Bloomberg reported that Merafe Resources Limited agreed to join Xstrata Plc in a project to expand the world’s biggest producer of ferrochrome and will fund its ZAR 1 billion contribution with cash, debt and future revenue.

The companies will construct a 360,000 tonne smelter, raising annual ferrochrome capacity of their JV in northern South Africa to 2.3 million tonnes. The company owns 20.5% of the Xstrata and Merafe Chrome Venture, supplier of about a fifth of world demand for ferrochrome used to make stainless steel.

Merafe decided against exercising an option to increase its stake in the venture to as high as 26% which would have required funds from a sale of new shares, because of conditions in the equity market. The company which rose 0.8% to ZAR 1.23 has fallen 26% in 2011 as costs have risen and demand for stainless steel remains subdued.

The company said that production from the new smelter is scheduled to begin in the H1 of 2013 by which time the market is expected to be short of supply.

(Sourced from Bloomberg)