This week's announcement by Johannesburg-listed Metmar that Finland's Ruukki Group is to pay ZAR 2bn for an 84.9% interest in Mogale Alloys further entrenches the battle by the low profile Kermas group in taking on Xstrata, and its controlling shareholder, Glencore, which operates primarily as a global trader and logistics outfit. Xstrata, a diversified miner, ranks as the world's leading producer of ferrochrome, of which 80% of global primary production goes into the making of stainless steel.South Africa, the world's dominant producer of ferrochrome, sits at the centre of the battle; Kermas is already the controlling shareholder in Samancor Chrome, world's No 3 in production, after ENRC, which produces in the Eurasian area. World No 4 Hernic operates in South Africa, and is controlled by Mitsubishi Corporation, followed by No 5 in the form of South Africa's Assore. Kermas previously had links with Russia's Kluchevsky Ferroalloys, and its very aged plant and facilities.The production (and pricing) of ferrochrome can be volatile; on 5 May, Johannesburg-listed Merafe, one of Xstrata's black economic empowerment partners in South Africa, announced that  ferrochrome production for the Xstrata-Merafe venture for the first quarter of 2009 was 76% lower compared to the same period in 2008. Seventeen out of twenty furnaces, equivalent to some 80% of annual production capacity, remained suspended during the first quarter as destocking continued in response to weak demand.For a diversified miner, ferrochrome can have its uses. Xstrata posted EBITDA (earnings before interest, tax, depreciation and amortisation) of USD 234m for 2006, for its alloys division, which also includes certain other alloys. The number soared to USD 389m for 2007, and then positively exploded in 2008 to USD 1bn.But not even Samancor Chrome, which possibly holds 70% of global ferrochrome deposits, was attractive to two of the world's biggest miners. Samancor Chrome was previously owned 60% by BHP Billiton and 40% by Anglo American, and was sold, excluding The Wonderkop joint venture (with Xstrata) and Palmiet Ferrochrome plant, to Kermas in February 2005 for USD 469m.

BHP Billiton has long held, however, 60% of Samancor Manganese, where Anglo American again holds 40%. Samancor Manganese, which operates in South Africa and Australia, earned BHP Billiton underlying EBIT of USD 132m in 2006, nearly doubling to USD 253m for 2007. The number positively soared in 2008 to USD 1.6bn.

Stocks in the ferrochrome game

Stock

From

From

Value

price

high*

low*

USD bn

Xstrata

GBP 6.59

-73.2%

128.1%

30.635

ENRC

GBP 5.90

-61.5%

222.4%

12.002

Assore

ZAR 480.00

-43.5%

50.0%

1.596

ARM

ZAR 125.88

-59.0%

65.6%

3.196

Metmar

ZAR 4.30

-44.8%

48.3%

0.100

Merafe

ZAR 0.91

-79.0%

65.5%

0.268

International Ferro

GBP 0.40

-73.7%

300.0%

0.318

Ruukki Group

EUR 1.65

-28.6%

66.0%

0.394

Tibet Minerals

CNY 22.37

-7.6%

326.1%

0.902

Ferbasa

BRL 10.11

-49.5%

50.9%

0.147

Chromex

GBP 0.19

-58.7%

26.7%

0.014

Averages/total

-52.6%

122.7%

49.573

Weighted averages

-69.2%

135.9%

* 12-month