Ulrich Aumuller, Lafarge Readymix & Aggregates
Supply Capacity of
Construction Materials (Cement,
Ready Mix Concrete, Aggregates)
South African Construction Output
2
RPF, Ulrich Aumuller, Nov. 20, 2007
2006 Estimated Value of Building and
Construction: R160 billion.
Residential Building
Non-Residential Building
Construction
R66 700 million
R38 300 million
R55 000 million
Total Building
R105 000 million
Total Building and Construction
R160 000 million
Cement comprises roughly 8,5% of the total value.
3
Source: LHA Market Survey for C&CI, August 2007
RPF, Ulrich Aumuller, Nov. 20, 2007
Building Residential
31000
Growth in the
Construction Industry
was, since mid 2006
increasingly driven by
Non - Residential and
Construction and will
continue to do so
25
26000
20
21000
%
Value Rm
15
16000
10
11000
5
6000
Building Non-Residential
Q4
2007 Q1
Q3
Q2
Q4
2006 Q1
Q3
Q2
Q4
2005 Q1
Q3
Q2
Q4
Value Rm
2004 Q1
Q3
Q2
Q4
2003 Q1
Q3
Q2
Q4
2002 Q1
Q3
Q2
Q4
2001 Q1
Q3
Q2
0
2000 Q1
1000
% Y-on-Y Growth
Construction
26000
51000
20
40
46000
15
30
41000
21000
10
36000
20
0
11000
Value Rm
%
Value Rm
5
26000
10
%
31000
16000
21000
0
-5
16000
11000
6000
-10
-10
6000
Value Rm
4
% Y-on-Y Growth
Source: LHA Market Survey for C&CI, August 2007
Value Rm
2007 Q1
Q4
Q3
Q2
2006 Q1
Q4
Q3
Q2
2005 Q1
Q4
Q3
Q2
2004 Q1
Q4
Q3
Q2
2003 Q1
Q4
Q3
Q2
2002 Q1
Q4
Q3
Q2
2001 Q1
Q4
Q3
-20
Q2
1000
2000 Q1
Q4
2007 Q1
Q3
Q2
Q4
2006 Q1
Q3
Q2
Q4
2005 Q1
Q3
Q2
Q4
2004 Q1
Q3
Q2
Q4
2003 Q1
Q3
Q2
Q4
2002 Q1
Q3
Q2
Q4
2001 Q1
Q3
Q2
-15
2000 Q1
1000
% Y-on-Y Growth
RPF, Ulrich Aumuller, Nov. 20, 2007
South Africa Infrastructure Investment:
2007 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 publicprivate partnerships
(Gautrain) not fully
captured
Biggest issue in
infrastructure
investment is delivery,
not funding
5
R billion
Provincial governments
Municipalities
Other government
Parastatals
Total
R billion
Electricity
Roads
Rail
Water & sanitation
Housing
Ports
Health
Education
Criminal/justice system
FY06 FY07 FY08 FY09 FY10
23
27
35
42
42
21
23
28
32
34
9
13
15
18
18
26
38
45
50
57
79
101
123
142
151
Budget
3yr tot
119
94
51
152
416
FY06 FY07 FY08 FY09 FY10
12
16
17
23
31
13
16
19
21
23
5
13
16
16
14
8
11
11
12
13
5
7
8
10
12
3
4
7
6
4
3
4
5
5
6
2
3
3
3
4
1
1
1
2
2
Budget
3yr tot
71
62
46
37
30
17
16
11
5
Source: Michael Mc Clintock, SASOL, Presentation at Deloitte & Touche Forum, Feb. 2007
RPF, Ulrich Aumuller, Nov. 20, 2007
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
6
RPF, Ulrich Aumuller, Nov. 20, 2007
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.
7
RPF, Ulrich Aumuller, Nov. 20, 2007
Construction Output to Double in Constant
Currency by 2014 Compared to 2006
320
25% Capital formationto-GDP ratio
280
240
200
Value
Doubling of industry
output over 2006
Average real growth in
industry of 8% p.a.
160
120
40
Civil construction larger
than building industry by
2009/10
20
0
2000
2001
2002
2003
2004
2005
2006
Building
8
2007
2008
Civil Construction
2009
2010
2011
2012
2013
2014
Total
Source: LHA Market Survey for C&CI, August 2007
RPF, Ulrich Aumuller, Nov. 20, 2007
Demand and Supply in the Cement
Market
9
RPF, Ulrich Aumuller, Nov. 20, 2007
Cement Market Growth Driven by
Civil/Construction Output
Sector
Cement Demand (kTon and % Contribution)
2007
Residential
Non-Residential
Construction
TOTAL
% Change p.a.

10
2008
2009
2010
2014
7 191
7 479
7 965
8 403
9 410
48,3%
46,5%
45,8%
45,0%
42,3%
4 343
4 691
5 019
5 346
6 373
29,1%
29,2%
28,9%
28,7%
28,7%
3 362
3 900
4 388
4 913
6 438
22,6%
24,3%
25,3%
26,3%
29,0%
14 896
16 070
17 372
18 662
22 221
100%
100%
100%
100%
100%
12,2%
7,9%
8,1%
7,4%
4,5%
%
Change
over
Period
4,4%
6,4%
11,2%
6,7%
-
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 C&CI, August 2007
RPF, Ulrich Aumuller, Nov. 20, 2007
Main Growth Driver for Cement: Public
Sector. Private Investment also Contributes
to Growth but less than in the Past
Cement Demand (kTon and % Contribution)
%
Chang
e over
Period
Sector
2007
Public1)
Private
TOTAL
% Change p.a.
2008
2009
2010
2014
5 656
6 448
7 222
7 944
9 931
38,0%
40,1%
41,6%
42,6%
44,7%
9 240
9 622
10 150
10 718
12 290
62,0%
59,9%
58,4%
57,4%
55,3%
14 896
16 070
17 372
18 662
22 221
100%
100%
100%
100%
100%
12,2%
7,9%
8,1%
7,4%
4,5%
10,1%
4,5%
6,7%
-
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
11
Source: LHA Market Survey for C&CI, August 2007
RPF, Ulrich Aumuller, Nov. 20, 2007
Growth of the Cement Supply in South Africa
Mt
14
Industry Capacity end 2006
Lichtenburg Cement Plant+Richards Bay Grinding Plant
2.7
Out of which Lafarge
Projects underway, completed between 2007 and 2010
Brownfield kiln Lichtenburg + milling plant Gauteng
1.0
Lafarge
Batsweledi and Milling Capacity Upgrades Gauteng
1.8
PPC
Simuma Plant Expansion, KZN
0.6
NPC CIMPOR
Milling and Blending Capacity Increase
0.4
AFRISAM
New Greenfiled Plant in Northwest Commissioned 2010
2.0
ORASCOM
6
Total Expansion underway
20
Industry Capacity end 2010
Projects under study, commissioned after 2010
North West brownfield Lichtenburg
2.0
AFRISAM
Riebeek Project, Western Cape, other expansions
1.9
PPC
Other greenfiled investment North West ??, Simuma
0.6
NPC or New Operator
5
Total Projects
24
Capacity Long Term
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
12
Source: Proceedings INTERCEM South Africa Congress Sept. 2007
RPF, Ulrich Aumuller, Nov. 20, 2007
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)
13
Source: Proceedings INTERCEM South Africa Congress Sept. 2007
RPF, Ulrich Aumuller, Nov. 20, 2007
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 precast industry
14
RPF, Ulrich Aumuller, Nov. 20, 2007
Lafarge Aggregates and RMX at a
glance
15
RPF, Ulrich Aumuller, Nov. 20, 2007
Lafarge Aggregates & Readymix

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

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

Mobile Crushing
• 3 Crushing Units

Workforce: > 1100
16
RPF, Ulrich Aumuller, Nov. 20, 2007
Lafarge Plant Network
Cement Plant
Aggregate Quarry
LIMPOPO
3
Ready Mix Concrete Plant (Circle
Center Number of plants)
Polokwane
1
1
Gypsum Wallboard Plant
White River
Machadodorp
Limestone Quarry
17
Lichtenburg
GAUTENG
1
Gypsum Project
1
SWAZILAND
Empangeni
FREE STATE
KWA-ZULU Ninians
NATAL
Stanger
Tongaat
Pietermaritzburg
Inanda
LESOTHO
2
Olive Hill
Bloemfontein
3
Ridgeview
NORTHERN CAPE
Komatipoort
Nelspruit
MPUMULANGA
Evander
NORTH WEST
3
Richards Bay
1
12
Durban
Saldanha
1
EASTERN CAPE
Blue Rock
King Williams Town
WESTERN CAPE
Perseverance
Witfontein
George Knysna
Tygerberg
Dorsberg
14 Peak
Cape Town
1
1 1 1
Mossel Bay
1
1
East London
Coega
Moregrove
3
Port Elizabeth
17
RPF, Ulrich Aumuller, Nov. 20, 2007
Cape Town
Durban
Port Elisabeth
Polokwane
Nelspruit
Murray&Roberts - WBHO
Group 5 - WBHO - Pandev
Grinaker LTA - Interbeton
WBHO - Pauls
Basil Read - Bouygues Civils
2490
2430
1150
800
860
C
em
en
t
es
ga
t
A
gg
re
m
3
et
e
C
on
cr
er
R
Te
nd
C
on
so
Ve
n
ue
rt
iu
m
an
d
M
Lafarge Readymix & Aggregates
What we are proud of – Soccer World Cup
Lafarge
136000 Lafarge
PPC
Lafarge
92000 Lafarge NPC-Cimpor
Site batch
40000 Lafarge
PPC
Site batch
70000 Lafarge
Lafarge
Lafarge
75000 Lafarge
PPC

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
18
RPF, Ulrich Aumuller, Nov. 20, 2007
Demand and Supply in the Ready
Mix Concrete Market
19
RPF, Ulrich Aumuller, Nov. 20, 2007
Increasing Importance of Readymix Concrete
•
•
•
•
•
•
•
•
•
20
Quality, guarantees,
consistency
Accessibility to sites
Storage of material on site
Theft and loss of product
Placing techniques
(pumping)
Special concretes (selfcompacting, 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
Total
2006
34,1
2003
24,4
Ready Mix Concrete within
Large Construction (%)
Total
2006
67,9
2003
56,5
Source: LHA Market Survey for C&CI, August 2007
RPF, Ulrich Aumuller, Nov. 20, 2007
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.
Volume M m3
Growth % p.a.
Number of Plants
2006
7.5
188
South Africa RMX industry forecast
2007
2008
2009
2010
8.6
9.5
10.5
11.4
15%
10%
10%
9%
216
237
261
286
2014
14.7
6%
368
 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 !)
21
RPF, Ulrich Aumuller, Nov. 20, 2007
Lafarge’s 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)
22
RPF, Ulrich Aumuller, Nov. 20, 2007
Demand and Supply in the Aggregate
Market
23
RPF, Ulrich Aumuller, Nov. 20, 2007
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
South Africa AGGREGATES Industry forecast
2006
2007
2008
2009
2010
2014
Total Volume 000 ton
59
69
78
88
97
116
Growth % p.a.
19%
12%
13%
11%
4%
Volume "High End"*
41
50
57
66
74
88
Growth % p.a.
22%
15%
15%
12%
4%
* clear sizes and base course products from quarrying, excludes roadbase,natural sand
 Aggregates from alternative sources (mine dumps, slag,
recycling) will remain a factor of local/regional importance
24
Source: 2006 Base DME Statistics, recalculated
RPF, Ulrich Aumuller, Nov. 20, 2007
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: > 50 years permitted reserves at current sales, no
quarry with less than 10 years)
25
Source: 2006 Base DME Statistics, recalculated
RPF, Ulrich Aumuller, Nov. 20, 2007
Lafarge’s 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: > 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 (> 2 Mt p.a.)
with up to 55% manufactured sand (R 44 M)
26
RPF, Ulrich Aumuller, Nov. 20, 2007
Lafarge’s 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 > R 30 M
 Investments of approx. R 255 M, commissioned in 2007 and
2008 boost Lafarge Aggregate’s 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
27
RPF, Ulrich Aumuller, Nov. 20, 2007
Price Trends for Aggregates, Cement
and Ready Mix Concrete
28
RPF, Ulrich Aumuller, Nov. 20, 2007
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 -> Malans Quarries, Denver Quarries
• WG Wearne -> De Bruyn Sand, Tzaneen Quarries, Willows
• RAUBEX -> 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
29
RPF, Ulrich Aumuller, Nov. 20, 2007
Volume Growth and Price Trend for
Construction Materials 2003-2006
15%
Bitumen
59%
44%
Crushed Stone
53%
55%
57%
Bricks
83%
Concrete Roof Tiles
22%
38%
Building Timber
51%
65%
Reinforcing Steel
44%
58%
Structural Steel
32%
46%
Cement
0%
41%
10%
20%
30%
40%
PPI
30
50%
60%
70%
80%
90%
Volume
Source: LHA Market Survey for C&CI, August 2007
RPF, Ulrich Aumuller, Nov. 20, 2007
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
(> 85% of the operating Cost of the Industry)
31
RPF, Ulrich Aumuller, Nov. 20, 2007
Conclusion
32
RPF, Ulrich Aumuller, Nov. 20, 2007
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 Africa’s
economy: Mining, Metals and Tourism
33
RPF, Ulrich Aumuller, Nov. 20, 2007
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 > 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
34
RPF, Ulrich Aumuller, Nov. 20, 2007
THANK YOU
35
RPF, Ulrich Aumuller, Nov. 20, 2007