Afrimat's diversification strategy paying off

29th October 2020 By: Marleny Arnoldi - Deputy Editor Online

Afrimat's diversification strategy paying off

Afrimat CEO Andries van Heerden
Photo by: Creamer Media's Donna Slater

Openpit miner Afrimat reported an 11% year-on-year increase in operating profit for the six months ended August 31, despite a 9.4% year-on-year decrease in revenue.

The company also ended the period with cash and cash equivalents of R330-million, a 170% year-on-year increase.

Afrimat declared an interim dividend of 36c a share.

“Our diversification strategy proved its worth, most certainly so during the pandemic; our values-based entrepreneurial culture is paying off; and a very strong balance sheet enabled growth.

"In effect, a self-closing loop was created by implementing this strategy, using the cash generated by successful operations to pay down debt, and surplus cash to make further acquisitions, which in turn leads to further diversification, which in turn drives further growth,” CEO Andries van Heerden explained during the company’s results presentation on October 29.

He added that what had started out as a simple construction materials business had gradually become more sophisticated with the addition of industrial minerals, and then again with the addition of iron-ore.

“The potential acquisition of the Nkomati mine will add anthracite to our portfolio, thereby again enhancing our skills and our commodity diversity, while the Coza mining acquisition will further strengthen our iron-ore capacity.”

Van Heerden further provided a brief update on Nkomati, saying that, as a large creditor, Afrimat had applied for business rescue proceedings, which was approved by the court. Shareholder approval has also been obtained to proceed with the proposed scheme of arrangement.

“This, coupled with the high market demand for high-quality, clean burning anthracite, will add tremendous value to our bulk commodity diversification strategy. High-quality anthracite remains a sought-after product by large smelters in South Africa for metals smelting, fabrication and furnaces.”

In respect of Coza, Van Heerden said the high-quality ore resource, which consists of the Jenkins, Driehoekspan and Doornpan mines located close to Afrimat’s Demaneng iron-ore mine in the Northern Cape, would give Afrimat the ability to leverage resources due to its proximity to Demaneng.

“This acquisition will also potentially allow for a local product supply agreement to primary steel producer ArcelorMittal South Africa, whereas the Demaneng iron-ore mine is solely focused on the export market.”

OPERATIONAL REVIEW
Afrimat entered the national lockdown with a robust balance sheet, positioning the group well for the uncertainty that lay ahead.

“The impact of the lockdown was dampened by the partial reopening of the Demaneng iron-ore mine and certain industrial mineral operations early during the lockdown period,” explained Van Heerden, adding that the reopening was undertaken with utmost care to ensure the safety and wellbeing of all employees.

From April 20, Afrimat ramped up its operations according to market demand and in line with government regulations. All operations recovered from the Covid-19 impact and returned to profitability before August.

“Our product range is now well diversified and consists of construction materials, including aggregates and concrete-based products; industrial minerals, comprising of limestone, dolomite and silica; and bulk commodities, which is currently made up of iron-ore.”

The company’s Demaneng mine continued to make an "excellent" contribution to the group results, delivering a 135% increase in operating profit growth to R325-million. The performance was largely owing to favourable iron-ore pricing during the reporting period.

Afrimat’s industrial minerals businesses across all regions delivered satisfactorily results. The segment was, however, affected by the lockdown and experienced a decrease in operating profit of 60% year-on-year to R24.6-million.

This while the construction materials segment was impacted considerably by the national lockdown, resulting in no revenue for the month of April, as well as limited revenue during May and June, effecting a decrease in operating profit of 97.7% year-on-year, from R122-million to R2.8-million.

The segment, however, recovered post the hard-lockdown levels and was now back to monthly sales levels similar to those experienced prior to the lockdown.

Van Heerden said that while there was limited clarity on the future impact of the Covid-19 pandemic, Afrimat had recovered from the initial impact and was poised to deliver a strong performance in the second half of the year.

“We are also well positioned to capitalise on our strategic initiatives and future opportunities, with prospective growth continuing to be driven by the successful execution of our strategy.”

Van Heerden concluded that operational efficiency initiatives aimed at expanding volumes, reducing costs and developing the required skill levels across all employees, remained a key focus for all Afrimat operations.