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Merafe expects chrome export duty decision by February
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7th August 2012
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JOHANNESBURG (miningweekly.com) – South African black-owned ferrochrome producer Merafe Resources was hoping for “some kind of resolution” on proposals for a chrome ore export duty by February next year, CEO Zanele Matlala said on Tuesday.

Such taxes were aimed at limiting the export of unbeneficiated chrome ore from South Africa to China, as the Asian giant dethroned South Africa as the world’s biggest ferrochrome supplier, despite having no chrome reserves of its own.

“South Africa has about 80% of the world’s chrome reserves, but they [China] have overtaken us in terms of ferrochrome production,” Matlala warned.

However, she pointed out that export duties would only be a short-term solution. “The longer term solution that we would be seeking is some kind of regulation that limits the amount of unbeneficiated chrome ore that goes into China.”

She added that it was still not clear in what form such a control mechanism would come.

Matlala further said meetings had been planned with the various departments in the economic cluster this month, during which industry would be required to present their proposed solutions.

The Departments of Economic Development, Trade and Industry, Mineral Resources, the National Treasury, as well as the National Planning Commission were expected to be involved.

An export duty of $100/t on raw chrome ore was proposed earlier this year, but JSE-listed Metmar has said that the duty would destroy the South African chrome mining business and allow competitors from other producing countries to benefit.

During the first half of the year, chrome ore exports to China remained significant at about 4.4-million tons, of which just under 50% was sourced from South Africa.

Although global ferrochrome supply and demand grew by 2% in the six months to the end of June, South Africa’s ferrochrome supply fell by about 15%, compared with the same time last year, while China’s supply grew by about 18% over the same period.

Ferrochrome supply and demand were expected to grow by 5% each by the end of this year.

Meanwhile, volatility in the market persisted in the first half of the year, with renewed concerns over the European debt, lower growth rates in China, lower nickel processing and general weakness across the global economy resulting in a 7% decrease in the ferrochrome price the period.

Merafe's earnings from its chrome venture with diversified miner Xstrata increased 57% from the six-month comparative period primarily as a result of a weakening of the rand against the dollar and the compensation received from State-owned utility Eskom relating to the power buy-back arrangement.

“The compensation we received from Eskom was enough to make up for the costs and production losses,” Matlala noted.

After accounting for corporate costs of R17.2-million and share-based payment income of R800 000, Merafe's earnings before interest, taxation, depreciation and amortisation were R262.9-million.

The profit and total comprehensive income for the period was R138.1-million, up from R86-million in the previous corresponding period, which translated to a 57% increase in in basic earnings a share from 3.55c a share last year to 5.5c a share.

Production declined by 21% year-on-year on the back of the rescheduling of maintenance programmes and power buyback deals.

The company further assured that its Lion II, Project Tswelopele and Horizon mine projects were all on track and within budget.

The R1-billion Lion II smelter complex at the Magareng mine, in Mpumalanga, would have a ferrochrome smelting capacity of 360 000 t/y and was on track to be completed in the second half of next year.

Project Tswelopele is a R190-million, 600 000 t/y pelletising and sintering plant at Merafe’s Rustenburg smelter that would be completed in the first half of this year, while the R66-million development of the Horizon mine to increase its capacity to 480 000 t/y was also still on schedule to reach conclusion in the first half of next year.

Looking ahead, Matlala said despite the recent economic slowdown, the company anticipated global stainless steel production to grow by 4% in 2012 to more than 35-million tons and by 5% a year in the long term, which is expected to increase global ferrochrome demand.

However, lower production in South Africa was expected to result in tight supply.
 

Edited by: Mariaan Webb

 

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Merafe CEO Zanele Matlala discusses the company's expectations in terms of the possible implementation of a chrome ore export duty. Camera Work: Nicholas Boyd; Editing: Darlene Creamer
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