Afrimat: The mid-tier miner that keeps on giving

19-05-2017
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Moneyweb
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Afrimat’s diversification strategy pays off.

The share price of diversified mid-tier mining company Afrimat increased by 4.63% on Thursday to R28.50 on the back of a 25.4% increase in headline earnings per share (Heps) for the year ended February 28, compared to the previous financial year.

The group reported headline earnings per share of 196.4c compared to 156.6c in FY2016. Revenue grew by 13.1% to R2.2 billion. The operating margin increased from 16.3% to 18.2% and cash generated from operations grew from R320.3 million to R406 million.

Afrimat declared a final dividend of 50c per share (2016:41c), maintaining its dividend policy at 2.75x dividend cover.

Listed on the JSE as a construction material company, Afrimat has since developed into a diversified mid-tier miner, says CEO Andries van Heerden and produces aggregates, industrial minerals and entered the iron ore market during the reporting period with the acquisition of a 60% stake in iron ore mining assets in the Northern Cape.

The group also produces concrete-based products, namely bricks and blocks and readymix concrete.

Van Heerden says the group’s product mix gives it access to different markets while its geographic spread over all provinces provides further diversification. The group’s entry into the iron ore market will give Afrimat exposure to a different currency. “We almost have an internal hedge,” he says.

During a media presentation of the results Van Heerden pointed out that Afrimat has 37 different mining licenses, instead of mining one commodity at on location with one mining license.

He said the group’s diversification strategy increasingly pays off and full year Heps has been growing at a compound annual rate of 26.42% since 2013.

During the reporting period the traditional business, comprising aggregates and concrete-based products grew its contribution to operating profit from 32% in the previous financial year to 44% on the back of an exceptional performance in the Western Cape.

The Competition Commission has accused the Clinker Group of abusing its market dominance. Afrimat management does not believe there is any merit in the accusation and will defend its case before the Competition Tribunal, Van Heerden says. The group’s maximum exposure is about R16 million.

The Infrasors business has worked hard to recover after the closure of Highveld Steel, its major client. Van Heerden says Infrasors reduced its number of products from fourteen to two, marketed aggressively and rearranged operations to reduce cost. This paid off and Infrasors delivered 10% of group operating profit, down from 12% in the previous financial year.

Afrimat bought the Diro iron ore assets out of business rescue and hopes to start production around the middle of the year at an annual capacity of 1 million tons. This he believes could be increased significantly to 3-5 million tons and delivered to the local and export market. He says Afrimat’s low-cost production model promises a good margin even at a coal price of $50 per ton. He expects the iron ore price to stabilise between $50 and $55.

Van Heerden says the group expects to maintain growth in all its divisions. He adds that the depressed economy presents many opportunities for acquisitions. Afrimat will also look at other bulk commodities apart from iron ore and might consider coal in this regard. He does not have appetite to move into Africa, but says the company is looking at growth outside of South Africa. “Not on this continent” however.

He says Afrimat will not rush into anything and will be sure to bed down its previous acquisitions first. “We are not a private equity company (chasing acquisitions), we are an operating company,” he says.