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ConferenceandExhibitiononwasteheat

recoveryforthecementandalliedindustries14-15June2012,London,UK

2ndGlobalCemPower:6-7June2013,London,UK

www.CemPower.com

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ChineseorEuropean?Capitalandoperatingcostimplicationsfor

newcementplantprojects

MarkMu'erManagingDirector

JAMCEMConsul7ng

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Disclaimer

Noulteriormo7vetryingtopresentabalancedcase

Basedonpersonalexperienceplusexperiencesofthosewhohavebuilt,commissionedandoperatedcementplants.

Bothtypesofsupplierarereceivingsignificantorders

Chinesesuppliedplantsnowhaveahistory

Aimistoassistcementmanufacturersintheirdecisionmakingprocess

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ChineseorEuropean?.....

Historyofcementplantsupply

Iden7fica7onofothercostswithChinesesuppliedplants

Comparisonoftotalcapitalcostsforprojects

Calcula7onofNPVandIRRforvariousscenario

Conclusions

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Historyofsupply

Tradi7onalcementsuppliershavegenerallybeenEuropean

Technicaldevelopments1920s-LepolgratepreheaterPolysius

1930s-CyclonepreheaterpatentedbyFLS

1950s-CyclonepreheatersinstalledbyKHD

1990s-CoolerfixedinletdevelopedbyIKN

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Historyofsupply

Li'leknownofChinesecementindustryun7l1990s

MajorplayersinvestinChinesemarket

Chineseequipmentsuppliersentertheglobalmarketin2000s

Achievedsignificantmarketshareinshort7me

MixandmatchofEuropeanandChinesesupply

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ReviewofChineseplants

Widerangeofviews

Posi7ves:

Highlysa7sfied

Chinesesuppliershighlywillingandobliging

Plantstendedtoreachtheirguaranteedperformancelevels

Nega7ves:

Poorinstalla7on

Weakdocumenta7on

Delayedstart-up

Failureofkeyequipment

Whysuchdifferencesinviews?

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OtherCosts

Sa7sfiedcustomersappeartohaveiden7fiedweaknessesinChinesesupply

Areasthatneedtobeaddressedtoincreasethechancesofsuccessfulproject

TechnicalReview

Contractdefini7on

ProjectmanagementEquipmentinspec7ons

Documenta7onandtraining

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Othercosts

Technicalreview

Toensurethat

-equipmentspecifica7onsarecorrect-fullrawmaterialinves7ga7onsarecomplete

-materialshandlingdesigninadequate

-equipmentdesignmeetslocalstandards

Cost:$0.5million

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Othercosts

Contractdefini7on

Toensurethat:

-thetermsandcondi7onsofthecontactarelegallydefined-realis7c7me-scaleandmilestonesareputinplace

-penal7esforbreachofcontractareputinplace

Cost:$2million

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Othercosts

Projectmanagement

Toensurethat:

-theClienthasateamtomonitorandsupervisetheinstalla7onoftheplant

-qualityofinstalla7oniscorrect

-noshort-cutsaretakenforexampleinHealthandSafety,

loadtes7ngetc.

-projectmilestonesaremet-risksareiden7fiedandmanaged

Cost:$6million

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Othercosts

Equipmentinspec7ons

Toensurethat:

-equipmentismanufacturedtospecifica7on-correctequipmentisshippedtosite

-QAsystemsareadequate

-manufacturerss7cktotheirQAsystems

Cost:$1million

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Othercosts

Documenta7onandtraining

Toensurethat:

-theClientreceivesafullsetofworkingdocumentsfortheplant

-theplantpersonnelareadequatelytrainedintheopera7on

andmaintenanceoftheplant

Cost:$0.5million

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Othercosts

Item Cost

Technical review $0.5 million

Contract definition $2 million

Project management $6 million

Equipment inspections $1 million

Documentation andtraining

$0.5 million

Total $10 million

Therearenomiracles,thebigplayers(cementequipmentsuppliers)are

managingtherisksandasacustomerwearepayingapremiumforthoserisks.

Thisiswherethesavingsare,ifyourenotreadytomanagethoserisks,itis

be'ertodealwiththebigplayers

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Capitalcostcomparison

Parameter Value

Clinker capacity 3000 tpd

Design runtime 90%

Clinker factor 0.85Cement capacity 1,160,000 tonnes

Cost per tonne Total costEuropean $150 $174 million

Chinese $112.5 $130.5

Chinese plus others $140.5

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CalculationofNPVandIRR

Comparisonofcapitalcostsdemonstratesthepoten7alsavingwithChinesesupply

Useoffinancialanalysistoaiddecisionmakingprocess

Createanumberofdifferentscenariotoevaluatefinancialimpact

Otherfactorsmustalsobeconsidered

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CalculationofNPVandIRR

Parameter European Chinese 1 Chinese 2 Chinese 3

Capital cost ($ million) 174 140.5 140.5 140.5

Kiln runtime (%) 90 90 80 80

Margin ($/tonne) 30 30 30 25

Plant life (years) 30 30 30 30

NPV ($ million) 217.6 251.1 207.6 149.6

IRR (%) 20 25 22 18

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CalculationofNPVandIRR

Run7meandmarginclearlyhavingamajorimpact

Otherscenariocanbeconsidered-Shorterplantlife

-Addi7onalcapitalthroughoutplantlife

-Furtherreduc7oninmargin

Financialanalysisshouldbejustoneofthetoolsinthedecision

makingprocess

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Conclusion

Chinesesuppliedplantswouldappeartobethecheaperplant

Addi7onalcostsneedtobeaddedbackintotheChinesesuppliedprice

Scenarioanalysiscanassistinthedecisionmakingprocesswhenchoosingasupplier

Otherfactorsmustbeconsidered-Availabilityofcapital

-Costoffuelandlabour

-Sparepartsstrategy

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ChineseorEuropean?Capitaland

operatingcostimplicationsfor

newcementplantprojects

MarkMu'erManagingDirectorJAMCEMConsul7ng