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Chinese arrive with intent in cement

New plant of R1.65bn will shake industry to its foundations.

JOHANNESBURG – As the Competition Commission investigates collusion between SA cement producers, Jidong, one of China’s biggest makers of cement and cement plants, is to enter the SA market with a R1.65bn plant near Brits.

Jidong is to build the plant in association with Women Investment Portfolio Holdings (Wiphold) and Continental Cement. The planned opening is late 2012. Jidong produces 60mt of cement a year – four times SA’s annual production. This plant will produce 2 500t a day or 800 000t a year.

This is thought to be the third largest Chinese investment in SA after BCCI’s purchase of 20% of Standard Bank and a number of chromium mine investments.

The local industry is operating at an estimated 80% of capacity but still manages to grow profits, as PPC showed on Tuesday. If remnants of the old cement cartel survive, the new entrant could shatter all existing arrangements.

Jidong claims to arrive in SA with several competitive advantages.

The plant, to be built on a new limestone deposit, will be closer to Gauteng than its rivals at Lichtenburg. Transport is an important cost element, so this is a big advantage.

It will produce pure cement – undiluted by limestone and ash – by a new dry process with the most modern technology. It therefore expects to have a large cost advantage on established SA producers. Because it is pure, ready mix concrete suppliers will need to use only 310kg per cubic metre, compared to 350kg per cubic metre with existing SA cement.

The new plant is the brainchild of Anton Weavind, founder and CEO of Continental Cement. He hired geologists to find a limestone deposit closer to Gauteng than Lichtenburg, the other major source in the north. A deposit with mineable reserves of more than 80mt and resources of 120mt was found near Brits.

After Continental had completed a full bankable feasibility study including an environmental impact assessment, Nedbank Capital took the project to Wiphold, who tied up with Jidong.

R800m of the total investment will be sourced from China, of which 45% will be equity and 55% debt.

About R900m will be debt funded, of which 50% will come from Chinese banks. The balance of R750m will be funded by equity contributions of the JV partners – Jidong R229.5m, China Africa Development Fund R153m, Wiphold R179.2m and Continental Cement R188.2m.

The Department of Water Affairs has been consulted on water supply to the plant. Eskom will be able to supply the plant’s 17MW power needs.

Jidong Chairman Zhang Zengguang said output could be increased to 3 400tpd if demand warranted it. He expects SA demand to grow at 6% pa for the next two years, which means the local market should be working at close to capacity. He said Jidong is looking at a similar plant in another unnamed SADC country.

In addition Jidong is interested in a car and truck assembly plant, wind, solar and coal-fired electricity plants and even in tourism.

Louisa Mojela and founder of Wiphold said her company imported 500 000t of Jidong cement to assess the taste in SA for pure cement. The cement had been sold mainly in KZN and the Eastern Cape. Some was exported to Angola, Tanzania, Lesotho and Botswana.

Continental is not actually a cement manufacturer. It mines lime and makes fly ash and construction chemicals. Jidong will run the plant. Weavind said most the cement will be transported by road. The 2 500t a day implied 180 trucks a day, which he thought, would not strain the Gauteng road system.

Write to David Carte: davidcarte@moneyweb.co.za

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