Key message: A bold defensive move to build a new 1.5mtpa integrated cement plant in the W Cape to retain control of the region.

  • PPC announced the signing of a MOU with Sinoma for a R3bn 1.5mtpa integrated cement plant in the Western Cape. The plant will be built at the existing Riebeeck site, which has 80+ years of limestone reserves to support the plant. The new plant will replace and expand the existing Western Cape capacity at De Hoek (two kilns built in 1974 and 1980 with a cement capacity of just over 1mtpa) and Riebeeck (two kilns built in 1959 and 1968 with a cement capacity of approx. 0.5mtpa). The De Hoek plant will be mothballed once the new kiln is operational.
  • The new plant should reduce variable costs by 20-25%, fixed costs by 35% and carbon emissions by 30%. Subject to final approval construction will start in 2Q 2025 and be commissioned by 4Q 2026.
  • The R3bn cost will be funded by debt and cashflows from existing operations, with net debt: EBITDA expected to remain below the 2 times covenant level.
  • While this is a bold move in a market that has suffered from oversupply and stiff competition, the Western Cape market is very different from the inland market as PPC has the only integrated capacity in the Western Cape. The move appears defensive in nature as the new plant will be able supply demand in the Western, Eastern and Northern Cape regions at a cost that will be competitive against seaborne imports and cement from inland plants. The move minimises the risk of increased imports through Cape Town (currently 10-15% of the approx. 1mtpa of cement imports) and a competitor thinking about a new integrated or grinding plant in the region.
  • We do believe that the R3bn can be funded through debt and cash generated and our modelling shows that the 2x net debt: EBITDA multiple will not be breached.
  • PPC is taking a lead role in keeping the cement market in South Africa competitive, having built the last new kiln (Slurry 9) in the country. It also is probably the only producer with the financial means to upgrade kilns to ensure competitiveness.
  • Our earnings forecasts are not significantly impacted by the construction of the new kiln in the forecast period, with payments following a milestone structure and interest capitalised until commissioning. We maintain our Target Price of R4.70.

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