Midtier mining and materials company Afrimat’s strategy to diversify between commodities and revenue streams, coupled with stringent capital allocation, has enabled the group to continue to weather economic and commodity shocks in the six months to August 31, group CEO Andries van Heerden said on October 26.

Afrimat’s businesses comprise Construction Materials, consisting of aggregates and concrete-based products; Industrial Minerals, consisting of limestone, dolomite and industrial sand; Bulk Commodities, consisting of iron-ore and anthracite; Services, consisting of external logistical and mining services; and Future Materials and Metals, consisting of phosphate, vermiculite and rare earth elements.

“For most of this calendar year and in the period under review, Afrimat invested substantially in projects that are expected to yield fruitful returns and further strengthen our product diversity and competitive advantage in the future,” he said.

He added that Afrimat had managed the volatility of the iron-ore price by combining local iron-ore sales at defined prices with export sales.

“[We] also experienced a significantly improved contribution from the Construction Materials segment,” he said.

Van Heerden added that diversification and efficiency improvement initiatives were essential to the group’s strategy and were key in countering economic impacts beyond the control of management.

Group revenue increased by 9.6% year-on-year to R2.8-billion for the six months under review, while operating profit increased by 4.3% year-on-year to R534.1-million, resulting in an overall operating profit margin of 18.8%.

Despite being impacted on by loadshedding and a general economic slowdown in certain segments, Van Heerden said the impact on the Afrimat group was not material.

Headline earnings a share increased by 4.4% to 263.4c, while Afrimat’s net asset value a share increased by 10.8% to R27.50.

The balance sheet showed a strong net cash balance of R278.7-million. Net cash from operating activities of R577.5-million was generated, while the debt-to-equity position remained favourable at 6.2%, up from 4.7% in February.

Owing to the positive results, Afrimat declared an interim dividend of 40c a share.

OPERATIONS

The Bulk Commodities segment, consisting of the group’s iron-ore mines and an anthracite mine, contributed 72.3% to Afrimat’s operating profit.

The sustained performance was largely owing to the advantages of a well-executed iron-ore strategy, which saw significant improvements in domestic sales volumes. Although international iron-ore sales volumes reduced by 10% owing to rail limitations, this decrease was offset by a favourable rand:dollar exchange rate and increased local iron-ore sales volumes.

“Iron-ore exports have continued to generate strong cash flow for the group in line with the export allocation on the Saldanha rail line,” Van Heerden said.

Afrimat’s iron-ore mines recorded an overall increase of 29.7% in iron-ore sales volumes compared with the same period in the previous year, with domestic sales volumes having increased to 493 184 t, from 247 748 t in the prior comparable period.

International sales volumes decreaed to 383 924 t, from 428 504 t in the prior comparable period.

Driehoekspan, which forms part of the earlier acquisition of mining concern Coza, is being brought into production to maintain export volumes and add small volumes of manganese sales. Afrimat’s iron-ore mines have a combined life-of-mine in excess of 15 years.

Optimised efficiencies continue to result in cost savings and have, in turn, countered the rise in input costs and fluctuations in the international iron-ore price.

Afrimat’s Nkomati anthracite mine contributed 18.1% to the segment’s revenue for the period. The mine produces a high-quality product sold into the local market as a replacement for imported anthracite.

Van Heerden believes that extraction of the first anthracite from the underground mine and establishing two additional opencast pits will ensure a consistent feed to the plant.

“Although the ramp-up to steady state was slightly delayed, post the period end, processing volumes and logistics show steady improvement,” he explained.

In the Industrial Minerals segment, businesses across all regions delivered satisfactory results. However, Van Heerden said the impact of loadshedding was felt directly and also indirectly by certain customers, who cut back on volumes, resulting in a 13.1% year-on-year decrease in operating profit to R32-million.

The Construction Materials segment experienced a significant improvement in operating profit, which increased by 113.5% year-on-year to R156.1-million.

Van Heerden attributed the increase to efficiency improvement initiatives which proved to be successful across the segment. “Increased activity in road and rail projects [also] resulted in stronger demand for products which are used in roadbuilding, rail and infrastructure projects.”

Revenue increased by 26.5% to R1.2-billion owing to higher volumes and marginally better pricing in the period, he added.

Afrimat recently announced the acquisition of 100% of the shareholding in cement company Lafarge South Africa. The acquisition includes several aggregate quarries, an integrated cement plant, cement grinding plants, cement depots, readymix batching plants and high-quality fly-ash sources, which is an important extender in the cement industry.

Van Heerden confirmed that all necessary documentation pertaining to the conditions precedent had been submitted and approval from the South African Reserve Bank had been received. Afrimat was, however, still awaiting approval of Section 11 and the Competition Commission, which was expected to be received before the end of the 2024 financial year.

Meanwhile, Afrimat’s Future Materials and Metals is a segment that was added to the group’s operational segments in the prior period in support of its diversification strategy.

Glenover, which is the segment’s first project, served to diversify Afrimat’s exposure wider than ferrous metals and aligned the company with global trends, such as the advancement of technology for decarbonisation through rare earth minerals and food security through fertiliser products.

Glenover is a greenfield project that started production during the interim period and is currently in a ramp-up phase.

“The project is currently focused on the processing of high-grade phosphate and single superphosphate (SSP). The mine is in the final stages of building the SSP plant, with commissioning to take place towards the end of the 2024 financial year,” Van Heerden said.

He added that the group was in the process of ramping up this operation, with the construction of its high-grade optimisation phosphate plant already completed.

In terms of employment, the total number of employees rose to 2 824 during the six-month period under review, with 177 new appointments made within the past three months.

“Good employee relations are critical and were maintained in the group, with no formal labour actions or disputes,” van Heerden noted. He said wage negotiations across the group were concluded and settled within the budget.

Afrimat supported a pool of 137 learners and graduates during the period, noting it as a valuable talent pipeline for the future. The group also continued to support talent development internally by providing staff bursaries and various development programmes, some of which were presented in conjunction with tertiary institutions from renowned business schools.

Afrimat has 45 mining rights in place and a team to liaise with the respective governing bodies.

Moreover, the company has a target in place to decrease its carbon emissions by 32% by 2030.

OUTLOOK

“The group’s future growth will be driven by the successful execution of its proven strategy, recent acquisitions and a wider product offering to the market, while ensuring optimal performance from the group’s existing asset base through continuous improvement,” Van Heerden said.

In the new Future Materials and Metals segment, he said, Afrimat’s focus would be to ramp up the production of high-grade phosphate, as well as SSP, and to execute the next stages of the project as seamlessly as possible.

The continued implementation of internal efficiency drives with new technology has proven to be a success, with Van Heerden saying that “… these efficiency initiatives are aimed at countering inflationary mining cost increases”.

Additionally, he said the investment into the Nkomati anthracite mine by opening the underground shaft in addition to the two opencast pits was finalised and the focus was to reach steady-state production as soon as possible.

“Volumes are expected to ramp up further in the second six months [of this financial year] and the processing plant has been upgraded to take on the additional volumes. Accordingly, it is expected that there will be an improved performance from this asset in the second six months,” he said.

The Industrial Minerals segment successfully installed generators at Vredendal and Marble Hall, which were assisting in countering the impact of loadshedding. Given this investment, a recovery was expected by this segment, Van Heerden said.

He noted that, once all conditions precedent had been met for the Lafarge acquisition, this would broaden the Construction Materials segment significantly. With that in mind, closure of the deal and the integration into Afrimat would be critical to the acquisition's success.

“The operating environment in South Africa remains challenging but Afrimat continues to see value in its diversification strategy. Cost reductions and efficiency improvement initiatives remain the cornerstone of the group to counter these economic impacts,” Van Heerden said.