IFL.L Regulatory News (IFL)

29 September 2014

International Ferro Metals Limited

("IFL" or the "Company")

Financial Results for the year to 30 June 2014

Highlights

Financial highlights

· Record sales of 222,320 tonnes ("t") for the full year, up 21% on the previous year

· Strong turnaround in profitability; profit before tax of ZAR41 million, versus loss of ZAR126 million in the prior year, driven by higher volumes and improved Rand/Dollar exchange rate

· EPS of 7.9 SA cents per share ("cps"), compared to a loss of 23cps in the prior year

· Net borrowings decreased to ZAR338 million at 30 June 2014, from ZAR362 million at 30 June 2013

Operational highlights

· Record full-year production of 228,260t; up 24% on the prior year and 13% up on the previous record

· Continued diversification of customer base - India now a regular destination and Korea added as a key customer

· Extraction of new ore at Sky Chrome suspended while the Company sources cheaper ore externally and reduces working capital invested in historical stock

· Zero fatality track record maintained and 19% improvement in Total Recordable Injury Frequency compared to the prior year

Post period

· UG2 supply from Anglo Platinum restarted in September, 20,000tpm expected until backlog cleared

· ZAR500 million Bank of China facility extended on the same terms

· Lesedi underground mine restarted in July and ramp-up progressing to plan

· Exploration drilling at Chrometco completed in August

· European Benchmark FeCr price decreased by 3¢ to US$1.19/lb for the quarter ending September 2014 and decreased further by 4¢ to US$1.15/lb for the quarter ending 31 December 2014

Chris Jordaan, Chief Executive Officer of IFL commented:

"I am pleased with this year's strong operational and financial performance; we have shown International Ferro Metals can successfully respond to operational and broader market challenges. Over the year, IFL continued to control costs and develop new lower cost initiatives, and has optimised the prices we receive by directing sales to specific regions. This has resulted in a return to profitability for the year.

"IFL remains focussed on remaining in the lowest part of the international cost curve in order to compete favourably with Chinese FeCr producers, and diversify its products and customer base which we believe will ensure sustained profitability of the business."

For further information please visit www.ifml.com or contact:

International Ferro Metals Limited

Chris Jordaan, Chief Executive Officer

Mob: +27 (0) 82 653 1463

Brunswick Group

Carole Cable / Fiona Micallef-Eynaud

Tel: +44 (0) 20 7404 5959

Numis Securities Limited

James Black / Stuart Skinner / John Prior

Tel: +44 (0) 20 7260 1000

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 their 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.

CHAIRMAN'S REVIEW

Last year's report spoke of the headwinds buffeting the South African ferrochrome industry (which had precipitated a series of losses for IFL) and the determination of the Company's management and workforce to overcome that adversity. The winds have persisted throughout the year under review but they have been circumvented sufficiently to permit a welcome reversal in the Profit and Loss account. While using the phrase "per ardua ad astra" would be somewhat hyperbolic in describing the turnaround, it is fair to cite the fact that the Company has risen through difficulties to a significantly better position.

Losses of ZAR126 million last year and ZAR72 million the year before have given way to a profit of ZAR41 million (before tax). Earnings per share followed suit at 7.9 South African cents, versus a loss the year before of 23 cents per share. Production was a record 228,260 tonnes; 24% higher than last year and the highest in the Company's history. Sales at 222,320 tonnes also posted a record. The better financial performance had a beneficial effect on net borrowings; they declined from ZAR362 million to ZAR338 million, despite capital spent.

The ferrochrome price dropped from an average of $US1.19 per pound last year to $US1.16 this year. Slight over supply conditions in the industry persisted. However the price deterioration was offset by a softer USD/Rand exchange rate that resulted in a net improvement in the Rand price.

Two of the most important determinants of financial outcomes, price and exchange rate, are beyond the Company's control. The one component management can influence however is cost. Our strategy has been and is to concentrate on reducing costs. This is being done not only through discipline but even more importantly through astute technical measures. The interim goal of achieving lower costs than the Chinese ferrochrome producers, which have emerged over the last few years as South Africa's main competitor, has been achieved. Efforts are being addressed to bringing costs lower still.

On the technical front, expensive coke consumption was reduced by partially replacing it with a lower cost reductant and greater use of anthracite. One of the highest cost items is ore. While the Company obtains a considerable amount from its mining operations, different types are advisable or required which have to be outsourced.

The lower grade and cheaper UG2 ore has emerged as an important contributor to reducing ore costs. For that purpose, the Company entered into a contractual arrangement some time ago with Anglo Platinum whereby it obtained access to UG2 supplies on a favourable basis. While UG2 was shipped for part of the year, the lengthy strike by militant unions in the platinum industry caused an extensive interruption in its availability. So the benefit was lost to a large extent for this financial year. However, after the end of the financial year, the strikers went back to work and UG2 has started to flow again. This will have a positive effect on overall ore costs for the 2015 financial year.

It is necessary to access high grade ore to blend in the feed to the furnaces. In order to reduce the need to buy in this type of material, the Company has restarted the Lesedi underground mine. The ramp up is proceeding well and is achieving its production target.

In addition, an agreement was reached with Chrometco to explore and, if warranted, develop its high grade Rooderand LG6 open pittable deposit. Recent drilling has outlined at least 200,000 tonnes of economically extractable LG6 which the Company could mine. Further drilling will test the potential for more reserves.

During the course of the year, the Company managed to diversify its customer base through opening up new markets in India and Korea. As a result of this and other initiatives the marketing department has been able to obtain better price outcomes than previously.

The one area of operations which was disappointing was the co-generation facility. The plant produced only 5.1% of total electricity consumed in the Company's operations (6.4% last year). The capacity of the Cogen engines is designed to produce at least 10%, an important input given the rising power costs in South Africa. A consulting firm was engaged to analyse the problem and recommended measures are being taken to improve performance.

Health and safety have always been top priorities for the Company. It is pleasing to report that there has never been a fatality in the Company's history. Lost time injury rates continue to be low, even below last year. This area is closely related ethically to responsibility for the environment, an imperative which the Company takes seriously. To that end it monitors environmental impacts of its operations and holds periodic audits of its performance.

The ferrochrome industry continues to be influenced by events in China, the world's largest stainless steel producer and accordingly consumer of ferrochrome. The Central government is in the process of implementing its much publicised policy of reorienting the economy from investment to consumption. Necessarily this rebalancing has resulted in a slowdown in GDP growth. The Government is confident that despite the effect of the reforms economic growth will not fall below 7%, still an enviable rate, one that is capable of supporting a 5% per annum increase in stainless steel production. The other event is the rise of Chinese ferrochrome production which is rivalling South Africa and causing price weakness. It can be noted however that Chinese costs are rising, a factor that should eventually put upward pressure on the price.

In conclusion, the confidence mentioned in last year's report has turned out to have been well founded; the Company has returned to profitability. As the industry conditions were challenging, the management and workforce are to be commended for this achievement. They are dedicated to further improvement.

CHIEF EXECUTIVE'S REVIEW

Overview

This year marked an important turnaround for the Company as it returned to profitability, despite depressed ferrochrome prices. This is due to our successful strategy of positioning IFL lower on the global cost curve, allowing us to compete effectively with international suppliers, including China. Despite the strike action and lack of UG2 supply from Anglo Platinum between February and June 2014, IFL achieved record ferrochrome production and sales for the year, beating our previous record by 13% and 7% respectively, and was able to direct sales more effectively to those markets with strongest pricing.

The Company has progressed further in its aim to widen and diversify its customer base; India has become a regular destination for alloy and Korea was added during the first half as a key customer. The sales mix remained split approximately 60:40 between the West and the East, resulting in improved price realisation.

IFL's production costs increased in the period between February and June 2014 due to the strike action in the platinum industry which affected Anglo Platinum, our UG2 supplier. This resulted in UG2 ore supply being suspended for the same period. Ore input costs therefore increased, resulting in alloy costs increasing commensurately.

Nevertheless, the Company managed to return to profitability without the beneficial impact of the UG2 cost savings, and posted a profit before tax of ZAR41 million for the full year. There was no material operational impact on the Company. The financial benefit from UG2 usage and sales of UG2 not utilised are expected in FY15/16 as Anglo Platinum catches up on the contracted 98kt backlog as at the end of June 2014.

Average annual alloy prices were $1.16/lb, down from $1.19/lb in the previous year. Demand in China was subdued towards the latter part of the financial year in contrast to strengthening demand and prices in Europe and the USA.

Most importantly, the Company had already firmly positioned itself below the cost curve of FeCr producers in China before ore costs increased in China in response to tightening supply, mostly related to the platinum strike.

With the resumption of the UG2 supply which is in excess of internal requirements, the Company expects to both reduce the cost of alloy and to realise profitable sales of that UG2 which is excess to our requirements, on the back of improved ore prices.

Strategy

The Company's strategy is based on integrated production and supply of ferrochrome raw materials to the stainless steel and carbon steel industry. In order to achieve this, the Company implemented a strategy to become a global bottom quartile cost producer. This is expected to result in the Company being sustainably profitable throughout cycles, while investing in a pipeline of projects for the future and targeting our marketing efforts to ensure healthy margins and a diverse set of customers.

The first part of the strategy was to return IFL to profitability through a cost reduction programme which was successfully implemented over the last three years. Through this programme IFL was able to position itself significantly lower on the international cost curve. Although the short supply of UG2 in the second half of the year had a negative impact on input costs, the Company expects to regain this lost ground now that the UG2 supply has resumed. In addition, the Company has a pipeline of projects to further reduce costs and increase margins. These projects are focussed on reducing the cost of high grade ore and reductants, increase throughput, and increase production, through existing furnace capacity.

The second part to the strategy is building a strong pipeline of growth projects. The Bankable Feasibility Study ("BFS") for the DC furnace expansion (from two to three furnaces) was commissioned during the year and is expected to be completed early in the first half of the 2015 calendar year, with a decision by the Board to be announced in the latter part of the year.

This project is expected to produce ferrochrome which is low in impurities and is frequently used in manufacturing for specialist industries such as aerospace and petrochemicals - both niche markets and ones that are not well served at this time by South African producers. This would allow us to diversify into additional products, and will also give us greater visibility over demand, as customers in these sectors usually lock in supply with long term contracts to ensure security of supply and quality.

The DC furnace is expected to increase total ferrochrome capacity by about 42%, while lowering overall production costs by about 3%. Due to the unique reductant blend which can be used in the new DC furnace and because it can produce FeCr from ore fines directly, the cost benefit is expected to be a sustainable cost advantage compared to Chinese producers. Once the BFS is complete and approved by the Board, the Company will assess appropriate and prudent financing options which will protect and enhance shareholder returns.

The strategy of focusing on cost saving initiatives has allowed the Company to compete more effectively with China whilst responding robustly to challenges in the industry both locally and internationally. IFL will continue to explore and develop growth opportunities to attain a diversified portfolio of specialist products with high margins and sustainable markets. In addition to cost reduction and investing in growth, we will continue its active marketing approach which together will fulfil our strategy.

Operations

Mining operations were limited to the Sky Chrome mine, with Lesedi underground mine being restarted post-period. Production was up 24% year on year at 130kt run-of-mine.

As announced in our Production Report for the three months to 30 June 2014, and in line with our stated strategy of flexible and optimal ore sourcing, the Company decided to temporarily suspend the extraction of ore at Sky Chrome for FY15, but will continue to process the stockpiles. This is to reduce costs by sourcing cheaper ore externally, and focusing on processing low grade stockpiles which have gradually accumulated over the past three years.

As previously announced, the Lesedi underground mine was restarted in July 2014 with the aim of reducing the cost of high grade ore, and the ramp-up is progressing satisfactorily. The Company is completing additional studies to increase production from Lesedi in a bid to reduce costs further and will be in a position to announce the results of the study towards the end of this calendar year.

The exploration drilling programme at Chrometco's Rooderand LG6 open pit mine was completed in August 2014 and Phase 2 of the drilling has commenced and is expected to be completed by March 2015. As announced in May, IFL is aiming to mine up to 200,000t of chrome ore over a 12 month period, with the potential for further mining depending on the success of Phase 2 of the exploration drilling, allowing us to obtain higher-grade feed stock for our furnaces, and more flexibility and cost effectiveness in our operations. It is expected that mining will commence in the first quarter of calendar 2015 and beneficiation will occur at IFL's beneficiation plant.

The furnaces operated throughout the year without any significant operational issues. The Asset Maturity Improvement Plan (AMIP) is starting to show positive results with availabilities in excess of 97% being achieved on both furnaces. The focus remains on operational discipline, with a continuous drive to improve throughput. The net result of this is an all-time alloy production record during the year.

Cost reduction projects

Cost competitiveness is vital for the long-term sustainability and profitability of the Company. Overall, the cost reduction achieved for the year was 70% of our target. This in spite of the UG2 ore supply interruption from Anglo Platinum seen in the second half of the financial year. Production costs increased proportionally to the limited supply of UG2 during this period.

Coke substitution for anthracite reached optimal levels and coke consumption was further reduced by the introduction of a specially produced lower cost reductant, resulting in a more cost effective reductant blend. Further developments are underway to reduce overall alloy cost with further reductant optimisation.

Power supply

Power supply for the year was mostly stable with only isolated incidents where power reduction was required for short periods, to assist Eskom in ensuring stability of the supply network.

Synchronisation of the first module of Eskom's Medupi power station is expected towards the end of the 2014 calendar year. The Company continues to participate in Eskom's voluntary demand management initiatives.

Sales & Marketing

The Company achieved record ferrochrome sales of 222,320t for the year, an increase of 21% compared to the previous year (FY13: 184,390t). The increase in sales was primarily due to increased production.

Inventories were higher than the target level of 10,000t with year-end stock at 15,288t. Stocks are expected to average around 15,000t going forward to allow for flexibility and room to react to short term demand and price opportunities.

IFL has been successful in maintaining a diversified customer base across all major regions. The flexibility that a diversified customer base brings should not be underestimated. Alloy is selectively placed and negotiations are appropriately timed in a manner to yield maximum returns under prevailing market conditions.

Ore sales for the year reduced to 40,000t, substantially lower than the 271,000t in the previous year. The lower ore sales were a result of a renewed focus on integrated value-in-use benefits as well as the impact of the platinum strike on the availability of UG2 supplies.

Marketing is increasingly becoming a key focus to reduce costs and maximise net back prices for ore and alloy. Marketing costs are set to decrease as the Company develops tighter trade relationships, particularly in China. This is expected to increase the net back price for ore. The alloy sales plan is balanced with optimal logistic channels as well as realised prices to find the optimal sales spread. This is evident in the shift in distribution between the East and the West.

Sustainability

The principle of long-term sustainability through our zero harm policy remains a fundamental part of the Company's overall strategy. The zero fatality rate was maintained over the last year and the focus remains on continued improvement of health and safety standards.

IFL's integrated sustainable development management system has once again earned re-certification in terms of ISO 14001:2004, ISO 9001:2008 and OHSAS 18001:2007 during the year.

Health & Safety

As mentioned above the Company has maintained a zero fatality rate since inception, and improved its record to almost 27.3 million fatality-free man-hours, equating to 3.4 million fatality-free shifts. Lost-time injuries reduced from 4 in the previous year to 3 this year. The current year's lost time injury frequency (LTIF) is 1.30, down from 1.47 in the prior year, a 12% improvement. Together with this improvement, the total recordable injury frequency (TRIF) improved by 19% compared to the prior year.

The improvement was the result of a continuous focus by management on safety. Safety management structures with clearly articulated roles and responsibilities, simple processes and systems of risk assessment, incident reporting and investigation continue to be successfully utilised. In addition, in field verification has become part of daily routine of the broader management team.

Environmental impact

The Company has always focused on running environmentally sustainable operations and has continued to demonstrate this over the period with environmental impact control forming part of the Zero Harm Strategy.

As a bare minimum, the Company is committed to meeting environmental legislative requirements through responsible and progressive approaches to environmental management, impact mitigation and rehabilitation

On the back of the ISO 14001:2004 system, IFL continues to monitor and manage the impact that operations has on the environment through a process of internal and external verification and compliance audits, with meticulous investigation of all environmental incidents and subsequent implementation of corrective measures.

Black economic empowerment

In April 2009, the Company lodged its proposed BEE transaction with the then South African Department of Minerals and Energy (now the Department of Mineral Resources ("DMR"), as the final element of its previously submitted application to convert its Old Order Mining Right into a New Order Mining Right under the South African Mineral and Petroleum Resources Development Act.

On 14 July 2012, the DMR granted the conversion of the Old Order Mining Right to a New Order Mining Right. However, since the submission of the proposed BEE transaction to the DMR in 2009, there have been legislative changes, and developments within IFMSA which have presented an opportunity for the Company to implement a more simplified BEE transaction. A revised transaction has been submitted to the DMR and the Company expects to convert its mining licence and implement its BEE transaction in the next financial year.

Co-generation plant

The performance of the Cogen plant for the year was disappointing. The plant produced 45GWh of electricity, or 5.1% of total electricity requirement, compared with 46GWh or 6.4% of total requirement in the previous year. Output deteriorated throughout the year due to a number of component failures. In order to rectify the issue, IFL has signed a service provider agreement with Clarke Energy, who conducted a full review and analysis of the plant.

The IFL technical team reviewed the design proposal and a new more robust design was developed together with the service provider. The new solution will see the installation of an absorption chiller to remove moisture from the gas, which would increase the capital requirement by ZAR8 million to ZAR18 million. Once the unit arrives in January 2015 the Cogen plant will be ready to ramp up in Q1 2015 and it is expected to operate at full capacity in Q2 2015. At full and stable furnace production, the Cogen plant is expected to generate approximately 10% of the Company's total electricity requirements.

UG2 Supply

The Company has a supply agreement with Anglo Platinum to provide 15,000t per month of UG2 chrome concentrate until 2020. This beneficial agreement delivers UG2 at a cost significantly below the Company's in-house production cost of concentrate produced, and is a direct contributor to profitability.

Due to the five month strike action in the platinum industry, no UG2 ore was received from Anglo Platinum during that period. The protracted strike was resolved during June and the Waterval chrome recovery plant was restarted. IFLhas received 20,000t of UG2 chrome concentrate supply in the month of August, ahead of its previous expectations. We expect to receive 15,000t per month on an ongoing basis, together with the contracted backlog of 5,000t per month until the backlog is extinguished, although during the ramp-up there may be some months where the full 5,000t is not achieved due to variability in ore feed. At the end of August 2014 the backlog was approximately 94,000t.

Ferrochrome Market Update

For calendar 2014 global stainless steel production is expected to increase by 7.8% to an estimated 41.5 million tonnes, according to the International Stainless Steel Forum. China accounts for half the global production, with Asia following at 23%, Europe (including Africa) at 20% and the balance mainly from the U.S. The significant recent growth in global production has resulted in a market overhang especially in China with sustained pressure on stainless steel prices, which also filtered down to ferrochrome prices in China.

Over the last 18 months the market saw a divergence between internal Chinese and seaborne ferrochrome prices. Internal prices in China dropped from 88¢/lb CIF equivalent to approximately 82¢/lb by the end of June whereas the benchmark price stepped up from 113¢/lb in the Sept 2013 quarter to 122¢/lb in the June 2014 quarter. Given the relative cost position of the Company, alloy can still be landed profitably into China even at these depressed prices. Given the pipeline of cost reduction initiatives, especially the restart of the UG2 ore supply from Anglo Platinum, it is expected that our competitive position is sustainable. Market commentators have suggested that they believe alloy prices in China have bottomed. At current prices, regional lower cost Chinese producers are being challenged to operate profitably and significant production capacity has been shut down in China.

Outlook

Global economic activity was slower than anticipated in the first quarter of calendar 2014, particularly in the U.S. and in China. The International Monetary Fund adjusted down its global economic growth projection for the 2014 calendar year from 3.7% to 3.4 %, reflecting the weak first quarter of 2014 as well as a less optimistic outlook for several emerging markets. However, they project global growth to rebound from the fourth quarter of calendar 2014 to average 4% for the 2015 calendar year.

Market analyses by CRU suggest that although FeCr is currently in over-supply which is mostly a function of higher production from China, the outlook for stainless steel growth in China is in excess of 5% p.a. with growth in demand for FeCr in China even higher. The increase in FeCr production will stretch chrome ore demand and consequently chrome ore costs. The resultant higher FeCr costs for the Chinese producers could result in higher FeCr prices in China as we head into 2015.

Looking to the next three years, the FeCr market is expected to move into a tight demand/supply balance according to CRU, on the back of expected stainless steel production growth and FeCr prices could respond. Ultimately, we would expect the gap between Chinese prices and the rest of the world should contract going forward.

Looking toward Q1 of the 2015 financial year, higher Eskom winter power tariffs are applicable to July and August and both furnaces were switched out for one week for annual routine maintenance. As a result, production costs during this quarter are expected to remain at similar levels seen in the June 2014 quarter and we expect costs to return to targeted levels in Q2 of the financial year. IFL remains focussed on remaining in the lowest part of the international cost curve in order to compete favourably with Chinese FeCr producers, and diversify its products and customer base which we believe will ensure sustained profitability of the business.

FINANCIAL REVIEW

Overview

The Company posted a profit before tax of ZAR41 million this year against a loss of ZAR126 million in the previous year, an improvement of ZAR167 million. The main driver behind the turnaround was record production levels and an improvement in realised Rand prices.

Operations were very stable, achieving record FeCr production of 228,260t, 13% higher than the previous production record of 202,709t achieved in FY08, and 24% higher than the previous year's production of 183,718t. In the previous year one furnace was shut down for 3.5 months under the Eskom buy-back agreement. Profitability for the year was significantly impacted by the five month platinum industry strike which resulted in a contracted backlog of UG2 supply from Anglo Platinum. At 30 June 2014 the backlog was 98,000t UG2, with an estimated impact on profitability of ZAR50 million for the year under review. The backlog will be caught-up at a rate of 5,000t per month.

Profitability and sales

Ferrochrome sales volumes increased by 21% to 222,320t in line with higher production levels, recording a 32% increase in revenue to ZAR2.1 billion. Sales were split with 31% to China and the balance mainly to Europe and the U.S.

The average European Benchmark ferrochrome price for the year was 116.3¢/lb, down 2.0% on the prior year's 118.6¢/lb. The Rand however depreciated on average by about 17% against the U.S. dollar, which resulted in an improvement in realised Rand ferrochrome prices.

Ore sales of 40,000t generated revenue of ZAR27 million against prior year sales of 271,000t, as the Company reduced mining activities from Sky Chrome and received less UG2 ore from its supply agreement with Anglo Platinum.

Operating margin improved markedly to 11% from 1% in the prior year. A gross profit of ZAR231 million was recorded compared with only ZAR13 million in the prior year.

EBITDA increased by ZAR177 million from ZAR26 million in the prior year to ZAR202 million.

The Company decided not to recognise an increase in the deferred tax asset balance during the prior year. During the current year some of the unrecognised portion was utilised. At 30 June 2014 the unrecognised tax benefit amounted to approximately ZAR14 million.

The deferred tax asset results from unclaimed calculated tax losses available for offset against future profits.

Earnings per share were 7.91 SA cents for the year against a prior year loss of 22.96 cents.

Costs

Production cost for the year was ZAR6.87/lb, up 7.5% on the prior year's ZAR6.39/lb against South African inflation of 6.6% and above-inflation Eskom increases.

The short supply of lower cost UG2 chrome concentrate from Anglo Platinum and the underperformance of the Cogen plant negatively impacted production cost. UG2 supply has already resumed in July 2014 and the Cogen plant is expected to reach full capacity in the second quarter of calendar 2015.

Electricity consumption was close to the targeted level and coke substitution for anthracite is now considered optimal. Per unit fixed and operating costs remained constant in nominal terms. The Company remains highly focussed on cost reduction and the immediate areas of focus are:

· The ramp-up of Lesedi underground mine to reduce the buy-in of high-grade ores, which have recently become more expensive due to tightness of supply

· The introduction of alternative reductants to replace more expensive coke

· Improving the co-gen plant performance

· Continued tight control over fixed costs

Other income and expenses

Administrative and other expenses decreased by 12% to ZAR100 million, mainly due to the prior year figure including an impairment charge of ZAR20 million on the replacement of furnace linings. Other income comprised ZAR4 million received from an insurance claim, compared to ZAR94 million from the electricity buy-back agreement in the prior year. Unabsorbed fixed costs of ZAR33 million (2013: ZAR87 million) was charged directly to the income statement during periods when specific operations are out of production. Unabsorbed cost relates to standing time at the underground mine, whilst the prior year relates to the period when a furnace was shut down under Eskom buy-back.

Capital expenditure

Capital expenditure of ZAR35 million for the year was well below the prior year's ZAR79 million and the previous guidance of ZAR50 million, as some of the capital was deferred to the following year. The main capital expenditure items were ZAR9 million for engineering projects and ZAR5 million for Lesedi underground mining development. Capital expenditure is estimated at ZAR70 million for FY15.

Cash

The Company's net borrowings decreased to ZAR338 million at 30 June 2014, from ZAR362 million at 30 June 2013. Due to the higher expected short term costs as described above and Eskom winter tariffs, net borrowings are expected to increase to about ZAR440 million by end September 2014 before steadily decreasing over the remainder of the year.

Operations generated ZAR209 million, working capital utilised ZAR79 million, investing activities utilised ZAR43 million and financing activities utilised ZAR62 million. The Company's current interest bearing debt to equity remains at a conservative 25%.

The Bank of China loan facility was rolled forward for another year to 16 September 2015 on the same terms.

Dividends

The Board of Directors resolved not to declare a dividend for the year ended 30 June 2014.

The above income statement should be read in conjunction with the notes to the financial statements.

The above statement of comprehensive income should be read in conjunction with the notes to the financial statements.

The above statement of changes in equity should be read in conjunction with the notes to the financial statements.

The above statement of financial position should be read in conjunction with the notes to the financial statements.

1. CORPORATE INFORMATION

International Ferro Metals Limited ("the Parent") is a Company limited by shares incorporated in Australia whose shares are publicly traded on the London Stock Exchange, as of 1 September 2007. The Company previously traded on the Alternative Investment Market of the London Stock Exchange.

The financial report for the year ended 30 June 2014 was issued in accordance with a resolution of Directors on 29 September 2014.

The principle activities of the Company are described on page12.

2. ACCOUNTING POLICIES

a) Basis of preparation

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for certain financial instruments which have been measured at fair value.

The financial report is presented in South African Rand and all values are rounded to the nearest thousand Rand (ZAR'000) unless otherwise stated.

Comparative information is reclassified where appropriate to enhance comparability.

Going concern

As at 30 June 2014, the Group had net current liabilities of ZAR114 million including the Bank of China working capital facility. As at the date of this report, the Company has drawn down ZAR500 million on the Bank of China working capital facility. The facility was renewed on 16 September 2014 for another year, to be repaid on 16 September 2015. The Board plans to renew the Bank of China facility before it expires. The Board is confident that the Company can secure additional avenues of funding which could be used together with forecast operating cash flows, to repay this facility should it not be renewed. For this reason, after making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, and hence, continues to adopt the going concern basis in preparing the accounts.

b) Statement of compliance

The financial report complies with Australian Accounting Standards and International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

In the process of applying the Group's accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

4. SEGMENT INFORMATION

Identification of reportable segments.

The group has determined operating segments based on the information provided to the Board of Directors (Chief Operating Decision Maker).

The group operates predominately in one business segment, being the mining and processing of chromite in South Africa and sale of ferrochrome. There is no material difference between the financial information presented to the Chief Operating Decision Maker and the financial information presented in this report.

Sales revenue by geographic location

Revenue obtained from external customers is attributed to individual countries based on the location of the customer.

Major customers

The group received 89% (2013: 71%) of its external revenue from its China and European customers. During 2014 the group received 56% (2013:51%) of its external revenue from CMC Cometals and 33% (2013:20%) from JISCO.

There are no additional customers which account for more than 10% of the group's external revenues.

5. SALES REVENUE

a) Fair value adjustments represent re-valuations performed on chrome ore sales and ferrochrome sales contracts for which the price is linked to future fluctuations in the published ferrochrome price until the day of consumption by the end customer (also refer to note 3(j)).

b) Other sales relate to chrome ore sales.

6. OTHER INCOME

a) Other income for the current financial year relates mainly to an insurance claim received of ZAR3,702.

Other income for the prior year of ZAR94,136 relates to income received from the electricity buy-back agreement with Eskom. Under the agreement, Eskom purchased the electricity that would have been consumed by the furnaces at a financially beneficial rate to the Company.

7. ADMINISTRATIVE AND OTHER EXPENSES

a) Current financial year impairment of assets of ZAR5,326 relates to the failure on certain engines at the cogeneration plant.

Prior year impairment of assets of ZAR20,267 relates to the scrapping of the furnace linings on replacement.

8. REMUNERATION OF KEY MANAGEMENT PERSONNEL

a) Details of Key Management Personnel

Please refer to the audited Remuneration Report for details of Key Management Personnel, option and shareholding disclosures.

b) Remuneration of Key Management Personnel

* Other fees represent costs for any additional work undertaken for the Company.

** Superannuation represents payments made in respect of a defined contribution pension scheme.

9. STAFF COSTS (EXCLUDING REMUNERATION OF KEY MANAGEMENT PERSONNEL)

* Superannuation represents payments made in respect of a defined contribution pension scheme.

** Termination payment relate to the organisational restructuring during the year.

*** Other costs relate to STI bonus provisions for the year ended 30 June 2014.

10. SHARE BASED PAYMENT (EXPENSE)/INCOME

Refer to note 31 for further details on the phantom option plan and share option plan.

11. FINANCING INCOME AND COSTS

12. INCOME TAX

Calculated taxation losses

The Group has recognised a net deferred tax asset of ZAR235 million as it is probable this will be fully utilised in future, as the Group expects to generate future taxable profits based on current forecasts. IFML has unrecognised tax losses of ZAR235 million (2013:ZAR199 million) in relation to the parent entity. IFMSA has unrecognized tax losses of ZAR49 million (2013: ZAR100 million). IFMSA Holdings has unrecognized tax losses of ZAR14 million (2013: ZAR9 million).

13. EARNINGS PER SHARE

Share Options and performance rights at 30 June 2014 are anti-dilutive and therefore have not been included in the calculation of diluted earnings per share in the current period.

14. DIVIDENDS PAID AND PROPOSED

The Board of Directors resolved not to declare a dividend for the year ended 30 June 2014 (2013: nil).

15. CASH AND CASH EQUIVALENTS

16. TRADE AND OTHER RECEIVABLES

a) Trade debtors relate to the sale of ferrochrome and chrome ore. Payment terms are thirty days from date of final invoice.

b) Tax refunds relate to the relevant Goods and Services Tax and Value Added Tax refunds owing in Australia and South Africa.

c) Other debtors mainly relate to funds receivable from Eskom under the demand market participation (DMP) of ZAR1,249. Demand Market Participation (DMP), which entails voluntary reduction of demand to assist with the balance of electricity supply and demand. Customers who participate in the DMP programme are compensated for their efforts to assist Eskom to manage the power system.

Details of the terms and conditions of receivables are discussed in detail under note 33.

The carrying value of trade and other receivables is assumed to approximate the fair value due to the short term nature of the trade and other receivables.

17. PREPAYMENTS

Prepaid creditors relates to payments made in advance for raw materials.

18. INVENTORIES

Cost of sales reflects the amount of inventory expensed for the year.

Included in the value of inventory is provisions for handling losses of ZAR1 603 869 (2013: ZAR1 089 783).

19. FINANCIAL INVESTMENTS

a) These financial assets consist of investment portfolios which are managed by various financial institutions in favour of rehabilitation. The funds can only be applied to relevant rehabilitation expenditure. These financial assets are classified at fair value through profit and loss.

The fair value of these financial instruments has been estimated by the financial institutions using a variety of valuation techniques. These financial instruments are classified as a level 2 in the fair value hierarchy as their fair values have been estimated using inputs other than quoted prices that are observable for the assets, either directly or indirectly.

20. PROPERTY, PLANT & EQUIPMENT

20. PROPERTY, PLANT & EQUIPMENT (continued)

a) Mineral rights and reserves of ZAR61 million relating to the Sky Chrome deposit is held in Purity Metals Holdings Limited ("Purity"), a wholly owned subsidiary of the Group.

b) Capital work in progress relates to capital costs incurred for the expansion of the Group's associated infrastructure.

c) The adjustment relates to reallocation of capital work in progress to the various assets and the adjustment to the decommissioning asset.

Property, mineral rights and plant and equipment of IFMSA have been pledged as security for the working capital facility provided by Bank of China. (Refer to note 25 for further details). The carrying value of this Property, mineral rights and plant and equipment at 30 June 2014 is ZAR1.89 billion (2013: ZAR1.95 billion).

21. INTANGIBLE ASSETS

a) Licence fees relate to the fees paid for the use of patented technology and is amortised over the life of plant..

b) The UG2 Chrome Retreatment Plant ("CRP") at RPM's Waterval operations in Rustenburg has been producing the contractual 15,000 tonnes per month since April 2012. The supply agreement entitles IFM to receive 15,000 tonnes per month of chrome concentrate until November 2020. This intangible is amortised to inventory with the quantities received.

22. OTHER NON-CURRENT ASSETS

a) Restricted cash represents cash set aside for bank guarantees provided by Standard Bank to the Department of Minerals Resources for environmental rehabilitation and cash set aside for foreign exchange contracts with Bank of China.

23. TRADE AND OTHER PAYABLES

a) Refer to note 35.

b) This represents advance debtor payments and pre-finance from the UG2 forward sale agreement.

Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.

24. PROVISIONS