Mining and construction materials group Afrimat, which is in the process of acquiring two mining assets, says it is eyeing even more acquisitions after the Covid-19 pandemic proved the value of having diversified operations.
High iron ore prices helped cushion the blow from a slump in demand for construction materials and industrial minerals during the group’s half-year ended August, when the group saw double-digit operating profit growth.
This growth was entirely due to the stellar performance from the group’s Demaneng, Northern Cape iron ore mine, but “this does not mean we are an iron ore business”, said its CEO Andries van Heerden.
Afrimat is eyeing further acquisitions to bolster its industrial minerals business, said Van Heerden, as part of the group’s strategy to have balanced operations.
The group emerged from the pandemic with net cash of R63.2m at the end of August, from net debt of R145.9m previously. This cash position has improved even further since then, said Van Heerden, and all business units returned to profitability in August.
Group profit fell 0.3% to R250.1m amid higher effective tax, while group revenue fell 9.4% to R1.56bn. Operating profit, however, rose 11% to R353.1m and the group declared a dividend of 36c per share, or a R51.6m payment to shareholders.
The group’s bulk commodities segment, consisting of iron ore, saw operating profit surge 135.8% to R325.8m amid robust demand for the steel-making ingredient due to Chinese stimulus measures.
Afrimat also benefited from rising iron ore prices in 2019, and Demaneng produces high-grade ore. Afrimat acquired the mine, then known as Diro Iron Ore, in 2016 for R400m.
The group’s industrial mineral business saw operating profit fall 60.6% to R24.6m, having only been able to sell limited quantities to essential service markets during the lockdown.
Afrimat’s construction materials business saw a 97.7% slump in operating profit to R2.8m, hit hard during lockdown, and generating no revenue during April.
This business had since seen a sharp recovery to pre-lockdown levels, said Van Heerden. Beyond a desire for the construction industry to play catch up, encouragingly, the group is starting to see new work begin as government authorities approve projects in the wake of the state’s infrastructure spending drive, he said.
Acquisitions
Van Heerden said on Thursday that the group net-cash position put it in a position to consider additional acquisitions, details of which will be announced soon. Given its healthy finances, Afrimat will “probably not” consider a rights issue, he said.
Afrimat expects iron ore prices to inevitably soften, but as this happens, its other business lines are recovering, something that demonstrates the value of a balanced business, he said.
The group has announced two acquisitions so far in 2020, including a R300m deal for Coza Mining, also in the Northern Cape, in August. The transaction will secure high-quality iron ore close to its Demaneng operation and is in proximity to other existing operations. The deal also includes possible manganese deposits.
The group has also made a R100m takeover offer for Unicorn Capital Partners (UCP), which has Nkomati Anthracite as its primary asset, which mines high-grade anthracite at a mine near Komatipoort in Mpumalanga.
Van Heerden said he expects the UCP deal to be implemented by the end of 2020, while the the group expects to start generating revenue from the Coza Mining transaction in the middle of 2021 — with certain rights still to be granted by authorities.
Small Talk Daily’s Anthony Clark said Afrimat is “a superlative dealmaker”.
“Every transaction it has done has added material earnings flow and cash flow to the business, which has augmented and basically bolstered the underlying growth story inside Afrimat.”
Demaneng, for example, is generating profits close to its original acquisition costs, said Clark, even though some in the market were concerned at the time [of purchase].
“Afrimat has a knack of just doing good deals, and excellent due diligence,” he said, adding that he saw even more upside for Afrimat’s share over the next three years or so.
In morning trade on Thursday, Afrimat’s share was up 3.45% to R35.95, giving the group a market capitalisation of R5.15bn. The group’s share has risen 8.32% so far in 2020, and by a third over the past two years.
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