[miningmx.com] – MERAFE Resources set the National Treasury’s
budget announcement in February 2013 as a possible milestone in its campaign to
introduce a levy on chrome exports.
“We are hoping for a resolution by the time of the budget announcement,” said
newly appointed Merafe CEO Zanele Matlala, who added that Government’s
economic cluster consisting of several departments and the National Planning
Commission were to hear Merafe’s proposals on the need for export levies this
month.
Asked if there was any tacit understanding with Government on chrome export
levies, Matlala said: “We have seen proposals for export levies in the Sims [State
Intervention in Mining] report and heard recently President Zuma say that trade
relations with China should also be mindful of job preservation”.
Merafe’s argument is that chrome exports to China, predominantly by platinum
producers, were allowing that country to build its ferrochrome industry at the
expense of South African producers, and jobs.
According to Merafe data, ferrochrome production in China grew to 33% of the total
market in the first half of Merafe’s financial year, from 5% in 2001, while South
Africa’s share of the market has shrunk 15%.
Merafe produced a profit of R138m in the six months ended June, a 57% increase in
share earnings, and generated cash flow of R134m. Ironically, it was a performance
largely driven by not producing ferrochrome as Merafe shut seven furnaces – losing
130,000 tonnes of production – but allowing Eskom to ‘buy back’ the power.
Matlala said about half of Merafe’s furnaces were still shut owing to the hike in
electricity prices from Eskom’s winter tariff strategy. Full production would be
commissioned from September, Matlala said.
The ferrochrome market was expected to remain in balance with ferrochrome
supply, growing 5% to an estimated 10 million tonnes (Mt) in 2012 compared to
9.6Mt in demand in 2011. Stainless steel production would grow 4% to 35.4 million
tonnes.
Merafe’s recent corporate past has often been a story of stretching for capital to fund
its share of expansion with joint venture partner, Xstrata.
However, Matlala said the R750m to complete the expansion of its 360,000
tonnes/year Lion II furnace, which would take overall production to 490,000
tonnes/year, would not require a rights issue. This is largely owing to a R500m
facility supplied by Absa and a R180m overdraft facility.
Lion II was “on track” and was expected to come on stream in the second half of the
2013 financial year. There was no chance of Merafe revisiting its commissioning of
Lion II amid market volatility, Matlala said.
Meanwhile, Merafe would set about breathing new life into a diversification strategy
that would reduce its reliance on the traditionally highly cyclical nature of
ferrochrome production.
Said Matlala: “We are engaging shareholders on diversification strategy so we can
determine commodities that we can diversify into. It will still be resources, but we
are looking at various commodities to decide which ones will work for us. Once
ready, we will come back to the market to update”.
