Key message: Nkomati should contribute substantially in 2H as the mine output ramps up. Transnet issues negatively impacted iron ore.
- Afrimat hosted a pre-close update for FY24 and we followed up with management.
- Iron Ore: Local iron ore sales to AMSA fell in 2H due to rail issues forcing AMSA to cut production although sales are still up YoY. Export volumes also declined due to Transnet issues (18% down on allocation). After a 10% decline in 1H, export volumes fell double digits in the period Oct-Dec 2023. An improved ZAR price (USD prices flat) is boosting revenue.
- Nkomati: Nkomati continues to make progress from the open-cast operations and the underground mine in production (although not yet at full capacity). ROM tonnages are almost at the planned 70kt – the interim steady state tonnage (this can be increased to 100ktpm). The yield is better than expected. 10% of production is being exported (high phos. product that cannot be sold locally – this is achieving a 30% premium to local sales). Decent profits are expected in 2H.
- Glenover: Phase 1 of the development is underway (total cost R900m) with sales being generated from high-grade phosphate stockpile sales. The SSP operation is being commissioned and there is healthy interest from the market (fertiliser co’s, agents). The Glenover final payment is due in April 2024.
- Construction Materials: A strong recovery in demand driven mainly by roads (nationally) and ballast purchases by Transnet, enhanced by efficiency gains, although the 2H performance will not match 1H.
- Industrial Minerals: Under pressure as customers extend shutdowns.
- Lafarge: frustrating wait for the Competition Tribunal to rule after conditional approval from the CC (Afrimat is comfortable with the conditions). Payment facilities are in place. We include Lafarge in our forecasts from FY26 due to the CC delay.
- The efficiency drive is improving margins across the business.
- Transnet induced volume declines in iron ore sales (local and export) have resulted in pulling back of forecasts for FY24 (Transnet performance in 4Q CY23 was terrible). However, Nkomati is on track and should contribute well in 2H (with a boost from exports). We have adjusted our Target Price to R86 (from R90).