Merafe starts layoffs after proposal for electricity tariff fails to save South African Smelters

Merafe Resources announced on Tuesday that its chrome joint venture, with Glencore, has started formally laying workers off after a proposal for an electricity tariff failed to ensure the viability of two South African ferrochromesmelters.

According to Glencore's estimates, South Africa has approximately 80% the known world chrome ore reserves. This makes the country a major player in the global ferrochrome industry.

In May, however, power outages, increasing electricity prices, and other pressures forced companies to stop production at Boshoek Wonderkop and Lion Ferrochrome smelters.

Merafe stated in a press release that following discussions with South African utility Eskom on new power tariffs, presented by the company on November 28, only Lion Smelter would be allowed to continue operations.

Merafe stated that "unfortunately, the proposal doesn't provide a viable solution for the Boshoek smelters and Wonderkop smelters on a long-term basis."

In the absence of a plan alternative, the two smelters would be put on care and maintainance from January 1, it said.

The formal retrenchment notifications and voluntary severance packages approvals went into effect on December 1, and are conditional until the 8th of December.

Merafe stated that if the South African government does not come up with a viable solution by December 9, the retrenchments would become mandatory.

In June, the South African government approved a proposal to tax chrome ore as part of its efforts to stop ferrochrome's decline.

The proposed export tax was rejected by chrome producers and ferrochromesmelters, who argued that competitive electricity tariffs were the most important intervention to restart idled plants.

The Minerals Council of the country and the Ferro Alloy Producers Association released a statement on Monday stating that the electricity tariffs have increased by over 900% since 2008. This has made domestic smelters non-competitive, and therefore unprofitable.

They said that without an intervention to directly address the burden of electricity costs, no trade measures including a tax on chrome ore or quotas will be able to restore viability for the country's iron-alloy smelters. (Reporting and editing by Jan Harvey; Nqobile Dudla)

(source: Reuters)