Robust cash generation should be enough to pay for Afrimat’s acquisition streak, even after paying a record R163m full-year dividend, the building materials and mining group says.
The group, valued at R7.44bn, has been bulking up its mining interests, recently taking over an anthracite mine, while earlier in May it agreed to pay about R650m for the Gravenhage manganese right in the Northern Cape.
The group, which also supplies industrial minerals and building materials to SA’s embattled manufacturing and construction industries, also announced in late 2020 it would pay R300m for prospecting group Coza Mining.
Afrimat, which owns the Demaneng mine in the Northern Cape, has been cashing in on high iron ore prices, with CEO Andries van Heerden telling Business Day on Thursday that the group is now debt free and cash generation remains “excellent”.
With the finalisation of Gravenhage still months away, Afrimat could fund the mining right through its balance sheet, Van Heerden said, though it would take a view on the possibility then. The group is looking at other acquisitions, he said, though announcements may still be months away.
Afrimat declared a record R163.7m final dividend for its year to end-February, boosted by robust iron ore prices, while it also reported a recovery for SA’s building and construction industry.
Surging iron ore prices as governments eye infrastructure spending in the wake of Covid-19 helped Afrimat grow after tax profit by 29.8% to R603.8m in a year during which demand for products was hit as construction sites temporarily shut down.
Van Heerden said the company group is optimistic about a recovery for some of its harder-hit segments and, despite the Covid-19 pandemic, has decided to pay full salaries across its operations, and this has produced emotional and social benefits.
“The loyalty and energy we are currently seeing in our staff is quite amazing,” he said.
Afrimat declared a final dividend of 112c per share, up 38.3% year on year. The group’s cash pile more than doubled to R437m in the year to end-February. Net debt fell about 38% to R85m, though this has since been extinguished.
The group’s bulk commodities segment, primarily the Demaneng iron ore mine, delivered an “exceptional contribution”, Afrimat said, bringing in 42.9% of group revenue.
Operating profit for bulk commodities jumped 128.4% to R734.7m, but its recently acquired Nkomati anthracite mine contributed start-up losses of R33.8m for the three months to end-February. Afrimat issued about 2.9-milion shares, valued at about R111m, to take full ownership of Nkomati. This represented about 1% of its shares in issue.
Small Talk Daily’s Anthony Clark said even if iron ore prices were to halve, the group would still make a good profit as it is a low-cost operator. The group also looks set to benefit from a recovery in demand for industrial minerals, as well as construction, he said.
Strong cash generation is underscored by Afrimat now talking about its next acquisition, while also saying it should be able to fully self-fund Gravenhage, which will require more than R1bn in capital expenditure, he said.
“I think their first half results are going to be absolutely spectacular,” Clark said.
The industrial minerals businesses, which includes limestone, dolomite and industrial sand, delivered “satisfactory” results, the group said. The division was able to sell limited quantities of product into certain essential services markets during the national lockdown, but operating profit still fell 41.9% to R55.5m.
The construction materials segment, including aggregates and concrete-based products, was hit considerably by the national lockdown, which resulted in no revenue for the month of April, and limited revenue during May and June 2020.
There was a second-half recovery, but operating profit still fell 45.5% to R104.9m.
Van Heerden said there is still “some legs left” in the recent recovery of SA's building market, while a further reason for optimism for industrial minerals is the return of some big customers. This includes SA’s glass industry, which was hit by liquor bans.
In afternoon trade on Thursday, Afrimat’s shares were up 1.59% to R51, having risen more than 50% since the beginning of 2020.
Afrimat’s share reached a record high of R52.98 in April 2021.
Update: May 27 2021
This article has been updated with additional information and industry comment throughout.
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