Afrimat defies construction slump
The open-pit mining company reaps benefits of diversifying into bulk commodities
Listed open-pit mining company Afrimat bucked the trend in construction with a strong performance in the six months to end-August as diversification into bulk commodities paid off.
In the period the company lifted revenue by 19.9% to R1.7bn, despite the downturn in construction that has seen some of the country’s large construction companies go into business rescue.
Afrimat is one of the better-performing stocks on the JSE, with its share price up 14.04% since the beginning of 2019. In the same period the JSE all share index is up 7.28%.
CEO Andries Van Heerden said that during the interim period the company’s construction materials segment — Afrimat’s largest business by revenue — performed better than expected.
“We are starting to see recovery. We are seeing stabilisation in the numbers. A number of our initiatives have paid off well. We saw a stabilisation in KwaZulu-Natal where we had a difficult time a year ago. We have also been driving efficiencies hard in the business,” he said.
Van Heerden said demand for construction materials was largely driven by government-funded infrastructure projects such as road, water and low-cost housing projects. The construction materials increased revenue by 6.1% to R923m.
The industrial minerals business, which is involved in open-pit mining and processing of industrial minerals, increased revenue by 5.2% to R299.2m, while the bulk commodities business’ revenue soared 77.5% to R497.7m.
The bulk commodities business, which accounts for 28.9% of Afrimat’s revenue, is made up of the Demaneng mine in Kuruman, Northern Cape, which Afrimat acquired in 2016.
The mine marked Aftrimat’s entry into bulk commodities, positioning the company to capitalise on the upswing in iron ore prices. The iron ore from Demaneng is shipped to China, he said.
“Given that we have a high-quality iron ore in the Northern Cape, it is a sought-after product. Due to a drive in China for lower emissions and being environmentally responsible, there is strong demand for high-quality iron ore.”
Van Heerden said the company was on the lookout for opportunities to grow the bulk commodities business, now made up of iron ore. “We are looking at other commodities but there is nothing that I can announce yet. But there are some interesting commodities out there.”
Afrimat says its diversification strategy is paying and as a result it's able to almost double its interim dividend. Business Day TV spoke to Afrimat CEO Andries van Heerden for more insight on how the company can sustain this performance going forward.
Afrimat’s headline earnings per share (HEPS) increased by 94.3% to 181.9c, while operating profit was up 56.9% to R318m. The company increased revenue by 19.9% to R1.7bn. Net debt to equity ratio fell from 35.7% to 9.4%.
It declared an interim dividend of 36c per share.
Independent analyst Anthony Clark said he expected full-year headline earnings per share to surge compared to the 234c per share recorded in 2019. The strong first-half performance was expected because of the low base in the comparable period in 2018 and an increase in global iron ore prices, Clark said.
“The mine also benefited from economies of scale as output rose as Transnet afforded more tonnage on the rain line to Saldahna.”
The company was likely to wipe out debt at year-end. “The question is what will Afrimat do with the cash? A special dividend or invest in new ventures to counterbalance the (now) dominance of iron ore to the portfolio?” he said.