PROJECT SUMMARY
A prominent Iraqi Group and a prestigious Turkish Group commenced the cement plant investment in Northern Iraq in 2012. The plant is intended to produce cement products such as Ordinary Portland Cement (OPC) and Sulfate Resistance Cement (SRC). The plant will have 2 x 5,000t/d clinker production capacity. The second 5,000t/d line will be built after the first line depending on the market dynamics. Expected to annual cement production capacity is 1,730,000 tons with a single line. The total site covers 375,000 m2 and is rectangular in shape. Civil works involve 105,000 m3 of concrete works and 10,500 tons of steel structure.
Total investment amount including working capital is $249mm. The capital expenditures is planned to be financed %25 by equity and %75 by long term loan.
KEY HIGHLIGHTS
High Quality and Low Cost raw materials, low cost energy input, host country incentives, insufficient domestic production and rising demand are among the key factors that drives the Turkish Group into cement investment in the region.
• Domestic Price of Ordinary Portland Cement (OPC) is $100/t ($60-$80/ton in Turkey and the region).
• Annual Domestic Production Capacity is around 10 million tons and unable to meet the demand and operating with only %50 production the initial capacity of 20 million tons (technical strains), the demand is expected to rise to 35 million ton per year by 2015
• Per capita consumption of cement is 600 kg and expected to be 1,000 kg by 2015
• New 4 million housing unit requirement of 30 million Iraq Population within 5 years duration
• $500 billion fixed investment in the country (in the next 10 years) tempted by the rising oil revenues and the potential of Iraq
• The cost of 5,000t/d line investment is $249mm
• 2 x 5,000t/d clinker producing plant have total investment value of $450mm and Market cap value of $900mm
• First year expected revenue is $170mm. After commissioning second phase the annual revenues will reach $350mm
• 66% average EBITDA Margin
• Turkish Group’s partnership and commitment
• Levered IRR of 62%
INSURANCE
The investment shall be protected against political risks including expropriation, war and civil disturbances and transfer restriction. Other risks regarding construction, erection, machinery breakdown, employers’ liability and health staff policies will also be secured.
INCENTIVES
Investment license pertaining to the subject project includes;
• Exemption from %15 income taxes for 10 years (can be extended for 5 more years)
• Free use of land for 50 years
• No customs duty on the machinery imported for the investment
• Other incentives are available for creating employment (not included in projections)
• Purchasing guarantee received from Regional Government of Iraq
• Electricity and other infrastructure
• Fuel Oil $145/t ($450/t in Turkey)
• 200,000,000 tons of raw material reserve located in 1,000,000 m2 area allocated with the land at no cost.
• 375,000 m2 allocated land area for the plant site without rent and right to register the title under the investor company
LUCRATIVE RETURNS
The project has roughly 4 years of payback period for the equity. Net Income is projected as $43mm for the first, $61mm for the second; and $88mm for the following years of operations.
COLLATERALS AVAILABLE
• Share pledge of a specific company of Turkish Group, $278mm valuation by PWC report dated Dec 5, 2012
• Signature of guarantee can be provided by the shareholders, both individuals and companies
• Cash flows to be generated from cement project.
• 375,000 m2 land as a real estate collateral with an estimated value of $30-40mm
• Machinery & Equipment being acquired for the project valued approximately $120mm shall be insured and can be provided as a “first loss payee”.
Avg Projected 5-yr Turnover = $130mn, EBITDA=$85mn.