Merafe to buy stake in Unicorn Chrome from Glencore as part of “long-term strategy”

Chrome concentrate

MERAFE Resources is to buy a 20.5% stake in Unicorn Chrome from Glencore for R32.2m, a transaction the South African chrome producer described as “strategic”.

“Merafe considers this acquisition as a long-term strategic investment which will place the company in a better position and ahead of its peers from an operational perspective,” the company said in a statement to the JSE.

It added that cash preservation remained a key part of its plans during the current market downturn, partly precipitated by the COVID-19 pandemic.

Unicorn has a shareholding in a UG2 chrome concentrate producer which extracts chrome concentrate from a tailings stream in South Africa’s North West Province. Based on this, the acquisition was “… a valuable addition to Merafe’s chrome interests”.

The acquisition comes at a time when Merafe’s asset mix is fluid.

In January, Glencore said it would begin a Section 189 restructuring process of its 430,000 tons per year Rustenburg smelter. Merafe has a 20.5% share in the Glencore-Merafe Chrome Venture.

Then on May 8, Merafe said it would keep four smelters – Boshoek, Rustenburg, Wonderkop, Lydenburg – and its Kroondal mine in mothballs until market conditions improved. The Lion smelter and Eastern Chrome mines would restart, however.

“The decision to restart these operations will be kept under review and is subject to an improvement in the macro-economic environment, which was challenging even before the impact of COVID-19,” Merafe said in its May statement.

Unicorn reported an attributable profit of R28.6m for the 12 months ended February 28. The company had a net asset value of R21.2m.

“Given the cyclical nature of the mining industry, prudent cash management is crucial, especially now during COVID-19 pandemic. Merafe continues to closely monitor the costs and capital expenditure of the company,” it said.

Merafe reported a headline loss per share of 1.8 cents, a 29c/share negative turnaround on the previous year – its first headline loss since 2009. The numbers included a R1.85bn write-down of its assets.

The basic loss per share came in at 54.2c compared to a 27.2c/share profit in 2018. Net cash including cash and cash equivalents and the firms’ bank overdraft, increased to R354m from R281m previously.