Merafe to increase dividends
Merafe’s shares remained flat at 88c on the JSE on Monday after the ferrochrome producer released results for the six months ended June 30.
|||Johannesburg - Merafe Resources shares remained flat at 88c on the JSE yesterday after the ferrochrome producer released results for the six months ended June 30 in which the company committed to return “free” cash flow to shareholders as dividends or share buy-backs from 2018.
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Merafe said it was on track to achieving its strategy of reducing debt and paying “stable to increasing” dividends.
“With no major expansionary projects in the pipeline, it is expected that from 2018 onwards free cash flow will be applied mainly to returning cash to shareholders in the form of dividends and or share buy-backs,” the company said.
In the six months, Merafe’s total debt to Standard Bank and Absa was R479 million but the company has reduced the liability by a further R70m since. It said its targeted debt level was R300m.
The chief executive, Zanele Matlala, said the first six months of the year were tough with low commodity prices as a result of lower demand, significant rand/dollar exchange rate fluctuations and extreme volatility in the global stainless steel and ferrochrome markets.
“Despite these challenges, Merafe Resources remained profitable and generated strong cash flows,” said Matlala.
In the six months, Merafe’s revenue and operating income was primarily from the Glencore-Merafe Chrome Venture, a chrome and ferrochrome joint venture which owns and operates several chromite mines and ferrochrome furnaces.
The Glencore-Merafe Chrome Venture, in which Merafe is a 20.5 percent shareholder, has a total installed capacity of 2.3 million tons of ferrochrome a year.
Merafe increased revenue mainly because of a 14 percent increase in sales volumes and a weaker average rand/dollar exchange rate.
Profit fell from last year’s R124.3m to R57.3m.
The company’s headline earnings per share were down by 54 percent, while earnings before interest, taxes, depreciation and amortisation (ebitda) fell by 24 percent.
Matlala declined to give an ebitda split of the first and second quarters, except to say that the first quarter was tougher than the second quarter.
“We do not provide results by quarter,” said Matlala.
Merafe said it had R372m cash flow from operating activities.
Matlala said there could be an increase in the demand for ferrochrome.
She said global stainless steel production was expected to grow 2.8 percent this year and by 3.1 percent next year.
“With only four out of seven ferrochrome producers currently in production in South Africa, together with the Venture’s position as one of the lowest cost ferrochrome producers in the world, the Venture remains well positioned to take full advantage of this renewed positive demand outlook and market sentiment,” said Matlala.
Two weeks ago, Merafe told shareholders that the European benchmark ferrochrome price for the second quarter of this year had been settled at $0.82 (R11) per pound, its lowest level since 2009.
Merafe said the global ferrochrome demand fell by 8 percent, while global ferrochrome production also decreased by 3.9 percent.
BUSINESS REPORT