Engineering-led infrastructure, resources and contract mining group Aveng is looking to expand and diversify its Moolmans business outside SA to balance its exposure to a local mining industry hamstrung by energy and rail constraints.
CEO Sean Flanagan told Business Day that the hardships of the local environment made it essential for Aveng to diversify away from SA and look at opportunities elsewhere in Africa.
“We’ve still got ongoing electricity problems and load-shedding,” Flanagan said, warning that forecasters expect the third quarter this year to be a “bloodbath”.
“Transnet cannot capacitate and therefore the mines can’t get their product to market. So we are seeing some of our mining clients now starting to pull back on their production. That will have an impact on us.”
SA’s largest coal miner, Thungela Resources, said on Monday it resized its mining portfolio in the face of rail constraints, cutting back millions of tonnes in production.
Aveng said it will now focus on turning existing revenue into operational profit and earnings and generating cash.
Though manganese makes up the bulk of the Moolmans R8bn order book now, owing to the renewed five-year contract at the Tsipi e Ntle site, the company will try to renegotiate an extension and new terms on contracts at other mining sites.
“And as we renew those, that order book mix will change so we firstly need to get out and find some new work with existing clients and with new clients,” said Flanagan.
“We are shortlisted on a new platinum mine outside SA, and we are looking at uranium opportunities in Namibia. There’s gold up in West Africa and platinum in Zimbabwe. Those are the things we are looking at.”
The group said it will strive in the next 18-24 months to balance its books to reflect 50% of revenue in SA and 50% abroad. But Flanagan cautioned that Moolmans’ ability to field new equipment will be constrained in the short term by the balance sheet.
CFO Adrian Macartney said Aveng will address that in various ways such as an equipment mix that includes renting and leasing equipment, coupled with refurbishment of some of its existing fleet.
Aveng, which has a market cap of just under R1bn, swung from a profit of R130m in 2022 to a loss of R1.3bn in the year ended June after taking a big hit in its Southeast Asia business unit of its McConnell Dowell, primarily from the Batangas liquefied natural gas (BLNG) terminal project in the Philippines.
McConnell Dowell, one of Aveng’s cash-generative core businesses, was contracted by FGEN LNG, owned by Philippines power producer First Gen, in 2020 to construct the BLNG project to help bring liquefied natural gas into the country.
But after a string of delays, Aveng’s client called in more than R500m in project guarantees in April.
The group said it had learnt tough lessons from the fallout in the Philippines. It is devising improved standards and governance procedures to avoid another project disaster.
To this end, Aveng established a project management office led by experienced project management professionals who report directly to the McConnell Dowell CEO.
Other measures include a monthly reassessment of the project risk rating in response to emerging risks and opportunities.
“We’ve got to be very clear now when we are making a decision to bid for a job on who is the customer and who are the people inside the customer,” said Flanagan.
“We need to understand their behaviour in the past because this individual it now turns out has pulled contractors bonds in the past. We should have known that, and that would have stopped us bidding for the job right there and then. We didn’t know it.”
Despite the clash with the client, Aveng said McConnell Dowell entered into a separate rates-based services agreement in which it will use its expertise, experience, systems and capabilities to support and achieve full commissioning of the BLNG project.
Aveng’s share price rose 6.63% to R8.20 on Tuesday.
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