23 Jan 2014 07:07
23 January 2014
International Ferro Metals Limited
("IFL" or the "Company")
Production Report for the three months to 31 December 2013
Highlights:
· Ferrochrome ("FeCr") production up 1.3% on the previous quarter to 58,621 tonnes ("t"), the second highest quarterly production, and half-year production record of 116,469t, up 5.8% on previous record, driven by operational improvements
· FeCr sales of 57,394t, up 9.8% on previous quarter's 52,249t, which reflects the higher commitment of sales in Q214
· Net borrowings reduced to ZAR372 million at 31 December 2013 from ZAR393 million at 30 September 2013
· Zero fatality track record maintained; continued improvement in overall safety performance
· FeCr inventory of 16,156t at 31 December 2013, in line with 15,550t at 30 September 2013
· Operations (excluding working capital) cash generative and expected to be profitable for the quarter
· Production costs continue to allow company to be cost competitive with global ferrochrome producers
· Review of the Lesedi underground mining operations continue and will be announced over the March quarter
Post period end:
· European Benchmark Price for Q1 of calendar 2014 increased 4.9% to US$1.18/lb
· South African Rand continues to depreciate against U.S. dollar
Three months to31 December 2013 | Three months to 30 September 2013 | Three months to31 December 2012 | |
(tonnes) | (tonnes) | (tonnes) | |
FeCr production | 58,621 | 57,849 | 52,143 |
FeCr sales | 57,394 | 52,249 | 51,092 |
FeCr stock at quarter end | 16,156 | 15,550 | 15,815 |
Commenting on the operational update, Chief Executive Chris Jordaan said:
"I am pleased to announce record ferrochrome production over the first half of our financial year. We have continued to build on a strong first quarter with our furnaces operating at full load and are stable. Our sharp focus on reducing costs has put us further down the cost curve and we remain competitive in the Chinese market. Sales were evenly distributed over our broad global customer base, which the Company has developed over the last two years.
"Improved alloy prices in the first quarter of calendar 2014 and a weaker South African Rand, together with our cost reduction initiatives, are adding momentum to the profitability and turnaround of the Company. This, plus our integrated operations mean that we have the flexibility to react to changing market conditions whilst generating cash and profitability."
Stainless steel and ferrochrome markets
US economic growth has improved driven by consumer demand and there are positive indications that the Eurozone is turning the corner from recession to recovery. China's economy has stabilised with GDP growth settling at 7.7% for calendar 2013.
The stainless steel industry also showed positive signs towards the end of the year as global production increased with further build-up of inventory. Nonetheless, the industry remains sensitive to market fundamentals as it is operating below 80% of capacity utilization.
Ferrochrome prices in China remained under pressure during Q4 of calendar 2013; China curtailed production in the southern part of the country where most producers were exposed to both seasonal and raw material related cost pressures.
Although spot prices for ferrochrome remained predominantly stagnant in China during Q4, other regions showed a noticeable improvement, due to tightening inventories outside China, which led to a 5.5¢/lb increase in the benchmark price.
Health and Safety, and the Environment ("HSE")
The Company had no fatalities during the quarter and remains fatality free since inception, representing 26,067,445 fatality free man-hours which equates to 3,258,431 fatality free shifts as at 31 December 2013. During the quarter, two lost time injuries occurred and the 12 month moving average lost time injury frequency improved further from 3.26 at 31 December 2012 to 1.35 at 31 December 2013. The Company continues to focus on HSE and to continually improve training. The 12 month moving average total recordable injury rate improved from 43.5 at 31 December 2012 to 28.7 at 31 December 2013.
No significant environmental or health incidents were reported in the quarter.
Mining
The Lesedi underground mine remained out of production and the findings of the previously announced review, which were expected in January 2014, are now likely to be completed during the March quarter. The Company is currently evaluating its options and a decision will be made once the review is finalised. The Company continues to source sufficient ore supply from a combination of stockpiles, the UG2 supply agreement, the buying-in of ores in the market, and production from Sky Chrome.
As planned, production at Sky Chrome was approximately 30,000t for the quarter, compared with about 40,000t in the previous quarter. The improvement in the recovery yield, compared to the same quarter in 2012, was due to increased production from the Chrome Recovery Plant, improved Sky Chrome feed grades and successful modifications to the beneficiation plant's spiral circuit. Further improvements are underway to optimise recovery.
Chrome ore production | Three months to 31 December 2013 | Three months to 30 September 2013 | Three months to 31 December 2012 |
(tonnes) | (tonnes) | (tonnes) | |
Lesedi | - | - | 27,000 |
Sky Chrome | 30,000 | 40,000 | 149,000 |
Total | 30,000 | 40,000 | 176,000 |
Recovery rate | 59% | 59% | 51% |
Smelting
FeCr production for the quarter was 58,621t, a 1.3% increase on the previous quarter's 57,849t. Record production of 116,469t was recorded for the half, 5.8% higher than the previous half-year production of 110,092t. The higher production was achieved as a result of improved availability and utilisation resulting in improved electricity consumption as well as stable operations at full load. This forms part of the ongoing improvement plan and is testimony to improvements achieved especially in maintenance control and planning, ore mix and reductant optimisation.
Co-generation plant
The Cogen plant generated 11.6GWh or 5.1% of total requirement for the quarter, a decrease on the previous quarter's 7.1% generation. Initiatives are underway to improve gas utilisation so as to achieve the 11% targeted generation. The Company is in the process of changing to a new service provider for maintenance and optimisation of the generation units.
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 26,000t during the quarter, compared to the contractual 45,000t, due to strike action at Anglo Platinum as well as December shutdowns. Anglo Platinum is obliged under the agreement to make up any shortfalls and as previously announced, it is expected that this shortfall will be made up in the coming months.
Sales and inventory
FeCr sales for the quarter to 31 December 2013 were up 9.8% to 57,394t, compared with 52,249t for the previous quarter. The increase in sales was a result of the higher production volumes. The distribution of sales was roughly even between customers in the east and the west. The Company also received orders from new markets such as Korea and expects to continue to make headway in these areas.
FeCr inventory was 16,156t at 31 December 2013, in line with the 30 September 2013 balance of 15,550t. This is slightly higher than previous guidance of 10,000t mainly due to reduced transport activity during the South African holiday season in December. Stocks are expected to reduce to approximately 10,000t over the next quarter.
Ore sales for the quarter reduced substantially to only 7,000t from 23,000t in the previous quarter, due to higher internal requirements with both furnaces back in operation.
Cost reduction programme
Ferrochrome production cost for the quarter was ZAR6.46/lb Cr, up slightly from the previous quarter's ZAR6.43/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.
This quarter's adjusted production cost has been impacted by an increase in the cost of bought-in ore, lower electricity co-generation, and lower ratio of alloy recovery production relative to furnace production, which should stabilise around the current level.
The Company is comfortable that, taking out the impact of domestic inflation, it remains on track to achieve its targeted cost reductions by the end of the financial year.
Cash
The Company's net borrowings decreased by ZAR21 million toZAR372 million at 31 December 2013 from net borrowings of ZAR393 million at 30 September 2013, reflecting cash generation.
Cash from operations (before working capital changes) generated ZAR56 million, working capital utilised ZAR18 million, investing activities utilised ZAR11 million and financing activities utilised ZAR6 million.
Operations are expected to remain cash generative and net borrowings are expected to reduce steadily from the next quarter onwards.
Outlook
The global economic environment improved in the latter half of calendar 2013 which supported demand for stainless steel and its raw materials. As a result, spot prices edged upwards over the quarter under review and the Benchmark Price increased to from US$112.5/lb to US$1.18/lb.
As the global economy gains momentum in 2014, demand for stainless steel and ferrochrome is expected to improve. Higher ferrochrome production levels are anticipated on the back of new capacity in China and South Africa. However, there is a growing challenge in the availability of chrome ore as there are no significant planned expansions of primary chrome ore production and the supply of UG2 could be affected by challenges in the platinum industry.
This could support higher ferrochrome production cost in China and lead to higher ferrochrome prices globally. 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 further down the cost curve, resulting in a business that generates cash. Prices have increased and the depreciating South African Rand exchange rate creates an additional benefit.
Analyst / investor Conference call
Management will discuss these results in a conference call with the investment community today, Thursday 23 January 2014, at 08.30am (GMT). Dial in details are below:
Dial in: +44 (0) 1452 555 566
Pin code: 40699472
- 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.