Wiphold, Chinese cement maker sign R1,65bn cement plant deal

13th May 2010 By: Irma Venter - Creamer Media Senior Deputy Editor

Limpopo was to see a new cement manufacturing plant open its doors in 2012, with a second plant possible in another Southern African Development Community (SADC) country.

The black-owned Women Investment Portfolio Holdings group (Wiphold) and limestone-miner Continental Cement (Conticem), on Thursday signed a memorandum of understanding with Chinese cement company, Jidong Development Group, and the China-Africa Development Fund (CADFund), to build a R1,65-billion cement manufacturing plant 85 km north of Brits.

Jidong, the largest cement producer in Northern China, and CADFund will hold 51% of the joint venture (JV), with Wiphold’s share at 23,9%, and Conticem, at 25,1%.

The new plant, which would be located adjacent to Conticem’s limestone deposits, would be designed to initially produce 2 500 t/day of ordinary Portland cement.

Financial close of the deal was expected in October, said Wipcapital CEO Gloria Serobe, with construction due to begin in November.

The deal would see foreign direct investment of more than R800-million flow from China, of which 45% would be equity investment, with the remaining 55% in the form of commercial debt.

Nedbank Capital had been appointed as lead arranger for the transaction.

The plant would provide work for 600 people during construction, and 170 people during its operation.

The JV expected to distribute most of the cement to the regional market in the Gauteng province.

The project followed the 2007 exclusive agreement between Wiphold and Jidong, which saw Wiphold import and distribute cement from Jidong into South Africa, Tanzania and Angola.

Serobe said this importation agreement would continue in parallel with the project to manufacture cement locally.

Wiphold chair and CEO Louisa Mojela indicated that the JV had also been scouting for another SADC country with a view to possibly setting up a second cement plant.

However, she noted that this project was still in an early phase, and emphasised that it would be premature to reveal the name of the country.

Serobe added that Wiphold had “as strong a view of Africa as Jidong. We are taking a strong view of the continent . . . but we are taking it one step at a time.”

Conticem CEO Anton Weavind said that all the necessary environmental and social impact studies for the Limpopo project had been completed, and that talks with power utility Eskom to supply the roughly 17 MW of power required were far advanced.

“We have a commitment from them to supply this power.”

Weavind also noted that Conticem’s deposit had almost 81-million tons of proved and probable resources of cement grade limestone, and a further 120-million tons of resources.

“This means we have sufficient resources to substantially increase capacity in the future.”

MARKET DYNAMICS

Pretoria Portland Cement (PPC) indicated earlier this week that it believed that the local cement industry was operating at 70% capacity, following a boom two years ago when this figure reached 110%. The cement producer also noted that demand was continuing to decline.

However, Weavind said on Thursday that he believed the 70% to be closer to 85%, and that his own expectation of 5% to 6% a year growth in the market would see the supply-demand balance normalise by 2012, when the Limpopo plant was to be commissioned.

This was to be especially driven by a hungry housing sector, which was responsible for roughly 55% of cement demand, he added.

Weavind also said that the Limpopo plant would deliver a specific pure cement which the local market had largely ceased producing.

The JV was to also exploit its proximity to Gauteng compared with other cement plants, as well as the price advantage at which it could deliver cement, he added.

Jidong sold cement for R420/t in China, said Weavind, with South Africa delivering it at roughly R1 000/t.

“The cement will be cheaper, but no, we will not be discounting it to R420/t,” he noted.

Jidong produced 60-million tons of cement in 2009. By comparison, South Africa’s total 2009 production was 14-million tons.