[miningmx.com] – MERAFE Resources, a JSE-listed ferrochrome producer, is sticking by plans to reward shareholders with a dividend, and said recent comments about the strains and stresses it was experiencing of having to fund R1bn in expansionary capital under-estimated the impact on its cash flow from steel production growth in China.
Merafe Resources has to finance about a fifth of the Lion II expansion which it holds in joint venture with GlencoreXstrata. The expansion will add about 18% to Merafe’s current capacity, or some 360,000 tonnes of production, but it has been tough for Merafe to finance which is capitalised on the JSE at R1.6bn.
“There is no reason to believe we won’t make our debt repayments and then consider dividend repayments,’ said Zanele Matlala, CEO of Merafe Resources.
The company intends to retain R400m in a syndicated credit facility, but having generated R234m in interim cash flow, and with some 500,000 tonnes/year of ferrochrome demand growth expected, Matala expects Merafe to make relatively short work of its indebtedness.
“Even if we kept the RCF at R400m, we can pay dividends; it would be comfortable,’ Matlala said. Merafe Resources paid a maiden dividend after building a R463m cash balance at the close of its 2009 financial year. It hasn’t followed that dividend payment with another, as yet.
Matlala also defended the company’s interim performance in which it increased ferrochrome production 23%, raised revenue 19%, but reported a R53m decline in pretax earnings to R201m, saying exceptional items were the difference.
The company wrote down to zero its Horizon facilities for R75.9m after putting it on care and maintenance during the six months to June as well as suffering a strike that cost it R20m. Excluding exceptional items, share earnings would have come in at 6.1c/share compared to 5.5c/share in the previous period. As it was, headline interim share earnings were 3.8c/share.
Macquarie Research, however, thinks there’s still pressure on the stock, at least for the next 12 months before investor can price in a recovery.
This is partly owing to the impact of requiring additional working capital for Lion II which is forecast to require about R300m.
