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International Ferro Metals (IFM) has posted a net profit of ZAR41 million ($3.6 million) for its last financial year, on the back of higher production, a depreciating rand and reduced costs.
The London-listed mining company, which operates ferro-chrome and chrome ore projects in South Africa, reported a profit after making a net loss of ZAR126 million the year before.
Sales and production reached record levels, with sales up 21% year-on-year to reach 222,320 tonnes, while production rose 24% to 228,260 tonnes, up 13% from its previous record.
A continued reduction in costs also helped lift the company back into profit.
“We are delighted with this outcome and we have successfully delivered on positioning ourselves lower on the cost curve so that we can compete more with Chinese producers,” ceo Chris Jordaan told Metal Bulletin.
Chinese domestic prices are usually lower than imported ferro-chrome, meaning that Chinese steel mills prefer to buy domestic material, rather than imported cargoes.
But IFM has kept costs down, enabling it to compete in the Chinese market in part by reducing the need to buy high grade ore through the use of cheaper UG2 ore and restarting its Lesedi underground mine, replacing coke with anthracite and semi-coke and maintaining stable operations to improve power issues.
“You have to beat the Chinese to be in the market,” Jordaan said.
IFM has also optimised its sales prices through diversifying its customer base, adding India and South Korea as new markets.
By diversifying its customer base, IFM has been able to take advantage of the different reference prices each country uses, and enabled the company to sell ferro-chrome at better prices than might have been expected, Jordaan explained.
IFM outlook IFM plans to continue expanding into new markets and reducing its production costs.
“We are constantly looking at alternative markets. We have not entered the South American market, which is very small but worth looking into, and the US market allows for some interesting opportunities,” he said.
Strike action and a lack of UG2 supply from Anglo Platinum negated some of the UG2 cost savings this year, but with the strike now over, the financial benefit from the use of UG2 will be felt in 2015-16.
IFM also plans to improve cost effectiveness by developing Chrometco’s Rooderand LG6 open pit mine, which is expected to start operating in the first quarter of 2015, and by further expanding its presence in UG2 supply, Jordaan said.
The company is also going to focus on alloy capacity expansion projects, where it plans to produce higher grade ferro-chrome, with fewer impurities, to use in the specialised stainless steels employed by the petrochemical and aerospace industries.
“This would allow us to diversify into additional products, and will also give us greater visibility over demand, as customers in these sectors usually lock in supply with long-term contracts to ensure security of supply and quality,” the company said.
Ferro-chrome prices In 2015, ferro-chrome prices could rise in China, partly on higher production costs, closing the gap between Chinese prices and the rest of the world, IFM said.
The European charge and high carbon ferro-chrome benchmark price settled lower in September, on growing pressure from European steel mills to lower the gap between European and Chinese prices.
But IFM does not think this reflects a general decline in ferro-chrome prices, and does not expect the benchmark to fall again.
“We don’t expect the ferro-chrome price to drop any further. Chinese production capacity has reduced significantly and that is on the back of massive ore price increases specifically because of the Anglo American and Impala strikes, which caused UG2 to dry up,” Jordaan said.
For every $5 per tonne of ore lost, chrome prices for Chinese producers increase by $0.10 per lb, he explained, adding that this, combined with a depreciating rand, is making it difficult for Chinese producers to compete with South African producers.
Production costs in South Africa are also picking up, he said, on the back of power and ore prices, which will buoy up ferro-chrome prices.
Shares in IFM rose 12% to 7.22p on the London Stock Exchange after the results were released on Monday, from 6.47p, before falling back to 7.05p.
Chloe Smith chloe.smith@metalbulletin.com Twitter: ChloeSmith_MB