Key message: Consistent volume growth remains the key value driver, and diversification reduces iron ore exposure.

  • Afrimat released 1H FY23 results, with HEPS declining 15% to 252c on a 7% increase in revenue and 12% decrease in operating profit. Lower iron ore prices and logistics issues (rail) were the main cause of lower profits. Cash flow was strong at R784m with a further R680m raised through the equity raise. Afrimat has net cash and can fund current projects and meaningful acquisitions (+R1bn).
  • Iron Ore: The Jenkins mine is now fully operational. Total iron ore sales increased by 22%. Lower iron ore prices and cost inflation impacted the margin (down to 37% from 49%). Transnet issues impacted rail volumes (export and local) and remain a challenge. The division is profitable down to iron ore prices of USD70-75/t.
  • Nkomati: Nkomati has been profitable for the last year and development of the underground and two open cast pits should result in full operation in FY24. At an expected 40% margin Nkomati will contribute meaningfully to Group earnings.
  • Glenover: Phase 1 of the development is underway (total cost R900m) with sales being generated from high-grade phosphate stockpile sales.
  • Construction Materials: overall construction demand remains weak and cost cutting measure are being instigated.
  • Industrial Minerals: Demand for agricultural lime is strong and the business is being focussed to benefit from this demand.
  • The recent capital raise (R680m, issue of 13.38m shares) was probably not required (was earmarked for the Gravenhage deal which terminated) but does provide Afrimat with the flexibility to expand current operations and be able to move quickly on new opportunities should they arise.
  • Management remains on the lookout for acquisitions, with 4 non-binding offers on the table at present (fluorspar, zinc, kaolin). Management believe acquisitions in excess of R1bn are possible given the current balance sheet and cash generation.
  • We have adjusted our Target Price to R69 (from R80) due mainly to Transnet issues, low offtake from AMSA and share dilution. The Afrimat investment case remains strong with high organic growth in existing operations and acquisition opportunities. Rapid payback of acquisitions remains a hallmark of the Group.

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