SA miners tread softly around government
It’s interesting to watch how mining companies handle challenges in Australia compared with SA, where a few large diversified miners have either sold their assets or reduced their exposure.
While mining companies in SA in the past tended to use the softly-softly approach in their public utterances about the way they’ve been treated by the state for fear of being victimised or publicly attacked by government ministers and their allies in the National Union of Mineworkers, that does not appear to be the case when companies deal with the Australian authorities.
It’s a telling difference when looking at the way companies respond to government proposals, particularly when companies fear being singled out for potentially damaging safety inspections and stoppages — as aired in court documents — and threatened with losing their mining rights as happened when Anglo American Platinum dared to say it wanted to cut 14,000 jobs the company’s its Rustenburg mines.
However, the local industry has realised that this policy of keeping its comments and feelings restricted to talks behind closed doors and not letting the broader market and society fully know the implications of certain government decisions has been an abject failure.
Most CEs of listed companies in SA and, by extension, their collective grouping at the Chamber of Mines are now far more openly critical of the damaging way in which the industry is treated by the Department of Mineral Resources, which is seen as increasingly dysfunctional as inexperienced people replace senior figures.
In Australia, where mining companies don’t operate in the same climate of caution and fear when dealing with the government, they are able to publicly take on the state and argue their position, as they did when Australia proposed a resource rent tax a few years ago. It’s long overdue that mining companies in SA felt the same way.
Insimbi Refractory and Alloy Supplies, which trades in ferrous and nonferrous alloys and refractory materials, is now making plastic containers for the chemical, agricultural, home and food industries. Late in 2016, it also bought scrap-metal dealer Amalgamated Metal Recycling Group for R284m.
Insimbi is diversifying and buying up assets at a time when most of its core markets are in a slump. This really seems to be paying off. In its annual results to February 2017, revenue shot up 41% to R1.3bn, with gross profit rocketing 49% to R186m. Meanwhile, operating profit rose 23% to R54m, even as net profit remained flat at R29m.
Amalgamated’s acquisition allows Insimbi access to markets that are parallel to its existing markets, including the scrap metal recycling market.
The improved results relate to this transaction and from the relatively new plastics segment and some improvement in the aluminium business, the group says. But this is also what kept the bottom line flat and left headline earnings per share 12% lower in the period.
However, more than 65% of Amalgamated’s revenue is generated from exports, typically priced against London spot prices. This means a better profit if the rand weakens.
The past two-and-half months of its financial year is consolidated into the Insimbi result. The full effect will be evident in financial 2018.