Hernic shows how bad the South African FeCr industry was

Just how bad the South African ferrochrome market was before the recent uptick in prices can be culled from Mitsubishi’s prospectus to sell Hernic that was issued in June of this year. The South African charge chrome producer’s average selling price c.i.f. was 73¢ per lb in fiscal 2015 vs. 89¢ in fiscal 2014, 91¢ in fiscal 2013 and 96¢ in fiscal 2012; fiscal year is Apr. 1 to Mar. 31. It would really interesting to compare the average sales price to the benchmark price to determine the level of discounts.

For those ambitious enough, the rand/US$ exchange rate is: 8.54 in 2012, 10.12 in 2013, 11.07 in 2014, and 13.79 in 2015. Since the blog is free, you can figure it out.

The company’s cost of production (ex work) rose to ZAR9,394 per mt in fiscal 2015 vs. ZAR8,842 in fiscal 2012. Hernic’s operating loss was ZAR621,954,000 vs. a loss of ZAR362,870,000 in fiscal 2012; the company didn’t report any profit between fiscal 2012 and fiscal 2015. NPAT (net profit after tax) was a whopping negative ZAR2,866-million in fiscal 2015 vs. a negative ZAR311-million in fiscal 2012. In fiscal 2015, revenue was slight lower compared to the previous year due lower selling prices offset by a weaker rand.

Significant losses increased with the impairment of a large portion of its assets as well as a write-off of the deferred tax asset. As of Mar. 31, 2015, Hernic had sustained assessed tax losses of ZAR1,118-million in the first quarter alone.

Hernic decided to purchase most of its feed to preserve its mineral resources.

In the prospectus, the company predicted losses through fiscal 2018, reaching a net cash outflow of ZAR 1,060,651 in fiscal 2018. However, the recovery in the price made the projections seriously out of date.

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