[miningmx.com] – MERAFE Resources defied its naysayers delivering an interim dividend of R28m, equating to 1.12 cents a share, on the back of record ferrochrome production which helped the group to a R181m year-on-year improvement in interim net profit.
The dividend, Merafe’s first since its 2009 financial year, represents a resounding note of confidence in its ferrochrome business which is primarily comprised of its 20.5% stake in the Glencore Merafe Chrome Venture.
The dividend also comes almost a year to the day that analysts expressed doubts about Merafe’s financing firepower, and its ambition to pay a dividend, amid a slide in 2013’s interim profits. The company said at the time it saw no reason why it couldn’t deliver a return.
Shares in Merafe surged 6.2% on the Johannesburg Stock Exchange by midday registering an 111% on a 12-month basis.
Merafe recently completed commissioning of the R5bn Lion II expansion with Glencore, a project that tested Merafe’s balance sheet. Merafe had total debt of R592m owing to Absa Capital as of June 30 – a year-on-year decline of and a net cash balance of R19m. The company had additional financing ‘headroom’ of R711m, it said.
An ideal level of debt that could be retained on the balance sheet was between R300m to R400m.
The Lion II expansion, described by CFO Ditabe Choco as the company’s “last major expansion”, will add about 18% to Merafe’s current capacity, or some 360,000 tonnes of production.
As a result of the improvement in the company’s fortunes, and the completion of the Lion II project, Merafe said it would ice its plans to diversify into other commodities – a switch in corporate strategy that would lead to a reduction in its executive structure.
The company’s long-standing commercial director, Bruce McBride and Choco would leave the company, the latter to be replaced by investor relations manager, Kajal Bissessor. The number of its non-executive team would also be reduced at the end of its current financial year.
“The board has taken a decision that diversification will not be major focus and that we will focus on ferrochrome operations which shows confidence in the industry,” said Zanele Matlala, CEO of Merafe Resources.
“Having taken that decision, we now had to align our structure with our renewed strategy and resulted in reaching separation agreements with staff members including certain key individuals,” she said.
For the six months ended-June, Merafe posted a 35% increase in revenue to just under R2bn owing to a one quarter increase in ferrochrome sales tonnes. The ferrochrome price was flat during the period but the rand weakened 16% against the dollar.
Headline hare earnings increased 134% to 8.9 cents per share.
Commenting on the switch in strategy, Matlala said the company was cognisant of a rising interest rate environment and an intention to reduce debt in its decision-making approach. “It was a decision that was coming for a while,” she said.
“There had been 10 years of expansionary capital expenditure, and the decision process was to now reap the benefits or put it into something else,” she said. Merafe Resources’ single-largest shareholders are Royal Bafokeng Holdings with a 29% stake and the Industrial Development Corporation (IDC) which holds 22%.
Asked if the IDC was a long-term shareholder of Merafe’s shares, Matlala said: “The IDC has not indicated what it wants to do. If it found someone to buy it out, it would probably consider it, but it is not on the table at the moment”. Zanele added that there were no plans to delist the company either.
“This is a short to medium term strategy. It is not that diversification won’t happen in the long-term,” Matlala said.
