MERAFE Resources’ new 62c/kWh electricity tariff will help its ferrochrome business compete with Chinese producers, but it will not put the smelting business in a strong profit-making position.
Japie Fullard, CEO of Glencore’s South African ferroalloys business, said on Tuesday during a webcast of Merafe’s half-year results that the 62c tariff is “not a silver bullet”.
“It makes us competitive with Chinese production costs. At 62c, we are really only making use of our infrastructure; we are not in a profit-making position. But it allows us to keep our people and jobs.”
There are also agreements with Eskom on upside sharing, meaning the utility will share in the upside if the smelting business moves into profit.
Fullard said the tariff had moved the venture to the “left-hand side of the global ferrochrome cost curve” and closer to Chinese production costs. But Chinese producers could force costs down further, putting yet more pressure on the Venture.
“We are definitely not out of the woods yet,” he added.
Merafe will therefore have to drive efficiency gains and cut costs in its ferrochrome and chrome businesses. The 62c/kWh tariff is in place for three years, while the Venture is working with Eskom to see if it can find a better electricity solution.
Merafe owns 20.5% of the Venture.
The comments came as Merafe reported a sharp rise in earnings for the six months ended June despite a steep fall in ferrochrome output.
Headline earnings per share increased 64% to 20.7c from 12.6c, while basic earnings per share rose 120% to 20.5c. Profit increased to R512m from R233m, EBITDA rose 60% to R774m, and revenue increased 36% to R3.43bn.
The rise in profit was backed by much higher chrome ore sales volumes and better commodity prices.
Chrome ore sales rose 75% to 38 000 tons (380kt), while chrome ore revenue increased 78% to R1.79bn, helped by an 11% increase in the chrome ore price.
Ferrochrome sales fell 4% to 73kt, while attributable ferrochrome production fell 75% to 28kt as Wonderkop and Boshoek remained suspended.
Lion returned to production towards the end of February.
Ferrochrome unit production costs rose 61%, driven by higher market chrome ore prices and increased fixed and plant costs, with lower output also pushing up costs. Chrome ore production costs per unit were 15% higher.
Wonderkop and Boshoek are now being restarted, with the ramp-up due to be fully done towards the end of the year.
Merafe forecast capex of between R500m and R550m for the full 2026 year. For 2027, it expects a slight increase, with capex forecast at between R550m and R600m.
Merafe’s estimate for ferrochrome production is 25% to 29% of installed capacity for 2026 and chrome ore production of about five million tons (Mt).
The tariff marks a sharp shift from February, when Nersa had approved an interim rate of 87.74c/kWh. At the time, the Venture said all three smelters – Lion, Boshoek and Wonderkop – needed 62c/kWh to run on a sound long-term basis.
Outlook
Merafe says the outlook for the rest of 2026 “appears cautiously optimistic”.
Although the negotiated reduction in electricity tariffs and improved power supply lower operational risk for smelters, margins may still be under pressure due to higher ferrochrome supply from China and potential oversupply in the market.
Merafe CEO Zanele Matlala said even though chrome ore prices have stabilised, the overall profitability will largely depend on how smelter throughput and ferrochrome pricing evolve throughout the second half of the year.
“The operating environment is still uncertain and volatile and pressure on costs are likely to continue,” she added.
