ARM Cement takes on Dangote with new Kitui factory
Pradeep Paunrana Managing Director Athi River Mining gestures during a press briefing. Photo/FILE
What you need to know:
ARM Cement will raise up to $300 million (Sh25.5 billion) to fund new plants including the planned unit in Kitui that will produce 8,000 tonnes of cement per day
This will make it the single largest cement factory in the country and places the unit ahead of the planned Dangote plant that will have a daily capacity of about 5,500 tonnes
This will re-open the fight for Kitui mines, which three years ago locked Bamburi Cement and ARM in a court battle for control of a 180-square kilometre piece of land endowed with limestone
ARM Cement is set to build Kenya’s biggest plant in Kitui County, setting it up for a fight with Africa’s richest man Aliko Dangote who plans to open a Sh34.8 billion ($400 million) plant in Kenya.
The Nairobi bourse-listed firm will raise up to $300 million (Sh25.5 billion) to fund new plants including the planned unit in Kitui that will produce 8,000 tonnes of cement per day.
This will make it the single largest cement factory in the country and places the unit ahead of the planned Dangote plant that will have a daily capacity of about 5,500 tonnes.
“We plan to start construction of the Kitui plant late next year. It is a major development for us,” Pradeep Paunrana, ARM’s chief executive told the Business Daily in an interview.
This will re-open the fight for Kitui mines, which three years ago locked Bamburi Cement and ARM in a court battle for control of a 180-square kilometre piece of land endowed with limestone.
The East Africa Portland Cement Company (EAPCC) has also directed its management to strike a deal with Kitui County to secure key raw materials to counter Dangote and local rivals.
“It was agreed that the board would take urgent steps to get in touch with the Kitui County officials and ensure that the raw materials reserves are secured and purchased by EAPCC,” said Portland’s board minutes seen by the Business Daily.
Kenya produced 4.7 million tonnes of cement last year, up from 2.8 tonnes in 2008, according to the Kenya National Bureau of Statistics. Players expect double digit growth in coming years on the ongoing construction boom.
These are the numbers that have caught the eye of Dangote Cement and new entrants National Cement and Mombasa Cement as well as the established players who have announced expansion plans, deepening competition.
As a result, management of production costs is dominating the cement makers’ strategy sessions in an environment where prices have remained unchanged over the past two years.
This is expected to turn Kitui into a battleground due to its huge limestone deposits and proximity to the Mui basin, which has large coal reserves.
The manufacture of cement involves mixing of clinker, a key raw material, and limestone or coral rock mainly from the Coast, with pozzolana, an ash-based product mainly found in the Rift Valley.
Most cement firms are also turning to coal to power their machines as opposed to expensive oil fuel, which is prone to price volatility. Kenya imports the bulk of its coal from South Africa.
Mr Paunrana say the firm will raise up to Sh25.5 billion to fund the Kitui plant and other planned factories over the next five years.
The fundraising will be done through a mix of bank loans, corporate bonds and rights issues, said Mr Paunrana, adding that the cement maker’s board is yet to arrive at the share of debt and equity.
ARM has five cement plants — two in Kenya, two in Tanzania and one in Rwanda— and deals in other products like sodium silicate, lime, industrial minerals, fertiliser and special building products.
The firm is racing to build its plant ahead of Dangote Cement, which will set up shop in the short term.
Mr Dangote was ranked the 43rd richest man in the world by Forbes magazine last month, with his fortune pegged at $20.8 billion (Sh1.78 trillion).
The tycoon was part of a business delegation that visited Kenya in September with Nigeria’s President Goodluck Jonathan when he announced the planned Kenya investment.
ARM posted a 28 per cent rise in net profit for the nine months to September, boosted by higher sales.
Its net profit stood at Sh1.53 billion in the period, driven by a 32 per cent jump in sales to Sh10.2 billion.
Its share has gained 30.7 per cent over the past six months to Sh85. Portland Cement is up 42 per cent in the period while Bamburi has shed 8.2 per cent.
The cement makers rely on volumes to grow profits given that prices have remained static over the past three years despite a rise in raw material costs. And analysts expect the prices to come under pressure from the new cement capacities.
