JSE-listed Merafe Resources produced a “subdued” set of financial results for the six months ended June 30, as a result of a challenging operational environment, characterised by weak demand and prices.

Merafe’s revenue and operating income are primarily generated from the Glencore-Merafe Chrome Venture, which has a total installed capacity of 2.3-million tonnes of ferrochrome a year.

Merafe shares in 20.5% of the earnings before interest, taxes, depreciation and amortisation (Ebitda) from the venture.  

The company’s net profit decreased by 61% year-on-year mainly as a result of lower ferrochrome and chrome ore prices, which had been only partially offset by a weaker average rand: dollar exchange rate and higher sales volumes.

Despite power cuts by State-owned power utility Eskom during February and March, the venture’s operations were not significantly impacted on by electricity supply constraints during the first half of this year.

Total production costs per tonne of ferrochrome, however, increased by 7.2% year-on-year, mainly as a result higher reductant and other input costs.

Revenue from the venture increased by 3% to R2.78-billion.

Merafe experienced a 2% year-on-year decline in ferrochrome production to 206 000 t; however, ferrochrome revenue increased by 2% to R2.39-billion, owing to a marginal increase in ferrochrome sales volumes to 189 000 t from 181 000 t in the prior comparable period.

Chrome ore revenue increased by 5% year-on-year to R397-million, driven by an 11% increase in sales volumes to 147 000 t.

As with ferrochrome, lower average prices stunted the revenue growth.

Merafe’s portion of the venture’s interim revenue amounted to R454-million and its share of the venture’s Ebitda to R435-million. This was despite a 24% increase in cash flow from operating activities to R197-million.

Profit reached R165-million, after depreciation of around R206-million, net financing income of R8-million and tax expenses of R72-million.

Sustaining capital expenditure decreased by 30% to R121-million, primarily owing to the company’s conservative approach and desire to preserve cash in response to the market uncertainty.

The R200-million unsecured, three-year revolving credit facility with Absa was not used during the period.

Merafe recorded a 27% year-on-year decline in net cash and cash equivalents of R204.8-million, comprising cash of R145-millon and around R60-million attributable to Merafe’s share of the cash balance in the venture.

No interim dividend was declared.

Merafe CEO Zanele Matlala noted that price and exchange rate volatility were expected to continue, owing to continuing global uncertainty.

“Given the state of the market, there are likely to be ferrochrome production cuts across key markets. Surpluses are expected to narrow as a result, with some improvement in prices expected.”