September 2024
Dynamite, cement and financial reports 05 November 2014
Lafarge's third quarter financial results have coincided with the alarming news that terrorists attacked one of its cement plants in Nigeria. Thankfully nobody was hurt at the Ashaka plant. The suspected Boko Haram insurgents reportedly came looking for French nationals but the plant had been mostly evacuated following an earlier more violent incident at a nearby town. Instead they stole explosives and trucks and fled.
The resonance here with Lafarge's global financial situation is that rebel action elsewhere in the world was noted as having an adverse effect on the cement producer's coffers for the third quarter of 2013. In Iraq cement volumes have reportedly fallen by 15% in the year-to-date and almost halved in the third quarter, hit by an inability to transport cement across the country since June 2014, when Islamic State fighters captured parts of northern Iraq.
Looking at the nine months so far in 2014, Lafarge's sales have fallen by varying amounts with the exception of one territory: Middle East and Africa. Here, bucking the trend, sales rose by 3% to Euro2.8bn. The area had been the group's single largest sales region so far in 2014. Of course countries such as a South Africa are much more stable, but most other countries in the territory have had recent terrorism campaigns where a European-backed cement plant might present itself as a target.
This is not good news for a corporate balance sheet relying on these same countries to keep the profits up. However, as Lafarge states in its outlook, 'emerging markets continue to be the main driver of demand and Lafarge will benefit from its well-balanced geographic spread of high quality assets.' Spreading its bets geographically should pay off.
Also in its outlook, Lafarge announced that it intends to pause its stand-alone divestments pending completion of the planned merger with Holcim. The move suggests that the company is prioritising the impending merger over debt reduction. With Lafarge's and Holcim's recent formal notification to the European Commission of their proposed merger to obtain regulatory approval, the last of its necessary notifications worldwide, the merger is getting closer. So far, the original expectation of closure in the first half of 2015 does not look unreasonable.
When former British prime minister Harold Macmillian was asked what causes governments trouble, his apocryphal reply was, "Events, dear boy, events." The same applies to building materials producers. There may be more 'events' before the merger completes.
India's UltraTech acquires 51% stake in Oman's Awam Minerals 04 November 2014
India/Oman: UltraTech Cement Middle East Investments, a wholly owned subsidiary of India's UltraTech Cement, has acquired a majority stake (51%) in Omani gypsum mining firm Awam Minerals LLC.
Awam Minerals has a license to mine substantial gypsum deposits in the south of Oman. It's gypsum mining license will serve as a captive mine for the network of cement plants owned by UltraTech Cement in India, two grinding units and a cement plant in the UAE, as well as a grinding unit in Bahrain through its Middle East subsidiary.
Indian coal block auctions to start without regulator 04 November 2014
India: The Indian government plans to hasten the coal block reallocation to the private sector through auctions, although the new Coal Mines (Special Provisions) Ordinance skips the issue of a regulator. According to government officials, 74 producing blocks would be put up for online auction by December 2014 and a regulator will not be not required.
"The coal blocks, which would be put for e-auction, are all for end-usage in power, cement and iron production," said a government official. "It's the commercial mining by private companies that needs to be put under vigilance and that would be done later after the first batch of auction commences."
Valuation of coal reserves and assets in the 74 blocks will be done by a committee under Pratyush Sinha, former chief vigilance commissioner. The transparent auction process in December 2014 will start with a pool of 42 operational and 32 nearing-production mines.
Through the ordinance, the government has added enabling provisions in the Coal Mines (Nationalisation) (CMN) Act, 1973 and the Mines and Minerals (Development and Regulation) Act, 1957, to allow commercial mining in the country.
"The priority is to make available coal to the sectors in want of fuel. Undoubtedly, once the sector opens up, a regulator would be needed. The powers and constitution of the regulatory body is yet to be dwelt upon and it would be for the non-operational cancelled coal blocks," said a government official.
Egypt/Brazil: Egypt's Arabian Cement has entered a joint venture for a cement grinding plant with Brazil's Cementos La Union. The project is worth US$28.8m.
Arabian Cement's board of directors approved the venture with Cementos Relampago, an affiliate of Cementos La Union, 'to establish a cement grinding plant in Northwest Brazil with a total capacity of 230,000t/yr.' The US$28.8m investment cost will be financed 50% through debt and equity. Arabian Cement's contribution would be US$8.76m, representing 60% of the total paid-in capital.
Cimerwa to increase cement production by 500,000t/yr 03 November 2014
Rwanda: Rwanda's sole cement producer, Cimerwa, plans to increase its production capacity to 600,000t/yr when ongoing expansion works are completed early in 2015, according to Busi Legodi, Cimerwa's CEO. Legodi said that over 94% of the US$170m works have already been completed, with electrical installations and some minimal mechanical works remaining.
"The plant should be ready by the end of the first quarter of 2015," said Legodi. "Once completed, our production capacity will increase from the current 100,000t/yr of cement to 600,000t/yr." Market demand for cement currently stands at about 500,000t/yr and the country depends mostly on imports.
Meanwhile, Cimera has rebranded its corporate identity as it marks 13 years of existence. According to Sam Kasule, the Cimerwa commercial manager, the new corporate identity reflects the direction the firm is headed.
"Our new corporate identity is significant and suits the company's future plans and business focus as we look to expand our production capacity in coming months. We are also looking at growing our external markets in the Democratic Republic of Congo and Burundi," said Kasule.
He noted that the firm would also deepen its corporate social investment programmes, thanks to partnership with its strategic investor PPC, to deliver technical expertise, ensure sustainable production and meet market demand.
HeidelbergCement Sierra Leone cuts output due to Ebola 03 November 2014
Sierra Leone: Sierra Leone Cement Corp (Leocem), a subsidiary of HeidelbergCement, has cut its cement production as the growing number of Ebola cases halts construction work across the West African country.
"Ebola has brought the economy down on its knees," said head of marketing, Modupe Taylor-Pearce. "We have seen a reduction in our overall volumes from what it was in the first half of 2014." The rate of new Ebola cases hasn't slowed in Sierra Leone, according to Bruce Aylward, the World Health Organisation's (WHO) assistant director general in charge of the response to the deadly virus. He confirmed that cases had reached 3562 and that 1037 people had died by 26 October 2014. The other two most affected countries are Liberia and Guinea.
Monthly cement production in the West African country fell to 20,890t in August 2014 from 35,280t in May 2014, according to data from the Bank of Sierra Leone. Leocem is the only cement-producer based in the country, although Dangote Cement plans to set up a production plant there.
"Demand in the second half of 2014 has been lower than the first half," said Taylor-Pearce. "Road construction seems to have stopped. Many of the roads that were in the process of being done seem to have come to a halt." Raw materials, including limestone clinker, are in short supply in Sierra Leone as importers have reduced shipments. Transportation costs have increased as five of the 14 political districts in Sierra Leone are quarantined.
Cemex and Holcim agree on series of transactions in Europe 03 November 2014
Europe: Cemex has signed binding agreements with Holcim regarding the series of transactions that was originally announced on 28 August 2013.
The main scope of the transactions in Germany and the Czech Republic remain unchanged: Cemex will acquire all of Holcim's assets in the Czech Republic and will divest its assets in western Germany to Holcim. In Spain, Cemex will acquire Holcim's 0.85Mt/yr capacity Gador cement plant and its 0.9Mt/yr capacity Yeles cement grinding plant. Holcim will keep all of its other operations in Spain.
As part of these transactions, Cemex will pay Euro45m in cash to Holcim. Once the transactions are closed, Cemex expects a recurring improvement in its earnings before interest, taxes, depreciation and amortisation (EBITDA), including synergies, of about US$20m to US$30m. These transactions are expected to close during the first quarter of 2015.
Coal-zilla slain? 28 October 2014
The 'revelation' this week that South Korean cement producers have been paid US$127m to use/dispose of Japanese coal that is thought to be radioactive certainly sounds scary. If it is true that cement made with contaminated coal has led to the construction of radioactive buildings and roads, this may have prised open a 'can of worms' for coal producers, exporters and cement players alike. According to local media, four South Korean firms - Ssangyong Cement, Tongyang Cement, Lafarge Halla Cement and Hanil Cement - received the money to use the coal between March 2011, when the Fukashima nuclear power plant started to leak radiation, until 2013. A total of 3.7Mt of cement is 'under suspicion.'
Caesium-137 is formed by fission reactions that start with uranium-235 in nuclear reactors. The Fukushima reactor that started leaking in 2011 used this type of fuel. Once it leaked, caesium-137 was deposited into the sea and onto the land, presumably also making its way into nearby coal deposits.
As it is a metal with a melting point of just 28.5°C and a boiling point of 671°C, the caesium-137 would vaporise if it were to enter a cement production line operating at 1450°C as a metal. However, caesium will not enter the cement-making process as a metal due to its rapid and explosive reaction with water. An interesting slow-motion of this reaction can be seen here.
Instead, caesium will enter the cement-making process either as its oxide or a simple salt (e.g.: caesium chloride) in the coal. The salt will be ionized in the heat of the flame, sending caesium ions into the kiln and thus direct contact with the clinker as it is being formed. Here it will become part of the matrix of the clinker and hence the final cement product. All the time the caesium-137 is radioactive.
And it stays radioactive once it is in the finished product, for example in a building or road surface. Its half-life, the time that it takes for half of the caesium-137 to decay to meta-stable barium-137 (emitting radiation as it decays), is unfortunately very well matched to the life-span of concrete buildings at 30.7 years. This means that after about 100 years of building life the building would still be around 10% as radioactive as it was when it was built.
This would certainly be a problem if the coal was highly contaminated. However, a few questions come to mind. Firstly, if the coal contains 20-73 becquerels per kilogramme (Bq/kg) of caesium-137, as has been claimed by Lee In-young, an opposition spokesman for the New Politics Alliance for Democracy party and member of the National Assembly's Environment Labour Committee, why is this a problem when the Japanese legal limit for eating caesium-137 in contaminated vegetables is all the way up at 500Bq/kg? When the most dangerous mechanisms of caesium-137 poisoning relate to accumulation in soft tissue, how can driving along a caesium-137-containing highway constitute a health risk?
Also, the coal may well start the cement making process with 25-73Bq/kg of caesium-137 but the clinker will have a lower level. This is because for every 1t of clinker the plant will typically consume just 100-200kg of coal. The caseium-137 and hence the radiation will therefore be spread out over a larger mass. A level of 50Bq/kg in the coal would translate to a clinker level of 5-10Bq/kg. This is around 100 times lower than the Japanese vegetable limit. After this, the clinker is extended with additives to make cement. This is then added to aggregates and / or sand when concrete or mortars are made, further diluting the caesium-137, perhaps to as low as 1-5Bq/kg. It is arguable that South Korea has received a higher caesium-137 dose from Japan via air and sea than via coal imports.
In light of all this, it appears that those calling for investigations on scientific grounds, like Lee, may be misguided. However, there may be political gain. The histories of Japan and South Korea are long, violent and distrustful. Indeed, according to a BBC World Service poll conducted earlier in 2014, South Korea and China jointly have the most negative perceptions of Japan of all world nations. In this environment stories about radioactive coal become much easier to believe in.
In reality the Japanese vegetable limit is well above the likely levels that might be found in any cement products resulting from the use of this coal. It is consistent with EU limits set more than 20 years earlier (600Bq/kg). A search on the US Environmental Protection Agency's website fails to bring up any formal limit. Instead it states that everyone is exposed to caesium-137 from atmospheric fallout to a low level and that the most dangerous cases are where waste metal processors unwittingly come across sources.
So on the surface then, the South Korean reaction seems like a storm in a teacup. One question remains though. If the caesium-137 levels in the coal are so much lower than the Japanese vegetable limit, why are Korean firms being paid to take it out of Japan?
Lafarge and Holcim notify EC over merger 28 October 2014
Europe: Lafarge and Holcim have formally notified the European Commission (EC) of their proposed merger in order to obtain regulatory approval. With this notification, Holcim and Lafarge have now completed all necessary notifications with regulatory authorities worldwide.
During pre-notification discussions, which Lafarge and Holcim have had with the EC, the list of proposed assets for divestment in Europe has been slightly amended. Compared with the list of assets presented on 7 July 2014, the two companies now propose to retain Lafarge's Mannersdorf plant in Austria and to divest all of Holcim's operations in Slovakia.
In the rest of the world, the proposed list of assets remains the same, with the exception of the Philippines, as announced by the boards of directors of Lafarge Republic Inc. and of Holcim Philippines Inc.
In parallel to the regulatory process, Holcim and Lafarge are in ongoing negotiations with potential buyers of the assets that are proposed for divestment.
Kohat Cement's profit up by 11% 28 October 2014
Pakistan: Kohat Cement has posted a net profit of US$6.63m in the quarter that ended on 30 September 2014, up by 11% year-on-year compared to US$5.98m during the corresponding period of the previous year. The company attributed the results to better income on cash placements and lower financial charges.
During the first quarter of the 2015 financial year, sales revenues increased by 11% to US$28.1m amid higher cement prices and a slight increase in volumetric sales, which were up by 5% year-on-year. However, Kohat Cement's reduced gross margins restricted earnings growth. The gross margins in the first quarter of 2015 were recorded at 35.5% against 38% in 2014, down by 250%. The decline in gross margins was caused due to the increase in electricity prices by more than 50%.
The quarterly statement also revealed that the company is in the process of installing a 15MW waste heat recovery (WHR) power plant, which is expected to reduce production costs. The plant, which will meet 30% of Kohat Cement's energy requirements, is expected to come online by the end of the 2015 financial year. The project will cost US$19.4m, 80% of which will be financed through debts.