Steve Phiri, CEO, Merafe Resources
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» Merafe riding high, but risks continue
» Merafe Coal JV leads to opportunity - Robin Berry, CEO, Scharrig Mining
» Merafe begins long-awaited diversification
» Merafe eyes a buy, higher chrome price
» Hobbled Merafe hunts for non-chrome projects

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Merafe seeks iron ore, ups ferrochrome output
Allan Seccombe
Posted: Tue, 07 Aug 2007

[miningmx.com] -- MERAFE Resources, the South African ferrochrome and coal empowerment company, is looking actively for an iron ore asset to add to its portfolio, management said on Tuesday.

Merafe is a 20.5% partner in Xstrata’s ferrochrome business in South Africa and has reduced its debt levels to a point where it is now talking about paying dividends and making acquisitions.

“We want to be a dividend payer soon. Once we’ve reduced our debt to R335m we will pay a dividend or maybe do a share buyback,” CEO Steve Phiri said. “We will pay dividends in 2008.”
We are looking at iron ore
Merafe plans to reduce its debt level during 2008 by 55% to R335m, which it will then secure for five years and service only the interest. It will then refinance that debt. Merafe knocked R121m off its debt during the first half of its financial year.

“We are looking at iron ore. We want to get into that space,” Phiri said.

South African iron ore production is dominated by Anglo subsidiary Kumba Iron Ore and Assmang partly owned by African Rainbow Minerals.

Merafe plans to use a similar model to that in the Xstrata relationship, where it is the empowerment partner, and in Scharrig Mining, where it created an equally held joint venture partnership in coal.

The main coal areas in South Africa are in the Northern Cape near around the town of Sishen where Kumba and Assmang have their mines, Thabazimbi, where Kumba has a mine and smaller deposits near Palaborwa, where Rio Tinto is mining copper.

“You’d be surprised how much opportunity there still is in iron ore,” Phiri said.

Merafe has shelved plans to enter manganese production, with the plum assets going to Russia’s Renova, which was awarded prospecting rights to land estimated to contain 350 million tonnes of manganese.

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The JSE-listed Merafe will begin producing coal from the second half of next year and is again looking hard for acquisitions in that sector.

Two mothballed furnaces will be returned to production during the course of the second half of the year, bringing to 20 the number of furnaces the Xstrata/Merafe partnership will have in production. The partnership’s Project Lion will also reach steady state production this year.

The partnership will then produce 1.764 million tonnes of ferrochrome a year from the start of 2008 against design capacity of 1.96 million tonnes. This is against about 1.4 million tonnes of production this year, said financial director Stuart Elliot.

The increased production will most likely go to China where stainless steel production is 6.8 million tonnes out of capacity for ten million tonnes.

The partnership’s sales to China have grown to 20% of production from nothing in 2006. “That’s where the natural market is and where the growth is. Any further increases in our production will target that market,” Elliot said, referring to the 360,000 tonne increase over this year’s forecast output.

"This increased production will go directly to the bottomline. There's no capex, no debt or interest to bring this into production," Elliot said.

Ferrochrome prices have risen to $1 per pound, up from $0.75 in the first quarter. Talks for fourth quarter prices will take place in September and Phiri said producers will ask for a further increase because the market is in a supply deficit.

Merafe posted record six-month earnings before interest, tax, depreciation and amortisation (EBITDA) of R183m, up four million rand from the same period a year ago. Revenue shot up R330m to R730m.