20 May 2009 07:00
20 May 2009
International Ferro Metals Limited
("IFL" or the "Company")
Interim Management Statement for the three months to 31 March 2009
Highlights:
Inventory reduced from 42,523 tonnes at 31 December 2008 to 33,207 tonnes at 31 March 2009
Production of 1,168 tonnes FeCr recovered from slag for the quarter
Net cash balance of ZAR510m as at 31 March 2009 (31 December 2008: ZAR504m)
Post-period highlights
One furnace restarted in April 2009 to monetise raw material inventory
Furnace maintenance and upgrade programme completed April 2009 on time and on budget
Black Economic Empowerment plan submitted to the Department of Minerals and Energy (DME) for 26% equity participation. IFL is awaiting DME approval of New Order Mining Rights
Cost reduction programme continues with reducing staff, fixed costs, and a 10% pay cut for management and board members
Net cash balance reduced to ZAR374m as at 30 April 2009 due to foreign exchange losses, payments to suppliers, fixed overheads and furnace restart costs
| Three months to 31 March 2009 (tonnes) | Three months to 31 December 2008 (tonnes) | Three months to 31 March 2008 (tonnes) | |
| Ferrochrome sales | 10,484 | 21,410 | 56,905 |
| Production | 1,168 | 31,289 | 52,422 |
| Stock - ferrochrome at quarter end | 33,207 | 42,523 | 37,959 |
Commenting on the operational update, Chief Executive Officer David Kovarsky said:
"The unprecedented market conditions of late 2008 have continued in the first quarter of 2009. IFL remains focused on capital management; monetising inventory and reducing costs in this difficult environment to put the Company in the best position to take full advantage of an eventual market recovery.
We have completed critical maintenance, upgraded the production facilities on time and within budget, and have smoothly restarted one furnace on 20 April to commence monetising our inventory.
The Company continues to experience very low ferrochrome demand but we have been able to effect sales, especially into the Chinese market after the quarter end. There are signs of a bottoming out of the down cycle but prices have not yet firmed to a level that would justify a resumption of production beyond July 2009, when the current programme of converting raw material inventory into ferrochrome is complete."
Ferrochrome market conditions
Continued low ferrochrome demand resulted in lower spot and contract prices with the latter falling from US$0.79 per pound in the March 2009 quarter to US$0.69 per pound in the June 2009 quarter. Low demand has been offset by low global production resulting in further declines in ferrochrome inventories. In April this year CRU, the independent industry consultancy, estimated that global ferrochrome inventories have fallen from over 23 weeks of consumption at the end of December 2008 to just under 15 weeks at the end of March 2009. Recently a high proportion of demand has come from China with demand from the European and North American markets continuing to be very weak. Spot prices over the past few weeks have firmed slightly.
Production
In November 2008 the Company ceased furnace production. The ferrochrome production for the quarter ended 31 March 2009 of 1,168 tonnes, arose from the metal recovery plant that continued extracting ferrochrome from slag until late March. There is approximately 1,500 tonnes of ferrochrome still to be recovered from slag and the metal recovery plant is likely to resume operation in the third quarter after operational efficiencies have been completed.
On 20 April the Company commenced with its previously announced three month plan to convert raw material inventory, comprising mainly chrome ore and coke, to finished ferrochrome product. This will allow IFL to monetise inventories, and will make a positive contribution towards fixed overheads. At the end of this cycle most coke stocks will have been consumed but there will still be reasonable chrome ore stocks to allow a rapid start up of production if market conditions allow.
The furnace upgrade and maintenance programme was completed on time and within budget and the furnace has met all the Company's operating expectations with a smooth start up and high availabilities and efficiencies.
At the end of the three month programme, we will review market conditions although ferrochrome prices would need to improve from current low levels for continued production to be economic. We expect a full ramp-up to be possible within four weeks of commencement of operations.
Currently only the Lesedi open pit is being mined at low tonnages of approximately 10,000 tonnes per month. When full operations recommence, we expect full scale mining to be possible within 12 weeks.
Sales
Sales volumes for the March 2009 quarter were 10,484 tonnes compared to 21,410 tonnes sold in the previous quarter and 56,905 tonnes sold in the March 2008 quarter.
Considerable marketing efforts since the beginning of the year in the Chinese market have resulted in approximately 28,000 tonnes being shipped since the end of March. European and North American sales volumes were insufficient to compel JISCO to buy contractual tonnages at the European benchmark price.
All receivables outstanding at the end of December 2008 were paid as expected during the period under review.
Inventory
During the quarter, ferrochrome inventory reduced from 42,523 tonnes at 31 December 2008 to 33,207 tonnes at 31 March 2009. The marginal decrease from the previously announced 31 January 2009 inventory figure of 33,338 tonnes was due to low sales in February & March 2009.
The programme to monetise inventory which started in April will reduce the stockpile further; the Company aims to reduce inventory to about 10,000 tonnes by fiscal year end.
Capital Expenditure
Other than the recently completed equipment upgrade and maintenance programme, the only other capital project still planned is the electricity co-generation project. The outstanding committed capex is ZAR78m which is expected to be expended over the next six months. This project will allow the Company to generate 10% of its power requirements at lower cost, reducing dependence on the national power grid and addressing the power issues the Company has faced. IFL intends proceeding with the co-generation project once market conditions improve.
Cost Control
The Company's objective of managing capital has largely been met by strict cost control and has been augmented by sales from inventories. Other fixed costs, primarily those relating to on-site logistics, have also been reduced.
A cost reduction programme begun in March will help the Company achieve targeted savings of approximately ZAR2m per month. This programme included a full evaluation of all positions within the Company, which resulted in a redundancy process affecting 120 staff being implemented as part of an agreement reached with the National Union of Mineworkers.
Further cost savings will be realised in the June 2009 quarter as a result of the previously announced 10% cut in salaries taken by all senior employees and board members.
Cash Balance
International Ferro Metals continues to have a healthy cash balance. The net cash balance after short term borrowings and excluding restricted cash was ZAR510m compared with ZAR504m at 31 December 2008. As at 30 April, the net cash balance declined to ZAR374m as a result of foreign exchange losses on Euros held due to the strengthening of the Rand, which made up ZAR44m of the decline. Payment to capex suppliers accounted for a further R60m, and fixed overheads and the furnace start up accounted for R30m. The Company will continue its prudent management of cash and resources.
Outlook
The Company continues to experience extremely low ferrochrome demand as steelmakers continue to suffer from the global economic fallout. There are signs of a bottoming out of the down cycle as global ferrochrome inventories decline, but prices have yet to firm to an attractive level and predicting the timing of the recovery is difficult. However, there will be a time when demand returns to this market and with a healthy cash balance and prudent cost and inventory control, International Ferro Metals is in a solid position to take advantage of it.
Other than as detailed above in this Interim Management Statement, there have been no material events or transactions in the period from 1 April 2009 to 20 May 2009.
For further information please visit www.ifml.com or contact:
| International Ferro Metals Limited David Kovarsky, Chief Executive Officer | +27 82 650 1192 |
| Brunswick Group Patrick Handley / Carole Cable | +44 (0) 20 7404 5959 |
| Numis Securities Limited John Harrison / Stuart Skinner | +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 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.