[miningmx.com] — WORLD stainless steel production hit a record 31.3 million tonnes (mt) in calendar 2010, but ferrochrome producer International Ferro Metals (IFM) still reported a net loss of R107m for the six months to end-December.
Ferrochrome is an essential ingredient for the manufacture of stainless steel, but IFM’s revenues were hit by lower dollar ferrochrome prices and a stronger rand/dollar exchange rate.
IFM is listed in London but its head office is in Sydney, Australia and its mines and smelters are located in North West Province, South Africa.
IFM’s production volumes were also 5% down at 100,839t for the six months compared with 105,725t for the six months to end-June 2010, because of furnace shutdowns required to carry out repair work.
Sales revenues nearly doubled to R850m (six months to end-December 2009 – R452m) but “cost of goods sold’ ballooned to R905m (R509m), resulting in a loss before tax of R160m (R144m loss).
The result was that IFM had net borrowings of R216m at the end of 2010, compared with a net cash balance of R47m at end-June 2010 – “principally due to capital expenditure and operating activities’.
According to IFM CEO David Kovarsky, “The company experienced a challenging first half for production due to furnace shutdowns in August and November 2010 to repair heat-damaged roof panels.
“A subsequent root and branch review of the furnaces by Metix, a leading specialist South African furnace engineering firm, discovered that the furnace roofs have certain design deficiencies.’
He added the repairs would cost about R40m per furnace and would require a six-week shutdown for each furnace. This was planned for June to August this year, to coincide with power utility Eskom’s winter tariff period when prices are at their highest.
Other issues for IFL were that Anglo Platinum was six months behind schedule in construction of the UG2 chrome tailings re-treatment plant, while the electricity co-generation plant was experiencing “technical issues’ and commissioning was continuing.
Kovarsky said: “The global ferrochrome market is strengthening, as demonstrated by demand increasing in line with higher stainless output, tightness in supply and increasing spot prices.
“IFL has commenced preparatory work on the furnace upgrade, the conclusion of which is expected to increase our production volumes to nameplate capacity, increase efficiencies and decrease costs.
“Costs should be further reduced with the full commissioning of the co-generation plant, input of low cost UG2 ore from the beginning of 2012 and greater use of low cost reductant.
“The company should then achieve a significantly improved financial performance in a strengthening ferrochrome market.’
According to a research note by UK institution Numis, “the balance sheet remains tight but, providing there are no major slippages on the rebuild programme, we do not see the need for additional funds.
“We recently met with technical management and consultants and gained some comfort that the furnace issues will be resolved by September as planned.
“Looking forward, we believe there is a strong, re-rating potential and a deep value buying opportunity at these levels – we note the stock is trading at a deep discount to liquidation value.’
