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Commodities boom intact: Aveng
Nicole Rego
Posted: Mon, 08 Sep 2008

[miningmx.com] -- HIGHER demand for commodities, which is driving material new investment in the mining sector, could be adding exuberance to the operations of construction companies such as Aveng.

"There is, possibly, a commodities bubble in pricing, but in terms of demand, mining itself is actually not in a bubble," said Macquarie infrastructure specialist analyst Rowan Goeller.

Speaking following the release of Aveng's results for the year to end-June, which showed an 85% increase in headline earnings, Goeller said that construction companies' workloads are picking up because of the higher demand for commodities.

"If there is growth in the mining sector, it means growth for the construction sector," he said, adding that mines don't slow down when commodity prices are down.

In the commentary accompanying Aveng's numbers, CEO Roger Jardine said that the demand in the construction, mining and engineering environment has remained "strong" in southern Africa, Australasia and the Pacific - economies in which Aveng operates in primarily.

In southern Africa, there are diamond mines in Botswana and copper mines in Zambia and the DRC.

"The demand for commodities such as coal and iron ore seems to be stable at these high levels, driven largely by the growth of China and India," said Jardine.

The annual results showed that Aveng's opencast mining division, which comprises the Moolmans business, reported a 36% increase in revenue to R2.4bn for the period. Moolmans has a two-year order book of R4.3bn.

"Despite pressure on operating expenses, the company increased operating profitability by 105% to R190m," said Jardine.

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Shortages and price increases of some raw materials, as well as a global scarcity of experienced and qualified people, are putting pressure on project costs, said Jardine.

The group’s operating profit escalated by 87% to R2.4bn, with the operating profit margin up from 5.9% to 8.2%, which exceeded the medium-term target of 8% that was set two years ago.

Revenue grew 34% to R29.6bn and cash generated by operating activities of R5.6bn shows a 2.9 billion improvement over 2007, but its profit for the period declined 69% to R2.3bn. Its total dividend is up 71% to 290 cents.