Mamba to lift South Africa's cement capacity

Nedbank Capital's Mike Peo says the Mamba Cement project will cut cement prices in inland areas because of reduced logistics charges. Image: Twitter

There is market consensus that excess capacity in the South African cement market will keep margins under pressure for some time.

The local cement market‚ which has excess capacity and is also competing with rising levels of cheap imports‚ received an additional 2.5m tons of annual capacity this year with the entrance of Sephaku Cement.

The addition of Mamba's more than 1m tons of annual capacity will take industry-wide capacity to between 19m and 20m tons a year‚ though figures vary. Meanwhile‚ domestic cement sales totalled 12.2m tons last year.

Sephaku's management believes total capacity figures are slightly overstated because of double counting‚ while total demand‚ excluding import demand‚ is 13.2m tons‚ including demand from neighbouring countries. Excess capacity will also be absorbed by improving demand‚ which Sephaku estimates will grow at an average of 4.5% a year.

Mamba's inland plant is already under construction at a limestone deposit near Northam in Limpopo. It will compete with Sephaku's inland plants in Mpumalanga and North West. Competition within the local cement market is segmented by geographic area‚ to offset logistics costs.

Nedbank Capital and the Bank of China Johannesburg are providing R1.1bn debt capital to fund Mamba. Equity was provided by majority shareholder Jidong Development Group‚ the China-Africa Development Fund‚ and by majority black women-owned group Women Investment Portfolio Holdings.

Infrastructure development and housing

Nedbank Capital's infrastructure‚ energy and telecommunications head Mike Peo said construction had started and the project was expected to be completed within the next 18 to 24 months.

He said Nedbank‚ a big investor in the financing infrastructure and projects saw this as a natural extension to its infrastructure focus given that all large projects required cement.

"We obviously had a very hard look at the South African cement market. This plant is very close to Johannesburg‚ a primary market‚ so the transport costs and the actual cost point at which it can compete is going to be very attractive," Peo said.

He added that the outlook for cement was extremely good and was driven by government's infrastructure plans and the provision of housing.

Over-supply had not been a major concern‚ as Mamba would be very competitive on a cost basis while its product would be of a high grade as a result of the high quality limestone deposit it would use to make the material.

Nedbank said it could have similar collaborations in the future with the South African and Chinese investor grouping. Based on the success of the Mamba project‚ Jidong had approached Nedbank Capital and the Bank of China Johannesburg to act as its banking partners in its expansion efforts into the rest of Africa.

Bank of China Johannesburg Chief Executive Zhikun Qiu said a new entrant will not only help to increase competition in the market‚ but also serve to stimulate growth and job creation in line with South Africa's established development plans.