Chief executive of Afrimat, Andries van Heerden, talks about the art of deal-making, as the mid-tier miner has recently acquired Glenover Phosphate. Afrimat’s management is known for being one of the best capital allocation teams on the JSE. The share has been a star performer on the local bourse for the better part of a decade. Afrimat has transformed itself from a building materials-focused business to a mid-tier miner, well diversified with exposure to many different commodities. Andries talks about the due diligence processes and ‘template’, which management follows when going about a deal and the reasons behind its repeated success. – Justin Rowe-Roberts
On the due diligence process before an acquisition:
It is quite a comprehensive process that we follow. Over the years, we have developed a great template we use when we look at the entire market, the demand characteristics and the long-term pricing trends. We tried to filter out the recent spikes we’ve seen in the prices. And then, on the operational side, we spend a lot of time understanding the operational aspects of the business, looking at the geological side right through to the beneficiation, the upgradability of the minerals and the operational cost drivers and that sort of thing. So, it’s a very comprehensive process.
On the commodity and target market for the Glenover mine:
It is an interesting geological formation. The main pit or the main formation was originally mined for phosphate. There is an excellent quality phosphate and the by-product is very valuable nowadays. That is rare earths plus a few other minerals such as scandium. Adjacent to the mine there is vermiculite. The phosphates are for the agricultural industry, which is a fertiliser component. The rare earths, as you probably know, are a modern mineral. Many of those components are used for the manufacturing of permanent magnets, which will be used in the electrical vehicle market, for instance. Vermiculite is used by the horticulture industry but also in the construction industry, for fire-retardant panels and things like that.
On the art of deal-making:
I think there are a few basic things. We are not the best client for corporate finance houses because we don’t use very fancy models and things like that. We try to keep it very simple. We make sure we choose our projects very carefully and ensure we are reasonably certain we’ll earn our cash outlay back very soon after the investment. In other words, make very, very conservative assumptions and then it is about execution, making sure you get the job done as quickly and efficiently as possible. Bank those checks early on.
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