Interim Management Statement to 25 October 2011 and
Production Report for the three months to 30 September 2011
· Ferrochrome ("FeCr") production of 31,637 tonnes ("t") for the quarter, down 26% on previous quarter due to scheduled shut downs for roof upgrades
· Sales of 41,929t achieved in the quarter, up 21% from the previous quarter
· Furnace roof upgrade programme completed successfully, on time and on budget
· Sky Chrome mining operations continued to ramp up, produced 72,000t run-of-mine for the quarter
· Co-generation plant produced 6.8GWh of electricity for the quarter
· Construction by Anglo Platinum of chrome tailings re-treatment plant to supply UG2 chrome concentrate from January 2012
· Net borrowings increased from ZAR248 million at 30 June 2011 to ZAR367 million at 30 September 2011, significant proportion of FY2012 capex now invested, Company to be cash generative from October 2011
· Significant improvement on safety performance
Post period highlights:
· Furnace 2 ramped up to full load on time and on budget; both furnaces now operating at full load
· Cogeneration plant producing at 62% of capacity and ramping up
· Benchmark European FeCr price unchanged at US$1.20/lb for Q4 ending December 2011
Three months to 30 September 2011
Three months to 30 June 2011
Three months to 30 September 2010
FeCr stock at quarter end
Commenting on the update, Chief Executive Chris Jordaan said:
"The successful ramp up of IFL's two furnaces on time and on budget is a genuine operational achievement and a key part of our cost-cutting programme. The Company should be cash generative from October 2011 and we expect this position to continue to improve as the furnaces are optimised and when the UG2 plant is commissioned in January. The Company reiterates its belief that a cost reduction of 10.9¢/lb on FY2011 costs can be achieved by the third quarter of the current financial year. Full implementation of these cost-cutting initiatives should place the Company in a strong position to take full advantage of the robust long-term outlook for stainless steel."
Stainless steel and ferrochrome markets
Demand for stainless steel remained relatively flat during Q3 2011 in contrast with the traditional seasonal third quarter recovery. Declining nickel prices were a major contributor to lower stainless steel demand. Stainless steel supply and demand was well balanced in the USA and Asia, however European mills resumed ramping up production. Fears of a double dip recession negatively affected demand as consumers kept stock levels low, which in turn negatively affected FeCr demand.
Stainless steel mills subsequently reduced spot purchases of FeCr and generally kept to contractual volumes. A slight decline in spot European and Japanese FeCr prices occurred to more closely reflect Chinese prices.
The market remains cautious as the current European financial crisis remains unresolved. This was reflected in a roll-over in the European benchmark FeCr price for Q4 2011 of US$1.20/lb.
Ore demand from China varied over the course of the quarter, improving at the start before slowing at the end with a corresponding effect on prices.
Health and Safety, and the Environment
Safety performance improved significantly with one Lost Time Injury experienced in the period under review. The YTD Lost Time Injury Frequency reduced to 0.83 compared to 6.28 for FY2011. IFL continued a fatality-free record, reporting 2.39 million fatality free shifts as at 30 September 2011. No health impact incidents were reported.
The Occupational Health and Safety Audit Standards (OHSAS) 18001 integrated audit was conducted in July and IFL retained its certification.
No environmental incidents were reported in the period under review.
Mining production for the quarter from the Lesedi mines totalled 191,000t run-of-mine, in line with the previous quarter's 198,000t, and on track to achieve forecasts. Ramp up of underground development at Lesedi is in line with expectations. Total run-of-mine production for Lesedi for FY2012 is forecast to be 630,000t, with Lesedi underground run-of-mine contributing 300,000t for the same period.
Open pit operations began at Sky Chrome during the quarter and the mine produced 72,000t of run-of-mine for the quarter. This is expected to ramp up to 50,000 tonnes per month (tpm) run-of-mine by the end of the first quarter of calendar 2012 and full production of 100,000tpm is expected in 2013.
Recoveries for the quarter from the ore beneficiation plant averaged 59% compared to 66% in the previous quarter. As announced in our results for the year to 30 June 2011, lower recoveries are expected during the initial shallow mining phase of the Sky Chrome open-pit as lower quality ore is extracted. This should improve as the open-pit reaches unweathered deeper levels following the first blast which is expected in November 2011.
Chrome ore production
Three months to 30 September 2011
Three months to 30 June 2011
Three months to 30 September 2010
Recovery rate (%)
Production for the quarter ended 30 September 2011 of 31,637t was 26% lower than the previous quarter's production of 42,584t and was in line with our previous guidance of 27,000 - 31,000t. The furnace roof rebuilds were completed on schedule and within budget. The first furnace was switched in on 30 July 2011 and the second furnace on 2 September 2011. We are pleased to confirm that both furnaces reached full load on time and on budget, and are performing well.
Significant efficiency improvements are being experienced, especially on power consumption. Low-cost reductant mixes are already at pre-roof replacement levels.
Following the furnaces reaching full load in mid October, there is a period of ramp-up and optimisation of the cogeneration ("cogen") plant, which is ongoing. Work during this period includes building up a history of the off-gas composition post furnace stabilisation and the current work to optimise the furnace reductant mix, which is part of the Company's wider cost cutting programme. Nine of the 10 engines are currently in operation and are operating at levels of approximately 65% of capacity. All the engines are expected to be operating at full capacity once optimisation has been completed, which is expected by the end of December 2011.
During the quarter to 30 September 2011 the cogen plant generated 6.8GWh of electricity which represented 5.6% of the Company's total electricity requirement for the quarter. At full production the cogen plant should provide the Company with approximately 11% of its total energy requirements.
Construction of the UG2 Chrome Re-Treatment Plant ("CRP") at Anglo Platinum's operations is on schedule to deliver 15,000tpm of chrome concentrate from January 2012. The supply agreement entitles IFL to receive 15,000tpm of chrome concentrate (almost 30% of IFL's beneficiated ore requirements) until November 2020. The cost per tonne of concentrate is significantly below the Company's in-house cost of concentrate production. There are no additional costs other than the cost of transporting the concentrate to IFL's facilities at Buffelsfontein, which is about 50km from the CRP, and any government royalties that may be payable.
Sales and inventory
Ferrochrome sales for the quarter ended 30 September 2011 were 41,929t compared to 34,735t in the previous quarter. Chrome ore sales were 130,000t for the quarter compared to 66,000t in the previous quarter. Ferrochrome inventories were 14,983t at 30 September 2011 compared to 25,276t at the end of the previous quarter. The decrease in stock was expected due to the restart of the furnaces following the preceding shutdowns.
Cost reduction programme
Despite the furnace start-ups during August and September, and two months of the quarter being electricity winter tariff months, production cost in Rand terms decreased by 1.7¢/lb compared to FY2011. This decrease represents 16% of the targeted production cost savings of 10.9¢/lb on FY2011 production costs. The reduction was mainly as a result of more efficient electricity consumption, the effect of the cogen plant and high usage of anthracite. The Company is on track to achieve its targeted cost reduction when the full effects of higher production volumes, normalised electricity consumption together with full co-generation capacity and commencement of UG2 supply are realised.
The Company's net borrowings increased to ZAR367 million at 30 September 2011, against net borrowings of ZAR248 million at 30 June 2011. The increase in net borrowings of ZAR119 million is attributable to ZAR21 million utilised in operations, ZAR9 million utilised in finance activities and the balance of ZAR88million in capex. Capex comprised ZAR18 million for the UG2 plant, ZAR50 million for the furnace roofs and ZAR20 million for other capex. Forecast capex for the next quarter is ZAR60 million after which 70% of FY2012 capex will have been incurred.
The Company continues to operate within its banking facilities and at current Rand/U.S. Dollar exchange rates operations should be cash generative from October 2011.
The Company's major initiatives to increase production volumes and to reduce cash production costs to the lower end of the South African cost curve are in line with expectations with costs reduced by 1.7¢/lb during the quarter compared to FY2011 (exchange rate adjusted). The Company reiterates its belief that a cost reduction of 10.9¢/lb on FY2011 costs can be achieved by the third quarter of the current financial year. Full implementation of these major initiatives should place the Company in a strong position to take full advantage of the robust long-term outlook for stainless steel.
Other than as detailed above in this Interim Management Statement and Operational Update released today, there have been no material events or transactions in the period from 1 October 2011 to 25 October 2011.
Management will discuss these results in a conference call with the investment community on Tuesday 25 October at 09.00am (London). Dial in details are below:
Dial in: +44 (0) 1452 542 400
Pin code: 21784856
For further information please visit www.ifml.com or contact:
International Ferro Metals Limited
Chris Jordaan, Chief Executive Officer
+27 (0) 82 653 1463
Carole Cable / Fiona Micallef-Eynaud
+44 (0) 20 7404 5959
Numis Securities Limited
James Black / Alastair Stratton / Stuart Skinner
+44 (0) 20 7260 1000
IFL's Financial Results for the full year ended 30 June 2011 contained a typographical error. The release stated that "It is expected that Lesedi will produce in excess of 630kt underground run-of-mine in FY2012 as underground development continues". This should have said "630kt run-of-mine".
About International Ferro Metals:
International Ferro Metals produces ferrochrome, the essential ingredient in stainless steel, from its integrated chromite mine and ferrochrome processing operations in South Africa. International Ferro Metals is listed on the London Stock Exchange under the symbol IFL.
Forward Looking Statements
This announcement contains certain forward looking statements which by nature, contain risk and uncertainty because they relate to future events and depend on circumstances that occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements.
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