As a result of deteriorating business conditions, International Ferro Metals‘ (IFM’s) South African subsidiary, International Ferro Metals SA (IFM SA), has entered into business rescue.
Financially distressed IFM SA, which operates the Lesedi mine and ferrochrome smelting operations in the Bushveld Igneous Complex, has suffered from a downward trend in its operations and profitability that has proved more deep-seated and sustained than anyone expected, the company announced on Thursday.
Despite IFM SA’s stringent cost cutting measures, since the beginning of the 2015 financial year IFM SA has suffered financial distress, owing to the significant decline in global commodity markets generally, low ferrochrome prices, rising input costs, rising electricity costs and interruptions in power supply, militant union activity and above inflation wage hikes, which have increased IFM SA’s labour costs.
As a result, the company reported a loss before tax of R176 million for the half-year ended 31 December 2014 and operating losses for the second half of the 2015 financial year are expected to be similar to the first half.
The combination of low ferrochrome prices, high electricity prices and other costs and losses of ferrochrome production have strained IFMSA’s liquidity to the point that it is now in financial distress that is best resolved through the protection of business rescue.
During the business rescue process, which is expected to take about six months, the company may shutdown its furnaces and all mining operations, significantly reducing its expenses.
It will however continue to derive income from the sale of UG2 chromite produced under a contract with Rustenburg Platinum. The income generated from this is expected to cover ongoing costs, allowing IFM SA to continue in business during the period of the business rescue.
IFM has been approached and has subsequently entered into negotiations with an interested party to sell its shares in IFM SA and its other subsidiary Purity Metals.
Even though IFM SA has been placed in business rescue, IFM itself currently remains solvent and expects to have sufficient cash to be able to cover its expenses of continuing operations during the period of the business rescue and to implement the proposed sale of IFM SA and Purity.