Johannesburg, South Africa — ESI-AFRICA.COM — 21 February 2012 – International Ferro Metals (IFM) may soon join South Africa’s other ferroalloy producers by shutting down furnaces in an allocation buy-back agreement with national power utility Eskom Holdings, saying such a deal could be of significant value to shareholders.
Miningmx reports that, should this materialise, IFM would join the Xstrata/Merafe joint venture which announced a similar deal on Friday, while Samancor and Ruukki have reportedly also agreed to cutbacks.
“Eskom recently approached the company and other South African energy intensive users to acquire electricity allocation in return for attractive compensation,” read commentary accompanying IFM’s interim results yesterday. “The company is currently engaging with Eskom and is considering the financial implications of the offer, which may be of significant value to shareholders.”
Eskom spokesperson Hillary Joffe said the power utility had already secured 400MW in savings from heavy users under similar arrangements. Eskom said in January it was looking for savings of 3,000MW across the economy as the state-owned enterprise tackled maintenance backlogs ahead of the winter months. “The principle here is that we want some load to be reduced over a constrained period,” she said.
An industry source told Miningmx that Eskom was buying allocation at a higher rate than what heavy user customers would’ve paid for supply, but less than the cost of generating electricity using gas turbines. “That is one factor,” Joffe said. Merafe and Xstrata said on Friday their joint venture would shut five of its furnaces until May 31, but that this wouldn’t have any impact on the contractual supply of ferrochrome to customers in the second quarter.
As a result, the company would move forward scheduled maintenance usually reserved for the winter months.
IFM CEO Chris Jordaan told Miningmx that the company would make a more detailed announcement once it made up its mind over whether to pursue a similar strategy. He said the company’s ability to meet existing customer agreements from inventory would be a key factor to such a decision.
IFM’s interim figures confirmed the progress that the company has made since it announced a turnaround strategy last year, by realising 27% of its overall savings target during the interim period. Jordaan said the company should be cash generative by the end of 2012’s first quarter, depending on prices and the exchange rate.
“Whatever is under our control is on track,” he said. “At this stage we’re very pleased with the outcome of our initiatives.”