delmas milling plant 25 march 2014 - the vault delmas milling plant site visit presentation 25 march...
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125 March 2014
DELMAS MILLING PLANT
SITE VISIT PRESENTATION
25 MARCH 2014
225 March 2014
DISCLAIMER
This presentation includes certain forward-looking information. All statements other than statements of historical fact are, or may
be deemed to be, forward-looking statements, including, without limitation those concerning: Sephaku Holdings’ strategy; the
economic outlook for the industry; production; cash costs and other operating results; growth prospects and outlook for Sephaku
Holdings’ operations, individually or in the aggregate; liquidity and capital resources and expenditure; and the outcome and
consequences of any pending litigation proceedings. These forward-looking statements are not based on historical facts, but
rather reflect Sephaku Holdings’ current expectations concerning future results and events and generally may be identified by
the use of forward-looking words or phrases such as “believe”, “aim”, “expect”, “anticipate”, “intend”, “foresee”, “forecast”, “likely”,
“should”, “planned”, “may”, “estimated”, “potential” or similar words and phrases. Similarly, statements that Sephaku Holdings’
objectives, plans or goals are or may be forward-looking statements. These forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause Sephaku Holdings’ actual results, performance or achievements
expressed or implied by these forward-looking statements. Although Sephaku Holdings believes that the expectations reflected
in these forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been
correct.
www.sephakuholdings.co.za
325 March 2014
AGENDA
1. Our strategic intent
Overview Lelau Mohuba
Neil Crafford Lazarus
2. Our view of the cement industry
Industry analysis Pieter Fourie
SA market insights Duncan Leith
SepCem’s approach
SepCem value proposition Pieter Fourie
3. Our brand-new plants
Plant technology & efficiencies Duan Claassen
4. Conclusion
Investment case Lelau Mohuba
www.sephakuholdings.co.za
425 March 2014
OUR STRATEGIC INTENT
www.sephakuholdings.co.za
525 March 2014
THE SEPHAKU STORY
EXPLORATION
Sephaku commenced business in 2006 as an HDSA-owned, mineral exploration company seeking opportunities brought about
by changes in the MPRDA. Limestone and Fluorspar resources were quickly identified and proven as the most viable reserves in
Sephaku's portfolio. This resulted in Sephaku unbundling all its non-core exploration assets into Incubex Ltd in 2010.
DEVELOPMENT
The development of Limestone into an integrated cement business developed faster than the Fluorspar project and a decision
was made to unbundle the Fluorspar business in order to create a focused cement business which would develop into a unique
income-generating opportunity for its shareholders. The development phase consisted of recruiting an experienced leadership
team, proving the viability, obtaining statutory approvals, raising the funding for the project and constructing the most efficient
cement plant in South Africa. This development phase will come to an end during 2014 when the cement plants come into
operation.
INCOME
The acquisition of Métier Mixed Concrete in 2013 started the new era for Sephaku in which focus is moving from development to
income generation. Maximising income from Sephaku's core investments in Cement and Ready-Mixed Concrete will be the sole
focus over the next few years to ensure repayment of development debt as well as a dividend stream to its shareholders.
GROWTH
Southern Africa is set to enter an exciting new growth cycle, strongly underpinned by infrastructure development. The core
investments of Sephaku will form the strong foundation for growth, focused on primary construction materials.
www.sephakuholdings.co.za
625 March 2014
EXECUTION TIME LINE – STRATEGIC REFOCUS
enhancing shareholder value Growth2005 2009 2010 2011 2012 2013 2014
• SepHold obtains
first prospecting
rights
• Listing on the JSE
• 155 805 362
shares issued
• Acquisition of
Métier Mixed
Concrete
• Unbundling
of Incubex
• Sephaku Gold
Holdings sold
• African Nickel
Holdings
26% sold
• Unbundling of
Sephaku Flouride
• Production
of cement
• Growth in
concrete
market share
www.sephakuholdings.co.za
725 March 2014
THE SEPHAKU HOLDINGS STRUCTURE
Aganang
Cement Plant
Delmas
Milling Plant
Sephaku
Ash
Limestone
Exploration
36%
100%
64%
www.sephakuholdings.co.za
825 March 2014
• 100% ownership; acquired in February 2013 for R365 million
• Specialist in the manufacture, distribution and marketing of high-value ready mixed concrete
• Fleet size, pumping division and advanced production technology enhances efficiency
• Ten plants in KwaZulu-Natal and Gauteng – strategically positioned to capitalise
on numerous opportunities in the next 12 months
• 36% interest in Sephaku Cement with 64% owned by Dangote Cement PLC, the largest cement producer
in Africa
• Comprises three components: Aganang – integrated cement and clinker plant, Delmas – grinding plant,
and Sephaku Ash – a fly ash beneficiation plant
• Production of cement at Delmas commenced in January this year
• Aganang to produce a minimum of 6 000t clinker per day
• Latest cement plant technology – higher efficiency than incumbents
• Lowest cost producer
BUILDING AND CONSTRUCTION MATERIALS
COMPANY
www.sephakuholdings.co.za
925 March 2014
LOCATION OF ASSETS
Operations
Aganang Cement Plant
Delmas Milling Plant
Sephaku Ash (Kendal)
Dwaalboom project
Métier Mixed Concrete
Johannesburg
Pretoria
Durban
Cape Town
www.sephakuholdings.co.za
1025 March 2014
Initial reporting period of revenue
Metier sales constitute 100% of the revenue
Positive earnings : group profit
Sephaku Cement to contribute profit in CY 2014
Metier concrete sales increased by 35%
High value concrete sales contributed 5%
Delmas cement grinding plant completed
Entered the market in mid January 2014
www.sephakuholdings.co.za
OPERATIONAL HIGHLIGHTS FOR THE INTERIM
PERIOD FY 2014
1125 March 2014
FINANCIAL HIGHLIGHTS FOR THE INTERIM
PERIOD FY 2014
Operating profit of R33,8 million compared to the operating loss of R10,1 million for 2012
Earnings before interest, taxation, depreciation and amortisation (“EBITDA”) of R40,3
million compared to the loss before interest, taxation, depreciation and amortisation of
R9,8 million for 2012
Headline earnings per share of 2,78 cents compared to headline loss per share of 5,69
cents for 2012
Earnings of R6,3 million compared to the loss of R9,8 million for 2012
www.sephakuholdings.co.za
1225 March 2014
SHARE PRICE PERFORMANCE
• Share price on an upward
trend
› Approximately 40%
one-year increase in
share price
• *Recognised as 8th top
performing JSE company
out of 50 for one year to
the end of September
2013
› Compound share value
growth of 109,64%
• Share price re-rating
anticipated as multiples
improve
• Production at Delmas
has reduced the
commissioning risk factor
Source: Company, Sharedata March 2013
* Sunday Times; November 2013 based on I-NET BRIDGE statistics
Share ticker: JSE SEP
Sector Construction and Materials
Outstanding shares 189 872 979
Price @ 24 March 2014 (1300HS) R6.68
Market capitalisation as @ 24 March 2014 R1.2 billion
www.sephakuholdings.co.za
1325 March 2014
OUR VIEW ON THE CEMENT INDUSTRY
www.sephakuholdings.co.za
1425 March 2014
MACRO – ECONOMIC INDICATORS
• GDP growth is relatively less than for the region which is ~6%
• Forecasts do not take the government infrastructure programme into account .
www.sephakuholdings.co.za
Indicator 2012 2013 2014 2015 2016 2017 2018
Consumer Price Inflation 5.7 5.9 5.7 5.6 5.5 5.6 5.5
Producer Price Inflation 6.2 6.0 6.0 5.3 5.1 5.5 5.5
GDP 2.5 2.0 3.3 3.5 3.8 4.0 4.5
GCFC as a % of GDP 20.0 21.0 21.0 21.0 22.0 22.0 23.0
ZAR / USD 8.20 9.50 9.53 9.80 10.20 10.53 10.90
ZAR / EUR 10.54 12.39 11.81 11.96 12.44 12.84 12.93
Repo rate 5.0 5.0 5.0 5.7 6.3
Prime rate 8.5 8.5 8.5 9.2 9.8
Source: Investec 30 Oct 2013
1525 March 2014
SA* CEMENT INDUSTRY TRENDS
GDP growth forecast
at 3,2%¹ in 2014
Cement sales forecast
at 4,8 – 5,0% to GDP:
multiplier of 1,5
Cement demand
growth was at 6% in
2013
Growth at 3% per
annum 2010 – 2012
Residential plans YOY
growth at 14,6%
and 19,7% for
non-residential plans²
Long-term cement
growth trend projected
at 4,5%³
Source: Sephaku Cement research and analysis
1: Econometrix – Macro Economic Forecaster, October 2013 ,2: Econometrix – Building, October 2013
3: Econometrix – Outlook for cement demand in South Africa, May 2012
* South African
0
1
2
3
4
5
6
7
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Rat
e %
Projected long-term demand growthRecorded average cement demand growth
www.sephakuholdings.co.za
1625 March 2014
SA CEMENT CAPACITY vs DEMAND: 2006 – 2020
0
5
10
15
20
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Mill
ion
s
Cement tonnes actual sales Cement tonnes forecast Cement capacity
Capacities are based on
SepCem research, using
the maximum estimated
clinker capacity of each
producer, combined with
the estimated extender
ratios to produce finished
cement
Demand forecast is
based on an average
estimate of several
leading economic
forecasts
Capacities exclude the
possible entrance of new
players
Excludes the effect of
seasonality on capacity
to meet demandNote: These figures include volumes to the BLNS countries, Namibia factored to 30%
Source: Sephaku Cement research – November 2013
Sephaku's entry
and ramp-up
Industry operating at
90% of realistic capacity,
with no further kiln
retirements
www.sephakuholdings.co.za
1725 March 2014
SA PLANT CAPACITY ANALYSIS – 2014
www.sephakuholdings.co.za
Number of operating kilns
Average operating kiln age
Estimated cement tonnes per annum (000')
Producer A 3 27 3,200
Producer B 3 37 3,900
Producer C 9 38 5,600
Producer D 2 19 1,800
TOTAL 17 37 14,500
Production capacity determined by kiln instead of milling capacity
Current capacity at approximately 14,5 million
1825 March 2014
CONSTRUCTION DEMAND DRIVERS 1/4
Public and private sector building and construction
Bulk water infrastructure : in 2011 government stated plans to spend R14.2 billion on
dams and water distribution systems
o Construction of the Polihali Dam on the Senqu river in Lesotho, phase 2 of the LHWP
starts in 2016 – 2,3 million m3 concrete translating to 0.7 million tons cement
Roads : Sanral in 2012 indicated that maintenance and upgrading backlog of
R149 billion
Power generation : Eskom capacity expansion programme funding requirement at
R300 billion and to date have secured R241billion²
Education institutions : In 2010 Basic Education Minister highlighted R140 billion
backlog in school infrastructure. Currently implementing ASIDI¹
¹ Accelerated Schools Infrastructure Delivery Initiative
² Eskom website : http://www.eskom.co.za/Whatweredoing/NewBuild/Pages/Funding_Update.aspx
www.sephakuholdings.co.za
1925 March 2014
CONSTRUCTION DEMAND DRIVERS 2/4
Residential demand in line with improved incomes
Entry-level housing market with a shortfall of c2.1 million houses*
Resultant 50% increase in demand for related infrastructure
Backlog in infrastructural projects coupled with the government’s NDP 18 defined strategic
infrastructure projects (SIPs). Targeted cement-intensive projects include;
SIP 1 – Unlocking the Northern Mineral Belt
o Waterberg investment in rail, water, pipelines, energy generation and transmission
infrastructure
SIP 2: Durban ,Free State & Gauteng Logistics and Industrial Corridor
o Strengthening the logistics and transport corridor between SA’s main industrial hubs
o Improving access to Durban’s export and import facilities
Source:* Human Settlements Minister – Tokyo Sexwale, 7 June 2013
www.sephakuholdings.co.za
2025 March 2014
CONSTRUCTION DEMAND DRIVERS 3/4
SIP 4: Unlocking the economic opportunities in North West Province
o Acceleration of identified investments in roads, rail, bulk water and water treatment
and transmission infrastructure
SIP 6 : Integrated Municipal Infrastructure Project Development
o To address all the maintenance backlogs and upgrades in 23 least resourced districts
with 17 million inhabitants
SIP 18: Water and Sanitation infrastructure
o 10 year plan to address the estimated backlog of adequate water supply to 1.4
million households and basic sanitation to 2.1 million households
www.sephakuholdings.co.za
2125 March 2014
CONSTRUCTION DEMAND DRIVERS 4/4
Building plans trends¹
Building plans completed increased by 20.1 % for non-residential , 12.2% for residential
and 20 % for additions & alterations
Passed plans have steadily increased by an average of 30.9 % for non-residential ,
15.9% for residential and 8.3 % for additions & alterations
Building confidence index
The FNB/BER² index moved up from 48 points in the fourth quarter of 2013 to 52 points
in the first quarter of 2014
First time above 50 points since 2007
www.sephakuholdings.co.za
¹Actual values 2013 vs 2012 constant prices reported by large municipalities : rural development not included
² First National Bank/Bureau for Economic Research (FNB/BER)
2225 March 2014
SA CEMENT MARKET OVERVIEW
www.sephakuholdings.co.za
2325 March 2014
-
2 000 000
4 000 000
6 000 000
8 000 000
10 000 000
12 000 000
14 000 000
16 000 000
18 000 000
20 000 000
Cement tonsactual sales
Cement tonsforecasted
Entry of SepCem capacity.
www.sephakuholdings.co.za
Source: Sephaku Cement research (2012)
Projected trend indicates a growth of 100% in cement sales volumes in the period between
2002 to 2020.
Cement sales volumes in line with the projected trend at 9.1 million tonnes by 3rd quarter
2013.
INDUSTRY CEMENT SALES AND FORECAST
2002 - 2020
2425 March 2014
CUSTOMER CHANNELS : RELATIVE DEMAND
Resellers are the largest volume customer category
Key driver of the bag market which constitutes 55 to 60% of sales volumes
SepCem mainly targeting all channels
www.sephakuholdings.co.za
ResellersReadymixProducers
Precast(C.P.M.)
Blenders Civil Building Other Mining
% per channel 48.2% 18.3% 14.7% 5.8% 5.4% 4.4% 1.8% 1.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
2525 March 2014
SEPCEM’S APPROACH TO THE MARKET
Target to attain 20 - 25% of the inland market share
Resultant national market share of 13 - 17%
To produce three cement strengths : 32.5R , 42.5R and 52.5N
Essentially 32.5 R and 42.5 R will be produced for the bag
market
Bulk market to be supplied with the 42.5 R and 52.5 N and
supported through a sophisticated customer laboratory, and
concrete experts
Determined not to engage in a price war
Strategy to initially secure sales with the major resellers
In addition to secure accounts with the next tier
www.sephakuholdings.co.za
2625 March 2014
SEPHAKU CEMENT’S VALUE PROPOSITION
www.sephakuholdings.co.za
2725 March 2014
COMPETITIVE EDGE TO INDUSTRY AVERAGE
Energy utilisation efficiency: 95 kWh per
tonne as compared to 145 kWh per tonne
Consistent cement quality: single 6 000tpd kiln
for clinker
Logistical advantage: proximity of Delmas to
extender source, coal supply and the market
Environmental impact: lowest particle
emissions of 30 mg/Nm³ compared to up to 200
mg/Nm³ for older plants
Minimal maintenance costs – brand-new
plants compared to 36 years
Inland price structures higher – better margins
because coastal prices impacted by imports
Delmas plant – December 2013
Aganang plant – October 2013
www.sephakuholdings.co.za
2825 March 2014
LOGISTICS OVERVIEW
SepCem owned extender source ,Sephaku Ash, located 34km from Delmas
Extender constitutes 40% content of the 32.5R cement targeted for the bag market
Five major contractors have been selected as main transporters
Three of the contractors transporting the bulk consignments from Aganang and/ or
Delmas
Back – haul logistics advantage between Delmas and Aganang
Several systems and plans have been developed to increase loading efficiency at the
plants, which will contribute significantly in ensuring a superior service promise
www.sephakuholdings.co.za
2925 March 2014
COMPLEMENTARY OPERATIONS OVERVIEW
North West limestone mine
Situated right next to the Aganang plant with an expected life of mine at 30 years
Limestone to be mined opencast at a rate of 1.64 million tonnes for 1.0 million tonnes of
clinker
Extensive quality control will be done on drilling of reserves, and real-time QC on run-of-
mine material as it passes through the crushing circuit
Dwaalboom limestone project
Situated 80 km west of Thabazimbi, 10 km south of Dwaalboom
Non-samrec resource estimation at 85 million tonnes
Strategically located in close proximity to northern inland market
Sephaku Ash
Situated within the Kendal power station premises
Process approximately 800ktpa of fly ash
www.sephakuholdings.co.za
3025 March 2014
OUR BRAND NEW PLANTS
www.sephakuholdings.co.za
3125 March 2014
INTEGRATED CEMENT PLANT CONFIGURATION
www.sephakuholdings.co.za
3225 March 2014
DELMAS CEMENT PLANT CONFIGURATION
www.sephakuholdings.co.za
3325 March 2014
UNIQUE FEATURES OF OUR PLANTS 1 / 2
Latest generation primary impact-crusher
Supplier : Hazemag – Germany
Latest limestone roller-screening technology for beneficiation
Supplier : Wobbler/Hazemag – Germany
Latest pyro-processing technology :air-separate pre-calciner kiln with 5-stage preheater
Latest generation high-impulse multi-channel main burner
Supplier : Pillard – France
Latest generation pendulum-grate cooler
Supplier : IKN – Germany
www.sephakuholdings.co.za
3425 March 2014
Best-in-class vertical roller milling across the board for raw milling, coal grinding and cement
milling
Supplier : Loesche – Germany
Main process fans all from European supply
Supplier : Vente-Oelde – Germany
Rotary packer / palletisers
Supplier : FLS Ventomatic – Italy
Control systems supplied
Supplier : Siemens
High-voltage electrical motors
Supplier : ABB and Siemens
www.sephakuholdings.co.za
UNIQUE FEATURES OF OUR PLANTS 2 / 2
3525 March 2014
CONCLUSION
www.sephakuholdings.co.za
3625 March 2014
SEPHOLD INVESTMENT CASE
www.sephakuholdings.co.za
Key management ~ 250 years combined experience in cement
manufacturing and technology
Technologically advanced plants
Profitable concrete asset providing solid earnings and cash flow
Focused strategy on the lucrative cement manufacturing sector
Potential share price re- rating
3725 March 2014 3725 March 2014
CONTACT
Sakhile Ndlovu
Investor Relations Officer
Tel : + 27 12 622 9400
Email : [email protected]