International Ferro Metals Q3 output falls
International Ferro Metals has reported a fall in output for the third quarter due to power and water problems that have seen the firm’s expansion costs soar by 30%.
LONDON (Reuters) -
International Ferro Metals Ltd (IFM), which produces ferrochrome in South Africa, said power and water problems caused a shortfall in third-quarter output to 52,422 tonnes.
The London-listed firm also said in a trading statement on Monday that expansion costs to boost ferrochrome production had shot up by 30 percent to 4.15 billion rand ($549 million), but it would be able to pay that without borrowing to do so.
IFM shares, which have gained 38 percent this year, fell 3.3 percent to 160 pence by 0737 GMT, compared with a 1.3 percent rise for the UK mining index.
IFM, which launched production last year, said power shortages resulted in a loss of 8,677 tonnes in the three months to end-March while a one-off interruption of water supply meant a loss of 2,200 tonnes.
Full capacity of the plant is 66,750 tonnes a quarter. No year-ago figures were provided for the firm, which commissioned its furnaces in Janaury 2007 and was ramping up production last year.
Production in the fourth quarter was expected to be 58,000 tonnes, which would bring output for the full fiscal year to about 204,000 tonnes.
The firm was building its own power generation plant, but output would level off at about 58,000 tonnes until the plant is operational in July 2009, Chief Executive Stephen Turner told a conference call.
The power plant would harness carbon monoxide from firm's operations to generate electricity, making up for a required 10 percent cut from South African utility Eskom.
IFM, 26 percent owned by China's Jiuquan Iron and Steel Group Company, would also generate revenues from the power plant by selling carbon credits, Turner added.
Revenue for the third quarter was 456 million rand, bring nine-month revenue to 823 million rand.
Global shortages of ferrochrome, spurred by power cuts in the world's biggest producer South Africa, has sent prices of the alloy used in stainless steel soaring.
For the three months starting in April, contract prices jumped by 60 percent to $1.92 per lb.
"We are pleased to report the company has been trading profitably over the period and is generating strong cash flows. Our expansion plans give us a solid platform to grow capacity and to take advantage of the strong ferrochrome demand," Turner said.
He said even though costs have surged for the firm's planned expansion to 665,000 tonnes per year, the company was confident that it would be able to fund all of the costs internally due to the high prices and strong cash flows.
The first stage of the expansion, to increase mining of chrome ore to produce ferrochrome, started this month. If enough power is not available to supply the proposed three new furnaces, that part of the expansion would be delayed and the ore would be sold to other producers. Construction of the furnaces is estimated to take 18 months. (Reporting by Eric Onstad; Editing by Louise Ireland)
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