8 March 2010

Publication: Engineering News

Author: Chanel Pringle

New entrant in the South African cement market, Sephaku Cement, has appointed Nedbank Capital as lead arranger of the R1,8-billion project finance facilities required for the development of the company’s new Aganang and Delmas cement projects.

The company, in which JSE-listed Sephaku Holdings owned a 80,2% interest, would be spending R3,3-billion on the construction of a 2,2-million ton a year cement production facility, near Lichtenburg, in North West province, and a 1,2-million ton a year cement grinding facility in Delmas, in Mpumalanga province.

Sephaku Cement CEO Pieter Fourie commented in a statement on Monday that the arranging mandate with Nedbank Capital paved the way for funding the construction of these two plants, which would be completed by the third quarter of 2012.

The cement producer had already entered into a full turnkey construction contract with Chinese cement plant supplier, the Sinoma International Engineering Company, on a fixed price basis.

Construction on both plants was expected to start within the next few months.

Despite the global economic downturn having impacted on cement demand, Sephaku Cement expected cement demand to outstrip supply again from 2014 onwards.

It noted that the South African government expected gross fixed capital formation to grow to 25% of gross domestic product (GDP) by 2014, up from the current 20% of GDP.

Given government’s fixed capital formation expectations and the backlog in South Africa’s housing and infrastructure sectors, it was highly likely that cement demand would continue growing strongly “well into the next decade”, the cement producer stated.

Further, the producer also expected to see good growth in cement selling prices between 2010 and 2015, as a result of the pricing power of producers in a tight market.

It noted that a base-case financial model forecast 5% a year increases in cement selling prices from 2011 onward.

With the planned investment, Sephaku Cement would be the biggest new entrant into South Africa’s cement market since 1934.

The Aganang operations would entail the mining of limestone, the processing of raw materials to produce the clinker and the grinding and milling of half the clinker and blending thereof to produce cement.

The other half of clinker would be transported to the Delmas plant, where further processing and extension would take place by using fly ash sourced from the company’s 1,2-million ton a year fly ash beneficiation plant at Eskom’s Kendal power station, which was commissioned in August last year.

The cement producer had signed a fly ash off take agreement with Eskom, which would allow it to add hard ash to the milling process at the Delmas plant, as well as to supply fly ash to third parties.

Nigerian cement producer Dangote Cement had invested R350-million in Sephaku Cement to allow for the construction of the two new plants.

Sephaku Cement was also in “advanced negotiations” with a global financial institution for a possible equity investment of R300-million.