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Afarak awaits "swift" South African reaction to reinvigorate chrome industry

“The main priorities for Afarak in 2020 are stability and consistency of operational and financial performance,” says CEO Guy Konsbruck 

Afarak Group PLC -

Afarak Group PLC (LON:AFRK) said it expects lower losses in 2020 as the South African government and major industry players look to rally round and sort out the “emergency” in the chrome industry.

Lower selling prices hit the industry in 2019 but Helsinki-based Afarak, which owns a plant and three mines in South Africa, said general expectation in the industry is for prices to recover during 2020.

READ: Afarak sees “solid” long-term market prospects despite losses

However, it acknowledged that this could be impacted by macroeconomic factors such as the coronavirus outbreak, as it has begun to disrupt output and demand in China and is expected to extend to other parts of the world.

Afarak said it was taking a “conservative view” for 2020 and is prepared for weak market conditions, though it is expecting “lower losses when compared to 2019”.

Last year, revenue decreased 25.3% to €144.9mln as sales volumes were cut amid lower selling prices in both speciality alloys and ferroalloys.

Sold volumes decreased by 18.7%, to 81,802 tonnes as some mining activity was temporarily discontinued, leading to the tonnage mined being reduced by 34.9%, to 357,557 tonnes.

Underlying losses (EBITDA) increased to €23.8mln from €1mln the year before, while an impairment to goodwill and other long-term assets related to the Mogale plant of €32mln led to a full loss for the year of €58.9mln, up from €18.6mln last time.

Afarak had warned in an earlier announcement that further worsening market conditions for Mogale, the fourth-quarter had seen a higher than expected loss at Mogale, with an additional €7.4mln smelter impairment assessment.

"Swift counter-measures"

“During Q4 2019, the business conditions for the chrome industry further deteriorated, especially in South Africa, where energy cost and availability remained a huge challenge,” said chief executive Guy Konsbruck. 

“As a result, lay-offs and production cuts were announced by many producers. Afarak was not an exception. Fortunately, it seems that the South African government has realised the emergency, in the meantime, so that swift and concrete counter-measures could be kicked off very soon. Together with the industry players, many official bodies are elaborating plans on saving and reinvigorating the industrial activity.”

He noted that Afarak’s speciality alloys segment performed in a “satisfactory” way, given the circumstances, and noted that the year had seen the company gain full control of its South African mines, resulting in a positive impact on the results in the second quarter.

“The main priorities for Afarak in 2020 are stability and consistency of operational and financial performance,” Konsbruck concluded. 

Quick facts: Afarak Group PLC

Price: 20 GBX

LSE:AFRK
Market: LSE
Market Cap: £47.7 m
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