Diversification strategy key to Afrimat’s satisfactory results

Andries van Heerden, CEO of Afrimat.

Afrimat has today released interim results for the six months ended 31 August 2022, delivering satisfactory results strongly supported by its diversification strategy.

Andries van Heerden, CEO of Afrimat, says that strategic initiatives contributed positively to performance in the first six months of the financial year. These included the successful commissioning of the Jenkins iron ore mine, the turnaround of the Nkomati anthracite mine, and the group’s continuous improvement of existing operations.

“Diversification, cost reduction and efficiency improvements remain the cornerstone of our strategy and we used these to counter economic impacts, which are beyond our control,” says Van Heerden.

He adds that the results have been negatively affected by the downturn in iron ore prices, the economic slowdown and the rise in input costs such as diesel, explosives and electricity, although this was mostly offset by the results of strategic initiatives.

Group revenue increased by 7,2% from R2,4-billion to R2,6-billion. Operating profit decreased by 12,1% from R582,8-million to R512,2-million, resulting in the operating profit margin settling at 19,7%. Headline earnings per share of 252,2 cents was delivered.

The balance sheet remains strong, with a net cash balance of R772,7-million. Net cash from operating activities of R784,1-million was generated, as well as R680-million from a successful equity raise during the period.

“At present, the group is considered debt free as the cash balance exceeds the borrowings, with sufficient capital to execute on the Group’s strategic plans to support Afrimat’s future growth,” says Van Heerden, adding that new business development remains a key component of the group’s growth strategy.

Afrimat consists of four operating units – Construction Materials, Industrial Minerals and Bulk Commodities. The Group’s latest addition, Future Materials and Metals, comprising phosphate, vermiculite and rare earth elements has expanded Afrimat’s product offering and national footprint.

The Bulk Commodities segment, consisting of the Demaneng and Jenkins iron ore mines, and the Nkomati anthracite mine, contributed 76,8% to the Group’s operating profit.

“This excellent performance was largely due to increased volumes from Jenkins coming into production, the successful turnaround of Nkomati from start-up losses which turned to profitability from August 2021 and cost-saving initiatives,” says Van Heerden, adding that the Jenkins mine, which is now fully operational, together with the Demaneng mine, had produced an increase of 21,9% in iron ore sales volume during the current period compared to the previous period.

Industrial Minerals businesses across all regions delivered satisfactory results, however, the impact of the economic slowdown was felt within this segment, resulting in a decrease in operating profit from R49,6-million to R36,8-million.

The Construction Materials segment experienced the brunt of the slowdown in economic activity, with the Western Cape businesses being impacted the most due to an overall reduction in construction across the province. The KwaZulu-Natal businesses showed good improvement when compared to the previous period, primarily as a result of an uptick in construction.

The operating profit of this segment remains relatively flat from the comparative period with a slight decrease from R77,8-million to R73,1-million.

Future Materials and Metals is a segment that has been added to the group’s operational segments in support of its diversification strategy. “Glenover is a new project and one which diversifies our exposure wider than ferrous metals and aligns to global trends. It brings us a threefold exposure – fertiliser for agricultural applications, vermiculite for industrial and horticultural applications, and rare earth elements that support technological advancements such as high strength permanent magnets and battery technology.”

Talking about the way forward, Van Heerden says that the group continues to focus on sustainable diversification in all segments. “In the new Future Materials and Metals segment, the focus is to ramp up the production of high-grade phosphate and to execute the next phases of the project as seamlessly as possible.”

He adds that the Bulk Commodities segment has implemented a successful internal efficiency drive with new solutions technology, and these solutions will now be implemented throughout the Group in order to further improve efficiencies and margins.

“We have Driehoekspan and Doornpan to bring online once Demaneng volumes begin to reduce. This should be within the next four years. To optimise production, Nkomati is in the process of opening up two opencast mine areas as well as an underground access point. Volumes are expected to ramp up and the processing plant is well maintained and able to take on additional production.”

Van Heerden says within the Industrial Minerals and Construction Materials segments, market development, as well as product development, continues to take place in accordance with customers’ needs.

“Operational efficiency initiatives aimed at expanding volumes, reducing costs and developing the required skill levels across all employees, remain a key focus in all operations.”

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