24 Apr 2014 07:00
24 April 2014
International Ferro Metals Limited
("IFL" or the "Company")
Interim Management Statement to 24 April 2014 and
Production Report for the three months to 31 March 2014
Highlights:
· | Ferrochrome ("FeCr") production down 7% on the previous quarter's record production to 54,329 tonnes ("t"), driven by lower metal recovery from slag processing and power cuts under the DMP regime, up 59% on the comparable period |
· | FeCr sales of 60,521t, up 5.5% on previous quarter's 57,394t and up 45% on the comparable period |
· | Operations (excluding working capital) cash generative and profitable for the quarter |
· | Net borrowings reduced to ZAR347 million at 31 March 2014 from ZAR372 million at 31 December 2013 |
· | Lesedi underground mining operations on track to produce ore from July 2014 |
· | Zero fatality track record maintained; continued improvement in overall safety performance to lowest level in IFL's history |
· | FeCr inventory of 9,984t at 31 March 2014, down 6,192t from the previous quarter, in line with previous guidance |
Post period end:
· | European Benchmark Price for Q2 of calendar 2014 has increased 3% to US$1.22/lb Cr |
· | Eskom electricity price increase of 8% from 1 April 2014, as per NERSA approved 5-year pricing plan |
Three months to31 March 2014 | Three months to31 December 2013 | Three months to31 March 2013 | |
(tonnes) | (tonnes) | (tonnes) | |
FeCr production | 54,329 | 58,621 | 34,172 |
FeCr sales | 60,521 | 57,394 | 41,630 |
FeCr stock at quarter end | 9,984 | 16,176 | 8,358 |
Commenting on the operational update, Chief Executive Chris Jordaan said:
"The first quarter of the calendar year has seen another strong performance by IFL; we have continued our cash generation and profitability, further reducing net borrowings, and have made pleasing progress at Lesedi, which is due to produce first ore in July. The operational and financial turnaround is continuing, and the outlook for IFL is positive, particularly in the important Chinese market where our tight cost controls mean we can continue to be competitive with domestic producers."
Stainless steel and ferrochrome markets
US economic growth has continued its positive trend driven by consumer demand. The Eurozone remained buoyant with improved stainless steel production levels. China's economy has showed signs of weakening, albeit from a large base level.
The stainless steel industry showed positive signs into the first quarter. Nonetheless, the industry remains sensitive to market fundamentals, as it is operating in excess of 80% of capacity.
The margins of ferrochrome producers in China remained under pressure during Q1 of calendar 2014; China curtailed production further to about 70% of capacity. Reports in industry publications have indicated production cuts of up to 50% in some areas where production costs are very high. The pressure on spot prices could be increased by the potential restart of capacity in the southern part of the country as electricity tariffs are seasonally lower.
Although FeCr spot prices remained stable in China during the quarter, spot prices in other regions continue to demonstrate noticeable improvement due to tightening inventories outside China. This has led to the Q2 calendar 2014 European Benchmark Price increasing to U$1.22/lb Cr.
Health and Safety, and the Environment ("HSE")
The Company had no fatalities during the quarter and remains fatality free since inception, representing 26,634,072 fatality free man-hours which equate to 3,329,259 fatality free shifts as at 31 March 2014.
During the quarter, no lost time injuries occurred and the 12 month moving average lost time injury frequency improved further from 3.49 at 31 March 2013 to 0.89 at 31 March 2014, year on year the lost time injury frequency rate improved by 74.57%
The Company continues to focus on HSE and to continually improve training. No significant environmental or health incidents were reported in the quarter.
Mining
The Company is progressing according to plan with the restart of the Lesedi underground mine. The recruitment process is well underway and the training department has been strengthened to cater for the new recruits. Detailed assessments of the material handling systems are underway and thorough health, safety and environment reviews have been completed. The first ore is expected to be mined in July 2014. The Lesedi mine operations will be fully insourced.
The MG1 seam, a higher grade ore in the MG seams, will be mined for the first few years as development of both the MG1 and MG2 is done. After 5 years the MG2 seam will be mined together with the MG1 seam. This is expected to reduce the need for high grade ore currently bought in from external sources. In the meantime the Company continues to source sufficient ore supply from stockpiles, buying-in of ores in the market, the UG2 supply agreement and production from Sky Chrome.
As planned, production at Sky Chrome was approximately 33,000t for the quarter, compared to 30,000t in the previous quarter. The Company continues to optimise ore supply through a number of alternative sources. The improvement in the recovery yield is a result of a number of improvement projects on the mining method and recovery plant modifications.
Chrome ore production | Three months to 31 March 2014 | Three months to 31 December 2013 | Three months to 31 March 2013 |
(tonnes) | (tonnes) | (tonnes) | |
Lesedi | - | - | - |
Sky Chrome | 33,000 | 30,000 | 83,000 |
Total | 33,000 | 30,000 | 83,000 |
Recovery rate | 61% | 59% | 45% |
Smelting
FeCr production for the quarter was 54,329t, a 7.3% reduction on the previous quarter's 58,621t. The reduction was mostly due to reduced recovered metal from the metal recovery plant and periods of reduced power under the Eskom demand management participation (DMP).
The metal recovery plant is expected to continue to produce at current levels as the metal rich historic slag has now all been treated.
Eskom is currently using DMP as the major tool to manage demand. Maintenance initiatives at Eskom are currently undertaken to prepare for the winter period. It is expected that Eskom will continue to use DMP as and when required during the daily peak demand times.
Production for the final quarter is expected to be similar to the quarter under review.
Co-generation plant
The Cogen plant generated 10.4 GWh or 4.8% of total electricity requirement for the quarter, a decrease on the previous quarter's 5.1% generation. Initiatives are underway to improve gas utilisation and quality to achieve the 11% generation target. The Company has negotiated a contract with a new service provider for maintenance and optimisation of the furnace off-gas and will shortly be signing an ongoing agreement.
UG2 supply agreement
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 cost of concentrate production.
The supply of UG2 accounted for approximately 18,000t during the quarter, compared with the contractual 45,000t, due to strike action at Anglo Platinum. It has been reported that negotiations with the Unions are progressing and the Company notes that Anglo Platinum is obliged under the agreement to make up any shortfalls when production recommences.
The short supply of UG2 from Anglo Platinum has not materially impacted operations. Once production is resumed by Anglo Platinum the Company will consume UG2 as before, and will benefit from the resulting lower input costs.
Sales and inventory
FeCr sales for the quarter to 31 March 2014 were up 5.5% to 60,521t, compared to 57,394t for the previous quarter and 41,630t in the comparable period in 2013. The distribution of sales remained balanced between the East and West. Sales into new markets have been sustained.
FeCr inventory was 9,984t at 31 March 2014, down 6,192t from the previous quarter's 16,176t. FeCr inventory is expected to remain at these levels.
Ore sales increased to 10,000t for the quarter, up from 7,000t in the previous quarter. Ore sales will continue at these levels until the UG2 supply resumes.
Production cost
Ferrochrome production cost for the quarter was ZAR7.03/lb, up 8.8% from the previous quarter's ZAR6.46/lb. The increase in production cost was mainly due to lower UG2 consumption, higher cost of bought-in sweetener ore, lower fixed cost dilution and a lower ratio of alloy recovery production relative to furnace production. Alloy recovery is stabilising at the current level as previously reported.
During the quarter unplanned maintenance was required on the pelletising plant due to ball mill failure, which resulted in a pellet shortage and the Company bought in pellets at a cost substantially higher than own produced pellets.
We expect production costs to rise in the next quarter, then reduce as ore input cost is expected to decrease once UG2 production recommences and to further decrease when underground production at Lesedi ramps up to reduce sweetener buy-in.
The annual electricity tariff increase was 8% effective 1 April 2014, as the second year in the NERSA approved 5-year pricing plan. We move to the higher winter tariffs from 1 June to 31 August.
Cash
The Company's net borrowings decreased by ZAR25 million toZAR347 million at 31 March 2014 from net borrowings of ZAR372 million at 31 December 2013, reflecting cash generation.
Cash from operations (before working capital changes) generated ZAR80 million, working capital utilised ZAR28 million, investing activities utilised ZAR4 million and financing activities utilised ZAR23 million, continuing the turnaround announced at the half year.
Operations are expected to remain cash generative and net borrowings are expected to reduce steadily going forward.
Outlook
The global economic environment has seen differing conditions in the West and in China during the period under review. While Western economies remained buoyant into the first quarter of 2014 with clear upward pressure on pricing, China showed signs of a slowing economy. Despite the subdued economic outlook in China, the Benchmark Price increased from US$1.18/lb.to US$1.22/lb Cr in the second quarter of calendar 2014.
Looking at China in more detail, we are seeing a mixed picture; on the one hand destocking is supporting prices in the short term, while on the other hand, an increase in input costs is driving out the marginal producers.
In general, as evidenced by the recently revised Benchmark Price, the Board feels that overall pressures are on the upside.
Given the Company's access to integrated ore and its relative cost position to China, it is expected that IFL will remain competitive in the Chinese market which, in recent years, has been setting the base spot price for ferrochrome. IFL's open pit mine and integrated operations mean we have the flexibility to react to market conditions - either by ramping up or scaling back.
The outlook for IFL is positive; the Company's smelting operations are at full load and stable, and the cost reduction programme has put the Company in an advantageous position, well down the cost curve, resulting in a business that generates cash despite higher production costs for the quarter.
Analyst / investor Conference call
Management will discuss these results in a conference call with the investment community today, Thursday 24 April 2014, at 08.30am (GMT). Dial in details are below:
Dial in: +44 (0) 1452 555 566
Pin code: 34025006
- ENDS-
For further information please visit www.ifml.com or contact:
International Ferro Metals Limited Chris Jordaan, Chief Executive Officer | +27 (0) 82 653 1463 |
Brunswick Group Carole Cable / Fiona Micallef-Eynaud | +44 (0) 20 7404 5959 |
Numis Securities Limited James Black / John Prior / 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.