Johannesburg — FERROCHROME producer Merafe Resources said yesterday it had terminated its coal joint venture with Sentula, but insisted that it has not given up on its ambitions to explore coal opportunities.
CEO Steve Phiri said at a presentation of the company's results for the year to December that both companies had mutually agreed to end the partnership struck in 2007, and that Merafe would continue to look for coal opportunities independently.
The 50-50 joint venture, known as Merafe Coal, was formed three years ago to develop coal projects in its portfolio, as well as to pursue other coal opportunities in SA.
Sentula will continue in its own capacity to pursue the development projects attributed to the joint venture and will meet the obligations placed upon it by the Mineral and Petroleum Resources Development Act.
In terms of the agreement, Sentula had funded all the historic costs and will continue to fund the present and future costs associated with these projects.
At the same time, Sentula said that a small-scale mining licence had been awarded to the Malungwa Coal project in southern Zambia, in which Sentula holds 25%.
Merafe reported a 34% drop in revenue to R1,8bn for the year, due to lower prices for ferrochrome and a strong rand.
This decline in revenue translated to a full-year headline loss of R152m, or 6c per share, compared with a profit of R1,027bn in the previous year. Despite the earnings fall, Merafe said it would pay an interim dividend of 2c a share.
Phiri said the company expected benchmark prices to rise this year, largely because of an increase in the production of steel in China as well as SA's electricity supply constraints, which were expected to put new ferrochrome expansion projects on hold for the next three years.
"The limited availability of power from Eskom, access to financing, as well as the large capital cost, have acted and will continue to act as barriers to any planned expansions by South African ferrochrome producers or new entrants for at least the next three years," the company said.
"At the same time, China is expected to continue to be the fastest-growing stainless steel producing market globally, driving strong demand for ferrochrome. This bodes well for the outlook for ferrochrome, both in the short and the medium to long term."
GM Jurg Zaayman said there was reluctance among industry players to start new projects until some of Eskom's new power stations came on line.
"A lot of projects are still waiting for the Medupi and Kusile power stations to come on stream and relieve the current power constraints before they can go ahead. That is why we are saying there will be expansion in the next three years, so from a supply side there will be nothing new coming from SA," Zaayman said.
SA has more than 70% of the world's ferrochrome reserves.
Merafe, which produces ferrochrome in a joint venture with global resources giant Xstrata, said it was now operating 95% of its furnaces in anticipation of a surge in demand.
Phiri forecast that output of China's stainless steel - of which ferrochrome is an essential ingredient - will increase nearly 20% to 30 000 tons this year, which should bode well for ferrochrome demand and prices.
