Mining explosives and chemicals group AECI is preparing to invest between R700-million and R900-million to modernise its historic Modderfontein facility, in Gauteng, which the group views as key to its ongoing competitiveness in southern and central Africa.

CEO Alan Dickson, who took up the position on July 1, tells Engineering News & Mining Weekly that the company has already made some initial investments at the facility in a bid to improve efficiencies and raise utilisation levels.

Speaking following the release of improved interim results for the period to June 30, he described these low-capital investments as the first phase of a larger optimisation plan for Modderfontein, whose future was in doubt a few years ago.

“The second part of that is a larger-scale, more complex exercise, which focuses on a number of the core parts of the business,” Dickson said in an interview.

He indicated that the complex engineering work for the next phase was under way and would be followed by a contracting phase ahead of project execution.

The brownfield investments will take place within AECI’s existing footprint and are expected to be completed over a three- to four-year horizon.

The project will seek to sustain AECI’s competitive position in southern and central Africa, which remain core markets, alongside the group’s focus on expanding into the Asia-Pacific region as part of the ongoing internationalisation of its core mining-related business.

AECI’s mining business was also the standout performer during the interim period, when the group reported a 20% rise in interim profit from continuing operations to R837-million.

Despite a 4% period-on-period decline in revenue, to R15.1-billion from R15.7-billion, earnings before interest, taxes, depreciation and amortisation (Ebitda) rose 2% to R1.6-billion, while headline earnings a share rose 8% to 653c.

AECI declared an interim dividend of 116c/share, which was 16% higher period-on-period.

Dickson indicated that the outlook for the mining business remained strong for the second half, supported by the securing of new contracts in Mali, Zambia, Burkina Faso and South Africa, as well as the successful renewal of key contracts in South Africa, Tanzania, the Democratic Republic of Congo and Burkina Faso.

Results for AECI Chemicals, meanwhile, were dampened by the poor performance of AECI Schirm Germany, where challenging market conditions resulted in operating losses and an impairment charge of R320-million.

Excluding Schirm, the part of the segment referred to by AECI as ‘Chemicals Core’ delivered a strong performance, with Ebitda increasing by 14% to R365-million.

However, Dickson said there had been no further decisions on non-core disposals and that further clarity on any “strategy refresh” would be provided when the group reported its year-end results.

He stressed, though, that there would be no deviation from the three strategic pillars already in place, which seek to leverage the group’s strengths, prioritise resilience and enhance the quality of earnings.

During the six-month period, the focus on resilience led to an investment in inventories in response to volatility in raw material pricing and supply arising from disruptions to shipping in the Strait of Hormuz.

While geopolitical volatility was expected to persist in the second half, Dickson indicated that there was potential for some unwinding of working capital during the period, which could improve free cash flow.

AECI was also closely monitoring the influence that the current Super El Niño could have on the domestic agriculture sector, however, which could affect sales for its plant health business in the second half or in the new year.

“While market conditions remain mixed, particularly in chemicals, our mining business continues to perform strongly, our balance sheet remains strong, and we remain committed to delivering predictable, sustainable value through disciplined execution and operational excellence,” Dickson said.