[TOP STORY] Afrimat results prove that it is much more than an iron ore company

Simon Brown: I am currently chatting with Andris Van Hearden, CEO of Afrimat. Some results until the end of February of the year. Revenue 26.7%, operating profit margin 23.7%, headline revenue 22.9% higher, dividend of R1.46. Here’s a fun fact. The full-year dividend is R1.86, and you could buy shares at a lower price in the 2008 crisis.

Andreas, I appreciate today’s time. Before presenting the results [there was] There is a lot of talk around iron ore, and a lot of realization that you are an iron ore company. You are much more than that. I accept that point. But the question is how much is your income worth in US dollars nowadays?

Andreas van Herden: I don’t have that exact number in front of me, but it’s probably about 25% – if I make a quick estimate of our revenue – of US dollars.

Simon Brown: I want to drill in some operation. Jenkins [Mine]Relatively new, this period under review has practically paid off for itself, and you say it’s still potentially more reversed.

Andreas van Herden: Yes. We have an agreement with our customers to buy – in the first year of operation, they bought 50,000 tons per month from us and according to the agreement we should now ramp up 100,000 tons per month. The sooner it starts, the better this business should be.

Simon Brown: Moving to Enkomati with Anthracite for a whole year – I think of chatting for half a year; It still wasn’t quite profitable. But at the moment it is working now and making a profit.

Andreas van Herden: Yes, that’s right. We bought it for business rescue. The mine was in really terrible condition when we bought it and it took us about a year to get around. It started making profits in August last year and has been consistently profitable ever since. At the moment we are spending some capital to open more mining areas and launch an underground operation. When all this is done, this business should be really, really good,

Simon Brown: Glenover as well. Basically there you have mining reserves. All of these recent acquisitions trends, and true acquisitions in its last years, [is that] You’ve gone and made it work, but you’ve improved efficiency, made it better, more productive and ultimately more profitable mine.

Andreas van Herden: Yes. That’s about what we try to do. What we try to find is these resources with a really good inherent competitive advantage, and then we go there and try and keep things simple and make sure we do the right things right and try to make these things efficient. So far it has worked well for us.

Simon Brown: In a sense, when you talk about keeping it simple, these are open-cast. I’m probably wrong, because I’m not an engineer here, but you started life in a quarry and it’s like taking the excavation to a slightly different angle, where you now get bulk products and the like [that] You’re pulled off the ground, rather than just the sum.

Andreas van Herden: Yes. That’s interesting – the whole evolution of our company’s core competencies where you are right, we started digging and when the construction industry started to go through more difficult times in 2010, we started using that skills and added something. And every time we add a little more complexity, we have to bring in more specialized people. We were able to turn that team into a very strong team. The operational team of this business is really the boys who know what they are doing and that is what we try to do. We try not to get involved in things for which we do not have the skills, but sometimes we have to go and acquire some additional skills to be able to take the next step.

Simon Brown: Operational team – is it at home? It’s not people with mentors or fancy suits and the like; This is a team that you have created who can now go from project to project.

Andreas van Herden: Yes. We strongly believe in creating internal skills. With due respect to the consultants, they are there to sell their services and they are able to take care of their bottom line, which is not necessarily one hundred percent aligned with our bottom line. So we like to create our own skills and only bring consultants in very specific roles, where it is more affordable to bring in hired skills than our own skills.

Simon Brown: I get that. There are sometimes very niche skills that you have to bring.

Your Magnesium Project – We talked about it when you announced it. That is not over yet. You expect it in a few months. So what [because of] Holdup with water or DMR [Department of Mineral Resources]?

Andreas van Herden: This is a manganese project in the Northern Cape, and at the moment we are waiting for a water use license. It’s taking a little longer than we thought. Approval for the transfer of mining rights has already been obtained, but now the only outstanding thing is the water use license. As soon as it’s unconditional, then we can move on,

Simon Brown: Referring to the water, the April rains were not in this period under review, but you got some KZN [sites]. I do not understand. Did that rain have much effect on you or perhaps your customers?

Andreas van Herden: Not really on KZN. We have one of the quarries, one of the smaller mines in Scotberg near KZN, which was flooded, but it was too small for us in the big plan. But what was the effect a little bit, the whole northern part of the country – Gauteng, Mpumalanga, KZN – all these areas had a lot of rainy days and we know construction work is not done on rainy days. So it had an impact on the business, but these things caught on very quickly. As soon as the sun starts to shine the contractors start to catch up and we can already see that. So in the long run we don’t expect too much impact.

Simon Brown: How many sites do you have across the country? I’m asking because all of a sudden I think I’ve been driving for the last six months, I’ve been to Gauteng, I’ve been to Free State, I’ve been to KZN, and I think on every trip I’ve seen an Afrimat site.

Andreas van Herden: Yes. At the moment we have 45 active mining rights. And then, if I’m not mistaken, I think we’ve got 65 sites if we include the factory and ready-mix business.

Simon Brown: Diesel prices – we’ve seen an increase there, [with] Talk about another R3 [increase] Coming in June. How much does it affect your activities?

Andreas van Herden: Diesel costs about 80% of our total cost. So it’s not such a big impact for us.

Simon Brown: Okay, it’s not too bad. Last question. Building material, which in some ways is of course old afrimat – I still consider it the core of the business – do you see a lot of pickup? Revenue is flat there; There was a lot of talk about infrastructure costs and the like, but I don’t know. I look at the results of construction companies and I do not see much out of them.

Andreas van Herden: Yes, you are right. We don’t see much activity. The main drivers of construction costs are roads and civic or commercial buildings or residential buildings, and both commercial buildings and roads and civic are relatively quiet at the moment. So thank goodness when we diversified our business, because if it was only for building materials we would get in trouble.

Simon Brown: You showed a great slide in your presentation. The old construction business Afrimat is still making money, but had almost the same money [making] 15 years ago.

Andreas van Harden, CEO of Afrimat, I appreciate today’s time.

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