You can also listen to this podcast on iono.fm here.
SIMON BROWN: I’m chatting with Andries van Heerden, CEO of Afrimat. Results for year-end February. Revenue up 4.9% at just shy of R5 billion. Heps 15.7%, and a final dividend of 110 cents a share. Andries, the first question, as we sit here heading into winter with updates from Eskom, how bad is load shedding for your operations?
ANDRIES VAN HEERDEN: Simon, fortunately in quarrying and mining and smaller mining operations a lot of our activity is not actually so reliant on electricity, and where we do need a little bit of electricity a diesel generator does the thing. So we are one of those few companies not impacted so badly. In our industrial minerals business we are a little, but the rest are reasonably fine.
SIMON BROWN: Okay. You are making plans to launch a renewable energy project at Glen Douglas Dolomite in Midvaal. Will that then be not for your own use, but perhaps more for people around you and into the grid?
ANDRIES VAN HEERDEN: No, no. It is for our own use. It’s a relatively small plant. It’s a 1.8 megawatt plant, and it is for our own use.
SIMON BROWN: A number of commodity prices are going against you, which you’ve obviously got no control of. But we saw good increased volumes from Jenkins coming into production, a turnaround from Nkomati, and good production coming through there. From a production aspect a really strong year.
ANDRIES VAN HEERDEN: Yes, absolutely. We saw a big increase in volume from Jenkins; that is really the star of the year and, as you said Nkomati – although we are actually still busy with with the turnaround.
During the period under review we made heavy investments. We embarked on a new strategy to really ramp up volume. So we upgraded the washing plant and we opened up two more open pits and an underground access. Quite a lot of capital went in there and we are only now ramping it all up. So we expect to start seeing good production from now onwards.
SIMON BROWN: We have chatted before around this – how often it is. It’s almost just making little or maybe even major sort of tweaks to processes that can in time have positive impacts on production.
ANDRIES VAN HEERDEN: Yes, absolutely. In the case of Nkomati it is a difficult geology, and the big thing was to really position the mine in such a way that you are not reliant on a single working area. That’s why we have two open pits and an underground area, so that you have that versatility and that almost diversification of the problem, reducing the risks. That really made a big difference on that mine.
SIMON BROWN: When you talk underground, how deep?
ANDRIES VAN HEERDEN: It’s relatively shallow. It’s a vertical-incline shaft that starts on surface, and it’s not that deep. It’s probably at its deepest, I would guess, about 150 metres deep.
SIMON BROWN: Okay. That’s not deep at all. Driehoekspan – this is your new iron ore asset? Of course, your main iron ore asset is going to come to end of mine soon. This is the one that in essence will replace that asset, and you’ll start to work on that. What’s the sort of timeline to get that operational?
ANDRIES VAN HEERDEN: Yes, we’ve started producing from there on a small scale. That’s really to start testing the material and putting it through the beneficiation plant and see how it performs in real life. It’s a bit of a luxury to be able to do that, and it really makes life so much easier for us. So a slow ramp-up for the next two to three years, whereafter we’ll bring it to full production.
SIMON BROWN: And is that sort of two to three years pretty much, if I recall correctly, in sync with the end of life of the other asset?
ANDRIES VAN HEERDEN: Yes. There’s a bigger plan that we have, but more of that later. For now that is the plan.
SIMON BROWN: One of your big plans is a new segment you’re bringing in, future materials and metals. A couple of folks were saying this is funding into those new spaces, but it’s still broadly within the wheelhouse, which is largely open-pit mining, largely industrial.
ANDRIES VAN HEERDEN: Yes, it’s open-pit mining – relatively simple mining, fortunately. The sophistication comes in later with the beneficiation processes. So we are busy with the implementation of the first phase, where we are building a single super-phosphate plant that will be commissioned later this year. And we are looking at some interesting alternatives for further value enhancement of that project. Very, very exciting. The other mineral in that mine is rare earth minerals. And that, as we know, is a critical component for the new energy environment That’s something that really excites us; lots of upside there, but still some way to go to develop our strategy to really enter that market in the right way.
SIMON BROWN: It’s also going to include fertiliser for agriculture, which in some way moves you into a different end-market, I suppose. But again a similar-ish process.
ANDRIES VAN HEERDEN: Yes. That’s the phosphate. The phosphate is the other product in that mine, and that’s what we use as a feedstock for the single super phosphates that we’ll be making. And then also other feedstocks for further value-enhanced product.
SIMON BROWN: Construction materials – a tough period there. You talk around a slowdown in economic activity, which is fair enough. I think we all see that when we look out of the window or go shopping. This of course is the original core Afrimat which over the 15, 16, 17 years you’ve been listed is still there, but it has diminished in significance.
ANDRIES VAN HEERDEN: It has diminished in significance. It’s still a very valuable business, and as a matter of fact we see a lot of growth opportunities for that business, especially now if you think that Warren Buffett said you must be fearful when other people are brave. Maybe we are foolish or brave – I’m not sure – but we think that there’s opportunity right now in expanding that business and we are starting to see some green shoots. We are seeing a little bit of an uptick in volumes around the country, and specifically on government infrastructure on the roads and things like that. We are expecting an increase, given that a lot of the consulting engineers that we have contact with are becoming quite busy. That always bodes well for the road-building industry in 12 to 18 months.
SIMON BROWN: We saw the same from Raubex, which of course is more on the construction and the bitumen side. It did make just shy of R130 million in operational profit. So it’s absolutely not nothing.
A last question. You raised R680 million during the period from a capital raise. That had been planned for an acquisition that didn’t happen in the end; you couldn’t get the water licence. Plans for that? Is it going into current production? Are you and your acquisitive team crafting some Excel spreadsheets?
ANDRIES VAN HEERDEN: Simon, maybe just a correction. It wasn’t really raised for the Gravenhage transaction. It was actually raised for the Glenover transaction and for the improvements in Nkomati. We’ve invested just under a billion rand of capital in this year under review in those assets and we are expecting to see some really good returns in the very near future from there.
On your question whether we are looking at spreadsheets and opportunities, we are a little like a kid in a candy store. The amount of opportunity available right now is absolutely amazing, and we are sitting with a debt-free balance sheet. That is really helping us and it is a little like a kid in a candy store.
SIMON BROWN: That’s what I thought. A debt-free balance sheet and massive cash generation.
We’ll leave it there. Andries van Heerden, CEO of Afrimat, I always appreciate the time.
Listen to the full MoneywebNOW podcast every weekday morning here.
