International Ferro Metals Limited : Production Report for the three months to 31 December 2012

Production Report for the three months to 31 December 2012

24 January 2013

Highlights:

• Furnace electrode paste replacement successfully completed over the quarter, limiting impact on production to a 10% fall (52,143 tonnes) and a 5% drop in sales (51,092 tonnes) compared to the previous quarter, better than previous guidance
• Furnace 2 reached near record production in December
• Sky Chrome mining operations produced 149,000 tonnes run-of-mine ore for the quarter, down from 190,000 tonnes in previous quarter due to holiday periods
• Co-generation plant produced 8.9GWh of electricity for the quarter, 4.3% of total requirement
• 27% of targeted production cost savings achieved for the quarter
• Entrance into new, high-growth market by securing first sales in India, expanding spread of customer base
• Net borrowings increased from ZAR390 million at 30 September 2012 to ZAR436 million at 31 December 2012, comfortably within the ZAR500 million working capital facility and better than previous guidance of ZAR460 million
• Zero fatality track record maintained and further significant improvement in overall safety performance

Post period highlights:

• Agreement signed today with Eskom to participate in the energy buy-back programme with one furnace to be shut down for the period 1 February to 31 March 2013
• European benchmark price up 2.5¢ to US112.5¢/lb in January, with spot price improvement exceeding that of the benchmark price

	Three months to 31 December 2012	Three months to 30 September 2012	Three months to 31 December 2011
	(tonnes)	(tonnes)	(tonnes)
FeCr production	52,143	57,949	54,142
FeCr sales	51,092	54,003	58,389
FeCr stock at quarter end	15,815	14,795	10,737

Commenting on the update, Chief Executive Chris Jordaan said:

"I am pleased to report that both furnaces have fully recovered from the electrode paste issue and actions taken will prevent the issue from reoccurring. We successfully limited the impact to production which exceeded our previous guidance and therefore the impact to sales was contained. At the end of the quarter, we were operating at full capacity with Furnace 2 producing near record production in December.

The agreement with Eskom enables the Company to assist with South Africa's electricity supply requirements and sell electricity back to the grid at a financially beneficial rate for the next two months. The second furnace will continue to operate at full production and will service our clients around the world. We are particularly delighted to have made our first alloy and ore sales into India over the quarter which we have identified as a growth market for the Company. With our furnaces back at capacity, and our cost reduction programme moving back on track, IFL is well positioned to service a growing customer base after the Eskom agreement is completed."

Stainless steel and ferrochrome markets
Spot FeCr prices started to rebound in late 2012 even though stainless steel production remained under pressure. This can be attributed to low stocks, which were aided by a combination of typically strong seasonal factors that increased costs in China, as well as the production cuts that were announced by most South African producers. The European benchmark price settled at 112.50¢/lb for the first quarter of 2013. Spot prices showed a stronger recovery and are now firmly above 90¢/lb in Asia. Underlying fundamentals suggest that prices should remain at these levels throughout the quarter with the potential to increase thereafter on the back of stainless steel demand.

Health and Safety, and the Environment ("HSE")
The Company had no fatalities during the quarter and remains fatality free since inception, representing 23,701,171 million fatality free man hours which equates to 2,962,646 million fatality free shifts as at 31 December 2012. The 12 month moving average lost time injury frequency improved further from 2.99 at 31 December 2011 to 1.84 at 31 December 2012 as the Company continues to focus on HSE and continually improving our training.

Annual Environmental and Quality Management Audits, ISO 9000 and 14000, were conducted and certifications were successfully maintained.

No environmental incidents were reported in the period under review.

Mining
Run-of-mine ore production for the quarter to 31 December 2012 decreased to 176,000t from 244,000t in the prior quarter. Lesedi underground production was down due to the termination of our agreement with the mining contractor in December. The Company is currently reviewing the Lesedi underground mine plan, which includes discussions as to whether or not to use a contractor in the future. The review is expected to be completed within 12 months.

Sky Chrome production decreased from 190,000t to 149,000t due to the December holiday period impacting the number of operating days.

The Company continues to source adequate supplies from Sky Chrome, UG2 and other sources, and is therefore not reliant on the Lesedi underground mine.

Chrome ore production	Three months to 31 December 2012	Three months to 30 September 2012	Three months to 31 December 2011
	(tonnes)	(tonnes)	(tonnes)
Lesedi	27,000	53,000	149,000
Sky Chrome	149,000	190,000	122,000
Total	176,000	244,000	271,000
Recovery rate (%)	51%	55%	58%

Recoveries for the quarter from the ore beneficiation plant averaged 51% compared to 55% in the previous quarter. As previously announced, lower recoveries are expected during the ongoing shallow mining phase of the Sky Chrome open-pit as weathered ore is extracted, which will improve as the open-pit reaches unweathered deeper levels.

Smelting
Management is pleased that the problems experienced with the furnace electrodes in November 2012 have now been resolved. FeCr production for the quarter was higher than expected at 52,143 tonnes compared with 57,949 tonnes in the prior quarter. With the exception of the electrode issue, furnace efficiencies and throughput were pleasing.

Co-generation plant
During the quarter to 31 December 2012, the Cogen plant generated 8.9GWh of electricity which represents 4.3% of the Company's total electricity requirement for the quarter. This was lower than the previous quarter, mainly due to lower production caused by the electrode failures in the furnaces. At full production, the Cogen plant is expected to provide the Company with approximately 11% of its total energy requirements.

UG2 Plant
In 2010, IFL signed an agreement with Anglo Platinum to receive 15,000t per month of UG2 chrome concentrate until 2020 from the recovery of chrome in the UG2 tailings from Anglo Platinum's Waterval Concentrator in Rustenberg. This is a beneficial agreement which delivers a cost per tonne of concentrate from the Chrome Recovery Plant (CRP) which is significantly below the Company's in-house cost of concentrate production.

As previously reported, this supply was temporarily interrupted in mid-October 2012 as a result of strike action at Anglo Platinum's operations. At the time, the Company was able to make up the loss in supply through its own operations and stock. With the resumption of mining activity at Anglo Platinum towards the end of last year the supply process has now resumed, and as part of the contract signed in 2010, Anglo Platinum is required to make up any losses in tonnage incurred at a rate of an additional 5,000 tonnes per month. January supply is on track to supply the normal monthly 15,000 tonnes plus the 5,000 catch-up tonnes.

On 15 January 2013, Anglo Platinum announced an operational review which may include the closure of their Waterval UG2 concentrator; this concentrator's tailings are currently the feedstock for the Anglo Platinum Chrome Recovery Plant. As part of the Anglo Platinum review, material from other mines will be redirected to another concentrator close by (the "Waterval Merensky Concentrator") and this concentrator will supply sufficient feed to the CRP. Although the tailings will not come from the UG2 reef only, but will include c. 20% of the Merensky reef, the IFL contractual volume and quality of the chrome concentrate is not expected to change.

If the UG2 Waterval concentrator is to be closed down, it is expected to occur in the fourth quarter of calendar 2013. The changeover in concentrator feed to the CRP is not expected to have a material impact on the monthly supply of chrome concentrate. As mentioned above, under the terms of the supply agreement Anglo Platinum is required to make up any losses once supply is resumed.

Sales and inventory
FeCr sales for the quarter to 31 December 2012 were down 5% to 51,092 tonnes compared with 54,003 tonnes for the previous quarter. FeCr inventory was 15,815 tonnes at 31 December 2012 from 14,795 tonnes at 30 September 2012. Management expects to maintain stock at approximately 10,000 tonnes for the foreseeable future, subject to market conditions and operations remaining unchanged.

IFL continues to strengthen its active marketing approach to reduce marketing costs, diversify the customer base and participate more directly in marketing activities. The strategy was successful in targeting the USA for new markets and the Company has also expanded sales activities into India. A further initiative to strengthen the sales book was achieved by increasing long term contractual sales from 20% to 35% of production which, inclusive of regular quarterly business, accounts for 70% of the sales book and leaves the balance available for selective spot sales. Further to this, the increased participation in marketing has allowed for cost savings by reducing the use of intermediary agents.

Further cost savings are expected as inland logistics in South-Africa are optimised. IFL is investigating rail freight options in order to reduce reliance on road transportation, thereby helping to boost reliability and reduce transport costs.

Ore sales for the quarter to 31 December 2012 were 33,000 tonnes compared with 46,000 tonnes for the previous quarter. This was mainly due to the lower Sky Chrome production and to a lesser extent to UG2 supply interruptions over the quarter.

Cost reduction programme
Ferrochrome production cost for the quarter was ZAR6.38/lb, down from ZAR6.58/lb in the previous quarter. The Company is targeting total cost reductions of ZAR0.76/lb on FY2011 production cost of ZAR6.25/lb. These targets strip out changes in unit electricity and reductant prices, which are outside management's control and affect all other South African producers.

On an adjusted basis, this quarter's production cost was ZAR6.04/lb compared with ZAR5.95/lb for FY2012 and ZAR5.77/lb for the previous quarter. This represents 27% (ZAR0.21/lb) of the targeted cost reduction. The increase in adjusted production cost from the previous quarter was mainly due to higher ore cost as a result of the low Lesedi underground mining volumes and higher electricity and maintenance costs due to the electrode breaks during the quarter. As the efficiencies of the furnaces were directly negatively influenced by the instability caused by the electrode problems, management is confident that the cost reduction programme is well on track now that the furnaces have stabilised.

Management is pleased with the improved performance of the furnaces post the electrode paste replacement.

The Company is on track to achieve its targeted cost reduction when the full effects of higher production volumes and normalised electricity consumption, together with improved beneficiation recoveries and full co-generation capacity, are realised.

Cash
The Company's net borrowings increased to ZAR436 million at 31 December 2012, against net borrowings of ZAR390 million at 30 September 2012, comfortably within our ZAR500 million working capital facility and better than previously guided on 29 November 2012 of ZAR460m. Cash from operations (before working capital changes) utilised ZAR52 million, financing activities utilised ZAR4 million, capital expenditure utilised ZAR14 million (relating to mining and general engineering costs) and working capital generated ZAR24 million. Debt is expected to expand slightly during the current quarter before reducing over the rest of the year.

Eskom electricity buy back agreement
Today an agreement was reached with Eskom to assist with the South African power utility's electricity supply requirements by participating in its electricity buy-back programme. Under the terms of the agreement, the Company has agreed to switch out one of its two furnaces from 1 February until 31 March 2013.

Eskom will buy back the electricity which would have been consumed by the furnace during the two month period of the shutdown at a financially beneficial rate to the Company.

IFL's contractual commitments to customers will not be affected as these will be serviced from production from the second furnace which will continue operating at full production as normal.

After the conclusion of the buy-back agreement, IFL expects the switching back in of the furnace to be as quick as was achieved at the end of the previous buy-back agreement in 2012.

No job losses will occur as a result of the buy-back programme and the furnace shutdowns will not significantly impact our other mining and ore beneficiation operations.

Separately, maintenance work on the Furnace 1 taphole which was scheduled for 1 February was found to be required earlier than anticipated. The furnace was shut down on 18 January for the required taphole maintenance work and therefore will be restarted after the Eskom buy-back period.

Outlook
As we look to the next quarter, we see the scheduled maintenance of Furnace 1 continuing through the period of the Eskom shut down agreement which moves us into a stable period of production with Furnace 2 operating at full capacity and meeting the needs of our customer requirements. We are also confident that, come the conclusion of the Eskom agreement, Furnace 1 will switch back in as smoothly as it did last year.

Full implementation of the Company's ongoing cost reduction initiatives through 2013 will place International Ferro Metals in a healthy position to take full advantage of recent more positive developments in the ferrochrome market and the entry into new markets such as India.

Analyst / investor Conference call
Management will discuss these results in a conference call with the investment community today, Thursday 24 January 2013, at 08.30am (London). Dial in details are below:

Dial in:	[phone]
Pin code:	92042605

International Ferro Metals Limited Chris Jordaan, Chief Executive Officer	[phone]
Brunswick Group Carole Cable / Clemmie Raynsford	[phone]
Numis Securities Limited James Black / Stuart Skinner	[phone]

About International Ferro Metals:
International Ferro Metals produces ferrochrome, the essential ingredient in stainless steel, from its integrated chromite mine and ferrochrome processing operations in South Africa. International Ferro Metals is listed on the London Stock Exchange under the symbol IFL.

Forward Looking Statements
This announcement contains certain forward looking statements which by nature, contain risk and uncertainty because they relate to future events and depend on circumstances that occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements.