Can Afrimat put its year from hell behind it?

AFRIMAT CEO Andries van Heerden is optimistic that the business will look significantly better by the end of the financial yearAfrimat has just had its toughest year since 2008: everything that could go wrong this time did. Ferrochrome smelters shut, cutting its Nkomati anthracite sales to nothing in the second half; ArcelorMittal didn’t take up the iron ore it usually does; Transnet didn’t rail enough; and now diesel prices are going through the roof. The FM spoke to CEO Andries van Heerden. Is the worst behind you?If I look at what happened at Nkomati, we’d been battling to turn that business around since we bought it and we really got to a rhythm. Then all of a sudden the rug was pulled from under us. That is now starting to recover: three of the line smelters are back in production and we’ve started seeing an offtake on the domestic side. The nice thing about a crisis is that it brings out the best in your people, so the guys increased export sales from that mine quite drastically. And we managed to get the mine to be very efficient, so that’s positive. On the iron ore side, the price in rand terms came down quite significantly, but that’s started to recover. ArcelorMittal were buying significant amounts of stock from us last year and then they made a deal to buy a stockpile that was lying on site there, which reduced their offtake, but that will pass. Even though we had all these storms, we grew our aggregates business when we acquired Lafarge. And the extra contribution we are getting from that means Afrimat is still profitable, albeit not at levels we used to be. Hopefully, towards the end of this financial year we’ll see a significantly different business.You said that you “recognise the value” of the cement operation but that you’re looking at strategic alternatives. Like what?What I can say is that quarrying and mining are our core businesses and cement manufacturing is not core. Alternatives could include a merger, co-operation with a strategic investor or an outright sale.Does that mean the Lafarge deal was a bad one for Afrimat?No! No. Remember that Lafarge owned some of the very best quarries in South Africa — that’s what I bought this business for; the cement was just something I had to take. The contribution that we are seeing from these quarries and the fly-ash business already makes it a very good investment.I ask because for a long time investors rated your capital allocation very highly, and now they may question why you bought what you have, like anthracite and Lafarge?There are always clever keyboard warriors who have probably never built a business in their lives, and they tend to think of Lafarge as a cement business making losses. But if you look at the latest numbers, the year before we did the Lafarge deal the operating profit from our aggregates business was just north of R200m, and the last round we reported more than R600m. We are taking a five- and 10-year view, and if we have to take a little short-term pain to get there, that is what we will do.You took a big impairment on Nkomati’s underground mine. Is this a business you’d actually like to get out of?It is a business with potential. If all the ferrochrome smelters get what they want from Nersa [the National Energy Regulator of South Africa], this can be a very lucrative proposition, and given all the work we’ve done to position the business, and the quality of the management team we have there, it is a business that can be very positive for us.Transnet couldn’t give you your full rail allocation, yet you’ve been quite kind about them. How realistic is it that in the next year you will be able to get your full export allocation of iron ore?The probability of railing higher volumes in the short to medium term is very low because there’s such a huge backlog. It will take them a couple of years to fix. You say I’m kind, but they are an exceptional team; the kind of work they are doing is in a different league and I wish we had more people in state-owned entities like that.As for diesel prices, you used 27-million litres last year and now diesel costs have shot up. You really didn’t need this too — are you going to be able to pass on these costs?Short answer is no, we won’t; on the bulk commodities side it’s just a cost you have to carry. In the aggregates business we can recoup some of those costs, but it will put pressure on us.What about your future metals business — when will that start contributing to profit?There’s a unique combination of iron phosphate and rare earths in there, and it gives us two avenues: to use iron phosphate as an alloy in the battery manufacturing industry, and the rare earths that have a different market. We’re in discussion with various players around the world about the best way forward. On a five-year view, this is a valuable asset that could move the dial significantly. The market is very impatient and unfortunately, given the size of the price tag, we had to go public on announcing [the deal]. But traditionally, on many of the other projects we did over the years, we managed to incubate them and make them public only once they were working, which gave the impression that these things worked out very quickly. That’s the downside of being listed — many shareholders have a six-month or one-year horizon for their decisions, but we are trying to build a sustainable company for the long run.This article first appeared in the Financial Mail.The post Can Afrimat put its year from hell behind it? appeared first on Miningmx.Weiter zum vollständigen Artikel bei Mining.com Weiter zum vollständigen Artikel bei Mining.com