Released: 23/02/2010
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RNS Number : 5158H
International Ferro Metals Limited
23 February 2010
23 February 2010
International Ferro Metals Limited
("IFL" or the "Company")
Interim Financial Results for the half year to 31 December 2009
Highlights
Financial highlights
· Sales volumes increased to 71kt, up 35% on the June 2009 half
· Higher sales volumes but lower ferrochrome prices and a stronger Rand resulted in
o Revenue of ZAR452m for the December 2009 half, down 14% on the December 2008 half, but up 77% on the June 2009 half
o Loss before tax of ZAR145 millionin the December 2009 half, an increase from the ZAR27 million loss in the December 2008
half but a significant improvement from the ZAR429 million loss in the June 2009 half
· Net cash balance of ZAR248 million as at 31 December 2009
· No interim dividend to be paid
Operational highlights
· Production volumes increased by 4% to 95kt
· Rand production costs in line with budget
· Second furnace started up during August 2009 and both furnaces are now operating at Eskom
constrained capacity
· Ferrochrome inventory was 33kt as at 31 December 2009, reflecting management's decision to
increase inventory above normal levels
· Electricity co-generation plant is on schedule and on budget for commissioning during the second
half of calendar 2010
Post period highlights
· Innovative UG2 chrome supply contract with Anglo Platinum for 15kt per month expected to reduce
costs
· Significantly improved ferrochrome market conditions
Six months to 31 December 2009 Six months to 31 December 2008 Six months to 30 June 2009 % Change between six months to 31 December 2009 & six months to 30 June 2009
(ZAR'000) (ZAR'000) (ZAR'000)
Sales revenue 451,917 526,057 255,517 77%
Cost of goods sold (509,055) (456,560) (412,417) 23%
Gross (loss) / profit (57,138) 69,497 (156,900) -64%
Loss before tax (144,842) (26,809) (428,970) -66%
Net (loss) / profit after tax (105,093) 3,251 (341,830) -69%
(Loss) / profit per share (ZAR cents) (19.08) 0.81
Production volumes (tonnes) 94,715 90,759 19,605 383%
Sales volumes (tonnes) 70,936 49,435 52,400 35%
(Loss) / profit per share (ZAR cents)
(19.08)
0.81
Production volumes (tonnes)
94,715
90,759
19,605
383%
Sales volumes (tonnes)
70,936
49,435
52,400
35%
David Kovarsky, Chief Executive Officer of IFL commented:
"With both our furnaces operating at full capacity for most of the half year under review, we were able to increase sales
volumes by 35% albeit at a lower ferrochrome price and in a stronger Rand environment. Our Rand denominated costs have now
stabilised and we are continuing to manage our inventory and look for further opportunities to increase our margins and
production volumes. The announcement of our UG2 chrome supply contract with Anglo Platinum last week illustrates the
innovation of the management team and our focus on finding opportunities to reduce costs. The cash on our balance sheet
gives us the strength to take advantage of opportunities as they arise."
There will be a presentation to analysts of the interim results today, Tuesday 23 February 2010 at 8.30am (UK time) at 16
Lincoln's Inn Fields, London WC2A 3ED. The presentation slides and a recording of the presentation will be available on
the Company's website.
For further information please visit www.ifml.com or contact:
International Ferro Metals Limited
David Kovarsky, Chief Executive Officer
Mob: +27 82 650 1192
Brunswick Group
Carole Cable / Fiona Mulcahy
Tel: +44 (0) 20 7404 5959
Numis Securities Limited
John Harrison / James Black
Tel: +44 (0) 20 7260 1000
About International Ferro Metals:
International Ferro Metals produces ferrochrome, the essential ingredient in stainless steel, from its integrated chromite
mine and ferrochrome processing operations in South Africa. International Ferro Metals is listed on the London Stock
Exchange under the symbol IFL.
Forward Looking Statements
This announcement contains certain forward looking statements which by their nature contain risk and uncertainty because
they relate to future events and depend on circumstances that occur in the future. There are a number of factors that
could cause actual results or developments to differ materially from those expressed or implied by these forward looking
statements.
Operational and Financial Review
During November 2008 the Company turned off both its furnaces due to the sharp and sudden collapse in ferrochrome demand.
In April 2009 one furnace was restarted to convert raw materials to finished product. The market began to show some
improvement and the furnace was kept in production after the raw materials conversion campaign ended.
A recovery in ferrochrome market conditions in the second half of 2009 led to the start up of the second furnace, increased
sales volumes and significantly improved results over the previous six months. The results however remained markedly below
levels reached in the six months to 31 December 2008 ("the comparative period"). The Company reported a loss before tax of
ZAR144.8 million for the six months ended 31 December 2009 ("the period") against a loss of ZAR429 million in the previous
six months and a loss of ZAR26.8 million for the comparative period.
The average European ferrochrome benchmark price for the period of US$0.96/lb was US$0.99 lower than the US$1.95/lb average
price for the comparative period but US$0.20 higher than the previous six months. While ferrochrome production increased by
only 4% (to 95kt) from the comparative period, sales volumes increased by 43% to 71kt. The more than halving of ferrochrome
prices and the strengthening Rand however resulted in sales revenue decreasing by 14% to ZAR452 million from the
comparative period but increasing by 77% from the previous six months.
Production costs in Rand terms were in line with budget and significantly lower than in the comparative period during which
coke prices reached record levels, although these savings were partially offset by the increase in electricity prices. The
production cost per pound for the period was US$0.80/lb at an average exchange rate of ZAR7.63/$ compared with the
Company's forecast made in September 2009 of US$0.72/lb at ZAR8.25/$ which equates to US$0.78/lb at ZAR7.63/$. The
constituents of the US$0.80/lb production costs were: ore 22.3c (28%); reductant 22.8c (29%); electricity 14.2c (18%);
operating costs 5.2c (6%); fixed costs 11.0c (14%); and depreciation 4.2c (5%).
Administration and other expenses decreased from ZAR196 million in the comparative period to ZAR67 million. This was
primarily due to a reduction in both inventory write-downs and unabsorbed fixed costs and the Company's continued focus on
controlling costs.
In order to take advantage of the expected increases in ferrochrome and electricity prices, the Company has been rebuilding
its ferrochrome inventory from the low levels at the end of June 2009 of 9,362 tonnes to 32,504 tonnes at the end of
December 2009.
In July 2009 the Company secured a ZAR500 million three year working capital facility from Bank of China of which ZAR200
million was drawn down as at 31 December 2009. On 3 August 2009 the Company raised ZAR284 million, before expenses, through
a share placement, the proceeds of which will be used principally to fund the electricity co-generation plant. The net cash
balance at 31 December 2009 was ZAR248 million against a net cash balance of ZAR340 million at 30 June 2009. The ZAR248
million cash is calculated as ZAR395 million cash on balance sheet plus ZAR52 million cash guarantees for the co-generation
plant, less the ZAR200 million drawn on the working capital facility.
Operating activities utilised ZAR274 million cash during the period of which ZAR244 million relates to increased
inventories of ferrochrome and raw materials. Capital expenditure for the period was ZAR61 million and the budget for the
remainder of the financial year is ZAR304 million which includes ZAR187 million for the electricity co-generation plant and
ZAR58 million for mine development.
EBITDA loss for the period increased to a loss of ZAR102 million from a loss of ZAR2 million for the comparative period,
although this represents a significant decrease from a loss of ZAR394 million for the previous six months. The positive tax
charge of ZAR40 million to the income statement is a deferred tax credit resulting from the Company's unclaimed calculated
tax losses and unredeemed capital balance available for offset against future profits. Headline earnings per share
decreased from a profit of ZAR0.01 per share for the comparative period to a loss of ZAR0.19 per share.
Stainless Steel and Ferrochrome Market Review
The stainless steel market continues to strengthen with European and US utilisation rates increasing significantly in
recent weeks, albeit from a low base. Chinese utilisation rates continued at a high level right until the Chinese New Year.
Ferrochrome demand has reflected increased stainless steel production and has increased consistently throughout the
December 2009 quarter with spot prices increasing in all markets. Market commentators are predicting an increase in the
ferrochrome price in the second quarter of 2010.
Over the past twelve months the Company has secured additional long term contracts in Europe and the United States with the
objective of placing half of the Company's production under long term contracts. To date one third of IFL's production is
under long term contract and it is expected that within six months the balance should be secured. The Company's
relationship with major customers in all geographic areas is now well entrenched.
Agreement with Anglo Platinum for Supply of Chromite Derived from UG2
The Company has entered into an agreement with Rustenburg Platinum Mines Limited ("RPM") a subsidiary of Anglo Platinum
Limited whereby IFL will pay approximately ZAR150 million for the construction of a chrome re-treatment plant ("CRP") to
treat the tailings arising from RPM's UG2 concentrator situated at their Waterval section. The CRP's primary objective will
be to extract chromite concentrate from the tailings. The CRP will be constructed and commissioned by an EPCM Contractor
and owned, maintained and operated by RPM.
The CRP plant will be capable of producing 50,000 tonnes of chrome concentrate per month and IFL will be entitled to 15,000
tonnes per month (tpm) of chromite at no cost other than the cost of transporting the concentrate to its facilities at
Buffelsfontein, which is about 50km from the CRP. The 15,000tpm represents almost 30% of the Company's current beneficiated
ore requirements and the effective cost of the concentrate would be significantly below the Company's in-house mining
cost.
The contract endures for ten years from commencement of the project and IFL is entitled to 15,000tpm from the commissioning
of the CRP. It is estimated that IFL should therefore receive concentrate for a period of nine years. Construction on the
CRP is expected to commence in June 2010 and commissioning is expected to follow 12 months later. The Company will fund the
project using existing cash facilities.
Mining Operations
The earlier than anticipated start up of the second furnace in August 2009 and a revision of the Lesedi underground mine
plan has resulted in the Company having to buy in chrome ore. The Anglo Platinum UG2 concentrate is expected to provide for
the shortfall in supply in approximately one year's time and IFL has purchased ore to fulfil its production needs until the
UG2 CRP has been commissioned. These requirements have not been fully secured for the next 12 months but the Company is
confident that they will be met without a significant impact on overall costs. Because the open pit has significant
quantities of low grade ore, the Company will continue to purchase high grade ore to blend with the open pit material.
These purchases represent between ten and fifteen percent of ore requirements.
Mining operations were resumed on a limited scale in late 2009 and increased at the beginning of 2010. Most of the focus
over the period under review has been on mine development. The negotiations regarding the appointment of a mine contractor
are well advanced and it is expected that an appointment should be made by the end of March 2010. The winning contract is
expected to be on a fixed cost basis over a three year period with allowances for escalations. Production of ore from the
mine is expected to increase significantly shortly after the appointment of the contractor at costs materially below
current mining costs.
The Company is reviewing the Sky Chrome mine plan and it is expected that this review will be completed within two months.
The application for the Sky Chrome mining licence is proceeding according to expectations and it is expected to be granted
by the middle of 2010.
Expansion
The South African electricity crisis in early 2008 and the global economic crisis later that year put a hold on the
Company's planned expansion activity. Before those crises it was expected that the company would expand from its current
ferrochrome production capacity of 267,000 tonnes per year (tpy) to 665,000tpy. In light of current economic conditions and
the anticipated electricity supply increase in 2012 from the Medupi power plant, the Company is conducting pre-feasibility
studies on expanding its operations. The feasibility study will include a review of the use of other technologies such as
pre-reduction and Direct Current (Plasma) furnaces. All of these technologies include the use of off-gases to generate
power on the same basis as the co-generation plant which is expected to be commissioned in the second half of calendar 2010
that will supply the Company with 10% of its energy requirements. The Company is also exploring funding alternatives that
range from project finance to joint ventures with stainless steel producers. It is expected that the feasibility studies
will be completed by January 2011.
Dividends
The Board of Directors resolved not to declare an interim dividend for the six months ended 31 December 2009.
Outlook
Stainless steel utilisation rates have increased in the US, Europe and China over the past three months driven by
restocking in developed countries and growth from fiscal stimulus in China. This has had a positive impact on demand for
ferrochrome. Whilst we expect short term demand to remain positive, there may be volatility along the way. However, long
term we are confident that demand for South African ferrochrome will remain strong as developing economies continue to
urbanise and industrialise and look for diversity and security of supply. IFL will continue to look for and implement
innovative ways to preserve margins and expand production in order to adapt to changing market conditions.
The interim financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). An
abridged version of the financial statements follows; the full set for the period is available on the Company web site
www.ifml.com.
Abridged Financial Statements
Consolidated Income Statement
For the half year ended 31 December 2009
CONSOLIDATED
31 Dec 2009 31 Dec 2008
R'000 R'000
Sales revenue 451,917 526,057
Cost of goods sold (509,055) (456,560)
Gross (loss) / profit (57,138) 69,497
Other income / expenses
Administrative and other expenses (67,147) (196,343)
Share-based payment (expense) / income (2,848) 43,924
Foreign exchange (loss) / gains (9,608) 49,543
Loss before interest and tax (136,741) (33,379)
Finance income 6,540 27,215
Finance costs (14,641) (20,645)
Loss before tax (144,842) (26,809)
Deferred tax 39,867 31,698
Current tax expense (118) (1,638)
(Loss) / profit after tax for the period (105,093) 3,251
Attributable to:
Non-controlling interests (1,134) (864)
Equity holders of the parent (103,959) 4,115
(105,093) 3,251
Earnings per share (cents per share)
- basic (loss) / earnings per share (19.08) 0.81
- diluted (loss) / earnings per share (19.08) 0.81
3,251
Earnings per share (cents per share)
- basic (loss) / earnings per share
(19.08)
0.81
- diluted (loss) / earnings per share
(19.08)
0.81
Consolidated Statement of Financial Position
At 31 December 2009
CONSOLIDATED
31 Dec 2009 30 June 2009
R'000 R'000
Assets
Current assets
Cash and cash equivalents 395,344 340,089
Trade and other receivables 69,132 81,059
Prepayments 18,553 6,263
Inventories 434,619 195,820
Other current financial assets 52,447 -
Total current assets 970,095 623,231
Non-current assets
Deferred tax asset 106,520 66,653
Financial assets 10,712 8,550
Property, plant & equipment 1,829,698 1,798,151
Intangible assets 9,882 10,062
Other non-current financial assets 22,490 18,234
Total non-current assets 1,979,302 1,901,650
Total assets 2,949,397 2,524,881
Equity and liabilities
Current liabilities
Interest-bearing loans and borrowings 8,959 24,988
Provisions 17,890 12,411
Trade and other payables 138,344 81,010
Total current liabilities 165,193 118,409
Non-current liabilities
Interest-bearing loans and borrowings 265,308 64,053
Provisions 21,017 13,307
Total non-current liabilities 286,325 77,360
Total liabilities 451,518 195,769
Net assets 2,497,879 2,329,112
Shareholders' equity
Contributed equity 3,088,240 2,814,380
Share-based payment reserve 8,272 8,272
Accumulated losses (593,272) (489,313)
Non-distributable reserve (6,044) (6,044)
Equity attributable to equity holders of the parent 2,497,196 2,327,295
Non-controlling interests 683 1,817
Total shareholders' equity 2,497,879 2,329,112
Non-distributable reserve
(6,044)
(6,044)
Equity attributable to equity holders of the parent
2,497,196
2,327,295
Non-controlling interests
683
1,817
Total shareholders' equity
2,497,879
2,329,112
Consolidated Statement of Cash Flows
For the half year ended 31 December 2009
CONSOLIDATED
31 Dec 2009 31 Dec 2008
R'000 R'000
Cash flows from operating activities
Receipts from customers 464,033 805,706
Payments and advances to suppliers and employees (inclusive of goods and services tax) (724,030) (1,109,570)
Phantom options exercised and paid (427) -
Interest paid (13,530) (17,534)
Net cash flows utilised in operating activities (273,954) (321,398)
Cash flows from investing activities
Payments for property, plant & equipment (60,772) (103,785)
Restricted cash payments (58,157) -
Interest received 6,540 27,215
Net cash flows utilised in investing activities (112,389) (76,570)
Cash flows from financing activities
Proceeds from issues of shares 286,755 -
Proceeds from borrowings 200,000 200,000
Repayment of borrowings (21,797) (6,094)
Payment of share issue costs (12,895) -
Payment of share buyback - (20,032)
Equity dividends paid - (76,148)
Net cash flows from financing activities 452,063 97,726
Net increase / (decrease) in cash held 65,720 (300,242)
Cash at the beginning of the financial period 340,089 972,190
Effects of exchange rate changes on cash (10,465) 31,875
Cash and cash equivalents at the end of the period 395,344 703,823
Net cash flows from financing activities
452,063
97,726
Net increase / (decrease) in cash held
65,720
(300,242)
Cash at the beginning of the financial period
340,089
972,190
Effects of exchange rate changes on cash
(10,465)
31,875
Cash and cash equivalents at the end of the period
395,344
703,823
This information is provided by RNS
The company news service from the London Stock Exchange