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Afarak Group suffers in highly volatile ferrochrome market

The growth in revenues achieved, despite lower prices compared to a year earlier, did not translate into improved profitability
The financial performance of the FerroAlloys segment heavily affected the group’s results

The second quarter was a difficult one for Finnish speciality alloys company Afarak Group PLC (LON:AFRK).

The company increased its sales of processed material by 24.8% year-on-year to 25,929 tonnes and revenues rose by 14.6% to €54.3mln but underlying earnings (EBITDA) fell to €1.2mln from €4.8mln the year before.

Low-quality ore bodies blamed

The FerroAlloys segment showed a bad performance and negatively affected the group’s financial result, the company said. This was mainly due to low-quality ore bodies encountered, which had a significant impact on the operations in South Africa.

Cash and cash equivalents at the end of June had fallen to €5.5mln from €10.5mln at the end of March.

“Unfortunately, our mining teams in Stellite and Mecklenburg came across some difficulties throughout the quarter. As a mining company, we cannot always predict the geology,” said Guy Konsbruck, the chief executive officer of Afarak.

“The unexpected quality of ore mined affected downstream processing at Mogale, cost of production and pricing of both mined and processed materials. In addition, the unfavourable exchange rate movements also impacted our bottom-line,” he noted.

Market remains highly volatile​

Unrealised foreign exchange losses pitched the company into the red, with a loss of €3.3mln before taxes in the second quarter, compared to a profit the year before of €1.0mln.

“Moving forward, the third quarter always presents seasonal challenges to the industry. The market remains highly volatile. Although quarter three ferrochrome benchmark price contracted to US$138 c/lb, from US$142 c/lb in quarter two, it is higher than quarter three 2017,” Konsbruck said.

“From an operational perspective, Mogale will be operating without furnace number 3, due to an unexpected maintenance activity. Mining activity will be adapted to the present poor demand,” the Afarak boss said.

Shares in Afarak were unchanged in London trading.

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