IFM recovery exceeds expectations

[] — FERROCHROME producer International Ferro Metals
(IFM) has taken another step towards restoring investors’ faith, meeting key cost
and production milestones as it seeks to regain former highs.

Following the release of a quarterly production report to end-December on Tuesday,
IFM’s LSE-listed shares gained 8.57% during early trade as the company made
considerable strides towards achieving nameplate capacity.

Still, at 19p per share the company was not far above its all-time low of 14p,
recorded in June last year, and well below the 65p-level it was trading at in the third
quarter of 2009.

“We have to take a large portion of the blame for the general under-performance of
our shares,’ CEO Chris Jordaan told Miningmx.

“Our mines and furnaces haven’t delivered the goods. What investors and the
analysts want is a strong quarter, followed by another strong quarter, and so on.
We’re in the process of restoring confidence.’

During the three-month period, ferrochrome production increased 71% to 54,142
tonnes, following a rebuild of the group’s two furnaces and the continued ramp-up of
its new Sky Chrome mine. Sales totalled 58,389 tonnes, up 39% from the September

“The furnaces ramped up to full load during September and October 2011
respectively, and furnace availability has improved significantly,’ IFM said. “No
downtime due to water leaks was recorded.’

Management would now target nameplate production in the March quarter – around
66,000 tonnes.

As for costs, IFM said it has already achieved reductions equating 12% of its 10.9
US cents per pound target. This reduction was mainly the result of using a higher
anthracite mix for its reductants; as well as improved production volumes.

The company is banking on volumes, lower electricity costs from a co-generation
plant as well as cheaper supply of UG2 to account for the balance of the earmarked

IFM would be entitled to 15,000 tonnes of UG2 chrome concentrate per month from a
newly commissioned plant operated by Anglo American Platinum. This accounts for
around 30% of IFM’s requirements and would reduce costs by an estimated 3c/lb.
The first delivery of chrome is expected in February.

IFM also targets savings of another 2.3c/lb from the delivery of just over 20GWh
from a co-generation electricity plant, which would account for 11% of the
company’s power requirements. By end-December, the plant generated 10.0GWh.

The group said it expected the plant to reach full output during the second quarter.


IFM continued to operate at a loss during the December quarter, with a shortfall in
cash from operations burning R3m and working capital another R56m. Capex utilised
R56m. IFM does expect this situation to change in the current quarter, based on the
prevalent Rand/Dollar exchange rate and its lower cost base.

It remains cautious about the outlook for ferrochrome, with stainless steel mills
expected to maintain low inventory levels.

“However, with Eskom electricity price increases due on 1 April, and significantly
higher winter tariffs during June to August, restocking in the ferrochrome market may
be expected after the Chinese New Year in early February 2012,’ it said.

“Spot prices for FeCr have already shown signs of recovery early in January
according to Metal Bulletin, who note that this is the first increase in FeCr spot
prices since July 2011. A similar trend is observed by the company in recent offers
for ore.’

Commenting on the results, analysts at Numis Securities said IFM was now well
placed to achieve record production levels in 2012.

“It should help lift [the] shares out of [the] bargain basement,’ Numis said in a note
to clients, pointing to the stock trading at 0.35 times its net asset value.