Key message: Two new acquisitions – and the cashflow from Demaneng will likely cover the acquisition costs within 2 years.

  • Afrimat announced FY21 interim results, with HEPS up 1.1% to 183.9c off a 9.4% decrease in revenue and 11.0% increase in operating profit.
  • Bulk Commodities: despite operating at 50% of workforce capacity in April, the Demaneng mine delivered a 135% increase in operating profit (R326m) – driven primarily by higher iron ore prices. Volumes declined by 10% due to the Covid-19 impact.
  • Industrial Minerals: operating profit decreased by 61% to R24.6m due mainly to the Covid-19 lockdown. A potential acquisition is in the advanced stages of evaluation.
  • Construction Materials: impacted by more severe Covid-19 restrictions within an already weak sector caused profitability to fall to almost breakeven. However, the division has recovered post-lockdown and is running in line or slightly ahead of the prior year from July onwards.
  • Should the current acquisitions proceed, R550-600m will be required over the next 12 months for acquisitions costs and recapitalisation. The windfall from high iron ore prices should allow cashflow from Demaneng to cover these costs within 2 years.
    • UCP and Nkomati: R250m of working capital required to get the mine back to full production.
    • Coza: R300m acquisition price and a further R50m to get production going.
    • Free cash flow from Demaneng: we estimate Demaneng will generate FCF of over R500m in FY21.
  • We update our FY21 and FY22 HEPS forecasts to 474c and 254c (we use a long-term USD65c price for iron ore from FY22). The Coza acquisition increases our Iron Ore valuation through the extension of the LOM from 10 to 20 years.
  • We adjust our Target Price to R41.00 (from R34.00).

Download full report