Building materials and mining group Afrimat has inked a R650m deal for a manganese mining right in the Northern Cape, marking the end of a protracted and bitter fight by Aquila Resources against the state to secure the prospect.
Afrimat, valued at R6.8bn on the JSE, will buy the Gravenhage mining right, a long-life near-development manganese resource that is about 50km north of Hotazel, and about 120km from the group’s existing Demaneng iron ore mine.
Manganese is used in, among other things, steelmaking, and the acquisition would augment the group’s cash-generative iron ore mine in the same province, while it has also recently taken ownership of the Nkomati anthracite mine in Mpumalanga.
Australia’s Aquila, which is 85% held by Chinese state-owned Baosteel, fought the department of minerals & energy for more than a decade to secure the mining right over the Gravenhage deposit, a battle that went all the way to the Constitutional Court.
From 2005 there has been a dispute over the ownership of prospecting rights between Aquila and Pan African Mineral Development Company, a private company owned by the governments of Zambia, Zimbabwe and SA. The department’s handling of the overlapping rights it granted both parties was described by Constitutional Court judge Edwin Cameron in 2019 as “delinquent” and “botched”.
The departure of Aquila marks the end of its more than R160m investment in exploring the deposit to outline 140-million tonnes of manganese resources of which it defined 20-million tonnes it wanted to mine.
Aquila, however, has large metallurgical coal and iron ore projects in Australia it is building and it does not want to be a manganese miner in SA. The decision to sell Gravenhage did not stem from the decade-long fight with SA authorities.
Gravenhage is one of the last independently owned, undeveloped manganese deposits in SA, which accounts for 80% of the world’s manganese reserves.
“Manganese is the logical next step for us. It is in a very good geographical location and is a very strategic mineral, expected to have strong demand from many industries in the future,” CEO Andries van Heerden told Business Day on Friday.
The operation would fit well with Afrimat, and allow for operational overlap, he said. As it is about an hour’s drive from Demaneng, this would allow, for example, the group to make use of the same highly competent but expensive staff in high-level planning.
The transaction is still subject to a number of regulatory approvals, including minerals department approval for the transfer of the mining right, and could result in about R1bn- R1.2bn in capital expenditure. Van Heerden said underground mining could follow open-pit mining, but this could be 15 years away, as it was a relatively shallow but high-quality resource.
The group had paid R400m for its Demangeng mine in 2016, then known as Diro iron ore, and its bulk commodities segment had generated 92% of the group’s half-year operating profit amid pandemic pressure on SA’s building industry.
Van Heerden said Afrimat had an “exceptionally strong” balance sheet, and was considering further acquisitions as “there are a large number of quality opportunities at the moment”.
Small Talk Daily’s Anthony Clark said Afrimat had been considering manganese for some time, noting it was a byproduct at its Demaneng mine.
The deal would heighten the risk stemming from exposure to cyclical commodity markets, and though Afrimat was debt free and cash generative, the deal could be expensive and the group may move to tap shareholders, said Clark.
Clark added he was “quite favourable” to the transaction, however.
“This company has a consistent track record of buying very good assets, at very good prices, going in, setting up the operation to-time and to-budget and making a great deal of money,” he said.
“They actually are fantastic capital allocators and they never put a foot wrong, they do their due diligence extremely carefully,” he said.
Update: May 23 2021
This story has been updated with more information.
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