24 Jul 2013 07:00
24 July 2013
International Ferro Metals Limited
("IFL" or the "Company")
Production Report for the three months to 30 June 2013
Highlights:
·; Ferrochrome ("FeCr") production of 39,454 tonnes ("t") for the quarter, up 15% on the previous quarter
·; Fast and efficient ramp-up of second furnace at the completion of Eskom buy-back on 31 May 2013, furnace now running at full load
·; FeCr sales of 37,665t, in line with production
·; Focus on programme to ensure cost reductions and effective use of mining assets delivering:
o 90% of targeted production cost savings achieved for the quarter
o Ore sales of 95,000t
o FeCr stockpile of 9,950t as at 30 June 2013
o Co-gen plant produced 12.3GWh of electricity for the quarter, 8.3% of total requirement, up from 4.1% in the previous quarter
·; Decrease in net borrowings from ZAR425 million at 31 March 2013 to ZAR362 million at 30 June 2013
·; Zero fatality track record maintained; continued improvement in overall safety performance
·; Operations cash generative for the quarter
Post period end:
·; European Benchmark Price for Q3 of calendar 2013 decreased by 14.5¢ to US$1.125/lb.
·; Furnaces operating at full load, except for load reductions during peak electricity tariff hours
·; Sky Chrome awarded PGM rights in chrome seams by the Department of Mineral Resources
Three months to30 June 2013 | Three months to31 March 2013 | Three months to30 June 2012 | |
(tonnes) | (tonnes) | (tonnes) | |
FeCr production | 39 454 | 34 172 | 18 505 |
FeCr sales | 37 665 | 41 630 | 14 396 |
FeCr stock at quarter end | 9 950 | 8 358 | 10 849 |
Commenting on the operational update, Chief Executive Chris Jordaan said:
"I am delighted by our performance this quarter. We have achieved operational stability with both furnaces performing well following the efficient and rapid restart and ramp up of the second furnace at the conclusion of the buy-back agreement. We have secured our position as a low cost operator with the remarkable progress we have made in cost reductions and are now close to achieving 100% of our cost cutting goals. As a result we have successfully positioned ourselves down the cost curve, where we can compete with Chinese producers. Finally and crucially we continue to be cash generative which allows the Company to withstand a reduced Benchmark Price".
He added: "Looking ahead we will continue our cost reduction improvements and maintain operational stability through the SA winter period when electricity supply traditionally comes under pressure. We are working responsibly as an energy intensive user alongside Eskom to ensure there will be no forced shutdowns and a steady power supply is maintained."
Stainless steel and ferrochrome markets
The global economic environment remained challenging as growth weakened in almost all regions during the second quarter. This had a negative impact on the stainless steel industry and demand for its raw materials. Spot prices for ferrochrome in China dropped by approximately 5% during the quarter and the spot market in Europe responded by closing the gap with Chinese spot prices. The European Benchmark Price also followed suit as the end to the Eskom buy-back programme triggered the start-up of capacity in South Africa and the Q3 price was fixed at US$1.125/lb, a 14.5¢ reduction over the previous quarter.
These price levels are challenging margins around the world and particularly in South Africa during June to August as producers have to cope with increased winter electricity tariffs. Most Chinese producers rely on cheaper ore imports to reduce production cost. With the increased internal consumption after the Eskom buy-back programme, a tighter market is expected to develop which should lead to higher ferrochrome production cost in China and lead to higher ferrochrome prices. Given the Company's relative cost position, this bodes well for profitability in the year.
Health and Safety, and the Environment ("HSE")
The Company had no fatalities during the quarter and remains fatality free since inception, representing 24.9 million fatality free man hours which equates to 3.1 million fatality free shifts as at 30 June 2013. The 12 month moving average lost time injury frequency improved further from 3.06 at 30 June 2012 to 1.47 at 30 June 2013 and the Company continues to focus on HSE and to continually improve training. Total recordable injuries reduced by 45.6% year on year.
No significant environmental and health incidents were reported in the quarter.
Mining
Lesedi Underground Mine remains under review as the Company considers the most effective mining strategy for this asset alongside and as part of our cost reduction and asset optimisation programme. In this way we can achieve the best low cost supply to feed our furnaces. We expect to announce the findings of the review by December 2013. Currently, sufficient ore supplies for the two furnaces are available from a combination of stockpiles, the UG2 supply agreement, the buying-in of inexpensive ores which are readily available in the market and production from Sky Chrome.
Ore prices have recently come under further pressure and as such the Company is using this opportunity to reduce its ore input cost to provide the best low cost solution for our operations. This has meant that we mined less from Sky Chrome and took advantage of other cheaper sources of supply. Production at Sky Chrome was 28,000t for the quarter, slightly below previous guidance of 35,000t. The drilling programme announced previously has been completed and the extent of the pothole (an area within the seam devoid of mineralisation) that was intersected in the MG2 seam has now been defined. The mine plan is being updated to optimise recovery rates and it is expected to be completed within two months. The recovery yield decreased by 2% from the previous quarter as a result of the pothole. Production for the next quarter is planned at approximately 30,000t, and recoveries are expected to improve.
Three months to30 June 2013 | Three months to31 March 2013 | Three months to30 June 2012 | |
(tonnes) | (tonnes) | (tonnes) | |
Lesedi production | - | - | 170,000 |
Sky Chrome production | 28 000 | 83 000 | 123 000 |
Total | 28 000 | 83 000 | 293 000 |
Ore sales | 95 000 | 97 000 | 128 000 |
Recovery rate (%) | 43% | 45% | 62% |
PGM rights in Sky Chrome chrome ore seams
Platinum Group Metals (PGM's) reside in the Middle Group ("MG") chrome ore seams that the Company mines. These PGM's can be recovered from the tailings of the chrome ore beneficiation plant. In 2012, Phoenix Platinum Mining, a subsidiary of Pan African Resources, commissioned a Chrome Tailings Retreatment Plant, treating historical and current tailings arising from the Lesedi beneficiation plant to recover the PGM's. Phoenix Platinum Mining acquired the full share of the PGM rights to the Lesedi Mine in 2011 when it acquired IFL's 25% Net Profit Interest ("NPI") in the PGM rights.
Subsequent to this and post period end, Sky Chrome has been awarded the rights to the PGM's in the MG chrome ore seams by the Department of Mineral Resources ("DMR"). The Company has an 80% share in Sky Chrome (20% belongs to the Bapo Ba Mogale Tribe). IFL has initiated a project to evaluate possible options to recover the PGM's from the chrome ore seams. The outcome of this review is expected in the coming months.
Smelting
FeCr production for the quarter was 39,454t compared with 34,172t in the prior quarter, an increase of over 15%. This is an exceptional performance achieved as a result of improved electricity consumption and increased alloy recovery from slag. During the quarter one furnace participated in the Eskom buy-back programme for two months. The Eskom agreement commenced on 15 February and ended 31 May 2013.
On 1 June the furnace that participated in the Eskom buy-back was restarted and successfully ramped up to full load within three weeks delivering operational stability.
As in prior years, load on the furnaces is reduced during the expensive peak electricity tariff hours to reduce production cost. The load reductions decrease production volume by an estimated 7%-10%. Winter tariffs are in effect from June to August.
Co-generation plant
The Cogen plant generated 12.3GWh of electricity which represents 8.3% of the Company's total electricity requirement, compared with 4.1% in the previous quarter.
The load reductions during peak electricity tariff hours reduce electricity co-generation by an estimated 15-20%, due to the variability in gas caused by the variability in production.
At full and stable furnace production, the Cogen plant is expected to generate approximately 11% of the Company's total electricity requirements.
UG2 supply agreement
IFL's supply agreement with Anglo Platinum was established in 2010 to provide 15,000t per month of low cost UG2 chrome concentrate until 2020. This beneficial agreement delivers UG2 at a cost significantly below the Company's in-house cost of concentrate production. As previously reported, this supply was temporarily disrupted in 2012, however Anglo Platinum was obliged under the agreement to make up any losses and this was achieved by 30 June 2013 with the elimination of the total backlog.
Sales and inventory
FeCr sales for the quarter to 30 June 2013 were down 10% to 37,665t compared with 41,630t for the previous quarter due to higher inventory levels at the beginning of the previous quarter. Sales have been primarily to Europe with some contractual sales going to the USA. Sales to India, which commenced in the previous quarter continued, with India now firmly established as a repeat customer.
FeCr inventory was 9,950t at 30 June 2013 from 8,358t at 31 March 2013. Stocks are expected to remain around these levels going forward.
Ore sales for the quarter were 95,000t, in line with the previous quarter's 98,000t. With both furnaces back in operation ore sales will be reduced as the Company takes advantage of the flexibility it has with respect to supply for the furnaces.
Cost reduction programme
Ferrochrome production cost for the quarter decreased to ZAR6.23/lb chrome from ZAR6.30/lb in the prior quarter, despite the annual Eskom increase on 1 April and higher winter tariffs during June 2013. Production cost for the financial year was ZAR6.39/lb, up 4.2% on FY2012's ZAR6.13/lb.
Pleasingly, significant reductions were achieved across ore, reductant, operating and fixed costs. The higher metal recovery volumes and higher ratio to furnace volumes had a further major dilutive impact on fixed costs. Electricity increased due to the annual increase on 1 April 2013 and June being a high-tariff winter month. At the previous quarter's electricity prices, FeCr production cost for this quarter would have been ZAR0.46/lb lower at ZAR5.76/lb.
The Company is targeting total cost reductions of ZAR0.76/lb on FY2011 production cost of ZAR6.25/lb. These targets strip out changes in unit electricity and reductant prices, which are outside management's control and affect all other South African producers. On an adjusted basis, this quarter's production cost was an excellent ZAR5.56/lb compared with ZAR6.12/lb for the previous quarter. This represents 90% of the target. For the full-year, the production cost on an adjusted basis was ZAR5.87/lb, which represents 50% of our target.
Cash
The Company's net borrowings decreased to ZAR362 million at 30 June 2013 from net borrowings of ZAR425 million at 31 March 2013.
Cash from operations (before working capital changes) generated ZAR91 million, working capital generated ZAR24 million, financing activities utilised ZAR16 million and investing activities utilised ZAR36 million.
The ZAR500 million working capital facility with Bank of China expires on 21 August 2013; the Company is in continuous dialogue with the bank and we are confident that the facility will be extended by another year.
Outlook
Chinese supply and demand fundamentals remain under pressure, however, there is little room for further price reductions due to inflationary cost pressures for both ores and ferrochrome.
Continued cost pressures on Chinese smelters are expected to increase the production cost for ferrochrome in China which should lead to upward pressure on ferrochrome prices. The Company is expected to remain competitive on ferrochrome cost of production.
In this environment, the outlook for IFL is positive: the Company's smelting operations are working at full load and are stable, and the cost reduction programme has put IFL further down the cost curve resulting in a business that generates cash even at these depressed price levels.
The recent achievements in operational performance improve the Company's ability to respond to appropriate opportunities for growth.
Analyst / investor Conference call
Management will discuss these results in a conference call with the investment community today, Wednesday 24 July 2013, at 08.30am (London). Dial in details are below:
Dial in: +44 (0) 1452 555 566
Pin code: 21604342
- 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 / Clemmie Raynsford | +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.