TROUBLED ECONOMY CREATING SOME NEW OPPORTUNITIES, SAYS AFRIMAT BOSS

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24th May 2018

By: Irma Venter
Creamer Media Senior Deputy Editor

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“The fact that ArcelorMittal, Aveng, Group Five and Basil Read today have a smaller combined market capitalisation than a ‘little’ quarry company such as Afrimat, shows you that the economy is in trouble,” says Afrimat CEO Andries van Heerden.

“Not long ago any one of them was twenty times our size.”

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To be fair, however, it must be noted that Afrimat has continued to build muscle, with a combined annual growth rate of 12.29% from 2014 to 2018.

The company’s current market capitalisation is R4-billion.

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Afrimat is an openpit mining company producing industrial minerals, commodities and construction materials.

Afrimat on Thursday reported its financial results for the financial year ending February 28. Revenue for the year was up 10.3%, to R2.5-billion, compared with the previous financial year. Headline earnings a share were, however, down 8%, to 180.7c.

Speaking in Johannesburg, Van Heerden said  Afrimat did not have a good year as there was “no escaping” the downwards spiral the country’s embattled construction sector faced.

“We are starting to pay the price for all the political shenanigans that have been going on. The money going to smaller projects and communities have also started to slow down.”

Afrimat’s results were also impacted by Transnet’s inability to deliver the required wagon capacity for Afrimat’s new acquisition, the Demaneng iron-ore mine.

The State-owned rail operator could only provide 60% of the capacity Afrimat required to ship iron-ore to the Saldanha port for export.

Van Heerden said Transnet struggled with derailments and a “system that was under pressure” as the nearby Kumba mine also increased production.

“We are getting good cooperation from Transnet. We’ll probably be at full rail capacity in September or October.”

The Demaneng mine will increase production from the current 600 000 t a year, to around 1-million tons of iron-ore a year by October.

Van Heerden has clear ambitions for Afrimat to increase its exposure to the bulk commodity markets.

“This iron-ore project is, in the long term, a very exciting project for Afrimat. There is enormous upside.

“There is a space between big mining houses and the rough-and-ready junior miners for a midtier miner.”

Van Heerden expected the commodities part of the business, over the next 12 to 18 months, to increase as percentage of revenue from the current 10.2%, to 33%.

Afrimat has 41 mines, including its industrial minerals and commodities operations.

The newly proposed Mining Charter will impact Afrimat, said Van Heerden.

“It is important for South Africa to create a Vision 2030, to create an ideal future picture for us as a country and how we’ll reach it. If we determine the detail of the charter before we know where we want to be, we might chop off an arm we need in future.

“In the short term we are concerned about the charter. It can scare off investors if we get it wrong. In the long term it can be a way for us to create value, to create downstream industries.”

Afrimat is 30.2% black-owned.

Empowerment ownership was of little concern to the company, said Van Heerden, as the company was likely to meet the set target. However, what was of concern was the current stipulation that communities around the mine would have to own part of the operation.

“What is the definition of a community? Is it one community, or all communities? Would they understand that some operations are very small?”

Looking Ahead
Van Heerden said indicators such as buildings plans passed and foreign direct investment were by no means prophetic of an imminent upswing in the economy.

He did not expect an uptick in the economy over the next 12 to 18 months, with construction to “move sideways”.

A number of foreign investors was also nervous about the current land expropriation debate.

This was, however, creating opportunities for companies such as Afrimat to make a move on their assets.

“We are talking to a foreign group in South Africa about a possible acquisition. They are uncertain about property rights and the mining charter. They want out.”

Van Heerden said Afrimat was busy with two sets of negotiations where the company was “the only guys in the room. It’s always easier to buy a car if you are the only one interested”.

Possible acquisitions of greenfield projects also existed in neighbouring countries.

Van Heerden added the economy could pick up in the long term should new president Cyril Ramaphosa manage to secure two terms at the helm of the country.

“Five years from now we’ll be very grateful we have him – if he can manage all the political tightropes he has to walk on.”