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IFM seeks growth despite power shortfall

TIP UPDATE: The South African ferrochome producer plans production increases from incremental improvements
September 24, 2008

South African ferrochrome producer International Ferro Metals (IFM) ticked up on solid 2008 results, with the first full year of production at its Buffelsfontein smelter complex delivering 205,607 tonnes of ferrochrome. Production is currently running around 240,000 tonnes per year (tpy), equating to nameplate capacity of 267,000tpy minus 10 per cent due to power constraints imposed by unreliable South African power company Eskom.

IC TIP: Buy at 55p

Eskom's problems are delaying the go-ahead on a planned smelter expansion to boost output to 665,000tpy, but in the interim IFM plans incremental improvements within its own control. From July 2009 it hopes to reach current nameplate capacity by commissioning its own additional on-site power supply, and it is now planning a new pre-reduction unit and pre-heating unit which could together increase smelter throughput by another 30 per cent by mid-2011. These additional investments, if sanctioned, would cost around £67m-£100m. In the meantime, despite ongoing cost pressures, the company remains among the lowest-cost producers worldwide - its production costs in the second half were $0.65 per lb of contained chrome, compared with a sales price of $1.56/lb, which has since risen to $2.04.

Numis Securities anticipates EPS of $0.30, roughly ZAR240¢ or 16.3p.

INTERNATIONAL FERRO METALS (IFL)
ORD PRICE:55pMARKET VALUE:£277.2m
TOUCH:54-55p12-MONTH HIGH:169pLOW: 54p
DIVIDEND YIELD:1.8%PE RATIO:7
NET ASSET VALUE:ZAR5.48*NET FUNDS:ZAR972m

Year to 30 JunTurnover (ZARm)Pre-tax profit (ZARm)Earnings per share (ZAR¢)Dividend per share (p)
2007184-344-82.8nil
200819196301141.0
% change+943---

Ex-div: 1 Oct

Payment: 3 Nov

*£1=ZAR14.78