Merafe highlights Eskom risk


Merafe highlights Eskom risk

Published Date: 2019-03-12 | Source: Stephen Gunnion | Author: Stephen Gunnion

Merafe highlights Eskom risk

While geopolitical uncertainty dented ferrochrome prices last year, the company says Eskom remains a key risk factor in 2019.

Uncertainty stemming from geopolitical events such as the UK's exit from the European Union and trade tensions between the US and Canada has resulted in lower realised ferrochrome prices. So although Merafe reported higher production from its Chrome Venture with Glencore, profit fell last year due to reduced sales volumes and lower prices, as well as a marginally stronger rand/dollar exchange rate.

Merafe's main source of revenue and operating income is from the ferrochrome joint venture, which has installed capacity of 2.3-million tonnes of ferrochrome a year. It shares in 20.5% of the earnings before interest, tax, depreciation, and amortisation (EBITDA). Its share of revenue for the year to end-December declined by 5% to R5.61 billion as ferrochrome revenue fell 6% due to a 7% drop in net CIF prices and a 1% decrease in sales volumes. EBITDA fell 19% to R1.35 billion, including Merafe's R132 million share of standing charges and a foreign exchange gain of R142 million. Headline earnings per share dropped 25% to 27.2c but it's increased its dividend for the year by 16% to a record R351 million, or 14c per share.

Locally, Merafe said Eskom remained a key risk factor for the Venture this year and that it was exploring energy efficient production give the dire situation facing the utility so that it can remain the lowest cost producer of ferrochrome in the country.

The group said global GDP and stainless steel production were both forecast to grow this year, underpinning projected growth in demand for ferrochrome. It said its continued investment in the efficiency of its operations would enable it to take advantage of expansion in the market.

Its shares fell 4.3% to R1.35 yesterday.

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