XRF Scientific Limited (ASX: XRF) manufactures equipment and chemicals which are used by mineral producers, construction material companies and commercial analytical laboratories in the preparation of samples for analysis. Its technology is used to measure the composition and purity of materials and is mainly applied in industrial quality control and in process control for manufacturing processes in industries such as metals and mining, construction materials, chemicals and petrochemicals. XRF’s products help customers to improve product quality and performance, increase productivity and yield and reduce downtime and waste.
XRF has manufacturing, sales and support facilities located in Perth, Melbourne, Europe and Canada, plus a global network of distributors. Customers include BHP Billiton, Rio Tinto, Vale, South 32, Glencore, Alcoa, Lafarge, Holcim, ArcelorMittal, CSIRO, and Intertek.
Expanding product portfolio by strategic acquisitions
A sensible acquisition is acquiring more than you are paying for, and this appears to be the case in XRF’s latest acquisitions of private companies Labfit Pty Ltd and Orbis Mining Pty Ltd.
The remaining 50 percent of Orbis Mining was acquired on 26 July 2024 and the acquisition of Labfit is expected to settle by 20 December 2024.
XRF acquired its initial 50 percent stake in Orbis in September 2021 for $800,000 when Orbis earned a pre-tax profit of $340,000 for FY21. Three years later Orbis has earned $1.7 million before tax, an increase of 400 percent.
For FY23 and FY24, the Labfit business produced average profit before tax of $200,000 and is being acquired for $846,000. An additional $314,000 is payable for a net property asset owned by Labfit, taking the upfront consideration to $1.16 million. The property asset value is $550,000, less $236,000 in debt.
Both acquisitions are low-risk, bolt on acquisitions with highly complementary products that are required by the majority of existing customers.
Focus on products with an identifiable source of advantage
The key to XRF’s success appears to be the company’s ability to identify capital equipment products that provide an identifiable source of advantage over competitor products.
The Orbis acquisition provides XRF with the proprietary manufacturing rights of laboratory jaw crushers which are used in the mining sector to reduce 110 mm samples of ore down to 2mm. The crushing process used relies on a unique and patented component that crushes the ore in a single step. The crushers are used by some of the largest mining companies in the world.
Labfit manufactures Carbon Sulphur Analysers that analyse carbon and sulphur in samples for mining and industrial production applications. Carbon is the most important chemical element in the iron and steel industry and knowing the carbon and sulphur contents in iron ore helps control the sulphur content in the steel making process. The lower the sulphur content the better the steel quality.
Other key testing applications include gold, copper, bauxite, graphite, iron ore and coal samples, as well as testing in cement plants.
Looking ahead
Demand for XRF’s capital equipment products is currently at record order levels worldwide and is being driven by a mix of mining and industrial customers globally.
The market for XRF’s analytical equipment is vast and the company has stated that the December half is seeing the development of important reference customers.
Shareholders can look forward to a positive trading update at the release of the March quarter report in April 2025.
