Capex sets AECI course

Johannesburg - JSE-listed African Explosives and Chemical Services (AECI) has had to take on new debt to finance "significant capital expansion", but with four times interest cover the company looks well positioned, said an analyst.

In a letter to shareholders at the group's annual general meeting on Monday, AECI chairperson Fani Titi said: "In view of the effect of high commodity prices on working capital requirements and the company's extensive capital expenditure programme, management deemed it prudent to negotiate additional term debt."

The company's current net debt level is R2.4bn.

Speaking on the construction of six new project sites in its mining services division, Titi said: "Although costs on certain of the projects have increased due to scope changes and foreign exchange rate increases, they are still expected to deliver acceptable returns."

Capital expenditure on these six projects represents R2bn, compared with total capital investment in 2008 of R1.04bn.

Dirk Kotzé, portfolio manager for Coronation Fund Managers, said: "This is the company's last year of significant capital expenditure. It will be well set up once these projects near completion; after 2009 the company will experience a rapid pay-down of its debt."

AECI businesses consist of AEL, its mining solutions operation which is also the largest maker of explosives in South Africa, speciality chemical business Chemical Services (Chemserve), and SANS Technical Fibres in Stoneville, US, which is now its stand-alone producer of industrial nylon fibres and polyethylene terephthalate.

In its mining division, the first phase of AEL's "factory of the future" has been completed. This initiating systems automated plant (ISAP) is valued at R620m.

AECI's interim results will be released on July 28.

Shares were trading up 1.03% at 4 900c/share by Monday lunchtime.

- Fin24.com