Since its listing on the Main Board of the JSE in the Construction and Building Materials sector in 2006, leading open pit mining company Afrimat has grown by an average of more than 21% per year since 2009. Dale Kelly looks at the reasons behind this year-on year achievement.
Afrimat is less reliant on the construction industry than in the past, not forgetting that aggregates and concrete products have been the solid foundation of its success.
Afrimat supplies a broad range of construction materials and industrial minerals, ranging from mining and aggregates, metallurgical dolomites, agricultural lime, concrete products (bricks, blocks and pavers) to readymix. It has established a firm foothold in contracting services, which comprise drilling and blasting, mobile crushing and screening. Its recent acquisition of Cape-based Cape Lime has further extended the company’s diversification into additional industrial mineral markets, pharmaceutical supply and the construction sector, through its burnt and milled lime and dolomite products.
Backed by over 50 years’ experience, the group’s growing geographical footprint covers vast sections of urban and rural Southern Africa, with its integrated product offering distributed across the Western Cape, Eastern Cape, KwaZulu-Natal, Free State, Gauteng, Limpopo, Mpumalanga (with its latest Mbombela branch launch taking place in early July), Northern Cape, and Mozambique. Its five key divisions include:
- Mining & Aggregates
- Industrial Minerals
- Contracting International
- Concrete Products
Afrimat is able to service projects of any scale from major infrastructure and construction projects for state-owned enterprises and parastatals through to small private sector contracts. Its consistently low staff turnover has resulted in a deep skills pool, many of whom MQ has interviewed over the years.
Genuine transformation, starting with staff and management and extending to community upliftment, is integral to the group’s philosophy and sustainability, and a genuine company this is and always has been.
Afrimat brought together two industry specialists founded in 1963 and 1965 respectively – Prima, which mainly supplied aggregates to the Cape construction and road building industries – and Lancaster, which was dominant in quarrying and the supply of concrete blocks and bricks in northern KwaZulu-Natal and the eastern Free State.
Looking back, the black-empowered group successfully debuted on the JSE in November 2006, immediately indicating execution of its acquisition strategy when it placed the company under cautionary. The shares listed strongly at R8,05 to give Afrimat a market capitalisation on listing of R1-billion. New contracts worth some R50-million in line with forecast projections set the group well on the way towards meeting its 2007 forecast revenue of R471,4-million.
MQ recalls that with the prelisting placement almost 30 times oversubscribed, disappointed applicants and the public were left to buy shares on listing. As a result, some two hours after listing, more than 2,6-million shares had changed hands in 767 separate transactions with an aggregate value of R21,4-mllion. An amount of R125-million was raised in the prelisting private placement of 25-million shares at R5,00/share. With R50-million going to founders of the group who had sold small stakeholdings to facilitate the listing, new capital of R75-million went directly to eliminate gearing on the balance sheet – a financial strength that firmly positioned the group in its aggressive acquisition strategy.
At that time, CEO Andries van Heerden told MQ that he was grateful that the listing was “an absolute blessing. I used to have all my hair before the listing, but lost it in one week!”
Afrimat’s R125-million acquisition of Cape-based Malans Group and Denver Quarries that same year, further boosted the then Prima Quarries’ 45-year presence in the region, marking the start of the group’s expansion plan. Malans comprised several quarry operations and a number of sand mines in the Western Cape, Jeffrey’s Bay area and mobile crushing operations in Port Elizabeth.
Commenting then on the Denver Quarries element, Van Heerden said the company had considered this operation as a standalone acquisition target even before it was acquired by Malans. “It will further enhance our presence in the Eastern Cape.”
Interestingly, both Lancaster and Prima had similar cultures together with a historical integration of management teams. Van Heerden was MD of Prima until January 2005 when he left and formed the consortium that eventually acquired Lancaster.
Prima was established in 1963 as Prima Klipbrekers. It started as a small quarry and stone crushing business in Worcester. In 1979, Prima Quarries was formed as a holding company, diversifying and acquiring or forming entities within the same industry.
Lancaster Quarries was founded in 1965 to mine and crush dolerite stone on a farm some five kilometres outside Vryheid in KwaZulu-Natal. Its precast division was established in 1972 with five production units in northern KZN and eastern Free State.
In 2008, MQ joined Afrimat in celebrating the opening of its state-of-the-art workshop in Vryheid. At that time it was robustly looking at further expansion and had signed a deal with a BEE partner.
MQ recalls Van Heerden saying: “For me, the two most wonderful sounds in Africa are the call of the fish eagle and the roar of a big diesel engine, and not a lot of people can appreciate that. So when I joined Prima, I knew I could get to the fish eagle in the bush, and also play with big diesel engines; so it has worked out well for me.”
Lancaster was acquired in 2005 with Van Heerden’s consortium taking over in September that year with a fully-leveraged buy-out. “One of my core beliefs is to never give up. Together with my partners, it’s been a long and hard process, but we’re grateful for how things turned out,” he told MQ. Discussing the acquisition of Lancaster, he said there were a lot of things at Lancaster that would become part of Afrimat’s culture, one of these being its strong business ethic. Bringing those ethics into the group was Pieter de Wet, and the rest is history.
The Afrimat journey comprises:
- 1963: Prima established;
- 1965: Lancaster founded;
- 1973: Lancaster precast established;
- 2003: Empowerment transaction between Mega Oils and Prima;
- Lancaster acquired by a consortium led by Andries van Heerden and Laurie Korsten;
- 2006: Afrimat formed on merger of Lancaster and Prima; together with listing on Main Board of JSE in Construction and Building Materials sector;
- 2007: Acquisition of Malans Group and Denver Quarries;
- 2008: National footprint into Gauteng, Limpopo and Mpumalanga;
- 2009: Afrimat BEE Trust acquired 15,8%; BEE shareholding increased to 26,1%; and acquisition of Blue Platinum Quarry;
- 2011: Diversification into industrial minerals with the acquisition of Glen Douglas dolomite mine;
- 2012: Diversification into clinker market with acquisition of SA Block;
- 2013: Acquisition of 50,7% stake in Infrasors Holdings; and
- 2015: Acquisition of Cape Lime.
Chatting recently to group marketing manager Hylton Hale at the company’s head office in Cape Town, MQ asked him to explain the paradox between maintaining a strong balance sheet while also being adventurous and investing in new business ventures.
“We are obviously less reliant on the construction industry than in the past, not forgetting that aggregates and concrete products have been the basis for our success. And with this in mind, we have been very conservative in our approach in terms of new acquisitions, fiercely protecting our market in terms of the construction industry. “
He says the company has been diligent in terms of the deals coming to its table, citing the Cape Lime acquisition as being one that took some four years to formulate. “This deal, which is our largest and most exciting acquisition undertaken to date, has a unique product offering, opening up additional markets in water purification, soil treatment, effluent treatment as well as the traditional building and construction sector.”
Founded in 1946 in Robertson, Cape Lime is a producer of lime and associated products. Its resources include Langvlei (Robertson), dolomite; Vredendal, limestone and dolomite; and Maskam (Van Rhynsdorp), limestone – not yet mined.
Hale says Cape Lime is a very well run operation and has therefore been an easy integration into the Afrimat Group. “This acquisition is an extension of our diversification strategy aimed at leveraging off our core business, not only in new markets but also by offering new products in existing markets.”
Post year-end, Afrimat received regulatory approval for the Cape Lime acquisition for which it paid R276-million. The acquisition was effective 31 March, 2016, complementing and boosting the company’s drive in the industrials sector.
Glen Douglas was the company’s initial diversification into industrial minerals. “If you go back in history, it is amazing how cyclical this industry of ours is, and that’s why the Glen Douglas acquisition was so attractive to us. We went through tough times in 2008 when the share price nosed down, with a literal sell out on the stock exchange. The construction sector suffered and that precipitated the danger of being too reliant on the construction industry, which can be very vulnerable.”
In May 2010, Afrimat entered the industrial minerals market with the R35-million acquisition of Glen Douglas Dolomite. The quarry, which is situated in Henley-on-Klip, south of Johannesburg is undoubtedly the company’s flagship operation. It produces a broad spectrum of aggregate products, followed by concrete products and the brickmaking industries. The mine has a strong brand due to its consistent quality and exceptionally low water demand of the products.
It’s aglime for the agricultural industry is produced as a by-product from fines collected in the settling ponds at the washing and screening plant and fines from the metallurgical dolomite process.
Opened in 1957, the mine is an open-pit operation producing from a single excavation, sub-divided by a 40 m wide dyke into two pits – B and C pits – which produce both the low-silica metallurgical dolomite for the steel industry and the high-silica content sold as an aggregate to a wide range of customers in Gauteng and the Free State.
In March 2013, Afrimat acquired a 50,7% stake in Infrasors Holdings, further expanding its geographic reach and footprint in industrial minerals. Infrasors produces metallurgical dolomite, limestone and silica. The company has since incrementally increased its shareholding and currently owns 98%. The mining assets include:
- Lyttleton Centurion Mine – opencast mining and beneficiation of dolomite;
- Marble Hall Mine – opencast mining and beneficiation of limestone;
- Delf Sand Mine – opencast mining and beneficiation of alluvial silica sand and silica quartz; and
- Delf Silica Coastal – opencast mining and beneficiation of alluvial silica sand.
Hale says Marble Hall has been a success story for the past year. “We secured a deal to supply Arcelor Mittal through Marble Hall, which is great for our guys up north.”
Afrimat is also building strength beyond borders by extending its reach into Mozambique, supporting the rapidly developing region with high quality aggregate products for civil and mining projects as well as drilling and blasting services. It has established quarries in Pemba, Cuamba and Palma in the northern region, and considers Mozambique as a medium-sized investment which is being handled cautiously. “Our intention is a soft entry with a low capital investment. If you are not there, you are not considered seriously,” Hale says.
As its first step into Mozambique, the company identified the Tete-Ncala railway line as a viable opportunity followed by the Cabo Delgada Liquified Natural Gas (LNG) project, which is a first-of-its-kind LNG facility on the east coast of Africa. “We are already working on several contracts and believe we are in the right place at the right time.”
For the financial year ended 29 February, 2016, Afrimat reported a positive growth rate against the previous period for nine of 10 reports (in February 2009, it reported a negative growth rate). Van Heerden attributes the solid performance to the company’s diversification strategy and its cost reduction and efficiency improvement initiatives. “We have, through our mantra Growth through Diversification, continued to successfully focus on our more valuable product lines, which has resulted in higher earnings.”
“What is important,” Hale tells MQ,” is that the core of our old business before the Glen Douglas acquisition has a very strong foundation. When one thinks about it, Lancaster and Malans was founded in 1963 and Prima in 1965, so one can image the wealth of experience just with those three companies. So that is the foundation of our success, where a mixture of conservatism and a bit of adventure comes.
“Although we are not totally reliant on the construction industry as we were in the past, we have obviously taken note that aggregates and concrete products are the very foundation of our success as a company.”
And as Van Heerden says, “our group has grown by an average of more than 21% per year since 2009. Our cashflow is good and the business is generally in a healthy state financially. We’re grateful for the blessings we have received in this company and we’re excited about what the future holds.”