Foundry facilities in Germiston, Boksburg and Benoni are affected.
South Africa’s biggest foundry group – Cast Products South Africa – has been placed under business rescue. The company, which manufactures castings for the rail, mining, power and general engineering industries and employs approximately 852 staff, was placed under supervision and business recue proceedings when the Board of Directors passed a resolution on the 14th December 2021 in terms of section 129 of the Companies Act 71 of 2008 in terms of which the Company voluntarily commenced business rescue proceedings. The Companies and Intellectual Property Commission have confirmed that the proceedings commenced on 14 January 2022.
Oddly enough the Board passed the resolution on the basis that the Board has reasonable grounds to believe that the company is financially distressed and there appears to be a reasonable prospect of rescuing the company. Does this mean that the 13 directors – which we have to presume make up the Board – are admitting to their incompetence? Or is it a case of the international partner saying we have had enough?
In 2017 South Africa’s state-owned Industrial Development Corporation (IDC) announced that the restructuring of its steel subsidiary Scaw Metals into three standalone entities. The IDC had reached an agreement with Barnes Southern Palace (BSP) to buy into Scaw’s rolled products and wire rod products businesses, which employ more than half of Scaw’s 3 500 workforce.
Cast Products South Africa has been a longtime partner with Amsted Rail, a global leader in freight wagon components, manufacturing under license cast monoblock railway wheels for the local railway market
Shortly thereafter the Competition Commission approved the proposed merger, without conditions, whereby Magotteaux International SA (Magotteaux) intended to acquire an interest in and acquire management control in Grinding Media South Africa (Pty) Ltd (GM Newco), which was formerly the grinding media business division of Scaw Metals South Africa.
In March 2018 it was announced and reported by the IDC that US company Amsted Rail Company Inc had purchased the foundry division of Scaw Metals South Africa, which had changed its name to Cast Products South Africa. This name would later be changed to Amsted Foundry Solutions SA. The transaction was approved by the Competition Commission.
The Cast Products division has been a long-time partner with Amsted Rail, a global leader in freight wagon components, manufacturing under license cast monoblock railway wheels for the local railway market. Cast Products South Africa produces railway wheels using modern curved plate design, which ensures lower operating stress to improve fatigue life. All wheels are produced in AAR M108 Grade C material, which gives excellent wear properties, according to the company. The wheel products include 34” cast wheels for general freight operations (22 ton axle load) and 36” cast wheels for heavy haul operations (32.5 ton axle load) typically found on the coal and iron ore lines.
Cast Products South Africa’s wheel plant manufactured an average of 3 200 wheels in a month with the average weight of 380 kilograms per wheel. Transnet SOC, South Africa’s state-owned freight transport and handling company, is one of Cast Products South Africa’s larger customers.
Amsted Rail manufactures and markets heavy-haul equipment worldwide. The company offers “Adapter Plus” steering pad systems, axles, bearings, brakes, centre plates, coil springs, couplers, connectors, knuckles, drawbars, cushioning units, draft sills and draft gears, friction shoes, hatch covers, plastic pellet gates, “Preload Plus Constant Contact Side Bearing”, truck assemblies, wear prevention products, and wheels. It also provides IONX, an asset monitoring solution that tracks fleet from anywhere in the world. The company was incorporated in 1977 and is based in Chicago, Illinois, USA.
Cast Products South Africa’s head office continued to operate from its existing offices and facilities in Germiston (Union Junction Works), Gauteng and there were no changes to its other foundry facilities – Boksburg Foundry and Eclipse East Foundry.
Besides the wheel plant the company manufactures specialised, high-quality cast products used in the mining, railway, power and general engineering industries and produces castings with a finished weight of 30 tons. The company also has an Omega high-volume moulding line that produces castings in low carbon and low alloy steels up to 1.2 tons per box. The line was installed to cater for the promised and widely reported Transnet upgrade that would require tons of locally manufactured castings and product.
Cast Products South Africa comprises of four foundries and is one of the largest foundry groups in the Southern Hemisphere.
Business rescue
Speculation about the company has been around for some time. When the Amsted acquisition was announced it was given the impression that the US company was acquiring 100% of the shareholding and I am sure that this was the intention.
The Germiston facility of Cast Products South Africa is also known as the Union Junction Works. This facility comprises a number of units. Besides the specialist foundry manufacturing rail freight wheels there is a further foundry and a machine shop on site
Management from the US was immediately sent to South Africa and they began implementing the US company’s way of management, engineering and manufacturing expertise, financial stature and giving the South African company access to the global network.
One of the conditions of the Competition Commission’s approval of Amsted’s involvement was that there could be no retrenchments made for 18 months at the newly established company. This and the strong support for union workers was probably very ‘foreign’ to the new management, especially when it came to productivity. Coupled with the promised rail industry orders not materialising probably put doubt in the mind of the new management whether they had made the correct decision to invest in Scaw Metals. This was evident when, although Covid-19 did play a part, the US management activities in the South African operation were diminishing.
In the last quarter of 2021, it was rumoured that the US management had pulled out completely and that the company was thinking of disinvesting. Now that the business rescue notice has been issued it is probably true.
In the business rescue notice the authorised representative director Nomfundo Mgidi sites that the company’s financial position had become distressed because of:
1) Poor and outdated business systems and structures
2) Poor organisational culture
3) Covid-19 pandemic
4) Lack of funding
5) Poor management structure
6) The poor quality of products and inability to deliver products timeously
In my book just these points are a recipe for disaster.
Mgidi goes onto say that the above factors had an adverse effect on the operations of the company and as a consequence the company had been making losses for many years. Lockdown restrictions negatively impacted on the company’s scheduled projects and also resulted losing production time and revenue. Well did we all not have the same challenges because of Covid-19. An added consequence, Migidi says, was the loss of critical skills. Do you blame them for jumping ship?
Funding from the shareholders has also stopped and Mgidi says the company is not able to pay its debts for at least six months. A look at the recent financial statements on the IDC reveals that the IDC still owns 85% of the company, which now trades under the name Cast Products South Africa and not Amsted Foundry Solutions SA.
All four of the foundries are affected by this notice and if the company is finally put into liquidation, it will be a great loss to the South African foundry industry.
