Afrimat follows turnaround with diversification into high margin industrial minerals
JSE Main Board-listed construction materials supplier, Afrimat, today continued its positive growth trend when it announced the R35 million acquisition of the Glen Douglas dolomite mine from Exxaro Resources Limited. The acquisition marks the first step in the group’s diversification into complementary industries in order to expand revenue streams, boost profitability and sustain growth in a challenging economic environment. Afrimat will extend its current focus on large-scale infrastructure projects - having successfully helped drive a 20-30% growth in earnings for the year to February 2010 - to further become an industrial minerals supplier.
CEO Andries van Heerden says he is satisfied with the purchase consideration in light of the underlying net asset value and absence of debt in the acquired business. The price will be settled fully in cash from available funding facilities. The acquisition remains subject to statutory and regulatory approvals.
With an annual output of approximately 1,2 million tonnes the Glen Douglas quarry south of Johannesburg will become the largest in Afrimat’s portfolio. The mine was opened in 1954 and today holds dolomite reserves for the next 30 to 40 years. Van Heerden is confident the acquisition will yield significant benefits for the group once Afrimat’s turnaround strategy optimises the mine’s efficiencies. He realistically sees a two-to-three year horizon for realising its profit potential. “The intention is to take advantage of the high volume output at Glen Douglas while reducing cost bases to equate more on a par with the group’s profitable quarries currently.”
He continues: “The metallurgical product from the Glen Douglas mine has a strong, loyal client base in the industrial minerals industry to the future benefit of our bottom line.” Metallurgical dolomite is currently supplied to the steel industry. Further, agricultural lime is provided to the agricultural industry in the vicinity.
However van Heerden points out that the acquisition is complementary to, and not divergent from the group’s current offering. “The acquisition does not expose Afrimat only to new markets as around 50% of the product sales still falls into our traditional market,” he says referring to the mine’s commercial Mining & Aggregates for surrounding construction projects. Glen Douglas further holds a new order mining licence.
He highlights that the quarry entrenches Afrimat’s footprint in Gauteng and is ideally positioned for maximum growth with a highly competitive position over a wide radius. “Glen Douglas will complement existing Afrimat quarries on the West Rand in serving the rapidly developing Western, South Western and Southern parts of Gauteng.”
Van Heerden concludes that the acquisition reflects the focused attempts of Afrimat’s management team to predict economic trends and pre-empt any negative impact with proactive growth strategies. “Our management team’s ability to anticipate the direction of the market is a major competitive advantage. It enables Afrimat to devise early innovative and creative
solutions to counter tough trading challenges.” In this vein he says other expansion initiatives of a similar nature may be on the cards and will be announced to shareholders when appropriate.
Afrimat’s share closed yesterday at R3,25.
Issued by: Nicole Katz/ Michèle Mackey
(011) 325 5944 / 082 497 9827
On behalf of: Afrimat Limited
Andries van Heerden, CEO
Issue date: 04 May 2010