Afrimat to acquire R650m manganese mining right

‘I think we supply something like 70 or 80% of the world demand and this is one of the last really large remaining resources in the Kalahari field that was available’: CEO Andries van Heerden.

SIMON BROWN: I’m chatting now with Andries van Heerden, CEO of Afrimat. Andries, I appreciate the early morning time. An announcement has come out that Afrimat is going to be acquiring a manganese mining right. Manganese is a bulk commodity. It’s used in the steel industry, it’s used in dry-cell batteries. It’s also apparently used in dark paint pigments. But it fits very much in with the iron-ore business that you’ve got, and it is just on the road from your iron ore.

ANDRIES VAN HEERDEN: Good morning, Simon. Yes, all that you said is correct. It is a mineral in the ferrous value chain. It is one of the minerals that South Africa is very strong on. I think we supply something like 70 or 80% of the world demand and this is one of the last really large remaining resources in the Kalahari field that was available. And so it’s a fantastic opportunity for us.

SIMON BROWN: From one perspective this is a right. This is not, if I understand correctly, a mine that is currently operating. You’re going to have to develop it. What sort of timeline is involved?.

ANDRIES VAN HEERDEN: Yes. It’s a greenfield operation. It’s probably going to take us 12 to 18 months to get to production, and the biggest lead time is actually getting the authorisations in place, the water-use licence, and to get the Section 11 transfer, which is the transfer of the mining right and that in place. That’s probably going to be the longest lead time and then the mine is open. 

But the mine is relatively shallow for manganese and it should be in production 18 months from now.

SIMON BROWN: Okay. So 18 months, sort of towards the end of 2022. You say it’s an open pit. My understanding – not that any mining is easy – is that open-pit does make it an easier environment. This is in a sense Afrimat’s speciality, quarrying open-pit iron ore to a large degree as well. This does fit in with the skill sets that you and your team have.

ANDRIES VAN HEERDEN: Absolutely. It’s relatively close to what we’ve been doing in the past. And, given the close proximity of our iron-ore team, which is actually a very, very strong team that we have there, there should be some good synergies with our team in the area as well. 

SIMON BROWN: Manganese itself as it trades – is it contract-based? I remember way back in the day iron ore was contract-based. We talking about the early 2000s. It was around 2008 or so that it moved on to spot and the futures markets and the like. How is manganese traded? Is there market risk or, as we’ve seen with iron ore at the moment, potentially massive market upside?

ANDRIES VAN HEERDEN: It has a similar market risk to iron ore. So it is traded internationally; there’s a spot price internationally and it’s traded through trading houses internationally. It’s very similar to iron ore.

SIMON BROWN: So very much similar in that sort of space. As I said, one of its uses obviously is steel as well. The cost at $45 million, R650 million – are you funding this out of cash? Are you taking some debt on it? I mean, certainly, Afrimat has been, particularly with current iron-ore prices, massively cash-generative.

ANDRIES VAN HEERDEN: We plan to fund it out of our own cash resources. We only pay the first tranche on the transfer of the mining-rights use licence. So we have some time to save up for it, but we should pay for it out of our own cash reserves unless something really unforeseen happens.

SIMON BROWN: We chatted last year around Afrimat and deal-making, and I’m on record as saying that Afrimat has probably got the best record on the JSE for doing deals. This I imagine ticks all of those boxes. Is it something which you and your executive team sort of spend a fair bit of time looking at, at potential deals, and perhaps rejecting a bunch of them? Or is it more a case of occasionally one comes along that is too good to miss up on?

ANDRIES VAN HEERDEN: Simon, it’s actually an interesting time that we’re in. We’ve got a dedicated business-development team that looks around all the time and they’ve got their ear on the ground. The number of opportunities in the space that we operate in is just mind-boggling. It is amazing, the amount of opportunities that we see. It’s almost a little scary because you must make sure that you have the ability. Funnily enough, the cost involved is very important, but the more important part is the ability to execute, making sure that you have enough competent people who can execute on these things. That is becoming the limitation factor – to be able to execute on all of it. But the number of opportunities is just amazing.

SIMON BROWN: The space you operate in – is that bulk commodities?

ANDRIES VAN HEERDEN: That is mostly bulk commodities, yes. Even in construction materials right now, there are some very, very interesting opportunities. We operate in construction materials, industrial minerals and in bulk commodities. In all three of the areas, we see very, very good opportunities right now.

SIMON BROWN: That was Andries van Heerden, CEO of Afrimat, as they acquire a manganese mining right. As I said, Andries and his team are undoubtedly the best dealmakers on the JSE. We’ll see how this one turns out – but if history is any guide, it should be another stunner for the group.

Listen to Tuesday’s full MoneywebNOW podcast here.

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