Merafe Resources Profit Falls 54% on Costs, Stronger Rand
August 02, 2011, 3:58 AM EDTBy Jana Marais
(Updates with exchange rate in third paragraph.)
Aug. 2 (Bloomberg) -- Merafe Resources Ltd., part-owner with Xstrata Plc of the world’s biggest ferrochrome producer, said first-half profit fell 54 percent as higher costs and a stronger South African currency eroded earnings.
Net income dropped to 86 million rand ($13 million), or 3.4 cents a share, from 188.7 million rand, or 7.6 cents, a year earlier, the Johannesburg-based company said in a statement today.
Production costs increased by 16 percent in rand terms compared with a year earlier, Merafe said. The average rand/dollar exchange rate was R6.90 in the first half, compared with R7.53 in the first half of 2010, it said. Merafe shares, down 36 percent this year, dropped 1.9 percent to 1.06 rand in Johannesburg trading at 9:28 a.m.
Merafe’s share of sales from the venture with Xstrata fell to 146,100 tons of ferrochrome in the first half from 148,400 metric tons a year earlier. Average European benchmark prices for the stainless steel ingredient dropped to $1.185 a pound, from $1.30 a year earlier, the company said.
Merafe, which is entitled to 20.5 percent of earnings before interest, tax, depreciation and amortization from the joint venture, said it expects stronger trading conditions starting in the final three months of 2011.
“We expect seasonal demand improvement, stainless steel restocking by distribution centers and ferrochrome restocking by stainless steel producers resulting in improved trading conditions during the fourth quarter of 2011 and into 2012,” Merafe said.
Global ferrochrome use is expected to increase by 5 percent this year, with Chinese demand projected to gain by 14 percent, Merafe said.
The Merafe-Xstrata joint venture has an annual capacity of 1.98 million metric tons of ferrochrome output, produced by smelting chromite ore, and contributes around 16 percent of global supply, according to Merafe’s website.
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--Editor: John Viljoen
To contact the reporter on this story: Jana Marais in Johannesburg at jmarais@bloomberg.net
To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net
