A Rapid Transformation
Key message: Afrimat will rapidly transition into a mid-scale mining house, with revenues set to triple over the next three years and debt forecast to fully paid off at the end of that period.
- Afrimat released FY21 results, with HEPS up 27% to 441.7c off an increase in revenue and operating profit of 12% and 48% respectively. A final dividend of 112c was declared.
- The result was boosted by high iron ore prices, with 1H FY22 at least to benefit from even higher average prices. The average price for FY22 so far is almost 70% higher than the average price for FY21.
- The key takeaway from the result was the potential to boost to iron ore sales (more than doubling) through the Coza acquisition, and the ability to fund possibly all the Gravenhage acquisition and development costs through cash flows from the iron ore business.
- Afrimat’s growth strategy is moving into a higher gear, with the move into manganese a significant step as Afrimat is now entering the long-life large deposit mining sector.
- Afrimat should be seen as an up-and-coming mining house, with further growth ambitions. The success of the acquisition strategy and operational expertise is becoming evident.
- The impact of recent acquisitions on our valuation is significant, through:
- more than doubling of iron ore sales at a similar profit margin through inland sales to AMSA
- internal cash flows from iron ore funding the bulk of the cost to acquire and develop Gravenhage
- Nkomati contribution
- little debt funding required
- Consequently, revenues are set to triple over the next three years and debt forecast to fully paid off at the end of that period.
- The increased iron ore production adds approx. R1.6bn and the new manganese operation adds approx. R4.7bn to our valuation, at a total capital cost of just over R2bn.
- This increases our Sum-of-the-Parts valuation to R81 (from R43.76).