JOHANNESBURG (miningweekly.com) – South African chemicals and explosives producer AECI would, in the year ahead, focus on improving the operational performance of its explosives business AEL Mining Services, the company’s incoming CEO Mark Dytor said on Wednesday.

At the group’s results presentation for the year ended December 31, 2012, CFO Mark Kathan stated that AEL’s total profit from operations declined to R431-million from R510-million in 2011.

However, the explosives business increased its revenue by 15% to R6.3-billion, as explosives volumes improved by 5%, mainly in markets outside South Africa.

Although opencast mining volumes in Africa, including South Africa, grew strongly in 2012, underground mining volumes in South Africa were negatively impacted on by industrial action and other stoppages in the local coal, gold and platinum sectors during the second half of the year.

This resulted in a loss in revenue of R62-million in the region.

AEL’s performance was also negatively impacted by ammonia supply chain interruptions in the first half of the year, which led to losses of R50-million in the region.

The business’s Indonesian branch was also subjected to industrial action, exasperated by weakening thermal coal prices. Higher-priced ammonium nitrate in the country also affected performance in the second half, with the trading margin declining to 6.8% from 9.3% the previous year.

Dytor assured that AECI would work to return AEL to acceptable profitability by means of restructuring and continuing its cost reduction programme.

Chairperson Schalk Engelbrecht stated that the company had already made good progress in this regard, with cost savings in explosives initiating systems amounting to R57-million in 2012 and another R70-million expected in 2013.

He attributed the cost savings to initiating system machinery being capable of much higher production rates, its quality and first-time pass rates having greatly improved, as well as its increased stability, which allowed for more uptime through improved process and people management systems.

Dytor said AECI identified significant potential for increased sales and profits from mining chemicals, as mining volumes in Africa and Indonesia were anticipated to grow in 2013 on the back of new projects and contracts.

Projects included a nitric acid plant and an ammonium nitrate solution plant in Bontang, Indonesia, that was being built by Black Bear Resources Indonesia (BBRI).

AECI announced in November last year, that it had acquired a 42% shareholding in BBRI for $23-million.

AEL also invested in three additional bulk emulsion explosives manufacturing plants, in Burkina Faso, the Democratic Republic of Congo and Egypt to improve its supply capacity. The plants would be commissioned during this year.

Meanwhile, the international business also grew, with AECI securing four new contracts in Indonesia, three in the coal sector and one in underground gold mining. Supply to these would start in 2013.

FINANCIALS

After three years of growth, AECI recorded a 24% fall in 2012 full-year earnings, as strike action in the local mining sector impacted on demand for explosives.

The company’s headline earnings a share totalled 547c in the year to end-December, compared with 720c a year earlier.

Revenue rose 11% to R14.92-billion, mainly owing to the weaker rand/dollar exchange rate and increased selling prices. Ammonia import parity prices rose to R7 000/t in October, up from R5 750/t in July.

However, overall volumes were flat.

Strikes were rife in South Africa’s transport, mining and agricultural sectors in 2012, which had an adverse impact in excess of R100-million on AECI’s profit from operations.

The group declared a final cash dividend of 185c per ordinary share, up from 179c the previous year.

Dyton stated that although platinum and gold mining in South Africa were expected to remain challenging in 2013, prospects in Africa continued to be encouraging.