Afrimat upbeat over stimulation for economies

Building materials and industrial minerals group Afrimat is optimistic about its profit margins as governments move to stimulate pandemic-hit economies through infrastructure spending.

Higher iron-ore prices helped push group profit up by half in its year to end-February.

The group said that a rampup in infrastructure spending in SA could benefit its quarrying business, where it was already seeing an improvement in demand.

“Infrastructure spending has always been a very efficient means of stimulating an economy,” CEO Andries van Heerden said on Thursday.

He said that President Cyril Ramaphosa had recently made remarks to this effect.

“We are also quite bullish about the iron-ore price outlook,” said Van Heerden, citing supply constraints in South America, and signs of demand in Asia.

Supply of Brazilian iron ore is now in question, amid heavy rain and transport difficulties related to Covid-19.

Afrimat benefited from rising iron-ore prices in 2019, and its Demaneng mine — previously known as Diro Iron Ore and acquired in 2016 for R400m — produces high-grade ore.

Strong iron-ore prices, increased production and cost savings helped Afrimat’s profit for its year to end-February to rise 52.9% to R465.17m.

Production at Diro had increased 34% during its year to end-February, but now it was expected to be stable in the year ahead, as the mine had been ramping up to full production, said Van Heerden.

Operating profit of its bulk commodities segment increased 59.8% to R321.7m.

The group also saw strong growth in its industrial minerals business, which includes the production of agricultural lime, which is used to reduce soil acidity.

That business saw operating profit growth of 22.5% to R95.6m, due partially to increased volumes and efficiency improvements, related to better utilisation of available equipment.

Afrimat has postponed a decision on its dividend payment, to hold on to cash, having declared a final dividend of 62c per share in the prior matching period. The company has about 143-million shares in issue.

Afrimat was likely to feel the effects of two months of no activity due to the Covid-19 lockdown in its second half, which probably cost it about R70m a month, said Small Talk Daily’s Anthony Clark.

INFRASTRUCTURE SPENDING HAS ALWAYS BEEN A VERY EFFICIENT MEANS OF STIMULATING AN ECONOMY

However, Afrimat was debt free, cash was rolling in from iron ore and the restarting of the Chinese economy boded well, Clark said.

The domestic construction market might be slow to restart, but industrial minerals should perform.

And with the Chinese economy restarting the improved iron-ore price boded well for Afrimat.

The domestic construction market may be slow to restart, but industrial minerals should perform.

In afternoon trade, Afrimat’s share price was up 3.17% at R26, having fallen 21.66% so far in 2020.