Amid a concerning lull in the public sector’s contribution to fixed investment and infrastructure, Afrimat is eyeing opportunities in food security and hi-tech minerals to bolster the mining and construction materials firm’s growth into the future.
This comes as the board in the year to February approved R300m in expenditure needed to purchase all the shares in Glenover including the surface and mining rights.
Reporting that inflationary costs pressures; load-shedding and the growing concern about a global recession as the war in Ukraine had been key challenges in the year to February, the mid-tier, open-pit mining company, declared a lower dividend and reported a decrease in annual profit.
A final dividend of 110c per share was declared, amounting to a total payout of R175.7m, R38m less than last year.
It said an overall reduction in construction activity owing to an economic slowdown coupled with electricity supply interruptions, had caused operating profit to decrease 17.7% to R129.6m in its construction materials segment, stoking concern about the structural decline in the public sector’s contribution to fixed investment and infrastructure.
The last boost of buoyancy the construction sector had was more than a decade ago amid optimism over government infrastructure construction works for the 2010 Fifa World Cup.
Operating profit, generated from a company’s core operations, fell by 13.3% to R961.6m, resulting in a decline in the operating profit margin of 4.1 percentage points to 19.6%.
Profit for the year was down 14.2% to R665.5m and headline earnings per share (HEPS), a common profit measure for local companies, was 15.7% to 457.6c.
Speaking to Business Day on Thursday, Afrimat CEO Andries van Heerden said despite the slow rollout of much-needed infrastructure programmes by the state, over time the Glenhover operation was going to become a very big part of the business.
Afrimat acquired mining and fertiliser company Glenover Phosphate for $34.32m (R550m) in 2021 to further diversify its portfolio. Glenover, which is said to have a more than 20-year lifespan, owns an advanced phosphate and rare earth project in Limpopo, with mineral resources including rare earth oxides, phosphate, niobium and scandium.
“Over time we are seeing the whole world move towards more sustainable energy; we are seeing the world becoming very reliant on good agricultural practices and Glenhover gives us access to both,” the CEO told Business Day.
“Glenhover is in line with modern trends. On the food security side, phosphate is a very important fertiliser, of which SA is a net importer, so that’s very important for food security. And then on the other hand the rare earths minerals are very important for things like permanent magnets and other cleaner energy elements, so its becoming a very important mineral around the world.”
Cape Town-based Afrimat which is valued at R8.6bn on the JSE, has five segments delivering a wide range of products, including concrete-based ones, limestone, dolomite, industrial sand, iron ore, anthracite, phosphate, vermiculite and rare earth elements.
Future Materials and Metals is the most recent segment to be added to the group’s operational segments and Glenover is the segment’s first project as it diversifies Afrimat’s exposure wider than ferrous metals and aligns it to global trends.
The segment generated revenue of R25.2m but incurred start-up losses of R11.4m. However, the firm is determined to ramp up the operation, saying site establishment was already completed and “careful project implementation and the rollout of a well thought-through strategy for Glenover will be a top priority.”
This is expected to include vermiculite processing, optimisation of the high-grade phosphate project and the implementation of the super single phosphate project, which will add additional volumes in future.
“There are some very exciting opportunities there and those opportunities present themselves to be a player in a market much wider than SA,” Van Heerden added.
The building materials and mining group has also been pushed in recent years to diversify to offset the effect of lower iron ore prices and an economic slowdown.
“Diversification, increased volumes from the mines coming online and efficiency improvement initiatives remain the cornerstone of our strategy and are used to counter macroeconomic affects beyond management’s control,” Van Heerden said.
The bulk commodities segment — comprising the Demaneng iron ore mine, the Jenkins iron ore mine and the Nkomati anthracite mine — accounted for more than four-fifths of Afrimat’s operating profit.
Despite Jenkins and Demaneng selling greater volumes, operating profit waned because of lower iron ore prices and higher input costs.
But Afrimat believes it is prepared to weather the storm in part because the allocation of trains from Transnet became more consistent and as the Driehoekspan and Doornpan iron ore assets come online once Demaneng’s volumes start to reduce.
“This should be within the next three years. To optimise production, Nkomati is in the process of opening up two opencast mine areas as well as an underground access point,” Van Heerden said.
According to the latest Stats SA data, the mining and manufacturing sectors have proved somewhat resilient at the end of the first quarter, marking a slight increase compared to the previous quarter, even as the country faced intensified power outages in the period.
Afrimat’s share price rose by as much as 0.19% before closing 0.26% lower at R53.50.
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