Cecapaz 500ton 08-12-2009_english

S U M A T O R I A

Financing Proposal for the Construction Financing Proposal for the Construction and Start-up of a Cement Production Plant and Start-up of a Cement Production Plant

in La Paz, Cesar, Colombiain La Paz, Cesar, Colombia

August 2009August 2009

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STRICTLY PRIVATE AND CONFIDENTIALSTRICTLY PRIVATE AND CONFIDENTIAL

The objective of the present document is to determine the terms and conditions for the financing of the construction and start-up of a cement plant in La Paz, Cesar, Colombia.

Objective

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Agenda

1. Cement Market Overview in Colombia

2. The Project

3. Projects Total Cost

4. Models General Assumptions

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Market Structure

61.09% 26.66% 10.05%

Others*

2.21%

Colombia counts with an installed capacity of 14.9 million tons/year distributed along the market in the following way:

* Others refers to Cementos del Oriente (0.20%) and Cementos Tequendama (2.01%)

Caribbean region counts with 29% of the total installed capacity with Cementos Argos as its only producer.

Regional Installed Capacity 2008

29.00%

43.07%

23.84%

4.09%

Caribbean Region

Central Region

Western Region

Eastern Region

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51% 35% 13%

Others*

1%

Colombian cement production market counts with three (3) big producers who account for market share as follows:

It’s important to highlight that Cementos Argos and CEMEX control 86% of the Colombian cement production market and own 87.7% of the country’s installed capacity which clearly shows a duopolic market.

Market Structure (cont.)

* Others refers to Cementos del Oriente and Cementos Tequendama

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Plant’s Location Map (Colombia)

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Cement Production

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Mil

lio

n T

on

s

Cement Prod. 6.83 6.60 7.29 7.77 9.92 10.04 11.07 10.46 3.02

2001 2002 2003 2004 2005 2006 2007 2008 2009

Regional Per Capita Consumption

0

50

100

150

200

250

300

2001 2002 2003 2004 2005 2006 2007 2008

Kg

/Hab

itan

t

Santanderes CaribbeanBogotá Central and Eastern Plain landsEastern and Zona Cafetera Colombia

Market Statistics

TACC 6.3%

Cement production in Colombia has grown in the last years at a 6.3% annual rate, boosted by the good time that construction industry experienced and by the development of big projects nationwide.

Colombia has one of the lowest per capita cement consumption of all Latin-America. Within the country, Caribbean region occupies the last place in terms of consumption leaving uncovered a big upside potential to explore this market.

Source: ICPC

Source: ICPC

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Sub-region Per Cápita Consumption

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Kg

/Hab

itan

t

Sub-region 85.9 92.5 84.0 77.9 129.7 124.1 139.9 145.6

2001 2002 2003 2004 2005 2006 2007 2008

Sub-region Shipments

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

Th

ou

sa

nd

To

ns

Sub-region 217.9 235.6 221.3 207.6 361.7 351.9 397.8 418.4 144.8

2001 2002 2003 2004 2005 2006 2007 2008 2009

Market Statistics

TACC 9.8%

TACC 7.8%

The cement sales for the market sub-region (Cesar, Magdalena and Guajira) have duplicated in the last years.

Although the per capita consumption has increased in the sub-region, it still has one of the lowest consumptions in all the Caribbean region.

Source: ICPC

Source: ICPC

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-

2.0

4.0

6.0

8.0

10.0

12.0

Mill

on

es

To

ne

lad

as

Colombia 8.0 9.1 9.5 9.7 10.2

Peru 5.1 5.8 6.2 6.9 7.3

Ecuador 4.1 4.4 4.5 4.8 5.0

Venezuela 6.1 7.2 7.8 8.1 8.5

2006 2007 2008E 2009E 2010E

Movements in Demand According to a market report done by JPM the cement demand grew 13.8% between 2006 and 2007 and it is expected to continue growing in the next years.

Source: JPMorgan Global Equity Research, Building Materials 2008

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Agenda


2. The Project



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Project Description

The project consists y the construction and start-up of a cement production plant in the municipality of La Paz in the northern part of El Cesar, in order to supply the growing demand in the sub-region formed by Cesar, Magdalena and Guajira.

The plant will be located in a sixteen (16) hectares terrain in the outskirts of what today is the city limits of the municipality of La Paz.

The company counts with a environmental license for the cement production given by Corpocesar.

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Project Description (cont.)

The company acquired a 30 hectares limestone mine with the correspondent operating license, just 8 km from where the plant is going to be located. The plant counts with a high quality limestone, suitable for the cement production.

The company also has a concession contract for the exploration and exploitation of a 700 hectares limestone reservoir in San Juan del Cesar, Guajira, just 45 km away from the plan location.

The plant will have leading edge equipments brought from China, and will be capable of producing 500 Tons/day (175,000 tons/year) of cement. It is estimated to be operational by 2012.

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Know-How

The company counts with the required know-how to do all the assembly of the proposed cement plant.

Gerardo Flores Garcia, a project partner, has over 20 years working in the cement industry en its curriculum vitae accredits him as a experienced expert in the sector. The principal expertise that Mr. Gerardo Flores is providing to the project is:

He worked for SAMPER-CEMEX for more than 13 years (1987-2000) where he worked as:

Maintenance Engineer Siberia Plant

Industry Maintenance and Samper Investment Chief

Operation Chief Siberia Plant

Lead Maintenance CEMEX Colombia

Between 2000 and 2007 conducted different kinds of projects among which are: Engineering for a cement plant for Cementos Andino (Betania, San Gil), Concrecem (Sabanagrande), Cementos Argos (Medellin, Caribe Plants) and CEMEX (Colombia, Puerto Rico, Dominican Republic).

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Know-How (cont.)

From 2007 until today he serves as Cementing Ltda.’s CEO where he has developed the following engineering projects:

Basic Engineering New Plant Schrader-Camargo Cement

Detail Engineering Metacaolin Cementos Tequendama

Complementary Structures and Grinding Equipment Manufacturing and Assembly Cement Plant Suesca Cementos Tequendama

Engineering, Fabrication and Assembly New Equipment (Grinding) Cementos del Oriente

Engineering, Fabrication and Assembly New Equipment (Coal Milling) Cementos del Oriente

Basic Engineering New Cement Production Line Cementos del Oriente

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Business Upsides

Market Development Potential:

Colombia has one of the lowest per capita cement consumptions in Latin-America.

There are only two cement producers that supply the sub-region’s demand, CEMEX and ARGOS.

The project introduces new alternatives for the region’s constructors and generates employment.

Aggressive Market Penetration Strategy:

Currently, there is no cement plant or project of constructing one within the sub-region (Cesar, Magdalena and Guajira). The closest plant is located at a 300 km distance.

The company has an aggressive strategy to gain market share, supported by brand acceptance and feasibility studies (Cemento Vallenato ®).

The business upsides are based on the plant’s strategic location, which allows it to enter a market where the demand is covered with production from other Colombian regions

0

50

100

150

200

250

300

350

2000 2001 2002 2003 2004 2005 2006 2007

Brasil Argentina Chile Bolivia Peru Ecuador Colombia Mexico

Source: ICPC

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Business Upsides (cont.)

Operational and Freight Costs’ Optimization:

Plant will be located within the sub-region destined to be its core market.

Local feedstock will be used which reduces freight costs (e.g. the limestone mine, essential feedstock, is located within an eight (8) mile radius of the plants location).

Leading Edge Equipment Technology:

Production processes improvements.

Maximization of plant’s efficiency levels reducing waste production.

Reduction in the energy and fuels consumptions.

Low requirement for future equipment investment.

Adición

CarbónHorno Rotatorio

Enfriador de Parrillas

Molino harina

Filtro de Mangas

Silo de Harina

Molino de Cemento

Filtro de Mangas

Silo para Almacenar Cemento

Torr

e A

cond

icio

nado

ra

Pre

calc

inad

or

Tova

de

empa

cado

ra

de c

emen

to

Molino Carbón

Silo de Carbón

pulverizado

Filtro de Mangas

CalizaArcilla

Mineral de Fe

Carbón

Clínker

Carbón

Empacadora

Yeso

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Price Stability and Construction Industry Extraordinary Market Conditions:

Duopolic Market (CEMEX y Argos)

Collusion is not justified by the small production the plant is going to enter to compete with.

Construction industry has grown almost three (3) times more than Colombia’s GDP in the last years.

The cement shipments in the sub-region have grown 5.2% and 8.7% in 2008 and 1Q09 respectively, compared to a fall in the national shipments of -1.4% and -11.4 for the same period of time.

While the GDP shows a 4.4% CAGR between 2000 and 2007, construction industry presents an 11.6% CAGR for the same period of time.

Award and start-up of many government megaprojects will probably continue stimulating the construction sector.

Crecimiento PIB vs. PIB Construcción

-5.00%

-2.50%

0.00%

2.50%

5.00%

7.50%

10.00%

12.50%

15.00%

PIB 2.92% 1.47% 1.93% 3.86% 4.87% 4.72% 6.84% 7.52%

PIB Const. -3.89% 3.86% 12.35% 13.27% 12.37% 11.76% 14.84% 13.31%

2000 2001 2002 2003 2004 2005 2006 2007

Despachos Colombia vs. Subregión

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

2004 2005 2006 2007 2008

01002003004005006007008009001,000

Despachos Colombia Despachos Subregión

Source: ICPC. Cifras en Miles de Toneladas

Source: Banco de la República

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5 Billones3.4 Billones0.55 Billones1.6 Billones1.2 Billones11.75 Billones

Facilidades PortuariasAeropuerto el DoradoTotal

Mayores Proyectos Gobierno NacionalRuta del SolBogotá-BuenaventuraMedellín-Turbo

COP

Among the government plans is the start-up and development of various megaprojects in the next years, which will boost even more the construction sector.

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Agenda


2. The Project



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Project’s Total Cost

The total equity and debt necessary for the project are: in 2011, COP 25,920.3 MM which are divided in COP 5,184.1 MM Equity and COP 20,736.2 MM Debt. The equity-debt ratio of the fund raising is 14%-86% respectively. This value is obtained from:

Negative EBITDA, COP -639.4 MM (Gross Profit (0) – SG&A)

(-) Working Capital COP -349.4 MM

(-) 500 ton/day total plant cost of COP 24,685.7 MM

(-) Financial Interests COP 944.6 MM

For 2012 the project requires COP 2,973.0 MM obtained from:

Negative EBITDA, COP -1,023.5 MM (Gross Profit (0) – SG&A)

(-) Working Capital COP 98.8 MM

(-) Financial Interests COP 1,850.7 MM

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Project Scheme

Project Finance based on the project's ability to generate cash flows to meet its financial obligations with appropriate coverage ratios.

Cementos y Calizas de La Paz

EQUITY

DEBT

Sources

Fiduciary Agent

Company’s Cash Flows

The company is proposing the previous scheme to be the warranty of the debt. The company’s cash flows enter a fiduciary agent who will be in charge of paying first the debt service and the remaining cash will go to the company.

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Indicative Term Sheet

Debtor Cementos y Calizas de La Paz S.A.

Arranger Sumatoria S.A.

Credit Amount USD 10,500,000.

Term Six Years – 2 year grace period.

Disbursement Date August 2010.

Amortization Semiannual.

Prepay Without Penalty.

Interest Rate 6M Libor + 4%.

Interest Payment Half Expired.

Interest Capitalization None

Resource Uses Equipment Purchase.

Principal Covenants Debt coverage ratios.

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Agenda


2. The Project



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Assumptions

The principal assumptions used in the financial model are the following:

The scenario presented in the financial model can be considered a moderate scenario with the current market conditions in Colombia, specifically in the sub-region destined to be the company’s core market.

We are modeling a cement plant with 500 ton/day production capacity. The market share projection the financial model is assuming is of 40% long run, and a plant use of 58%.

The CapEx was calculated using an exchange rate of USD/COP 2,250

The model assumes the plant becomes operational in 2012.

Source: Calculations done by SUMATORIA

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Price per Package (COP/50kg) 15,497 15,698 16,205 16,395 16,623 16,859 17,104 17,357 17,619 17,891 18,173 18,464 18,766

Market Demand (Thousand Tons) 418.4 278.6 269.6 263.4 259.3 256.5 254.6 253.4 252.5 251.9 251.9 251.9 251.9 251.9 251.9

Annual Production (Thousand Tons) 0.0 0.0 84.3 88.2 92.3 96.8 101.3 101.0 100.8 100.8 100.8 100.8 100.8 100.8

Market Share 29% 30% 32% 34% 36% 38% 40% 40% 40% 40% 40% 40% 40% 40%

Plant Use (%) 0% 0% 49% 51% 53% 56% 59% 58% 58% 58% 58% 58% 58% 58%