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New cement capacity

20 April 2011

Publication: BusinessDay
Author: Pieter Fourie

Summit TV speaks to Pieter Fourie from Sephaku Cement about the company’s announcement of a second new cement plant to be built in South Africa this time in Limpopo.

Summit TV:Sephaku Cement majority owned by Nigerian company Dangote has confirmed plans to build a cement plant in Limpopo in addition to the cement plant being constructed in North West province. How much have you allocated for this project?

Pieter Fourie:We have not completed the budget yet but we have enough confidence to move this forward and that would probably be in the region of R1.8billion.

Summit TV:How does that compare with the plant you’re building at the moment?

Pieter Fourie:The Aganang project together with the Delmas mill is just over R3billion so this is just more than half what we’ve already committed to in the first project.

Summit TV:The Dwaalboom plant in Limpopo are you expecting local construction companies to be involved?

Pieter Fourie:Sure, we need them as customers as well. There will be a South African component especially on the civils work like with our existing project a turnkey project with Sinoma the largest cement plant manufacturer in the world and the best – we’ve just been to the Dangote operations where they are constructing four new plants at the moment and we are very impressed with their work

Summit TV:What are the efficiencies and plans around the carbon footprint in the cement manufacturing industry?

Pieter Fourie:It will certainly be state of the art with both projects designed to European standards of emission control. South Africa doesn’t have emission controls in place for cement manufacturing and some of the older plants are way below European specification which are of the highest standard.

Summit TV:What are the volumes that you will be bringing to the market with Dwaalboom and Agenang that will be onstream by 2013 and Dwaalboom by 2015?

Pieter Fourie:That should be between four and five million tons per annum and that will take us to 20% market share

Summit TV:Assuming that’s all bought. As we stand now there’s excess capacity – what is this new capacity in terms of the current market?

Pieter Fourie:That’s in the region of 15% for the current project but that’s capacity where a lot of that is very old so we believe it’s time for them to go so there will be an element of replacement of capacity so we are confident in the medium term the market will be there.

Summit TV:Your statement is “the market has legs” so what predictions are you making about the SA market in the next five years?

Pieter Fourie:Our view is the long range growth rate will be 4.5% to 5% per annum where at the moment we are right at the bottom of the dip. We feel very sorry for the construction industry at the moment so we are happy we are not coming onstream right now as was originally planned. There will be a recovery but not all the way to 2007 levels and then 5% in the long range.

Summit TV:How sure are you that you have guaranteed power for Dwaalboom?

Pieter Fourie:Not yet but we believe that by the time we need power the situation would have improved with new generation capacity coming on. The important one is the Agenang project where we do have power guaranteed from Eskom as much as they can – they are busy constructing the power lines.

Summit TV:What prices have you negotiated for the power supply?

Pieter Fourie:We’ve had to pay R60 million cash for the installation of the infrastructure and tariffs will be in line with what everybody else has to pay.

Summit TV:Presumably with Agenang it’s all going ahead with mining rights but with Dwaalboom there’s still question marks with the new order mining rights and environmental concessions – how confident are you there?

Pieter Fourie:We are confident. We’ve been through this before with competitors not linking this and giving us a hard time. We believe with our commitment to the environment it’s merely a process. We know the process the second time around so it might go a little smoother but it does take time and that’s the main reason we’ve announced the new programme now with public participation and the correct procedures which could take 18 months.

Summit TV:Presumably you’re relieved about the greater transparency with the department?

Pieter Fourie:Yes, that will help the process.

Summit TV:Nigerian group Dangote has injected more than R1billion are you expecting more funding from them or is this sufficient?

Pieter Fourie:It’s sufficient to take us to the construction phase and then we will require more capital – we are confident that will come from Dangote and local investors. Bear in mind we will be in production generating cash with the Agenang plant so it will be a lot easier. If we look at Dangote’s commitment to cement in Africa they announced they’re investing $3.8billion in new plants and that’s self-funded so they have a very strong balance sheet with a market cap of $13billion so we are very happy to have them with us.

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