No projects means cash for Merafe shareholders
Merafe Resources plans to return cash to shareholders as no major expansion projects are on the cards for the next two years.
|||Johannesburg - Merafe Resources, the largest producer of ferrochrome in the world, yesterday said that it planned to return cash to shareholders as no major expansion projects were on the cards for the next two years.
“From 2018 onwards, no major expansionary projects are planned and as a result, free cash flow will be applied to returning cash to shareholders,” the company said as it released financial results for the year to December.
Read: Ferrochrome boosts Merafe
Merafe, which mostly generated cash from the Glencore-Merafe chrome venture, posted improved earnings and revenue for the year to December, even though turbulence in the prices of commodities has weighed on the mining sector.
Despite the improvement, the Merafe share price declined by 2.38 percent to trade at 82 cents a share, a reflection of the negative outlook for mining. The mining index falling 5.3 percent.
Merafe declared a final dividend of R30 million, compared with R20m in 2014. It paid shareholders an interim dividend of R25m in August, down from R27.9m in 2014.
In terms of its financial performance, Merafe reported a 23 percent increase in revenue to R4.4 billion from R3.6bn in 2014, and a 65 percent increase in headline earnings a share to 13.9c for the reporting period from 8.4c a share previously.
It expects the short-term future to be challenging with weaker commodity prices and concerns about Chinese economic growth levels.
But Merafe said despite these global challenges, the joint venture with Glencore was well positioned to withstand current and even lower prices.
“The venture’s position as the lowest cost ferrochrome producer in South Africa and one of the lowest cost producers in the world enables it to navigate the headwinds at a time when other global ferrochrome producers have been forced to cut production or close down,” the company said.
Merafe’s attributable ferrochrome production from the venture in the period under review was 13 percent higher than the previous year, mainly due to the additional production from the Lion II smelter which ramped up to full production in the middle of last year.
Pieter-Jan van Niekerk, an equity trader at independent financial services group PSG Old Oak, said Merafe had reported a robust set of results that was in line with his expectations.
“The company generated strong cash flow from operating activities in a challenging environment. If the rand remains steady at current levels it should support earnings going forward,” Van Niekerk said.
Van Niekerk blamed the share price drop on negative sentiment.
“Although resource shares have outperformed the market since the beginning of the year, overall investor sentiment towards resource companies remains cautious,” he said.
In the period under review, Merafe’s Horizon Mine, which was fully written off in prior years, was sold for R1. The purchaser assumed the related rehabilitation liability.
Merafe also cut corporate costs significantly as a result of the once-off restructuring costs of R17m included in the prior year and the reduction of headcount at its headquarters last year.
The National Energy Regulator of SA’s approval earlier this month of a 9.4 percent hike is effective from April 1.
“Electricity supply constraints during 2015 had an adverse impact on production volumes,” the company said.
BUSINESS REPORT