Bloomberg News

Merafe to Join Xstrata to Expand Ferrochrome Plant, Use Debt

June 03, 2011

(Updates with closing prices in third paragraph.)

June 3 (Bloomberg) -- Merafe Resources Ltd. agreed to join Xstrata Plc in a project to expand the world’s biggest producer of ferrochrome and will fund its 1 billion-rand ($149 million) contribution with cash, debt and future revenue.

The companies will construct a 360,000 metric-ton smelter, raising annual ferrochrome capacity of their joint venture in northern South Africa to 2.3 million tons, Johannesburg-based Merafe said in a statement today. The company owns 20.5 percent of the Xstrata-Merafe Chrome Venture, supplier of about a fifth of world demand for ferrochrome, used to make stainless steel.

Merafe decided against exercising an option to increase its stake in the venture to as high as 26 percent, which would have required funds from a sale of new shares, because of conditions in the equity market, it said. The company, which rose 0.8 percent to 1.23 rand at the 5 p.m. close in Johannesburg, has fallen 26 percent in 2011 as costs have risen and demand for stainless steel remains subdued.

Production from the new smelter is scheduled to begin in the first half of 2013, by which time the market is expected to be short of supply, Merafe said. Chief Executive Officer Stuart Elliot wasn’t available when Bloomberg News phoned his office.

--With assistance from Sikonathi Mantshantsha in Johannesburg. Editors: Tony Barrett, Ana Monteiro, Karl Maier

To contact the reporter on this story: Carli Lourens in Johannesburg at clourens@bloomberg.net

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net


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