Cementos Pacasmayo: Cement

THE COMPANY: Cementos Pacasmayo is a cement company based in Peru. The firm has more than 54 years of operating history producing, distributing and selling cement and cement-related materials, such as concrete blocks and ready-mix concrete in the northern region of the country. Its products are primarily used in construction, which has been one of the fastest growing sectors of the Peruvian economy in recent years. The company also produces and sells quicklime for use in mining operations.

Cementos Pacasmayo is Peru’s second-largest cement producer, accounting for 22% of total cement sales in the Peruvian market in 2011. This market in particular is highly regionalised, which means that certain companies are responsible for meeting demand in each part of the country. Cementos Pacasmayo owns two cement production facilities, one in Pacasmayo in the north-west of Peru and another in Rioja in the north-east. Both facilities have a total installed annual production capacity of approximately 3.1m tonnes. The company also owns concession rights to several quarries with reserves of limestone and other raw materials located near its facilities.

The company has developed an independent retail distribution network, known as “DINO”, which consists of over 140 independent retailers with more than 220 local hardware stores in the northern region of the country, through which it distributes the cement products as well as construction materials manufactured by third parties. The company’s distribution strategy has enabled it to build a strong brand recognition among both retailers and end-consumers.

Cementos Pacasmayo has been listed on the Lima Stock Exchange since 1995 and was listed on the New York Stock Exchange (NYSE) in February 2012. The company is majority-owned and controlled by Eduardo Hochschild and together with Hochschild Mining (listed on the London Stock Exchange since 2006) it forms the businesses of the Hochschild Group, which has operated in Latin America for the past 100 years.

Cementos Pacasmayo has experienced strong growth in its cements shipments over the past five years, which has led to the company increasing its market share to 22% in 2011 with PEN656m ($240.4m) in revenues. The company has a solid balance sheet and high levels of liquidity, especially after the issuance of the American Depository Shares on the NYSE which will be invested in several projects that the company has in the pipeline.

DEVELOPMENT STRATEGY: The company is focused on adding production capacity to meet the increasing demand in the northern region. In this sense, the company has three different projects. First, it is installing two new vertical kilns as well as upgrading one of the horizontal rotary kilns at its Pacasmayo facility. These kilns are expected to begin production in the second half of 2012, to increase its installed annual clinker production capacity by 200,000 tonnes. Second, it is doubling the cement production capacity of the Rioja facility, which is currently operating at near full capacity, by installing a new production line that will add 240,000 tonnes of installed annual cement production capacity by the second half of 2012. Finally, it is undertaking pre-feasibility and engineering studies to build a new cement plant in Piura. The project will start operations at the beginning of 2015.

Additionally, Cementos Pacasmayo is developing two non-metallic mining projects, which represent a significant growth opportunity for the company. One of the projects is the concession of fields with identified brine deposits and the other, and more relevant for its potential future value, is its phosphates project. The company has a concession of a field with significant deposits of phosphate rock located in Bayóvar in the northwest of Peru. Phosphate concentrates are mainly sold as a fertiliser nutrient in agriculture. In December 2011 the company sold a 30% equity interest of the project to Mitsubishi, a leading marketer of phosphate-derived products. In connection with the sale, Mitsubishi has entered into an off-take agreement with the company to purchase the production of phosphate ore.