JOHANNESBURG (miningweekly.com) – Ferrochrome producer International Ferro Metals (IFM) has secured its position as a low-cost producer, achieving 90% of its targeted production cost savings for the quarter ended June 30, while increasing quarter-on-quarter ferrochrome production by 15% to 39 454 t.

The company attributed this performance to improved electricity consumption and increased alloy recovery from slag.

Ferrochrome production costs for the quarter decreased to R6.23/lb of chrome from R6.30/lb of chrome in the prior quarter, despite the yearly electricity tariff increase in April and higher winter tariffs in June.

Additional efficiencies were achieved across ore, reductant, operating and fixed costs, as the higher metal recovery volumes and higher ratio to furnace volumes had a further, major, dilutive impact on fixed costs.

CEO Chris Jordaan was “delighted” by the company’s performance over the quarter, adding that both furnaces were performing well following the rapid restart and ramp-up of the second furnace in June, at the conclusion of the buy-back agreement with parastatal Eskom.

During the quarter, one furnace participated in a two-month Eskom buy-back programme, which ended on May 31.

“We have secured our position as a low-cost operator, with remarkable progress made in cost reductions, and we are now close to achieving 100% of our cost cutting goals. As a result, we have successfully positioned ourselves down the cost curve, where we can compete with Chinese producers.

“Finally, and crucially, we continue to be cash-generative, which allows the company to withstand a reduced benchmark price,” he commented.

Cash from operations, before working capital changes, amounted to R91-million, while working capital was R24-million, and R16-million and R36-million was spent on financing and investing activities respectively.

Jordaan said IFM’s performance was particularly notable considering that the global economic environment remained challenging, as growth weakened in almost all regions during the second quarter.

This negatively impacted on the stainless steel industry and demand for its raw materials, as spot prices for ferrochrome in China dropped by about 5% during the quarter. The spot market in Europe responded by closing the gap with Chinese spot prices.

The European Benchmark Price also followed suit, as the end to the Eskom buy-back programme triggered the start-up of capacity in South Africa and the third-quarter price was fixed at $1.125/lb – a 14.5c reduction over the previous quarter. 

“These price levels are challenging margins around the world, particularly in South Africa during June to August, as producers have to cope with increased winter electricity tariffs,” Jordaan noted.

However, most Chinese producers rely on cheaper ore imports to reduce their production costs.

With increased internal power consumption subsequent to the conclusion of the Eskom buy-back programme, a tighter market was expected to develop, which should lead to higher ferrochrome production costs in China, and consequently higher ferrochrome prices.

“Given the company's relative cost position, this bodes well for profitability in the year,” he said.

Ferrochrome sales for the quarter were down 10% to 37 665 t, compared with 41 630 t for the previous quarter, owing to higher inventory levels at the beginning of the previous quarter.

Sales originated primarily from Europe, with some contractual sales going to the US and India.

Meanwhile, the company confirmed that the Lesedi underground mine remained under review as the company considered the most effective mining strategy for the asset as part of its cost reduction and asset optimisation programme.

“Looking ahead, we will continue our cost reduction improvements and maintain operational stability through the winter period, when electricity supply traditionally comes under pressure. We are working with Eskom as an energy-intensive user to ensure there will be no forced shutdowns and a steady power supply is maintained,” said Jordaan.