File picture: Nadine Hutton
JOHANNESBURG - The expansion and diversification by Afrimat into iron ore mining has the potential to boost the revenue of the listed open-pit mining company and supplier of industrial minerals, commodities and construction materials by between 40% and 50%.

Andries van Heerden, the chief executive of Afrimat, confirmed this yesterday, adding that Afrimat had concluded a four-year agreement to provide 1million tons of iron ore to the Chinese market through a South African based exporter.

This follows Afrimat in October last year agreeing to acquire 60% of Diro Manganese and Diro Iron Ore near Sishen in the Northern Cape after these companies were placed in formal business rescue and subsequently acquired the remaining 40%.

The total of the purchase price was R276 million.

Van Heerden said the company spent more than R300m in the six months to August on legal costs, maintenance costs at the mine and on staff before it could start producing iron ore.

Production started in July and was being ramped up, with the first cash from the sale of iron ore received in September, he said.

“We are still in the production ramp-up phase and will only be at full production in March next year,” he said.

Van Heerden said the first phase of the project was to get to the production of 1million tons a year, but the group always had the ambition to do more.

He said Afrimat was looking at more acquisitions, particularly as its mine had a 10-year life at the production rate they were targeting.

“So we are working on expanding that. It will come from the Northern Cape,” he said.

Van Heerden said Afrimat was exporting very high quality iron ore that was sought after and attracted a price premium, which had enabled them to already re-employ 85 former employees of the mine who were granted severance packages.

He said the global iron ore market was massive and Afrimat’s portion of that was extremely small “to be insignificant in the bigger scheme of things” but 1million tons a year was extremely significant for the group.

Van Heerden said at $60 (R846) a ton iron price excluding the price premium at R14 to the dollar translated into R840 a ton, which would add close to R1billion or between 40percent and 50percent to Afrimat’s total annual revenue.

He added that Afrimat had a tough first quarter to its financial year, but had an exceptionally good second quarter and the business was running well.

Afrimat yesterday reported a 7.4percent growth in headline earnings a share to 102.2cents in the six months to August from 95.2c despite revenue remaining flat at R1.2bn.

Van Heerden said mineral producing operations across all regions together with the traditional aggregates businesses were the main contributors to the satisfactory set of results.

Operating profit declined by 5.8% to R194.2m from R206.2m. The interim dividend was maintained at 20c a share.

Shares in Afrimat rose 0.53% on the JSE to close at R28.50 yesterday.

-BUSINESS REPORT ONLINE