The diversification strategy undertaken by Afrimat since the global financial crisis of 2008 transforms and propels the JSE-listed surface mining company into a mid-level mining company.
The acquisitions that underpin Afrimat’s diversification strategy have been facilitated by the group’s consistent earnings performance and have led the group to have three business segments: building materials, industrial minerals and bulk raw materials .
Afrimat CEO Andries van Heerden says the group achieved a compound average growth rate of after-tax profit of 22% between February 2009 and February 2021 and that diversification has made the group more resilient.
Van Heerden said that Afrimat started out as a building materials company, but has evolved over the years.
“After 2008 [global financial] crisis, we realized that construction can have a tough road ahead and we diversified into industrial minerals and bought Glen Douglas and Infrasors and Cape Lime.
“These companies were incorporated into our business and in 2015 we started to seriously examine the raw materials space and… then identified the Demaneng mine, bought it from the company rescue and since then we have acquired the Nkomati anthracite mine and no later than last week. [May 21] we announced that we had acquired the manganese mine at Gravenhage, ”he said.
The acquisition of the Gravenhage manganese mine for R 650 million is Afrimat’s largest transaction to date.
Afrimat CFO Pieter de Wit pointed out last week when the group released its financial results for the year at the end of February that the group’s iron ore business carried the group through the first half of the year. exercise when building materials and industrial minerals were not producing. all returned during harsher Covid-19 lockdowns.
However, De Wit said that the group’s three business segments performed exceptionally well in the second half of the year.
“It’s a very good, diversified portfolio that has given us a strong generation of cash this year and that cash will allow us to execute many of the opportunities that we see in the market,” he said.
“Gravenhage, we’ve announced it before, but there are a few other great opportunities as well, so the money we generate will help us with that.”
Even more diversification
Van Heerden added that Afrimat strengthened its diversification with more acquisitions during the year, including the purchase of the remaining shares in Unicorn Capital Partners Limited (UCP), which led Afrimat to own 100% of Nkomati Anthracite Proprietary Limited.
“We are excited about the potential of the mine. The plan is for Nkomati to contribute in the second half of the coming fiscal year, ”he said.
Van Heerden added that Afrimat is also in the final stages of commissioning the Jenkins iron ore mine, which was part of the Coza acquisition.
The mining permit was recently approved and Jenkins is also expected to contribute to the group in the second half of the new fiscal year, he said.
Van Heerden said the acquisition of the Gravenhage mine will add another product to its strategy of diversification into the bulk segment while increasing the size of the group in the ferrous metals value chain and providing additional exposure to profits denominated in foreign currencies.
Group in better shape to date
He pointed out that Afrimat is today in the best and healthiest financial situation it has ever known, that it has consistently generated value for more than a decade and that the resumption of the activities of the group after the hard lockdown of Covid-19 has shown the resilience of the group’s entrepreneurial culture.
Van Heerden compared the overall earnings per share performance of Afrimat and other companies ‘it respects’, such as Raubex, Sephaku, PPC and the Consolidated Infrastructure Group, between February 2010 and February 2021.
“For every rand of overall earnings per share we generated in February 2010, Afrimat is now generating close to R9,” he said.
“Unfortunately, you can see what the economy has done to other businesses. They have all gone down and are at or near zero and their growth rate has been negative. So the diversification model worked for us.
Van Heerden said if Afrimat had remained exposed only to building materials, its earnings per share in the same period would have been much lower and negative compared to earnings per share of 441.7 cents for the year. closed at the end of February 2021.
The gap between Afrimat’s earnings history over the past 10 years with and without acquisitions “has never been as wide as it is now due to the good performance of our other businesses. [acquisitions],” he said.
Afrimat last week reported 27% growth in earnings per share to 441.7 cents during the year to late February, from 347.7 cents the year before.
Revenue increased 11.8% to R3.7 billion from R3.3 billion while operating profit increased 47.5% to R886.3 million from R601.0 million.
Net cash from operating activities improved 13.4% to R 767.6 million, resulting in an improvement in the group’s net debt to equity ratio to 3.8% from 8.2% the previous year.
Afrimat declared a final dividend of 112 cents per share, bringing the total dividend for the year to 148c per share, 26.5% more than the annual dividend of 117 cents declared for the previous year.
Van Heerden said that Afrimat remains well positioned to capitalize on strategic initiatives and future opportunities, adding that the group’s future growth will always be driven by the successful implementation of its proven strategy, recent acquisitions and bringing an offering. more products on the market.
Rowan Goeller, analyst at Chronux Research, said Afrimat has performed very well and that the acquisition of the Gravenhage mine is changing the profile of the company.
“They now have a great good quality resource as opposed to the Demaneng mine, which was a small iron ore mine that they picked up at a good price.
“But they are now moving from buying small, good value deposits to buying large, good value deposits and are breaking out of the mold of being a small miner and quickly moving into a good mid-sized mining house,” a- he declared.
Goeller added that depending on the direction of the iron ore price, the cash flow generated by Afrimat’s iron ore operations “could cover all of their capital costs over the next year, including including the acquisition and investment costs to bring this manganese mine into production ”. .
“They’re looking in a pretty healthy position,” he said.
Peregrine Capital Executive Chairman David Fraser said that Afrimat “is a good story” and that the company has a top-notch management team.
Fraser said the iron ore contribution is probably higher than it should be at the moment, but Afrimat has “a nice pipeline of irons in the fire right now which should start to kick in when the iron ore begins to come out of the boil “.
“I think they timed perfectly and I don’t think there will be any drop in profits,” he said.
Afrimat shares fell 0.37% on Monday to close at Rand 51.01.