More mining smelters in South Africa will likely close down due to higher costs of production that are impacting operators against the backdrop of lower prices for ferrochrome at a time Merafe Resources is increasingly shifting to chrome ore exports while closing down smelter furnaces.
In a joint venture with Glencore, Merafe’s joint venture (JV) has already shut down 10 of its 22 furnaces in the past few years, translating to massive job losses. Worse still, the JV has put its smelting operations under business review at a time volatility in ferrochrome prices is expected to persist.
“The reason we going into review is that our smelting operations are under tremendous pressure and are not making money at current prices. We are reviewing the ops to see if we can reduce the number of furnaces operating so that we can have some free cash,” Merafe Resources CEO, Zanele Matlala, said during a briefing of the company’s financials on Monday.
She added that Merafe expected pricing and operating environment “volatility to continue especially given the trade wars currently playing up” while China is also ramping up its ferrochrome production as the world’s largest producer of the commodity.
“In this environment cash preservation will be our focus. We are producing at costs higher than prices that you can achieve,” explained Matlala.
Japie Fullard, Glencore alloys’ head, said against the backdrop of a tough operating environment “more and more mining industry smelters will close” down. This means that more chrome ore will be shipped to China for smelting, with South Africa losing its place on the global ferrochrome production map.
Over the full year period to the end of December, Merafe Resources - which derives its income from chrome ore, ferrochrome and platinum group metals - saw revenue amount to R8.4 billion compared to R9.2bn a year earlier.
Although the company enjoyed resilient chrome ore prices and recorded higher sales volumes, ferrochrome prices and volumes were lower than the previous year.
Moreover, the average rand/dollar exchange rate was stronger in 2024, with Merafe’s attributable share of the venture’s earnings before interest, tax, depreciation and amortisation falling from R2.3bn to R1.8bn, inclusive of R287 million in standing charges and a R29m in foreign exchange gain.
The company also recorded heavy impairments. After concluding that the Boshoek smelter
be fully impaired, Merafe took an impairment write off of R574m for the year to December 2024.
After full year headline earnings per share in Merafe decreased to 42.9 cents compared to 60.1 cents per share in the previous year, the company’s stock traded around 10% in the red at about R1.19 per share in afternoon trade on the JSE on Monday. This contrasts with its 15.79% and 8.2% appreciation on the same bourse in the past seven and 30 days respectively.
Merafe’s JV partner, Glencore, similarly sustained about $611 million worth of impairments in its South African operations. This significantly contributed to Glencore’s $1.6 billion in losses to equity holders for the full year to December 2024.
The impairments to its South African coal operations came after Glencore’s price assumptions for South African coal fell by 19%. All in all, Glencore accounted for a total of $5.3bn in impairments for the year under review.
Nonetheless, the impairments in its South African coal operations were on account of “lower forecast price assumptions” and had the “largest” impact.
Apart from the lower thermal coal price assumptions, ongoing export logistics challenges in South Africa, exchange rate losses also weighed down the company’s financials from South Africa.
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