Acquisitions open path to prosperous future

When Afrimat was formed and listed on the JSE in 2006 it had little more to offer the market than its quarrying and concrete block operations. Afrimat founder and CEO Andries van Heerden had far more ambitious plans.

Afrimat is diversifying on a broad front, including its latest move into iron ore.

It made its first move along the path of diversification in 2010, through the acquisition of metallurgical dolomite producer Glen Douglas. Two other key acquisitions followed. Clinker producer Clinker Supplies came on board in 2012 and dolomite, limestone and silica producer Infrasors a year later.

The acquisitions were to prove that Afrimat had the ability to integrate acquisitions, to extract value from them and, with Infrasors, to restore a troubled company to health.

Since 2010, growth has been exceptional.

In its year to February 2010 Afrimat generated revenue of R778m and headline EPS (HEPS) of 51.3c. Six years on, in its year to February 2016, revenue had grown to just short of R2bn and HEPS at an annual average of 20.4% to 156.6c. Without acquisitions, growth would have been 6%/year.

In its six months to August 2016, Afrimat lifted revenue 15% to R1.15bn and HEPS and interim dividend by 25.3%. These results spurred on a strong rise in its share price, which has reached a new high. It brought its rise since February 2010 to more than 800%.

With integration of its first three acquisitions complete, Afrimat went back on the diversification trail last year, snapping up Cape Lime in a R276m cash deal closed on March 31.

A positive contributor from day one, Cape Lime added revenue of R70m in its first five months in Afrimat’s fold and taxed profit of R12.9m. “We are very happy with Cape Lime,” says Van Heerden. “It has good management on board.”

Consolidated for a full year, Cape Lime should provide a boost of about 12% to Afrimat’s bottom line, a contribution Afrimat is looking to grow significantly.

Another decisive diversification move came in October — Afrimat’s R276m offer to acquire a 60% stake in Diro Manganese & Iron Ore, which had been placed in business rescue in June, was accepted.

“We identified our high exposure to commodity prices denominated in rand as a risk,” says Van Heerden. “With Diro we will have diversification through US dollar price exposure.”

With Diro, Afrimat gains control of an opencast iron ore mine near Kathu in the Northern Cape, with proven reserves of 5.6Mt and a further 1.3Mt of sellable fine ore stockpile.

Before mining operations can commence a lot of restoration work is needed, for which R50m of the purchase price has been allocated.

When the mine comes on full stream its annual output will be 1Mt, he says.

A contract is in place with Transnet for this amount on the Sishen to Saldanha railway, which has its northern terminus near Kathu.

“An iron ore price of more than R600/t is good for us,” says Van Heerden. “It is now at about R1,100/t.”

On a forward p:e of around 16, Afrimat offers solid value.