Key message: The cement assets are now profitable and Afrimat should have a cost advantage with its ultra-extended cement.
- Afrimat recently hosted a site visit to their integrated cement plant in Lichtenburg, and we update our earnings after this event.
- Key takeaways from the event: While there has been concern over the slow pace of progress in the new cement operations, the site visit was instrumental in allaying many of these concerns and good progress has been made. Both kilns are in operation with Kiln 3 operating at 2600tpd (vs capacity of 3000tpd) and Kiln 4 at 1500tpd (vs capacity of 2000tpd). The benefit of having both kilns in operation is the flexibility to switch between the two to cater for planned and unplanned outages. At present it is likely that market demand will limit the total production to approx. 60-65% of capacity (similar to peers).
- The cement business has strategic assets in the slag JV with AMSA and the ash business which allow the ultra-extended cement (Durabuild) to be produced. Afrimat is able to produce a 32.5 cement using only 20-35% clinker (peers use 40%) and this makes for a very cost competitive product. Afrimat is the only cement producer to control the extending agents in the market. This access to extenders and the grinding facilities (at Lichtenburg and Randfontein) allow Afrimat to produce the ultra-extended cement that competes well with even the blenders in the market.
- June and July were good months for cement production and August was profitable. September production has been very good so far. As a result, we do believe that Afrimat should be able to get profitability to the same level at least with peer cement companies (EBITDA margin >10%). Capex for the cement business is expected to be approx. R120m in FY26 (from R50m in FY25). The aggregates business is doing very well.
- In other divisions, iron volumes to AMSA are running at high levels to the Vanderbijlpark works (the closure of Newcastle does not impact these volumes). Export volumes are flat. Anthracite volumes have reduced substantially due to the temporary closure of all chrome smelters in South Africa. The expectation is that the Lion smelter will reopen in January 2026 – in the meantime some export volumes will be sold but the mine will be put on care and maintenance for the rest of the year. The smelter shutdowns unfortunately coincided with the Nkomati mine starting to produce good volumes.
- We adjust our Target Price to R52.30 (from R63.40).