Ferrochrome producer Merafe Resources‘s total ferrochrome production for 2012 was 8% lower at 242 000 t, blaming weaker demand and participation in power utility Eskom‘s power buy-back programme.

The company said that compensation received from Eskom for the electricity not consumed was adequate to cover costs and lost profits on the associated volumes only.

Further, Merafe Resources‘ profit and total comprehensive income fell by more than half for the year ended December 2012, from R116.8 million to R48.9 million, which took into account depreciation of R140.1 million, an impairment loss of R77.5 million, net financing costs of R19.7 million, current tax expenses of R0.3 million, deferred tax expenses of R60.2 million and a R33 million write-back arising from the previous years overprovision of current tax.

Meanwhile, the company said that commissioning of its 360 000 tpa Lion 2 ferrochrome plant in Steelpoort is expected during the second half of 2013 and about 50% of the budgeted cost of R1 billion was incurred to 31 December 2012.

In spite of heavy rainfalls and community unrest, the expected commissioning date is still envisaged in the second half of 2013 and the project remains within budget, adding that once the plant was fully operational, additional consumption efficiency improvements and cost savings were expected to materialise.

Further, Project Tswelopele, Merafe Resources‘ new pelletising and sintering plant, was completed on schedule and within budget during 2012. The plant was hot commissioned on 7 October 2012 and reached design production capacity within the first two months of operation, with more than 1.6 million hours worked on this project without any lost time injuries.

The company says that it is of the view that stainless steel production is expected to increase by about 4% in 2013 and by about 5% in the long term which would lead to increased growth in demand for ferrochrome globally.

It said that given the reduced supply of ferrochrome resulting from the Eskom buy-back agreements in South Africa, coupled with improved market sentiments, Merafe Resources expected increased pricing going forward.

“Our low cost base leaves us well positioned to take advantage of the increased demand for ferrochrome. We look forward to a further strengthening of our position as the lowest cost producers in South Africa when our flagship and world class project, Lion 2, comes on stream. We continue to recognise the importance of diversification and this will be a focus of the management team once project Lion 2 is completed,” Merafe Resources concluded in a statement.

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