JOHANNESBURG (miningweekly.com) – Ferrochrome producer International Ferro Metals CEO Chris Jordaan on Monday said he was confident that the company would return to profitability in the 2014 financial year.

Despite experiencing a “strong turnaround” in the second half of the 2013 financial year, the company posted a pretax loss of R126-million for the year ended June 30, compared with a pretax loss of R72-million the year before.

It recorded an after-tax loss of R128.7-million for the year under review, compared with an after-tax loss of R53.3-million in the prior financial year.

In a statement to shareholders, Jordaan noted, however, that the long-term growth outlook for the ferrochrome market was positive, that the company had improved its position on the cost curve and that IFM was now able to compete favourably with Chinese ferrochrome producers, which should all contribute to improved profitability going forward.

He described the 2013 financial year as one of two halves.

The London-listed company noted that more than 95% of its losses had been attributable to the first half of the financial year.

A pretax loss of R121-million was recorded in the first half of the year, mainly as a result of a resurgence of the eurozone crisis, which led to low realised ferrochrome price.

Realised rand ferrochrome prices improved in the second half of the year, which, together with a reduction in production costs, led to the loss for the second half of the year narrowing to R5-million.

The company recorded a loss before interest, tax, depreciation and amortisation of R46-million in the first half of the year, which it turned around to earnings before interest, tax, depreciation and amortisation (Ebitda) of R71-million in the second half. This resulted in Ebitda of R26-million for the full-year, down 59% on Ebitda of R63-million in the prior year.

IFM also improved its operating margin to 7% in the second half of the financial year, compared with a negative 5% in the first half of the year.

“Following market and operational challenges in the first half, which IFM tackled vigorously, the second half was much stronger, with the company continuing to make significant progress with its cost reduction programme, as well as increasing revenues from our strengthened sales and marketing operations,” said Jordaan.

He noted that IFM had improved its competitive position in the global ferrochrome market and that the company was now producing ferrochrome at or below the production costs of Chinese producers.

Further, the company had achieved 90% of its targeted cost savings by the end of the fourth quarter of the financial year.

Production costs for the full-year were R6.39/lb, compared with R6.13/lb the year before.

Adjusting for changes in electricity and reductant prices, the production cost for 2013 was R5.87/lb, 38c below the R6.25/lb production cost achieved in the 2011 financial year.

The company believed the cost saving measures it had implemented had placed it in the lowest cost quartile in South Africa.

“Management is working on further savings and is confident that in the current financial year, the company will move even further down the cost curve. The work becomes more difficult as the more obvious places to reach are harvested; nevertheless, dedication to the task and innovative thinking are continuing to bear fruit,” said IFM chairperson Anthony Grey.

Meanwhile, IFM’s ferrochrome production for the year increased by 20% to 183 718 t, compared with 153 046 t the year before, while ferrochrome sales rose 10% to 184 390 t, compared with 167 644 t in the 2012 financial year.

FERROCHROME OUTLOOK
IFM expected growth in stainless steel demand to continue at a rate of about 5.5% over the next five years, stating that this would require about 2.4-million tonnes of additional ferrochrome.

“The pace of stainless steel production, which largely tracks economic growth, is very different in the various regions of the world. Capacity growth is shifting from traditional producing regions in the West to Asia, with China leading the growth,” noted Jordaan.