SHARES in diversified minerals company Afrimat improved six percent in early morning Johannesburg trade on Thursday after interim numbers to end-August demonstrated signs a year-on-year recovery was underway.
Interim headline earnings increased 92.3% to 101.9 South African cents per share driven by a better iron ore sales, especially domestically. The construction material business also improved, but the cement-making assets remain a work-in-progress.
Afrimat bought the Lafarge cement last year for $6m. Commenting on its interim performance, the firm said that plant reliability had improved, resulting in less disruption. Broadly speaking, the constituent parts of the business were either profitable or showing moment. The business doubled revenue, yet it was lossmaking at the operating level.
From a cash perspective, Afrimat generated R357.7m compared to R131.4m in the previous interim period. There was some urgency to reduce debt which stood at 52,5% on debt:equity basis, higher than at end-February owing to a further investment in working capital due to increased iron ore sales.
Afrimat said “every effort is being made” to sell non-core and unprofitable assets “to ensure that debt is settled as quickly as possible”. It had sold the brick and block part of its construction materials business.
The future of the Nkomati Anthracite Mine is in the balance following the shuttering of ferrochrome capacity in South Africa which the mine supplies. Advanced discussions between business and Government on “sustainable” energy tariffs that could see ferrochrome production switched back on was a positive development, it said. It’s worth pointing out, however, that these discussions have been in progress for years.
In this context, Afrimat was actively weighing options for anthracite after shutting the mine’s unviable underground production. These options include the potential for increasing anthracite exports. International sales increased in the six months after the reopening of the Mozambique border following post election disruptions last year. But domestically, in line with decreased ferrochrome industry demand, volumes fell to 136,216 tons from 155,686t last year.
On the iron ore front, domestic sales improved but the company was likely to export 17% below its 870,000 tons capacity for the full year owing to “logistics availability” on the Saldanha export line operated by the Government-owned ports and freight utility, Transnet. This may crimp the benefit of a recent improved in the seaborne price of iron ore.
Afrimat declared an interim dividend of 20c/share, double last year’s interim payout. Shares in the firm are 10% higher over 30 days but 40% lower year-to-date demonstrating its recovery is still in the early stages.
Afrimat has phosphate assets that could see it produce rare earth trace elements. It said it had made “significant progress” with local operators and international partners to develop a low capital intensive business case.
