THE Glencore-Merafe Chrome Venture’s proposed 62c per kWh electricity tariff deal with Eskom, far below the standard tariff of around 234c per kWh, could determine whether its ferrochrome smelters return to meaningful production or remain largely mothballed. The irony is that the deal may matter more to government than to the Venture itself.
For government, the logic is compelling. South Africa holds roughly 75% of the world’s chrome ore reserves, yet China has increasingly captured the ferrochrome value chain. If local smelters close, South Africa can still export chrome ore, but it forfeits downstream beneficiation, industrial jobs and higher-value export revenue. Operating smelters also provide Eskom with large, predictable industrial electricity demand at a time when surplus capacity has re-emerged.
For Merafe, which owns 20.5% of the Venture, the issue is more nuanced. In a normal year, the Venture mines chrome, converts part of it into ferrochrome for the stainless steel industry, and returns surplus cash to shareholders.
In 2025, however, rising electricity costs and weaker ferrochrome prices undermined that model by making smelting uneconomic. Boshoek and Wonderkop were suspended, while Lion was taken down for maintenance before recently resuming partial production after securing discounted interim tariffs from Eskom. Ferrochrome output collapsed 63% to just 112,000 tonnes, and installed smelter capacity utilisation fell to only 23%.
The reported numbers were ugly. Ferrochrome revenue dropped 61% to R2.3 billion, total revenue fell 31% to R5.8 billion, headline earnings per share declined from 42.9c to 12.2c and Merafe’s adjusted share of Venture ebitda fell from R1.78 billion to just R602 million. On the surface, that looks like a business whose earnings power has been badly impaired.
But the segment breakdown tells a more complete story. In 2025, ferrochrome contributed negative 146% of Venture ebitda, while chrome ore contributed 169%, PGMs 38% and head-office adjustments 39%. Applied to Merafe’s R602 million share of adjusted Venture ebitda, that implies ferrochrome destroyed roughly R879 million of ebitda, while chrome ore contributed about R1.02 billion and PGMs about R229 million. In other words, Merafe’s mining and PGM base was still strongly cash-generative, but dragged down by the loss-making smelters.
That is why the proposed five-year Eskom deal is not quite as existential for Merafe as it first appears. If the 62c per kWh tariff is approved on commercially viable terms, Lion can operate more sustainably and Boshoek and Wonderkop can potentially restart. But if the tariff deal fails to materialise, Merafe can export more chrome ore instead of consuming it as smelter feedstock, and place the smelters on care and maintenance to reduce the fixed-cost drag.
That fallback strategy would probably not allow Merafe to match 2024’s R1.78 billion ebitda. Care and maintenance still carries costs, and a healthy ferrochrome business adds value when power prices are low enough. But it would produce a better cash-flow outcome than the 2025 result may suggest. That is also why the Venture has little incentive to accept a subpar Eskom deal merely for the sake of restarting ferrochrome production.
The fine print in the deal, which still requires NERSA approval, therefore matters as much as the headline tariff. The Glencore-Merafe Chrome Venture has made clear that the terms must be commercially viable. A cheap tariff tied to onerous obligations, rigid production commitments or other restrictive conditions would not allow a sustainable resumption of operations.
The restart of idled smelters would cost money, but not enough to overwhelm the balance sheet. On the results call, management indicated that the total cost for restarting Boshoek and Wonderkop could be close to R1 billion. Merafe’s share, at 20.5%, would be about R205 million. Boshoek would take around three months to prepare and Wonderkop about five months.
Merafe has the financial capacity to absorb that. At year-end, it had R1.157 billion in cash and cash equivalents. Broader liquid reserves were R1.55 billion, including other liquid balances and a 120-day notice deposit. Against a market capitalisation of roughly R3 billion, cash and treasury balances alone are more than a third of the equity value. That balance sheet strength is one reason the share remains attractive even after a very poor operational year.
The other reason is dividends. Merafe is not a growth company. Production is mature, cyclical and constrained. The aim is to run the assets efficiently, manage fluctuations in the ferrochrome market and return cash when conditions allow. Over the past five years, Merafe has paid cumulative dividends of 136c per share. At a share price of about 117c, shareholders have received more than the current share price back in dividends, equivalent to an average payout of roughly 27c a year and a historical yield of about 23%.
The closest high-yield commodity comparison is Kumba Iron Ore. Both are mature commodity dividend plays rather than growth companies. Kumba offers a simpler mining model and a dividend yield of roughly 10%. Merafe is exposed to the smaller and more volatile chrome ore and ferrochrome markets, with the added complication of a power-intensive smelting operation. But it also has a strong balance sheet and a higher historical dividend yield, which is why the risk may be worth it.
