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The South African steelmaking arm of Russia’s Evraz posted a net profit before tax of R14 million ($1.4 million) for the first six months of this year, compared with a loss of R376 million ($36.6 million) for the equivalent period in 2012.
The company cited increased sales, higher vanadium prices and a reduction in costs for the improved results.
“The board believes the company is a going concern,” Shongwe and Garcia said in a combined statement.
“However, there are matters that may cast significant doubt on the ability of the company to continue as a going concern,” they added.
“Labour stability, the health of the market and production stability continue to pose a threat to operations,” the statement continued.
“The company continues to use credit lines that are not committed and payable on demand. Management has taken significant steps to address the cost structure of the company and the abovementioned risks,” Shongwe and Garcia said.
The company’s share price plunged 11% to a low of R1,478 ($144) per share after the statement on August 23 from the previous day’s closing price of R1,650 ($161).
Evraz is in the process of selling its 85% stake in the South African operations to a black economic empowerment (BEE) consortium, known as Nemascore, for $320 million.
Evraz Highveld’s company secretary and head of investor relations, Anre Weststrate, told Steel First sister title Metal Bulletin that the warning does not change any sales conditions.
“We hope the risk [of failure] is low, but we must disclose this risk to shareholders,” she said. “Our biggest risk is the labour environment.”
The company is currently locked in wage talks with the National Union of Metalworkers of South Africa (Numsa).
Evraz Highveld, along with other South African steelmakers, including ArcelorMittal South Africa, have been grappling with muted demand for steel globally, while costs have been rising. The companies, including Evraz Highveld, have all begun restructuring their costs.
“It gives me a little bit of comfort to say we are not unique, that others in our sector are wrestling with the same issues,” Weststrate added.
The continued operation of Evraz Highveld & Vanadium is under threat because of labour unrest, low steel prices and production problems, chairman Bheki Shongwe and ceo Michael Dennis Garcia said on Friday August 23.