Wed, 26th Aug 2015 12:37
International Ferro Metals Limited - IFMSA enters Business Rescue
London, August 26
26 August 2015
International Ferro Metals Limited
(“IFL” or the “Company”)
IFMSA enters Business Rescue
As a result of deteriorating business conditions, IFL’s South African subsidiary, International Ferro Metals (SA) (Pty) Limited (“IFMSA”), which operates the IFL Group's Lesedi mine and ferrochrome smelting operations, has taken the step of entering into Business Rescue. This is a South African statutory means of enabling a financially distressed company to continue in business, under the supervision of a Business Rescue Practitioner, protected from its creditors. While in Business Rescue there is a moratorium on creditors and others taking legal proceedings or enforcement action against IFMSA or in relation to its property or assets. This allows for the development and implementation of a Business Rescue Plan to seek to enhance the potential return for IFMSA's stakeholders.
Despite the stringent cost cutting measures taken by IFMSA, its financial outlook is such that it is facing financial distress. The underlying reasons for this were set out in the Production Report for the three months ended 30 June 2015, and the principal ones are noted below.
Since the beginning of the 2015 financial year, the IFL Group has suffered from a downtrend in its operations and profitability that has proved more deep-seated and sustained than anyone expected. It is consistent with the significant decline in global commodity markets generally. The Company reported a loss before tax of ZAR176 million for the half year ended 31 December 2014 and operating losses for the second half of FY15 are expected to be similar to the first half.
The price of ferrochrome has continued to decline. This has been caused largely by the slowdown in Chinese economic activity and its consequent effect on stainless steel output and increased production by Chinese ferrochrome producers. These factors have driven prices lower and are expected to continue to keep prices low.
IFMSA has also been affected by rising costs and other factors which have impacted its operations, which largely are outside of its control. This includes militant union activity and a general thrust for above inflation wage hikes which have increased IFMSA's labour costs.
Most significant of all are the rising electricity costs and interruptions in power supply. Ferrochrome producers rely heavily on electricity for their furnaces and are particularly vulnerable to power discontinuity. Since 2007, Eskom’s prices have increased by 374% for heavy industrial users, which equates to 21.5% p.a. against CPI inflation of 6.3% p.a. over that same period. In July IFMSA lost more than 10% of its ferrochrome production because of load shedding and power trips.
Production losses also occurred during the year resulting from section 54 orders to shut the furnaces made by government inspectors. While IFMSA was vindicated in court proceedings to lift these orders, the damage was done. Recently a strike of workers employed by one of IFMSA's contractors resulted in IFMSA having to reduce production from its furnaces and disrupted its logistics and shipping schedule, causing a further loss in production and strain on its liquidity.
The combination of low ferrochrome prices, high electricity prices and other costs and losses of ferrochrome production have strained IFMSA's liquidity to the point that it is now in financial distress that is best resolved through the protection of Business Rescue.
The Business Rescue process may entail a shutdown of its furnaces and all mining operations, significantly reducing its expenses. It will continue to derive income from the sale of UG2 chromite produced under a contract with Rustenburg Platinum. Such income is expected to cover ongoing costs, allowing IFMSA to continue in business during the period of the Business Rescue.
IFL also owns Purity Metals Limited which owns 80% of the Sky Chrome mine. As noted in the Production Report, mining at Sky Chrome remains suspended. It is not envisaged that Sky Chrome will also decide to enter into Business Rescue.
During the period of the Business Rescue, IFL will seek to sell its shares in IFMSA and Purity. It is reasonably expected that, after satisfying creditors and transaction expenses, a surplus should be generated that can be distributed to shareholders. The Company is in negotiation with an interested party and has been recently approached by others in relation to a potential sale. Any such sale will be subject to obtaining certain regulatory approvals, as a result it is envisaged that the period of the Business Rescue could be about six months. However, it is not certain that a sale on satisfactory terms will be able to be concluded.
Even though IFMSA has been placed in Business Rescue, IFL itself currently remains solvent and expects to have sufficient cash to be able to cover its expenses of continuing operations during the period of the Business Rescue and to implement the proposed sale of IFMSA and Purity.
Given the circumstances of the IFL Group, IFL has applied to the Financial Conduct Authority for a suspension of the listing of its securities on the Official List for a period of six months, or such shorter period in which the proposed sale is concluded.
For further information please visit www.ifml.com or contact:
|International Ferro Metals Limited||Tel: +27 14 574 6302|
Chris Jordaan, Chief Executive Officer
|Numis Securities Limited||Tel: +44 (0) 20 7260 1000|
James Black / John Prior / Paul Gillam
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.