LONDON (Alliance News) - International Ferro Metals Ltd shares plummeted on Thursday after the production ramp up at the Lesedi mine in South Africa was below expectations and the company warned that the outlook for the ferrochrome market looks weak as prices declined and costs rose in the last quarter.
International Ferro Metal shares were down 31% to 1.32 pence per share on Thursday morning.
The miner said ferrochrome production came in at 51,030 tonnes in the quarter ended June 30, rising 4% from the previous quarter when it produced 49,085 tonnes. The company said this was in line with its revised guidance of 200,000 tonnes for the full year.
Ferrochrome sales in the quarter experienced a tiny lift to 51,618 tonnes from 51,412 tonnes in the previous quarter. As it sold more product than it produced, its inventory dropped 12% to 7,582 tonnes at the end of June from 8,658 tonnes at the end of March.
Although production experienced a small lift, the company said the ramp up at the Lesedi mine in South Africa was "below expectations". The company was originally targeting to process 25,000 tonnes of ore per month but only processed 34,390 tonnes of ore in the quarter.
However, the outlook for ferrochrome, like the majority of current mining commodities, is weak and has been compounded by recent data from China, the biggest importer of steel and other construction-based commodities, that showed a slowdown.
"The ferrochrome market remains weak with prices expected to edge downwards, albeit the company's marketing strategy allows it to place its production effectively despite the challenging global market conditions," said Chief executive Chris Jordaan.
The company said "significant economic slowdown" in China during the first half 2015 has resulted in a market overhang of stainless steel with a resultant negative impact on demand and prices of input commodities.
Ferrochrome has been particularly hit because China is producing more domestically, meaning it doesn't need to import as much product from elsewhere, which led to average prices falling by around CNY50 per tonne.
"This signalled the first ferrochrome price decrease in China since the beginning of 2015 and the market remains sluggish as is evidenced by a further decline of approximately USD1 per pound in the Chinese tender price," it said.
Away from China, European benchmark prices have reached a five year low to around USD1.08 per pound which has continued throughout the year and the company said there was "no signals of improving market conditions".
In tandem with falling prices, International Ferro said its production costs also rose in the period by around 3% to ZAR8.70 per pound because the company mined more ore and higher power costs, which rose around 12.7% in the quarter. The company said the operating environment in South Africa "remains very challenging".
"The company is actively implementing a number of cost reduction initiatives as previously reported, specifically to further reduce corporate overheads, and to reduce internal transport cost by 25%. These cost savings, which are under management's control, are however outweighed by the above-inflation electricity price increases," it said.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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