With a hefty R3bn investment towards building a state-of-the-art plant in the Western Cape, SA’s largest cement group, PPC, has demonstrated faith in the growth of the country’s cement industry, which it says is evolving.
CEO Matias Cardarelli said on Thursday that the cement market landscape was rapidly changing and new Chinese players were investing and bringing new technology into the region. He warned that companies who did not invest in the latest technology could face an uphill battle.
“Cement companies in the country which are not in the position to heavily invest in new technology to replace their old and inefficient plants will struggle to compete sustainably,” Cardarelli told investors. “This change in market dynamics urgently requires modern and cost-efficient assets and environmentally conscious cement to be produced.”
On Thursday PPC and Sinoma, the world’s leading cement equipment and engineering company, announced they had entered into a memorandum of agreement for the construction of the plant, which will provide an enhanced value proposition to existing and new customers across the Western, Eastern and Northern Cape.
The CEO said the strategic decision to build a new plant in the coastal areas, where there have not been any significant upgrades in 40 years, would allow the group to remain ahead of changing market dynamics. He said PPC would have a competitive advantage because the new technology would make it more energy efficient, use less coal and emit up to 30% less carbon dioxide.
The transaction comes as SA’s cement market has been battling overcapacity and the onslaught of dumped imports and locally blended variants.
However, according to the CEO, there had long been a misconception that the issue of overcapacity should be evaluated as though every SA facility were the same.
He said the heart of the challenge was competing on price points. Subsequently, bringing in efficient, advanced equipment would reduce variable and fixed costs, allowing PPC to compete and bring a distinctive value proposition.
Due to the investment PPC will be able to produce the lowest-carbon cement in SA at the most competitive price, he said, as variable costs are expected to fall 20%-25% while fixed costs will drop about 35%, driving profitability and sustainability.
Having solidified its position inland with its PPC Slurry Kiln 9 in the North West, alongside its Dwaalboom plant and grinding and blending facilities in Gauteng, the group wants to expand its footprint on the coast and increase its market share.
The plant that will produce 1.5-million tonnes of cement a year will replace and increase existing capacity at the group’s Riebeeck and De Hoek plants, which are both more than 40 years old.
The group intends to build the facility at its existing Riebeeck plant site, where it already has mining rights and environmental permissions.
The existing plants in the Western Cape will continue to operate during the two-year construction and commissioning process, thereby providing funding support and a smooth transition.
“The pursuit of this industrial investment, which will be one of the largest in the Western Cape’s history, demonstrates the continued confidence in SA by the PPC board and management,” said Cardarelli.
Western Cape MEC for infrastructure Tertuis Simmers praised the investment in the province, saying it enabled the government to build more homes for residents, maintain and expand road networks, and create an infrastructure-led economy that creates more jobs.
Premier Alan Winde lauded the move as an endorsement of joint endeavours to solidify the province’s standing as a top investment destination.
PPC, which has a R7.2bn market capitalisation on the JSE, is among the SA companies looking to cash in on government investment, infrastructure development, and technological advancements that are expected to bolster SA’s construction industry in the coming years.
The funding structure was being finalised, but management believes the new plant could be funded from debt facilities within PPC’s current two times net debt to earnings before interest, tax, depreciation and amortisation covenant.
That would be assisted by a milestone payment structure agreed in principle with Sinoma.
Cardarelli said the feasibility studies for the plant had reached an advanced stage. In the next three months the parties would finalise its scope and final assessment as well as the associated turn-key engineer, procure and construct agreements.
Subject to the approval of PPC’s board, construction is expected to start in the second quarter and the plant will be commissioned by the end of 2026.
PPC shares fell 3.16% to R4.60 on Thursday, but are up 22% over the past year.
Update: January 16 2025
This story has been updated with new information.
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