Afrimat eyes ‘future minerals’

• Entry into the phosphate and rare earth markets heightens potential for growth, says CEO

Afrimat, a R9bn open-pit mining and construction materials firm, is positioning itself to snap up opportunities in “future minerals”, latching on to a trend in which miners look to cash in on electric vehicles.

Afrimat, a R9bn open-pit mining and construction materials firm, is positioning itself to snap up opportunities in “future minerals”, latching on to a growing trend in which mining companies look to cash in on electric vehicles.

Through its 2021 acquisitions in the phosphate, rare earth and manganese spaces, it is eyeing further growth opportunities abroad, said Andries van Heerden, CEO of the Cape Townbased company that provides industrial minerals, commodities and construction materials.

“The space we are exploring at the moment is the whole area about the rare earth — those minerals are critical for electrical motors, magnets and things like that,” he said on Thursday.

“I think that can give us some very interesting opportunities, especially in the modern economy. We have a few interesting opportunities to supply the minerals in SA ... and especially in the US and European markets, where there is a strong demand, especially for minerals mined outside China. So I think there is a fantastic opportunity there.”

Mining heavyweights such as BHP, Glencore and Rio Tinto have been jockeying for a stronger position in a world rapidly shifting from combustion engine cars, with huge investments in mines that produce niche minerals such as cobalt and lithium.

The Afrimat group, valued at about R8.67bn on the JSE, has been bulking up its mining interests by taking over the Gravenhage manganese right 50km north of Hotazel in the Northern Cape after agreeing in May to pay R650m for it.

It is set to start contributing to the 2024 financial year and is awaiting approval of its water use licence.

In December, it unveiled plans to acquire Glenover Phosphate and its vermiculite and phosphate rock deposits at Glenover mine for R550m.

Located 90km northwest of Thabazimbi in Limpopo, Glenover’s reserves of phosphate, vermiculite and rare-earth elements provide for a resource life of more than 20 years, according to company surveys.

Phosphates are used in fertilisers, and rare-earth elements are used in various applications, including magnets in electric motors. The international trend towards electric vehicles is expected to be a big demand driver. Vermiculite is used in the construction of fire-retardant partitioning boards, in horticulture as a growth medium and in animal feed, and has other industrial uses.

STRONG CASH FLOWS

Van Heerden was speaking to Business Day shortly after the company, one of the fastestgrowing in SA, reported that annual profit increased by a fifth thanks to higher iron ore prices and recovery to prepandemic levels in its construction and industrial segments.

Headline earnings per share (Heps) rose 22.9% to 542.9c and the group declared a dividend of R1.46 per share for the year to end-February.

Favourable iron ore prices, the turnaround of the Nkomati Anthracite mine, the establishment of the Jenkins mine, and the return to prepandemic volumes in the construction materials and industrial minerals segments, bolstered the company’s good performance and translated into strong operating cash flows.

“Nkomati, which produces a high-quality product for the local market, was loss-making for the first five months of the reporting period, but turned into a profitable business from August 2021 onwards, recovering the biggest part of the losses of the first five months,” Van Heerden said in a statement on Thursday.

Adding manganese and phosphate commodities to its diversification strategy propelled Afrimat into the mid-tier mining space and helped the company withstand expected and unexpected headwinds, particularly during the tough lockdowns, the CEO said.

Highlighting that the market might be concerned that the first six months might be slightly softer, given the corresponding six months of last year, Small Talk Daily analyst Anthony Clark said the key swings in Afrimat lay in coal and phosphates. These would potentially offset a slightly weaker construction materials market and slightly lower iron ore prices, which have fallen from $155 to $130.

“As diversifications of the projects come through, particularly the capex expansion in phosphates, rare earth and manganese, there will be a profit momentum kicking into this company but probably not until 2023/2024,” Clark said.

“Until then everything is dependent on how the iron ore price settles,” he said, adding that the phosphate business is now mining the tailings, which have proven to be very profitable. “I forecast that could make over R80m this year,” Clark said.

In the longer term, the group, which has established a track record of turning around lossmaking mines, “will most probably have a few more acquisitions before I retire”, Van Heerden said, who has been at the helm since 2006.

Afrimat’s share price fell 0.9% to R56.10 on Thursday.