Share price falls as Afrimat warns of plunge in earnings

Afrimat’s share price plunged as much as 16% on Friday after the group said headline earnings per share could plummet by up to 20% in the year ending February 2018. But the stock recovered to close 4% down at R28.99.

The open-pit mining group, which supplies industrial minerals and construction materials, said the results were affected by political uncertainty amid a 17year low in construction industry confidence. Sales volumes in the last quarter of calendar 2017 were slow. This was felt most strongly in KwaZulu-Natal and southern Gauteng, where dolomite and clinker operations saw lower volumes.

“There was a sharp drop-off in business: 2018 will hopefully be much better than 2017 — a year I would like to forget,” Afrimat CEO Andries van Heerden said on Friday.

“As a direct result of much improved commodity prices, it was decided to accelerate the ramp-up of Demaneng mine [previously called Diro mine],” he said. This meant expenses for the mine had increased substantially, but iron-ore shipments of a million tonnes a year were already on their way — mainly to China.

Further exploration had shown proven reserves of iron ore at Demaneng were about 12million tonnes, well up from the 5.6-million tonnes announced when the mine was fully acquired in August 2017.

“The Afrimat trading update came as no real surprise to me,” Vunani Securities analyst Anthony Clark said on Friday. He said that SA’s government did not have money to spend on infrastructure development.

“All in all, a bit of a speedwobble, but not a train smash.”

Clark said he was sure the company would make up earnings in financial 2018.

He also said it was not a stock to rush into and he still had a “weak hold” recommendation on the share, because an economic pick-up in SA would take some time.

Ron Klipin, a Cratos Capital portfolio manager, said on Friday that despite the economic and political challenges, Afrimat had a good geographical spread of quarries, giving it a competitive edge. “Capital allocation has been a winner for Afrimat, which has an outstanding record of bedding down acquisitions successfully.”

The fast-track ramp-up of Demaneng had been costly. However, the price paid was “extremely attractive” and the price of iron ore was likely to be a long-term winner for Afrimat.