19 May 2008 07:00
RNS Number : 7213U
International Ferro Metals Limited
19 May 2008
News Release
19 May 2008
International Ferro Metals Limited (“IFL” or the “Company”)
Interim Management Statement and March Quarter Production Report
International Ferro Metals Limited’s operating and financial performance continues to be strong in the period from 1 January 2008.
Highlights
·; Production of ferrochrome for the three month period to 31 March 2008 was 52,422 tonnes and 145,739 tonnes for the nine months to 31 March 2008
·; Ferrochrome sales volumes for this period was 56,905 tonnes and 118,771 tonnes for the nine months to 31 March 2008
·; Revenue for this period was ZAR456 million and ZAR823 million for the nine months to 31 March 2008
·; Since 31 March 2008 ferrochrome stock has returned to normalised levels.
·; Market ferrochrome prices increased from US$1.21 per pound in Quarter 1 of 2008 to US$1.92 per pound in Quarter 2 of 2008
·; Commenced electricity generation project from furnace off-gas to substitute the interim 10% reduction imposed by Eskom in January 2008
·; Engineering studies support a phased expansion of production capacity and involves:
o Expansion of chromite mining operations (already commenced);
o Construction of an additional beneficiation plant and pelletising and sintering plant at Buffelsfontein;
o Construction of an additional pelletising and sintering plant at Buffelsfontein;
o Construction of three additional furnaces.
The Company has been trading profitably over the period which has resulted in a positive change to the financial position of the Group since 31 December 2007.
Stephen Turner, Chief Executive Officer of IFL commented:
“We are pleased to report the Company has been trading profitably over the period and is generating strong cash flows. Our expansion plans give us a solid platform to grow capacity and to take advantage of the strong ferrochrome demand.”
1. Production
Ferrochrome production for the three months ended 31 March 2008 was 52,422 tonnes bringing total production for the nine months to that date to 145,739 tonnes. The factors restricting production to below capacity of 267,000 tonnes per annum (average of 66,750 tonnes per quarter) have been:
·; Electricity supply constraints (accounting for a 13% loss in lost production of 8,677 tonnes);
·; A one-off interruption of water supply from the local municipality caused by the disconnection of that council’s electricity supply resulted in a production loss of 2,200 tonnes. Since then three additional dams have been erected to enlarge the plant’s reservoir. Additionally the recent lifting of power shedding in South Africa has resulted in no disruption to water supplies. However, to ensure that the plant has a long term stable supply of water for its expansion, IFM is co-operating with another mining company to investigate the treatment of the municipality’s effluent water and to provide the plant with that treated effluent; and
·; During the production ramp up there was an accumulation of maintenance issues that needed to be addressed but were deferred until the furnaces had reached stable operating conditions. These were addressed during the quarter and included resealing of the roof, modifying the venturi systems and replacing electrode components. A combined loss of 3,451 tonnes was therefore experienced but this maintenance has resulted in stabilising furnace production levels.
Production for the three months ending 30 June 2008 is expected to be 58,000 tonnes, which would bring total production for the 2008 financial year to approximately 204,000 tonnes.
2. Turnover
For the three months ended 31 March 2008, sales volumes were 56,905 tonnes at an average CIF (Cost, Freight & Insurance) price of US$1.15 per pound. Total sales for the nine months to 31 March 2008 were 118,771 tonnes.
Revenue for the three months ended 31 March 2008 was ZAR456 million, bringing total revenue for the nine months to that date to ZAR823 million. The majority of revenue of the quarter ended 31 March 2008 represents sales contracts entered into during the last quarter of 2007. During that period, the market price for ferrochrome was US$1.00 per pound. On 1 January 2008, ferrochrome prices increased to US$1.21per pound with a further 60% increase to US$1.92 per pound effective from April 2008.
Independent research commissioned by IFL indicates strong demand and prices for ferrochrome in both the near and long term. Metal Bulletin forecasts average annual prices of between US$2.50 to US$3.00 per pound in 2008 with spot market prices potentially rising to US$3.50 to US$4.00 in late 2008 or early 2009. Similar price forecasts have been received from Heinz Pariser.
The average Rand/ US Dollar exchange rate for the quarter ended 31 March 2008 was 7.50. This represents a 10% devaluation from the previous quarter.
The stock pile at 31 December 2007 has been sold and the Company has returned to normalised stock levels which are targeted to be no more than two weeks’ production, which is approximately 10,000 tonnes of ferrochrome.
3. Expansion update
3.1 Mine Feasibility Study
SRK Consulting is the lead consultant in a project aimed at increasing IFL’s chromite production to 250% of that of the current mining operation. A final feasibility study will be available following completion of the mine design for the Skychrome project in September 2008. The key factors within the mine feasibility study are:
a) An increase in RoM chromite extraction from 900,000 tonnes per year (tpa) to 2,400,000 tpa during steady state production;
b) Mine production from the expansion of the current Lesedi mine operation and the current open pit mining operation at Buffesfontein together with a new open pit and underground mine at Skychrome;
c) Current Mineral Reserves at Lesedi and Indicated Mineral Resources within the potential open pit at Skychrome are capable of supplying the planned expanded ferrochrome production of 665 kilo tonnes per annum (“ktpa”) for over six years. (It is anticipated that this life will significantly increase upon completion of the underground mine plan for Skychrome);
d) The capital expenditure for the mine expansion estimated to be R455 million. The mine feasibility study will provide the final budget required. IFL’s budget estimate comprises:
| | R’million |
| - Expansion of the current Lesedi mine through the addition of a second decline on the MG2 seam | 65 |
| - Establishment of an open pit mine at Skychrome | 40 |
| - Development of a decline and underground mine at Skychrome | 350 |
e) First boxcut to begin in June 2008 as part of the mine development at Skychrome. A total development period of 8 months is planned.
Expansion of the Lesedi shaft commenced in May 2008.
The recent Skychrome diamond drilling programme is complete and IFL expects to announce increased Indicated and Measured Resources.
3.2 Process Feasibility Study Completed
A feasibility study to increase IFL’s production capacity to 250% of that of the current plant has been completed. SRK stated::
a) An increase in ore beneficiation, pelletising, sintering and smelting capacity from 267,000 tpa to 665,000 tpa of ferrochrome (representing current capacity of 300 million pounds of chrome units increasing to 750 million pounds of chrome units), is planned.
b) Total estimated capital expenditure of ZAR4,150 million (£277million) consisting of:
| | ZAR’million |
| - Beneficiation plant | 320 |
| - Pelletising and sintering plant | 950 |
| - Furnaces | 2,300 |
| - Infrastructure | 580 |
The increase in the capital expenditure from the July 2007 estimate of ZAR3.2 billion (£223million) is largely attributable to the increased cost of steel, the devaluation of the South African Rand and mining cost inflation in South Africa. However, IFL now anticipates that a significant majority of these costs can be funded from internally generated cash resources, reducing the amount of external debt funding required.
c) A planned construction period of18 months for all three furnaces and pelletising and sintering plant. .
d) Following construction, a 17 month ramp up period to full design capacity production is planned with 30% of capacity reached by month four and 60% of capacity reached by month eight, 80% by month twelve and 100% by month 17.
e) The feasibility study is based upon the Eskom commitment letter received in January 2008 which confirms the provision of electricity for the expansion.
SRK has concluded that:
(i) the projected beneficiation plant recovery, product yield and operating costs for the expansion project,
(ii) projected usage/consumption parameters and operating costs of the pelletising plant, and
(iii) projected usage/consumption parameters, energy consumed, operating costs, ferrochrome production and furnace operation,
are consistent with operating budgets, although actual results are being adversely affected by various factors. These factors are being addressed and once they have been, the performance of the current facility should improve to design specification.
The staged completion of the different plant projects within the plant expansion project should enable the IFL project team to meet the planned commissioning and ramp-up targets.
4. Staged Expansion approach
The expansion plan consists of the following four components:
a) Expansion of chromite extraction from Lesedi mine which is in production and the Skychrome project, where a mine feasibility study is underway;
b) Construction of an additional beneficiation plant at Buffelsfontein with a capacity of 1,800 ktpa. The feasibility study has been completed. The current beneficiation plant has a capacity of 1,000 ktpa;
c) Construction of an additional pelletising and sintering plant at Buffelsfontein with a capacity of 700 ktpa. The feasibility study has been completed. The current pelletising and sintering plant has a capacity of 400ktpa;
d) Construction of three additional 66MVA submerged arc closed furnaces which will provide an increase in capacity of 400 ktpa of ferrochrome. The feasibility study has been completed. The current two furnaces have a capacity of 267ktpa of ferrochrome.
The planned completion dates of the beneficiation plant, pelletising and sintering plant and the three furnaces will be staggered.
Each component requires electricity with the furnaces consuming 85% of total requirements. This year, during constrained electricity supply, IFL has operated its mine, beneficiation, sintering and pelletising plants at capacity, electing to reduce furnace consumption to comply with overall Eskom guidelines to consume no more than 90% of capacity consumption.
In January 2008, Eskom provided a commitment letter to IFM which confirmed the provision of electricity for the proposed expansion. The feasibility study assumes that Eskom will honour its commitment to supply electricity for the expansion from connection during January 2010 and that each component will be constructed simultaneously. However should final confirmation of full electricity supply not be received this quarter, the feasibility study provides for a staged expansion roll out as follows:
Stage One
The initial stage entails expansion of IFL’s mining operations and construction of the 1800 ktpa beneficiation plant. This stage commenced in May 2008 with the commencement of the second decline at the Lesedi mine. Stage 1 can be developed within the current electricity availability.
The expanded mine and beneficiation plant is expected to be in production in the September 2010 quarter. IFL intends to sell surplus chrome ore arising from this phase of the expansion to the export market at favourable ore prices.
Stage Two
On receipt of confirmation that adequate electricity supply will be available, IFL plans to commence construction of the additional pelletising and sintering plant and the three furnaces. The 700 ktpa pelletising and sintering plant will consume 6 MW of electricity. The 400 tpa additional furnace capacity will consume 162 MW of electricity. These furnaces are expected to take 18 months to construct.
5. Electricity Generation Plant (Clean Development Mechanism Project)
During the first half of 2007, IFL commenced work on a Clean Development Mechanism Project to generate electricity from off-gasses produced by its furnaces. An order has been placed for 10 electricity generators from GE Jenbacher. The estimated cost of the project is R200 million. The internal feasibility study reports that the project should produce additional electricity of up to 12.9MW, sufficient to substitute the interim 10% reduction imposed by Eskom in January 2008. The plant should be operational by 1 July 2009.
6. Financial position
The Company is effectively debt free and is generating strong monthly cash flows. The Company has received term sheets from three banks for debt funding, which, together with cash generated from current operations will provide sufficient funding for its expansion plans. This places the Company in an advantageous position to continue exploring development projects and acquisition opportunities.
Other than as detailed above in this Interim Management Statement, there have been no material events or transactions in the period from 1 January 2008 to 18 May 2008.
Forward looking statements
This Interim Management Statement 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.
International Ferro Metals Ltd
Stephen Turner Chief Executive Officer +61 41 844 0844
David Kovarsky Managing Director +27 82 650 1192
Brunswick Group LLP
Carole Cable +44 20 7404 5959
This information is provided by RNS
The company news service from the London Stock Exchange