Johannesburg — AMID falling ferrochrome prices, local producer Merafe Resources yesterday reported a R84,2m loss in the six months to June, compared with a profit of R602m for the same period last year.

Depressed global economic conditions had forced the company to change tack. At the release of year-end results earlier this year, Merafe said the focus would be on cash preservation instead of profits.

That commitment came at a time the company was embarking on a capital expenditure programme, as seen in its spending R84m in smelter and mining operations in the six months to June.

CEO Steve Phiri yesterday said the global downturn had prompted the company to embark on cost- cutting measures, with "cost efficiency" being the company's priority. Measures taken included the freezing of all new appointments and promotions, reducing the number of fixed-term contract employees, reducing the use of contractors, and limiting maintenance expenditure and overtime.

Phiri said the first six months of the year were "the most difficult period for the entire mining industry. We are not particularly proud of the results".

In the six months to June, Merafe's revenue fell 49% to R824m and it reported a headline loss of 3c a share. Cash flow from operations was R144m.

Merafe generates its income from the Xstrata-Merafe chrome venture, the world's biggest producer of ferrochrome. Merafe shares in 20,5% of the earnings before interest, taxation, depreciation and amortisation from the venture.

Phiri said that in the first six months of this year the European benchmark ferrochrome price came under severe pressure, with the price dropping from 1,85/pound in the fourth quarter of last year to 0,69/pound in the second quarter of this year.

Merafe chief financial officer Stuart Elliot said yesterday the company had reduced ferrochrome inventory by 42% in the first half of this year.

Phiri said weak demand for ferrochrome in the second half of last year continued into the first quarter of this year, leading to high volumes of inventory.

The company closed six furnaces in January, bringing the total number of temporarily closed furnaces to 17.

The venture operated at an annual ferrochrome production capacity of 30% in the first six months of this year.

Phiri said ferrochrome demand in Europe was still flat "but there are signs of recovery. The inventories (in Europe) are still low."

He said steel production in the first half of this year weakened and global stainless production, at 10,4- million tons, was 30% down but 20% up in China. The European Union saw a 21,9% drop in stainless steel production, while production in Japan fell 34,1%.

There had also been a recovery in global production of stainless steel, which was likely to continue into the third quarter "on the back of real demand and restocking. Initially we thought the recovery was cosmetic, but now we are more convinced that it is sustainable."

Phiri said despite signs of recovery, the company would keep major capital expenditure on the back burner.