Afrimat

  • Afrimat can best be described as a niche player the mining sector, having evolved from a building and construction materials operation. The diverse product offerings consist of construction material such as aggregates and concrete-based products. Industrial minerals include limestone, dolomite and silica, and bulk commodities made up of iron ore and anthracite.

  • This structure enables it to serve both the local market as well as the robust global commodities markets. This results in a hedge against the downturn in the domestic market due to the Covid pandemic and the subsequent lockdowns and provides it with Rand hedge characteristics.

  • Afrimat’s acquisitions have proven to be extremely successful as well as earnings accretive. The Demaneng iron ore mine has enjoyed buoyant iron ore prices, having been purchased out of business rescue, which inadvertently proved to be very well-timed. The success of the diversified business model and management expertise is reflected in the returns with every R1 invested in 2010 having generated R9 in headline earnings to date.

  • Second-half earnings growth was driven mainly by the explosion in the iron ore price currently around $190.00 per ton, with the cost of production of around $50,00. This meant operating profit of the bulk commodities division increased by 128.4% from to R734.7m. This translated into operating margin expansion from 31% to 46.4%, despite the recent Nkomati anthracite mine start-up losses of R33.8m for the three months to February 2021. There are however prospects of a turnaround there in the second half of 2021, due to an increase in production of volume output.

  • The construction materials segment was impacted by the national lockdown during May and June 2020, but recovered in the second half of the year compared to that of the previous year. This resulted in a decline in operating profit of 45.4% from R192.4m to R104.9m.

  • Recovery in the construction index in the 4th quarter of 2020, with the award of new tenders, should be positive for infrastructure investment such as roads, affordable housing, and renewable energy projects.

  • The industrial minerals operations were likewise impacted by the lockdown as they were unable to sell product to non-essential service markets, resulting in a decrease in operating profit of 41.9% to R104.9m. This has now recovered, with brighter prospects for the year ahead.

  • The entrepreneurial flair of Afrimat’s management has once again come into play with the announcement of the investment in Gravenhage, a manganese mine situated in the Northern Cape. It has a life of mine of twenty years and a total price of R650m (excluding capex) and is subject to receiving all the necessary licence.

  • The seller is disinvesting from its SA investments enabling Afrimat to purchase a quality asset, and will take 9-12 months before the deal is finalized. Afrimat are able to fund the deal from its balance sheet.

  • Afrimat financial metrics showed a tower of strength with revenue up 11.8%, and operating profit increasing by 47.50%. Powerful cash generation resulted in Net Debt to Equity of 3.8% vs 8.3% for the comparable period in 2020, resulting in a strong balance sheet. This resulted in the company being able to declare a final dividend of 112c for the year to February 2021, reflecting an increase of 38.3%.

  • This also provides the group capacity to self-fund acquisitions and increasing capex required.

  • Andries Van Heerden, group CEO, believes that there is "still some legs left" in the construction market as well as the industrial minerals markets due to a pick-up in local markets. This is a positive for these underperforming segments of the group.

  • The entrepreneurial flair of management and ability to bed-down well researched projects all within the groups’ diversified mining focus, make for a quality business with a mix of domestic and offshore exposure. Afrimat has a good track record with five year compound growth of 22.5% pa. It is a cyclical investment due to volatility in commodity prices, however global growth and demand for resources by China, India and emerging markets appears to be positive.

Afrimat