Our opinion on the current state of MERAFE(MRF)This is a ferrochrome operation controlled by Glencore, which operates mines, furnaces, and smelters in Mpumalanga and Limpopo. The Glencore-Merafe joint venture can produce up to 2,3 million tons of ferrochrome per annum. Merafe gets 20,5% of the proceeds, and the balance goes to Glencore.
The problem is electricity supply, because smelters require huge amounts of current. The 15,6% increase in Eskom tariffs last year was a major factor, and the current year's increase of just under 10% from 1st April 2022 is a further problem. The company is concerned about Eskom's ability to supply additional power for expansion. Their Lion 3 expansion has accordingly been suspended until this difficulty can be overcome. All smelters except Lydenburg are operating. The availability of trains from Transnet to move its product is another problem.
Obviously, this is a commodity share and has risks, but the world's demand for stainless steel did increase with the economic boom in America, but that now appears to be coming to an end. In its results for the year to 31st December 2024, the company reported revenue down 9% and headline earnings per share (HEPS) down 29%. The company said, "Weaker commodity prices and increasing costs made for a challenging year for Merafe. Earnings slumped by 62% to R667 million, after the full impairment of the Boshoek smelter of R575 million. Ferrochrome prices were impacted by surplus supply as a result of new Chinese production capacity." The company's net asset value (NAV) decreased by 7%.
Technically, the share reached a high of 192c on 4th April 2022 and was trending down or moving sideways since then. It has found some brief support at 104c per share. It remains a volatile commodity share.
