These are turbulent times in the steel related industries. Ferrochrome is no exception. Good times follow bad times and bad returns. But the industries survive, as they must, and the cycle will revolve, as it always does.

 

Our Company, like others, has been through difficult and testing periods. But, I am happy to report, it turned the corner in the year under review to make a profit before tax of ZAR41 million, overcoming losses before tax of ZAR126 million last year and ZAR72 million the year before. This was a commendable result as the ferrochrome industry continued to suffer from low prices, under pressure from expanding Chinese production. The outcome would have been substantially better but for the protracted platinum strike in Rustenburg which interrupted supply of profitable UG2 ore from Anglo Platinum. The Company has identified access to this type of ore as an important driver in its quest to be at the low end of the ferrochrome cost curve.

 

Our production was the highest in our history – 24% higher than last year and sales posted a record. Our marketing department was able to diversify our customer base through opening up new markets in India and Korea. This helped us achieve better prices.

 

The Company’s strategy of concentrating on reducing costs through discipline and astute technical measures has borne fruit. We set an interim goal of reaching lower costs than the Chinese ferrochrome producers, which have emerged over the last few years as South Africa’s main competitor. This was achieved. Efforts to bring costs even lower are ongoing.

 

Notwithstanding these successes, I have to report that conditions affecting the Company have deteriorated recently. Effects of a lower ferrochrome price, costs associated with the trials to assess the viability of using silicon carbide (although successful in so far as they went), and loss of production through the issue by the DMR of a Section 54 notice shutting down the furnaces (which has been reported on) have seriously affected the Company’s financial situation. The result of these factors will be a significant operating loss for the half year ending 31 December 2014.

 

However, the good news is that we expect the second half of the financial year should see a major improvement. In addition to the favourable seasonal factors, the first LG6 ore from the Rooderand Mine is anticipated to be available in January and this will make the Company self-sufficient in high grade ore, which hitherto had to be purchased. The Lesedi underground mine is ramping up on schedule; it will supply our furnaces with ore at a cheaper cost than buying it in. Realised sales prices will improve once the excess ferrochrome fines have been sold, as the sales profile will then resemble more closely the normal mix of fines and lumpy material.

 

The downward trajectory of ferrochrome prices seems to have ended, allowing a reasonable expectation that the bottom has been reached. In fact the Chinese prices started rising by 1.25 USc/lb last week.

 

The Company continues to work on additional new projects designed to have a materially positive impact on costs and expand our base of profitability, and we will update the market on these in due course.

 

I would like to take this opportunity to commend and express the Board’s appreciation to the management and staff of the Company for maintaining their discipline and dedication during this adverse period. It is to be hoped and expected that the second half of the year will reward their efforts.