Key message: External factors continue to impact Afrimat – but the operational performance is improving.
- Afrimat released 1H FY26 results. HEPS increased by 92.3% to 101.9c on a 30% increase in revenue and operating profit.
- Key takeaways from the Results: Afrimat continues to be impacted by external events – the most consequential at present being the closure of all ferrochrome smelters in South Africa. This will impact the sales of anthracite from Nkomati and while some exports may still be possible the mine will be placed on care and maintenance in 2H with the key Lion smelter due to potentially restart only in 1Q CY26. On a positive note, government has made a statement that the ferroalloy smelter sector may get some protection in the form of an export tax on chrome ore exports and preferential power tariffs to make the sector sustainable. However, there is regulatory risk around the future of Nkomati.
- Iron ore sales increased substantially in the local market with AMSA taking the equivalent of an annualised 1.6mtpa. Export sales were up marginally, and full year sales are expected to be flat.
- In the Construction materials division, aggregates recovered well in 2Q after a slow 1Q due to weather. Fly ash volumes have picked up steadily. The cement business continues to be loss making but the performance of the plant has improved markedly and 2H should see profitability. Cement sales have been well received in the market for the low carbon content and competitive price.
- Industrial Minerals was impacted the ferroalloy Newcastle closures.
- Future Minerals and Metals is generating cashflow from the sale of phosphates. Testwork on rare earth minerals continues and there is market interest. Minimal capex is expected to continue to explore options for this.
- Net debt levels increased to just under R2bn. This should represent the peak gearing levels and Afrimat is focused on reducing the debt burden as fast as possible.
- The operational performance was very good, with Nkomati having largely overcome operational challenges (unfortunately just as the ferroalloy sector shut down) and good progress being made in the cement business. Forecast risk is now largely linked to external factors out of the control of management.
- We adjust our Target Price to R52.50 (from R48.00).