AGGREGATES AND CONCRETE - Lafarge … · 1.4.2 AGGREGATES AND CONCRETE AGGREGATES Aggregates, such as crushed rock, manufactured sand, and natural sand and gravel, are the most-used

5, 35 3revenues million euros

21, 800 employees

36countries

1, 395 production sites

No. 2 AND 4worldwide(De cember 31, 2012)

AGGREGATES AND CONCRETE

1.4 Overview of operations

Lafarge - Registration Document 2012 • 35

GROUP PRESENTATION

1

1.4.2 AGGREGATES AND CONCRETE

AGGREGATES

Aggregates, such as crushed rock,

manufactured sand, and natural sand

and gravel, are the most-used materials

in the world, after water. 25 billion tons

of aggregates are used per year, at an

average of 4 tons per person. Aggregates

are used as raw materials for concrete,

masonry, asphalt, and other industrial

processes, and as base materials for

roads, landfills, and building.

According to internal and external analysis,

Lafarge is the world’s second largest

producer of aggregates, thanks in large

part to its mineral reserves in key markets.

This advantage is undeniable given the

growing environmental pressures that

make it increasingly difficult to obtain

extraction permits. Nevertheless, Lafarge

has the benefi t of a favorable reputation

thanks to its history of responsible

environmental management and land

restoration.

a) Profi le

On December 31, 2012, Lafarge had

386 production facilities for aggregates

(each including one or more quarries) in

24 countries. Consolidated sales reached

approximately 188 million tonnes.

b) Production process

Aggregates are typically produced by

blasting hard rock from quarries and then

extracting it and crushing it. Aggregates

production also involves the extraction of

sand and gravel from both land and marine

locations, which generally requires less

crushing. In both cases, the aggregates

is then screened to obtain various sizes to

meet different needs.

c) Industry and markets

The production of aggregates requires

heavy equipment including crushing and

screening systems and mobile equipment

like wheel loaders and dumpers, etc. The

cost of the processing systems and mobile

equipment can range from a few million

euros for a small quarry to several tens

of million euros for a very large quarry.

Furthermore, many countries› laws

restrict the development of new sites.

Consequently, the aggregates industry is

in the early stages of consolidation, mainly

in mature markets. Competitors include a

few multinational groups (Lafarge, Cemex,

CRH, HeidelbergCement, Holcim),

nat ional producers like Martin Marietta

Materials and Vulcan Materials in the

US, and a large number of independent

operators.

Because of the high weight of aggregates

and the cost to ship them, markets are

very local in nature. Although it does

business worldwide, Lafarge's a ggregates

activities still remain principally present

in Western Europe and North America.

d) Customers, products, and services

The customers who purchase our

aggregates number in the tens of

thousands. Major customers include

concrete and asphalt producers,

manufacturers of prefabricated products

and construction and public works

contractors of all sizes.

Aggregates differ in terms of their physical

characteristics such as hardness,

geological nature (limestone, granite,

etc.), their granularity (ranging from sand

to riprap used in seawalls), their shape,

their color and their granular distribution.

These characteristics have a large impact

on the quality of the applications in which

they are used, especially for concrete.

The work of Lafarge’s Research Center

has made it possible to redefi ne its offer

to products with greater added value.

Lafarge also markets high-quality recycled

aggregates made from crushed concrete

and asphalt issued from deconstruction.

READY-MIX CONCRETE

Ready-mix concrete is one of the largest

markets for the cement and aggregate

industries.

As the fourth largest producer of ready-

mix concrete, according to internal and

external analyses, Lafarge is known for its

innovation with sophisticated, high value

added concretes.

a) Profi le

On December 31, 2012, Lafarge had

1,011 concrete plants in 32 countries.

Consolidated sales reached approximately

31.8 million cubic meters.


Indispensable to most construction

projects around the world, concrete is

produced by mixing aggregates, cement,

chemical admixtures and water in

varying proportions depending on the

type of concrete to be produced. Ready-

mix concrete is prepared at concrete

production plants. The mixture is loaded

into concrete trucks so that it can be

mixed until consistent and delivered

to the customer within a very specific

timeframe. Concrete plants are usually

fi xed permanent sites, but there are also

portable facilities that may be set up at

major construction sites or at sites that

are too far removed from any permanent

plants.

c) Industry and markets

The ready-mix concrete industry is

less capital intensive than ciment.

It is also highly decentralized, since

concrete is a heavy product that must

be delivered quickly, thus requiring

that production facilities be near to

wherever the concrete is going to be

used. Because of this, only very large

integrated corporations that produce

both cement and aggregates, including

Lafarge and its main competitors—

Cemex, CRH, HeidelbergCement, Holcim

and Italcementi—have succeeding in

establishing an international presence

in this market. The competition consists

mainly of independent, local operators.

Lafarge’s ready-mix concrete production

facilities are still located primarily in

Western Europe and North America.

However, its operations are rapidly

expanding in North Africa, the Middle East,

Latin America and Asia .

GROUP PRESENTATION 1

• Lafarge - Registration Document 201236


d) Customers, products, and services

Buyers of ready-mix concrete are typically

construction and public works contractors,

ranging from major multinational

corporations to small-scale artisans. In

this highly competitive market, Lafarge

works to set itself apart based on the

quality and consistency of its products, the

breadth of its product line and, especially,

the innovative products by its research

center. These products include ultra-high

performance fi ber reinforced concrete,

self-filling and self-leveling concrete,

decorative concrete, insulating concrete,

pervious concrete, etc.

ASPHALT

In North America and the United Kingdom,

we produce asphalt which we sell either as

a stand-alone product, or in conjunction

with contracted paving. Asphalt consists

of 90-95% dried aggregates mixed with

5-10% heated liquid bitumen, a by-

product of oil refi ning that acts as a binder.

We obtain much of the aggregates needed

to produce asphalt from internal sources

and purchase the bitumen from third

party suppliers. Bitumen is a by-product

of petroleum refi ning, the price of which

is tied to oil prices. Asphalt is produced at

plants consisting of raw material storage

facilities and equipment for combining

raw materials in the proper proportions

at a high temperature. Our asphalt plants

range in output from 5,000 to 500,000

tonnes per year and are located primarily

in Canada and the United Kingdom.

Like concrete, asphalt must be delivered

quickly after it is produced. Thus, asphalt

markets tend to be very local. Generally

speaking, asphalt is sold directly by the

asphalt producer to the customer, with

only very limited use of intermediate

distributors or agents since prompt and

reliable delivery in insulated vehicles is

essential.

BREAKDOWN BY REGION

Lafarge produces and sells aggregates

and concrete in the regions and countries

of the world listed in the table below. The

table shows the number of industrial sites

operated on December 31, 2012 and the

volume of aggregates and concrete sold

by the consolidated operations in 2012.

NUMBER OF INDUSTRIAL SITES VOLUMES SOLD (2)

Region/country Aggregates (1) Ready-mix concrete Aggregates Ready-mix concrete

(million tonnes) (million cubic meters)

WESTERN EUROPE

France 115 259 34.3 6.9

United Kingdom 34 95 12.9 1.5

Spain 6 47 2.3 0.9

Greece 8 21 1.4 0.4

Other - 2 - 0.1

NORTH AMERICA

Canada 101 139 54.0 4.7

United States 48 46 43.3 1.7

CENTRAL AND EASTERN EUROPE

Poland 15 35 11.0 1.0

Romania 11 16 3.5 0.5

Russia 3 1 3.4 -

Ukraine 3 - 4.2 -

Hungary 1 - 0.5 -

(1) Industrial sites for the production of aggregates from one or more quarries.

(2) Volumes sold take into account 100% of volumes from fully consolidated subsidiaries and the consolidated percentage of volumes for proportionately consolidated

subsidiaries.



GROUP PRESENTATION

1

NUMBER OF INDUSTRIAL SITES VOLUMES SOLD (2)

Region/country Aggregates (1) Ready-mix concrete Aggregates Ready-mix concrete

MIDDLE EAST AND AFRICA

South Africa 21 50 4.9 1.2

Reunion/Mauritius 2 9 0.9 0.3

Egypt 3 17 2.0 1.3

Algeria 2 19 0.1 0.6

Morocco 3 25 0.5 0.5

Qatar - 11 0.2 0.5

Iraq - 16 - 0.9

Oman - 10 - 0.3

Jordan - 7 - 0.8

Saudi Arabia - 3 - 0.2

United Arab Emirates - 3 - 0.2

Kuwait - 4 - 0.1

OTHER

Malaysia/Singapore 3 35 3.1 2.0

Philippines 1 - 2.6 -

Brazil 3 50 2.7 1.1

India 1 80 0.7 3.3

Other 2 12 0.2 0.8

TOTAL 386 1,011 188.3 31.8

(1) Industrial sites for the production of aggregates from one or more quarries.

(2) Volumes sold take into account 100% of volumes from fully consolidated subsidiaries and the consolidated percentage of volumes for proportionately consolidated

subsidiaries.

In 2012, Lafarge’s asphalt operations

produced and sold a total of 3.6 million

tonnes in the United States, Canada and

the United Kingdom.

1.4.3 OTHER PRODUCTS : GYPSUM

Most of the Group’s Gypsum activities were

disposed of in Asia, Europe and South

America and Australia in 2011. Lafarge

retained only operations in Africa , Turkey

and, primarily, in the United States.

a) Profi le

At year-end 2012, Lafarge had three

wallboard plants in the United States and

had a market share of 10%. Lafarge also

owned one wallboard plant and fi ve other

Gypsum plants outside the United States.


Plaster is made by grinding and heating

gypsum (calcium sulfate dihydrate) to

release the trapped water molecules.

Wallboard is made by mixing the plaster

with water to form a slurry and then

extruding this slurry between two sheets

of paper. The plaster hardens and the

resulting board is cut to desired sizes.

Naturally occurring gypsum may be

replaced by synthetic gypsum. Synthetic

gypsum is a by-product of certain

chemical manufacturing processes or

electricity production in thermal power

plants. It is used, for instance, in Lafarge’s

plants in the United States.

c) Markets

In 2011, Lafarge sold its 50% stake in

Lafarge Boral Gypsum Asia (LBGA) to its

partner Boral.

In 2012, its gypsum operations in

European and South American operations

were sold to the Etex Group with Lafarge

retaining 20% and its gypsum operations

in Australia were sold to Knauf.

The wallboard market is highly

competitive, with production mostly

concentrated among several national and

international players. In the US market,

which is the world’s largest, our largest

competitors are US Gypsum, National

Gypsum, Saint-Gobain, Eagle Materials

and Georgia Pacifi c (Koch Industries).

d) Products and customers

Currently, Lafarge produces wallboard

(95% of sales) and joint compounds

in North America. These products are

used in the construction and renovation

of buildings (to fi nish walls and ceilings).

The line includes both “standard” and

“technical” wallboards, e.g., fi re retardant,

moisture-resistant, treated for heavy use

or exterior surfaces, etc.

Gypsum wallboard products are mostly

sold to general building materials

distributors, plasterboard installers,

wallboard specialty dealers, do-it-yourself

home centers and transforming industries.

1.4.4 MINERAL RESERVES AND QUARRIES

In an effort to secure the availability of the

raw materials necessary to produce our

products, Lafarge is implementing internal

procedures to manage mineral resources

by managing land control and permits as

well as by monitoring the reserves in our

quarries.




a) Objectives

Lafarge’s businesses activities are involved

in heavy industry, and as such, are built

to last. Therefore, they must own or have

control over substantial reserves of raw

materials. These reserves represent a

major competitive asset in terms of their

location, quantity and quality.

All business units must follow the Group

policy concerning the acquisition and

preservation of its reserves (limestone,

marl, clay, sand, etc.), within the

constraints of local regulation.

In particular they must ensure to have

adequate reserves for:

Z plants currently in operation;

Z plants projected for the relatively near

future;

Z long-term projects intended to assure

growth, restructuring or strategic

repositioning.

The exploration for deposits must be based

on rigorous geological investigations.

b) Requirements

Z Each business unit has to define its

“proven”, “probable” and “potential”

reserves in terms of years of production

of aggregates or clinker (for cement).

The target is to maintain fifty years of

proven and probable reserves except

justifiable cases such as constraints

due to local regulations;

Z For each deposit, business units must

establish a long term plan for obtaining

or extending mining rights and for

managing landholdings and operating

permits. For all areas involved in long-

term operations, including buffer

zones, this plan must contain the

following information:

Z property limits;

Z expiry dates of mining permits;

Z tonnage and quality of reserves;

Z characteristics of the deposits and

their environmental constraints;

Z action plan and budget necessary

until restoration.

c) Defi nitions

The raw material deposits are considered

as reserves when the technical and

economical operability is confirmed.

Reserves of raw materials are verifi ed by

the Industrial Performance teams and

classifi ed as follows:

Z Proven and probable reserves

Reserves are defined as proven when

Lafarge has full control over them through

the following parameters:

Z the mining rights and necessary

administrative permits for mining

operations are obtained;

Z full control of the land for which we have

the mining rights is achieved;

Z the reserve evaluation is validated

based on representative core drilling

or equivalent and reliable geochemical

analyses.

Reserves are defi ned as probable if one of

the above parameters is not fully achieved,

such as: For example:

Z the mining rights could be limited

in duration or some necessary

administrative permits for mining

operations could be incomplete;

Z the control of the land for which Lafarge

has mining rights could be incomplete;

Z the necessary geological investigations

have not been finalized.

Z Potential reserves

The reserves are considered as potential

if they are in a land which is not fully

controlled, but recognized as potentially

mine-able after obtaining the necessary

permits. The necessary geological

investigations are not fully carried out.

d) Remarks on the impact of local regulations for permitting

Z In some countries, permits are given for

a limited period of time. Reserves are

therefore proven for the duration of the

permits and probable for the remaining

time. Local regulations may therefore

impact proven reserves. In France for

example, the mining right duration is

not more than 30 years; in the most

favorable case, the reserves can only be

proven for 30 years. In other countries

the mining rights could be obtained

for a very long period of time but the

surface rights are limited to 5 years.

In this case, reserves are proven for

5 years and probable for the remaining

duration of the mining rights. For this

reason, proven and probable reserves

are reported together.

Z The mining rights procedures in each

country may also influence the land

control strategy that is implemented

locally. For example, a limited duration

of mining rights provides less visibility

on the future. Surface rights will be

granted until expiry of this period

but not necessarily beyond. The

capital expenditure is thus spread out

over a longer period of time. In that

hypothesis, the corresponding reserves

are only potential. Land management

is therefore specific to each situation.

e) Internal yearly reporting

A senior geologist in the Industrial

Performance team must approve the

report for all the reserves for cement

production in his area. For aggregates,

the calculation of reserves is approved by

the land director of each country.

Ownership titles, mining permits and other

legal issues (environment, parks, historical

monuments, etc.) must be validated

namely by a Lafarge legal manager.

The reserves are expressed in years of

production (of clinker for the cement

product line, or of aggregates for the

aggregates product line) as compared to

average production over the three previous

years.

Every year the reserves table is updated in

the yearly internal reporting. The numbers

are worked out between the geologists and

the quarry managers according to the

estimated reserves. These reserves are

calculated based on the latest geological

model of the deposit and the plant’s raw

materials consumption.

Z The raw materials expert obtains the

tonnage mined during the previous

year from the quarry manager.

Z The reserve calculation is done by the

raw materials expert for cement and by

the geologist for aggregates:

Z simple yearly calculation by

subtracting quarry production from

the last reserve estimation;

Z full reserves reconciliation using

accurate topographic survey,

deposit block model and production

figures (each 3-5 years).



GROUP PRESENTATION

1

Z For cement the result is validated

through an exchange between the

plant quarry manager, the country raw

material manager and the raw material

expert from the Industrial Performance

team. For aggregates, the calculation is

validated by the quarry manager, the

geologist and the land director.

For purposes of external reporting of

the cement plants’ reserves, only the

limestone reserves are considered critical

to the plant’s life. Additives, such as clay,

sand, iron and alumina, represent a small

percentage of the ingredients making up

the raw mix. The supply of these additives

is controlled either through ownership of

quarries, like for limestone, or through

supply agreements. Control of these

materials is not as critical as control of

limestone resources, since they may be

purchased from outside sources and

transported long distances. The supply

of additives is not crucial to the plant’s life.

Nevertheless, internal teams monitor the

sourcing of these materials since this could

potentially impact production costs.

In the tables below, the reserves are

consolidated region by region with the

total tonnage of raw material reserves

available divided by the total production

of the plants in each region. As explained

above, the production taken as a

reference is the average production from

the past three years. Mothballed plants

are included in this computation. All the

plants technically managed by Lafarge at

the end of December 2012 are fully taken

into account, even if Lafarge is not the

majority shareholder.

CEMENT

Average production 2010 - 2012

(MT clinker)

Proven and probable reserves

(years)Potential reserves

(years)Number of clinker

production sites

Western Europe 13.4 67 64 22

North America 8.9 154 80 12

Central and Eastern Europe 9.8 158 64 15

Middle East and Africa 34.0 63 29 25

Latin America 5.4 80 170 9

Asia 41.4 54 29 33

TOTAL 112.9 77 52 116

AGGREGATES

Average production 2010 - 2012

(MT)

Proven and probable reserves

(years)Potential reserves

(years)Number

of quarries

Western Europe 56.2 30 8 163

North America 95.6 109 1 149

Central and Eastern Europe 20.9 78 21 33

Middle East and Africa 9.4 32 8 31

Latin America 2.3 49 19 3

Asia 5.4 24 13 7

TOTAL 189.9 75 26 386

The changes in reserves refl ect the divestments and coming on stream of new sites in various countries.




1.4.5 EXPENDITURES IN 2012 AND 2011

The following table presents the Group’s

capital expenditures for each of the two

years ending December 31, 2012 and

2011. Sustaining expenditures serve to

maintain or replace equipment, while

internal development expenditures are

intended to enhance productivity, increase

capacity, or build new production lines.

External development expenditures are

devoted to the acquisition of production

assets and equity interests in companies.

Lafarge generally owns its plants and

equipments. The legal status of the

quarries and lands depends on the activity:

Z in the cement activity, Lafarge owns its

quarries or holds long-term operating

rights;

Z in the aggregates activity, mineral

lease contracts are favored in order to

minimize the capital employed.

See also Section 1.4.4 (Mineral reserves

and quarries) for more information.

1.4.6 CAPITAL EXPENDITURES PLANNED FOR 2013

Capital expenditures for 2013 will be

limited initially to 800 million euros in

2013. Additional disvestments beyond the

current target of 1 billion euros since the

beginning of 2012 may lead to a moderate

increase of this expenditures level while

maintaining our debt reduction objective.

These capital expenditures will be

fi nanced notably by the cash provided by

operating activities, the cash provided by

the issuance of debt, and establishment of

short and medium term credit lines.

SUSTAINING AND INTERNAL DEVELOPMENT EXPENDITURES EXTERNAL DEVELOPMENT EXPENDITURES

(million euros) 2012 2011 2012 2011

Western Europe 154 208 (32) 6

North America 109 92 4 7

Central and Eastern Europe 114 159 11 40

Middle East and Africa 137 305 15 11

Latin America 72 54 1 2

Asia 170 236 3 5

TOTAL 756 1,054 2 71

See Section 2.4 (Liquidity and Capital Resources) for more information on 2012 investments.



GROUP PRESENTATION

1

Documents

AGGREGATES AND CONCRETE - Lafarge … · 1.4.2 AGGREGATES AND CONCRETE AGGREGATES Aggregates, such as crushed rock, manufactured sand, and natural sand and gravel, are the most-used