24 Jul 2012 07:00
24 July 2012
International Ferro Metals Limited
("IFL" or the "Company")
Production Report for the three months to 30 June 2012
Highlights:
·; Ferrochrome production ("FeCr") of 18,505 tonnes for the quarter, down 62% from previous quarter due to financially beneficial Eskom-related furnace shutdown
·; Eskom electricity buy-back agreement from 1 March to 31 May 2012 concluded, both furnaces restarted in June 2012
·; FeCr sales of 14,396 tonnes for the quarter, down 73% from the previous quarter, due to lower production as a result of Eskom Agreement
·; Anglo Platinum UG2 Chrome Recovery Plant ("CRP") delivering contractual 15,000 tonnes per month over the quarter
·; Mining operations produced 293,000 tonnes run-of-mine ore for the quarter, as in the previous quarter
·; Co-generation plant produced 3.7GWh of electricity for the quarter; 5% of total requirement
·; Production cost savings continued to improve; ZAR30¢/lb of the ZAR76¢/lbtarget achieved in FY2012
·; Operations remain profitable and cash generative
·; Net borrowings of ZAR308 million at 30 June 2012; down from ZAR421 million at 31 March 2012
·; Bank of China ZAR500 million banking facility rolled forward for further year
·; Zero fatality track record maintained, augmented by a 48% reduction in lost time injury rate
Post period end:
·; Benchmark European FeCr price decreased by 10¢ to US$1.25/lb for the quarter ending September 2012.
Three months to30 June 2012 | Three months to31 March 2012 | Three months to30 June 2011 | |
(tonnes) | (tonnes) | (tonnes) | |
FeCr production | 18,505 | 48,762 | 42,584 |
FeCr sales | 14,396 | 52,930 | 34,735 |
FeCr stock at quarter end | 10,677 | 6,568 | 25,276 |
Commenting on the update, Chief Executive Chris Jordaan said:
"Following the agreed Eskom related shutdown, we successfully restarted the furnaces at the beginning of June. The start-up was a quick and efficient process, with pleasing operational results for a start-up month, and the furnaces are now at full load. UG2 is received from Anglo Platinum's CRP according to plan and contractual tonnage, since the beginning of April.
"We continue to progress our cost reduction programme through the quarter despite the shutdown and start up processes. We followed on from the positive cost cutting achievements made in the previous quarter with on-going efficiencies and cost savings proceeding as planned.
"With the furnaces now up and running, we look forward to the acceleration of Sky Chrome, our large, low cost, open pit mine to its intended 70,000 tonnes per month. Our strategy remains intact, channelling sales into a diversified and global market and with cost efficiencies and production on track IFL is well positioned to increase profit and cash generation."
Health and Safety, and the Environment ("HSE")
The Company maintained its fatality free track record since inception, representing 22.06 million fatality free man hours, which equates to 2.76 million fatality free shifts as at 30 June 2012. The 12 month moving average lost time injury frequency reduced by 48% from 5.94 at 30 June 2011 to 3.06 at 30 June 2012. IFL is pleased with the progress made in safety performance and is committed to maintaining these high standards in the future.
No significant environmental incidents were reported in the period under review.
Stainless steel and ferrochrome markets
Alloy prices between China and the West initially diverged at the beginning of the quarter. This can mainly be attributed to a reduction in the availability of spot material outside China whilst the market in China softened on the back of lower demand. Towards the latter part of the quarter, prices started to converge. Chinese FeCr prices showed a noticeable recovery during the latter part as stock levels fell on the back of reduced supply and improving demand.
The negative sentiment due to the Eurozone crisis initially put spot prices under pressure in the West. The reduced growth rate in China evident in the quarter curtailed further improvement in prices and resulted in a 10¢ decrease in the European benchmark price from US$1.35/lb to US$1.25/lb.
Ore sales and prices followed the alloy price trends. An initial reduction in prices into the quarter corrected to Q1 levels as demand and alloy prices from Chinese stainless steel mills improved.
Electricity buy-back agreement with Eskom
The Eskom electricity buy-back programme ended on 31 May 2012 and both furnaces were brought back into production at the beginning of June 2012, as previously announced. The Company participated in the industry-wide Eskom electricity buy-back programme to assist with the power utility's electricity supply balance as a result of its maintenance requirements.
Under the agreement, one furnace was switched out on 1 March and the second furnace on 1 April 2012. Eskom bought back the electricity which would have been consumed by the furnaces at a financially beneficial rate to the Company. Both furnaces were restarted on 1 June in the expected quick and secure way, with full load being achieved by mid-June as planned.
Mining
Run-of-mine ore production remained stable at 293,000 tonnes for the quarter to 30 June 2012 from the prior quarter. Sky Chrome production was however only 27,000 tonnes in May due to increased removal of overburden in that month. The Lesedi open pit operation is expected to reach its end-of-life over the coming months. Sky Chrome open pit production is planned to increase to approximately 70,000 tonnes per month to replace the Lesedi open pit tonnes.
Chrome ore production | Three months to30 June 2012 | Three months to31 March 2012 | Three months to30 June 2011 | |
(tonnes) | (tonnes) | (tonnes) | ||
Lesedi | 170,000 | 171,000 | 198,000 | |
Sky Chrome | 123,000 | 122,000 | 7000 | |
Total | 293,000 | 293,000 | 205,000 | |
Recovery rate (%) | 62% | 63% | 66% |
Recoveries for the quarter from the ore beneficiation plant averaged 62% compared to 63% in the previous quarter. Recovery rates are however expected to reduce when the Lesedi open pit reaches its end of life, until such time as Sky Chrome has mined through the weathered material, which is expected in the next 15 months. The recoveries were further enhanced by the ore concentrate recovery plant which produced 10,400 tonnes, as for the prior quarter.
Smelting
FeCr production for the quarter was 18,505 tonnes compared with 48,762 tonnes in the preceding quarter. The lower production is as a result of the Eskom shutdowns, with both furnaces out of operation during April and May and only restarted on 1 June 2012. As expected, the furnace ramp-ups to full load were faster than previous restarts. Efficiency improvements are in line with expectations for a start-up month with notable benefits derived from the increased cheaper anthracite consumption and load reductions during specific expensive peak winter tariff hours. The load reductions will reduce ferrochrome production volumes by about 10%. The winter tariffs are effective from June to August every year.
Co-generation plant
The modifications to the Co-gen engines were successfully completed in May within the budgeted cost of ZAR11 million. The facility generated 3.7GWh or 5.0% of the Company's total electricity requirements for the quarter compared with 7.6GWh (3.8% of total requirement) for the previous quarter. This notwithstanding that June was a furnace start-up month due to the Eskom-related furnace shutdown. Seven of the 10 engines were restarted one week after the furnaces in early June 2012 and accelerated in line with the furnace ramp-ups. The remaining engines were restarted in mid-July after undergoing minor maintenance work following on from the standing time.
At full production, the Cogen plant is expected to provide the Company with approximately 11% of its total electricity requirements.
UG2 Plant
The UG2 CRP at Anglo Platinum's Waterval operations in Rustenburg has been producing the contractual 15,000 tonnes per month since April 2012. UG2 feed to the pelletising plant commenced in June. The feed will be increased in a measured way to ensure no adverse effect on the pelletisation process.
The supply agreement entitles IFL to receive 15,000 tonnes per month of chrome concentrate (almost 30% of IFL's beneficiated ore requirements) until November 2020. The delivered cost per tonne of the CRP concentrate is significantly below the Company's in-house cost of concentrate production. There are no additional costs other than the cost of transporting the concentrate to IFL's facilities at Buffelsfontein, which is about 50km from the CRP, and any government royalties that may be payable.
Sales and inventory
FeCr sales for the quarter reduced to 14,396 tonnes from 52,930 tonnes in the preceding quarter as expected. The majority of sales were made to European and US markets to maximise margins and service contractual commitments. The drop in sales volumes for the quarter is a result of both furnaces not being in operation during the first two months, under the Eskom electricity buy-back agreement, and only restarting in June. Ferrochrome inventory increased to 10,677 tonnes at 30 June 2012 from 6,568 tonnes at 31 March 2012. Chrome ore sales were substantially higher at 128,000 tonnes compared with 59,000 tonnes in the previous quarter because of continued mining and beneficiation operations during the furnace shut downs.
Costs
Ferrochrome production cost for FY2012 was ZAR6.13/lb (US78¢/lb at ZAR7.87/USD) compared with ZAR6.25/lb for FY2011. The Company's key cost performance indicator is production cost after stripping out changes in unit electricity and unit reductant prices, which are outside management's control and affect all South African producers. On this basis, production cost for FY2012 was ZAR5.95/lb, a 4.9% reduction on FY2011. This represents 40% (or ZAR30¢/lb) of the Company's ZAR76¢/lb cost reduction target (US10.9¢/lb at FY2011's average exchange rate of ZAR7.00/USD).
Cash
The Company's net borrowings decreased by ZAR113 million, from ZAR421 million at 31 March 2012 to ZAR308 million at 30 June 2012. The decrease is mainly as a result of profits over the quarter and a decrease in working capital due to the furnace shutdowns. Going forward, working capital is expected to increase in line with increased production and sales volumes.
The Bank of China loan facility of ZAR500 million has been rolled forward for a further year, subject to completion of final documentation which is expected to be concluded within the next week.
Outlook
The Board is pleased that the furnaces have ramped-up to full load quickly and efficiently as planned and believe that improved efficiencies will continue to be seen throughout IFL's operations in the coming months. We look forward to realising the benefits from the UG2, the lower power cost from the Co-gen, further power and ore efficiency improvements and increased production.
The continued negative sentiment emanating from Europe with declining demand and reduced imports of stainless steel is expected to keep the market under pressure for the next quarter, however the seasonal shutdowns in South Africa continue to help balance supply with demand.
IFL's strategy remains intact, channelling sales into a diversified and global market, including the US and South-East Asia. This enables the Company to respond to spot sales from a strong base of contractual sales. The ability to place ore into China further augments our cash flow. Sky Chrome, operated as a large low cost open cut mine, is expected to continue to perform well with it reducing ore input cost into the furnaces as well as further cost reductions being realised; this contributes to the overall reduction in ore and alloy cost. IFL is therefore well-positioned to respond to changing market conditions.
Preliminary results
The Company will release its preliminary results for the year ended 30 June 2012 on 17 September 2012.
Analyst / investor Conference call
Management will discuss these results in a conference call with the investment community on Tuesday 24 July at 08.00am (London). Dial in details are below:
Dial in: +44 (0) 1452 561 263
Pin code: 13198117
- 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 / Alastair Stratton / 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.