JOHANNESBURG (miningweekly.com) - Ferrochrome producer International Ferro Metals (IFM), which has raised R284-million (£22,2m), reports a general shortage of ferrochrome and an apparent end to the destocking cycle.

"What we're experiencing is a general shortage of ferrochrome," IFM CEO David Kovarsky told Mining Weekly Online on Monday. On the seeming end to the destocking cycle, he added: "We're either there, or we're almost there."

IFM issued 50,4m shares at 44p, representing 9,99% of the company, primarily to fund the building of a clean development mechanism (CDM)-compliant electricity cogeneration plant at its Buffelsfontein operation in Rustenburg, where Eskom restricted power use to 90%.

Total capital of R255-million will be required to build the new cogeneration power plant and to fill that 10% power gap.

"We've already spent about R60-million and there's another R195-million to go," Kovarsky told Mining Weekly Online.

IFM terminated its mining contract towards the end of last year: "We're in the process of employing a new mining contractor, and we're going to spend about R85-million in the next two years on getting the mine into shape," Kovarsky added.

The company last month announced that it had secured R500-million in working capital from China Bank, which, with its cash reserves, would allow the restart and development of the mine.

The CDM-compliant plant, Kovarsky said, would generate 13,7 MW, which was about 11% of IFM's overall electricity requirements. That expenditure would reduce the company's costs; displace 144 000 t of carbon dioxide equivalent a year; and put it in line to receive R15,5-million (Euro 1,4m) a year in carbon credits.

Carbon monoxide (CO), a gas byproduct of the ferrochrome-manufacturing process, would, once the plant was commissioned in September 2010, be taken through engines for conversion into electricity, and no longer flared into the atmosphere as CO2.

Fairfax mining analyst John Meyer reported on Monday that the stainless steel market was picking up, with June industry ferrochrome inventories down to eight weeks, from 12 weeks previously and from 24,3 weeks in December 2008, prompting an increase in the 2010 price forecast for ferrochrome to an average of 95c/lb.

Meyer said that plant utilisation rates in Europe had risen to 60%, and that there had also been utilisation uplift in China, Korea and Taiwan.

The IFM cogeneration plant, Meyer said, would reduce emissions, increase smelter efficiency and offset coking coal cost pressures.

"The other benefit is that we save on electricity costs that have gone up 69% since April 2007, and we will also get more production, because we have been held back to 90% of production by Eskom, and the cogen plant will take us back to 100%," Kovarsky explained to Mining Weekly Online.

Project engineering had been completed and civil and structural would follow.

On the share placing, Kovarsky said: "There seems to be an appetite for IFM and it demonstrates a confidence in the company and in ferrochrome as a metal and we are very happy about."

Major Chinese shareholder Jisco, also a major offtake partner, followed its rights and contributed pro-rata to maintain its shareholding at around 29%, in a reportedly oversubscribed stock issue.

Meyer added that the company's full-year results, due on September 13, would highlight the difficult operating issues that it had experienced as a result of the credit crisis, which had caused 90% of the world's ferrochrome production to be halted.

"Fortunately, the market is looking forward, to results next year, and is not looking back," Meyer added.

He expected fourth-quarter European ferrochrome prices to settle significantly higher than the 89c/lb third-quarter settlement - possibly above 100c/lb - as stainless steel producers moved to restock ferrochrome on new demand.

IFM, which had conducted a marketing campaign in China, believed that demand was sufficient to justify increasing production capacity to 267 000 t/y from the current 90% power allowance.