17 Jul 2014 07:00
17 July 2014
International Ferro Metals Limited
("IFL" or the "Company")
Production Report for the three months to 30 June 2014
Highlights:
· Ferrochrome ("FeCr") production of 57,462 tonnes ("t") for the quarter, up 6% on the previous quarter.
· Record full year 2014 production of 228,000t, 13% higher than previous record
· FeCr sales of 52,172t for the quarter, down 14% on the previous quarter but up 39% on the corresponding period
· Net borrowings further reduced to ZAR338 million at 30 June 2014 from ZAR347 million at 31 March 2014
· Lesedi underground mining operations successfully restarted with first ore produced during July 2014, in line with previous guidance
· South African platinum strike resolved; UG2 ore supply expected to resume in July
Three months to30 June 2014 | Three months to31 March 2014 | Three months to30 June 2013 | |
(tonnes) | (tonnes) | (tonnes) | |
FeCr production | 57 462 | 54 329 | 39 454 |
FeCr sales | 52 175 | 60 521 | 37 665 |
FeCr stock at quarter end | 15 288 | 9 984 | 9 950 |
Commenting on the operational update, Chief Executive Chris Jordaan said:
"I am delighted with another strong operational performance over the quarter and the year as we achieved record production for the year. We have however, had some setbacks over the quarter with the cogen plant not contributing to our energy needs as planned, and as costs were pushed higher mainly due to the protracted strike action at Anglo Platinum which meant we did not receive the UG2 ore under our contract.
We continue to face a low ferrochrome pricing environment and higher cost pressures due to circumstances beyond the Company's control. Against this backdrop, we expect another year of improved financial performance as the smelting operations continue to work at full load, UG2 ore supplies will resume from Anglo Platinum, and as we continue to tightly control costs and cash flow. "
Stainless steel and ferrochrome markets
The US and European economies remained buoyant during the quarter resulting in ferrochrome spot prices edging upwards. This widened the price differential further between China and the West, with prices remaining subdued in China as stainless steel demand waned. Stainless steel capacity utilisation rates in China have now begun to trend below 70% on average, with Chinese ferrochrome producers responding by cutting back domestic production.
Chinese stainless steel producers were forced to source ore and alloy from outside China, primarily South African material. South African ore prices over the quarter under review have increased by approximately 20% for 42% Cr2O3 chrome ore concentrate. Notably, Chinese ore stocks are estimated to have declined from the typical 2.8Mt to less than 2.2Mt and China will need to restock over the coming months.
Health and Safety, and the Environment ("HSE")
The Company had no fatalities during the quarter and remains fatality free since inception, representing 27.2 million fatality free man hours which equates to 3.4 million fatality free shifts as at 30 June 2014.
During the quarter only one lost time injury occurred and the 12 month moving average lost time injury frequency improved further from 1.47 at 30 June 2013 to 1.30 at 30 June 2014, improving by 12% year on year.
The Company continues to focus on HSE and to continually improve training. No significant environmental and 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 and the training of the first mining team was concluded successfully and on time. The underground infrastructure, machinery and equipment are all fully operational. The process to prepare the underground working places for mining is currently underway. Hoisting of the first tonnes and the initiating of the first blast from the underground mine occurred on schedule in the first week of July 2014.
Only the MG1 seam, a higher grade ore seam in the MG seams, will be mined for the first few years. This is expected to reduce the need for high grade ore currently bought in from external sources. After 5 years the MG2 seam will be mined together with the MG1 seam.
Production at Sky Chrome was 35,000t for the quarter compared to 33,000t in the prior quarter. In line with our stated strategy of flexible and optimal ore sourcing, the Company has decided to temporarily suspend the extraction of new ore at Sky Chrome for FY15, while continuing other operational activities. This is to reduce costs by sourcing cheaper ore externally, and focusing on processing low grade stockpiles which have gradually accumulated over the past three years. The reduction in the recovery rate to 57% this quarter compared to 61% in the previous quarter was due to the increased feed of the low grade re-cycled beneficiation plant waste, which yielded positive results on costs.
The drill programme at the mine owned by Chrometco has progressed to plan and is reaching finalisation. The Company is pleased with the initial results. Subject to the Company being satisfied with the complete results, which are expected in August 2014, Chrometco and IFL will enter an agreement to mine 200kt of LG6 ore on an outsourced basis. This agreement is in line with IFL's stated strategy to obtain higher-grade feed stock for our furnaces and allow for more flexibility and cost effectiveness in our operations.
Three months to30 June 2014 | Three months to31 March 2014 | Three months to30 June 2013 | |
(tonnes) | (tonnes) | (tonnes) | |
Lesedi production | - | - | - |
Sky Chrome production | 35 000 | 33 000 | 28 000 |
Total | 35 000 | 33 000 | 28 000 |
Ore sales | - | 9 900 | 95 000 |
Recovery rate (%) | 57% | 61% | 43% |
Smelting
FeCr production for the quarter was 57,462t compared with 54,329t in the prior quarter, an increase of 6%. This is an exceptional performance given that June is affected by voluntary energy cut-backs due to high power prices during peak tariff hours. The Company achieved a full-year production record of 228,260t which exceeded the previous record achieved in 2008 by 13%. The furnaces remain stable and are achieving improved power efficiencies. This, together with improved availability and utilisation, has augmented the achieved production.
A bankable feasibility study for additional smelting capacity commenced during the quarter.
Co-generation plant
The performance of the Cogen plant has been disappointing; it generated 8.2GWh of electricity which represents 3.7% of the Company's total electricity requirement, compared with 4.8% in the previous quarter. IFL is pleased to confirm the Company has signed a service provider agreement with Clarke Energy, who are conducting a full review and analysis of the plant.
The Cogen plant has experienced a number of component failures. Clarke Energy have advised that the main contributing factor to the failures is saturation of the gas. The chiller system has been designed and an order placed to install the chiller unit that will reduce the moisture level of the inlet gas to the engines. This is a long-term solution which should reduce the load on the engine components. Expected cost for the chiller is ZAR10 million.
The Company has therefore decided to turn off the Cogen plant until such time that the review and repairs have been completed, which is expected towards the end of the 4th quarter of 2014.
At full and stable furnace production, the Cogen plant is expected to generate approximately 10% of the Company's total electricity requirements. Subject to the successful review and repairs, this is expected to be effective from the first quarter of calendar 2015.
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 production cost of concentrate produced, and is a direct contributor to profitability.
Due to the protracted strike action at Anglo Platinum no UG2 ore was received during the period. The strike was resolved during June and the plant was restarted and is expected to ramp up to full production in September 2014, with the first supplies of UG2 expected this month, albeit at levels below those provided for in the supply agreement. The full monthly contractual commitment is expected from September.
The backlog of UG2 at 30 June 2014 was approximately 98,000t and under the Company's agreement, Anglo Platinum is obliged to make up any shortfalls from future production, at a rate of at least 5,000 tonnes per month. As Anglo Platinum starts making up for the shortfall, the Company will benefit from a higher supply of UG2 ore and its increased value.
Sales and inventory
FeCr sales for the quarter to 30 June 2014 were down 14% to 52,175t compared with 60,521t for the previous quarter as the Company continues to manage inventory and working capital in line with its needs. 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 15,288t at 30 June 2014 from 9,984t at 31 March 2014 due to lower sales. Stocks are expected to average between 10,000t and 15,000t going forward to allow for flexibility and room to react to short term demand and price opportunities.
No ore sales were recorded for the quarter due to the shortfall of UG2 supply from Anglo Platinum. As previously stated ore sales are expected to recommence with the resumption of UG2 supply from Anglo Platinum.
Costs
Ferrochrome production cost for the quarter was ZAR7.59/lb, up 8.0% on the previous quarter's ZAR7.03/lb. The increase was mainly due to the lack of lower cost UG2 from Anglo Platinum, the 8% annual Eskom electricity increase on 1 April 2014 and the higher winter tariffs during June 2014. Eskom winter tariffs are on average 60% higher than summer tariffs.
Production cost for the full financial year was ZAR6.87/lb, up 7.5% on FY2013's ZAR6.39/lb, this against South African inflation of 6.6% and above-inflation Eskom increases.
We expect the full-year 2015 production cost to be lower than those achieved in Q4 2014 as the benefits of UG2 consumption are realised and as underground production at Lesedi ramps up. In the short term, we expect production costs to rise over the next quarter (Q1 2015) from Q4 2014 due to the impact of higher winter electricity tariffs and not receiving a full quarter of UG2 material from Anglo Platinum.
Cash
Net borrowings decreased to ZAR338 million at 30 June 2014 from net borrowings of ZAR347 million at 31 March 2014, reflecting cash generation.
Due to the higher expected short term costs as described above, net borrowings are expected to increase to about ZAR410 million by end September 2014 before steadily decreasing over the remainder of the year.
The ZAR500 million Bank of China working capital facility is due to expire on 25 September 2014 and the Company is confident that the facility will once again be extended by another year.
Outlook
The cost pressures currently facing South African and Chinese ferrochrome producers has changed the landscape for the global ferrochrome industry as it is expected to lead to upward pressure on global ferrochrome prices.
In this challenging and changing environment, the key to the success for IFL is to remain low down the cost curve and cash generative. The Company's smelting operations are working at full load and are stable, we have flexibility in the way in which we source feed and we tightly control costs and cash flow. Against this backdrop, the Company expects another year of improved financial performance as the smelting operations continue to work at full load, UG2 ore supplies resume from Anglo Platinum, and as we continue to tightly control costs and cash flow.
Analyst / investor Conference call
Management will discuss these results in a conference call with the investment community today, Thursday 17 July 2014, at 08.00am (London). Dial in details are below:
Dial in: +44 (0) 1452 555566
Pin code: 76142312
- 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.