Charlotte Mathews
7 August 2008
Johannesburg — FERROCHROME producer Merafe Resources would devise a dividend policy in its next financial year, but its first priorities this year were to reduce debt and strengthen working capital, chief financial officer Stuart Elliot said yesterday.
Empowerment group Merafe, whose biggest shareholder is Royal Bafokeng Resources, took on substantial borrowings to participate in the Xstrata-Merafe Chrome Venture, in which its stake is 20,5% of operating profit .
In the six months to June, Merafe repaid about R200m of debt, bringing its gearing down to 28% from 55%.
Strong ferrochrome prices boosted revenue and profits in the past six months, despite constraints on production from the cutback in electricity supply.
Revenue rose 123% to R1,6bn compared with the same period last year and headline earnings rose more than sixfold to 25c. One of the joint venture's achievements in the first half was to reduce production costs, excluding commission and shipping, by 1% at a time when the mining sector is experiencing acute cost pressures.
It has benefited from the use of proprietary technology which cuts usage of electricity and reductants such as coking coal. Elliot said cost reductions would not be possible in the second half because of increases in the costs of electricity, labour, diesel, transport and reductants.
Ferrochrome prices rose to $1,56/lb in the first half of this year from $0,78 a year ago and the September quarter price has been agreed with buyers at a record $2,05/lb . Elliot said because of this, Merafe's earnings in the second half of the year would be higher than in the first half.
Ferrochrome, of which SA is the biggest producer, adds hardness to stainless steel.
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