The price of iron ore contributes to Afrimat’s best financial position
The diversification strategy of the JSE Afrimat listed open pit miner, as well as a particularly high iron ore price, have supported the overall profitability of the company and its ability to generate liquidity, despite the impacts caused by the Covid pandemic -19, during the fiscal year ended February 28.
The group recorded a 47.5% year-over-year increase in operating profit to 886 million rand, allowing it to declare a final dividend of 112c per share, bringing the total dividend for the year to 148c per share. action.
This compares to a profit of R601 million recorded for the fiscal year ended February 29, 2020 and a total dividend of 117 cents each declared in 2020.
Net earnings per share (HEPS) for the year under review was 27% higher at 441.7c, compared to the prior year’s HEPS of 347.7c.
CEO Andries van Heerden says Afrimat is in the best financial position it has ever been in and has consistently increased its HEPS by over 22% per year, on average, over the past decade.
He adds that, had Afrimat not embarked on acquisitions and its diversification strategy, the HEPS would have been below zero now, given the impact of Covid-19 on the building materials business with where the business started.
At the same time, a 13.4% year-over-year increase in cash generated from operating activities to R767 million resulted in an improvement in the company’s net debt ratio of 8.2%. the previous year to 3.8% the year under review.
CFO Peter de Wit points out that the company has increased its cash generation by approximately 17% per year from 2017 to this year.
He adds that the company spent around R90 million on capital expenditures (capex) during the year under review and that Afrimat plans to spend around R21 million on capex in fiscal year 2022.
Afrimat’s building materials segment includes its aggregates and concrete products mining and manufacturing operations, while its industrial minerals segment includes limestone, dolomite and silica mining operations. .
The bulk segment until recently included iron ore and anthracite mining operations.
The company explains in its income statement for the year under review that the negative impact of the national lockdown in South Africa last year was mitigated by the reopening of the Demaneng iron mine after the hard lockdown and some operations industrial minerals.
As of April 20 of last year, Afrimat has scaled up operations based on market demand and in accordance with government regulations to the best of its ability.
The industrial minerals segment was able to sell limited quantities of products in some critical service markets during the lockdown. However, it was still so impacted that the segment’s operating profit fell 42% year-on-year to Rand 55 million.
The company reports that its building materials segment saw good growth in the second half of the year, compared to the same period last year, after being unable to generate revenue in April of last year. .
This segment ultimately recorded a 45% year-on-year decline in operating profit to R104 million.
Afrimat claims its bulk products segment, comprising the Demaneng iron ore and Nkomati anthracite mines, made an outstanding contribution to the group’s results, contributing 42.9% of the R3.7 billion revenue generated this year.
In addition, due to favorable iron ore prices during the year, Afrimat managed to achieve a 128% year-on-year increase in operating profit for the bulk products segment to 734 million rand. This resulted in an increase in the operating margin from 31% to 46.4%.
This is despite the fact that Operation Nkomati contributed to start-up losses of 33.8 million rand for the three months from December 2020 to February 2021.
During the year under review, the bulk commodities segment contributed 43% of sales and 82% of operating profit, compared to 31% of sales and 53% of corporate profit. Previous exercice.
Van Heerden comments that iron ore has resulted in dollar price exposure for the company and that margins are much higher during high price cycles. Iron ore was trading, at one point, at around $ 200 / t, while the economics of the Demaneng Project are based on a price of $ 55 / t of iron ore.
Meanwhile, Afrimat is in the final stages of commissioning its new Jenkins iron ore mine, near Kathu in the North Cape, and the mining permit has recently been approved.
This shallow mining project is expected to contribute to the group’s results in the second half of the coming fiscal year. The mine’s products will initially be destined for the domestic market.
Van Heerden confirms that the company has a supply agreement in place that covers up to 1.5 million tonnes of sales once the mine is ramped up.
Afrimat plans to spend R 10 million on infrastructure and plant fixed costs for the mine, as it aims to produce 500,000 t of iron ore in the first year of operation. This will increase to 1.25 million tonnes the following year.
THE STRENGTH OF DIVERSITY
During the year under review, Afrimat bought back the remaining 27.3% of the shares of Unicorn Capital Partners, giving Afrimat 100% ownership of Nkomati Anthracite.
“Nkomati is expected to contribute in the second half of the coming year,” says Van Heerden.
The project is expected to produce 540,000 t / year at steady state on time, while production volumes for FY 2022 are expected to average around 225,000 t.
In particular, the company is committed to continuing its diversification strategy after the end of the year and recently announced its largest contract to date – the R650 million acquisition of the Gravenhage manganese mining right and assets associates, in the North Cape.
Van Heerden says the acquisition has many positive aspects, including the fact that Afrimat will add another product to its diversification strategy in the bulk commodities segment, and the second being that the acquisition would propel Afrimat into the market. ‘intermediate mining area.
He adds that the successful development of Gravenhage will increase the size of the group in the ferrous metals value chain and provide additional exposure to currency denominated earnings.
The Gravenhage mine will be developed to remain profitable even at the bottom of the raw materials cycle.
Going forward, Van Heerden notes that Afrimat remains well positioned to capitalize on strategic initiatives and future opportunities.
“Our mines and quarries are established as efficient low-cost operators, which serve as a hedge against volatility and economic impacts, and this, coupled with a high-quality product and thoughtful execution, will allow us to continue to profit when the cycle is high and bank liquidity will continue to grow, ”he said.