Afrimat’s move into the mine pays off big time

Although listed on the JSE as a construction company, Afrimat’s biggest profit contributor is bulk products, mainly iron ore.

The company began its first operations at the mine in 2015 when it acquired the Demaneng mine in the Northern Cape. It was a relatively short-lived mine, boosted by the acquisition of Dreihospan and Dornpan iron ore mines in the Northern Cape in 2020 as part of the acquisition of Koza Mining.

Read: Afrimat continues its journey to a mid-level mining house

February 2022 results show that bulk products now account for three-quarters of operating profit. Building materials, the core of the business, accounted for about 17% of operating profit and industrial mineral balance.

Towards the end of the year, the first explosion took place in the Dreihospan, an iron ore deposit that would replace the Demaneng mine once it had been mined once in about three years.

Dryhospan and Dornpan must be brought into production to maintain the volume of exports, and I must have a combined life span of more than 15 years.

Also in 2020 was the acquisition of Encomati Anthracite Mine in Empumalanga, which made losses in the first five months of the year but then became profitable. It produces a high-quality anthracite that is sold locally, with production expected to eventually exceed 540,000 tons per year. Two opencast pits have been opened and work on the underground operation has begun.

Also acquired annually are Glenover Phosphate, Phosphate Reserves, Rare Earth and a Vermiculite Mining Rights, which allows Afrimat to enter new products. Sales of raw phosphate will be reflected in future reporting periods.

A notable feature of the results is the low debt: equity ratio of 12.1%, despite some significant acquisitions in recent years. Debt a year ago: Equity was 3.8%.

“What’s encouraging is that all the business units have contributed positively to the results,” said Colin Ramukhubathi, executive director of Afrimat. “The industry is still tough but fortunately we are now back to the pre-covid level.”

Three categories – building materials, industrial minerals and bulk commodities – recorded stronger growth than in previous fiscal years, while the effects of the Covid lockdown temporarily halted production.

Recent news that Sanral has canceled tenders worth R17.47 billion is likely to hamper the efficiency of the country’s civil engineering sector and Afrimat’s construction department will feel the pinch, Ramukhubathi said.

Read: Sunral Roy cancels R17.47 billion in tender

“The war in Ukraine is another factor that could affect construction, as well as rising inflation.”

Numbers

With the increase in the amount of income, the pricing of attractive iron ore has improved the income as reported initially. This is an increase of 25.1% over the previously reported R886.3 million operating profit of R1.11 billion.

The company earned an overall operating profit margin of 23.7% compared to 24% in the previous year, with headline earnings per share increased by 22.9% from 441.7 cents to 542.9 cents.

Net cash from operating activities was strong due to the acquisition of capital funds for Koza Mining Pty Ltd, Glenover Transactions and Encomati & Jenkins, while the net debt: equity ratio continued to be very low, with mining assets increasing from 3.8% to 12.1%.

A team has been formed to focus on future mining projects, given the group’s low gearing level and expansion of existing activities, as well as opportunities for new businesses to enter SA and the region.

The stock closed 0.90% lower at R56.10 on Thursday.

Listen to Fifi Peters’ interview with Afrimat Executive Director Colin Ramukhubathi:

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