Explosives and specialty chemicals company AECI’s R400-million bulk property sale, in Somerset West, paired with a maintained market share, despite a difficult environment, pushed its headline earnings for the six months to June 30, up 45% to R632-million, compared with R436-million in the first half of 2014.

The company, led by CEO Mark Dytor, noted that commodity prices continued to weaken, owing to the deceleration of global growth and particularly the deceleration in China’s growth.

This trend, which was expected to persist over the medium term, added further pressure to the global mining sector.

The company noted that, had the bulk property sale not gone through, the company’s earnings would have fallen by 14%, owing to the strained market conditions.

“Growth in South Africa’s economy remained weak, specifically in the manufacturing and mining sectors. In the rest of Africa, growth remained more resilient,” it added in a statement.

Dytor noted that, despite the low commodity price cycle, the company, with a 90-year history, was “going to have to see this through. We have no plans to divest; we are just going to reposition our businesses to cope with these challenges”.

Speaking at a presentation of the company’s results in Woodmead, Johannesburg, he added that, while South Africa’s ongoing electricity supply challenges were not directly impacting the company, it had affected AECI’s customers.

“Our small- to medium-sized customers [are being affected], which means that we don’t sell any chemicals.”

AECI’s revenue for the six months increased by 8% to R8.62-billion, with 36% of revenue generated outside South Africa, reflecting the progress made in the group’s strategy to diversify geographically.

Profit from operations was R991-million, 22% higher than the R814-million achieved in the prior corresponding period.

OPERATIONS
Overall explosives volumes sold to mining customers were 10% higher, with revenue increasing by 11% to R3.95-billion.

In South Africa, AEL benefited from improved volumes in the platinum mining sector and initiating systems volumes were 59% higher. This had a positive effect on the Isap plant, which achieved record production.

However, the group noted that investments in new surface mining business gained had not delivered the expected returns, resulting in lower margins; but, it added that explosives volumes increased by 18%.

“In addition to the effects of the commodity cycle, which resulted in lower stripping ratios, other factors that depressed demand were safety-related stoppages, unprotected strikes and operational problems at some customer sites,” it said.

AEL retained business in the recent retendering processes undertaken by major customers, although it had been necessary to sacrifice margin.

There were robust results from businesses on the rest of the continent owing to a more favourable product mix, even though volume increases were marginal.

The group added that Central Africa’s copper mining sector performance was particularly pleasing, while the gold mining sector in West Africa – though still challenged by the effects of lower gold prices – stabilised.

“There was good growth in East and North Africa,” it added.

Further abroad, AEL’s business in Indonesia remained severely constrained as a result of weak thermal coal prices. “Mines have closed, customers have reduced their stripping ratios and have focused on free digging, all of which reduced the demand for explosives, and AEL’s volumes declined by 38%,” the group said.

While AECI’s ammonium nitrate BBRI plant in Indonesia was fully operational, following a $23-million investment in 2012, the “severe” decline in the thermal coal mining market from 2014, had led to the customer scaling back its operations significantly, necessitating the BBRI plant to run at lower rates.

“Given that the market  is not expected to recover significantly in the medium term, the investment has been partially impaired by $4.2-million,” AECI said.

However, the company would remain an operator in the country, as AECI’s customer Kaltim Prima Coal’s mine still had in excess of 400-million tons of resources. The mine, which covered 90 000 ha, was one-and-a-half times the size of Singapore.

The new business in Australia started commercial operations in January and was supplying three large coal mines through AEL’s partner Thiess.

GROWTH STRATEGY
“The portfolio of chemical businesses is critical to us; it doesn’t take a lot of capital. However, this sector is fully exposed to our manufacturing sector, so we are not seeing natural growth. We have to diversify, look at new organic products and services,” Dytor said.

To mitigate the ongoing challenges, the company remained focused on expanding into other sectors. This included a R134-million acquisition of Malawi-based agrochemicals, seeds and spraying equipment distributor Farmers Organisation Limited, which would grow the group’s agrochemicals footprint in Africa and allow Nulandis, AECI’s existing agrochemicals business, the opportunity to expand sales of its manufactured products into Malawi.

AECI also entered into an agreement to acquire 100% of Southern Canned  Products, a manufacturer and distributor of ingredients for juice-based drinks and products, from Gerber Goldschmidt South Africa. The acquisition would be effective August 1.

Dytor highlighted that the company would also intensify its focus in the water solutions sector.

Meanwhile, AECI CFO Mark Kathan highlighted that the company continued to invest in its plants, with its Senmin research and development centre, in Sasolburg, nearing completion. “We also enhanced our Lake foods plant in Cape Town [adding a manufacturing facility].”