prevailing market conditions to preserve the cash generated during 2008 as there is still considerable uncertainty as to how long the current global economic slowdown will last.
Merafe's income is generated from the Xstrata-Merafe chrome venture, the market leader in ferrochrome, with a total managed capacity of 1.96 million tonnes of ferrochrome production per annum. Merafe shares in 20.5% of the earnings before interest, taxation, depreciation and amortisation (EBITDA) from the venture.
Merafe's earnings from the venture increased significantly from the 12 month comparative period, primarily as a result of an increase in the average European benchmark ferrochrome price from 89 USc/lb in 2007 to 176 USc/lb in 2008 and the weakening of the Rand against the US dollar, particularly in the second half of 2008.
Merafe's share of saleable ferrochrome production decreased by 21% from 284 000 tonnes in 2007 to 223 000 tonnes in 2008. The decrease in saleable ferrochrome production was mainly due to the significant decrease in demand for ferrochrome in the fourth quarter as a result of the global economic slowdown.
Strong cash flows generated during the year have resulted in Merafe having a cash balance of R540m at end December 2008.
Looking ahead, the group said most planned expansions to South African ferrochrome capacity in 2008 were deferred or cancelled due to ongoing power constraints. The deferral of planned expansions is expected to continue in South Africa and globally, in response to the current economic slowdown.
The outlook for ferrochrome remains robust in the medium to long term, Merafe said. In the medium term, stainless steel production is expected to increase from current low levels, supported by major economic stimulus plans, which include significant investment in infrastructure thereby benefiting the stainless steel industry.
However, in 2009, stainless steel production is expected to decrease compared to 2008. In the short term, the demand for ferrochrome in Europe, North America and Japan remains low. However, the demand for ferrochrome and chrome ore in China has picked up and appears to be coming from restocking and is not yet at normalised levels.
As global demand recovers, the decisions to defer or cancel ferrochrome capacity expansions are expected to lead to ferrochrome supply constraints and again place upward pressure on pricing, it said.
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.
"The strong cashflows generated by Merafe have been used to reduce its long-term and short-term debt and strengthen its balance sheet. The company is therefore well positioned to see out the present difficult economic climate and to consider opportunities which may present themselves going forward," it said.
- I-Net Bridge