Afrimat takes R2bn bet on coal

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JSE-listed building materials supplier Afrimat is taking a R2.1bn bet that SA will not be able to wean itself off its coal dependency anytime soon. Afrimat, which has a market capitalisation of R4.4bn, has made an offer for Australia-listed Universal Coal.

The bid for Universal Coal, which has operations in SA, flies in the face of a growing trend away from investments in fossil fuels. For example,  Nedbank, one of the big four banks, said earlier in 2019 it would no longer fund new coal-fired power stations.

Explaining the rationale for Afrimat’s takeover offer for Australia-listed Universal Coal, CEO Andries van Heerden said SA was set to rely on coal-fired power stations for at least another 20 years.

“SA needs reliable electricity supply which in turn is heavily reliant on responsible miners mining coal in a sustainable way.  We believe that Afrimat can make a significant contribution on this front. We are actively supporting renewable energy projects through our construction materials division, but as a country we will remain reliant on coal-fired power stations at least for two more decades,” Van Heerden said.

Afrimat is the latest company to brush aside the negative sentiment towards coal. Mining company Exxaro in March said the anti-coal stance presented a window of opportunity for the firm, as other players were looking to sell their assets and not add any new capacity to the market. Nombasa Tsengwa, executive head for coal operations at Exxaro, said at the time those companies that had available coal had the advantage.

Independent analyst Anthony Clark said coal was the fuel of choice in SA “and will be for years to come”.

“There is also the export market for Universal to target which to date they only have a small export business of the 4.6-million tons of coal they sell.”

Van Heerden said the proposed transaction was a continuation of Afrimat’s diversification strategy growing its exposure to the bulk commodities space.  Initial investigations into Universal had shown that the business and its management would fit well into Afrimat.

“The business is cash generative and should be very value accretive for Afrimat’s shareholders whilst Afrimat will also give Universal stability from a shareholders point of view. We feel that we understand the mining environment in SA and we can contribute positively with reliable and sustainable coal supply specifically to Eskom,” Van Heerden said.

Clark said Universal might be listed in Australia but all of its assets were in SA, which would make it easier for Afrimat to manage the assets.

Afrimat, one of the better performers in SA’s troubled construction industry, has offered a maximum price of A$0.40 (US53c) a share. Universal’s shares on the Australian bourse surged 10.29% to 38c. This is slightly less than the stock’s 52-week high of 39.

Despite the surge in the share price which — if it stays longer at the elevated levels — might make the offer less attractive, Afrimat had no intention to increase its bid , which Van Heerden said was fair. “The offer is significantly above the average trading price of the past months,” he said.

Clark said Universal had big individual shareholders. “I would bet that Afrimat would not have undertaken the bid at A$0.40 unless they had the support of a significant percentage of shareholders. Also the share price of Universal has run hard the past year so 40 is a good price,” Clark said.

Meanwhile, a consortium led by private equity firm, Ata Resources Coal Investments, has dropped its bid to acquire Universal Coal, coal mining and trading company Wescoal, which is part of the consortium, said on Monday.

 

Oyedeyi Samson with Agency Reports

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