Openpit mining company Afrimat on Thursday posted a 4.3% year-on-year improvement in operating profit to R202.7-million for the six months ended August 31, while revenue increased by 28.6% year-on-year to R1.5-billion.

These positive results, CEO Andries van Heerden said at a media breakfast, were well supported by the group’s diversification strategy, particularly in respect of iron-ore.

Afrimat, he added, focusses on its competitive advantages, which include the company’s geographic footprint, unique metallurgy, structural cost advantage and highly entrepreneurial culture.

He pointed out that the ongoing political uncertainty and economic slowdown in South Africa had continued to impact on Afrimat’s construction materials businesses during the six months under review.

However, the company’s bulk commodities segment, which includes the Demaneng iron-ore mine, in the Northern Cape, is proof of Afrimat choosing to not linger on the negatives but to seek opportunities that arise amid difficult markets, Van Heerden said.

Mining Weekly Online reported earlier this year that the Demaneng mine – previously known as Diro Iron Ore – is expected to increase production from the current 600 000 t/y to about one-million tons a year.

The mine started ore production and beneficiation after substantial revamping in July last year and shipped its first ore to China in August that same year.

The R320-million investment contributed positively to Afrimat’s positive results, after being bought out of business rescue two years ago.

“This is a gratifying outcome, demonstrating the importance of well thought-through strategy.”

As an example of the investment’s upward growth path, Van Heerden told media that the mine had made a R5.5-million loss in the first half of the prior financial year, but has since turned its financial position around, contributing R50-million, or 25%, to company profits, during the six months under review.

Elaborating on the rationale for the acquisition, Van Heerden explained that iron-ore presented good margins, while being an “excellent operational fit”.

Additionally, Afrimat was able to easily add, or develop, the skills required to operate this segment.

The quality of the iron-ore at Demaneng is also of “a very good quality that provides a competitive advantage and has a very good lump-to-fines ratio”.

Meanwhile, Afrimat’s headline earnings a share decreased by 8.4% from 102.2c to 93.6c.

The group declared an interim gross dividend of 19c a share, compared with 20c in the prior comparable period, in line with its dividend cover policy.

OPERATIONAL REVIEW
Van Heerden commented that Afrimat’s operating units are strategically positioned to deliver excellent service to the group’s customers, while acting as an efficient hedge against volatile local business conditions.

“We have purposeful exposure to sectors with economic fundamentals that suit our business model to counter economic slowdown. Our product range is well diversified to include aggregates and concrete-based products as construction materials, [while] limestone, dolomite and silica [make up] the industrial minerals cluster. Iron-ore is currently the only mineral in the bulk commodities cluster.”

Afrimat’s industrial minerals businesses delivered solid results, although the Lyttelton dolomite mine was impacted on by the economic slowdown in the construction sector.

The construction materials cluster saw solid results in the coastal regions.

The Mozambique business was in a ramp-up phase after receiving an order to supply construction materials to a large project. The KwaZulu-Natal and Gauteng businesses were the worst affected by the economic slowdown, said Van Heerden.

“We are, however, optimistic that the construction sector will benefit from government’s economic stimulus initiatives. The R400-billion Infrastructure Fund should knock loose some activity and we are beginning to see small nuggets of growth starting to show in certain segments.”

PROSPECTS
“The group is well positioned to capitalise on its strategic initiatives, and we do foresee continued growth from an excellent asset base,” Van Heerden told the media, adding that the group expects further growth from the expansion of its “unique product range and business improvement initiatives”.

He stated that operational efficiency initiatives aimed at expanding volumes, reducing costs and developing the required skill levels across all employees, would remain a key focus in all operations.

Additionally, the group expects the current business climate to continue, and so would “stick to its guns” in terms of ensuring that the diversification strategy is being implemented successfully.

Afrimat focuses on ensuring that the recent acquisitions are producing well, in addition to assessing further opportunities for acquisitions that fit the group’s criteria.

“New business development remains a key component of our strategy, and the dedicated business development team continues to successfully identify and pursue opportunities in existing markets, as well as in anticipated new high-growth areas in Southern Africa,” he added.

Van Heerden committed to encouraging the sector and government to work together to shape a collective vision for the future that everyone can work towards.

“I am committed to pursuing this idea of a ‘Vision 2030’ as I believe strongly that the construction sector will return to robust levels, but we need to collectively find the opportunities to support growth, working together and driven by a common vision,” he concluded.