The economic growth trends of the past few years have shown a clear shift away from the west to the fast-growing east-economies of India and China. The more recent slowdown in growth in these economies has resulted in a renewed global focus on Africa, which is considered to be the last frontier in terms of its market and growth potential.
According to the UN Economic Commission for Africa, the continent has achieved an average growth of 5% per year over the past decade, with some countries growing by more than 7% yearly. Underpinning this growth were relatively high commodity prices, higher domestic demand due to increased infrastructure investment and improved economic management. Africa is home to a third of the planet’s mineral reserves, a tenth of the oil reserves and produces two-thirds of the diamonds. African economies are also heavily dependent on agriculture with the industry employing 65% of Africa’s labour force and accounting for 32% of the continent’s overall gross domestic product.
There is little doubt that as millions of people cross the poverty line in the next few decades, there will be tremendous opportunity in the areas of energy, food and infrastructure. Coincidentally, these are three industries in which Omnia excels. Not only is Omnia a leading provider of high-value and specialised solutions to businesses that mine metal and mineral resources, grow agricultural products and operate in the industrial sector; it is also at home in Africa.
Omnia has a physical presence in 16 African countries and is involved in trade with several other African and international countries. Omnia’s Mining division has the most extensive African presence and is particularly well represented in southern, central and West Africa. The Agriculture and Chemicals divisions have a strong presence in southern Africa. Beyond its continental reach, Omnia’s products and services directly address pressing global priorities: food security, water preservation and smart mining.
Having enough to eat is a basic human need, one that drives individual and market behaviour in predictable ways. History suggests that government policies ensuring food security can speed up economic growth in countries where a substantial portion of the population lives below the breadline.
Africa’s population is skyrocketing. For the period from 2000 to 2050, eight of the ten countries with the highest expected average annual population growth rate in the world will be African. Until 2055, 18 out of the 20 countries with the highest expected total fertility rate are located in sub-Saharan Africa. This supports UNICEF’s prediction that Africa’s population will increase by 1.8 billion new-borns over the next 35 years, and the total African population will nearly quadruple to approximately 4.2 billion by the end of the century. Put another way, one in three people will live in Africa by the end of this century.
The pressure on resources is immense. Ensuring there is enough food necessitates the adoption of modern agriculture, which promotes the use of chemical fertilizers, irrigation systems, farm machinery and large-scale monoculture farms for increased efficiency and yields. Modern agriculture in turn, is faced with its own challenges, among them a heavy dependence on water, fossil fuels and nutrients.
The Science of Growth
Fertilizers replace the chemical compounds/constituents that are taken from the soil by growing plants. These are designed to ensure a high soil fertility to enable maximum crop yields utilising the least arable land. Fertilizers can also be tailored to suit the type of crop that is being grown but typically contain nitrogen, phosphorus and potassium compounds.
The primary components in fertilizers are nutrients which are vital for plant growth. Plants use nitrogen in the synthesis of proteins, nucleic acids and hormones. When plants are nitrogen deficient, they are marked by reduced growth and yellowing leaves. Plants also need phosphorus, a component of nucleic acids, phospholipids and several proteins. It is also necessary to provide the energy to drive metabolic chemical reactions. Without enough phosphorus, plant growth is reduced. Potassium is another major substance that plants get from the soil, it is used in protein synthesis and other key plant processes. Yellowing, spots of dead tissue and weak stems and roots are all indicative of a lack of potassium.
Calcium, magnesium and sulphur, commonly grouped as the secondary nutrients, are only included in fertilizers in small amounts since most soils naturally contain enough of these components. Micronutrients such as iron, copper, manganese, zinc, molybdenum and boron, are also present in small amounts. These compounds are no less important to growth and without them plants will not grow or become stunted.
Omnia’s nitric acid 2 complex (Sasolburg)
This is why Omnia has invested and continues to invest in our nitric acid complex. In 2012, in response to the market shortages of nitric acid and ammonium nitrate Omnia commissioned the construction of a second nitric acid complex in Sasolburg to process key feedstock materials in the production of mining explosives and fertilizers.
The R1.4 billion plant and related infrastructure has not only resolved the decade-long shortage of nitric acid and related products in the South African market, it has put Omnia in a leading position in the fertilizer and mining explosives industry in southern Africa. Besides significantly improving security of supply to the agricultural and mining market, the investment has reduced Omnia’s input cost and allowed the Group to broaden its product range and expand further into African markets.
A major challenge with starting such capital intensive, high volume plants is the ability to operate the plant at an acceptable capacity and reaching full capacity and then ratchet capacity to 115% as fast as possible. The nitric acid 2 complex was operated at 81% of its design capacity during the past year, improving from 77% in the prior year. It was also proved that the plant can be safely and consistently operated at 20%, above its nameplate design capacity. This adds additional flexibility during the peak fertilizer season and ultimately increases our total throughput volumes with no major additional capital expenditure.
Lying at the heart of our product and service offerings are the chemical compound granulation plants. Due to the additional nitric acid and ammonium nitrate production capacity these plants are now capable of producing according to their design capacities and have allowed the Agriculture division to deliver excellent agronomic value to the current and expanding customer base. The impact of the new nitric acid complex is most evident in the reduced requirement for imported fertilizer. This is due to the improved availability of raw material for the downstream granulation plants. The imported fertilizer component has reduced by 60% year-on-year from 105 000 tons to 42 000 tons in the current year.
The expansion of the current nitrophos process is currently under consideration with the potential to significantly reduce the raw material cost of granulation. It has the added benefit of reducing the dependency on high value raw materials like phosphoric acid.
We currently generate almost half of the electrical energy we require by using excess steam from the exothermic reaction of the new nitric acid complex, combined with an electrical generation unit. Through the variety of plants and processes, our engineers continue to identify opportunities to reduce, reuse or generate additional energy in the manufacturing process, in order to reduce our dependence on the supply of electricity from the state utility company, Eskom. In turn, this improves our ability to run all 12 plants at Sasolburg on a continuous basis and reduce our total cost of electricity consumed. The annual cost of energy per kilowatt hour supplied by Eskom is increasing at double digit rates, far in excess of the cost of inflation and the need to mitigate this input cost remains a key priority for management. The continuous operation of these plants improves efficiencies and reduces the unit cost of production.
We are in the process of experimenting with solar panels and heat pumps. Heat pumps are seen to be an area of significant potential in reducing the energy requirements on site. However, this must still be proven on an industrial scale. We implemented a program to replace old motors with high efficiency motors and we have also installed several variable speed drives on big motors, which reduces peak energy requirements during the start-up phase. Conventional lighting units are steadily being replaced with low energy and LED-fittings. An energy efficiency survey on the first nitric acid plant was conducted which has also resulted in achieving savings on steam consumption. This together with the increased capacity of the nitric acid 2 complex has resulted in a 10.7% reduction in steam consumption for the Sasolburg factory.
We also removed up to 98% of the nitrous oxide (N2O) gases generated by our production process and are earning carbon credits which we can sell or potentially offset against the new carbon tax to be introduced in South Africa. The investment in technology allows Omnia to remain well within the stringent requirements of the new limits imposed during 2015, as well as the limits to be imposed in 2020, under new legislation.
The use of water continues to be a key focus area for the Sasolburg site. Similar to the consumption of electricity, the use and re-use of water remains a top priority for management. The re-use of captured rain water is a key focus area, with significant improvements made in the past year after modifications to the granulation plants. This has allowed a significant quantity of captured rainwater to be re-used in the granulation process. As a result, this has reduced the amount of water obtained from the municipal system for granulation production by 93%,approximately 16 000 cubic meters per annum. Further projects currently underway in other areas of the factory, aim to reduce the water consumption from municipal sources by a similar amount in the following year.
Specialised Agricultural Services (SAS)
Our technology is a competitive advantage, as is our intellectual capital. With SAS, we take our technology onto the farm. As a key component of our agricultural business, SAS has become intricately involved in the business of farming. This is achieved by working with farmers to mitigate risk and promote sustainable farming practices, such as efficient planting practice, use of nutrients, soil conditioning and irrigation practices. SAS augments our fertilizer offering; it puts a face on the product and skills in the hands of the farmer. Together with our production facilities, Omnia is strategically positioned as a leading supplier of fertilizer and agronomic expertise to create value for our customers.
Backed by a team of more than one hundred agronomists in South Africa, the SAS business unit partners with local government and farmers to create long-term mutual benefits to farming operations. Among the technologies deployed are extensive soil sampling (with the analysis conducted by our in-house laboratory at Sasolburg), yield mapping and zone management systems, which graphically demonstrate historical yields, identify non-productive zones for best use of land and the most efficient use of water and fertilizer. This in turn allows us to assist our customers to plan their farming activities on a more scientific basis, to improve yields and minimize the impact on the environment. The correct planting programme and application of fertilizers and watering schedules, all contribute to a successful crop under assumed conditions, thereby improving the financial returns for farmers.
Our holistic and specialist offerings intensify agricultural yields in an environmentally-sound manner that helps reduce rural poverty and puts more meals on tables. Africa, with its vast tracts of underutilised yet fertile land, could easily feed its own populations and still be a major food exporter to the rest of the world.
The year finished on a high note with the SAS team winning first prize in the internal business project initiative that was done in conjunction with the Gordon Institute Business School in Johannesburg, for the project on the future role of SAS in farming at GIBS. In addition, our employee, Dr Louis Ehlers, was awarded the President’s Prize for the best verbal paper presented at the Combined Agricultural Societies Congress in George in January 2015. The paper was on his PhD thesis relating to water use efficiency.
Smart mining - Turning toxic waste into valuable products
Africa is home to metals and minerals that are in demand across the globe. Unlocking Africa’s mineral wealth is vital to the continued prosperity of developed countries and emerging economic giants such as China, India, Brazil and Malaysia.
Global demand for energy boosts demand for coal and uranium, while South Africa’s coal-fired power stations, both existing and proposed, will require increased quantities of thermal coal. Iron ore, copper, platinum and “rare earth” minerals are also in demand, although demand has subsided in the past year with the global economy struggling to recover from the current economic downturn.
Declining commodity prices have forced mineral and metal producers to look at more efficient methods of extraction. Omnia is recognised for its expertise in developing quality and cost-effective solutions that enhance safety and productivity, in recovering and processing essential mining commodities. These technologies are backed by advanced services, knowledge and products offered by BME. With the mining industry under pressure to produce profit in a high-cost, low-price environment, the need for BME’s modern technology in blasting and explosives has become imperative for increased mine profitability and yield.
Effective mining is also green mining. It is widely publicised that one litre of used oil can contaminate a million litres of water. Around 270 million litres of lubricants are sold annually in South Africa and of this, half is lost through use. That leaves 135 million litres of used oil generated every year of which some 80 million litres is accounted for through the tracking of hazardous waste regulations. This implies that approximately 55 million litres is being disposed of irresponsibly.
BME is a leader in used oil technology and was the first company in South Africa to successfully and consistently apply used oil in the fuel phase of our emulsion explosives, starting more than three decades ago. BME remains at the forefront in emulsion technology with stable formulations that allow 80% of the fuel phase in our emulsion to comprise of used oil. This stability has multiple benefits beyond the application of used oil. Our emulsions can be road or sea freighted, thousands of kilometres as far as Zambia, St Helena or Eritrea without deterioration. On-site storage for long periods is also possible, allowing for assured supply in remote areas and consistent quality. This stability also ensures consistently reliable and well-fragmented blasts.
To secure the high volume of used oil required for our operations, BME has developed its own used-oil collection network and processing facility in South Africa. The facility can safely process up to 50 000 litres per day of potentially environment-damaging used oil, and is situated adjacent to BME’s bulk emulsion plant in Dryden where the oil is processed for use in BME emulsions.
Part of the success of the used oil process, is the thorough procedures that were put in place at our collection points to ensure the ‘purity’ of the used oil product. The system begins with an audit of the servicing facilities at the operations we collect from, ranging from the brand of new oil that is used to the analysis of the compounds in the used oil. Full checks are also performed on the on-site storage facilities on the used oil. The storage system is a sealed system, starting from pumping of used oil from engine sumps to the final stage into storage, where checks are performed for spillages and leaks. A sample of the used oil is then sent to our R&D laboratories for testing. If the results comply with the strict set of requirements and the used oil is ‘clean’, the oil will be collected.
Quarantine tanks are used at our facilities at Losberg and Dryden to allow for further screening of the collected oil prior to processing. In the company’s process, 90% of oil collected is usable and the remainder is disposed of as per the requirements of the National Oil Recycling Association of South Africa (NORA-SA). Water and volatiles are removed during the processing and the final emulsion product in which the used oil is applied is a black, Vaseline-like emulsion, which is used as the primary component in our heavy explosives fuel (HEF) products.
Given the logistics involved in collecting used oil from suppliers, some of them located across South Africa’s borders, the management of risk is a primary consideration. This involves comprehensive measures that transcend road tankers. It includes ensuring that our drivers are knowledgeable about their loads and that steps are taken along the entire process from collection to manufacturing of the explosives to ensure that safety and quality is maintained.
During the past four years, BME has increased its own sourcing of used oil to over 50% of our total used oil consumption. BME is by far the largest consumer of used oil in Southern Africa and at most of our African manufacturing operations, we take used oil from our clients to apply in our emulsion explosives.
Share price performance
With the Mining division constituting 48.8% of the operating profit in FY2015, there is a direct correlation between the declines in the share price from September 2014 to date, which principally mirrors the decline in the JSE mining index. Current pricing remains below R180 per share at a historical price earnings ratio of approximately 12.
The diversification in our product, client and geographic portfolio and our exponential growth over the years has helped us secure a long-term rating of A-(ZA) and a short-term rating of A1-(ZA) from Global Credit Ratings in July 2014. The share price outlook was retained as positive at the last rating. Management remains positive on the outlook for the company, despite the challenging economic conditions both locally and on a global basis.
Daily closing share price (cents) - from 31 March 2010
Daily market capitalisation (Rand billions) from 31 March 2010