27 May 2014 - Evraz Highveld Steel and Vanadium Limited - Group unaudited results for the Quarter Ended 31 March 2014

 

Chairman and CEO's Review

 

• Net loss R105 million (March YTD 2013: profit R30 million)

• EBITDA profit R15 million (March YTD 2013: profit R124 million)

 

1. Safety

 

EVRAZ Highveld Lost Time Injuries (LTI) decreased by 55% from 11 in Q4 2013 to 6 in Q1 2014, whilst its progressive Lost Time Injury Frequency Rate (LTIFR) decreased to 2.46 in Q1 2014 from 4.79 at the end of Q4 2013.

 

EVRAZ Highveld's total number of injuries increased by 65% from 42 in Q4 2013 to 65 in Q1 2014.

 

2. Key Financials

 

   The operating loss for Q1 2014 was R89 million, compared to a profit of R50 million for Q1 2013,mainly attributed to a combination of lower saleable production and limitations on steel dispatches. The EBITDA for the period was a loss of R15 million, compared to a R124 million profit for the same period in 2013. Revenue from sale of goods increased to R1 552 million,compared to R1 413 million for Q1 2013.

 

There is visible change in the market purchasing trends from imports to domestic supply, combined with notable progress towards production improvement and labour stability.

 

The Company, though, remains alert to these market conditions and the abovementioned risks.

 

While the Company continues to utilise credit lines that are committed only to 31 December 2014 and which are already fully drawn, management continues to take significant steps to mitigate this risk.

  

The financial statements are prepared on the basis of accounting policies applicable to a going concern. The Board believes that the Company remains a going concern, taking cognisance of the matters that may cast doubt about the ability of the Company to continue as a going concern and its ability to realise its assets and discharge it's liabilities in the ordinary course of business.

 

3. Operations

 

Mining

 

Production of lump ore decreased by 22% from 375 514 to 293 270 tons for Q1 2014 when compared to Q1 2013, and fines ore decreased by 15% from 164 220 to 139 469 tons for the three month period. Output suffered as a result of major repairs performed on the primary/top section of the crushing facility.

 

The pit mining trial that commenced in March 2013 was completed in Q1 2014 and commercial pit mining is due to commence in Q2 of 2014.

 

Construction of thirteen two bed-roomed houses in Roossenekal was completed in Q1 2014.

 

Preparations have commenced to build additional two bed-roomed houses for Mapochs Mine employees during 2014/15. Providing comfortable living conditions for employees is a core competent of Mapochs Mine social and labour plan.

 

Steel

 

Iron output decreased by 13% to 152 246 tons for the quarter compared to Q1 2013, due to Furnace 2 which was operational in Q1 2013 and only brought into operation in March 2014 for Q1 2014. Steel output decreased by 15% from 175 397 tons in Q1 2013 to 149 623 tons in Q1 2014, as a result of decreased iron availability and lower scrap ratios.

                                                                                              

Production of long products increased by 1% to 50 230 tons during Q1 2014, compared to 49 672 for Q1 2013. Production of flat products increased by 22% from 74 102 to 90 352 tons for the period. These changes are mainly as a result of improved availability of equipment and successful reduction of semi-finished cast steel stock.

 

Inventories of cast steel ahead of the rolling mills were worked down in the first quarter with the intention of increasing finished product revenue.

 

 Kiln operational stability was compromised in the first quarter due to unusually wet weather conditions, resulting in higher kilowatt/hour per ton electricity consumption in the plant.

 

 Vanadium

 

 A total 10 959 tons of vanadium slag was produced containing 1 436 tons V for the quarter, compared to 12 057 tons slag containing 1 627 tons V for Q1 2013.

 

4. Markets

 

Global and local markets

 

The global economy remained weak during Q1 2014 and has not reached the required levels of growth needed to support a strong recovery in steel demand. It is predicted that global steel demand is likely to increase by 3.1% to 1 475 Mt in 2014.

 

South African GDP forecasts for 2014 have been revised to 2.0%. The trend of the weak Rand in Q1 2014 has continued to provide increased demand for steel from local producers, driven by customers diverting procurement from imported goods to local supply.

 

Evraz Highveld Sales

 

Steel sales volumes increased by 2% from 135 512 tons in Q1 2013 to 138 207 tons in Q1 2014.

 

Domestic steel sales decreased by 17% from 134 231 to 110 765 tons for the period, while export steel sales volumes increased to 27 442 tons for the quarter against 1 281 tons for Q1 2013.

 

Ferrovanadium sales for Q1 2014 increased by 26% to 1 370 tons V compared to 1 084 tons V for Q1 2013. Domestic vanadium slag sales were 90 tons V for the period compared to 104 tons V for the 2013 year.

 

5. Sale of the Majority Shareholding in the Company

 

The Company remains under cautionary with the pending sale of the majority shareholding.

 

EVRAZ plc continued to engage with potential bidders with a view to disposing of its 85.11% stake in the Company.

 

The negotiations with potential bidders remains incomplete, confidential and non-binding, with no definitive certainty that a transaction will take place.

 

6. Outlook

 

Global steel markets remain in a state of oversupply and a market recovery in global steel demand is not expected during the remainder of 2014. Sustainability of high-cost steel producers continues to be challenged by excess global steelmaking capacity, volatility in raw material prices and slow global steel demand.

 

The sub-Saharan African region remains a key growing market for the steel industry, driven mainly by opportunities from the widely published infrastructure related projects in countries such as Nigeria, Kenya, Tanzania and Zambia, as well as mining related investments in Mozambique.

 

However competitive activity from global producers in these regions is keeping pricing in these markets under pressure and in line with global trends.

 

The maintained slow pace of large infrastructure project implementation in South Africa, a volatile labour market, notable energy tariff increases and electricity supply concerns coupled with the declining levels of production and investment in the mining sector will all continue to pose challenges to the domestic steel industry.

 

Source: www.evrazhighveld.co.za