Chromex plots growth after tough year

Allan Seccombe | Fri, 05 Mar 2010 16:22

[miningmx.com] -- JUNIOR chromite company Chromex is in talks to raise funds towards a R30m expansion of its Stellite operation in South Africa after a very tough year in which it produced at a fraction of capacity.

AIM-traded Chromex released results for the year to end-September 2009, showing a gross profit of Ł812,000 off revenue of slightly more than Ł2m. However, the firm posted a pre-tax loss of Ł151,000 against a loss of Ł1.4m a year earlier.

“2009 was about staying in business and not empire building,” CEO Russell Lamming told Miningmx.

Chromex’s larger peers in the ferrochrome industry shut down most of their furnaces early in the year because of low prices and weak demand. Demand picked up towards the end of the year and furnaces have been switched back on.

Chromex, unlike its larger peers, produces chromite from its 31 million tonne resource at its opencast Stellite project rather than ferrochrome, which means its upfront capital costs and running costs are comparatively very low because it doesn’t need a furnace.

Chromex also suspended production, keeping output bubbling along at a level that covered costs, keeping its chrome in the ground until the market recovered. It resumed mining in January.

It has a R35m expansion plan, which entails the building of a dense media separator (DMS) plant, installing another bank of spirals and a thickener. Chromex is in talks with financiers to raise debt and with offtake firms about a possible back-to-back offtake agreement for an upfront payment.

The existing plant, which has the capacity to handle 20,000 tonnes/month of ore from the four-reef package at the deposit, was financed in part with a loan of R30m from a South African institution, of which only R20m was used.

The expansion will double the tonnage it can process and the DMS and other additions should bump recoveries up into the mid-60% from the 50-55% it is running at currently to produce a 42% and 44% chromite product.

The expansion means Chromex will also add a sized lumpy product to its offering.

A second revenue stream Chromex is investigating at Stellite is from platinum group metals extracted from its tailings. The grade in one of the seams is around 1.74 grams/tonne, but there’d be no mining costs. A study is underway and should be completed by year-end into building a small flotation plant.

The second South African project, Mecklenburg, remains on hold because of the court case Samancor has brought against the granting of a mining right by the Department of Mineral Resources to Chromex at the 10 million tonne resource.

There is no timeline on when the matter will be heard in court or resolved. The deposit has good quality chrome and would lend itself in part to the production of foundry grade chromite, which fetches the highest price of the various grades of chromite.

An interesting development in the year was the binding heads of agreement to buy a 49% stake in a private Zimbabwean chrome company called Falvect Mining.

Lamming said Chromex is concerned about the indigenisation laws in Zimbabwe demanding 51% local ownership of companies, but it would have very limited capital exposure to the country, which had very promising chrome prospects. It’s too early to say what level of output will come from there.