Merafe Reports Big Drop in Revenue, HEPS on Idled Smelters

Why It Matters

The earnings collapse underscores how South Africa's high‑energy costs can cripple ferrochrome producers, shaping the sector’s competitive dynamics. Investors will gauge Merafe’s ability to secure cheaper power and restart smelters as a litmus test for future profitability.

Key Takeaways

• Revenue fell 31% to R5.84 billion.
• HEPS dropped 72% to 12.2 cents.
• Ferrochrome output slashed 63% amid smelter shutdowns.
• Chrome ore sales rose 44% despite smelter idling.
• Lower Eskom tariffs crucial for smelter restart.

Pulse Analysis

South Africa’s ferrochrome industry has long wrestled with soaring electricity tariffs, and Merafe Resources’ latest results bring that challenge into sharp focus. The company’s decision to idle all Glencore‑Merafe smelters in the second quarter of 2025 eliminated a major revenue stream, driving a 63% plunge in ferrochrome output and a 72% contraction in headline earnings per share. High power costs, compounded by a strong rand‑dollar exchange rate, eroded margins and forced a shift toward cash preservation, highlighting the sector’s vulnerability to utility pricing policies.

In response, Merafe pivoted toward its higher‑margin chrome‑ore and PGM businesses, achieving a 44% surge in ore sales and a 10% rise in PGM volumes. The company also maintained a stable 8 c dividend, signaling a commitment to shareholder returns despite operating headwinds. Capital expenditure was reallocated, with R221 million directed to ore mining and only R186 million to smelting, reflecting a strategic emphasis on assets that generate cash without the energy‑intensive burden of ferrochrome production. The recent Sibanye‑Stillwater chrome‑management agreement promises improved feed quality and recovery rates, potentially offsetting some cost pressures.

Looking ahead, Merafe’s recovery hinges on securing a sustainable electricity tariff. Negotiations with Eskom have produced a tentative 62 c/kWh offer, a step forward from the interim 87.74 c/kWh rate, but still above the threshold needed to restart the Wonderkop and Boshoek smelters. Analysts will watch regulatory developments and any shift toward renewable‑energy solutions, as these could reshape the cost structure of South African smelting. Until power costs are curbed, Merafe is likely to lean on its chrome‑ore and PGM divisions, while investors assess the long‑term viability of its smelting portfolio.