CEO’s inside track on Afrimat – SA-focused high quality mining stock which traded 50% higher in April

At BizNews, we keep a close eye on share prices of high quality companies, waiting to flag the opportunity when they temporarily fall out of favour with Mr Market. South AfAt BizNews, we keep a close eye on share prices of high quality companies, waiting to flag the opportunity when they temporarily fall out of favour with Mr Market. South African-focused iron ore, coal and bulk materials miner Afrimat fits this bill. Its share price is now at around R50, having traded above R75 four months ago. In this in-depth interview, Afrimat CEO Andries van Heerden shares unique insights into the ambitious company’s progress. An obvious conclusion: as institutional investors were recently climbing over each other to buy R680m worth of fresh shares at the current price, private players entering now appear to have a safety net. Ven Heerden spoke to Alec Hogg of BizNews.

Andries van Heerden on what a bookbuild is and why Afrimat embarked on one at the end of July

A bookbuild is really just a private placement that’s been offered to a broader base of shareholders. We started with a private placement and we very quickly found that there was quite a strong demand and opened it more to accommodate more people. So I think that would be the quick summary of why, what, what the bookbuild is and why we went for that specific mechanism. It was really about raising capital. The reason we did that is because every market is in a very interesting expansion phase and we’ve got very, very interesting expansion projects. The most important right now is Glenover. It’s a new mine that we are busy developing in Limpopo where we are already mining phosphate and we will be extracting rare earth and vermiculite there as well. The reason we decided to go and raise some capital is that the current markets are extremely volatile and and especially given that iron ore is still a very important commodity in our lives, we took a view that anything could happen. And, you know, as I put it to my board, if I have to come back next year this time and apologise for making a mistake, I’d much rather come back and apologise for having too much money available or too much cash available in the balance in the bank than coming to apologise for not being prudent and not raising or not having enough capital available and having to go back to shareholders in a possibly tough market.

On the decision to trade 50% higher than their normal share price

I think hindsight is always a perfect science. If I could turn back the clock, I would raise it at a higher price. But when we were at R76, the trading was extremely thin. There was a very small volume of shares that traded at that sort of level. So we would have had to give quite a significant discount from that level. So that’s the first point. It’s very difficult to time markets, especially in times like this. Secondly, you know, when we did the placement we had to give I think it was a five or a 7% discount to the market at that stage to sort of entice shareholders to participate.

On issuing equity rather than borrowing

There was a very strong argument in our boardrooms when we discussed this and we made the decision, given the projects that we have and given that the focus that we did at the time, given our assumptions of where iron ore prices will go – we should reach our own limits on debt within the next 12 months, given the rate at which the big projects that we are busy investing in is going to start burning cash. And on the other hand, at what rate can we actually earn cash from our operations? And at the moment, looking short term, 12 months out, we will reach our limit. We are conservative. We might be a little too conservative on the balance sheet, but in my experience companies that end up in trouble, almost without exception, end up in trouble because of too much debt.  

On the breakdown of portfolio of what they’re mining today and the different balances

We have three major groupings. So one is South African focused businesses – that’s construction materials that aggregates where it all started and lime and limestone dolomite, that sort of thing. So it’s very closely related – locally priced commodities sold to local, local customers. Then what we call our ferrous value chain, that is our iron ore. We would group our anthracite in that same group and we would also link manganese specifically in that group. So the market is China, not for anthracite but for the other products. And it goes into a furnace for steelmaking. And then the third leg is what we call future minerals. It’s interesting that in the Glenover deposit, the phosphate and the rare earths, actually occur in combination in that mine and it’s very closely related to how we’ve been officiating them. Even then the phosphates in the end would go into the agricultural market. And that’s a big growing trend, especially in Africa. And then the rare earths are obviously for the battery minerals and that sort of thing. So that gives a quick grouping. The underlying philosophy is, years ago when we started diversifying Afrimat, we actually wanted to become a multi-commodity mining company in the mining space.  

On what makes Afrimat different

I think firstly, we are South African, we understand South Africa, and I think we’ve really embraced the diversity of South Africa many, many years ago. And we’ve got a team that really understands how to operate in the legislative environment. I always say that the fact that we operate 41 different mining licences helps us to have a very good relationship with the DMRE for instance, because we have a frequent interaction with them. Whatever we do we try to build it on positive relationships. So instead of criticising, complaining about what is wrong from a legislative point of view, we would rather get involved. And even in the latest mining charter, there are tables and things like that, that were actually developed in our office and presented as a proposal and it was accepted. We tried to operate in an environment where we have good relationships with all the different roleplayers, communities, our workforce, the press, everybody. All these stakeholders. And I think that’s one thing that we do differently. It works quite well. We are loyal to them. We love the country. We love the people of this country. We love making a difference. 

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