The return to profitability of mining contractor Moolmans validates Aveng’s decision to position itself as an infrastructure, resources and mining group, away from the troubled construction and manufacturing sectors.
Aveng, like its remaining listed peers in construction, has been reduced to a penny stock on the JSE and limps along at 2c a share, with a market cap of just R388m.
That throws into relief the scale of Moolmans’s turnaround — a profit of R117m from a loss of R166m for the six months ended December.
Essentially, Aveng has staked its future on Moolmans and Australian infrastructure company McConnell Dowell, as it continues to sell off noncore businesses.
These sales are almost complete and the group has received a total of R750m so far.
Aveng is still in negotiations to sell Aveng Automation & Control Solutions, Aveng Duraset and the steel business, and hopes to offload the assets by June.
It has previously said that it will get about R1.5bn for the noncore assets.
"We are confident that we will make that, if not exceed it. What is important is that we have managed to maintain those values despite a tough mergers & acquisitions environment and a very difficult economy," says Aveng chair Eric Diack.
This strategy is meant to reward Aveng’s long-suffering shareholders who have watched the stock stubbornly rooted at the 2c level, notwithstanding its NAV of 12.3c a share.
Still, that’s a spectacular drop from its heyday when Aveng traded at almost R30 a share.
SA’s construction sector has been all but obliterated since the success of the 2010 Soccer World Cup, and Aveng’s once mighty construction business, which it has since sold, reported a R142m net operating loss and an outflow of R400m in the first-half period.
That contributed to an overall headline loss for the group of R205m.
But with the bulk of the noncore assets out of the way, Aveng’s goal is to grow order books of its remaining core businesses and ultimately begin to make profit again.
After all, the company’s turnover was a not-inconsiderable R11.2bn for the period.
But it has not been smooth sailing for Moolmans.
The subsidiary recorded losses from the Gamsberg open-pit zinc mining contract in the Northern Cape, at one of the world’s largest undeveloped zinc deposits.
"We had significant issues with the ... abrasive nature of the material [being handled]. It was eating the ground-engaging tools that we use to dig out the rocks," says Aveng CEO Sean Flanagan.
Aveng says this led to higher-than-expected wear and tear of equipment, which affected the availability of fleet.
Aveng has now renegotiated contract rates at Gamsberg and appointed former Murray & Roberts executive Jerome Govender as MD of the mining business.
McConnell Dowell, meanwhile, reported profits for the fifth consecutive time, in the six months to end-December.
As a result of the contract extensions, Moolmans has secured 96% of revenue for the 2020 financial year and 53% for 2021.
Flanagan says Moolmans, whose equipment includes excavators, dump trucks and drill rigs, is also eyeing contracts in West Africa to add to a job in Guinea.
The business has previously executed contracts in Mali, Burkina Faso and Ghana.
"We see lots of opportunities in Sub-Saharan Africa, Central and West Africa. But I think we will be very cautious [because] there are safety issues that need to be considered," he says.
Australia, however, remains the company’s growth engine, such as it is.
As of January, Australia accounted for more than half of McConnell Dowell’s order book. "There is significant opportunity in Australia and we are winning our fair share of that work in our chosen markets," says Flanagan.
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