Group delivers satisfactory results for the six months ended 31 August 2022
Highlights
- Group revenue of R2,6 billion
- Headline earnings per share (‘HEPS’) of 252,2 cents
- Interim dividend per share of 40,0 cents
- Operating profit margin 19,7%
- Net asset value (‘NAV’) per share of 2 481 cents
- Return on net operating assets of 27,4%
- Net cash from operating activities of R784,1 million
- Strong balance sheet with net cash position
27 October 2022 – Afrimat, a leading mid-tier open-pit mining company providing Industrial Minerals, Bulk Commodities, Construction Materials and Future Materials and Metals, today released interim results for the six months ended 31 August 2022, delivering satisfactory results strongly supported by its diversification strategy.
Andries van Heerden, the CEO of Afrimat, said 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,” added van Heerden.
He went on to say that the results had 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 R680,0 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,” said van Heerden, adding that new business development remains a key component of the Group’s growth strategy.
From an environmental, social and governance (‘ESG’) perspective, during the six-month period good labour relations were maintained with no labour action or significant community action having occurred. “We remain actively committed to creating and sustaining harmonious relationships in the workplace and addressing issues proactively, and so continue to prioritise people development, training and education on the human capital agenda.”
Van Heerden said that work on the Group’s carbon neutrality strategy continues with extensive studies having been undertaken to determine the main detractors. “An initial renewable energy project to reduce carbon emissions is underway at Glen Douglas Dolomite.”
Operational review
Afrimat consists of four operating units – Construction Materials, Industrial Minerals and Bulk Commodities. The Group’s latest addition, Future Materials and Metals, consisting of 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,” said 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.
“Although the operating profit decreased due to the decline in the iron ore price and a rise in input costs, a healthy operating profit margin of 37,0% was generated from the iron ore mines.”
During the year, the first blast was undertaken at Driehoekspan, the iron ore asset that will replace Demaneng once it is mined out, which is expected to be in four years’ time. Driehoekspan and Doornpan – as part of the Coza acquisition – will be brought into production to maintain export volumes and have a combined life of mine in excess of 15 years.
Van Heerden said that an innovative technology solution had been rolled out at Jenkins across the mine fleet, which optimised efficiency and resulted in significant cost savings, in effect countering the rise in diesel prices and the fall in iron ore prices.
“Nkomati, now profitable, contributed 25,5% to the segment’s revenue for the period. It produces a high-quality product sold into the local market as a replacement for imported anthracite, and is recognised as a consistent, dependable supplier.”
He added that long-term sustainable production is being enhanced by opening two opencast pits and the continued development of the underground operations. “The first anthracite is expected to be extracted early in the new calendar year from these developments.”
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.”
Van Heerden said that sales are currently generated from high-grade phosphate (fertiliser) material, with testing and design work currently underway for vermiculite and single super phosphate (SSP) plants. “Stage 2, which includes test work for nitro-phosphate and rare earth processes are making good progress. After we complete this stage, detailed designs will inform the final capital requirements.”
The Board has approved R300 million to purchase all the shares in Glenover.
During the period under review, Glenover generated revenue of R17,8 million with start-up losses of R3,9 million. “The Group is in the process of ramping up this operation, with site establishment already completed”, van Heerden indicated.
He said that with respect to Gravenhage, the deal has been terminated, but reiterated that Afrimat still has access to manganese through the Driehoekspan mine in the Northern Cape where Afrimat is targeting volume of approximately 240,000 tonnes per annum.
Dividend
The Board declared an interim gross dividend of 40,0 cents per share (August 2021: 40,0 cents per share).
Prospects
Talking about the way forward, van Heerden said 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 added 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 said that 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.”
-End-
Issued for: Afrimat Limited
- Contact: Andries van Heerden, Chief Executive Officer (CEO)
- Tel: 021-917-8853
- Email: andries@afrimat.co.za
- Website: www.afrimat.co.za
- Account: Keyter Rech Investor Solutions
- Contact: Vanessa Rech
- Tel: 087-351-3814 or 083-307-5600
- Email: vrech@kris.co.za
