IFL restarts second chrome furnace

Allan Seccombe | Thu, 23 Jul 2009 10:04
[miningmx.com] -- INTERNATIONAL Ferro Metals (IFL) will restart its second ferrochrome furnace in August and has put out tender to restart mining in South Africa, CEO David Kovarsky said on Thursday, who expects the group to post a full-year loss of less than R500m. The LSE-listed company has secured a R500m working capital facility from the Bank of China. It has cash of R340m. "The company has also reported considerably worse than expected loss before tax not exceeding R500m (US$65m) versus our previous estimate of a US$27m loss," said Numis Securities analyst Mike Stuart. This was blamed on foreign exchange losses as well as writing down the carrying value of stockpiled ore, he said. "We also believe that the company's decision at the end of March to restart one furnace, while maintaining cash flow and monetising coke and chrome ore stockpiles, probably increased the loss due to poor received prices for its ferro-chrome through the period," he said. IFL�s decision to restart its second furnace follows hard on the heels of Xstrata decision to bring utilised ferrochrome capacity up to 60% from 20% because of the improved market conditions. Together with its empowerment partner, Merafe Resources, Xstrata, the world�s largest ferrochrome supplier, produced 1.13 million tonnes in 2008. The second furnace will ramp up to 90% of capacity by mid-September. �The company is confident that, with Chinese stainless steel mills now operating at or near capacity, both of the company�s furnaces will operate at their Eskom-constrained 90 percent capacity level from that time,� Kovarsky said. There was prompt supply side discipline saw a wide scale cut back in production across the industry, curtailing supply to put a floor under prices and help towards the rebound in demand. South Africa is the world�s leading supplier of ferrochrome, a key ingredient in stainless steel production. Asked if there were concerns that other companies were restarting their furnaces, Kovarsky said: �Yes it is a concern, but I don�t know of any South African who will produce for inventory, and neither are we�. There�s a discipline within the industry not to build up inventories.� �These furnaces will only be restarted if there�s real demand. That�s what we are seeing � real demand. There are enquiries from China that we weren�t able to fulfil,� he said. There is a hope that ferrochrome production will be aligned to stainless steel output, he said. Stainless steel production has declined to 20-23 million tonnes from 27 million tonnes. The demand IFL was experiencing has also come from a marketing campaign it conducted in China, which Kovarsky has visited. �The stainless steel producers there are going full tilt. That�s the surprising part. My take is it�s a result of the stimulus package the government is implementing there.� As part of the restoring production, IFL will buy third-party ore to supplement that on its stockpiles and from its opencast mine until the underground Lesedi mine reaches full production. The shortage will show around March or April next year, but IFL will begin purchasing external ore now when prices for the product is still relatively low, Kovarsky said. The estimated requirement for purchases is the equivalent of three months of full production. The cost of the purchases will be roughly in line with what it would cost to mine those tonnes itself, around R300-R350/tonne, Kovarsky said, adding it would not be a material cost. IFL will decide whether to mine Lesedi itself or hand it over to a contractor once it has received responses to the tender it has put out. Production from the Lesedi decline is expected to start in February 2010. IFL will also tender for the development of the second MG2 decline. It will take six months to commission the decline from the start of the project.