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AEL leans on coal, iron-ore

AECI CEO Mark Dytor

AECI CEO Mark Dytor

Photo by Duane Daws

28th October 2014

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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As strikes in South Africa’s mining space, particularly within underground operations, weigh on AECI during 2014, the JSE-listed group has moved to lean more on the coal and iron-ore sectors to bolster the group’s bottom line.

Speaking at an investor day at AECI’s Woodmead offices, on Tuesday, CEO Mark Dytor said that, over the past year, mining has “not been a great space” for the group owing to the impact of the industrial action in the platinum sector in the first half of the year.

While AECI was “still counting the cost” of the strikes, it was estimated that in excess of R300-million had been shaved from the operating profit of explosives arm AEL Mining and chemical unit Senmin.

The mining explosives unit contributed 43% of group revenue during the first half of 2014, with the mining chemicals business contributing 14%.

Together, the units delivered 57% of the half-year revenue – a figure that was “usually higher”.

Dytor indicated that September was the first month in this calendar year that saw a return to normality in volume supply, with October seemingly following suit.

“Hopefully, we will see some clear sky during the last months of the year,” he said.

However, the pressure remained on mines to deliver more effective ways of mining, amid relentless commodity price declines.

He pointed to an ongoing weakness in commodity prices, particularly platinum and gold, which was driving mining houses’ pursuit of cost-effective opportunities and deriving greater value solutions from suppliers.

RISING OPPORTUNITY
Sales revenues in the global explosives industry are expected to grow 17% to around $22-billion by 2018, up from the current $18-billion, with the bulk of the growth emerging in China, Australia and Indonesia, AEL Mining MD Schalk Venter told investors.

Revenue from operations in South Africa was expected to rise rapidly by between 20% and 25% next year, mostly owing to the coal and iron-ore sectors, despite a 4.4% contraction in revenue during 2014 on the back of strike action and a difficult operating environment.

AECI planned to leverage its ongoing commodity diversification into coal and iron-ore to enhance the bottom line of AEL.

Currently, the coal sector accounted for 20% of group mining revenue, with gold and platinum accounting for 16% and 15% respectively.

While iron-ore only contributed 5%, a newly secured five-year contract would boost its explosives volumes in the sector from 25 000 t of bulk emulsion in 2014 to 79 000 t by 2019.

Venter said new contracts would see gains in AEL’s market share in the coal sector from 31% currently to 47% in 2015, and secure growth in bulk emulsions volumes from 98 000 t in 2014 to 182 000 t by 2019.

The renewed focus on iron-ore and coal was aimed at derisking AEL’s dependency on underground operations, which was expected to see a decline over the next few years.

By 2015, AEL would source 38% of revenue from surface operations and only 12% from underground mines. This was a shift from the 33% and 25% of revenue sourced from surface and underground mines respectively in 2010.

Half of its revenue would emerge from international operations, as AEL’s international operations were expected to deliver growth of between 20% and 25% next year, mainly owing to the company’s entry into Australia starting to bear fruit.

AEL’s move to establish a branch in Australia had progressed with a memorandum of understanding signed with a blue-chip mining company to supply explosives from the first quarter of 2015, following the cementing of the final agreements by the end of November.

An AECI office had been established in Brisbane, while a bulk emulsion plant was installed at an operating site in Bajool, Queensland.

Further, trial blasts were still on track for December, Venter noted.

AEL continued talks with existing and new customers and expected its total explosives volume growth to rise from the secured 77 000 t in 2015 to 245 000 t by 2018.

Australia was currently the world’s top mining country, delivering mineral production value upwards of $72-billion, with South Africa ranking sixth with $27-billion and Indonesia, another geographic target of AEL, holding eleventh place with $12-billion.

AEL’s PT Black Bear Resources Indonesia ammonium nitrate plant, in Indonesia, was technically complete and operational at a run-rate of 87%.

While the uptake from Kaltim Prima Coal (KPC), AEL’s largest customer in Indonesia, had not been at the rate expected, the company believed that full capacity would be reached by the next quarter.
About 12 000 t of ammonium nitrate solution had been produced and delivered to KPC.

Further, all contracts awarded to AEL in the region were extended until 2018.

The company now had nine emulsion manufacturing plants, producing 100 000 t a year of bulk emulsion, two underground units and 19 mobile manufacturing units across Indonesia.

In the rest of Africa, growth was expected to remain at between 4% and 6% in 2015.

Mining in Zambia and Central Africa remained robust; however, gold mining volumes in West Africa remained under pressure owing to a declining gold price.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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