2019 was extremely challenging both from an operational
and trading perspective. The uncertainty created by
geopolitical events, such as Brexit and US/China trade
wars continued to impact global sentiment. Weak chrome
ore and ferrochrome prices as well as rising production
costs had negative impacts on the financial results.
Chief Executive Officer
As reported in our interim results for the half-year ended 30 June 2019,
there was unfortunately a fatality at the Venture’s Magareng mine as a
result of a fall of ground incident.
We continue to place maximum focus on safety. We have a number of
safety campaigns in our efforts to improve our safety performance. This is
evidenced by the improved TRIFR of 2.56 compared to 3,39 for the year
ending 31 December 2019.
We incurred a loss after tax of R1.36 billion mainly as a result of lower
revenue, higher cost of sales, impairments and higher standing charges.
Revenue was impacted by marginally lower ferrochrome sales volumes,
lower net average CIF ferrochrome prices which were offset by weaker
average Rand:US Dollar exchange rate and higher chrome ore sales
volumes. Costs of sales was impacted by above inflation electricity tariff
increase and higher reductant costs.
The balance sheet remained strong with net cash balance of R354 million.
The business remains ungeared. Post year-end, a final cash dividend of
R100 million has been declared by the Board.
Ferrochrome production volumes decreased by 9% from 407kt in 2018
to 371kt in the current financial year. The contributing factors to the
decrease were power supply disruptions, community unrest and scaled
down production levels in the fourth quarter of 2019 in response to weaker
demand for ferrochrome.
Load curtailment by Eskom had an impact on production volumes and costs.
This remains a key risk for our business and the broader ferro-alloy sectors.
In addition, electricity tariff increases are contributing to cost pressures in the
business. The National Energy Regulator of South Africa approved a 13.87%
tariff increase effective 1 April 2019 and 8.1% effective 1 April 2020.
While the tariff increases are less than amounts Eskom had applied for, the
above inflation increases will have an impact on cost structures and margins.
SECTION 189 CONSULTATION
As announced on 20 January 2020, the Venture has commenced
consultation processes in terms of Section 189 and 189A of the Labour
Relations Act at the Rustenburg smelter. The consultation process is 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 displacement of
South African ferrochrome volumes.
The increasing and unrestricted exports of chrome ore from South Africa is
also contributing to displacement of ferrochrome volumes from South Africa.
Global stainless steel production increased by 1.5%^ in 2019 to an
estimated 51.9mt^. Stainless steel production in China and Indonesia
exceeded 30mt^, an all-time high and approximately 8%^ higher than the
prior year, while European and North American production declined around
7%^ year-on-year. Although Chinese stainless steel producers remain
competitive on a global scale, they face headwinds due to an increase in
global trade restrictions.
Global ferrochrome production increased 3.2%^ to an estimated
14.1 million^ tonnes in 2019, this is lower than the growth of 8.1%^ in
2018. Ferrochrome production in China increased 13%^ year-on-year,
linked to a 15.4%^ increase in chrome ore exports from South Africa.
Despite the increase in Chinese ferrochrome demand, South African
ferrochrome production declined 8%^ during 2019 to 3.6mt^, owing
to lower prices and weak rest-of-world demand. These cutbacks were
exacerbated by power shortages in H2 2019. The environment for
ferrochrome producers in South Africa is expected to remain challenging,
while further capacity additions are expected in China.
Chinese chrome ore imports from countries other than South Africa
reduced by 1.6%^ during 2019, owing to weak market conditions.
This has increased China’s reliance on South African chrome ore imports
from 76%^ to 79%^. Despite an increase in demand from Chinese
ferrochrome smelters, chrome ore port stocks rose 20%@ to approximately
3.5mt@ by year end, owing to continued ore oversupply.
The focus of the Company in 2019 continued to be on safety, ferrochrome
production and maximising cash flows from the Venture.
As such we managed to return cash to shareholders by declaring and
paying a dividend of R100 million for 2019.
We remain mindful that operating a long-term business like ours requires
us to demonstrate to all our stakeholders that we consider on an annual
basis the material issues which may impact the business in the future. In this
regard I refer you to (Material issues section
as well as the sections on Natural, Human and Social Capital).
Stainless steel production is expected to grow by 3.2% in 2020, however,
both chrome and ferrochrome prices are expected to remain under
pressure in the short term due to oversupply. The growth forecasted does
not factor in the possible impact of COVID-19 (Coronavirus) and load
shedding which is expected to last for 18 to 24 months.
We will continue to manage factors within our control. Cost management,
efficient and safe operations, cash preservation and efficient cost allocation
will continue to be management’s key areas for 2020.
The financial position of our business which is ungeared at year end remains
strong and we remain of the view that this positions us to withstand the
difficult times ahead.
In accordance with our strategy, we will continue to focus on maximizing
return to our shareholders in the near term in the form of dividends and will
continually assess opportunities to deliver shareholder value.
I would like to thank the Company’s staff and executive, its board as well as
our partners in the Venture, Glencore, for their hard work and commitment
during a difficult year.