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Afrimat’s move into mining pays off big time

Seven years after diversifying into iron ore mining, Afrimat rides the commodity wave.
Revenue improved primarily due to increases in volumes and attractive iron ore pricing. Image: Ian Waldie/Bloomberg

Though listed on the JSE as a construction company, Afrimat’s largest profit contributor by a long way is bulk commodities, mainly iron ore.

The company made its first foray into mining in 2015 when it acquired the Demaneng mine in the Northern Cape. This was a relatively short-life mine, augmented by the acquisition of the Driehoekspan and Doornpan iron ore mines, also in the Northern Cape, as part of the acquisition of Coza Mining in 2020.

Read: Afrimat continuing its journey into a mid-tier mining house

Results for the year to February 2022 show bulk commodities now accounting for three-quarters of operating profit. Construction materials, the original core of the business, accounted for some 17% of operating profit, and industrial minerals the balance.

Post year-end, the first blast was undertaken at Driehoekspan, the iron ore asset that will replace Demaneng mine once it is mined out in about three years’ time.

Driehoekspan and Doornpan are to be brought into production to maintain export volumes and have a combined life of mine in excess of 15 years.

Also acquired in 2020 was the Nkomati anthracite mine in Mpumalanga, which made losses in the first five months of the year but then turned profitable. It produces a high quality anthracite that is sold locally, with production eventually expected to exceed 540 000 tons a year. Two opencast pits have been opened and work has commenced on underground operations.

Also acquired during the year was Glenover Phosphate, including phosphate stockpiles, rare earths and a vermiculite mining right, which positions Afrimat to enter new commodities. Sales of raw phosphate will reflect in future reporting periods.

A remarkable feature of the results is the low debt:equity ratio of 12.1%, despite some sizeable acquisitions in recent years. A year ago debt:equity stood at 3.8%.

“What’s encouraging is that all business units contributed positively to the results,” says Collin Ramukhubathi, executive director at Afrimat. “The industry is still tough but we are thankfully now back to pre-Covid levels.”

All three divisions – Construction Materials, Industrial Minerals and Bulk Commodities – registered strong growth compared to the previous financial year, when the effects of the Covid lockdowns temporarily throttled production.

Recent news that Sanral had cancelled tenders worth R17.47 billion is likely to disrupt the viability of the country’s civil engineering sector, and Afrimat’s construction division will feel the pinch, says Ramukhubathi.

Read: Sanral cancels R17.47bn in adjudicated tenders

“The war in Ukraine is another factor that is likely to impact construction, as well as inflation which is creeping up.”

The numbers

Revenue as reported improved primarily due to increases in volumes as well as attractive iron ore pricing. This translated into an operating profit increase of 25.1% from the previously reported operating profit of R886.3 million to R1.11 billion.

An overall operating profit margin of 23.7% was attained compared to 24% in the previous year, with headline earnings per share increasing by 22.9% from 441.7 cents to 542.9 cents.

Net cash from operating activities remained strong, while the net debt:equity ratio continued to be very low, increasing from 3.8% to 12.1% because of the acquisition of Coza Mining Pty Limited, the Glenover transaction, and capital funding for the Nkomati and Jenkins mining assets.

Given the group’s low gearing level and opportunities to expand existing operations, as well as enter new businesses, both in SA and in the region, a team has been set up to focus on future minerals projects.

The share closed 0.90% down on Thursday at R56.10.

Afrimat share price

Listen to Fifi Peters’s interview with Afrimat executive director Collin Ramukhubathi:

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