Mining boom: Time to tell your Assore from your elbow
Rip-roaring demand for chrome, iron and manganese
Base metals miner and marketer Assore raised its dividend by 400c to R10 a share for the six months to December as continuing strong commodity prices outweighed the dampening effect of a rand that appreciated by 6% against the dollar.
Assore’s chrome, iron and manganese ore and alloys are used in steelmaking. China’s steady growth in crude and stainless steel production has increased demand for these inputs and outstripped supply.In the second half of last year average iron ore prices for 62% fines rose 5% to $68/ton compared with the same period in 2016, with higher premiums for the lumpy product that Assore sells. The price of 44% grade manganese lifted 5% to $6.30/dry metric ton unit while chrome ore with 44% content fell 13% to $195/ton. In the comparable period chrome ore prices spiked unusually to $400/ton.
Underlying demand for chrome ore remained strong, Assore said, and it achieved record sales as output from the Dwarsrivier Chrome Mine increased. Group revenue rose 17% to R3.8-billion, reflecting higher sales volumes of all Assore’s products, and headline earnings were 12% higher at R23.55 a per share.CEO Charles Walters said the logistical issues at Port Elizabeth that restricted sales volumes of manganese in 2016 were largely resolved by July and there was additional capacity to export through Saldanha. The group is using its full rail allocation and he expects that if prices continue to be strong the mining industry will need to have robust discussions with Transnet about increasing logistical capacity.
Rail and port constraints are helping to squeeze global availability of chrome and manganese ore, since South Africa is a dominant producer. He said Assmang considered an expansion of output at its Khumani Iron Ore mine but decided not to proceed because it was uncertain if it would be able to secure the necessary rail capacity.
Global economic growth was forecast to increase to 3.7% this year which would underpin demand and pricing. Volatility in iron ore and manganese prices had reduced but chrome ore prices continued to move sharply. Assore is considering opportunities to expand the markets for and product range at its Wonderstone subsidiary, which produces industrial products containing pyrophillite, but this would be an incremental expansion and would not involve significant capex, Walters said.
Assore’s shares, which are tightly held, surged 7.6% to R316.43 after the results were released. They have almost trebled over the past two years but are below their recent peak of R429.99.