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Company continues ramp-up of new iron-ore asset

DIRO MINE Afrmat invested R300-million into the Diro iron-ore mine in the Northern Cape

REVENUE OPPORTUNITIES The Diro mine investment has marked a new phase of growth for Afrimat

8th December 2017

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

     

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Industrial minerals, commodities and construction materials group Afrimat has successfully recommissioned its recently acquired iron-ore play, with full production on track for March 2018.

The acquisition of the distressed small iron-ore mine, Diro, in the Northern Cape, had marked a new phase of growth for Afrimat, which invested north of R300-million into the asset.

After restarting production in July, Afrimat is now producing about 40% to 50% of its intended one-million-tonne-a-year output, Afrimat CEO Andries van Heerden said during a media roundtable in November.

By August, ore was shipped to China, through the Sishen-Saldanha iron-ore export channel, located in the Northern Cape and the Western Cape respectively, in a sale agreement that will see all the mine’s output head to China through a joint venture partnership with a local iron-ore exporter.

In addition, Afrimat has secured an agreement with State-owned Transnet for rail allocation and its own load-out facility.

The group aims to ramp up production to one-million tonnes a year by March 2018.

An expansion could be considered once the mine is at full production and cash generative, Van Heerden commented.

Afrimat made a bid for Diro in July, after the operations were halted on the back of the financial distress of its previous owners and, subsequently, placed into formal business rescue in June 2016.

Initially, Afrimat acquired the majority 60% stake in the mine for R276-million, before deciding to absorb the remaining 40%, effective July 31, for R44-million, giving Afrimat access to the full value of Diro. The operation formally exited business rescue on August 16.

“Given the nature of Diro’s reserves and the access to infrastructure, together with Afrimat’s existing competencies, the transaction allows the ability to leverage the combined strengths, which will result in developing new revenue opportunities for Afrimat in the iron-ore space,” the company explained.

Diro has a proven ten-million tonnes of run-of-mine reserves.

Financial Results

Despite a difficult start to the year, Afrimat quickly recovered in the second quarter to deliver more than 7% growth in earnings for the first six months of the year.

The muted first quarter – hit by an unusually low number of effective trading days in April, high levels of rain in March and major political events that severely impacted on business confidence – had been offset by “exceptionally good results” in the second quarter.

Investments in working capital for Diro prior to start-up and in additional clinker stock for local masonry brick manufacturer SA Block impacted on cash generation, affecting the company’s results for the six months under review, Van Heerden said.

“The business has done well, cash generation was good,” he noted, adding that reinvestment in Diro was required during the period, impacting on the first-half results, but setting the company up for growth in the second half of the year.

Headline earnings a share increased by 7.4% to 102.2c during the first half of the year.
Revenue for the six months to August 31 was flat at R1.2-billion, with profit for the period having contracted by 0.5% to R138.5-million.

Afrimat’s net asset value a share was up 4.1% to 809c for the half-year under review.


“Mineral producing operations across all regions, as well as the traditional aggregates businesses, were the main contributors to the satisfactory set of results,” Van Heerden concluded. Afrimat has maintained its interim dividend of 20c a share.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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