Merafe Resources is a black-empowered mining company which participates in chrome mining and beneficiation of chrome ore into ferrochrome, through its wholly owned subsidiary Merafe Ferrochrome and Mining, and a joint venture with Glencore.

The Glencore-Merafe Chrome Venture, in which Merafe has a 20.5% stake, operates nine mines, five smelters and 22 furnaces. The venture was formed in July 2004 when the two company’s pooled their chrome assets to create the largest ferrochrome producer in the world. The venture employs proprietary Premus technology to ensure it is the lowest-cost producer of ferrochrome in South Africa and, despite rising energy costs, remains in the lowest quartile of the global ferrochrome production cost curve. Operations are spread across a Western Limb in the North West and an Eastern Limb in Limpopo and Mpumalanga.

Merafe shares are available to buy under the General Mining sector of the Johannesburg Stock Exchange (JSE). Merafe share price has been volatile in accordance with general conditions in the mining trade.

Merafe’s business model aims to generate sustainable profit through extracting chrome in a safe and cost-efficient manner, investing in projects that improve energy and cost-efficiency and using a variety of technologies to meet changing operating circumstances and customer requirements.

Merafe has managed to sustain good performance despite the instability of the mining industry, low steel prices and a volatile Merafe share price. After a restructuring process, the 2015 financial year saw the group recording an impressive 60% rise in net profit, from R214 million in 2014 to R343 million. Production volumes were up by 13% due to the Lion II ferrochrome plant coming into production, while sales were also substantially up from 316kt to 372kt. The company benefitted from well-contained production costs and other ongoing cost saving initiatives, with corporate costs being reduced by 41%.

A focus on maximising cash flow has also allowed the company to reduce debt and resume the payment of dividends. Merafe is managing to buy into capital expenditure, investing R44.3 million in expansionary projects for the year. Interim results for 2016 indicated a 1% rise in production, a 14% rise in sales and relatively good profits, suggesting that the company is well set for further growth.

Merafe is still trying to stabilise following several challenging years. Shareholders can expect that continued focus will be placed on existing operations, without too much acquisition or expansionary activity taking place. As with most JSE mining stocks, Merafe share price has been extremely volatile, but has enjoyed a solid rise in 2016. With global stainless steel production forecast to grow by 3.1% in 2017, it is expected that there will be increased demand for ferrochrome, which will benefit a producer such as Merafe and encourage investors to buy Merafe shares. It is expected that from 2018 onwards, free cash flow will be applied to paying some healthy dividends. Overall, the venture is profitable, has a healthy cash balance and is well positioned as one of the lowest-cost producers in the world, making Merafe shares a promising purchase.

Materials

Metals & Mining

Base Metals

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