[miningmx.com] — MERAFE Resources CEO Stuart Elliott is looking for higher ferrochrome prices and sales volumes in 2011, in line with a forecast 8% increase in global stainless steel production to 33.7 million tonnes (mt).
Ferrochrome and nickel are the metals which put the “stainless’ into stainless steel.
Speaking in Sandton on Tuesday to investors at a presentation of Merafe’s results for the year to end-December, Elliott said the majority of ferrochrome producers were already at full capacity while global demand remained strong.
“Chinese distributors are buying again after the lunar holidays while the European market, having run down stocks, is showing strong demand,’ Elliot said.
He commented growth in stainless steel production would be driven mainly by China, which was expected to increase output by 13% to 12.9 mt from 11.4mt in 2010.
Stainless steel output in the rest of the world was forecast to rise by 5.6%. Total world stainless steel production rose 20% to 31.2mt in 2010 from 26mt in 2009.
For the year to end-December, Merafe reported earnings of 11 cents per share (previous financial year – 6c/share loss) and declared a dividend of 2c/share.
The company is the black economic empowerment (BEE) partner for Xstrata’s ferrochrome operations, holding a 20.5% stake in the combined Xstrata-Merafe chrome joint venture.
The Xstrata/Merafe JV has a number of projects in the pipeline, of which the most important is construction of the 360,000t/year Lion 11 ferrochrome smelter at a total cost of R4.9bn, of which Merafe will have to fund R1bn.
Elliott said negotiations are continuing with Xstrata over Lion 11 – which is expected to be commissioned in the first half of 2013 – and also over Merafe increasing its stake in the JV to 26%.
He declined to specify how Merafe would fund its share of the expansion, saying it would depend on the outcome of the negotiations and would probably involve a mix of debt, equity and future cash flows.
An analyst told Miningmx he believed Merafe had to be looking at holding a rights issue to raise between R1bn and R1.5bn, depending on what kind of deal it could reach with Xstrata over vendor finance on the acquisition of the extra equity stake.
Elliott declined to comment on the attack made on Xstrata and marketing partner Glencore in October last year by Niall Carroll – CEO of Royal Bafokeng Holdings – which is the largest shareholder in Merafe.
Carroll said in a speech: “Our relationship with Xstrata has been sound, although largely commercial with little alignment between the community’s needs and Xstrata’s corporate social investment programmes.
“However, we have one major gripe – the evergreen, fixed margin marketing contract that Glencore enjoys over all of Xstrata’s current and future production.
“It cannot be correct that shareholders in South Africa provide all the risk capital to develop mines and smelters, yet pay away a fixed margin to a Zug-based organisation without any regard for whether it adds value or not.
“It reminds us of that other great mining confidence trick, the Central Selling Organisation (CSO) in which for decades De Beers persuaded major producers of diamonds, notably Botswana, that they needed the CSO more than the CSO needed them.
“Of course, in recent years Botswana has realised that this assumption was incorrect and the split of economics has subsequently tilted much more in favour of Botswana.
“Similarly, we believe that Glencore’s marketing arrangements with producers and, in particular with Xstrata Alloys, are anti-competitive and ultimately unsustainable.
“They are not in our interests and cannot be in the national interest,” Carroll said.
Elliott said on Tuesday: ” I am not going to comment on the views of our major BEE shareholder. We think Glencore is doing a fantastic job and for as long as they honour their commitments, we will honour ours.’
