Weak commodity prices force Merafe to slash its full-year dividend by 72%
MERAFE Resources yesterday slashed its full-year dividend by 72 percent during the year ended in December as it swung to a loss on weak commodity prices. The group said that it decided on the cuts as it also suffered lower ferrochrome production in the fourth quarter.
Merafe, whose revenue and operating income are primarily generated from the Glencore-Merafe Chrome venture, declared a R100 million annual dividend or 4 cents a share in 2019 compared to R351m or 14c a share in 2018. No interim dividend was paid in 2019.
Chief financial officer Ditabe Chocho said that the company had declared a dividend in line with the group’s dividend policy.
The group said its profit deteriorated significantly to a R1.36 billion loss in 2019 from an R683.4m profit a year earlier, including a hefty R1.8bn impairment of assets.
Chief executive Zanele Matlala said that the group’s 2019 financial performance was underwhelming. “Industry dynamics led to market supply exceeding demand and resulted in lower realised CIF ferrochrome prices,” Matlala said.
Ferrochrome prices have been under pressure primarily due to oversupply and fell by 14 percent in 2019.
The operational performance was also disappointing as ferrochrome production volumes fell 9 percent to 317 000 tons in 2019 from 407 000 tons in 2018. The company blamed the power supply disruptions, community unrest and the scaled-down production levels in the fourth quarter of 2019 in response to weaker demand for ferrochrome for the output decline.
Matlala said Eskom’s load shedding had an impact on production volumes and costs. “This remains a key risk for our business and the broader ferroalloy sector. In addition, electricity tariff increases are contributing to cost pressures in the business,” Matlala said, adding that the above-inflation electricity tariff increases would have an impact on cost structures and margins.
Merafe’s share of revenue from the venture fell 4 percent to R5.3bn from R5.6bn in 2018. Ferrochrome revenue decreased by 8 percent year-on-year to R4.45bn from R4.8bn, primarily as a result of the weak price environment.
However, chrome ore revenue increased 22 percent year-on-year to R910m from R747m in 2018, driven by a 45 percent increase in sales volumes to 359 000 tons in 2019 from 248 000 tons in 2018.
In January Merafe announced that it was contemplating the closure of its Rustenburg operations and had embarked on a Section 189 consultation process in terms of the Labour Relations Act as a result of deteriorating market and operating conditions across the South African ferrochrome industry, including unsustainable electricity tariff and power supply disruptions.
“These factors have also led to the displacement of South African ferrochrome volumes. The increasing and unrestricted exports of chrome ore from South Africa are also contributing to the displacement of ferrochrome volumes from South Africa,” said Matlala.
Merafe shares declined 2.17 percent on the JSE yesterday to close at R0.45.