Our opinion on the current state of MERAFE(MRF)This ferrochrome operation is controlled by Glencore and operates mines, furnaces, and smelters in Mpumalanga and Limpopo. The Glencore-Merafe joint venture has the capacity to produce up to 2.3 million tons of ferrochrome annually. Merafe receives 20.5% of the proceeds, with the balance going to Glencore. A significant issue for the operation is electricity supply, as smelters require vast amounts of power. The 15.6% increase in Eskom tariffs last year was a major burden, and the current year's increase of just under 10%, effective from 1st April 2022, poses additional challenges. The company is also concerned about Eskom's capacity to supply additional power for future expansions. As a result, the Lion 3 expansion has been suspended until the electricity issue can be resolved. All smelters, except for the Lydenburg smelter, are operational.
Another challenge is the availability of trains from Transnet to transport its product. As a commodity share, Merafe faces the inherent risks associated with global demand for ferrochrome and stainless steel. The increase in demand for stainless steel driven by the economic boom in the U.S. has now slowed.
In its results for the six months to 30th June 2024, Merafe reported revenue down 0.4% and headline earnings per share (HEPS) of 28.2c, compared to 42c in the previous period. Ferrochrome production was down 17%, though the company's net asset value (NAV) increased by 3%. In a production update for the nine months to 30th September 2024, the company reported attributable ferrochrome production up 2%.
Technically, the share reached a high of 192c on 4th April 2022 and trended down until a rally in September 2022. It found brief support at 104c per share before trending upward, though the rally was short-lived. The share remains volatile, as is common for commodity-related stocks.
