Merafe CEO believes the share price still has potential

Merafe Resources, which holds a 20,5 per cent interest in the world's largest ferrochrome producer, is clearly moving into a higher gear – judging from this Alec Hogg interview with CEO  Zanele Matlala after the company delivered a splendid set of half-year results.  And, yes, she believes the share price has further potential. Merafe's R5-billion high-technolog, and cost-efficient  new smelter is now up and running. See the full interview below. GK

ALEC HOGG: Welcome back to Power Lunch. Merafe Resources posted a very strong first half results. A 35-percent jump in revenue, and the headline earnings per share, up 134 percent. Now, we were talking earlier, if you were with us – with David Shapiro, about the changes that have been wrought at this company, because it really benefits from Glencore or, in fact it's a play on Glencore being more efficient, perhaps than Xstrata. With which Glencore did a merger, but Zanele Matlala is the Chief Executive of Merafe. Perhaps just to unpack for us, Zanele, the shareholding of your company.

ZANELE MATLALA: The current shareholding, we have Royal Bafokeng as a major shareholder, at 29 percent, and we have the Inter-Sales Development Corporation, as 22 percent, and the rest of it being free-floating.

ALEC HOGG: Then the major asset or the flow of cash that comes to you is from your Ferrochrome Operation, your venture that is, controlled by Glencore.

ZANELE MATLALA: Yes, it is. We have a 20.5 holding in the Ferrochrome Asset.

ALEC HOGG: So if I understand correctly, if Glencore thump, then you bank the money.

ZANELE MATLALA: Yes, you could say that.

ALEC HOGG: And you've been banking money in this last little while, well done.

ZANELE MATLALA: Thank you.

ALEC HOGG: Just take us through it though. What's been going on at that major asset of yours that has led to this very, healthy improvement in your results?

ZANELE MATLALA: It's been really a ten-year investment process. From the time the joint venture was formed in 2004, both partners have invested quite significantly in a number of projects, to improve our efficiency and the latter project being Line2, which has just come on stream. As you know,  the energy efficient and the cost efficient project, and with all of those improvements we are starting to see the results. Also, the market has been quite robust. We've seen the production grow quite a bit, 10.5 percent for the six months, which has been followed by Ferrochrome demand.

GUGULETHU MFUPHI:  Zanele, to continue with the theme, regarding Glencore's control and the influence on the Ferrochrome operations, this has also led to changes and restructuring at your head office. How many people have you let go of here?

ZANELE MATLALA: Maybe just a correction, Glencore would not have had anything to do with the restructuring at the head office because Glencore does not have a shareholding in Merafe board decision that has been, taken today. We will now only be focusing on the Ferrochrome operations, and therefore diversification is not something we will be perceiving actively. For that reason, five people were, let go.

ALEC HOGG: All right, but I'm sure there's some influence there from the Glencore approach towards life, which is keeping things very tight and very focused. However, you want to unpack it though, you guys are making shareholders very happy A share price which was sliding all the way, until about a year ago, has been jumping over the past 12 months. Has it reached its potential yet?

ZANELE MATLALA: I don't believe so because the the outlook in the Ferrochrome industry looks quite positive and having invested in efficient technology, I think we are poised to take advantage of the growth in the stainless steel, therefore the Ferrochrome market. I wouldn't say it has reached its potential but with share prices, you can never call it exactly.

GUGULETHU MFUPHI:  Zanele, coming back to your local operations, I'm sure Eskom as well as power costs have been something that have impacted you quite extremely. Perhaps if you could walk us through that, are there constraints and, maybe concerns from your side, as a producer regarding the cost of energy in South Africa?

ZANELE MATLALA: The rise in any cost is a concern for us and, as you know, electricity prices have been going up. With the price in plan that allows for eight-percent per annum and we expect that there should be an additional increase of about four to five percent in April, next year. I think it is a concern for us, and other producers, in that we compete globally, so it is important that our par prices are competitive. If you look at the South African context, and you look at our smelters and the technology that we have, we are more energy efficient than the next producer. Therefore, as prices rise, they rise less for us.

ALEC HOGG: Tell us about Project Lion. That appears to be your great hope for the future.

ZANELE MATLALA: It is a five-billion Rand smelter, which has just come into production. The first 'spend' is, of which came into production in April this year, and the second one in June. You are right, it is world class, cost efficient technology and what it does for us, as a Group, it helps to reduce prices on a unit basis.

ALEC HOGG: We'll be watching that very carefully and I'm sure there are lots of happy shareholders, with the results coming out today. Zanele Matlala is the Chief Executive of Merafe Resources. The share price is up six-percent. In fact, it's up 112 percent in the past year.