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International Ferro Metals (IFM) lifted ferrochrome production by a modest 3% to 49 800 t for the quarter ended December 31, despite the issuance of a Section 54 notice in November following a health and safety incident that led to two employees being exposed to carbon monoxide gas.
IFM said at the time that an initial assessment of the impact of the stoppage on ferrochrome production indicated a loss of about 4 000 t.
“Although the Section 54 notice negatively impacted production volumes and costs, the second quarter [of the 2015 financial year] introduced more stable operating conditions, which we expect to continue into the third quarter,” CEO Chris Jordaan said in a production report on Thursday.
Ferrochrome sales for the quarter increased 11% quarter-on-quarter to 53 517 t, while a higher ratio of ferrochrome fines sales decreased the realised price achieved during the quarter.
This as stainless steel spot prices in Europe came under pressure owing to the differential in competitive ferrochrome input costs in China compared with imported ferrochrome costs in Europe.
“Provisional data shows that internal ferrochrome stocks reduced in China as demand exceeded local production and imports. This is also evident in Chinese ferrochrome prices, which seemed to have bottomed out in November. A marginal improvement was sustained through December,” the company noted.
REVISED MINE PLAN
In the quarter under review, IFM successfully implemented its revised mining plan at the Lesedi mine, near Rustenburg, and the MG2 seam was accessed.
The company would introduce further mechanisation on the MG2 seam through drilling and roof bolting equipment to increase production, and this equipment should be commissioned in the first quarter of the 2015 calendar year.
In the three months to December 31, production at the Lesedi mine increased 93% quarter-on-quarter. It was expected to produce in excess of 55 000 t run-of-mine (RoM) in the third quarter and 80 000 t in the fourth quarter of the current financial year.
“The mine should provide IFM with cost effective higher-grade ore from the MG1 and MG2 seams and all material is to be used in the smelter,” said the group.
COSTS
Ferrochrome production cost for the quarter was R7.80/lb, down 8% on the previous quarter’s R8.50/lb, while the production cost for October was around R8.01/lb.
“This was higher than expected due to silicon carbide trials,” said the group.
The November production cost of R8.35/lb was negatively impacted by the Section 54 stoppage, as the furnaces consumed “considerably”more electricity during ramp up. The cost reduced to R7.23/lb in December.
TEMPORARY SUSPENSION
In line with the company’s stated strategy of “flexible and optimal” ore sourcing, IFM had, meanwhile, temporarily suspended the extraction of ore at Sky Chrome for the current financial year while continuing to process existing stockpiles.
The decrease in recovery rate to 52% over the quarter under review, compared with 55% in the previous quarter, was owing to the increased feed of low-grade recycled beneficiation plant waste, which helped to reduce costs.
In line with expectations, and the company’s stated strategy to acquire higher-grade feedstock for the furnaces, mining started in November at Chrometco’s Rooderand LG6 openpit mine, in the North West.
The first RoM ore was transported to the Lesedi beneficiation plant in January and the drilling programme was initially targeting 200 000 t of LG6 ore.
The company would now start drilling at the remainder of the Rooderand mine property to increase the available ore.
IFM added on Thursday that a bankable feasibility study (BFS) for a 60 MW direct current (DC) furnace was commissioned in April and had now been completed.
As previously announced, the DC furnace was expected to increase total ferrochrome capacity by about 42%, and at an estimated incremental cost of 12% below the current cost of production.
“The company is currently assessing appropriate and prudent financing options which will protect and enhance shareholder returns,” stated IFM.
ANGLO OFFTAKE DEAL
The group further outlined that, as part of its supply agreement with Anglo American Platinum (Amplats), it received 49 400 t of UG2 chrome concentrate during the quarter.
The agreement was for Amplats to provide 15 000 t/m of UG2 chrome concentrate; however, owing to the protracted strike action at Amplats from February to June 2014, a backlog of UG2 ore was created, which, at December 31, was about 91 000 t.
“Amplats is obliged to make up any shortfalls from future production, at a rate of 5 000 t/m. As it makes up the shortfall, IFM will benefit from a higher supply of UG2 ore, which is a direct contributor to profitability,” it noted.
STALLED CONGENERATION
Meanwhile, the group’s cogeneration plant at its Buffelsfontein smelter, in the North West, remained shut down.
An R18-million chiller unit, which should reduce the load on the engine components, was scheduled to be installed in March and it was expected that the plant would be restarted in the second quarter of the 2015 calendar year.
At full and stable furnace production, the plant should generate around 10% of the company’s total electricity requirements.
PACIFIC CARBON BUY
Further, in October, the group made an offer to acquire the assets of Australia-focused Pacific Carbon and Modderriver Minerals subject to certain conditions.
The offer was made in conjunction with Portnex International to acquire assets consisting of six retorts located on Kooragang island, in Newcastle.
The retorts were used to produce intermediate or retort coke, which was used in ferroalloy and steel production. The due diligence was extended to finalise the results of testwork performed on the available coal supply and results were expected in February.
CASH POSITION
IFM’s net borrowings increased to R451-million at December 31, from R434-million in the prior quarter.
Net borrowings were expected to range between R450-million to R490-million until June, as a result of the lower benchmark price for the first quarter of the calendar year and the expected yearly Eskom electricity price increase of a 13% on April 1.
The European benchmark rice decreased by 7c to $1.08/lb for the quarter ended March 31.
OUTLOOK
Looking ahead, the group said the outlook for the ferrochrome industry was largely dependent on stainless steel demand and the distribution of global production.
“Although there is uncertainty in the short term, we believe there are supportive underlying long-term supply and demand fundamentals to the ferrochrome industry.
“Prices in China have a significant impact on price trends outside the country. This has been evident in the recent settlement of the benchmark price in response to a widening gap between European and Chinese prices,” it maintained.
About 70% of China’s ferrochrome requirements were supplied from internal production; however, this ratio would be difficult to sustain unless the profitability for local producers was restored.
The company believed the availability of chrome ore would be challenged in the medium- to longer-term as producers in China would have to compete globally for a nonexpanding ore basket to meet their expansion targets.
Moreover, cost pressures in the industry were “mounting” and current output would be hampered unless there was some price relief, it cautioned.
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- [Editor:sunzhichao]
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