| Mon 8 Dec 2003, 17:47 | | Reviewed results for the six monthsended 30 Septe |
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South African Chrome and Alloys Limited - Reviewed results for the six months
ended 30 September 2003 and
cautionary announcement
South African Chrome and Alloys Limited
(Incorporated in the Republic of South Africa)
(Registration number 1987/003452/06)
("SA Chrome" or "the company")
Share Code: SCE
ISIN: ZAE000022943
Reviewed results for the six months ended 30 September 2003 and cautionary
announcement
Group abridged income statement
6 months to 6 months to 12 months to
30 September 30 September 31 March
2003 2002 2003
Reviewed Unaudited Audited
R"000 R"000 R"000
Revenue 226,448 47,368 183,782
Operating loss (24,132) (24,874) (98,993)
Net financing costs (27,530) (23,055) (48,543)
Net loss before (51,662) (47,929) (147,536)
taxation
Taxation - - -
Net loss for the period (51,662) (47,929) (147,536)
Basic loss per share (4.74) (4.80) (14.67)
(cents)
Headline loss per share (4.74) (4.80) (14.67)
(cents)
Ordinary shares in 1,195,664,823 998,566,822 1,014,957,119
issue
Weighted average share 1,089,613,423 998,566,822 1,005,706,710
for period
Group abridged balance sheet
6 months to 6 months to 12 months to
30 September 30 September 31 March
2003 2002 2003
Reviewed Unaudited Audited
R"000 R"000 R"000
ASSETS
NON-CURRENT ASSETS 678,816 685,996 675,568
Options, mineral and 258 258 258
participation rights
Property, plant and 668,836 668,397 656,315
equipment
Investments 8,809 14,657 18,424
Long-term receivables 913 2,684 571
CURRENT ASSETS 183,985 100,108 113,215
Inventories 134,101 57,416 75,614
Trade and other 35,405 32,245 30,368
receivables
Held-for-trading - - 5,925
financial asset
Bank and cash 14,480 10,447 1,308
Total assets 862,802 786,104 788,783
EQUITY AND LIABILITIES
CAPITAL AND RESERVES 287,190 315,682 231,104
Share capital 11,957 9,986 10,149
Share premium 527,347 407,350 421,406
Non-distributable - 1 -
reserves
Accumulated loss (252,113) (101,655) (200,451)
NON-CURRENT LIABILITIES
Long-term liabilities 238,010 347,066 335,414
CURRENT LIABILITIES 337,602 123,356 222,265
Trade and other payables 208,290 86,907 176,797
Current portion of long- 129,312 36,449 45,468
term borrowings
TOTAL EQUITY AND 862,802 786,104 788,783
LIABILITIES
Net asset value per share 24.0 31.6 22.8
(cents)
Group abridged cash flow statement
6 months to 6 months to 12 months
to
30 September 30 September 31 March
2003 2002 2003
Reviewed Reviewed Audited
R"000 R"000 R"000
Cash utilised by (40,905) (38,866) (25,012)
operations
Net interest cost (27,530) (23,055) (48,543)
Cash flows from (68,434) (61,921) (73,555)
operating activities
Cash flows from (12,582) (43,012) (50,541)
investing activities
Cash flows from 94,187 68,760 78,784
financing activities
Net (decrease)/increase
in cash and
cash equivalents 13,171 (36,173) (45,312)
Cash and cash
equivalents at
beginning of period 1,308 46,620 46,620
Cash and cash 14,480 10,447 1,308
equivalents at end of
period
Statement of changes in equity
6 months to 6 months to 12 months to
30 September 30 September 31 March
2003 2002 2003
Reviewed Reviewed Audited
R"000 R"000 R"000
Share capital 11,956 9,986 10,149
Balance at beginning of 10,149 9,986 9,986
period
New shares issued during 1,807 - 163
period
Share premium 527,347 407,350 421,406
Balance at beginning of 421,406 407,350 407,350
period
Premium on new shares 106,618 - 14,112
issued during the period
Share issue expenses (677) - (56)
written off
Accumulated loss (252,113) (101,655) (200,451)
Balance at beginning of (200,451) (53,726) (53,725)
period
Effect of adopting AC - - 810
133 - Financial
Instruments
Opening accumulated loss (200,451) (53,726) (52,915)
restated
Net loss for the period (51,662) (47,929) (147,536)
Non-distributable - 1 -
reserves
Balance at beginning of - 1 -
period
Revaluation surplus - - -
realized on sale of
shares
Balance at end of period 287,190 315,682 231,104
Commentary
Accounting policy
This report has been prepared in terms of South African Statements of Generally
Accepted Accounting Practice (GAAP), and is consistent with those applied in the
financial statements for the 12 months ended 31 March 2003, other than
depreciation on smelter and mining assets, where the maximum life of any single
item was increased from twenty to twenty-five years.
Audit opinion
PricewaterhouseCoopers Inc. have reviewed this report and their review opinion
is available for inspection at the company"s registered office.
The six months under review
It was announced on 17 June 2003 that the company had successfully raised R108,4
million through a general and specific issue of shares for cash. The funds were
to be applied in acquiring additional chromite reserves adjacent to the smelter
and to upgrade the existing ferrochrome facility, for loan repayments to our
lending banks and for a feasibility study to expand our existing ferrochrome
facility.
The chromite reserves were successfully acquired and the upgrade of the
ferrochrome facility is now complete which has enabled the smelter to operate at
100% of design capacity, being 20 000 tonnes per month, in November 2003.
The company has successfully refinanced its long-term debt to cater for lower
capital payments in the early years and higher capital payments towards the end
of the term of the loan. This will help ease the pressure currently being
experienced by the company on its cashflows as a result of the continued
strengthening of the Rand against the US Dollar. (30% since January 2003).
It was announced on 13 March 2003, that SA Chrome had signed a heads of
agreement with Jiuquan Iron & Steel (Group) Co. Limited ("JISCO"), with the
intention of forming a joint venture between SA Chrome and JISCO for future
expansion. SA Chrome failed to reach agreement with JISCO on various critical
issues regarding the joint venture and marketing arrangements, and as such, the
initiative was terminated by mutual consent.
SA Chrome has continued to make satisfactory progress on the feasibility study
for expansion.
Shareholders are also referred to the cautionary announcement, which appears at
the end of this commentary.
Financial review
Turnover, on an F.O.B. basis, for the 6 months ended 30 September 2003, from the
sale of 85 463 tonnes of ferrochrome was R226 million.
Operating loss before interest, tax and depreciation was R9,5 million. After
taking account of depreciation of R14,6 million and interest on debt of R27,5
million the net loss after tax totalled R51,6 million.
The losses incurred during the six months to 30 September 2003 can be ascribed
to 4 major factors: the strengthening of the Rand against the US Dollar, the
additional winter electricity surcharge imposed during the winter months of
June, July and August, production not being at full capacity and operational
efficiencies being below expectations.
These factors are discussed in more detail under the Review of operations and
market review below.
The company has not hedged any of its future sales and is therefore exposed to
any strength or weakness of the Rand going forward.
Review of operations
During the six months under review, all the production facilities of the
ferrochrome smelter successfully past their respective performance guarantee
tests at the first attempt. These tests demonstrated the technical capability of
the facilities to perform its design duty. The operational challenge now remains
to extend the short-term capability into consistent long-term achievement.
To this end, the two 54 MVA furnaces have made considerable progress by
achieving 75% of design capacity during the first quarter in the review period
and 88% in the last quarter. This progress trend is continuing beyond the review
period as the facilities reached 100% of design capacity in November 2003. The
main problem that prevented even better progress was the failure of the ball
mill motor in the pelletising sinter plant on three occasions. This affected the
production of the pelletising sinter plant severely to average only 73% of
capacity during the review period after 100% capacity was reached at the
beginning of the period. The shortfall of pellets affected the availability and
consistency of feed stock to the furnaces, making the results achieved
remarkable. The problem with the mill motor was solved in the review period and
the risk exposure to a reoccurrence addressed by standby equipment.
As a result of the above the shortage of sintered pellets increased the
requirement for lumpy ore. This already scarce commodity was supplemented by buy
in and by mining low grade lumpy ore seams at our Horizon Mine at additional
mining cost and with quality sacrifice in the performance of the furnaces.
Notwithstanding the above, average plant production cost during the review
period declined by 11% (excluding winter electricity surcharge) from the cost
levels of the previous six months. Although there have been continuous
improvements, average plant cash cost for the period exceeded budget
expectations by 13%.
Market review
The prevailing market conditions in 2003 and forecast in 2004 will provide
opportunities for further US$ ferrochrome price increases. Inventories at the
consumers have stabilised at some 12 weeks of consumption.
These stock levels are set to reduce when some 250 000 tonnes shortfall of
ferrochrome production starts influencing the supply: demand balance in 2004.
The continuous strong demand on the one side and the fact that only minor
capacity expansions are taking place in the immediate future will positively
influence the ferrochrome price into 2004. For South African ferrochrome
producers, the strong rand has had the effect of squeezing profits at all of the
country"s operations despite the fact that around US 9c/lb has been added to
quarterly charge chrome contract prices during the second half of 2003. Rand
currency strength has wiped out any gains made from these price increases.
Prices are, however, forecast to increase to US 60c/lb in the course of next
year. If these forecasts are correct, SA Chrome will be in a position to improve
profitability.
Cautionary
Shareholders are advised that SA Chrome has entered into negotiations, which, if
successfully concluded, may have a material effect on the price of the company"s
shares. Accordingly, shareholders are advised to exercise caution when dealing
in the company"s shares until a further announcement is made.
Chris Molefe Steve Phiri
Non-Executive Chairman Chief Executive Officer
9 December 2003
Johannesburg
Sponsor
Rand Merchant Bank, a division of FirstRand Bank Limited
Transactional Sponsor
