Merafe aims to be debt-free
Merafe Resource aimed to be debt free at its head office, but had no plans for mergers or acquisitions to grow, CEO Zanele Matlala said on Tuesday.
Merafe Resources, the junior empowerment partner in a chrome joint venture with Glencore, aimed to be debt free at its head office but had no plans for mergers or acquisitions to grow, CEO Zanele Matlala said on Tuesday.
Merafe, which is the 20.5% partner in the chrome joint venture, reported a slew of record numbers for its full financial year to end-December despite a sluggish start to the year when ferrochrome prices were low before improving strongly in the second half of 2016.
Prices for ferrochrome, which is used to make stainless steel, doubled by the end of the year, while prices for chrome ore, the feedstock to make ferrochrome, had increased fourfold, Matlala said.
Merafe’s portion of the joint venture’s revenue increased 29% to R5.7bn while profit grew to R532m from R343m.
Merafe declared a final dividend of R100m compared with R30m a year ago. Tuesday’s dividend declaration translated to 4c per share, or 3.2c after the deduction of the freshly increased dividend withholding tax (to 20% from 15%).
Merafe was pushing hard to be debt free at head office level. It cut its debt to R363m from R559m a year earlier. Subsequent to the year-end it further reduced its debt at its head office to R226m, lining the company up to increase dividend payments, Matlala said.
Asked during a results presentation on Tuesday whether Merafe had any plans to grow production within the joint venture to take advantage of higher chrome prices or to expand the company through mergers and acquisitions, she said the venture was operating 21 of its 22 ferrochrome furnaces and Merafe had nothing planned to grow outside chrome.
“We believe the company will settle its debt and will be in a position to declare a special dividend or a significant share buyback during financial year 2017,” Momentum SP Reid Securities analyst Percy Takunda said.
“Although we are aware the share price has increased by nearly 100% we believe there is still potentially at least another 40% in price appreciation. This assertion is based on our view that the European benchmark ferrochrome price can potentially reach $2.50 a pound.”