Afrimat – Two steps forward, one step back

Afrimat faced many challenges during 1H24, from the underperforming Transnet Freight Rail to hitting dykes underground and section 54s being issued at Nkomati, to load shedding crippling the Industrial Minerals segment and many of its clients. Despite the headwinds, it was able to produce strong revenue growth due to increased local iron ore volumes as well as high demand for road and rail maintenance around the country.

Despite the strong improvement in iron ore volumes, growth was weak in the Bulk Commodities segment. Not only did export volumes decline, so too did the average realised iron ore price, which fell by 11.6% y-y. The various setbacks at Nkomati resulted in volumes falling by 35% y-y and the ramp up being pushed back by 4-6 months. The segment was saved by a strong performance from the local market and its client increasing offtake, opting to truck iron ore when the rail line was not available. AMSA has kept up its high demand and placed a large order via truck for 2H24.

Afrimat expects the demand for construction materials to increase within the next 6-12 months and is already experiencing improvement. The expected increase in demand is one of the justifications for the purchase of Lafarge. Although much work needs to be done over the next two years to turn the business around, Afrimat believes that there are many easy fixes to help maintain Lafarge’s recent profitability. It is also excited about the quality of the quarry assets and fly ash resources, which is where it expects to achieve most of its growth. However, as the iron ore price continues to normalise, Afrimat’s profitability and earnings could remain under pressure. We expect growth in revenue and profits to be achieved through Nkomati, if it can navigate the difficult geology and regular setbacks.