20-F: Cementos Pacasmayo Reveals Technical Report Summaries for Key Quarry and Plant Operations

Cementos Pacasmayo S.A.A. releases technical report summaries detailing pre-feasibility studies for the Virrila and Tioyacu quarries, and their respective cement plants, outlining mineral resources, reserves, and economic analyses.

Summary

• Cementos Pacasmayo S.A.A. (CPSAA) has released technical report summaries (TRS) for the Virrila Quarry and Piura Cement Plant, and the Tioyacu Quarry and Rioja Cement Plant.
• The reports detail pre-feasibility studies, mineral resource and reserve estimates, mining methods, and economic analyses.
• The Virrila Quarry has measured coquina resources of 20.5 million tonnes and proven coquina reserves of 38.7 million tonnes.
• The Tioyacu Quarry has measured limestone resources of 22.5 million tonnes and proven limestone reserves of 6.3 million tonnes.
• The economic analysis for the Virrila Quarry and Piura Cement Plant projects a net present value (NPV) of 1,730 million soles using a discount rate of 10.79%.
• The economic analysis for the Tioyacu Quarry and Rioja Cement Plant projects a net present value (NPV) of 525 million soles using a discount rate of 10.79%.
• The reports include sensitivity analyses, assessing the impact of changes in cement prices, operating costs, and capital expenditures on NPV and EBITDA.
• The reports also detail environmental studies, permitting, and community engagement efforts related to the quarry and plant operations.

Sentiment

Score: 7

Explanation: The document presents a balanced view of Cementos Pacasmayo's operations, highlighting both positive aspects (e.g., strong market position, compliance with standards) and potential risks (e.g., economic conditions, competition). The overall sentiment is neutral to positive, reflecting the company's established position and ongoing efforts to maintain its performance.

Positives

• Cementos Pacasmayo has mining rights for exploration, development, and production of coquina and limestone to supply its cement plants.
• The company has agreements with local communities for land use associated with quarry operations.
• Cementos Pacasmayo has been complying with ISO-9001 (Quality) standards since 2015 and has implemented Quality Assurance and Quality Control (QAQC) protocols.
• The company has a quality assurance system in its operations that includes sample preparation methods, procedures, analysis, and security.
• The sensitivity analysis shows that the operations are economically robust.
• The company is committed to environmental sustainability and has implemented measures to reduce its environmental footprint.
• The company has a strong relationship with local communities and has implemented social investment programs to address their needs.

Negatives

• The Piura plant stopped its clinker production operations (raw meal milling, coal milling and reception of raw materials) from July to September was to avoid exceeding the strategic inventories (clinker).
• The Piura plant stopped its clinker production operations (raw meal milling, coal milling and reception of raw materials) from March to May and from November to December was to avoid exceeding the strategic inventories (clinker).
• The 2024 production of the Tembladera quarry was lower compared to 2023, due to the limestone requirement of the Pacasmayo plant.
• The 2024 production of the Virril quarry was lower compared to 2023, due to the limestone requirement of the Piura plant.
• 2024 production from the Tioyacu quarry was lower compared to 2023, no blasting activities were carried out from May to September due to delays from the authority for permits for storage, purchase and use of explosives.

Risks

• The company's operations and financial results are dependent on economic conditions in Peru, which are affected by global factors.
• Political instability, social disturbances, and corruption scandals in Peru could have a material adverse effect on the company's business.
• A depreciation or devaluation of the sol could have a material adverse effect on the company's business, financial condition, and results of operations.
• Increased rates of inflation in Peru could have an adverse effect on the Peruvian long-term credit market, as well as the Peruvian economy generally and, therefore, on the company's business, financial condition and results of operations.
• The company is subject to the possible entry of domestic or international competitors into its market, which could decrease its market share and profitability.
• Demand for the company's cement products is highly related to housing construction in northern Peru, which, in turn, is affected by economic conditions in the region.
• A reduction in private or public construction projects in the northern region of Peru would have a material adverse effect on the company's business, financial condition, and results of operations.
• The company's business, financial condition, and results of operations may be adversely affected by increases in energy prices or shortages in the supply of energy, as well as third-party raw materials.
• The company is subject to environmental regulations and may be exposed to liability and political cost as a result of its handling of hazardous materials and potential costs for environmental compliance.
• Social disturbances by local communities may have an adverse effect on the company's business and results of operations.
• International agreements related to climate change may result in an increase in the company's costs.
• Changes in regulations or in the interpretation of regulations may adversely affect the company's business, financial condition, and results of operations.
• Any dispute with the labor unions that represent the company's employees could have an adverse effect on the company's business, financial condition, and results of operations.
• New projects may require the prior approval of local indigenous communities.
• The instruments pursuant to which the company's principal indebtedness was issued contain financial and other covenants, and any default under any of these instruments may have a material adverse effect on the company's financial condition and cash flows.
• Failures in the company's information technology systems and information security (cybersecurity) systems can adversely impact its operations and reputation.
• The company is incorporating artificial intelligence technologies into its processes, which may present business, compliance, and reputational risks.

Future Outlook

The reports project future demand and prices for cement, with a focus on the northern region of Peru. The reports anticipate a moderate growth of 2% in cement shipments is expected in 2025.

Industry Context

The announcement provides insights into the competitive landscape of the Peruvian cement market, highlighting the key players and their regional focus. The reports also address the impact of macroeconomic factors, such as GDP growth, infrastructure development, and housing deficits, on the cement industry.

Comparison to Industry Standards

• The report mentions that Cementos Pacasmayo's global clinker/cement ratio is estimated at 71.5%, below the average value for similar producers globally of approximately 77.6%, according to Getting the Numbers Right (GNR) by the Global Cement and Concrete Association (the GCCA) in 2021.
• The report mentions that Cementos Pacasmayo is the only Peruvian cement company present in the DJS MILA Pacific Alliance Index for 2022.
• The report mentions that Cementos Pacasmayo is the first cement company in Peru to implement Environmental Product Declarations (EPDs) for its Extraforte, Fortimax, and Type I cements.

Management Changes

Legal Proceedings

• President Boluarte is currently under investigation for alleged illegal campaign contributions in2021 and for appointing political allies to public positions, including her brother Nicanor who was recently arrested.

Related Party Transactions

• The company leases a plot of land adjacent to its headquarters to its affiliate, Compaa Minera Ares S.A.C., a subsidiary of Hochschild Mining plc.
• The company provides back office management and administrative services to ASPI, Fossal and Fosfatos del Pacifico.
• The company receives a reimbursement of security services from its affiliate Compaa Minera Ares S.A.C., a subsidiary of Hochschild Mining plc.

Stakeholder Impact

• The company has a strong relationship with local communities and has identified their main needs such as health, education, urban development and local development.
• The company has a social investment program that contributes to dealing with their necessities based on good dialog and compliance with our commitments.
• The communities are a priority for Cementos Pacasmayo S.A.A. For this reason, we promote periodic meetings with their representatives, and we create opportunities for dialog to know their expectations.
• Also, we have established public and private alliances for development projects and programs to contribute to better life quality and strengthen our relations.

Next Steps

• Maintain the QAQC program for exploration, development, and production activities associated with cement production.
• Carry out the geological interpretation of the data generated during the 2023 diamond drilling campaign, which considered the confirmation of reserves in Zone 2 and Zone 4, so that they can be incorporated into the respective models, which will provide them with greater support and robustness.
• Update and standardize the geological model with the information generated by the diamond drilling campaign (Zone 2 and Zone 4), considering that some areas have test wells and other perforations as a source of information.
• Control the stripping ratio during the operation in order to achieve a reduction in production costs.
• It is recommended to continue with the drilling campaigns to finish evaluating the quarry in that direction, so that they can be incorporated into the Mineral Resources and Reserves model, which will provide greater support and robustness to the models.
• Continue geotechnical monitoring of the quarry components to ensure their physical stability.
• Conduct limestone density testing in upcoming studies at the Tembladera quarry.
• It is recommended that for all future diamond drilling campaigns, consider evaluating rock density for each limestone horizon.

Key Dates

Keywords

Cementos Pacasmayo, Cementos Selva, Technical Report Summary, Mineral Resources, Mineral Reserves, Coquina, Limestone, Quarry, Cement Plant, Economic Analysis, Mining, Peru