Market Update

15 Dec 2005 07:00

Steppe Cement Limited15 December 2005 Steppe Cement Limited Market Update on Proposals to Expand Production Capacity and Financing - 15 December 2005 The directors of Steppe Cement are pleased to update the market on proposals torefurbish the Company's two dry-process clinker production kilns. Clinker Production Capacity Since admission to AIM in September 2005, the Company has continued to operateits four wet-process kilns (numbers 1 to 4) which have a combined annual clinkerproduction capacity of 600,000 tonnes. At the same time the Company hasprogressed with studies to recommence production from its two dry-process kilns(numbers 5 and 6) which have been mothballed since 1995. Each of the dry-process kilns had a clinker production capacity of 1 milliontonnes per annum prior to them being mothballed. The findings of the studies into the dry-process lines and proposals of theCompany arising there from are: Line number 5 which was commissioned in 1975, had some design faults thatrequire the cyclones, kiln and cooler to be rebuilt. The Company proposes tomaintain the crushers, raw materials, coal and cement mills. Filters and controlequipment will be upgraded to western standards. It is anticipated that thissubstantial refurbishment will cost US$73 million inclusive of interest andtaxes during construction and will take 18 to 24 months to complete. The companyhas tendered 3 out of 9 packages and it expects that the kiln will bere-commissioned before the end of 2007. It will have a capacity of 1 milliontons of clinker (1.3 million tons cement). Line number 6 was commissioned in 1983 with an improved design from that used onthe number 5 line and the Company has been advised by its technical consultantsthat it can be refurbished and re-commissioned at a cost estimated atapproximately US$20 million. A project management team has been recruited toundertake this project and work has commenced. Present estimates are that thiswork will be unlikely to be completed before the winter of 2006/7 Onre-commissioning the number 6 line will have a maximum design capacity of 0.8million tons per annum of clinker (1.0 million tons of cement). Financing Proposals for the Expansion of Production Capacity: EBRD loanagreement, proposed bond issue and new equity capitalThe Company has signed a loan agreement with the European Bank forReconstruction and Development (EBRD) whereby EBRD will provide loans of US$35million towards the dry-process kiln refurbishment costs. An agreement has alsobeen signed with Halyk Finance of Kazakhstan, whereby Halyak Finance willdistribute to Kazakh domestic investors two fixed coupon, medium term, Tengedenominated bonds, equivalent in total to US$15 million. The balance required tofinance the two re-furbishment projects, of US$43 million, will be met byinternally generated funds and by a proposed share placing which it isanticipated will raise approximately US$20 million of new equity. The Company has received expressions of interest from several parties wishing tosubscribe to new equity and anticipates that it will complete such an issue nolater than January 2006. The material terms of the two loan facilities are summarised as follows: EBRD (US$35 million principal): Repayment term 10 equal instalments from May2008 to November 2012, establishment fee 1% Front-end plus 0.5% commitment feeon funds not drawn down, coupon LIBOR +3.75%. Halyk Finance (Two tranches of Tenge 1,025 million-equivalent to US$7.5 millioneach principal): Repayment term 5 years, establishment fee 1%, coupon 9%pa. Future Production and Demand During 2005, the shortage of cement production capacity in Kazakhstan was met byimports of 1.5 million tonnes from neighbouring countries. It is anticipated bythe Company that demand will increase further in 2006 and beyond as the KazakhGDP continues to grow in tandem with the increase in production of oil and othercommodities. Kazakhstan's ability to import cement is limited by railwaycapacity and the Company believes that it is vital for the economy of thecountry that it increases its production capacity as quickly as possible. From700,000 tons of cement in 2005 the Company expects to be able to produce 800,000tons in 2006, 1.5 million tons in 2007, and 2.5 million tons in 2008. This information is provided by RNS The company news service from the London Stock Exchange