Supply Capacity of Construction Materials Cement, Ready Mix Concrete, Aggregates

1
Supply Capacity of Construction Materials
(Cement, Ready Mix Concrete, Aggregates)
Ulrich Aumuller, Lafarge Readymix Aggregates

2
South African Construction Output
3
2006 Estimated Value of Building and
Construction R160 billion.
Residential Building R66 700 million
Non-Residential Building R38 300 million
Construction R55 000 million
Total Building R105 000 million
Total Building and Construction R160 000 million
Cement comprises roughly 8,5 of the total value.

Source LHA Market Survey for CCI, August 2007
4
Growth in the Construction Industry was, since
mid 2006 increasingly driven by Non - Residential
and Construction and will continue to do so
Building Residential
Building Non-Residential
Construction
Source LHA Market Survey for CCI, August 2007
5
South Africa Infrastructure Investment2007
Budget Figures

• Public infrastructure investments grow at CAGR of
  7-8 above inflation
• State budget understates trend investments of
  parastatal sector (i.e. ACSA) and public-private
  partnerships (Gautrain) not fully captured
• Biggest issue in infrastructure investment is
  delivery, not funding

Source Michael Mc Clintock, SASOL, Presentation
at Deloitte Touche Forum, Feb. 2007
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Major Public Infrastructure Projects

• ESKOM R 150 b capital pipeline
• TRANSNET R 80 b
• Saldanha Iron Ore Terminal
• Durban Terminal Expansion and Harbor Mouth
  Widening
• PE Completion of COEGA Harbor and Industrial
  Zone
• Cape Town Terminal Expansion, Berth Deepening
• Richards Bay Bulk Terminal Expansion
• GAUTRAIN R 25 bn for rapid rail network
• Soccer Stadiums for FIFA World Cup and annex
  infrastructure R 15 bn
• SANRAL R 30 b for Road Infrastructure
• Housing (low cost) R 30 b
• ACSA R 18 b
• Enlargement OR Tambo and Capetown Airport
• New King Shaka International Airport (Durban)
• DWAF (Water) R 20 bn (4 dams, water transfer
  schemes), financed on the capital market

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Significant Industrial Investments mainly in
Metals, Mining and Beneficiation

• ALCAN Aluminum Smelter at COEGA, PE (construction
  to start 2008)
• New refinery (COEGA)
• SASOL Coal to Liquid Project (likely Free State)
• Expansion of ISCOR/Mittal Steel R 7 b investment
  at 4 different sites to boost steel capacity by
  2,5 M t
• Cement Industry Expansion Program (PPC, Lafarge,
  ORASCOM) approx. R 5 b in projects confirmed or
  underway, additional R 3-4 b under feasibility
  study
• DUBE Trade Port (King Shaka Airport Durban), KZN
• Investment in the Coal Industry (Mpumalanga,
  Limpopo) to cater for demand from ESKOM and
  increased coal exports
• Platinum industry (Mines and Smelters), mainly
  North West Province
• Ferro Alloy Industry (Mining and Smelters)
• Industrial Investments in Mining and
  Beneficiation in remote areas (i.e. Ellisras)
  will require establishment of housing and related
  infrastructure to cater for the workforce.
  Tourism will remain a growth driver.

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Construction Output to Double in Constant
Currency by 2014 Compared to 2006
25 Capital formation-to-GDP ratio
Doubling of industry output over 2006
Average real growth in industry of 8 p.a.
Civil construction larger than building industry
by 2009/10
Source LHA Market Survey for CCI, August 2007
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Demand and Supply in the Cement Market
10
Cement Market Growth Driven by Civil/Construction
Output

• SA per capita cement consumption is around 270
  kg/capita and will grow to approx. 350 kg
  (world average) by 2010

Source LHA Market Survey for CCI, August 2007
11
Main Growth Driver for Cement Public Sector.
Private Investment also Contributes to Growth but
less than in the Past
1) Public sector accounts for 35 of cement
demand in 2006 the public-sector investment
program adds 800 000 tons to annual demand in 2010
Source LHA Market Survey for CCI, August 2007
12
Growth of the Cement Supply in South Africa

• There is another 0,7-1,0 Mt supply capacity from
  extenders
• Fly ash usage not at potential (cement and RMX)
• Granulated blast furnace slag supply will
  increase with steel output (milling capacity in
  place to process additional tonnage

Source Proceedings INTERCEM South Africa
Congress Sept. 2007
13
Growth of the Cement Supply in South Africa

• In 2006 and 2007 capacity was insufficient to
  fully cater for the demand, yet the market was
  fully served balance supplied through cement
  imports (PPC, NPC, HOLCIM and Lafarge).
• NPC Simuma expansion came on stream early 2007
• Other projects underway come on stream on time to
  supply the mid term (2010) demand (imports will
  phase out in 2008)
• Project pipeline sufficient for satisfying demand
  forecast
• Regional Supply/demand imbalances possible most
  capacity will be created in the Northwest,
  Eastern Cape will remain net importer of cement
  (transport impact on cement prices)

Source Proceedings INTERCEM South Africa
Congress Sept. 2007
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Growth of Supply by Lafarge Cement

• Brownfield expansion (kiln) at the Lichtenburg
  Cement Plant Northwest Province
• Grinding Facility close to the market in
  Randfontein, West Rand (Gauteng)
• Rail Logistics for clinker Transport
• Chinese Technology (CBMI)
• R 1,2 b investment for 1 Mt additional capacity
• Lowest investment per t additional capacity
  created of all projects currently underway in
  South Africa
• Lafarge supply position to the industry
  reinforced by its subsidiary Ash Ressources
  supplying a range of classified and
  non-classified cementitious materials to the
  cement, ready mix concrete and pre-cast industry

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Lafarge Aggregates and RMX at a glance
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Lafarge Aggregates Readymix

• 66 Ready Mix Plants
• 58 Commercial Fixed Plants
• 8 Mobile Plants
• 480 Ready Mix Concrete Trucks
• Pump Services
• 17 Truck mounted Boom Pumps, truck mounted
  Conveyors
• Workforce gt 1100

• The largest, most innovative and leading supplier
  of Aggregates and Ready Mix Concrete on the
  African Continent
• Extensive coverage of the National Territory
• 24 Aggregate Quarries
• 450 Tipper Trucks
• Mobile Crushing
• 3 Crushing Units

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Lafarge Plant Network
Cement Plant
Aggregate Quarry
LIMPOPO
Ready Mix Concrete Plant (Circle Center Number of
plants)
3
Polokwane
1
1
Gypsum Wallboard Plant
White River
Limestone Quarry
Machadodorp
Komatipoort
3
17
Lichtenburg
Nelspruit
GAUTENG
1
Gypsum Project
MPUMULANGA
1
SWAZILAND
Evander
NORTH WEST
Empangeni
Richards Bay
FREE STATE
KWA-ZULU NATAL
Ninians
1
2
Stanger
Olive Hill
Tongaat
Pietermaritzburg
Bloemfontein
Inanda
3
LESOTHO
12
NORTHERN CAPE
Ridgeview
Durban
Saldanha
1
EASTERN CAPE
Blue Rock
King Williams Town
WESTERN CAPE
1
1
East London
Perseverance
Witfontein George
Tygerberg
Coega
Knysna
Dorsberg
3
14
Moregrove
1
1
1
1
Peak
Port Elizabeth
Cape Town
Mossel Bay
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Lafarge Readymix AggregatesWhat we are proud
of Soccer World Cup

• Lafarge Aggregates Readymix is proud of having
  been the only operator contributing with the
  supply of heavy construction materials to all 5
  new stadium constructions
• In partnership with all major South African
  construction companies on these jobsites we are
  fully committed to success

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Demand and Supply in the Ready Mix Concrete Market
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Increasing Importance of Readymix Concrete

• Quality, guarantees, consistency
• Accessibility to sites
• Storage of material on site
• Theft and loss of product
• Placing techniques (pumping)
• Special concretes (self-compacting, readymix
  mortars and plasters) gain market acceptance
• Speed of construction paramount, lack of skilled
  labor, new technology formwork, turnaround times
• Improved service levels
• Increased average strength, particularly in civil

Readymix concrete in of all concrete produced
Ready Mix Concrete within Large Construction ()
Source LHA Market Survey for CCI, August 2007
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Growth of the Ready Mix Industry

• The Ready Mix Concrete market will grow
  significantly faster than cement trend to larger
  jobsites and the intrinsic superiority of Ready
  Mix Concrete versus site batched concrete
• Ready Mix Volumes and No. of plants will double
  by 2014 compared to 2006.
• The industry will grow in line with demand
  standard, off the shelf engineering lead
  times to put capacity are short (4-6 months)
• Clients may still be exposed to local shortages
  as a result of poor planning (allow for
  sufficient lead time when tendering !)

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Lafarges Capacity Plan for Readymix

• So far
• Network 2003 to 2007 number of plants from 42
  to 66
• Mobility 8 mobile plants to go where the demand
  is
• Trucking Capacity 60 8 m3 trucks since 2005
• Upgrading of existing plants (to load 8 m3 trucks
  70 done)
• Increase and major refurbishments of pump fleet
• Innovation ARTEVIATM and ULTRASCC product
  ranges
• Future
• Grow by 6-8 plants per annum
• Add capacity
• Increase geographic footprint
• High output wet batch plants in large markets as
  from 08
• Increase truck fleet with full conversion to 8 m3
  trucks
• More innovation to come ExtensiaTM (industrial
  flooring)

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Demand and Supply in the Aggregate Market
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Growth of the Aggregate Industry

• Aggregate Volumes will more than double until
  2014, grow at double digit rates until 2010 (road
  and infrastructure)
• Quarried Products will increase their share in
  output (Poor quality of natural sands,
  environmental concerns)
• Share of industrial clients (RMX, Concrete
  Products, Asphalt) in total demand will increase
  stringent quality requirements
• Aggregates from alternative sources (mine dumps,
  slag, recycling) will remain a factor of
  local/regional importance

Source 2006 Base DME Statistics, recalculated
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Aggregate Industry challenges affecting
supply/demand balance

• Changes in Product Mix from the demand pattern
  prevalent when most of the plants were built
• Substitution (Crusher Dust Natural Sand)
  Capetown, PE, Bloemfontein, Mpumalanga, Limpopo
• Other products with demanding specifications
  (UTFC)
• Washed materials, in particular manufactured sand
• Local spikes in demand in rural areas related to
  large projects
• MPDRA (Mining Law) uncertainty about mining
  right conversions in 2009
• Illegal Mining
• Reserves at existing, legal, quarries is not an
  issue (Lafarge gt 50 years permitted reserves at
  current sales, no quarry with less than 10 years)

Source 2006 Base DME Statistics, recalculated
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Lafarges Capacity Plan for Aggregates so far

• Mobility
• 3 mobile units, capacity 250 300 t/h producing
  the entire range of clear sizes and road products
  (from G7 to G1) with primary, secondary and
  tertiary section (Total investment, including
  mobile equipment gt R 80 M)
• 1st plant June 2006, Peak Quarry, Capetown,
  moved to Saldanha
• 2nd plant Feb 2007, Ridgeview Quarry, Durban
• 3rd plant Nov. 2007, White River Quarry,
  Mpumalanga
• Capacity Expansion
• Tygerberg automation and capacity expansion from
  0,8 Mt to 1,2 Mt p.a. commissioned end 2006 (R 25
  M)
• Moregrove screening capacity from 250 t/h to 450
  t/h (R 7 M) Feb. 2007
• Tongaat new plant 60-70 Kt/month, investment R
  60 M
• Product Mix Adjustments and Quality Improvements
• Peak Quarry Cape Town Replacement tertiary
  section with new generation crushers bringing
  capacity to 750 Kt/h (gt 2 Mt p.a.) with up to 55
  manufactured sand (R 44 M)

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Lafarges Capacity Plan for Aggregates Future

• Lafarge COEGA Quarry re-commissioned Nov. 2007, R
  4 M
• Upgrade of screening capacity at Inanda Quarry
  (Durban, operated in JV, reopened in 2007) 1st
  half 2008, R 2 M
• De-bottlenecking of Machadodorp Quarry,
  replacement of secondary crusher and upgrading of
  screening capacity to double output of rail
  ballast, R 5 M
• New plant at Perseverance (PE) to double
  production and improve quality of natural sand, R
  15 M
• Mobile Barmac plant to crush single sizes to
  crusher dust, R 3 M
• De-bottlenecking and upgrade of Ridgeview Quarry
  in Durban end 2008 or 1st half 2009, investment gt
  R 30 M
• Investments of approx. R 255 M, commissioned in
  2007 and 2008 boost Lafarge Aggregates capacity
  by over 4 Mt
• Additional investments are directed to
  acquisitions and mobile equipment
• 2014 30 quarries, enlarged geographic footprint,
  average output/quarry up 50 from 2007

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Price Trends for Aggregates, Cement and Ready Mix
Concrete
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Construction Material Industry Trends

• Industry growth triggered listings in 2006 and
  2007 (JSE Main Board and AltX)
• WG Wearne (RMX, Aggregates)
• AFRIMAT (RMX, Aggregates, Concrete Products)
• RAUBEX (Aggregates, Asphalt, Road Construction)
• INFRASORS (Aggregates, Concrete Products)
• AFRICAN BRICKS (Clay Bricks)
• Raise capital to fund organic growth and
  consolidation
• AFRIMAT -gt Malans Quarries, Denver Quarries
• WG Wearne -gt De Bruyn Sand, Tzaneen Quarries,
  Willows
• RAUBEX -gt Queenstown Quarries
• Vertical Integration moves by listed construction
  companies
• Group 5 AFRIMIX, Quarry Cats, Sky Sand, GoCrete
• Protech Kuthele Rockcrete, Instant Concrete
• Lafarge participated in consolidation (White
  River Quarries, Stonetech) reasonably priced
  acquisitions become scarce
• Black economic empowerment transactions, the
  largest of which the investment of AFRISAM into
  85 of HOLCIM South Africa

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Volume Growth and Price Trend for Construction
Materials 2003-2006
Source LHA Market Survey for CCI, August 2007
31
Pricing Trend for construction materials

• Prices have increased at rates above consumer
  price inflation between 2003 and 2006 and will
  continue to do so
• Aggregate and Cement Industry run at capacity
  additional volume will come from capacity
  expansion (Capital Cost, Depreciation)
• Industry inflation rates significantly above
  consumer price inflation
• Electricity with ESKOM Plans to adjust prices for
  industrial users
• Costs for compensation 2,5-3,0 above CPIX every
  year
• Energy (Fuel, Explosives) significant Industry
  Cost Factors
• Maintenance component strongly impacted by steel,
  rubber
• High reliance on imported capital equipment
  (fixed and mobile).
• Additional charges ahead ? (Minerals Levy, Rates
  Taxes)
• Listed operators strive to ensure adequate return
  for investors
• Concrete Prices will reflect the prices for
  Materials and Transport (gt 85 of the operating
  Cost of the Industry)

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Conclusion
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Construction Material Demand Drivers

• The South African Economy entered into its
  longest expansion period on record in 2000/2001
• Increased disposable income, consumer spending,
  emergence of a black middle class
• Construction industry output to double between
  2007 and 2014
• Residential construction main driver until 2006
• Industrial and infrastructure developments over
  the next 3-8 years
• Sufficient funding by federal and provincial
  budgets (budgets extended by build operate
  schemes, i.e. toll roads)
• Investments will address bottlenecks enabling SA
  to redress the negative current account balance
  main economic risk factor
• Absorb backlog out of the long period of
  underinvestment
• Capacity for further growth of the backbones of
  South Africas economy Mining, Metals and Tourism

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Construction Materials Supply

• The industry has progressively saturated existing
  production capacities until 05/06, further growth
  investment into plants and mobile equipment
• Cement capacities will grow by gt 70 and in line
  with demand
• Ready Mix Concrete will double until 2014 (plants
  and trucks)
• Aggregate Supply will more than double until 2014
• Local, temporary, shortages may occur, in
  particular for aggregates but will be related to
  poor planning, bidding behavior and improper
  accounting for logistics constraints
• Lafarge drives a growth strategy focusing on
  organic growth and innovation in all of its
  product lines
• 1 Mt additional cement by 2009
• Local manufacturing base for gypsum wallboard
• Doubling of ready mix concrete and aggregate
  production
• Main challenge investment inhibitor for Cement
  and Aggregates uncertainty around the conversion
  of Mining Licenses

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